A Look at Bankruptcy Rulings as FACT Act Controversy Creeps into Garlock Trial
August 2, 2013
Last week marked the much-anticipated start of Garlock Sealing Technologies’ bankruptcy estimation trial. A federal bankruptcy court in Charlotte, N.C., will determine how much money the gasket, valve and packaging manufacturer must set aside to pay thousands of current and future asbestos claimants. Garlock has proposed setting aside $270 million for the claims, but the claimants’ representatives argue that the company’s liability should be set around $1.2 billion.
With such a wide gap in the liability estimations, there’s little surprise that the trial got off to a dramatic start. The trial is expected to last three weeks. Meanwhile, we’ll look at recent developments in the Garlock trial and the outcomes of two recent bankruptcy cases.
Garlock filed for Chapter 11 bankruptcy protection in 2010 after decades of defending against asbestos lawsuits. Its bankruptcy filing is an attempt to limit further liabilities. But the company staunchly denies responsibility for asbestos injuries and has candidly accused claimants of targeting its cash after other asbestos defendants filed for bankruptcy. The Wall Street Journal reports that Garlock’s pre-trial filings promised that the proceedings will be “a search for the truth.” Meanwhile, the asbestos claimants labeled Garlock’s arguments “artful fiction.”
And so far, the dollar amount isn’t the only thing in dispute during the trial. Garlock and asbestos claimants have butted heads over protecting confidential trust claim information. Judge George Hodges, who is presiding over the trial, has already denied Garlock’s motions to remove confidentiality for some trust information and open related expert testimony to the public. At the start of the trial, Judge Hodges issued an order limiting public access to the courtroom and transcripts when arguments or testimony involve confidential information.
In keeping with that order, the judge temporarily closed the courtroom last Friday for at least three hours of testimony by Larry Brickman. The law professor reportedly testified for Garlock about trust provisions intended to protect confidentiality and allegations of trust abuse and fraud. Judge Hodges decided to limit courtroom access over objections by a Legal Newsline reporter who was covering the trial. Legal Newsline filed a motion on Tuesday to keep the trial open and release all transcripts for the closed portions.
In May, a federal bankruptcy judge in Manhattan approved a bankruptcy reorganization plan that sets aside $946 million to resolve Quigley Co.’s asbestos claims. Judge Stuart Bernstein’s decision came after nine years of bankruptcy proceedings.
Quigley, which was acquired by pharmaceutical giant Pfizer in 1968, manufactured Insulag and other insulation products that contained asbestos. The company amassed billions of dollars in asbestos liabilities before filing for Chapter 11 bankruptcy protection in 2004. At the time, it had been sued by more than 160,000 claimants. During a 2010 trial on its previous reorganization plan, an expert estimated Quigley and Pfizer would face another $2.6 billion in claims over the next four decades. But that plan only proposed a $216 million trust contribution and was rejected by the court.
This bankruptcy is notable because earlier Quigley and Pfizer won a landmark decision to limit the ability of insurers to object to a bankruptcy plan. This decision helped fund the plan with hundreds of millions of dollars in insurance contributions, in addition to Pfizer’s contributions. Pfizer has also reportedly paid $1.25 billion to asbestos plaintiffs separately from the bankruptcy process.
It’s also notable because, in June, the U.S. Supreme Court declined to hear Pfizer’s challenge to a decision from the Second Circuit. That court decided not to shield Pfizer from several asbestos lawsuits filed in Pennsylvania state courts. Pfizer had argued that Quigley’s bankruptcy had protected it from the claims.
Approval from a federal district court is also required before the bankruptcy plan becomes final.
In May, a federal bankruptcy judge in Delaware set Bondex International Inc.’s asbestos liabilities at $1.16 billion. Bondex manufactured a number of products that contained asbestos, including an all-purpose joint compound. It filed for Chapter 11 protection in 2010, and the bankruptcy trial was held earlier this year.
During the estimation proceedings in January, representatives of current and future asbestos claimants estimated asbestos liabilities between $1.1 and $1.25 billion. However, Bondex and its holding company, Specialty Products Holding Corp., estimated liabilities at $300 million to $575 million. They arrived at their estimate by reducing past settlement payments based on claims that:
(i) its products contained only chrysotile asbestos, which was less potent than other types of asbestos; and
(ii) its joint compound was primarily a do-it-yourself product that only exposed users to an extremely small dose.
But Judge Judith K. Fitzgerald rejected these arguments based on video of a worker mixing a dry Bondex product. Her opinion noted that the worker could barely be seen because the product had created so much dust. She ultimately sided with the asbestos claimants in reaching her decision.
According to Mealey’s, Bondex’s parent company, RPM International, Inc., announced plans to appeal Judge Fitzgerald’s decision last month.
Disturbing New Trend in Asbestos Estimation Trials?
Although the Quigley and Bondex cases attracted media attention, they didn’t attract actual media involvement like the recent motion for access in the Garlock trial. The motion raises eyebrows because Legal Newsline is a popular online news outlet for business and tort reform advocates. There are questions about whether it’s really motivated by the First Amendment or by an attempt to mirror the ongoing debate over trust transparency.
Let’s hope these filings don’t become a new trend in bankruptcy estimation proceedings. Let’s also hope they don’t add to the apparent whispering campaign to discredit asbestos claimants and promote the Furthering Asbestos Claims Transparency (FACT) Act.
Meanwhile, Judge Hodges took time from the ongoing Garlock trial this week to deal with Legal Newsline’s filing. He denied the motion on Wednesday, noting that “none of [seven confidentiality orders] have been challenged previously by — any entity,” including Legal Newsline. It remains to be seen whether this side issue will gain further attention during the bankruptcy proceedings.