Much has been written about asbestos and its role in the tort, bankruptcy and insurance systems. One aspect of the story has always been a perception of the dubious nature of some claims. Think of the mass medical screenings by doctors employed by lawyers.

But even when there is no dispute that a plaintiff was seriously injured, killed in fact, by exposure to asbestos, issues of causation and relative fault of the many defendants have often clouded the litigation. This issue was clearly on display in In re Garlock Sealing Technologies, LLC, No. 10–31607 (W.D.N.C. Bkrtcy. Ct. Jan. 10, 2014).

Even if you do no asbestos work, you are certainly involved, in some manner, with the civil justice system. The Garlock decision is a good lesson in how the system both works and doesn’t. Joe Nocera, long-time editorial page columnist for The New York Times, described the decision as “breathtaking.” It is.

Garlock produced and sold asbestos gaskets, sheet gasket material and packing used in pipes and valves that transported hot fluids in maritime, refinery and other industrial applications. The company was named as a defendant in countless asbestos suits. In 2010 Garlock Sealing Technologies, LLC and some affiliates filed a Chapter 11 petition. An Asbestos Claimants Committee (“ACC”) was appointed to represent existing asbestos disease claimants against the debtors. The members of the ACC are plaintiffs’ law firms representing those claimants. A Future Claimants Representative (“FCR”) was appointed to represent future asbestos disease claimants. At issue was the creation of a fund for resolution of present and future asbestos-related mesothelioma claims.

The parties had two distinct approaches to this estimation. Garlock offered a “legal liability” approach. This considered the merits of the claims in the aggregate based on the projected number of claimants and their likelihood of recovery. The ACC and FCR offered a “settlement approach.” This was based upon an extrapolation from Garlock’s history of resolving mesothelioma claims. These two approaches produced staggeringly different estimates. Garlock’s estimate was about $125 million and the ACC/FCR estimates were $1–1.3 billion.

The bankruptcy court concluded that Garlock’s aggregate liability for present and future mesothelioma claims was $125 million. How and why the court adopted Garlock’s (significantly) lower number is explained in detail in the court’s rather long opinion. The opinion sets forth the court’s decision following a hearing that took place over seventeen trial days that included 29 witnesses and hundreds of exhibits.

One aspect of the court’s decision comes under the category: “social science” evidence relating to practices in asbestos tort litigation. This is discussed here.

By the account of even an opposing expert, Garlock, as a gasket manufacturer, was not a significant asbestos defendant. “Nevertheless, Garlock was an active litigant in the tort system for thirty years—until its insurance ran out. During that time it tried to verdict a number of cases: it won defense verdicts in a very high percentage of those trials, but it suffered million-plus dollar judgments in a few cases. Garlock negotiated settlements in over 99% of the twenty thousand mesotlelioma cases in which it was a defendant. Garlock’s evidence at the present hearing demonstrated that the last ten years of its participation in the tort system was infected by the manipulation of exposure evidence by plaintiffs and their lawyers. That tactic, though not uniform, had a profound impact on a number of Garlock’s trials and many of its settlements such that the amounts recovered were inflated.”

How did it come to be that a company, that should have been a minor player in asbestos litigation, was subjected to such significant liability? The court provided a detailed explanation.

“One of Garlock’s primary defenses was to deflect responsibility to other co-defendants. Garlock’s contention was that its encapsulated chrysotile product did not cause injury. Evidence of the plaintiffs’ exposure to other co-defendants products was essential to its defense and its negotiating position.” But Garlock’s ability to lay off its responsibility to other defendants’ ended when bankruptcy removed such companies from the litigation. This was particularly pronounced when a wave of bankruptcies wiped out insulation manufacturers as co-defendants in its cases.

Adding to the problem for Garlock, the court explained, was that often the evidence of exposure to the insulation companies’ products also “disappeared.” This was a result of an effort by some plaintiffs and their lawyers to withhold evidence of exposure to other asbestos products and to delay filing claims against bankrupt defendants’ asbestos trusts until after obtaining recoveries from Garlock and other viable defendants.

For example, the court permitted Garlock to have full discovery in fifteen cases that it had settled for large sums. Garlock demonstrated that exposure evidence was withheld in every one of them. On average plaintiffs disclosed only about two exposures to bankruptcy companies’ products. Yet, after settling with Garlock, these plaintiffs made claims against about nineteen such companies’ trusts. Garlock identified 161 cases during the relevant period where it paid $250,000 or more. The limited discovery allowed by the court demonstrated that almost half of those cases involved misrepresentation of exposure evidence.

Now, compare those cases to ones where Garlock was able to obtain evidence of trust claims that had been filed and use such evidence in its defense at trial. In three such trials, Garlock won defense verdicts and in a fourth it was assigned only a 2% liability share.

Looking at all this evidence the court concluded that “withholding of exposure evidence by plaintiffs and their lawyers was significant and had the effect of unfairly inflating the recoveries against Garlock from 2000 through 2010. The court makes no determination of the propriety of that practice. The only thing that is important for this proceeding is that the practice was sufficiently widespread to render Garlock’s settlements unreliable as a predictor of its true liability. Consequently, Garlock’s settlement and verdict history during that period does not reflect its true liability for mesothelioma in the pending and future claimants.”

In re Garlock Sealing Technologies is a lengthy decision and there is more to it than just this. If you are involved in asbestos claims the full opinion is recommended reading. But even if you are not involved in asbestos per se, the decision is a good lesson in the civil justice system. The tort system failed Garlock. At least now the bankruptcy system is doing what it can to pick up some pieces.