Gasket manufacturer Garlock Sealing Technology was facing a potentially devastating situation in bankruptcy court. Claimants suffering from mesothelioma, a rare and fatal form of cancer linked to asbestos exposure, had asked U.S. Bankruptcy Court Judge George R. Hodges to require Garlock to set aside more than $1.2 billion to resolve their claims.
That figure could have effectively made those claimants the new owners of the company, said Garlock attorney Garland Cassada of Robinson Bradshaw & Hinson in Charlotte. The case was “bet-the-company kind of litigation,” he said.
But the judge rejected the claimants’ figures and instead assessed Garlock’s liability for present and future mesothelioma claims at only $125 million.
Typically in such cases estimates of a company’s liability are based on settlement amounts in past cases. But Hodges concluded that such an analysis would not be reliable here, finding that “those values are infected with the impropriety of some [claimants’] law firms and inflated by the cost of defense.”
Cassada said it was the first time a court has not accepted settlement history as a means for estimating liability. That could shake up the business of mesothelioma litigation, for which companies have set aside more than $30 billion since 1980.
‘Oceans’ dried up
Garlock manufactures gaskets, and some of the ones it formerly made contained asbestos bound in rubber. Users of their gaskets typically wrapped them with asbestos thermal insulation produced by other companies. The gaskets themselves typically release asbestos only when workers scrape away remaining rubber during removal.
Further, the gaskets contain a type of asbestos called chrysotile, which has shorter and thinner fibers than the asbestos used in insulation. While toxic, it is significantly less so than other kinds of asbestos.
In his decision, Hodges said that Garlock’s products resulted in relatively low exposure to asbestos for a small group of individuals and that its legal responsibility for causing mesothelioma was therefore limited, finding it was as “a ‘bucket of water’ would be to the ‘ocean’s volume.’ ”
He noted that prior to the 2000s, Garlock was successful in settling asbestos claims for very small amounts, typically less than it would cost to defend the case. When cases did go to trial, the company was able to deflect the lion’s share of liability to co-defendants that made the insulation surrounding Garlock’s products, something Hodges said was essential to Garlock’s defense and negotiating position.
In the early 2000s, the remaining solvent makers of thermal asbestos insulation went through a wave of bankruptcies, which took them out of the tort system. A trust was established to pay out money to individuals harmed by the bankrupt companies, but plaintiffs increasingly began to turn their attention to Garlock as the sole remaining viable defendant.
The problem for Garlock was that after the other defendants went bankrupt, evidence of plaintiffs’ exposure to other asbestos products often disappeared. Hodges found that some plaintiffs’ law firms “used this control over the evidence to drive up the settlements demanded of Garlock.”
“In the litigation, ‘the ocean’ disappeared,” said Garland Cassada of Robinson Bradshaw & Hinson in Charlotte, one of Garlock’s attorneys. “The strange phenomenon was a lot of claimants couldn’t remember being exposed to the really bad products. When all the products were in the room, juries were able to tell what caused the disease, but when those companies went into bankruptcy, they couldn’t be sued. It made Garlock’s products look more culpable than they were.”
Between 1999 and 2006, Garlock’s average settlement payment increased more than seven-fold. By 2010 it had exhausted its insurance coverage and filed for bankruptcy, seeking to reduce the costs of defending itself against claims and get access to evidence about claimants’ exposure to other asbestos products that it couldn’t get through the tort system.
The court appointed two representatives: one for the more than 4,000 existing claimants and one for the unknown number of future claimants. Their estimates of Garlock’s liability, calculated by extrapolating the amounts Garlock had paid out in previous cases, varied slightly, with the higher estimate checking in at $1.265 billion.
But after 17 days of trial and hearing extensive medical, scientific and economic evidence, Hodges rejected that calculation, concluding that the settlements paid after the 1990s did not accurately reflect the company’s actual liability.
In 15 cases that Garlock had settled for large sums, Hodges permitted the company to go back and conduct full discovery. He found that in every single case the plaintiffs had denied knowledge of exposure to certain other asbestos products, but after the cases were resolved they filed claims with the asbestos trusts and alleged that they were in fact exposed to those products.
Although the cases were just a minute portion of the thousands resolved by Garlock in the tort system, the judge said the fact that all of them contained such demonstrable misrepresentations was “persuasive.”
“The pattern exposed in those cases appears to have been sufficiently widespread to have a significant impact on Garlock’s settlement practices and results,” Hodges wrote. “It appears certain that more extensive discovery would show more extensive abuse. But that is not necessary because the startling pattern of misrepresentation that has been shown is sufficiently persuasive.”
Not an ‘appropriate measure’
Hodges said that the high cost of asbestos injury litigation also made Garlock’s settlement amounts a dubious reflection of its liability, because the cost of trying such cases far exceeded the size of the average settlement.
“There is a clear comfort in relying on a defendant’s own history of valuing claims in the tort system, but a divorce from that process is required in this case,” Hodges said. “The claims resolution history may be an appropriate measure only if it reliably reflects the debtor’s liability, and here it does not.”
Hodges concluded that Garlock’s aggregate liability for present and future mesothelioma claims totaled $125 million. Of that, $25 million reflected liability for pending mesothelioma claims and $100 million reflected liability for future claims.
The court has not yet considered Garlock’s liability for non-mesothelioma asbestos claims, but mesothelioma is the basis for the lion’s share of settlements the company has paid out. Because the disease is caused almost exclusively by exposure to asbestos, it is much easier for people who suffer from it to prove cause-and-effect than those suffering from other diseases.
Mark Nebrig and Dan Clodfelter, attorneys with Moore & Van Allen in Charlotte who represented Garlock’s parent, said Hodges’ decision eliminated the risk that the company might have to be turned over to its asbestos creditors. Further, they said that his conclusion that settlements were not a useful indicator of liability might have a “ripple effect” on other bankruptcy cases.
“No other judge has really done that,” Clodfelter said. “They’ve looked at the settlement method as being the benchmark. [Hodges] opened up the curtain and looked behind the curtain.”
The battle isn’t over, however. Garlock is now trying to recover some of the money it paid out for mesothelioma claims over the years. The company has filed civil fraud and racketeering lawsuits against four law firms who represent mesothelioma claimants, but Cassada declined to comment on that lawsuit.
Travis Moon of Moon Wright & Houston in Charlotte served as local counsel for the asbestos claimants in the bankruptcy case. He was out of the office and could not be reached in time to comment for this story.
The 65-page decision is In re Garlock Sealing Technologies, LLC (Lawyers Weekly No. 14-05-0103). A full opinion digest is available online at nclawyersweekly.com.
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