** FOR PRINT ONLY ** Courts hold power to shine light on asbestos trusts

Lois Kapila Nov. 8, 2010, 7:19am



While billions of dollars annually are paid from asbestos bankruptcy trusts, its mysterious system of distribution offers almost no oversight as exists in the tort system.

Asbestos litigation expert Lester Brickman said that even with a new and possibly more sympathetic Congress, chances are "remarkably slim" that transparency measures could be enacted to show how lawyers and claimants divvy up more than $18 billion in assets from more than 54 such trusts.

Brickman, a professor at the Benjamin N. Cardozo School of Law, said awareness and criticism over scant information involving the trusts has grown, but not enough to command attention to be seriously considered.

"It is entirely in the hands of the courts," he said.

Brickman has repeatedly criticized the control that plaintiff lawyers have over the trust fund distribution process. He notes that it is impossible to determine the apportionment of asbestos liability when a claimant sues multiple trusts and the settlement fees are not made public.

He said that can lead to plaintiff lawyers obtaining settlements of more than 100 percent of the liability that would be determined in a single consolidated and open trial.

Brickman also said there are few checks on expenses, and no checks on the submission of conflicting work-related histories and evidence to different trust funds.

"This is what might be called colloquially a 'black-box' job run by plaintiff lawyers for their own benefit."

On occasion, there have been instances when defendants have successfully sought information about claims that a plaintiff has previously filed, admits Brickman, but more often plaintiffs "have responded by delaying filing with the trusts until they have finished with their tort system claims and by having the trusts enact bylaws to prohibit providing this information."

Any increases in transparency would need to be initiated by bankruptcy court judges, who may order trusts to provide requisite information to ensure that all those with a legitimate need may have access to the information, he said.

If, as Brickman fears is true in certain cases, "the debtor is in bed with the plaintiffs, then there may be no one with standing to even petition the courts to consider doing so."

According to Brickman, due to the way the system has evolved, bankruptcy courts nearly always agree to the trust structures and distribution procedures that plaintiff attorneys put forward as part of the reorganization plans for the trusts.

Earlier this year, Congressman Lamar Smith (R-Texas) urged the General Accounting Office to investigate the secrecy behind the trusts, saying that some of the trusts appear structured to block attempts to get information about claimants seeking money from multiple trusts or who are suing solvent defendants.

"This lack of transparency appears to foster dishonest claims practices and encourages claimants and their attorneys to seek duplicative payments...," Smith wrote in an April letter to the GAO.

He noted that the U.S. Bankruptcy Code has a presumption in favor of public access to information filed in bankruptcy cases.

Another long-time critic of the lack of attention paid to trust fund management, Kirk Hartley, partner at Childress Duffy in Chicago, dismisses as "nonsense" the argument that secrecy is needed for confidentiality purposes.

"Nobody knows what they [trust fund managers] are doing, or what is being collected from whom," he said.

Despite the considerable sums of money at stake and a system that functions on an "honor" system, nobody is quite sure how it is being allocated, he said.

Asbestos Empire

Rand Corp.'s recent report on asbestos trust fund management highlighted the existence of a dozen or so key players behind the management of these asbestos trust funds.

At more than half of the 26 trusts the authors sampled, was the Kazan, McClain, Abrams, Lyons, Greenwood and Harley firm of Oakland, Calif., which is involved in the oversight and divvying up of combined assets of around $11.6 billion.

Firm founder Steven Kazan's entry into asbestos litigation began in 1974, when he filed a case on behalf of a worker at Johns-Manville's asbestos manufacturing plant in Pittsburg, Calif. Despite the fact that the company would normally have been protected, as workers' compensation was considered the sole remedy for an employee suing an employer, Kazan filed a civil law suit.

The court agreed with Kazan's argument that in cases where an employer aggravates an existing injury known to the employer, an employee may also sue in a civil action, setting a new precedent. Since then, Kazan has been involved in thousands of cases, generally reaching undisclosed settlements out of court.

His repeated mantra has been a commitment to ensure that the pot remains full for future claimants. In the Ortiz vs. Fibreboard Corp. case in the late-1990s, Kazan was among the plaintiff lawyers who agreed to a no opt-out $1.54 billion "global settlement" with Fibreboard.

Some academics objected to the agreement, including Boston University law professor Susan P. Koniak who noted at the time in the American Bar Association journal that if the deal had been as good as Kazan and others suggested, they would not have settled their own clients' pending claims separately: "This is a scam where the companies say, 'We'll pay off your real clients, if you give us a deal on all future claims."

Kazan, quoted in the same journal, defended the action by noting that, on the contrary, it had been an "all-or-nothing situation"-- the only way to ensure that there would be anything left for future claimants. In the end, the U.S. Supreme Court overturned the settlement, ruling in favor of objectors that using class actions as a means for global resolution of the asbestos litigation crisis pushed the federal class action rule too far.

By the mid-1980s, the Kazan firm had decided to file cases only on behalf of workers with serious asbestos-caused disabilities, and those diagnosed with mesothelioma.

Speaking before the Senate Judiciary Committee in 2002, Kazan complained that "other plaintiffs' attorneys are filing tens of thousands of claims every year for people who have absolutely nothing wrong with them. This bankrupts defendants -- who are then not there when it comes time to seek compensation for cancer victims and their families -- and it drains assets of the trusts established to pay the claim of these companies after they reorganize in bankruptcy."

Part of Kazan's high profile stems from his involvement in these debates, and in his organization and sponsorship of conferences worldwide, including through his sister Laurie Kazan-Allen's organization, the International Ban Asbestos Secretariat.

Yet despite his extensive lobbying, lecturing, and moderating, Kazan and other plaintiff lawyers have remained silent on this key issue -- the secrecy surrounding claims payments made by bankruptcy trusts.

Kazan declined an interview to talk about his involvement in the asbestos litigation industry.

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