Judge Sets Garlock’s Future Liabilities at $125 Million; Garlock Sues Plaintiffs’ Firms for Fraud

Garlock Sealing Technologies has been awaiting a U.S. Bankruptcy Court’s determination as to how much money will they will need to place in trust for future asbestos claimants since its bankruptcy trial concluded in August 2013. As previously reported by Risky Business, Garlock filed for Chapter 11 bankruptcy protection in 2010, seeking the formation of an asbestos trust to assume all future liability related to its manufacture of asbestos-containing gaskets. Garlock proposed putting $125 million into that trust; a number of asbestos plaintiffs’ firms, however, wanted about $1.3 billion. In a 65 page order released January 10th, Judge George Hodges adopted Garlock’s estimate and set the company’s future liability at $125 million – a mere 10% of the figure argued by the plaintiffs’ firms.

Judge Hodges explained that the plaintiffs’ lawyers’ “estimates of Garlock’s aggregate liability that are based on its historic settlement values are not reliable because those values are infected with the impropriety of some law firms and inflated by the cost of defense.” Instead, Hodges held, the “best evidence of Garlock’s aggregate responsibility is the projection of its legal liability that takes into consideration causation, limited exposure and the contribution of exposures to other products.”

Judge Hodges expounded on the “impropriety of some law firms” by saying that “while it is not suppression of evidence for a plaintiff to be unable to identify exposures, it is suppression of evidence for a plaintiff to be unable to identify exposure in the tort case, but then later (and in some cases previously) to be able to identify it in Trust claims. It is that practice that prejudiced Garlock in the tort system – and makes its settlement history an unreliable predictor of its true liability.” Hodges concluded that although it “appears certain that more extensive discovery would show more extensive abuse,” it is “not necessary because the startling pattern of misrepresentation that has been shown is sufficiently persuasive.”

Just one day before the ruling was handed down, Garlock filed suit against five prominent asbestos plaintiffs’ firms alleging RICO violations, fraud, and civil conspiracy. Unfortunately, Garlock requested that the complaints be kept under seal to protect confidential bankruptcy information, so little else is currently known.

Although concerns about misrepresentations by plaintiffs’ firms and the practice of double-dipping are at the forefront for the asbestos defense bar, very few defendants ever take action. However, by virtue of entering bankruptcy, Garlock is now in a position of power in that it does not have to worry about retribution from plaintiffs’ firms. Judge Hodges’ decision to limit Garlock’s future liabilities to $125 million dollars is a huge win for the company and, coupled with the strong language used in the decision, may make Garlock’s aggressive strategy a model for future solvent asbestos defendants considering bankruptcy.

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