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G-I HOLDINGS INC. v. BARON & BUDD

December 11, 2001

G-I HOLDINGS, INC., PLAINTIFF,
v.
BARON & BUDD; FREDERICK BARON; RUSSELL BUDD; NESS, MOTLEY, LOADHOLT, RICHARDSON & POOLE; RONALD MOTLEY; JOSEPH RICE; WEITZ & LUXENBERG; PERRY WEITZ AND ROBERT GORDON, DEFENDANTS.



The opinion of the court was delivered by: Robert W. Sweet, U.S.D.J.

      Defendant law firms Baron & Budd, Ness Motley, Loadholt, Richardson & Poole ("Ness Motley"), and Weitz & Luxenberg, and individual defendants Russell Budd ("Budd"), Frederick Baron ("Baron"), Ronald Motley ("Motley"), Joseph Rice ("Rice"), Perry Weitz ("Weitz") and Robert Gordon ("Gordon") (collectively, the "Defendants") have moved pursuant to Federal Rule of Civil Procedure 12(b)(6) for an order dismissing the First Amended Complaint of G-1 Holdings ("Holdings") in its entirety.

This promises to be a hard fought battle between the successor to an asbestos manufacturer and the defendant law firms and their partners. Holdings seeks retribution against the Defendants for prosecuting fraudulent claims against its predecessor manufacturer which resulted in its bankruptcy and improperly thwarting legislation to deal with the asbestos litigation crisis. To contain and categorize this fight in terms of prima facie tort, antitrust, racketeering and contract concepts is a complex and challenging undertaking in which skilled counsel for both sides have been diligent and helpful. For the reasons set forth below, the prima facie tort claim (Claim I) is dismissed, the tortious interference with contract claim (Claim II) is dismissed, the tortious interference with economic advantage (Claim II) survives, the antitrust claim (Claim III) is dismissed, the RICO claim (Claims IV-VI) is dismissed for failure to plead predicate acts of witness tampering and extortion and to plead fraud with particularity, the RICO conspiracy claim (Claim VII) is dismissed, the contract claim (Claims VIII and IX) survives and the fraudulent inducement claim (Claim X) is dismissed.

Parties

Holdings is a New Jersey corporation and is a holding company which includes certain former asbestos manufacturers and is the successor by merger to GAF Corporation ("GAF"). Plaintiffs have initiated many thousands of tort actions against GAF Corporation and Holdings arising out of the manufacture of a product known as Calsilite, an insulation product containing asbestos.

The Defendants are law firms and their principals. They have represented many of the plaintiffs in the asbestos litigation against Holdings.

Prior Proceedings

The instant motion to dismiss was filed June 4, 2001 and was marked fully submitted on September 5, 2001, at which time oral argument was heard.

The Factual Allegations of the Complaint

None of the facts set forth below represent findings by the Court. As befits a motion to dismiss under Rule 12(b)(6) Fed. R. Civ. P., the facts are assumed to be as alleged in the complaint for purposes of the instant motion.

The Asbestos Litigation

For many years prior to the late 1960's, asbestos was considered a strategic military resource, widely used in the United States in numerous military, industrial and commercial applications, including the production of high-temperature thermal insulation and fire retardant products. Over time, it was discovered that the application and removal of certain asbestos-containing products (friable asbestos products) created airborne dust containing asbestos fibers. In the late 1960's, medical studies emerged linking the inhalation of asbestos fibers to malignant diseases and nonmalignant asbestosis, a scarring of lung tissue accompanied by an impairment of lung function. As a result, the manufacture of friable asbestos-containing products essentially ceased in the early 1970's. Soon thereafter, lawsuits began to be filed seeking damages for personal injury as a result of exposure to asbestos. What started as a trickle soon turned into a tide of litigation on a scope not previously seen before.

Prior to the dissemination of the medical studies, dozens of companies in the United States manufactured asbestos-containing products. One such manufacturer was the Ruberoid Company. In the 1940's and 1950's, Ruberoid manufactured for the United States Navy, as well as others, in accordance with government specifications, a product called Calsilite — a thermal insulation product used to protect steam lines on ships and other high temperature applications. In 1967, the Ruberoid Company merged with General Aniline and Film Corporation. Prior to the merger, General Aniline and Film Corporation neither manufactured nor sold any asbestos-containing products. Shortly after the merger, all manufacture of Calsilite was halted. The GAF Corporation came into existence in 1987 and in 1989 was liquidated, and its assets and liabilities were thereafter acquired by GAF Building Materials Corporation. GAF has been named as a defendant in tens of thousands of asbestos personal injury lawsuits, and it has defended such lawsuits in its own name.

As the number of asbestos filings grew, certain law firms came to dominate asbestos litigation. Defendants Baron & Budd, Ness Motley, and Weitz & Luxenberg are three law firms that have spent more than twenty years litigating asbestos claims in courts throughout the country.

In 1978, approximately 125 plaintiffs' asbestos attorneys banded together to form and fund the Asbestos Litigation Group ("ALG") in order to promote asbestos litigation. Defendants were active in and effectively controlled the ALG. Acting jointly through the ALG, and through less formal asbestos-related organizations, defendants solicited tens of thousands of asbestos claimants and sued manufacturers without regard for, or in conscious disregard of, the merits of their claims against particular individual defendants such as GAF.

Defendants have received profits from their litigation by, among other things, charging their clients contingency fees, as high as fifty percent in some cases, notwithstanding the fact that many of these cases involve virtually no risk of non-recovery. It is estimated by Holdings that the Defendants have obtained billions of dollars in fees as a result of their role in asbestos litigation.

Defendants have used the profits from asbestos litigation to expand their recruiting network, enabling them to solicit tens of thousands of additional clients on a nationwide basis and through advertising in union and trade publications, which publications were mailed to the membership of virtually every trade union that ever worked near or within an industry even tangentially associated with asbestos, such as steelworkers and masons. Defendants also have established a local counsel network, which reaches into virtually every jurisdiction in the United States, to file claims on behalf of the claimants so solicited. Pursuant to agreements with each network member, a share of the fees thus generated is typically channeled back to the referring ALG member, and ultimately to the ALG, to be invested in future claimant solicitations, including mailed advertisements in newsletters. This has resulted in the filing of further claims.

Because most American asbestos manufacturers stopped manufacturing friable asbestos products in the 1970's, the most severe instances of asbestos exposure occurred during and immediately after World War II. Given the average gestation period for asbestos-related illnesses of approximately 30 years, the number of seriously ill plaintiffs has substantially diminished over time. Thus, the number of legitimate asbestos claims began to decrease in the late 1980's as did the number of solvent asbestos companies.

In 1982, Johns-Manville Corporation ("Manville"), the largest U.S. manufacturer and supplier of construction products containing friable asbestos fibers, filed for bankruptcy protection. Since then, asbestos litigation has driven some twenty-five additional companies into bankruptcy, including, most recently, such major companies as GAF, Owens Corning, The Babcock & Wilcox Company, Armstrong World Industries Inc., Pittsburgh Corning Corporation, and W. R. Grace and Company. In the wake of the many asbestos-related bankruptcies, the Defendants targeted the solvent companies, by encouraging their clients to identify those companies' products as the source of their primary exposure. For example, after the Manville bankruptcy, asbestos plaintiffs' testimony abruptly appeared to shift from targeting Manville products to targeting the products of other still-solvent manufacturers.

In response to all of the above factors, Defendants resorted to unethical and improper conduct to keep their asbestos litigation machine running at full tilt. After having largely exhausted the supply of plaintiffs who actually became sick as the result of prolonged exposure to asbestos, Defendants increasingly solicited non-sick claimants who can allege, merely, that they were exposed to asbestos at some point in time. Defendants have then tutored these solicited clients to identify the products of the few remaining viable asbestos defendants as the source of their exposure.

Thus, despite the settlement of most of the legitimate asbestos claims, over 150,000 asbestos cases are still pending against GAF and were, prior to January 5, 2001, being filed against the company at a rate of almost 70,000 per year. The vast majority of claimants in these cases do not suffer from cancer or asbestosis and, in fact, have no impairment of lung function at all.

Many of the claims filed by Defendants are or should be known by them to be completely meritless.

It has been and continues to be Defendants' strategy to inundate asbestos defendants with lawsuits regardless of the merits of the allegations so that those companies cannot defend themselves against each individual claim and are compelled to agree to massive group settlements that include an ever-increasing proportion of non-sick claimants.

In addition to overwhelming the asbestos defendants and the judicial system with a torrent of claims that cannot reasonably be adjudicated on an individualized basis, the Defendants have held the claims of their legitimately sick clients hostage by refusing to settle those claims while assembling huge inventories of non-sick claimants. This practice enables the Defendants to use the claims of sick clients to leverage large aggregate settlements of claims that have no merit. Once such aggregate settlements are concluded, the Defendants take it upon themselves to apportion what is left of the settlement dollars, after their fees and expenses are deducted, among their clients. The clients are not informed as to the basis of the allocation, and the non-sick clients are substantially overpaid relative to their truly sick counterparts.

As a result of these practices, the Defendants' few sick claimants have waited years and some have even died before receiving compensation. Also, by settling on this "book of business" basis, the Defendants effectively make it impossible for their clients to make an informed decision about whether the settlements are fair and reasonable based on their own individual circumstances.

Fabricating False Evidence

In furtherance of their scheme, the Defendants have also encouraged asbestos claimants and other witnesses to fabricate evidence to overcome the obstacles posed by non-sick plaintiffs, faded memories, meritorious defenses and the reduced number of viable companies that can still be named in asbestos lawsuits. These practices have been utilized in order to enhance the settlement value of asbestos cases and, thus, the amount of fees earned, all at the expense of GAF and the other companies that have been forced to pay out billions of dollars on non-meritorious claims.

Since numerous companies have produced asbestos products, the liability of any particular company depends upon the existence of evidence that the claimant involved actually had been exposed to that company's product. In most instances, this requires that the client testify that he was exposed to the product. To ensure this result, Baron & Budd has used a "Product Identification Department," staffed by "Product ID" paralegals, whose job it is to make certain that the client affirmatively identifies specific products from his purported memory and that the client identify the "right" product, i.e., one that was sold by a still solvent company.

The fabrication of product identification evidence is not limited to Baron & Budd but is a pervasive practice employed by the Defendants and their affiliates. W.R. Grace and Company is but the most recent producer to note that the bankruptcy of one or more former asbestos producers creates a "spike" in claims against those former producers that are still solvent. If product identifications were truthful, the solvency or insolvency of one former producer would have no effect on the assertion of claims against other former producers because a company's solvency cannot legitimately affect a claimant's bona fide recollection as to the products to which he or she was exposed.

Consistent with their efforts to fabricate product identification evidence, the Defendants have also encouraged the fabrication of false testimony to stack the litigation deck in their favor. To that end, Baron & Budd went so far as to author a 20-page script entitled, "Preparing for Your Deposition" (the "Memorandum") to assist the firm's clients in providing helpful deposition testimony. The Memorandum goes beyond providing general tips on how a witness should conduct himself or herself during a deposition and provides specific "facts" that all clients should testify to, specific responses that all clients should give, and specific information all clients should not divulge, regardless of what the truth might be in a particular case. The Memorandum counsels witnesses to memorize the information contained in the "Work History Sheets" created by Baron & Budd paralegals and otherwise coaches clients on hints and signals that will help them determine what the "right" answer is. Nowhere does the Memorandum instruct its reader to tell the truth, and the clear import of the Memorandum is that the helpful, and necessary, "right" answer is all that matters, regardless of the truth.

For example, the Memorandum contains a series of instructions telling witnesses to identify only those products listed on the Work History Sheets prepared by Baron & Budd lest the witness identify the product of a bankrupt entity from whom no damages or attorneys' fees could be collected. The Memorandum urges claimants to memorize the product names provided by Baron & Budd on the "Work History Sheets" and to testify that they actually saw those names on containers where they worked.

Through the distribution of the Memorandum, Baron & Budd also encouraged its clients to testify only about the installation of new products (which theoretically could be identified by its container) and not to admit that some or all of their exposure arose from the replacement or removal of old products that could not be identified by brand.

The Memorandum instructs clients falsely to claim equal exposure to all products and to deny that they ever saw any warnings or had any knowledge concerning the harmful effects of asbestos.

The Memorandum also contains a series of pointers on how witnesses can guess the "right" answers where they have no independent knowledge or recollection and carefully instructs the witness how to take cues and interpret signals from Baron & Budd attorneys during the deposition.

For example, the memorandum instructs clients:

! to testify that "I KNOW it was that brand because I saw the names on the container!"
! to "testify ONLY about INSTALLATION of NEW asbestos, NOT tear-out of the OLD stuff. This is because it is almost impossible to prove what brand of material was being torn out."
! that "You will be asked if you ever saw any WARNING labels on containers of asbestos. It is important to maintain that you NEVER saw any labels on asbestos products that said WARNING or DANGER."

Baron & Budd conducted regular in-house training sessions concerning the giving of misleading and false deposition testimony and issued various memoranda instructing employees how to prepare clients for giving testimony without regard to its truth.

In an apparent effort to cover the tracks of their fraudulent coaching, the Memorandum also instructs clients that, "You may be asked how you are able to recall so many product names. The best answer is to say that you recall seeing the names on the container or on the product itself. The more you thought about it, the more you remembered." Most revealing, and in apparent acknowledgment of the fact that asbestos product identification and other matters may be independently (or "creatively") added to litigation materials by Baron & Budd, the Memorandum instructs, "[S]ay that a girl from Baron & Budd showed you the picture of MANY products, and you picked out the ones you remembered." It offers further that, "If there is a MISTAKE on your Work History Sheets, explain that the `girl from Baron & Budd' must have misunderstood what you told her when she wrote it down."

The Complaint also alleges the Baron & Budd Defendants' created and delivered false affidavits in connection with mass settlements.

76. As a prerequisite to implementation of certain mass settlements with (among others) GAF, Defendants were required to provide sworn affidavits from their clients stating the specific asbestos-containing products to which these clients had been exposed during the relevant time periods. Such affidavits were essential to the consummation of these settlement agreements.
77. Upon information and belief, many Baron & Budd clients were reluctant to sign the affidavits, as they had no recollection of the products to which they had been exposed and were afraid that, if they signed the affidavits, they might be required to go to court. Upon information and belief, Baron & Budd personnel would persuade these clients to sign the affidavits by assuring them that this was a purely mechanical process — they needed only sign the document, have it notarized, and send it in, and they would then be assured of receiving money.
78. Upon information and belief, as a result of this inducement, Baron & Budd clients signed affidavits in which they swore under oath that they were exposed to specific products when they had no independent recollection that they had been. Upon information and belief, although Baron & Budd employees were aware that the affidavits were false at the time they were signed, Baron & Budd nonetheless presented these affidavits to asbestos Defendants, including plaintiff, as true.
79. These false and fraudulent affidavits were submitted to plaintiff and/or its agent through the United States mails and/or by private or commercial interstate carrier.
80. In reliance on Baron & Budd's fraudulent assertion that such affidavits were true, asbestos Defendants, including plaintiff, paid out millions of dollars in asbestos settlements that they otherwise would not have paid, a large portion of which was paid to Baron & Budd in attorneys' fees.

Many Baron & Budd clients were reluctant to sign the affidavits, as they had no recollection of the products to which they had been exposed and were afraid that if they signed the affidavits, they might be required to go to court. Baron & Budd personnel would persuade these clients to sign the affidavits by assuring them that this was a purely mechanical process, that they needed only sign the document, have it notarized, and send it in, and they would then be assured of receiving money.

As a result of this inducement, Baron & Budd clients signed affidavits in which they swore under oath that they were exposed to specific products when they had no independent recollection that they had been. Although Baron & Budd employees were aware that the affidavits were false at the time they were signed, Baron & Budd nonetheless presented these affidavits to asbestos defendants, including Holdings and its predecessors, as true.

In reliance on Baron & Budd's fraudulent assertion that such affidavits were true, asbestos defendants, including Holdings, paid out millions of dollars in asbestos settlements that they otherwise would not have paid, a large portion of which was paid to Baron & Budd in attorneys' fees.

The Defendants' efforts to manufacture favorable testimony was not limited to the scripting of claimants' testimony. Baron & Budd, along with Ness Motley, hired doctors who attributed virtually any lung abnormality to asbestos exposure, regardless of what the medical evidence actually showed.

Defendant Ness Motley provided a different form of inducement to medical experts to obtain their favorable testimony. Certain of defendant Ness Motley's female secretaries and paralegals were expected to, and did, "entertain" expert witnesses who would visit the firm in connection with pending asbestos litigation. At least one partner of the firm indicated to his secretary that she should have sex with a particular expert witness, and Motley supplied several female employees with cash and encouraged them to "be nice to" certain of the firm's experts and out-of-state co-counsel.

These practices induced false and misleading testimony to be given by expert witnesses in support of claims brought against GAF and others, which resulted in GAF's payment of inflated verdicts and settlements in a number of cases. These inflated verdicts and settlements and, in general, Ness Motley's ability to produce on demand whatever medical testimony it needed, also had the effect of raising the "going rate" for settlement of Ness Motley's cases, thereby causing GAF additional injury.

Shutting Down Opposition to Reform Legislation

Well aware of the effect that asbestos litigation was having on both state and federal courts, in 1990 the Chief Justice of the United States appointed a Judicial Conference Ad Hoc Committee on Asbestos Litigation to investigate and report on the growing problem posed by the flood of claims. In its 1991 Report, the Ad Hoc Committee found that:

[D]ockets in both federal and state courts continue to grow; long delays are routine; trials are too long; the same issues are litigated over and over; transaction costs exceed the victims' recovery by nearly two to one; exhaustion of assets threatens and distorts the process; and future claimants may lose altogether.

The Ad Hoc committee's report concluded that the situation required the creation of a national asbestos dispute resolution scheme, and on the basis of that report, the Judicial Conference of the United States urged Congress to do so.

In 1993, following a series of discussions among representatives of the asbestos plaintiffs' bar and The Center for Claims Resolution ("CCR"), of which GAF was a member, a global, class action settlement was reached, affecting all current and future asbestos claims asserted against GAF and the other then-members of the CCR. This settlement, which is commonly referred to as the Georgine settlement, was approved by the United States District Court for the Eastern District of Pennsylvania, which had before it at the time all of the then-pending federal asbestos cases. The Georgine settlement was designed to assure prompt payment with reduced transaction costs to sick individuals through an administrative facility and to defer the claims of non-sick individuals until such time as they became sick.

In June 1997, the Georgine settlement was disapproved by the United States Supreme Court in Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997). The Court had no quarrel with the settlement criteria set forth therein, but determined that the settlement did not comport with the requirements of Rule 23 of the Federal Rules of Civil Procedure. In its opinion in Amchem, the Supreme Court urged Congress to implement legislation to establish an asbestos dispute-resolution system, explaining that "a nationwide administrative claims processing regime would provide the most secure, fair, and efficient means of compensating victims of asbestos exposure." Id. at 628-29.*fn1

In the wake of Amchem, a number of companies formed the Coalition for Asbestos Resolution ("CAR"), the goal of which was to work toward the adoption of legislation establishing a fair and efficient administrative facility for resolving asbestos claims. When it was formed, CAR's members included Kaiser Aluminum Corporation ("Kaiser Aluminum"), Georgia-Pacific Corporation ("Georgia-Pacific"), Westinghouse, United States Gypsum Company ("US Gypsum"), ABB Combustion Engineering, Turner & Newell PLC ("Turner"), Armstrong and GAF.

The Fairness in Asbestos Compensation Act ("FACA" or the "Act") was first introduced in October 1998, near the end of the 105th Congress. With the support of GAF and the CAR, it was reintroduced at the start of the 106th Congress in early 1999. The legislation, which was co-sponsored by over 102 Republican and Democratic senators and congressmen, was designed to compensate individuals who are actually sick and to defer resolution of the claims of "non-sick" individuals until such time as those individuals actually developed an asbestos-related illness.

The Act, unlike the Georgine class action settlement, did not impose any limit on the liability of GAF or any other former asbestos producer. What the FACA did cap was Defendants' contingency fees, which were to be limited to 25% of a claimant's recovery. The Act would have dramatically reduced the legal fees and transaction costs associated with asbestos litigation that are alleged to consume approximately 60 cents of every dollar spent on the litigation. The Act would also have expedited compensation of genuinely sick individuals, while preserving for claimants who develop asbestos-related illnesses in the future resources that are now being rapidly depleted by the current process of asbestos litigation. GAF and its Chairman, Samuel J. Heyman ("Heyman"), were active and public supporters of the Act.

The Defendants vigorously opposed the FACA because, by their own estimate, it could have drastically reduced their then-current inventories of claimants by as much as 80% by deferring the resolution of "non-sick" claims, and capping their fees at 25% Thus, under the leadership of Baron and Rice and through the American Trial Lawyers Association ("ATLA"), of which Baron was president, Defendants and other members of the asbestos bar launched their attack on the Act and on any company that supported it.

a. Georgia-Pacific

The Defendants' tactics with respect to the Act began in 1998 when the Act was first introduced in Congress. To support the proposed legislation, James Kelly ("Kelly") of Georgia-Pacific intended to testify before Congress and prepared a written statement of testimony for the House Judiciary Committee. At the time, Georgia-Pacific was a member of CAR and Kelly was the chair of CAR.

Shortly before Kelly was scheduled to appear before the House Judiciary Committee, one or more of the Defendants met with representatives of Georgia-Pacific and threatened Georgia-Pacific that if Kelly testified in support of the Act and if Georgia-Pacific otherwise continued to support the reform effort, Defendants would wreak economic havoc on Georgia-Pacific through asbestos litigation. As a result of the threats, Kelly abruptly resigned his position as chair of CAR, and had his company, Georgia-Pacific, withdraw from the organization.

The Defendants' prior attempts to strong-arm their opponent had driven numerous companies into bankruptcy. Owens Corning was the first. As a result of the Defendants' extortionate threats, Owens Corning was ultimately forced to abandon its defense efforts rather than face bankruptcy.

Threatening asbestos defendants is alleged to have been a regular course of conduct for Defendants. When W.R. Grace and Company and Raymark attempted to expose the fraudulent use of the Baron & Budd Memorandum in litigation, they too were visited by the Defendants with a campaign of retaliation and intimidation. The campaign was wholly successful; both companies were driven into bankruptcy as a result.

b. The February 24 Meeting

In February 1999, Rice, on behalf of the Defendants and other firms working with them, invited the remaining companies supporting the Act and several other former asbestos producers to a meeting on February 24. The invitation stated that the plaintiffs' attorneys calling the meeting represented 80% of the pending asbestos plaintiffs' cases, and that they sought a meeting for a "frank discussion" of the current status of the national asbestos litigation.

The February 24 meeting was attended on the asbestos plaintiffs' side by Rice, Motley, Baron, Weitz and Gordon, among others. Representatives of GAF, Kaiser Aluminum, W.R. Grace and Company, Owens Corning, Owens-Illinois, Inc., US Gypsum and others were also present. The meeting was chaired by Rice.

At the meeting, representatives of GAF made it clear that Heyman expected to testify before Congress in support of the Act. Rice and his co-conspirators made it equally clear that they would do whatever it took to kill the Act, including retaliating against any company that supported it, specifically including GAF. Motley also threatened that if Heyman persisted in his support of the legislation, he would be targeted for personal retaliation as well.

Acting as spokesman for the group, Rice stated that efforts to promote or support the Act were viewed by the Defendants as starting a "nuclear war." He insisted that the Defendants were prepared to "fight on whatever level necessary" to defeat the legislation. He also threatened that further support for the Act would result in "war" that would break out on every front, and that any company that did not renounce its support for the legislation would be engulfed in asbestos litigation that "will rage like a fire you will never control."

As a result of the extortionate threats made at the February 24 meeting, ABB Combustion ...


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