Law Professor Says DOJ Failed on Asbestos Fraud
By Samuel Knight | September 9, 2011 5:27 pm

A law professor assailed the U.S. Attorney’s office in Manhattan for its handling of an investigation into possibly fraudulent asbestos-related medical diagnoses during congressional testimony Friday.

The department “effectively condones manufacturing medical diagnoses for money on a massive scale,” Lester Brickman, a professor at Cardozo Law School at Yeshiva University in New York, told the House Judiciary subcommittee on the Constitution.

Brickman testified that $21.2 billion has been swindled out of companies and asbestos settlement trusts since 1989 due to the alleged fraud. He called on the subcommittee to ask the Government Accountability Office to provide data on asbestos litigation fraud so the panel can make recommendations to the Department of Justice, which Brickman said has failed to uphold the integrity of the tort system.

A spokeswoman for the Southern District of New York U.S. Attorney’s office had no comment.

Litigation over exposure to asbestos, a cancer-causing material, is the largest tort action in U.S. history, involving hundreds of thousands of claimants. The cases have been extremely lucrative for the plaintiff’s bar, which is a source of campaign cash for Democrats. The subcommittee highlighting the issue is led by Rep. Trent Franks of Arizona, a conservative Republican with a pro-business agenda.

Brickman testified that Manhattan federal prosecutors convened a grand jury in 2004, but “the investigation languished for want of someone to direct it.” The U.S. Attorney then was David Kelley. He was replaced by Michael J. Garcia in 2005, who was in charge until 2008. In 2007, Brickman wrote an op-ed in The Wall Street Journal calling upon Garcia and the Department of Justice to address the issue, which, Brickman claimed, they failed to do.

“Effectively, what law enforcement agencies have done by their inaction is grant lawyers and the medical personnel they hire a special dispensation to commit fraud on a massive scale in certain mass tort litigation,” Brickman said.

Describing the consequences of the asbestos related litigation, Brickman cited a study led by renowned economist Joseph Stiglitz, which found that 60 asbestos related bankruptcies caused 52,000-60,000 people to lose their jobs. They subsequently saw their future earnings and retirement savings diminish, the study said.

Professor Brickman described the problem to be on the scale of such classic frauds as “the Yazoo land frauds, Credit Mobilier, Teapot Dome, the Savings and Loan debacles, WorldCom, Enron and the vast Ponzi schemes that have recently unfolded.”

The idea that asbestos settlements are a serious drag on business, however, was disputed by Charles Siegel, a partner at Waters & Kraus LLP who testified before the panel. The Dallas-based lawyer, who represents plaintiffs suffering from asbestos related injuries, said that companies filing for bankruptcy protection from asbestos lawsuits are protected from closure by section 524(g) of the bankruptcy code; passed by Congress in 1994 to address asbestos related ailments.

“Almost every company to have sought bankruptcy protection due to asbestos liabilities has been able to recover their economic health while also compensating victims of asbestos disease,” he said.

He also defended the legitimacy of asbestos related litigation in general, describing asbestos ailments as “the greatest public health problem of the 20th century.” Seven to eight people die from such illnesses every day, he said.

He also said that amounts awarded to claimants from trusts have also been exaggerated. “The median payment percentage is 25 percent, but some trusts pay as low as 1.1 percent of the value of a claim,” Siegel said.

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