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Judge throws manufacturers a lifeline with asbestos ruling

By Tom Hals

WILMINGTON, Delaware (Reuters) - A judge who found what he called a "startling pattern" of abuse by plaintiffs' lawyers may have shifted the landscape of asbestos litigation with a ruling in favor of manufacturers.

In a decree last month, Judge George Hodges said the lawyers had manipulated evidence to get bigger settlements from Garlock Sealing Technologies, a bankrupt maker of asbestos gaskets.

Plaintiffs' lawyers say Hodges, a U.S. bankruptcy judge in Charlotte, North Carolina, ignored precedents built up over years of asbestos litigation.

But manufacturers have seized on his ruling. Already, they have already cited it in at least three other cases in which they are fighting asbestos claims. Meanwhile, Palmyra, New York-based Garlock has filed lawsuits accusing four law firms of racketeering.

The legal maneuvering is at an early stage, but if manufacturers are successful it could become easier for some companies to reduce the payments they make to compensate people suffering from asbestos-related cancers.

"Judge Hodges' decision should have plaintiffs' firms on the defensive in more ways than one," lawyers at the corporate law firm Debevoise & Plimpton wrote in a note to clients.

Asbestos. a mineral with a natural resistance to heat, was once commonly used as insulation. Breathing in asbestos fibers is known to cause mesothelioma and other forms of lung cancer, and continues to be blamed for thousands of U.S. deaths annually.

Since the first big lawsuits were filed in the 1970s, asbestos litigation has become the country's largest mass tort, costing more than $50 billion in compensation and legal fees and forcing about 100 U.S. companies into bankruptcy.

FAILED STRATEGY

While asbestos insulation can give off clouds of particles, Garlock gaskets were sealed inside flanges, and its products were made from a less dangerous chrysotile asbestos. The company has consistently argued that its products were highly unlikely to make anyone sick.

For years it defended itself against asbestos claims by shifting blame to more dangerous asbestos insulation that encased its products, which was made by other manufacturers.

The strategy worked until about 2000, when many of the "big dusties," as insulation makers were called, went into bankruptcy under the weight of asbestos claims.

At that point, victims began to claim that Garlock, which was still solvent, was largely or solely to blame for their disease, and Garlock's cost of settling rose sharply. After defending against hundreds of thousands of lawsuits, its insurance ran out in 2010 and it filed for Chapter 11 bankruptcy, under which it continues to operate.

In December 2012, in a move that tort reform advocates say was unprecedented, Hodges, the judge overseeing the bankruptcy, allowed Garlock to investigate what plaintiffs' law firms did after settling with Garlock in 15 cases.

The company discovered every settlement was "infected with the impropriety of some law firms," according to Hodges' January 10 ruling.

Hodges was alarmed that law firms, after settling with Garlock, sought payments from the asbestos trusts of bankrupt insulation manufacturers even though they had identified Garlock as the main or sole cause of a plaintiff's cancer.

As a result, he said, Garlock's history of settlements was tainted and could not be used to determine what the company must set aside for asbestos claims. The plaintiffs wanted $1.3 billion for claims; Hodges ruled $125 million was enough.

Shares of EnPro Industries Inc, Garlock's parent company, rose 20 percent on Hodges' ruling.

Business groups immediately seized on the ruling as a way to try to rein in what they see as abuse by plaintiffs' law firms.

"We hope it will embolden and encourage defendant companies to stand up to the fraud," said Darren McKinney, the director of communications for the American Tort Reform Association, a lobbying group.

In just the last four weeks, asbestos manufacturers have cited Hodges' ruling at least three times. In Rhode Island, the ruling helped to persuade a state judge to reverse course and side with a corporate defendant in an asbestos lawsuit.

And in another case in North Carolina, Ford Motor Co cited Hodges' ruling in a bid to have an asbestos lawsuit against it dismissed.

But perhaps the most important case so far is one in which Bondex International Inc, which made joint compound for home improvement projects. Bondex cited the ruling in a case that could go before the 3rd U.S. Circuit Court of Appeals in Philadelphia.

A decision by that court would bind federal judges in Delaware, New Jersey and Pennsylvania, which have handled many of the largest asbestos bankruptcy cases in the country. The appeals court has not decided whether to hear that appeal.

'EXTRAORDINARY AND EXTREME'

To plaintiffs' attorneys, Hodges has confused what constitutes evidence of exposure that plaintiffs had to present when suing Garlock with the lower requirements needed when seeking a payment from an asbestos trust.

To settle a lawsuit or win in court, plaintiffs have to show evidence that could convince a jury. Trusts, on the other hand, often require plaintiffs only to establish they were at a particular work site.

Natalie Ramsey, a lawyer who represents asbestos claimants in a different case, said Hodges' opinion is "extraordinary and extreme," which she said is why it is garnering so much attention. "But it is also well outside the long history of asbestos bankruptcy jurisprudence," she said.

In his ruling, Hodges described in detail some of the "abuse" uncovered by Garlock's investigation, including the case of an unidentified former U.S. Navy machinist.

According to Hodges, the machinist served aboard a U.S. submarine and obtained a $9 million verdict against Garlock based on exposure to its gaskets.

The machinist was unable during a civil trial to name the maker of any asbestos insulation he was exposed to, Hodges said. Yet his lawyers sought a payment from the bankruptcy trust of Pittsburgh Corning, which made asbestos insulation known as Unibestos, on the machinist's behalf. In all, the machinist's lawyers failed to disclose to the Garlock jury "exposure" to 22 other asbestos products, Hodges wrote.

Peter Kraus, whose law firm represented the machinist, said Garlock has overstated what the investigation revealed.

"There's no Rosetta Stone here that this court uncovered," Kraus said. "What's unprecedented is the outlier decision this judge came up with."

Hodges' chambers said he would not comment on his ruling.

Garlock has sued four law firms and an individual lawyer involved in the 15 cases it investigated, accusing them of violating the Racketeer Influenced and Corrupt Organizations Act by concealing evidence regarding their clients' asbestos exposure.

The law firms were the Shein Law Center of Philadelphia; Belluck & Fox of New York; and Waters Kraus & Paul and Simon Greenstone Panatier Bartlett of Dallas. The individual lawyer was Mark Iola, a partner at Iola Galerston, also in Dallas.

"The new corporate playbook appears to be to sue the lawyers representing the workers and consumers to intimidate them and shift attention away from the decades of bad contact by Garlock and other asbestos industry members," Kraus said.

Representatives of the other firms did not respond to requests for comment.

The case is In Re: Garlock Sealing Technologies LLC, U.S. Bankruptcy Court, Western District of North Carolina, No. 10-31607.

(Reporting by Tom Hals; Editing by Eddie Evans and Douglas Royalty)

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