Bankruptcy Trusts, Transparency and the Future of Asbestos Compensation
77 Pages Posted: 10 Aug 2013 Last revised: 7 Feb 2014
Date Written: August 8, 2013
As we enter the fifth decade of asbestos personal injury litigation, much of the debate over its immediate future centers on the operations of bankruptcy trusts and their relationship to the tort system. Roughly 100 companies have entered bankruptcy as a result of their unsustainable asbestos liabilities, and, from these bankruptcies, approximately 60 trusts have been established or are in the process of being established. Some critics contend that the trust system is plagued by fraud and abuse; allowing plaintiffs' lawyers to obtain compensation from the trusts for fraudulent claims and to evade relevant discovery obligations under applicable state law. Trust officials and plaintiffs' lawyers counter that the trust system has ample quality control measures in place, plaintiffs routinely comply with their discovery obligations in state tort litigation, and the evidence supporting the critics' allegations is merely anecdotal. Thus, while defendants have advanced various transparency initiatives at the state and federal level as necessary to combat widespread fraud and abuse, trust advocates insist that such proposals are, at best, "solutions in search of a problem" or, at worst, transparent ploys by which defendants hope "to evade responsibility for their own malfeasance."
This article has two primary objectives. First, it provides a detailed assessment of the arguments that are most frequently advanced by the opposing sides. This includes an examination of the linkages between defendant bankruptcies and the liability shares carried by solvent co-defendants, the emerging trend toward authorizing discovery into trust claim forms and materials, and the avenues by which plaintiffs may circumvent these obligations. This discussion also includes a similarly detailed assessment of the most common arguments advanced in support of the trust system and against legislative and other efforts to make the trust claiming process more transparent.
Second, it situates the current debates over the performance of the bankruptcy trust system and its relationship with the tort system in the broader context of ensuring adequate compensation for current and future victims. Drawing upon the tragedy of the commons, this discussion focuses on the question of scarcity; whether the combined resources of the bankruptcy trust system and the tort system are adequate to provide reasonable compensation over time. It explains how the current framework may perversely accelerate scarcity, at least for some plaintiffs. It likewise explains how some proposals may unduly deny plaintiffs access to reasonable means of obtaining compensation going forward and examines recent federal and state legislation to ascertain their potential for doing so.
Keywords: asbestos, bankruptcy, transparency
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