In September, Duro Dyne National Corporation filed for Chapter 11 bankruptcy amid rising asbestos claims. Now the company is facing pressure from the Department of Justice because of who the company appointed to handle its future asbestos trust fund claims.
Duro Dyne, which manufactures sheet metal products and equipment for the heating, ventilating, and air conditioning (HVAC) industry, appointed Lawrence Fitzpatrick, an experienced asbestos lawyer, as its legal counsel for any asbestos-related claims to the company’s post-bankruptcy trust. The trust is meant to pay out claims made by people who hold the company liable for their asbestos exposure and resulting diagnoses, including mesothelioma.
For decades, asbestos trusts have been established by companies to provide victims with money for current and future asbestos claims. To prevent the trust from becoming underfunded, victims are often offered a percentage of the full claim amount. Claim amounts are determined by trust fund administrators, who are separate from the company that started the fund.
In court documents from September 26, the Department of Justice noted that Fitzpatrick has several ties to Duro Dyne, resulting in conflict of interest issues. Among the court’s concerns associated with Mr. Fitzpatrick’s appointment are his experience working with other companies that have asbestos trust funds, which it believes may impact his ability to act independently.
The DOJ also wrote that the position Fitzpatrick would be appointed to is important, and one that should be handled by a person held to the highest standards. Those standards need to be high because this person will be in charge of investigating victims’ claims and ensuring each one has merit. While the court has the power to make the final appointment, there are no procedures or standards to determine a possible legal representative’s eligibility.
“The Debtors would have the Court quickly approve the selection… who was vetted and selected by the very parties he will supposedly be negotiating against,” the DOJ said in its objection. “Although Mr. Fitzpatrick undoubtedly has significant experience in asbestos cases, those very same past and current engagements give rise to numerous connections and potential conflicts that have neither been fully disclosed nor investigated.”
This is the second time in September the DOJ has been involved in bankruptcy proceedings for a company with close ties to asbestos. On September 13, the agency filed a Statement of Interest regarding Kaiser Gypsum, a manufacturer of gypsum wallboard, which filed for bankruptcy in 2016. According to the DOJ’s Office of Public Affairs, Kaiser Gypsum does not currently “have sufficient safeguards in place to prevent fraud and abuse.”
Included in the DOJ’s Statement of Interest for the Kaiser Gypsum case was a study by the RAND Corporation highlighting the concerns associated with poorly maintained trust funds. The study also pointed out several cases where there was a clear lack of oversight and transparency.
In recent years, the DOJ has been acting on its stated intentions to reduce the amount of fraudulent asbestos exposure claims made while increasing overall transparency and promoting accountability. These actions, according to the agency, are meant to ensure victims receive the money they’re entitled to.