• F.A.C.T. or Fiction: Can Congress Create Transparency in Asbestos Trusts?
  • March 23, 2015 | Author: David P. Franklin
  • Law Firm: HeplerBroom LLC - St. Louis Office
  • Thirty-six billion dollars. That’s the value of assets in all asbestos-related bankruptcy trusts, according to the United States Government Accountability Office (and that’s 2011 numbers!).[1] With so much money sitting idly by, as the old adage goes, the money is talking. When money talks, the United States Congress listens (that should be another adage).

    “Asbestos litigation has been the longest-running mass tort litigation in U.S. history and arose out of millions of Americans’ lengthy and widespread occupational exposure to asbestos[.]”[2] As asbestos litigation enters its fifth decade, as of 2002, by some accounts, over 730,000 asbestos-related lawsuits have been filed, with close to $50 billion paid in compensation.[3] The future is bleak for asbestos-defendants as experts have estimated that as many as 2.6 million asbestos-related claims could be filed in the next three decades,[4] for a cumulative total of $270 billion in asbestos liabilities.[5]

    For decades, Congress has proposed bill after bill in an effort to reign in or ease the burden facing the asbestos court dockets of our civil justice system. In fact, heeding United States Supreme Court’s recommendation for “a nationwide administrative claims processing regime[,]”[6] Congress introduced the Fairness in Asbestos Injury Resolution Act of 2005, aiming to remove asbestos-related cases from our court system and moving them to a “privately funded, publicly administered” trust fund to compensate asbestos claimants.[7] However, and to the relief of a vast number of asbestos claimants and defendants, the Fairness in Asbestos Injury Resolution Act of 2005 suffered the same unsuccessful fate as much of the proposed legislation before and after.

    While, as a whole, asbestos-relief legislation has proven unfruitful, Congress was able to pass, and President Clinton signed, the Bankruptcy Reform Act of 1994, thereby, permitting, inter alia, for the creation of asbestos bankruptcy trusts.[8] Specifically, the Bankruptcy Reform Act of 1994 introduced subsection (g) to Section 524 of Chapter 11 of the United States Bankruptcy Code, therein permitting asbestos-plagued companies “to channel asbestos-related claims to a trust, which relieves the debtors of uncertainty of future asbestos liabilities and helps achieve the purpose of chapter 11 by facilitating the reorganization and rehabilitation of the debtor as an economically viable entity while providing for an equitable resolution of asbestos-related claims.”[9] In other words, Congress created a mechanism by which a company shackled by asbestos-related liabilities can begin anew by thrusting its asbestos-related liabilities (including future liabilities) into a financed trust.[10]

    According to reports, as of 2011, 524(g) has given rise to the creation of sixty (60) asbestos-related trusts.[11] “As a group, the trusts set up by the bankrupt firms had at the end of 2010 paid about 3.3 million claims valued at $17.5 billion[.]”[12] Unsurprisingly, of the $17.5 billion disbursed from these asbestos trusts, up to 40% has landed in the pockets of trial attorneys.[13] While the sum of money acquired by trial attorneys from these asbestos trusts is far from paltry, the criticisms levied at these asbestos trusts has, in fact, not been the money acquired by attorneys, but rather the fraudulent, inflated, or duplicative checks landing in the mailboxes of claimants.[14] Documented examples and court cases throughout the country have evidenced that too often attorneys are submitting claims for fabricated individuals or collecting a windfall due to the lack of a reporting mechanism required by these asbestos trust.[15] In essence, the fraud being perpetrated has resulted in the stealing of funds that was meant to compensate those individuals who were actually injured.

    The trouble arises from the text-or the lack thereof-of the Bankruptcy Reform Act of 1994. Congress failed to include a mechanism whereby asbestos trusts were to share claims data with each other or with the courts, thereby leaving claimants and plaintiffs’ attorneys to game the system. Asbestos trusts, defendants, and insurance companies are all interested in this information. Asbestos trusts need this information in hopes of remaining solvent to pay those claimants who are actually entitled to payment, and asbestos defendants, in addition to their insurance companies, “are interested in amounts paid to individuals by trusts because these amounts may be used to offset the amounts owed to prevailing plaintiffs by solvent companies.”[16]

    Although claims of inefficiency and possible deception percolated (and worsened), Congress dithered. It wasn’t until 2012, that legislation was proposed[17] by Congress attempting to solve the conundrum caused by the Bankruptcy Reform Act of 1994. The Furthering Asbestos Claim Transparency (“FACT”) Act, reintroduced in 2013,[18] would have mandated asbestos trusts to file quarterly reports with the bankruptcy courts identifying the name of the claimants, and the amount and basis of money paid thereto. While the House passed its version of the FACT Act 221 to 199 (with 5 Democratic votes) on November 13, 2013, the Senate version was stymied by the Democratic majority.[19]

    The 2014 midterm elections brought with it a Republican majority in both the House and Senate and Speaker John Boehner’s promise to prioritize asbestos legal reform.[20] Legislation has yet to be introduced, but a reemergence of the FACT Act is anticipated.

    H.R. 982 (2013)-the legislation passed by the House in 2013-is a minor amendment to Section 524(g), but the ramifications of the amendment are anything but insignificant. Opponents claim the FACT Act is a solution to a “non-existent problem” and would have the affect of disseminating private information of claimants.[21] Proponents maintain that the amendment will thwart fraud, preserve the financial stability of the asbestos trusts for future claimants that deserve compensation, and any perceived problems associated with disclosure are sufficiently and adequately addressed by the plain language of the legislation by requiring the quarterly reports to omit a claimant’s medical records and social security numbers.

    In the over fifty years since the birth of asbestos litigation, prioritizing asbestos relief for both plaintiffs and defendants has never seemed to be a major concern of Congress. However, there’s something deafening about the whisper of thirty-six billion greenbacks that is making politicians on both sides of the aisle generate dust. How that dust settles may depend on how well Speaker Boehner can keep his promises.

    [1] See U.S. Gov’t Accountability Office, GAO-11-819, Asbestos Injury Compensation: The Role of and Administration of Asbestos Trusts at 3 (Oct. 20, 2011) (hereinafter, “GAO Report“).

    [2] Id. at 1.

    [3] Lloyd Dixon & Geoffrey McGovern, Asbestos Bankruptcy Trusts and Tort Compensation, at p. xi, RAND Institute for Civil Justice (2011).

    [4] Laura S. Welch, M.D., Testimony Before U.S. Senate Judiciary Committee (June 4, 2003).

    [5] Jennifer Biggs Angelina, Sizing Up Asbestos Exposure, Mealy’s Litigation Report: Asbestos 16:32-38 (2001).

    [6] Amchem Prod., Inc. v. Windsor, 521 U.S. 597, 628-29 (1997)

    [7] S. 852, 109th Cong. § 2(b) (2005); see also H.R. 1360, 109th Cong. (2005)

    [8] See 1994 U.S.C.C.A.N. 3340, 3350 (“The asbestos trust/injunction mechanism established in the bill is available for use by any asbestos company facing a similarly overwhelming liability.”).

    [9] In re G-I Holdings, Inc., 420 B.R. 216, 270 (D. N.J. 2009); see also 11 U.S.C § 524(g).

    [10] Ben Berkowitz, Special Report: The long, lethal shadow of asbestos, Reuters, May 11, 2012.

    [11] GAO Report at 3 (“In the last decade, with the number of asbestos-related bankruptcies increasing, the number of asbestos personal injury trusts increased from 16 trusts with a combined total of $4.2 billon in assets in 2000 to 60 with a combined totally of over $36.8 billion in assets in 2011.”).

    [12] Dionne Searcey & Rob Barry, As Asbestos Claims Rise, So Do Worries About Fraud, Wall St. J., March 11, 2013.

    [13] Lisa A. Rickard, FACT Act preserves money for future asbestos victims, The Hill, Nov. 11, 2013.

    [14] Id.

    [15] Searcy & Barry, supra.

    [16] GAO Report at 3.

    [17] H.R. 4369, 112th Cong. (2012).

    [18] H.R. 982, 113th Cong. (2013); see also S.2319, 113th Cong. (2014).

    [19] http://clerk.house.gov/evs/2013/roll579.xml

    [20] The Double-Dipping Legal Scam, Wall St. J., Dec. 27, 2014.

    [21] Andrea Drusch, White House rejects asbestos bill, Politico.com, Nov. 13, 2013.