Advertising, Referring Firms and Bankruptcies

Another controversy surrounds referring law firms versus representing law firms. The internet, T.V., and publication advertising for mesothelioma cases is extremely competitive. It is safe to say that in the last three years, mesothelioma is probably the most advertised litigation in the country today, and remains one of the most expensive words on the internet per click.

Most of the advertising law firms are what is called a referring firm. Some classify these law firms and attorneys as “brokers.” A referring firm or broker is a law firm or individual lawyer who advertises across the different medias. They sign a client and then refer that client to the lawyers who actually handle the lawsuit and day to day litigation of that lawsuit.

Firms that advertise and then refer cases out to other attorneys have been criticized by academia and others, and it has become more significant in the asbestos arena than in the other areas of litigation. The reason that it is more significant in the context of asbestos litigation is because of the increasing trend of companies to either filing bankruptcy or creating bankruptcy trusts. When a company files bankruptcy or creates a bankruptcy trust, that company, pursuant to federal law, cannot be sued in either federal or state court ever again.

In short, the creation of the bankruptcy trusts bar a lawsuit against that company forever. Instead of filing a lawsuit against that company, the asbestos victim through his or her attorney must file a claim against the bankrupt trust. The claims against the bankruptcy trust are outside of the tort system but still remain somewhat of an adversarial process. A lawyer representing an asbestos victim still must file a claim within a certain period of time and must also offer some form of evidence to prove exposure to a product made by the company that established the bankruptcy trust. Although there have been over 70 companies to file for bankruptcy protection in recent years, there are only currently 20-30 bankruptcy trusts that are either already established and paying claims or expected to be established in the near future. Although these trusts exist, an asbestos victim can also file a lawsuit against the viable entities that have not filed for bankruptcy protection. In short, a law firm has two avenues of recovery that the lawyer must pursue in an effort to compensate his or her client.

However, the law, in the vast majority of states across this country, does not allow for what’s called a double recovery for the same injury. In other words, the bankruptcy claims become very relevant at the trial against the viable companies that were sued. The companies at trial will use the claims made by the plaintiff against the bankruptcy trust in an effort to persuade the jury that that bankrupt companies were liable and responsible for the asbestos disease. Also, the amount of recovery received by the bankrupt trust will often be used to reduce a settlement or verdict against any viable companies. For example, if a person receives $300,000 from claims made against bankruptcy trusts and then later gets a verdict against other viable companies for $400,000 total, the $300,000 from the bankrupt trust must be subtracted from the verdict value. Therefore, the verdict in that case would be reduced from $400,000 to $100,000.

The interplay between the claims against the bankruptcy trusts and the law suit are very critical. What is most controversial is that these brokers or referring firms oftentimes will retain responsibility for filing the bankruptcy claims but refer the tort lawsuit to a law firm such as the Deaton Law Firm, which actually prosecutes the lawsuit. Anything that the referring firm does related to the bankruptcy claims will absolutely affect the law suit.

It is critical that both law firms coordinate with each other so that the plaintiffs’ claims and theories are consistent with the two different avenues of recovery. As one can see, when you have two firms handling two different avenues of recovery but related to the same injury, there is the potential for abuse or inconsistency. In recent history, this potential for inconsistency and/or abuse has been discussed in articles in the Wall Street Journal, New York Times, and Forbes. One large firm, which was responsible for handling the claims, made allegations or statements that were entirely inconsistent with claims made by the same plaintiff within the tort lawsuit. These two large national firms proceeded in their individual representations of the same plaintiff, independent of each other and without coordination. In fact, one of these firms – because of what was perceived by a trial judge as abuse and/or fraud – was barred from representing any plaintiffs in that particular state forever.

This is yet another example in which a law firm becomes too big, with too many claims, and clients get treated similarly to cattle. It is important to note that the individual plaintiff in that scenario was not acting with fraud or intentional misconduct but was simply relying on the advice and alleged expertise of each of these large firms. The more prudent approach is that the law firm handling the case should be responsible to take the lead in both prosecution of the lawsuit and the processing of bankruptcy claims. Yet, most of these larger advertising firms insist on processing the bankrupt claims because it can be done so outside of the tort system. It also allows that advertising firm to generate a fee that does not have to be shared with outside counsel. The Deaton Law Firm avoids such controversy by handling any and all claims associated with the asbestos disease.

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