Garlock’s Bankruptcy Trial Closes – Only Decision on Value of Future Liability Remains

In 2010, Garlock Sealing Technologies filed for Chapter 11 bankruptcy protection seeking the formation of an asbestos trust to assume any future liability related to its manufacture of asbestos-containing gaskets. The case, filed in the U.S. Bankruptcy Court for the Western District of North Carolina, finally went to trial in July and wrapped up after three weeks of testimony. Now, one key decision rests in the hands of Judge George Hodges – how much money will Garlock need to place in trust for future claimants?

Garlock has proposed that they fund the trust with $270 million. Plaintiffs’ attorneys have proposed a higher figure – about $1.3 billion. According to a statement released by Garlock prior to the start of trial, the company has defended more than 900,000 claims over the past 35 years and has paid out over $1.4 billion in settlements and judgments.

One of Garlock’s arguments in favor of their proposed amount is that some plaintiffs’ attorneys are taking advantage of the confidentiality provisions of the asbestos trust system by making claims against the trusts which are inconsistent with the claims made in lawsuits against viable companies – resulting in double dipping of recovery. Interestingly, Judge Hodges has cleared the courtroom of anyone without a confidentiality agreement on at least two occasions and denied the motion of a media outlet to keep the courtroom open. Garlock’s complete argument for a lower liability value, which is based at least in part on the lack of transparency in the asbestos trust system, is itself being obscured by a lack of transparency.

Bankruptcy trusts present an opportunity to quantify future risk and, for that reason, they present as an attractive option to some serial asbestos defendants with seemingly unlimited liability. However, a swing between $270 million and $1.3 billion is obviously of crucial importance. Risky Business will continue to monitor this case and report the court’s decision and how it affects an assessment of whether bankruptcy protection presents a viable risk minimizing option.


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