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Wall Street Journal highlights asbestos bankruptcy scams



Tuesday's Wall Street Journal ran a lead editorial (subscription required) chronicling the abusive practices that have so corrupted modern asbestos litigation.

The article led with the recent ruling by the Third Circuit Court of Appeals, In re: Kensington, that disqualified Senior District Judge Alfred M. Wolin from presiding over 3 of 5 consolidated asbestos bankruptcy proceedings, for Owens Corning, W.R. Grace, and USG Corp.

A writ of mandamus to disqualify a judge is an extraordinary remedy, only granted when the reviewing court finds "clear and indisputable evidence" that a "reasonable person" would conclude that a judge's impartiality is in question.

In this case, the court determined that Judge Wolin abused his discretion by relying on a five-member "Council of Advisors" with whom he consulted about the case. The court ruled that two of the five advisors had a clear conflict of interest in that they also served as class counsel for asbestos plaintiffs on parallel but unrelated asbestos bankruptcy proceedings.

Obviously, legal rulings in the case before Judge Wolin could have served as precedents for the other cases in which these advisors held a financial and fiduciary interest. The potential for the advisors to influence Judge Wolin's decisions was broad: one of the advisors compared his function to that of a magistrate judge and admitted to drafting opinions for the judge in each of the five consolidated asbestos bankrupcty cases.

In practice, Judge Wolin reversed essentially every bankruptcy judge decision favorable to the pre-bankruptcy creditors and ruled instead in the plaintiffs' attorneys' favor.

Moreover, Judge Wolin had numerous ex parte meetings (meetings without opposing counsel present) -- literally hundreds of hours with the plaintiffs' attorneys.

I should note that neither the decision, nor the evidence, implies actual impropriety or ethical breach by Judge Wolin; rather, the Appeals court only determined that a reasonable person could question his impartiality. What Judge Wolin's actions do clearly indicate is a lack of good judgment.

Unfortunately, as the Journal editorial makes clear, Judge Wolin's handling of the asbestos bankruptcies before him only scratched the surface of what has become a truly corrupt enterprise.

Under the special bankruptcy provisions Congress created in 1994 for asbestos-related bankruptcies (11 U.S.C. �524 (g)-(h)), plaintiffs' attorneys have engaged in the following strategy:

(1) Collect clients. The plaintiffs firms have their own "screening shop" companies that conduct massive screenings for lung impairments. Although many of the diagnoses are shams, without actual medical impairments or any clear link to asbestos exposure, thousands of claims are bundled together (including some claims with actual merit).

(2) File suit. Usually the suits are filed in a "magnet court" jurisdiction.

(3) Prepackage bankruptcy. Faced with overwhelming odds, companies have rushed to "prepack" bankruptcies to maintain long-term solvency.

(4) Empty the piggy bank. Under the federal bankruptcy provisions, the thousands of sham plaintiffs give voting control to plaintiffs' attorneys, who wholly control the asbestos trust and bankruptcy committees (save for the initial Mansville Trust). They take money on the front end pre-bankruptcy, and afterwards in the form of fees. Non-plaintiffs creditors -- and seriously sick claimants -- are left holding the bag.

Cardozo Law School's Lester Brickman detailed these schemes in more detail in his March talk at the Manhattan Institute, which formed a significant substantive basis for the Journal editorial. For an even deeper look at the corruption of the asbestos process, read Professor Brickman's recent book-length article, "On the Theory Class's Theories of Asbestos Litigation: The Disconnect Between Scholarship and Reality."

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Rafael Mangual
Project Manager,
Legal Policy
rmangual@manhattan-institute.org

Katherine Lazarski
Manhattan Institute
klazarski@manhattan-institute.org

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.