Texas judge sets precedent in asbestos case

Michael Tremoglie Mar. 13, 2012, 4:36am

HOUSTON (Legal Newsline) -- The defense counsel in a Texas asbestos case has filed a motion to "compel settlement trust submissions."

The defendants maintain that plaintiffs were eligible to file claims with several different trusts. State asbestos Multidistrict Litigation Judge Mark Davidson in Houston denied the motion.

The motion was filed Jan. 31 on behalf of Azko Nobel Inc. by the law firm of Segal, McCambridge, Singer and Mahoney in Austin. According to the motion, "MDL discovery requires Plaintiffs to provide information regarding claims made or anticipated to be made with bankruptcy trusts."

This ruling is the first time a defendant has asked that a plaintiff be compelled to make a trust submission.

The request was based on an expert report written by a bankruptcy trust expert. This report indicated the plaintiffs are eligible to receive large amounts of money from trusts that were established by bankrupt companies to pay claims to asbestos victims. These companies were involved in the manufacture, distribution, sales and use of asbestos and asbestos products.

The defendants in the cases wanted to know if there had already been claims against the trust, because the defendants will get settlement credits for any money the plaintiffs received from the trusts. The rule in Texas is that one has to provide information regarding the trusts with which the plaintiffs anticipate filing.

But Davidson said he does not have the authority to compel the plaintiffs to provide the information. He said also this was an issue the state Legislature is in the process of reviewing.

Davidson hears all the MDL asbestos cases in Texas. By ruling this way, Davidson may have set a precedent in Texas that no defendant will be able to compel a plaintiff to make an asbestos trust submission. The net effect is that plaintiffs will only make applications to trusts after the state tort claim has been resolved.

According to critics of this ruling, this will result in plaintiffs collecting settlement funds from both the trusts and the defendants -– solvent companies that were, generally, not involved in manufacturing or distributing asbestos.

If the plaintiffs have not filed trust claims in advance of the state tort case, the defendants not only have to pay the state tort damages but also miss out on settlement credits from the trusts that they are entitled to under state law.

It can also be to the plaintiffs' advantage because when submissions for claims are made to the asbestos trusts plaintiffs have to show information that is pertinent to the state tort trial. This information does not always come out during discovery in the state tort case.

Rochelle Rottenstein, a Long Island, N.Y., attorney who has litigated consumer injury, mass tort and class action lawsuits for 25 years, said she agrees with Judge Davidson's decision.

"In my view, the state court judge was correct in using his discretion to deny defendants' motion to compel the plaintiffs' potential/actual trust claim submission information," Rottenstein said. "Although it's a close call, and some judges have allowed similar motions, the procedural rules in Texas regarding the production of settlement agreements should only pertain to actual agreements -- not anticipated settlement claims, or even claims made (and not agreed to be paid)."

However she also said the defendants' motion was warranted because the defense counsel was doing its job by trying to minimize the client's potential liability through off-sets. But Rottenstein thinks that motions to compel claims information should not be granted automatically and should depend on the actual facts of the case.

Another New York attorney, James Stengel of Orrick, Harrington and Sutcliff, said he has been actively involved in creating a level playing field so that solvent defendants get full credit for liability of bankruptcy.

Stengel primarily represents clients in large, complex and multi-party class action litigation and has handled significant actions involving the chemical, tobacco and medical device industries.

"Solvent defendants deserve to see the full array of exposures and potential claims against bankrupt entities," he said. "There are a variety of ways to do this. If in this instance to compel submission was the answer, that would have been appropriate."

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