For First Time, Federal Government Intervenes Directly in Asbestos Bankruptcy Trust

For the first time, the federal government has gotten directly involved in the establishment of a 524g Bankruptcy Trust for a company seeking bankruptcy protection due to the extent of its potential civil liabilities related to asbestos. The federal government put the parties involved in the Kaiser Gypsum bankruptcy on notice that it will “no longer look the other way as lawyers negotiate lenient terms that make it easy for current claimants to get money at the expense of future claimants and federal entitlement programs.”

More specifically, the federal government is asserting its interest in obtaining repayment of Medicare and Medicaid expenses. The government is watching for reorganization terms that make it hard to “ferret out fraud and abuse, including confidentiality requirements that make it impossible to determine how much claimants have been paid and the basis for their claims.” The Justice Department went further in warning that it would be looking for excessive fees, and may not allow claimants to deduct those fees from Medicare and Medicaid reimbursement. Moreover, the federal government wants the plans to include reporting information to Medicare, and notice to claimants of their obligation to repay Medicare liens.

Additionally, the DOJ just filed an objection to assigning a future claimants representative, Lawrence Fitzpatrick, alleging the filing company Duro Dyne has not established his neutrality and appearance of conflicts of interest. The apparent concern is that the cozy relationship between Fitzpatrick and Plaintiffs’ counsel was being used to get quickly in and out of bankruptcy without adequately protecting future claimants, and entitlement programs.

The Justice Department is largely tracking the laws of sixteen states that require asbestos trust transparency in revealing claims information. There is also a federal statute proposal to require similar transparency for all asbestos bankruptcy trusts. It will be interesting to follow how the Justice Department’s involvement affects the terms of the Kaiser Gypsum Bankruptcy Trust, and whether the Justice Department will get involved with existing trusts in an attempt to recoup expenses for federal entitlement programs that are fronting expenses for asbestos claimants.

Banruptcy Trust Transparency Statutes Enacted:

Arizona AZ Rev Stat § 12-782 (2015) Ohio OH House Bill 380 (2011)
Iowa IA Senate File 376 (2017) Oklahoma OK Senate Bill 1792 (2012)
Kansas KS House Bill 2457 (2018) South Dakota SD Senate Bill 138 (2017)
Michigan MI House Bill 5456 (2018) Tennessee TN Senate Bill 2062 (2016)
Mississippi MS House Bill 1426 (2017) Texas TX House Bill 1492 (2015)
Missouri MO House Bill 1645 (2018) Utah UT House Bill 403 (2016)
North Carolina NC Senate Bill 470 (2017) West Virginia  WV Code § 55-7F (2016)
North Dakota  ND House Bill 1197 (2017) Wisconsin WI Act 124 (2013)

Bankruptcy Trust Transparency Statutes Introduced:

California CA Assembly Bill 1056 (2017) New Hampshire NH Senate Bill 335 (2018)
Colorado CO SB18-123 (2018) New York NY Assembly Bill 2511 (2017)
Idaho ID House Bill 177 (2017) Pennsylvania PA House Bill 238 (2017)
Indiana IN House Bill 1061 (2018) South Carolina SC General Bill 452 (2017)
Kentucky KY House Bill 293 (2018)    

Image by Gregory Varnum, CC BY-SA 3.0.