Franks calls out asbestos fraud in House hearing

Michael Tremoglie Sep. 13, 2011, 5:00am


The practice of making duplicate claims from asbestos tort and trust systems was hammered by Rep. Trent Franks (R-Ariz.) during a House subcommittee hearing Sept. 9.

Franks said that asbestos litigation has long been - and continues to be - rife with deception and exploitation, negatively effecting asbestos victims, the legal system and the employment of American workers.

He noted that it has been five years since Congress provided oversight of asbestos litigation. At the time, widespread fraud in mass asbestos screenings was uncovered.

"This massive fraud turned the worst occupational health disaster in U.S. history into one of the country's greatest scandals," Franks said. "Yet despite observers report that the worst abuses of the tort system continue to be central features of asbestos litigation today.

"For instance, according to reports, a new generation of diagnosing doctors has emerged to provide questionable evaluations of asbestos claimants, filling the void left, as physicians, subjected to congressional scrutiny in the mid-2000s, shuttered their asbestos practices."

Franks went on to say that plaintiffs' counsels were abusing state laws in order to find favorable forums for their cases. Trial lawyers are also "aggressively pursuing novel legal theories well outside the bounds of traditional tort law in order to bring cases against solvent firms only tenuously connected to their clients," he said.

Alleging that there has been a longstanding abuse of "enhanced" or "created" product identification, he condemned the practice in which "plaintiffs are coached to identify the products of solvent companies as those they 'remember' being exposed to."

But Franks said that the worst of it is that fraudulent and abusive claims are being filed against asbestos bankruptcy trusts.

The trend seems to be that "claimants are attempting to double-dip into both the tort and asbestos trust systems, often asserting contradictory claims against bankruptcy trusts and solvent companies. Falsified claims and duplicative recoveries unfairly reduce the amount of compensation available to deserving present and future claimants."

The issue of tort versus trust and double dipping is a hot button issue even among lawyers.

Legal Newsline reported Aug. 5 that tension exists between the two compensation systems for asbestos victims - the $30 billion collectively held in asbestos bankruptcy trusts - and the tort system.

The trusts were created to settle asbestos personal injury claims resulting from exposure to asbestos related products mined or manufactured by the corporations. Many corporations subject to these lawsuits were forced to file bankruptcy and subsequently formed trusts. Among the more notable trusts are the Johns-Manville Corporation Trust, which was formed in 1988, and U.S. Gypsum Company which formed a trust in 2006.

The problem that has arisen after the first tier of companies was sued and those that went into bankruptcy formed the trusts is that now "co-defendants," which are tenuously associated with asbestos, are targeted by the trial bar.

Defendants are claiming that plaintiffs who received money from the trusts should not necessarily be getting money from both a trust and a state court case against one of these second tier companies. This is especially true if contradictory evidence exists.

But up until now, getting claimant information from the trusts has been nearly impossible, according to sources familiar with asbestos trusts. There has been a reluctance not only to furnish information about plaintiffs, but information about the structure and flow of funds as well.

Defense counsels have been complaining for quite some time about getting this information. Congress created the trusts to limit the liability from asbestos and make the legal actions run smoothly. But the trusts have become an entity unto themselves.

Professor Lester Brickman, of Yeshiva University's Cardozo School of Law, has been warning about the problems with asbestos trusts for years.

He believes that the lack of transparency in the trust's operations is not the only problem. He wrote, in 2005, that "ethical issues generated by the unprecedented control that a small number of law firms exercise over the creation of asbestos bankruptcy trusts and the procedures for making claims against the trusts."

The issue attracted the notice of Capitol Hill lawmakers last year.

U.S. Rep. Lamar Smith, (R-Tx) requested in April 2010 that the Government Accountability Office (GAO) look into transparency of the trusts. The report is due to be published soon.

His request cited the problem that claimants are making multiple requests from different trusts and suing for damages in the tort system. He said that the trusts were not operating in the spirit in which they were created.

More than 8,500 U.S. companies, which represent 90 percent of American industries, have been sued for asbestos-related claims.

Some of these companies never produced or sold asbestos.

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