Practice Areas

The Trouble With Trusts

By Kevin O. Kadlec, Esq.

Harry Kananian was born in Cleveland in 1926, and died of mesothelioma in 2000. He had enlisted in the Army in 1944. While in the service, he began smoking Lucky Strike cigarettes given to him by the Army. In 1952, he switched to Kent cigarettes with a Micronite filter because he relied on advertising by Lorillard Tobacco Company that Kent cigarettes were healthier and safer than regular cigarettes. He obtained an accounting degree and spent his life working for a handful of companies as a payroll and inventory clerk. He spent 47 of his 54 years of work in an office with occasional tours through factories for inventory duties. His occupational exposure to asbestos was sparse and he did not work with Asbestos directly.

The factories that Mr. Kananian walked through typically did not have large amounts of asbestos. However, the filters on the Kent cigarettes he smoked from 1952 to 1956 contained crocidolite asbestos fibers. These types of asbestos fibers were rarely used in asbestos containing products in the United States. Crocidolite fibers were found in significant numbers in Mr. Kananian's lungs posthumously through destructive testing and analysis of his lung tissue, which was documented by plaintiff's expert witnesses.

On paper, Mr. Kananian had a good case against Lorillard Tobacco Company. However, because Mr. Kananian had mesothelioma, the door was wide open to pursue the sellers of asbestos containing products regardless of the fact that Mr. Kananian's occupational exposure to asbestos containing products was miniscule. Mr. Kananian filed a lawsuit in California in 2000 against Lorillard Tobacco Company and various other defendants who either sold asbestos containing products or equipment that used asbestos containing components. In June 2001 a wrongful death complaint was filed in Cuyahoga County after Mr. Kananian passed away.

The Kananian case and Judge Harry Hanna gained prominence in this nation's asbestos litigation. The case exposed the stark example of how the growing number of asbestos litigation compensation trust funds established by bankrupt manufacturers and sellers of asbestos containing products have been used by the national plaintiff's bar to benefit their clients and themselves, and to the detriment of the "last man standing" defendants.

In January 2007, Judge Harry Hanna barred a prominent California asbestos personal injury law firm, Brayton Purcell, from practicing before the Cuyahoga County Court of Common Pleas after he found that the firm and one of its partners "failed to abide by our rules." Judge Hanna, in his Order and Opinion, concluded that the lawyers had "not conducted themselves with dignity" and had "not honestly discharged the duties of an attorney in this case." Kananian v. Lorillard Tobacco Company, No. CV 442750 (Ohio Cuyahoga County Com. Pl.; Order Opinion dated Jan. 18. 2007; at 19.)

The Kananian case is unique because it put the spotlight on the problems that inevitably occur when the tort system and the "trust" system meet in an adversarial lawsuit. Mr. Kananian's lawyers had submitted contradictory claims information to different trusts to maximize the estate's recoveries. They told the Johns Manville Trust that Mr. Kananian had been a shipyard worker in World War II and the Eagle-Picher Trust that he was exposed to asbestos insulation as a pipe welder for a year. Mr. Kananian's lawyers told the UNR Trust that Mr. Kananian handled Unibestos insulation at the San Francisco Naval Shipyard. In actuality, the only time that he had passed through that shipyard was as a rifleman on his way to board a troopship to Japan. They claimed to the Celotex Trust that Kananian "made and handled tools of asbestos." The trusts already had paid the estate as much as $700,000 on the basis of these inconsistent claims.

Privately, Mr. Kananian's lawyers admitted that these trust submissions, including those prepared by another law firm, Early Ludwick & Sweeney of Connecticut, were "rife with outright fabrications." To the court, Mr. Kananian's lawyers conceded that the trust forms were inaccurate and misleading. Ironically enough, they sought to keep the trust claim forms from being considered by a jury on those grounds, an argument that the court flatly rejected unless the Kananian family agreed to return all of the money that it had obtained from the trusts on the basis of these bogus claim forms. Judge Hanna was appalled by plaintiff counsel's conduct and revoked the pro hac vice privileges of Mr. Kananian's California lead counsel. The court did not dismiss Kananian's case because there was no evidence that the Kananian family itself had taken part in its attorneys' misconduct.

The Eight District Ohio Court of Appeals and the Ohio Supreme Court let Judge Hanna's ruling stand. Judge Hanna's ruling received national attention for exposing "one of the darker corners of tort abuse" in asbestos litigation - inconsistencies between allegations made in open court and those submitted to trusts set up by bankrupt companies to pay asbestos related claims. As the Cleveland Plain Dealer reported, "Judge Hanna's decision ordering the plaintiff to produce proof of claim forms effectively opened a Pandora's box of deceit . . ." Documents from the six other compensation claims revealed that plaintiff's lawyers presented conflicting versions of how Mr. Kananian acquired his cancer. Emails and other documents from the plaintiff's attorneys also showed that their client had accepted monies from entities to which he was not exposed, and one settlement trust form was "completely fabricated." The Wall Street Journal editorialized that Judge Hanna's opinion should be "required reading for other judges" to assist in providing "more scrutiny of 'double dipping' and the rampant fraud inherent in asbestos trusts."

The Kananian case represents a remarkable lesson on the mischief that inevitably results from the lack of transparency between and among trusts and the tort system. With a recent proliferation of new trusts flush with funds, there is a significant economic value for claimants and their lawyers to assert inconsistent claims against different trusts in order to be qualified by each trust for payment. There is an economic incentive to delay obtaining trust payments until the tort case is resolved to avoid set offs. Plaintiffs' attorneys in Cuyahoga County vigorously avoid providing any evidence from the trust funds. They argue that all trust-related information is protected from discovery as confidential settlement communications under Ohio Evidence Rule 408. See Werts v. Goodyear Tire & Rubber Co., 2009-Ohio-2581.

The plaintiff's bar has been successful in preventing defendants from obtaining evidence from the trusts in many jurisdictions around the country. It is a tactic in a campaign to prevent the defendants from bringing the corporations that created the trusts to the table to pay their fair share of apportioned liability at trial. In Ohio, we have been able to bring transparency to the process of obtaining the trust funds files due to a courageous and righteous decision by our Judge. Our court has modified the Cuyahoga County Asbestos Case Management Order to require the open exchange of bankruptcy trust information. It took some serious abuse of the legal process to uncover these problems. Consequently, the defendants are better off and can now operate in the light of truth and transparency, unlike many other jurisdictions in this country that are struggling with mass asbestos dockets.