Court order promotes transparency in bankruptcy claims filed by asbestos plaintiffs


Earlier this month, U.S. Bankruptcy Judge George R. Hodges entered an order in the Garlock Sealing Technologies case that should provide greater transparency into bankruptcy claim practices in asbestos lawsuits. The order should also assist defendants in asbestos cases to better estimate their liability in future cases and develop new strategies for defense.

On May 6, 2014, Judge Hodges granted Ford Motor Company’s Motion for Access to Rule 2019 Filings submitted in the Garlock case. This ruling allows Ford, along with other defendants and insurers that joined in the motion, to access portions of the Rule 2019 documents filed by asbestos plaintiffs’ attorneys.

In Chapter 11 bankruptcy cases, individuals representing more than one creditor are obligated to disclose the name and address of the creditor, the nature and amount of the claim, and the terms of the representative’s employment. In the Garlock case, many plaintiffs’ attorneys filed documents with the U.S. Bankruptcy Court for the Western District of North Carolina. The documents alleged that their clients had developed an asbestos-related disease as a result of handling Garlock’s products and were therefore creditors entitled to settlements from the company. These disclosures, called Rule 2019 filings, are typically public documents. But asbestos plaintiff attorneys have strongly resisted complying with this requirement in bankruptcy proceedings, and courts have been reluctant to order attorneys to disclose their claims.

In his order, Judge Hodges explained that the 2019 filings in the Garlock case are “public records available for examination” like other documents filed with the court. As such, there is a presumptive right of access for interested individuals. Further, there was no improper purpose for accessing the documents, and Ford demonstrated good cause for seeking access to these records. In an effort to protect individual privacy, he ordered that only the last four digits of an individual’s Social Security number be made available. Additionally, the terms of the attorney-client contracts were privileged and would not be disclosed.

Currently, some attorneys will initially file claims against solvent companies such as Ford, arguing that exposure to their products caused their client’s asbestos-related disease. After recovering from the company, these attorneys file claims against trusts set up by companies that were bankrupted by asbestos lawsuits. In these claims against the trusts, the attorneys allege that their client’s condition is a result of exposure to the bankrupt company’s products. Based on limited discovery already performed in the Garlock case, the practice of withholding relevant exposure evidence from defendants was found in each of the 15 cases studied.

Now that Ford has access to the information in the Rule 2019 filings, it can determine whether plaintiffs suing Garlock have previously sued Ford for asbestos exposure under an alternate theory of causation. It can also adapt its defense strategy in future cases and better estimate its liability in upcoming cases. Further, insurance companies that joined Ford in its motion are interested in pursuing claims against those plaintiffs that collected settlements to pay for medical costs related to their asbestos-related condition but instead billed their insurance companies for their treatment.

The Garlock case is still ongoing. On May 7, 2014, Judge Hodges granted the Official Committee of Asbestos Personal Injury Claimants’ motion to stay his order while it appeals his ruling, effectively delaying Ford’s access to the Rule 2019 documents. Ford has appealed the stay.

The issues at play in this order are of national concern. Congress continues to consider legislation that would promote openness among defendants in asbestos lawsuits. On May 12, 2014, U.S. Senator Jeff Flake (R-AZ) proposed S. 2319, the Furthering Asbestos Claim Transparency (FACT) Act of 2014. The FACT Act is a companion bill to the one passed by the House in November 2013. The Act would require trusts to routinely disclose claimants’ names, exposure history, and the basis for payments while protecting medical records and personally identifiable information. FACT Act supporters believe it will better prevent fraud in asbestos bankruptcy trust settlements while protecting funds for future claimants.

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