(Article from Insurance Law Alert, September 2018)
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In recent years, a lack of transparency has led to escalating concerns relating to fraud and mismanagement of asbestos trusts. Such problems were highlighted in In re Garlock Sealing Techs., LLC, 504 B.R. 71 (Bankr. W.D.N.C. 2014), a matter specifically referenced in the Department of Justice’s ("DOJ") Statement of Interest (and discussed in our February 2014 Alert).
This month, the DOJ filed a Statement of Interest in In re Kaiser Gypsum Co., No. 16-31602 (Bankr. W.D.N.C. 2016), relating to the management and transparency of asbestos trusts created under 11 U.S.C. § 524(g) of the Bankruptcy Code. The Statement of Interest emphasizes the need for accountability and proper administration of asbestos trusts in order to protect against fraud and abuse. Further, the DOJ states that the government will object to any proposed plan of reorganization that lacks sufficient protections. Although no formal reorganization plan has been approved in the matter, the DOJ indicated that it has filed the Statement of Interest proactively, in order to give the parties time to address its concerns.
The Statement of Interest sets forth several provisions that the DOJ expects to be included in the plan, including the following: provisions to prevent excessive legal fees and administrative costs, provisions to avoid conflicts of interests among members of the Trust Advisory Committee, and provisions that preclude payment to claimants who are unable to establish exposure to the defendants’ products.
The Statement also implicitly addresses the DOJ’s standing to be involved in In re Kaiser Gypsum Co., emphasizing that the federal government is entitled to reimbursement of Medicare payments to trust claimants. The DOJ states:
The United States has a strong interest in ensuring that the trust operates in a transparent manner and complies with its obligations under the (Medicare) statute; that claimants are informed of their potential obligation to reimburse the Medicare program; that the trust’s assets are preserved to the greatest extent possible to pay the claims of legitimate asbestos victims; and that trust assets are not dissipated through payment of fraudulent claims, excessive professional fees, or mismanagement.