U.S. Rep. Lamar Smith, the leading Republican on the House Judiciary Committee, today asked the director of the Government Accountability Office to investigate the secrecy behind trusts created to pay asbestos-related claims against bankrupt companies.
In his letter to Acting U.S. Comptroller General Gene Dodaro, the Texas Republican expressed concerns that the trusts -- created under 11 USC §524(g), through the Bankruptcy Reform Act of 1994 -- operate in secrecy, which leads to fraudulent injury claims including double-dipping.
He noted that the U.S. Bankruptcy Code has a presumption in favor of public access to information filed in bankruptcy cases.
"I believe that this principle of openness is no longer being fully implemented for 524(g) trusts, undermining both the tort system and the asbestos trust system," Smith wrote.
Congress intended the asbestos trust system be there to ensure that all present and future claimants have equal access to payments for asbestos-related injuries, he said. But recent litigation, media accounts and legal scholarship indicate that a lack of transparency may be undermining the trust system, he added.
A 2008 article in the Norton Journal of Bankruptcy, he said, shows that the connection between trusts and tort litigation results in overpayments. The trusts have more than $30 billion in assets, experts say.
Critics say the asbestos trust system is unfairly enriching trial lawyers, who have been caught filing claims with multiple trusts on behalf of a single plaintiff.
Smith said some of the trusts appear structured and operated to block attempts to get information about trust claimants who seek money from multi-524(g) trusts or who are suing other solvent defendants.
"This lack of transparency appears to foster dishonest claims practices and encourage claimants and their attorneys to seek duplicative payments by concealing trust recoveries increase the financial burden on solvent tort defendants and other asbestos trusts and thereby unfairly reduce the compensation available to deserving present and future claimants," Smith said.
He pointed to an oft-cited 2007 instance in Ohio, where in Cuyahoga County the California law firm of Brayton Purcell claimed the late Harry Kanania died in 2000 of mesothelioma solely from smoking cigarettes made by Lorillard Tobacco, while simultaneously seeking compensation from multiple asbestos trusts, claiming their products led to Kanania's fatal lung condition.
Cuyahoga County Court of Common Pleas Judge Harry Hanna ultamately revoked the Brayton Purcell firm's admission to the court, citing the firm's legal and ethical lapses in the Kanania case.
"Similar efforts have been discovered in other cases," Smith noted in his letter to the GAO director, adding that the discoveries indicate that "greater transparency likely is needed throughout the entire asbestos trust system."
In an interview last year with Legal Newsline, Lester Brickman, a professor at the Benjamin N. Cardozo School of Law in New York and widely regarded as the nation's leading asbestos legal scholar, said the 524(g) trusts are controlled almost exclusively by plaintiffs' attorneys who profit the most from them.
"The trusts operate as private kingdoms run exclusively by plaintiffs' lawyers except for the (Johns Manville Corp.) trust," Brickman said. "All of the other trusts are piggybanks owned by the plaintiffs' lawyers who can write the rules, or rewrite the rules, according to their needs."