Asbestos plaintiffs can seek damages in two independent compensation systems: by filing tort claims against solvent defendants and by filing claims with any of the dozens of asbestos bankruptcy trusts established under section 524(g) of the Chapter 11 Bankruptcy Code. These trusts, typically set up by plaintiffs’ attorneys after a defendant enters bankruptcy, exist to compensate injured workers or the families of deceased workers alleging asbestos exposure. Many of the bankrupt entities include manufacturers of the most dangerous asbestos products – friable insulation made from highly potent amphibole asbestos fibers, often used in enclosed spaces such as engine rooms on Navy ships or in heavy industrial environments.
For this reason, plaintiffs’ attorneys have a built-in incentive to withhold information about claimed insulation exposures when suing viable companies that made or worked with products that contained less-potent chrysotile asbestos, in either diluted or encapsulated form. Defense counsel understand that, at deposition and in response to discovery, plaintiffs will try to downplay their work with or around insulation products until obtaining a verdict or settlement check from a solvent defendant, only to immediately file claims with the bankruptcy trusts of those same insulation companies. By that time, it is generally too late for a tort defendant sued for minor exposures to prove that a plaintiff’s work with thermal insulation was the more likely culprit in causing asbestos-related disease.
Background: In re Garlock
For years, defense counsel struggled to convince courts to compel plaintiffs to disclose all details about their exposures to the products of bankrupt asbestos companies, whether submitted in the form of completed claims or saved as “placeholder” claims. Plaintiff attorneys argued, often successfully, that the claims or uncompleted claims constituted privileged attorney-client or work product information.
Then, in January 2014, the U.S. District Bankruptcy Court for the Western District of North Carolina issued its decision in In re Garlock Sealing Technologies, LLC, 504 B.R. 71 (W.D. N.C. Bankr. 2014). Unprecedented in its scope and detail about the secrecy shrouding asbestos bankruptcy submissions, the court in Garlock found that in every one of 15 cases examined, it was “regular practice by many plaintiffs’ firms to delay filing Trust claims for their clients so that remaining tort system defendants would not have that information.” The court uncovered a “startling pattern of misrepresentation” by plaintiffs and their counsel, finding an average disclosure of two exposures to products of bankrupt companies during tort case proceedings, followed by an average of 19 claimed exposures after reaching settlement with the solvent defendant. The court’s findings in Garlock gave defendants a powerful new argument in support of transparency regarding plaintiffs’ asbestos bankruptcy claims.
New Asbestos Bankruptcy Disclosure Requirements in Los Angeles
On June 20, 2014, Judge Emilie H. Elias, presiding judge of Department 324, which manages the asbestos docket in Los Angeles County, held a hearing on a defense motion proposing disclosure requirements for claims to bankruptcy trusts. In April 2015, after months of briefing and argument, the court’s “Case Management Order Requiring Disclosure of Bankruptcy Trust Claims, Claims-Related Materials, and Asbestos Exposure Facts” ordered plaintiffs to respond to new, comprehensive discovery regarding all asbestos exposures, including from products or activities of bankrupt entities. The court specifically rejected any claim of attorney-client or work product privilege. Plaintiffs are prohibited from objecting to or refusing to produce exposure information by asserting that no claims have been or will be made to the bankrupt entities. Plaintiffs are required to disclose “all facts” surrounding the circumstances of exposure, including the brand, manufacturer and supplier of the asbestos-containing product, and when, where and how the exposure occurred. Plaintiffs are further required to disclose any witnesses to the exposure and produce all documents supporting a claim or “reserving a place for a future claim.”
The Garlock decision and the Los Angeles Court’s recent case management order provide effective instruments to force disclosure of plaintiffs’ exposures to the products of bankrupt companies. Even in jurisdictions that have yet to embrace the broad transparency requirements adopted by Judge Elias, defendants can adopt the language of the court-ordered discovery as presumptively valid – particularly against plaintiffs’ firms already familiar with the recent order.