Greed may be catching up to asbestos 'prepack' bankruptcy players

By Ann Knef | Apr 21, 2006

For decades asbestos and silicosis litigation has clogged the nation's courts, bankrupted American companies and lined the pockets of plaintiff's attorneys.

As the media continues to follow dubious asbestos and silicosis claims, it has discovered another perversion of the nation's civil justice system.

This time, the Wall Street Journal takes aim at "prepackaged" bankruptcies and uncovers a profound conflict of interest between asbestos defendants and their enemies.

"The facts are rolling out, and nowhere more so than in the case of Congoleum, a leading floor manufacturer that declared bankruptcy in late 2003," the WSJ reports April 11 in "The Great Asbestos Scam."

The report describes how Congoleum -- a "tangential, second tier" asbestos target -- entered into a comfortable "prepackaged" bankruptcy arrangement crafted by asbestos lawyers. The plan proved to be a "cash cow" for the lawyers and a "silver bullet" for Congoleum.

"That one of a 'payoff,' double-dealing and bogus claims by dodgy doctors. More broadly, it is a primer in how a defendant company teamed up with its former enemies in the trial bar in an ingenious plan to enrich both sides -- leaving Congoleum's insurers holding the bag," the WSJ report states.

Congoleum emerged quickly from bankruptcy with its stock price intact, but left its insurer to foot the bill from a special trust fund set up for claimants.

"Under the Congoleum plan, the lawyers would shift their asbestos claims into a special trust that had first dibs on any money," the report states. "Congoleum and its parent, ABI, would contribute $250,000 in cash and a $2.7 million promissory note -- payable 10 years down the line. Congoleum would then breeze in and out of bankruptcy in record time, its shareholders emerging with all of their equity and the company with a clean bill of health."

Last year, federal judge Janis Graham Jack from Texas hammered plaintiff's attorneys and their cohorts for "manufacturing" claims "for money," and ever since the emboldened insurance industry has begun to fight back.

"The insurance community, whose deep pockets paid the asbestos bar's ransom, has mounted an aggressive legal campaign to expose fraud," the report states.

West Virginia has earned its share of asbestos notoriety by way of Bridgeport radiologist Ray Harron, M.D., a diagnosing physician for thousands of asbestsos and silicosis claims.

Harron, labeled "a vital cog" in the nation's multibillion-dollar asbestos and silicosis "lawsuit machine," asserted his 5th amendment privilege when he appeared before a congressional committee investigating asbestos and silicosis fraud last month.

Harron and his son, Dr. Andrew W. Harron of Kenosha, Wisc., and Dr. James Ballard of Birmingham, Ala. -- who were also called to testify -- refused to tell legislators whether they would certify the accuracy of nearly 10,000 silicosis diagnoses on grounds of self-incrimination.

The Wall Street Journal and the New York Times have taken note of Harron's dubious diagnoses.

In a follow-up to Harron's appearance before the congressional committee, the WSJ described the Harrons and Ballard as "lawyered up and hunkered down."

"The dumbstruck docs were a lot more energetic when it came to their assembly-line diagnosis of both asbestosis and silicosis, a disease caused by exposure to silica particles found in construction materials," roared a WSJ commentary on March 13.

More than a decade ago Harron gradually stopped seeing patients and instead focused on reading X-rays and preparing medical reports for asbestos litigants-a practice that paid him handsomely.

A front page article in the New York Times last year painted an unflattering picture of 73-year-old Ray Harron. Credited with making more than 75,000 lung injury diagnoses since the mid-1990s, Harron's harshest critic says they "were manufactured for money."

According to the Times' report, if Dr. Harron had charged $125 per medical report for the 76,224 claims he submitted to the Johns Manville Personal Injury Trust, he would have earned $9.5 million from those claims alone.

As for the Congoleum "prepack," greed may be catching up with the players.

According to the WSJ article, judges, who have to sign off on the prepackaged bankruptcies are increasingly discovering that "most are simply self-enrichment plans."

"Meanwhile, the insurers are arguing that the process has been rigged all along, and needs to start from scratch," the report states. "Judges have been presented with evidence of highly unethical conduct. The next step would be for a few of these judges to start delving into the crux of the matter: the legitimacy of the claims.

"That truly would be the beginning of the end of the great asbestos scam."

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