Fraud in Asbestos Litigation

Asbestos, a heat resistant mineral fiber, was commonly used as insulation and in manufactured goods as a fire retardant until it was banned for many of these uses in the 1970s. In 1989, EPA attempted to ban all products containing asbestos under Section 6 of the Toxic Substances Control Act (TSCA), but the rule was remanded by the Fifth Circuit Court of Appeals in the 1991 case Corrosion Proof Fittings v. EPA. Millions have sought compensation from companies for the long-term effects of workplace exposure to asbestos, which include lung cancer, mesothelioma, and non-malignant lung and pleural disorders, which has contributed to the bankruptcy of more than 100 companies, including Garlock, a gasket manufacturer.

Chapter 11 and 524(g) of the federal bankruptcy code permits a company to transfer its liabilities and certain assets to an asbestos personal injury trust, which becomes responsible for disbursing compensation to present and future claimants.  According to a Government Accountability Office (GAO) report, more than 60 trusts have been established since 1988, with about $37 billion in assets. These trusts have paid out $17.5 billion in compensation in over 3.3 million mesothelioma claims.

A recent case, however, has exposed the “massive fraud” routinely practiced in mesothelioma litigation, where demand figures have escalated as more and more of the liable companies file for bankruptcy. In January, a Federal Bankruptcy Court judge from North Carolina reduced the amount the company owed asbestos victims from $1.4 billion to $125 million in response to findings that the victim’s lawyers had inflated claims. The lawyer’s fraud came to light after Judge George Hodges granted Garlock’s attorneys permission to review fifteen old cases which revealed that not only had the victim’s lawyers withheld evidence that their clients had been exposed to asbestos from multiple sources, but that they had filed claims on behalf of the victims with multiple companies. Not surprisingly, the victim’s lawyers argue that Judge Hodges perception of events is inaccurate, claiming that the judge’s radical approach highlights his lack of experience in asbestos litigation.

It is difficult to say whether the 4,000 ex-Garlock employees and the untold number of future victims with asbestos-induced mesothelioma will suffer because of their lawyer’s fraudulent conduct, which resulted in a significantly smaller trust for compensation. Either way, the lawyers will not go without punishment: EnPro, Garlock’s parent company, has responded to the ruling by suing six of the law firms associated with the fraudulent claims.

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