New York Corruption Trial Turns Spotlight On Hefty Legal Fees Related To Asbestos Compensation Trusts

The corruption trial of former Speaker of the New York State Assembly, Sheldon Silver, is pulling back the curtain on some of the cozy relationships and lucrative transactions involving lawyers representing victims of asbestos exposure.

The prosecution in the trial in Manhattan Federal Court is arguing that Silver was involved in a kick-back scheme, where he pocketed finder’s fees totaling $3 million for referring mesothelioma sufferers to a New York law firm. It turns out that the firm, Weitz & Luxenberg, has a special relationship with trusts established by bankrupt asbestos companies to compensate the victims. It sits on 15 trust advisory committees. In some instances, the trusts have paid out awards to some of Weitz’s own clients.

The New York case is hardly the only instance where some trial attorneys have gamed the asbestos compensation system by taking advantage of a lack of transparency surrounding the trusts. In response, some states are moving legislation that will sunshine the process.  In Pennsylvania, Rep. Warren Kampf (R-157) introduced such a bill in June, HB 1428, the Fairness in Claims and Transparency (FaCT) Act. It awaits action in the House Judiciary Committee.

“This bill addresses a loophole in our current system of assessing responsibility for damages in asbestos-related suits which impose job-crushing burdens on many Pennsylvania businesses,” Kampf said.

PMA President David N. Taylor added that besides killing jobs the current system is diverting money from the true victims. “There are people here running a racket, pure and simple,” Taylor said.

Currently, trusts established over thirty years ago to compensate those suffering from asbestos-related diseases -- the deadly lung disease mesothelioma in most cases -- have rightfully awarded billions of dollars to the victims. But some trial lawyers representing victims, or those claiming to be victims, seek multiple awards under the same claim.

The trial lawyers fatten their fees with awards from more than one trust, and with awards through the courts ignorant of any payouts by the trusts. In the courts, the trial lawyers sue “down-the-line” businesses, those with only a minimal association with the original asbestos product. In some instances, lawyers coach their clients to tell one account of their exposure to a trust and another to the courts. They simply don’t reveal to a judge or jury that they are also pursuing compensation through the trusts. Under current Pennsylvania law, there is no language that requires disclosure of any activity or awards related to the trusts.

Case In Point:

Gasket manufacturer Garlock Sealing Technologies has, since its 2010 bankruptcy, become the poster child for this duplicitous practice. Attorneys extracted $1.3 billion in payouts from Garlock for mesothelioma patients until a federal judge investigated and discovered most of the claims were a sham, according to the Wall Street Journal. Judge George Hodges in January 2014 slashed the company’s liability to $125 million and slammed the trial bar for “misrepresenting” the facts. The “double-dipping” was evident in at least 15 separate instances involving Garlock. 

In one case, the plaintiff claimed in court the only asbestos he handled was in Garlock gaskets. Yet he told more than one trust that he regularly handled only raw asbestos. In another instance, the plaintiff told Garlock he’d never worked at the Norfolk naval shipyard, that he never went aboard naval ships, and that he’d never had exposure to insulation in the Coast Guard. Then he turned around and told a trust the exact opposite: that he had worked at the Norfolk shipyard, that he’d been exposed to asbestos aboard naval ships, and that he’d been exposed to insulation while in the Coast Guard.

The other instances followed the same, coached routine: tell one story to the trusts and another one to the courts.

To win awards in the courts the lawyers pull in companies that had nothing to do with the original manufacturing of the asbestos product. The asbestos companies, shielded under federal bankruptcy laws, fund the trusts that can’t be pursued in court as part of the deal that established the trusts in the first place. These down-the-line companies, still in operation and with their capital unprotected by bankruptcy status, may have only warehoused the product or incorporated it into another product.

The Kampf legislation would end this practice by requiring claimants to disclose all asbestos exposure information, and to indicate whether they have submitted a claim based on asbestos exposure to a trust, or are eligible to submit a claim to a trust.

The bill also applies a 2011 Pennsylvania law, the Fair Share Act, to asbestos cases. Under the law, the compensation awarded in liability cases aligns more closely with the actual level of liability. Under the old “joint and several” system, a minor player in a liability case could end up paying the largest share, or even all of the compensation, simply because they had the “deep pockets.”

The legislation helps ensure that the funds in the trusts are there for true victims of asbestos exposure. Its passage would also be a boost to jobs and the economy. According to a recent poll of businesses conducted by the U.S. Chamber of Commerce, 75 percent of corporate attorneys say a state’s lawsuit environment, and asbestos cases are a big part of that, is likely to impact important business decisions at their company, including where to locate or expand.

Bringing asbestos compensation practices into the open benefits us all, but most of all the true victims.