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
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.