Garlock Sealing Technologies LLC, a unit of Charlotte-based EnPro Industries Inc., emerged victorious after a trial with official representatives of asbestos personal-injury claimants, sending the company’s shares up 23 percent in morning trading on Monday.
Adopting the company’s estimate, U.S. Bankruptcy Judge George Hodges in Charlotte, concluded that $125 million is the “reasonable and reliable” estimate of present and future liability for mesothelioma claims.
Hodges rejected the claimants’ methodology and experts’ reports who contended the liability was about 10 times larger, or almost $1.3 billion.
Garlock, based in Palmyra, N.Y., sought Chapter 11 protection in June 2010 and later filed a reorganization plan for full payment of present and future asbestos personal-injury claims. To decide if the plan is feasible and resolve how much must be set aside to deal with claims, Hodges conducted a 17-day trial beginning in July.
Hodges handed down his 65-page opinion on Friday, finding that asbestos victims proposed a faulty methodology to estimate claims. He said claimants’ lawyers previously withheld evidence about the comparative degree of exposure to Garlock’s products, “unfairly inflating the recoveries against Garlock from 2000 through 2010.”
Hodges’s opinion wasn’t filed until after the close of trading on Friday. EnPro’s stock rose 4.3 percent on Friday, closing at $59.21 on the New York Stock Exchange, not far from the $60.89 all-time high on Oct. 25. At 11:35 a.m. on Monday, EnPro’s shares were up $13.95 to $73.16.
Referring to the “impropriety of some law firms,” Hodges said it wasn’t proper to use historical settlements in estimating future liability on account of evidence withheld when the settlements were being made.
In addition to “widespread and significant” withholding of evidence in prior proceedings, the judge said one of the claimant’s experts engaged in “pseudo science,” rendering his report “useless.”
Hodges said it was proper to use Garlock’s method of deciding the degree of the company’s “legal liability” by looking at the merits of claims. He rejected the claimants’ method of using Garlock’s historical settlements to extrapolate how much it would cost to settle present and future claims.
The opinion boils down to Hodges’s conclusion that those who became sick had “relatively low exposure” to Garlock’s products and that the company’s liability should be “relatively de minimus.”
Hodges credited the testimony of a company expert who said a typical claimant would assert liability against 36 manufacturers, including Garlock. Compared with makers of other products that threw off more airborne asbestos, Hodges said Garlock’s values gave “relatively low exposure of a relatively lower potency asbestos to a limited population.”
In substance, Hodges concluded that Garlock had been forced into larger settlements in later years because other makers had gone bankrupt already, leaving Garlock among few remaining targets. Garlock’s problems were compounded because lawyers for plaintiffs withheld evidence about their clients’ exposures to products made by others.
It was the first time in more than 80 asbestos bankruptcies that the court didn’t accept the plaintiffs’ estimate of future claims, Garlock spokeswoman Joan Gartlan said in a statement.
If Garlock implements a reorganization plan paying creditors in full, parent EnPro retains ownership. Garlock previously said it was in bankruptcy “not because it has significant liability.” Rather, the company needed Chapter 11 “because it could not obtain a fair and efficient adjudication of its liability in the tort system after 2000,” Garlock said in a pretrial brief.
Garlock’s plan would be funded by $270 million, “more than double the less than $125 million for which” it could be held liable, the company said.
Neither Elihu Inselbuch, a lawyer for the official claimants’ committee, nor Jonathan Guy, a lawyer for the future claimants’ representative, responded to e-mails seeking comment.
Garlock’s bankruptcy deals with 100,000 asbestos claims. Hodges said about 4,000 claims had been lodged by the outset of Chapter 11. Non-bankrupt affiliates are defendants on 30,000 claims. For details on the Garlock plan, click here for the Nov. 30, 2011, Bloomberg bankruptcy report.
EnPro had assets of $1.42 billion and total liabilities of $849 million on the Sept. 30 balance sheet. Net income for the first three quarters of 2013 was $22.2 million on revenue of $868.7 million.
EnPro makes engineered products, including diesel and natural-gas engines. It has operations in the U.S. and 10 other countries.
The Garlock’s Chapter 11 case is In re Garlock Sealing Technologies LLC, 10-bk-31607, U.S. Bankruptcy Court, Western District of North Carolina in Charlotte.
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