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:

Bankruptcy Trust Transparency Statutes Introduced:

Image by Gregory Varnum, CC BY-SA 3.0.