Asbestos Trusts Come Under DOJ Civil Investigation
Share us on: By Alex Wolf
Law360 (October 5, 2018, 7:26 PM EDT) — The U.S. Department of Justice is turning up the heat to ferret out abuses and potential cases of fraud in the country’s multibillion-dollar asbestos bankruptcy trust system.
Beyond conspicuously becoming involved in the bankruptcy cases for companies that entered Chapter 11 to address a mountain of lingering asbestos claims in recent weeks, the Justice Department has also been investigating claimants’ trusts for potential violations of the False Claims Act for failure to reimburse Medicare for victims’ medical treatments.
In demands sent to a number of asbestos trusts, the department has sought information about settlement agreements with claimants, saying it is trying to determine if any FCA violations have occurred.
A notice filed Oct. 1 by a trust set up to assume the asbestos liabilities of Dresser Industries, Halliburton Co. and certain of its affiliates showed it has received a civil investigative demand from the department. Attorney Alfred M. Wolin, a trustee for a number of other trusts established to administer legacy claims against manufacturers of asbestos products, confirmed to Law360 that he has received the same interrogatories.
In its request, the Justice Department asks that the trust provide information identifying a paid claimant, along with details of the individual’s asbestos-related injuries, claim history and settlement payment.
While it’s not immediately clear what will ultimately come of the government’s civil investigation, the U.S. Chamber Institute for Legal Reform, whose studies on questionable asbestos trust claims have been cited by the government in its recent call for greater oversight, said it welcomes the change.
“Evidence of fraud and abuse in asbestos litigation and bankruptcy claims has been evident for years, and we applaud efforts by the Department of Justice to take this corruption seriously,” Lisa A. Rickard, president of the institute, said in a statement. “Asbestos victims, companies and taxpayers are all hurt when the tens of billions of dollars set aside to compensate victims are not distributed in an honest manner.”
A representative for the trust at issue, called DII Industries, did not immediately respond to a request for comment. The trust said in its notice that it “is considering how it will respond to the demand” and has temporarily suspended issuing settlement offers and making claim payments.
Associate Attorney General Jesse Panuccio publicly announced last month that the department would be taking steps “to increase the transparency and accountability of asbestos trusts,” saying “alarming evidence has emerged of fraud and mismanagement” inside of them. While the announcement focused on the Justice Department’s “statement of interest” in the asbestos-centric bankruptcy of former drywall manufacturer Kaiser Gypsum Co., Panuccio said “the department will also investigate conduct related to asbestos trusts that is illegal under federal law.”
To explain its enhanced focus on the administration of asbestos trusts, the department cites a 2014 court decision in In Re: Garlock Sealing Technologies LLC that found that plaintiffs had “withheld exposure of evidence [that] would have mitigated Garlock’s own liability in each and every one of the 15 sample civil asbestos cases” that it investigated to determine the level of fraud
ulent activity in asbestos bankruptcies in general.
Under federal law, a bankrupt company with asbestos liabilities can establish and fund a trust for exposure victims, then channel any related claims to the trust, allowing the debtor to emerge from bankruptcy free from the specter of future lawsuits by those whose exposure symptoms do not manifest themselves until later. These trusts have been set up around the country in the bankruptcies for dozens of old manufacturers.