Thursday, April 07, 2005

Asbestos Bankruptcy: Not As Bad As It Seems?

Who Are The Real Asbestos Cheats?

When not ranting about social security “reform,” the Bush administration has spent the first few months of its second term raving against "frivolous asbestos claims" and passing legislation that ensures that people driven to bankruptcy by high health care costs can’t cheat by declaring bankruptcy.

But just because easy personal bankruptcy corrupts the very essence of what makes America great, the same is, of course, not true when it comes to asbestos companies declaring bankruptcy to avoid paying compensation to the victims of their products.

Stuart Levit and Jeff Milchen have written an article in the American Prospect describing how asbestos companies have exploited bankruptcy laws to avoid compensation victims is particularly interesting. Recognizing that some smaller businesses that have done no more that resell asbestos-containing products have gotten caught up into the web, “Many of the several dozen business bankruptcies -- touted as the tragic results of “runaway lawsuits” -- are examples of corporate planning to shield assets from victims rather than a function of being “broke” in any traditional sense.”

The ability of companies to declare bankruptcy in order to avoid paying asbestos-related compensation is a result of a 1994 law “law permitting bankruptcy protection for companies with asbestos liability -- a major benefit to those with substantial liabilities. This effectively made bankruptcy the most sensible response for many corporations facing asbestos claims."

W. R. Grace is one good example. You will recall that in February the Justice Department indicted W.R. Grace executives alleging that the company had exposed its workers and the community to deadly asbestos for decades with telling people or taking measures to prevent exposure.:
While WR Grace delayed taking any action to protect workers, once they began dying, it wasted little time protecting shareholder assets from the inevitable lawsuits. Between 1988 and 1998, WR Grace executives “eliminated” more than three-quarters of the company’s $6 billion in assets by redistributing them to legally separate entities with no liability to compensate victims or creditors. WR Grace filed for bankruptcy in 2001, after most of its former assets had been removed.

Among other companies using bankruptcy as a shield is Halliburton, which faces $4.3 billion in pending asbestos claims. As of March 2005, its Web site boasts that “Chapter 11 is very good for out investors.” According to Halliburton, nobody goes out of business, business operations don’t change, and bankruptcy allows to it to “cleanse the company” of its asbestos liabilities and keep the company strong.

Senate Majority Leader Bill Frist is among those who blame asbestos litigation for “forcing” Owens Corning into bankruptcy in 2000, and subsequent layoffs at its Granville, Ohio, facility were touted as evidence of litigation’s pernicious effects. However, many jobs terminated were in Owens Corning’s litigation department, not manufacturing or industry. Oh, yes, CEO David T. Brown took home $3.8 million in 2004.
The authors note that WR Grace CEO Paul J. Norris made $5 million last year. Not bad for a company that’s declared bankruptcy.

Meanwhile, the never-ending battle over an asbestos compensation bill continues in the U.S. Senate, with Arlen Specter (R-PA) getting ready to introduce a bill. The prospects for passage remain somewhat cloudy. The insurance companies think Specters $140 billion compensation fund is too high, and are threatening to drop support for the legislation

Levit and Milchen warn, however, that setting a level for any asbestos compensation fund may be premature, given the long (up to 30 year) latency period between exposure to asbestos and the development of disease, and the fact that asbestos is still used in this country in brake linings and other products.