Jan 10 2014, 10:41am CST | by Forbes
Gasket manufacturer Garlock Technologies has sued four law firms for fraud as it awaits a bankruptcy judge’s decision on how much money the company must set aside to settle thousands of asbestos claims against it.
Garlock, a division of EnPro Industries, entered bankruptcy in 2010 after its cost of settling asbestos suits skyrocketed from $5,000 per claim past $70,000, in a familiar cycle as other defendants went bankrupt and lawyers escalated their demands against the few remaining solvent manufacturers. Garlock says it owes plaintiffs nothing because its products contained small amounts of a less dangerous form of asbestos; plaintiff lawyers have suggested the firm owes $1.4 billion.
Garlock contends it is the victim of fraudulent claims by plaintiff lawyers who accuse multiple companies of causing their clients’ illness, often with conflicting stories about how their clients got sick. It tried, and failed, to get U.S. Bankruptcy Judge George Hodges in Charlotte, N. Carolina to release client files that it contends would show the fraud. Plaintiff lawyers resisted, saying those files contain confidential medical information.
It filed lawsuits against four prominent asbestos law firms late yesterday, under seal. Those firms are: Belluck & Fox and Shein Law Center in Philadelphia; and Simon Greenstone and Waters & Krause in Dallas. Representatives of those firms weren’t immediately available for comment. The lawsuits, actually adversarial actions in bankruptcy, seek the recovery of money from the firms.
By suing the asbestos lawyers who are suing it, Garlock is following in the steps of CSX, which in 2012 won a $429,000 fraud verdict against Pittsburgh lawyers Robert Peirce and Louis Raimond after uncovering evidence the lawyers had used phony diagnoses from discredited Dr. Ray Harron to fabricate asbestos cases against the railroad. Evidence in that case included internal memos suggesting the lawyers knew Harron was “very, very liberal” with his diagnoses, but, Peirce said in one letter, “even a disputed diagnosis case has some value.”
It isn’t clear what’s in the complaints Garlock filed under seal, but attorney Samuel Tarry with McGuire Woods in Richmond, who represented CSX, told me fake diagnoses lie at the core of most such cases.
“If we’re going to see more of this litigation it’s because there are unfortunately still doctors who are willing to say whatever lawyers ask them to say,” said Tarry, who declined to comment directly on the CSX case because it is on appeal.
Garlock previously accused another law firm of fraud for making conflicting stories about how its client was exposed to asbestos. Plaintiff lawyers accused the company of trying to game its bankruptcy by disrupting long-settled methods of assessing liability based upon previous court verdicts.
“It’s a challenge to prove intent unless you have smoking-gun documents,” Tarry said.
When judges have penetrated that veil, they have found interesting facts. The most important example came when U.S. District Judge Janice Jack demanded the case files for thousands of plaintiffs in silicosis cases and after matching up their Social Security numbers with previous filings found many had already collected payments for asbestosis. Jack, a former nurse, threw out the silicosis cases since the two diseases are virtually never found in the same patient.
Garlock, like other companies, wants to set up a trust to pay future asbestos claims so it can exit reorganization. The dispute with plaintiff lawyers is over how much money should go into that trust.
Asbestos trusts are mostly overseen by plaintiff lawyers and operate in secrecy, making it impossible to match up claims as Judge Jack did to uncover fraud. Solvent companies complain that lawyers target them with suits first, knowing they can later tap the bankruptcy trusts without fear that the trusts will dispute their claims as inconsistent with exposures their clients alleged in suits against the solvent companies. The U.S. House passed a bill last year that would open the trust records but it won’t pass in the Democratic-controlled Senate, where asbestos lawyers are a major source of campaign contributions.
Source: Forbes Business
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