Not what you're
looking for? Try an advanced search.
Buy This Entire Record For
G-I HOLDINGS INC. v. BARON & BUDD
December 11, 2001
G-I HOLDINGS, INC., PLAINTIFF,
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.
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
This action was initiated by the filing of an action by Holdings
against the Defendants on or about January 10, 2001,
of the federal Racketeer Influenced and Corrupt Organizations Act.
18 U.S.C. § 1961 et seq. ("RICO"). The First Amended Complaint (the
"Complaint") under consideration here was filed on April 30, 2001 and
alleges inter alia that the Defendants engaged in a scheme to inundate
the judicial system, and Holdings, with hundreds of thousands of asbestos
cases without regard to their merit, and in various illegal acts in
connection with such litigation including suborning false testimony. The
Complaint contains ten counts and alleges that Defendants (1) maliciously
interfered with GAF's right to petition Congress (prima facie tort)
(Claim I), (2) tortiously interfered with GAF's contracts and economic
advantage (Claim II) (3) violated federal antitrust law (Claim III), (4)
violated the RICO statute (Claims IV-VII), (5) breached its contracts
with GAF (Counts VIII, IX), and (6) fraudulently induced GAF to enter
into contracts they never intended to honor (Count X).
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
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
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.
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
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.
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
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
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
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!"
! 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
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
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
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
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
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
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.
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
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 ...