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G-I HOLDINGS, INC. v. BARON & BUDD;

July 17, 2002

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, United States District Judge

          OPINION

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 portions of the Third Amended Complaint of G-1 Holdings ("Holdings"). In addition, the Ness Motley defendants (the law firm and individual defendants Ness and Motley) have moved to strike certain allegations in the complaint.

For the following reasons, the Defendants' motion is granted in part and denied in part, and Ness Motley's motion is granted.

Parties

Holdings is a New Jersey corporation and is a holding company that 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

This action was initiated by the filing of an action by Holdings against the Defendants on January 10, 2001, alleging violations of the federal Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. ("RICO"). The First Amended Complaint (the "FAC") was filed on April 30, 2001 and alleged 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 FAC contained ten counts and alleged 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 contracts with GAF (Counts VIII, IX); and (6) fraudulently induced GAF to enter into contracts they never intended to honor (Count X). That complaint was dismissed in part on December 11, 2001, but leave was granted to replead.

In a Second Amended Complaint, filed on January 25, 2002, Holdings repled certain of its state law claims, asserted a cause of action against Baron & Budd for common law fraud, and amended the allegations with regard to its witness tampering theory. Defendants moved to dismiss the Second Amended Complaint and Weitz & Luxenberg moved to strike certain allegations in the complaint.

On March 18, 2002, however, Holdings filed a Third Amended Complaint (the "TAC" or the "Complaint") in which it added a common law fraud claim against Weitz & Luxenberg and amended two paragraphs of its mail and wire fraud allegations against the Baron & Budd defendants to identify five cases and asserted on information and belief that "the Baron & Budd Memorandum was used to create false product identification and testimony in the deposition of each of the plaintiffs who were deposed in these actions." Holdings also sought the Court's permission to file the Third Amended Complaint after it had already filed it.

At a hearing on April 17, 2002, leave to file the Third Amended Complaint was granted, and the Defendants' motions to dismiss the Second Amended Complaint and strike certain allegations were denied inasmuch as they no longer targeted the current complaint. The Defendants were then given leave to renew their motions with regard to the TAC.

On April 26, 2002, the Defendants moved to dismiss certain of the counts, and Weitz & Luxenberg moved to strike certain allegations in the Complaint.

The Complaint consists of thirteen counts. However, not all the Counts are at issue, as demonstrated below:

• Count I (prima facie tort against all Defendants) not in contention; Holdings included it for the purposes of appeal.
• Count II (tortious interference with economic advantage against all Defendants): in contention.
• Count III (tortious interference with contract against all Defendants): not in contention; the Defendants did not move against it.*fn1
• Count IV (antitrust violations against all Defendants): not in contention; Holdings included it for the purposes of appeal.
• Count V (RICO mail and wire fraud against Baron & Budd): in contention.
• Count VI (RICO mail and wire fraud against individual defendants Baron and Budd): in contention.
• Count VII (RICO substantive violation of witness tampering against all Defendants): not in contention except as to the grounds for dismissal.
• Count VIII (RICO conspiracy against all Defendants): not in contention; Holdings included it for the purposes of appeal.
• Count IX (breach of contract against Weitz & Luxenberg): not in contention; defendants did not move against it.
• Count X (breach of contract against Ness Motley) not in contention; defendants did not move against it.
• Count XI (fraudulent inducement against Weitz & Luxenberg and Ness Motley): in contention.
• Count XII (common law fraud against Baron & Budd) in contention.
• Count XIII (common law fraud against Weitz & Luxenberg): in contention.

In sum, of the thirteen Counts, only Counts II, V, VI, XI, XII, and XIII are in contention. In addition, Holdings seeks clarification for the grounds for dismissal of Count VII.

The motions were considered fully submitted on May 15, 2002, at which time oral argument was heard.

The Factual Allegations of the Complaint

The Complaint adopts in great measure the factual allegations of the First Amended Complaint. These facts were described in greater detail in G-I Holdings v. Baron & Budd, 179 F. Supp.2d 233 (S.D.N.Y. 2001), familiarity with which is presumed. Therefore, this section will only detail the additions or alterations from the First Amended Complaint.

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

Specific Instances of Falsifications of Affidavits

Holdings alleges that Baron & Budd filed false affidavits in connection with asbestos litigation. In December 1995, paralegals at Baron & Budd working under the supervision of Melanie Oliver, a Baron & Budd supervisor ("Oliver"), were instructed to gather hundreds of affidavits from Baron & Budd clients for use against GAF and other asbestos defendants for trial and/or settlement purposes. Such affidavits were critical to establish liability against a particular defendant whether they were to be used for trial or settlement purposes.

Under Oliver's supervision, the paralegals gathered the affidavits and began to compile the results in a conference room at Baron & Budd. With their deadline looming, the paralegals realized that approximately 200 of the affidavits were missing necessary information, including: (1) the asbestos product to which the affiant had been exposed; (2) the work site(s) at which the affiant had been exposed/employed; and/or (3) the client's signature.

The paralegals reported these omissions to Oliver, who instructed that the affidavits be "fixed." None of the affidavits was returned to the affiant for completion, correction, review or signature. Instead, at Oliver's direction, the paralegals "filled in" the missing information themselves.

Missing product identification was added without reference to or knowledge of whether the client could truthfully testify that he had been exposed to a particular asbestos product. For example, where a client had failed to identify a particular asbestos product to which he had been exposed, the paralegals would attempt to research which of the manufacturer's products "might" have been used at the identified work site and then simply add that product to the affidavit. Where a client had failed to identify a work site, the paralegals would create that information using the client's social security printout (to identify employment history) and then would deduce an appropriate work site that would match the particular product and the particular asbestos manufacturer.

The paralegals also signed clients' names on the unsigned affidavits.

In each case, after a deficient affidavit was "fixed" by Baron & Budd's paralegals, it was filed with the court in which the case was pending or was submitted to the defendants to support a settlement. Holdings claims the affidavits were false and fraudulent and were known by Baron & Budd to be so when they were filed or submitted.

Following their falsification by Baron & Budd, all or substantially all of the affidavits included identification of Ruberoid (plaintiff's predecessor by merger) as a manufacturer of asbestos products to which the affiant was exposed. Holdings claims these identifications were false and fraudulent.

GAF, through its agent, the Center for Claims Resolution ("CCR"), relied upon these false and fraudulent identifications in settling the cases and in allocating portions of the settlement to GAF.

Based on settlement date, trial location, and other salient characteristics, Holdings claims on information and belief that the universe of settlements in which these 200 or so false and fraudulent affidavits were submitted is contained within the list of 190 cases listed in an exhibit to the Complaint. The amount that GAF was defrauded into paying in these cases is a substantial portion of the $891,663 it paid to settle these cases.

Until January 16, 2002, Holdings claims that plaintiff was not, and in the exercise of reasonable diligence could not have been, aware of the specific instances alleged above because (1) the nature of the fraud was self-concealing; (2) the volume of litigation by Defendants made individualized investigation into the merits of each case an impossibility; and (3) Baron & Budd took active steps to hinder GAF's investigation into Baron & Budd's ongoing fraud by, inter alia, interfering with GAF's ability to locate and interview former Baron & Budd employees. GAF has spent millions of dollars since the revelation of the Baron & Budd memorandum investigating Baron & Budd's misdeeds and seeking to identify the pattern of fraud and specific instances thereof.

The Effects of the Routine Falsification of Product Identification Evidence

The falsification of product identification was not limited to the events of December 1995 described above. Claim forms filed by the Baron & Budd bankruptcy department also included false product identifications provided by a Baron & Budd employee. A paralegal working under the supervision of Baron & Budd bankruptcy department manager Tiffany Tuggle ("Tuggle") routinely listed products on claim forms for clients that had never been identified by the client or were wholly inconsistent with the information that had been provided by the client. Baron & Budd was made aware of this practice and did nothing to stop it. In fact, the paralegal was promoted.

Backdating Claims and Falsifying Court Records

Subsequent to the filing of the Second Amended Complaint, Holdings claims to have uncovered additional evidence of wrongdoing by defendant Weitz & Luxenberg. The following eleven paragraphs are alleged on information and belief based on the investigation of private investigators working for Holdings.

In order to pursue claims against asbestos defendants that would otherwise be time-barred, Weitz & Luxenberg has backdated documents filed in asbestos personal injury cases and tampered with and falsified records of the Supreme Court of the State of New York.

In the spring of 2000, Weitz & Luxenberg maintained an office at 120 Wall Street in Manhattan that oversaw the prosecution of asbestos personal injury cases on behalf of clients who had died. In May 2000, Weitz & Luxenberg attorneys recognized that they had failed to amend in a timely fashion a complaint filed in New York County, the effect of which was to bar claims against one or more named or unnamed defendants under applicable statutes of limitations. Weitz & Luxenberg remedied the problem by backdating the amended pleading, falsifying the filing stamp and altering the books and records of the New York County Supreme Court to reflect the fact that the amendment had been filed long before it actually was filed.

Pleadings filed in the New York County Supreme Court all bear an official court stamp, affixed by court employees, reflecting the date upon which the pleading was filed in the County Clerk's office (the "Filed Stamp"). The filing date, reflected in the Filed Stamp, is relied upon by both the Court and by litigants (including GAF) in calculating the timeliness of the filing. In the spring of 2000, GAF was a named defendant in all, or substantially all, of the asbestos liability actions brought in New York County by Weitz & Luxenberg on behalf of its clients.

Sometime after Weitz & Luxenberg attorneys discovered the error, Weitz & Luxenberg personnel, acting under the direction of Weitz & Luxenberg attorney Marie Ochigrassi ("Ochigrassi"), undertook to ensure that the amended complaint would be filed with a false backdated Filed Stamp and that the court's records would be falsely altered to reflect that the pleading had been filed before it actually was filed. Ochigrassi was the head of a department comprised of two other attorneys and paralegals. The two supervising paralegals in the department were Alicia Ostracher and Vanessa Ostracher, both of whom are daughters of Elba Aguilar ("Aguilar")

Aguilar is and was at that time a court employee at the New York County Supreme Court building at 60 Centre Street in Manhattan. Aguilar's duties at the courthouse are such that she has and at all relevant times had access to the New York County Clerk's Filed Stamp and New York County Supreme Court case records.

Aguilar is the mother of three present or former Weitz & Luxenberg paralegals: the Ostrachers and Mary Jo Sci. In addition, Weitz & Luxenberg is representing Aguilar's former husband (with whom she is now reconciled) in litigation with Nassau County in which Aguilar's interests appear to be aligned with his. Weitz & Luxenberg is handling the litigation at no charge.

Under the direction of Ochigrassi, Weitz & Luxenberg personnel first prepared a back-dated amended complaint. When the new papers were ready, Ochigrassi summoned a paralegal to her office where paralegal Alicia Ostracher was also waiting. Ochigrassi instructed the paralegal that he was "to take something down to Alicia's mother" and "to follow Alicia's instructions." Ostracher handed the paralegal an envelope containing the amended complaint and indicated that she had called her mother who would be waiting to meet him at 60 Centre Street.

Ostracher instructed the paralegal to meet her mother inside the entrance to the courthouse at 60 Centre Street. When the paralegal arrived, Aguilar told him to go downstairs to the records department of the courthouse ahead of her, to make a copy of the document he had brought with him and to fill out a request form for the case file. He did so. As he was being handed the case file, Aguilar appeared by his side and showed the filing clerk her badge so that the file could be removed from the clerk's view. Aguilar also requested a document log book for a certain time period, which the clerk gave her.

Aguilar and the paralegal took the file, the logbook, and the documents to a space near the copy machine. Aguilar stamped the amended complaint with the court's Filed Stamp to reflect falsely that it had been filed at an earlier date, before the statute of limitations ran on the newly added claims. Aguilar then added a false entry to the court's log book. The entry Aguilar placed in the log book falsely indicated that the amended complaint had been filed on the false filing date. At Aguilar's instruction, the paralegal then took the case file to the copy machine, copied a document in it (so as to suggest that was the reason he had requested it) and then placed the falsely stamped pleading in the case file. The log book and case file were then returned to the filing clerk.

This was not an isolated incident. On several other occasions, the paralegal was instructed by Weitz & Luxenberg attorney Ochigrassi or Weitz & Luxenberg paralegal Ostracher to take blue-backed documents to Aguilar so that false Filed Stamps could be affixed on them. Once Aguilar took the paralegal upstairs at the courthouse at 60 Centre Street and made him wait on a bench. She then took the documents into another room and brought them back, all with back-dated Filed Stamps newly affixed. On another occasion, they met at the court's rotunda on the first floor. At that time, Aguilar simply ducked behind a column and quickly stamped the documents with the earlier, but false, filing dates. On yet another occasion, Aguilar met the paralegal outside the side entrance to 60 Centre Street to effectuate the falsification of filing stamps on case documents generated by Weitz & Luxenberg. On every occasion, Aguilar took steps to ensure that her conduct was not being observed by others.

Under Rule 3025 of New York's Civil Practice Law & Rules, amended complaints must be served on each party to the action, including each named defendant, and each named defendant must serve and file a response thereto. Weitz & Luxenberg's filing of fraudulently time-barred claims increased the litigation costs for all defendants in those cases.

The Producer Agreement

Prior to December 17, 1999, GAF had a valid, written contract with CCR known as the Producer Agreement Concerning Center for Claims Resolution (the "Producer Agreement"). The express purpose of the Producer Agreement was to "provide for the administration, defense, payment, and disposition of asbestos related claims" for the benefit of its participating members. Under the terms of the Producer Agreement, CCR could only terminate its contract with GAF under certain conditions and subject to certain restrictions enumerated therein.

Pursuant to the terms of the Producer Agreement, GAF designated CCR as its sole agent to administer and arrange on its behalf for the evaluation, settlement, payment or defense of all asbestos-related claims against it. In this capacity, CCR investigated claims, tried cases, and negotiated settlements on behalf of all of its members, thereby substantially reducing GAF's transaction costs in the asbestos claim resolution process.

As lawyers who routinely negotiated such settlements with CCR on behalf of their asbestos liability clients, Defendants were aware of GAF's contract with CCR and the benefits GAF derived from the contract. As alleged in the FAC, Defendants intentionally caused CCR to expel GAF in breach of the Producer Agreement, thereby deliberately and wrongfully interfering with GAF's ongoing economic and contractual relationship with CCR.

By causing CCR to expel GAF, Defendants maliciously and without justification carried out the extortionate threats made in Defendants' campaign to coerce GAF to cease its efforts to lobby Congress for passage of the Fairness in Asbestos Claims Act, depriving GAF of the ongoing benefits of CCR membership and causing GAF special damages and other injury.

From January 17, 2000 to January 5, 2001, GAF was forced to establish and fund a free-standing network of defense counsel and to litigate asbestos bodily injury cases on its own. These expenses exceed the sum of $20 million.

Counts V and VI

These counts allege mail and wire fraud in association with a number of claimants. In the first complaint, Holdings had not identified the cases in which the claimants were plaintiffs. The Complaint now asserts that the claimants were plaintiffs in five cases: Beverly Jean Brown v. Keene Corp., No. 93-10952 (98th Judicial District Court of Travis Co., TX); Jimmy Leon Smathers v. Owens-Corning Fiberglas Corp., No. 95-06329 (126th Judicial District Court of Travis Co., TX); Kenneth Shirley v. Owens-Corning Fiberglas Corp., No. 95-10495 (250th Judicial District Court of Travis Co, TX); C.J. English v. Owens-Corning Fiberglas Corp., No. 96-06308 (134th Judicial District Court of Dallas Co., TX); Edwin Ray McCray v. Owens-Corning Fiberglas Corp., No. 95-3109 (28th Judicial District Court of Neuces Co., TX). Further, Holdings alleges that Baron & Budd submitted false and fraudulent affidavits, and that GAF justifiably and reasonably relied upon these false and fraudulent affidavits to its detriment in the amount of several hundred thousand dollars.

Count VII

Holdings has amended its pleading to allege specifically that Defendants intended to prevent GAF; Samuel J. Heyman, the former chairman and chief executive officer of GAF ("Heyman"); and other members of the Coalition for Asbestos Resolution from testifying before Congress in support of FACA, or to cause their testimony to be less favorable to Defendants.

Holdings has included specific examples of attempts by Defendants to intimidate, threaten, or corruptly persuade former asbestos producers with the intent of preventing their testimony before Congress and causing them to withhold their testimony from Congress. With respect to GAF and Heyman, Holdings now alleges that Defendants had actual knowledge that Heyman was expected to be a witness in Congressional hearings on FACA. The conduct alleged above was undertaken with the specific intent of causing Heyman not to appear or, if he did appear, to moderate his testimony to be less unfavorable to the Defendants. Further, with respect to the other former asbestos producers, Defendants actually and correctly believed that some of their number would be called (or would voluntarily appear) as witnesses in those ...


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