New Behrens Article Proposes Legislation to Promote Bankruptcy Trust Transparency & Fairness to All Parties

In most cases asserting asbestos-related injuries resulting from alleged exposure, the plaintiffs will also file proof of claims (POCs) with asbestos bankruptcy trusts. These trusts are set up when companies that mined or supplied asbestos or manufactured asbestos-containing products can no longer afford to defend a barrage of costly asbestos-exposure lawsuits and, accordingly, file for bankruptcy. The primary goals of the trusts are to compensate plaintiffs for exposure to products for which insolvent entitles are liable in a less costly and more efficient manner and to hold the culpable parties accountable.

As laid out by Mark A. Behrens’s new law review article, “Asbestos Trust Transparency,” however, as companies break under the weight of an increasing number of asbestos lawsuits and set up these trusts, solvent companies with more attenuated exposure liabilities have more frequently become targets of the plaintiffs in litigation. Accordingly, the plaintiffs in all asbestos litigation across the Untied States regularly (i) delay filing POCs with trusts until after the tort case has been resolved; and (ii) file with trusts evidence of exposure that has not been disclosed to defendants in the claimant’s active lawsuit and often even conflicts with the evidence of exposure in the litigation.

These two developments, which Behrens demonstrates are established trends throughout the country by citing to various studies and analyses, result in the opposite of fair compensation and proper accountability. Specifically, when the plaintiffs delay filing POCs until after their tort actions are resolved and/or do not provide the defendants with inconsistent exposure evidence, the defendants are deprived of their ability to impeach the plaintiffs, apportion fault to bankrupt non-parties and associated set-offs, and the opportunity to prove that bankrupt entities were actually the sole cause of the plaintiff’s asbestos-related injuries. As a result of juries and the defendants lacking complete information contained in POCs, “solvent defendants end up paying inflated settlements and awards that disadvantage those defendants and future plaintiffs.”

Notably, the Department of Justice has launched an investigation into these abuses of the asbestos bankruptcy trust system. For details, see here. But to address these abuses of a system set up to achieve efficient justice (or, as one Cleveland judge put it in an order barring a California asbestos plaintiffs’ firm from his court after he found their allegations regularly conflicted with POCs, “effectively open[] a Pandora’s box of deceit”), Behrens argues, in the long-term, for legislation to be enacted in particular states with substantial amounts of asbestos litigation (California, New York, Missouri, and Illinois), much like that enacted in other states, that requires the plaintiffs to claim expedited compensation from asbestos bankruptcy trusts and allows trust-related exposures and compensation to be properly disclosed to solvent defendants facing personal injury litigation. Moreover, legislation should also provide that POCs are admissible at trial.

Similar legislation has already proven successful in states like Texas and West Virginia, and has debunked several common myths routinely asserted by the plaintiffs in opposition to laws promoting trust transparency: (i) transparency legislation causes delays – to the contrary, it expedites submissions by moving up filing deadlines and allows the plaintiffs to obtain compensation while still alive; (ii) alternative exposure histories are already available through ordinary discovery – to the contrary, the plaintiffs’ memories are regularly refreshed (the exposure occurring decades before) by their lawyers with regard to the products of only solvent defendants; (iii) the right wrongdoers are already held accountable – to the contrary, as shown above, solvent defendants with viable defenses regularly pay inflated verdicts and settlements while bankrupt entities are shielded at trial; (iv) POCs are settlement agreements entitled to protection – to the contrary, courts generally take the view that a POC is more analogous to a complaint since trust payments are fixed by a schedule and are not the result of negotiation; and (v) veterans groups oppose trust transparency – to the contrary, plenty of veterans groups support transparency so future plaintiffs with valid claims are also fairly compensated before a trust runs out of funds.

Behrens convincingly demonstrates that legislation requiring the plaintiffs to timely file POCs with asbestos bankruptcy trusts and to disclose exposure and causation details within these POCs to defendants in tort actions will not harm the plaintiffs. Only then can the disconnect between tort and trust systems in states with substantial asbestos litigation be bridged, providing the plaintiffs with proper compensation and the defendants with a meaningful opportunity to show which entity should provide that proper compensation.