Judge Calls for Additional Scrutiny of Asbestos Trusts

A Wall Street Journal editorial says a bankruptcy court judge’s recent decision should be a reminder to other judges that their courtrooms should not be rubber stamps for plaintiffs’ scams:

The case involves Garlock Sealing Technologies, a gasket maker forced into bankruptcy in 2010 by a flood of bogus claims. Plaintiffs lawyers were insisting that Garlock set aside $1.3 billion for victims of the deadly asbestos-related disease, mesothelioma. Last month federal bankruptcy judge George Hodges instead accepted Garlock’s liability estimate of $125 million and roasted the plaintiffs bar for dishonesty.

Most companies pushed into asbestos bankruptcy have set up trusts to pay claims. Garlock said it had evidence that plaintiffs were filing claims with trusts in which they blamed non-Garlock products for their diseases, even as they blamed Garlock in court. The judge allowed discovery in 15 cases Garlock had already settled, and as the judge wrote, “Garlock demonstrated that exposure evidence was withheld in each and every one of them.”

The trusts were set up to ensure that future victims are compensated, but the opaque system is wired for abuse. They aren’t required to disclose claims, allowing people to collect from the trusts then file lawsuits against still-solvent companies.

The plaintiffs’ lawyers who administer the trusts say the concerns are overblown. One of the lawyers who sued Garlock testified before Congress in March, saying that “defendants have no evidence to support their assertion of fraud by plaintiffs.”

Until now.