In Asbestos Bankruptcy Settlement, Conflicts and Racketeering Clouds Loom

In the insular world of civil litigation, watershed events usually arrive on an installment plan, trickling in at the pace of... well, at the pace of civil litigation. Yet, sometimes disruption arrives quickly, like last week's landmark settlement agreement between a North Carolina gasket maker called Garlock Sealing Technologies and asbestos victims' attorneys.

While the ink has yet to dry and the court has not considered, let alone approved, of the deal, the nation's asbestos litigation community quickly noted that the announced settlement not only addresses the precedent-setting bankruptcy case but seems to include multiple civil racketeering allegations against high-profile plaintiff's firms.

How high profile? One of the RICO defendants, Dallas attorney Peter Kraus, was hosting a fundraiser and playing golf with President Obama earlier this very month.

The Garlock settlement has multiple implications for the $10 billion/year asbestos-lawsuit industry, which is already among American's longest-running personal injury litigation arenas.

Granted, outside those ubiquitous "if you or a loved one have mesothelioma" advertisements, asbestos litigation remains obscure outside its practitioners. However, in recent years asbestos has expanded into real scandal. For example, when the powerful New York Assembly Speaker Sheldon Silver was convicted of seven federal charges of corruption last year, most of the funds identified as improper payments came from the asbestos industry.

"Garlock" emerged in 2014 when a federal judge in North Carolina took the unusual step of looking into 15 cases that involved bankruptcy trust funds. These federal Trusts, agreed to by both victims and companies and subject to court approval, are supposed to be created to preserve the companies while ensuring asbestos victims receive payments.

Close to 100 trusts have been established over four decades, and presumably are under federal oversight. However, few pay "full value" because of funding shortfalls and the number of payments made. Victims' attorneys say that's because the companies don't pay enough; others say it's because the funds are run by victims' attorneys who have incentives to make payments easy.

In the Garlock case, Reuters reported that the North Carolina judge "... found what he called a 'startling pattern' of abuse by plaintiffs' lawyers" and "may have shifted the landscape of asbestos litigation with a ruling in favor of manufacturers." In a few months, the findings were shifting asbestos litigation nationwide.

In effect, the Garlock core issue is this: Do some victims and their lawyers tell one story in one venue and another someplace else to "double dip" the system? (Hint: yes, some do.)

Victims' attorneys have steadfastly argued that Garlock is just an "outlier" case and that the court ignored decades of precedence. However, the case has survived the appeals process.

In addition, the company also filed civil racketeering lawsuits against four of the firms that have been suing it. The assumption was those cases, brought under the same RICO laws used for prosecution of gangsters, would build out the judge's initial findings.

Which brings us to last week's settlement announcement. A press release issued by Garlock's parent company, the New York-based EnPro, indicated that the resolution would also resolve the separate RICO cases - a move sure to bring questions of conflicts, given that the firms are presumably getting something of value as part of settling their clients' issue. For example, how is it possible that two of the law firms can advise their asbestos-victim clients to settle when part of the bargain includes dismissing RICO-based fraud lawsuits against those same firms?

The EnPro CEO's statement offers a glimpse at the tone of the conflict, saying it will "... achieve complete and total peace with the asbestos plaintiff's bar." Steve Macadam also said the "... comprehensive, consensual settlement will bring us full, complete and permanent relief from asbestos litigation."

Yet another question is whether high-profile and competitive national plaintiff's firms like Simon & Greenstone, Shein Law Center, Belluck & Fox and Waters & Kraus will actually risk the "brand damage" of settling racketeering claims, although certainly there would be no admission of wrongdoing.

The settlement timeline, assuming approvals from the court, projects an exit from the litigation next summer, which would be yet another of those installment plan headline-grabbers.

In the meantime, the legacy of the Garlock case is still being developed, and until at least next summer we can expect allegations of fraud and double-dealing to continue swirling with hundreds of millions of dollars in the balance.