PALMYRA, N.Y.—Garlock Sealing Technologies L.L.C. has entered Chapter 11 bankruptcy court protection to get out from under asbestos-injury claims that cost the fluid sealing products maker and its insurers close to $2 billion over three decades.
The wholly owned subsidiary of EnPro Industries Inc. recently asked for and received court permission to establish a trust to resolve all current and future asbestos claims against the company under Section 524(g) of the U.S. Bankruptcy Code.
The manufacturer made the filing in the U.S. Bankruptcy Court for the Western District of North Carolina in Charlotte.
Garlock said it previously produced gaskets, valves, pipe joints and other items that contained non-friable asbestos encapsulated within the products. The manufacturer stopped making them in the U.S. in 2000, and in Mexico in 2001.
The U.S. Environmental Protection Agency has stated non-friable asbestos isn't likely to release asbestos fibers into the air, unlike the friable variety. Inhaling such fibers can cause the incurable respiratory disease asbestosis, and could lead to mesothelioma, a cancer.
Although Garlock declares its offerings weren't friable, it still faced claims charging exposure to asbestos in gasket sealing products over a 35-year span.
The company said it has processed more than 900,000 asbestos claims to conclusion—including judgments, settlements and dismissals—and, together with its insurers, paid more than $1.4 billion in settlements and judgments, and in excess of $400 million in fees and expenses.
While in the claims resolution process, the company will operate as usual, according to Cindy Marushak, vice president of human resources.
The process won't disrupt service to customers, suppliers will be paid in full, employees will retain their salaries and benefits, and retiree pensions and benefits will continue to be paid, Marushak said.
The move has nothing to do with the company's financial stability, said Dale Herold, president of Garlock Sealing Solutions. It strictly involves resolving asbestos claims against the firm, the executive said.
The bankruptcy petition covers Garlock's operations in Palmyra and Houston; Garrison Litigation Management Group Ltd., a subsidiary that managed asbestos claims with insurers; and Anchor Packing Co., a former indirect subsidiary that distributed the products but ceased operations in the mid-1990s, Marushak said.
Charlotte-headquartered EnPro Industries and its other subsidiaries, a-long with all other Garlock operations in the U.S., Europe, Canada, Australia and Mexico, are not affected.
Garlock's action stays all asbestos claims and halts asbestos litigation expenses and cash outflows immediately.
“We have begun a process that we believe will result in a comprehensive resolution of all current and future claims against Garlock while preserving the value and protecting the future of our company” without interrupting its normal business operations, Herold said.
If a resolution can't be reached with representatives of claimants to set up the trust, Garlock intends to ask the court to determine the amount needed to fund the trust. “Our goal is an efficient and permanent resolution of these claims,” said Steve Macadam, EnPro president and CEO.
Garlock is a “fundamentally sound business with excellent products and prospects,” Macadam said, and the trust provides the company with “an opportunity lacking in the tort system to completely resolve its asbestos claims.”
He said a fair trust can be established and funded by Garlock for less than it would cost to remain in the tort system.
About 10 years ago, top-tier asbestos defendants—firms that paid most of the plaintiffs' damages because they made and sold large quantities of friable asbestos products—sought bankruptcy protection, EnPro officials said.
Other manufacturers of friable asbestos goods followed their lead. That meant more than a billion dollars of annual settlement payments were lost to bankruptcy.
Because Garlock did not take that course, some plaintiffs identified the firm's non-friable sealing products as a primary cause of their asbestos-related diseases while generally denying exposure to friable offerings of firms in bankruptcy, EnPro said, and the focus of more lawsuits shifted to Garlock.
EnPro alleges some claimants even collected payments from trusts set up in bankruptcy courts by top-tier defendants with trusts in secret because of distribution rules and procedures in place, and were still able to sue Garlock, in effect allowing them to double-dip.
Resolving the problem
Garlock ultimately determined that it was not receiving a fair shake, EnPro said.
Under the claims evaluation and estimation rules of Chapter 11, the company will be entitled to have its responsibility for present and future asbestos claims determined with all relevant factors in place, including evidence of a plaintiff's exposure to friable products of former defendants who previously established 524(g) trusts.
It's hard to tell how long it will take to set up the trust and satisfy everyone, Marushak said.
“Much will depend on the court system. It could take years,” the executive said. “But hopefully we'll be able to work with the judges and attorneys in the case and get this resolved as quickly as possible.”
“This step is not an indication of current financial distress,” Herold said. “Our company is strong. We believe we can fund a settlement trust in full with our own resources while maintaining our position as a leader in fluid sealing technology and preserving our opportunities for growth.”
Garlock, which had sales of about $113 million last year, obtained $10 million in debtor-in-possession financing from Bank of America, subject to court approval, that would provide additional resources should it need them, according to Macadam.
Marushak said that because of the firm's strong financial stability, it didn't file for a general Chapter 11.
No shutdowns or layoffs are planned, she said, and the firm is not reorganizing.
“There had been some layoffs late last year because of the poor economy, but when orders started climbing this year the workers were called back,” she said, adding that “we're in great shape” and demand is exceeding customers' and distributors' forecasts.
For 2010 and beyond, it will be business as usual, she said.