THE BLOG

Dems Must Defend 'Trust' System, Even As Asbestos Trusts Deplete

02/05/2015 03:12 pm ET | Updated Apr 07, 2015

The new Republican-controlled congress rolled up its sleeves and rolled out its agenda over the last week, and along with immigration and budget issues it turns out "asbestos litigation reform" is an apparent priority. The powerful House Judiciary Committee held a formal hearing in Washington in what amounts to a national campaign targeted at bankruptcy transparency - but fueled largely by both a landmark federal case out of North Carolina and the ongoing New York scandal involving the arrest of state assembly Speaker Sheldon Silver.

If there was a "newsmaker" revelation, it was from an accounting firm witness who documented that, since 2009, some 23 bankruptcy trusts have had to reduce payouts to asbestos disease victims and that claims today are being paid at about 50 percent of the rate they were in 2009.

That underscores the urgency of making sure nobody defrauds the funds, say supporters of the "Furthering Asbestos Claim Transparency" (FACT) Act. Generally, the measure would require trust funds, created by bankrupt companies to meet their present and future asbestos liabilities, to file quarterly information about claims. The measure would make it easier for corporate defendants to discover exposures that could not be attributed to their client.

Opponents of the measure, supported at the hearing by more than two dozen actual victims of asbestos disease, pretty much held their own during the House hearings, but stuck to standard arguments like privacy concerns and asking pro-transparency speakers if they would support similar disclosure for corporations. Perhaps it would be even better to offer provisions that protect cancer victims who who might have become unknowing "perjury pawns" just by signing and saying what the attorney's told them to say and sign.

As expected, the "star witness" was a landmark bankruptcy case out of North Carolina that was cited more than 50 times in written and verbal testimony. It involves a gasket maker called Garlock Sealing Technologies and a federal judge ruled that instead of $1.3 million in future payments sought by victim's lawyers, only about $125 million was needed because Garlock's settlement history was inflated by unfair actions from the plaintiff's firms.

That strongly worded judgement and details of 15 specific cases, each showing some level of evidence withholding in the eyes of the judge. An NPR report called it a look inside the "murky" world of asbestos litigation.

One argument for FACT, say supporters, is that victims and their lawyers can "forget" certain exposures at trial only to file claims for those exposures later, or even before, court trials. The Garlock case outlines some fairly outlandish examples.

While the House hearing focused on bankruptcy cases, and as much as "Garlock" is a game-changer in asbestos circles, it is also clear that "tort reform" advocates are energized because the very high-profile arrest of New York Assembly Speaker Sheldon Silver included an asbestos referral scheme. The resulting scandal references Speaker Silvers referral fee arrangement from Weitz & Luxenberg, a major asbestos victims firm, although prosecutors have said the firm did not know about the other alleged actions. We should note that referrals are common practice in asbestos litigation.

But the GOP, perhaps showing restraint or perhaps keeping its powder dry, did not follow the advice of Wall Street Journal columnist Kim Strassel, who wrote that "... Republicans this week reintroduced [FACT] legislation, and if they were savvy, they'd be all over the Silver story. The GOP has long complained about the outsize influence the plaintiffs' bar has on Democrats. What it has failed to do is to make that influence and funding an outright political liability."

"It shouldn't be hard," she added. "The left is forever insinuating that corporate America is awash with crooks and thieves, yet you'd be hard-pressed to find a business sector in recent years that has provided more proof of industrywide malfeasance than the tort bar."

To be sure, nobody believes this FACT legislation has any chance of becoming law anytime soon. President Obama is not going to sign a bill being passionately opposed by the plaintiff bar. So mostly this is about establishing foundations for looming state battles and courthouse arguments.

A key take-away from the hearing is that Democrats must regain the momentum. The GOP will not long ignore the WSJ editorial pages.

And also because, with the prosecutor in Speaker Silver's case saying "stay tuned" and witnesses at the House hearing promising more formerly sealed Garlock documents being released in two weeks, the Republican decision to make asbestos reform a priority is a sign of strength, and Democrats cannot afford to become positioned as the main reason that trust funds are paying 50 cents on the dollar.

CORRECTION NOTE:
In this post, I noted that the arrest of New York Assembly Speaker Sheldon Silver included charges involving referral fees from Weitz & Luxenberg, a major asbestos victims firm. While part of the scandal, that is not part of the formal charges against Speaker Silver. Prosecutors only alleged that Silver had maintained an improper quid pro quo relationship with an asbestos doctor. The U.S Attorney's complaint noted that Weitz & Luxenberg were never told that he was ever going to allocate, or had allocated, any State funding in exchange for client names he referred to the firm. We may have left the impression that referral fees themselves were questioned, when such fees are routine in asbestos litigation. I truly regret any confusion and the offending graf been clarified.