ASBESTOS LITIGATION: Justice Department Targets Asbestos Bankruptcy Trusts


The U.S. Department of Justice (“DOJ”) recently signaled that it intends to prioritize fraud and mismanagement relating to asbestos trusts by filing its first-ever Statement of Interest in the bankruptcy of asbestos trust proceedings for Kaiser Gypsum and by filing an objection to Duro Dyne’s appointment of a well-known plaintiff’s attorney as its Trust Fund Representative.

For decades, asbestos trusts have been established by companies to provide victims with money for current and future asbestos claims. Claim amounts are determined by trust fund administrators, who are separate from the company that started the fund. A March 2018 report by the U.S. Chamber of Commerce’s Institute for Legal Reform estimates that asbestos trusts have paid out about $15 billion to purported victims and still contain $25 billion.

On September 13, 2018, the DOJ filed its first ever Statement of Interest in the bankruptcy of asbestos trusts. The Statement, filed in the U.S. Bankruptcy Court for the Western District of North Carolina in the Chapter 11 proceedings for Kaiser Gypsum, asserts that the proposed trust plans lack adequate safeguards and indicates that the DOJ will object unless the final plan better ensures transparency and prevents fraud.

In the Kaiser Gypsum case, the DOJ argued that the company and a committee of asbestos plaintiffs didn’t build in sufficient safeguards to prevent fraudulent claims against the trust. Its brief echoed years of tort reform allegations that asbestos trusts are rife with abuse and end up funneling unwarranted compensation to plaintiffs’ lawyers, at the expense of current and future legitimate victims.

The DOJ wants more power to see who has filed claims and received payments from the trust as an added safeguard. It has an interest in protecting against fraud to ensure those receiving money reimburse Medicare for benefits received and to prevent fraudulent claims which drain the pool of money that claimants use to reimburse the government insurance program.

As a result of the investigation, Kaiser Gypsum has stated that it will temporarily suspend settlement offers and claims payments.

On September 26, 2018, the DOJ continued its engagement with asbestos trusts when it filed an objection to Duro Dyne’s motion to appoint Lawrence Fitzpatrick – an attorney who has represented future claimants in an array of asbestos bankruptcies – as Trust Fund Representative. Earlier that month Duro Dyne filed for Chapter 11 bankruptcy amid rising asbestos claims

In hopes of getting in and out of bankruptcy, Duro Dyne’s lawyers and plaintiffs’ firms had reached an agreement to establish an asbestos trust funded with $10.5 million in cash, a $13.5 million note, and rights to Duro Dyne’s asbestos insurance coverage.

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