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Koch Industries puts Bestwall unit, a small player in asbestos, in bankruptcy

Legal Newsline, November 4, 2017

By: Daniel Fisher

Koch Industries has put a division of its Georgia-Pacific unit in Chapter 11 bankruptcy after failing to stem a rising tide of lawsuits by mesothelioma victims who attribute their disease to asbestos-containing drywall compound.

Georgia-Pacific’s Bestwall business manufactured the joint compound, commonly known as “mud,” with chrysotile asbestos fibers until 1977. In a court filing explaining the reasons for its Chapter 11 filing, Bestwall said joint compound in total never amounted to more than 1.5 percent of asbestos-containing products sold in the U.S., yet the company is now named in 70-80 percent of all lawsuits over mesothelioma, a cancer that can be caused by asbestos exposure.

It has paid out $2.8 billion since 2000 and $200 million so far this year, yet faces another 64,000 lawsuits.

Koch Industries, which bought Georgia-Pacific for $13 billion in 2005, made the strategic move of filing for Bestwall’s reorganization in the Western District of North Carolina in Charlotte. That court is home to the Garlock Sealing Technologies bankruptcy, where U.S. Bankruptcy Judge George Hodges issued a series of groundbreaking rulings exposing the widespread practice plaintiff lawyers to manipulate the evidence of asbestos exposure against solvent companies before filing conflicting claims with bankruptcy trusts set up by the insolvent ones.

In the Garlock case, Hodges ordered the bankruptcy trusts to turn over lists of claimants so Garlock could identify such “double-dipping” and reduce its own asbestos liability. Bestwall, like many other asbestos defendants, has made use of those files to identify questionable claims, some of which it detailed in its filing Nov. 2.

Among them, Bestwall said it was sued by a plaintiff who denied exposure to any products made by bankrupt asbestos manufacturers. He also was one of three patients in an article by James Dahlgren, a plaintiff expert, that claimed exposure to joint compound alone can cause mesothelioma.

Bankruptcy records later showed that same man claimed exposure to far more dangerous products, including those manufactured by Flintkote, which he specifically denied in his lawsuit against Bestwall. The company said it used identifying information including birth dates to determine that the other two patients in Dahlgren’s article also were exposed to products other than drywall compound, casting doubt on the study that has been used since 2012 to back up lawsuits against drywall compound manufacturers.

Those lawsuits have mounted as companies that manufactured more dangerous products like pipe insulation have gone bankrupt. Bestwall said it has spent $2.9 billion over the past 40 years settling asbestos lawsuits but faced relatively minor costs until the bankruptcy wave started around 2000.

Since then costs have risen from an average of $6 million a year to $160 million a year. So far this year it’s spent $200 million. At a cost of up to $1 million to prepare for trial, the company said, there is no realistic alternative to settling.

Driving the litigation is mesothelioma filings. Between 2013 and 2016, Bestwall settled an average of more than 1,000 meso claims a year, nearly an eight-fold increase from 1999, and routinely settles them in groups of up to 1,500 cases at a time. The increase had “no basis in science or reality,” Bestwall says - “The number of mesothelioma plaintiffs who historically had been exposed to Bestwall products did not change between 1999 and 2001.”

The average payment also climbed in the wake of the bankruptcy wave, rising from $21,000 prior to 2000 to $125,000 post-2000. The company said the increase is implausible given studies, including those by plaintiff experts, showing the chrysotile fibers it used in drywall compound are hundreds of times less dangerous than the amphibole fibers common in pipe insulation and other products.

“The breadth and magnitude of the asbestos litigation pending against Bestwall are wildly disproportionate to any legal liability Bestwall could possibly have, taking into account the type and limited amount of asbestos fibers used in Bestwall’s products and the fact that its products represented only a small percentage of the asbestos-containing products on the market,” the company said.

Georgia-Pacific separated its Bestwall unit in July to try to contain the asbestos liability. It said it plans to reorganize under Section 524(g) of the Bankruptcy Code, which allows asbestos companies to establish a trust to pay claims into the future. It said the trust will be capitalized to pay claims at about the same rate as it is paying now.

The trust would allow Georgia-Pacific to avoid draining costs of defense, which it said hit $40 million this year. Bestwall said it currently retains 50 outside defense firms around the country, and from 2012 to 2016 an average of about 660 attorneys and other staff billed the company 150,000 hours per year.