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March 14, 2003


The opinion of the court was delivered by: Denny Chin, United States District Judge.


In 1993, after more than 100,000 asbestos lawsuits had been brought against it, Keene Corporation ("Keene") filed for bankruptcy. In this case, plaintiffs, the Trustees of the Keene Creditors Trust (the "Trust"), contend that Keene knew in the early 1980s, more than a decade before it went into bankruptcy, that someday it would be overrun by asbestos personal injury cases. Plaintiffs contend that Keene and its management consequently concocted a grand scheme to engage in a series of corporate transactions to hide Keene's assets from future asbestos claimants. Plaintiffs allege that Keene carried out this series of fraudulent conveyances over the course of the 1980s with the assistance of its lawyers and outside auditors.

Plaintiffs have been unable, however, to support their theory with any concrete evidence. To the contrary, on the record before the Court, no reasonable jury could find that Keene and its officers, directors, lawyers, and auditors engaged in any scheme to defraud. Although the asbestos cases were a real concern to Keene as early as the 1970s, the evidence shows, as a matter of law, that there were no fraudulent conveyances here. Instead, a reasonable jury could only find that the transactions were legitimate. The purchasing entities gave Keene $273.6 million in consideration for the transferred assets, and plaintiffs have presented no admissible evidence to show that less than fair value was paid. Moreover, Keene had more than $390 million in insurance coverage for the asbestos claims as well as other substantial assets. Keene could not predict the future, and it had no reason to know, at the time of the transfers, that years later it would be rendered insolvent by a flood of asbestos filings.

Before the Court are the motions of defendants Bairnco Corporation ("Bairnco"), Kaydon Corporation ("Kaydon"), the Genlyte Group, Inc. ("Genlyte"), Kasco Corporation ("Kasco"), Shielding Systems Corporation ("Shielding"), Arlon, Inc. ("Arlon"), and Glenn W. Bailey for summary judgment dismissing the amended complaint. Also before the Court are two additional motions filed by plaintiffs after the summary judgment motions were filed, briefed, and argued: a motion to substitute a new valuation expert or alternatively to submit a supplemental expert report and a motion to supplement the summary judgment record.

Plaintiffs' motions are denied, for plaintiffs have had a full and fair opportunity to litigate this case and defendants would be severely prejudiced if discovery and the record were reopened now. Accordingly, I decide the summary judgment motions on the basis of the existing record. Based on that record, I conclude that no reasonable jury could find in favor of plaintiffs. Defendants' motions are granted and plaintiffs' claims are dismissed.


A. The Facts

The facts are summarized in the Court's prior decisions in this case. See, e.g., Lippe v. Bairnco Corp., No. 96 Civ. 7600 (DC), 2003 WL 192180, at *1-4 (S.D.N.Y. Jan. 28, 2003); Lippe v. Bairnco Corp., 230 B.R. 906, 908-11 (S.D.N.Y. 1999); Lippe v. Bairnco Corp., 225 B.R. 846, 850 (S.D.N.Y. 1998); Lippe v. Bairnco Corp., 218 B.R. 294, 297-300 (S.D.N.Y. 1998).

For purposes of these motions, I set forth the facts in detail, based on the evidence presented, drawing all reasonable inferences and resolving all conflicts and ambiguities in the evidence in favor of plaintiffs.

1. The Asbestos Liabilities

a) The Onset of Claims

Keene was created in 1967 when Bailey and others took over a small packaging company and renamed it Keene Corporation. (Bailey Dep. at 104-06, 108-09). With Bailey as its Chairman and President, Keene was conceived as a conglomerate — a corporation with businesses in different industries. (Bailey Decl. ¶¶ 2, 24).

In 1968, Keene acquired the Baldwin-Ehret-Hill Company ("BEH") for about $8 million. BEH was in the insulation business and its products contained asbestos. Keene operated the business through a subsidiary, and it stopped manufacturing asbestos products in 1972. (Bailey Dep. at 126-32; Bailey Decl. ¶ 3).

In 1971, the first asbestos personal injury case was brought against BEH and Keene. (DX 6). During the 1970s, the number of asbestos cases filed against Keene increased from 32 in 1975 to 1,506 in 1979. (DXs 8, 20, 31). In 1979, a jury rendered a $450,000 verdict against Keene in the Lopez case in Florida. (DX 25).

b) Keene's Response

In 1975, Keene established an Asbestos Task Force to address its asbestos litigation. Keene also hired Anderson, Russell, Kill & Olick ("ARKO") to pursue coverage litigation against its insurers as well as lawsuits against BEH's suppliers. (DXs 9, 10, 12, 75 at DP 1033928-29; Bailey Decl. ¶¶ 4-6; Metzger Dep. at 62-63; Herner Dep. at 47-49; Mileaf Dep. at 30-32).

The Lopez verdict led Keene to devote more attention to the asbestos litigations, and by 1980, Keene had developed a comprehensive program to deal with the asbestos cases. (Bailey Decl. ¶¶ 5-6; Herner Dep. at 121-22; Mileaf Decl. ¶ 3; DXs 25, 26). By the start of 1980, 2,367 cases were pending against Keene around the country. (DX 31). At that time, Keene's average per-case disposition cost was about $3,300, which covered 326 cases, including the Lopez case, the net cost of which was $280,000 (the $450,000 verdict less amounts paid by other defendants). (DX 32 at LIPPE 113115, 113121). These figures did not include defense costs.

As it made a greater effort to address the asbestos claims after the Lopez verdict, Keene had some success. From 1984 through 1990, it won defense verdicts in 366 of the 379 cases it tried to verdict, a 97% success rate, and the average damages award in the 3% of cases it lost was only $14,780 — a total of $192,143 in adverse verdicts in the seven-year period. (DX 485 at PETERS 10026).*fn1 From 1985 through 1987, Keene obtained defense verdicts — zero recovery — in all 148 cases tried to verdict. (Id.). Although most of the cases that had been filed through 1980 were considered by Keene to be meritorious (DX 450 at LIPPE 96361), by 1980 Keene saw more and more of what it judged to be meritless — or "junk" — cases. (DXs 82, 162, 228; see, e.g., DXs 93, 112 (in Billy Bell cases, many claims withdrawn and remainder settled for average of less than $800 per case)).

In June 1985, Keene and approximately 30 other asbestos defendants formed the Asbestos Claims Facility (the "ACF") to resolve asbestos claims jointly. (DX 538; see also DX 275 at LIPPE 382686-91). The ACF rules required each member to make settlement payments in every case, regardless of whether it had been sued by the particular claimant. (DX 275 at LIPPE 382732-33; Herner Dep. at 497-99). Keene was not happy with its experience in the ACF and it withdrew in 1988, along with certain other members. (DX 391 at LIPPE 382377).

In 1988, Keene and 20 other former ACF members formed the Center for Claims Resolution (the "CCR"). (Id. at LIPPE 382378; DX 548). The CCR was similar in concept to the ACF, but costs were allocated for each case according to each member's market share in the industry or trade in question. (DX 391 at LIPPE 382394). Keene resolved large numbers of claims in the CCR through 1990, including more than 20,000 claims in 1989. (DX 485 at PETERS 10019). In 1990, however, Keene left the CCR because it believed that too many non-meritorious claims were being settled. (DX 433; Mileaf Dep. at 233; Bailey Decl. ¶ 14).

c) Insurance

During the 1970s, Keene made efforts to clarify and maximize its insurance coverage. Two insurers were defending and indemnifying Keene, but other insurers disavowed coverage. In 1978, Keene sued its liability insurance carriers in a coverage action. Keene prevailed in the district court in part. Keene Corp. v. INA, 513 F. Supp. 47, 50-51 (D.D.C. 1981). In October 1981, on appeal, the District of Columbia Circuit gave Keene an even greater victory as the court broadened both the coverage and the duty to defend. Keene Corp. v. INA, 667 F.2d 1034, 1041, 1050-51 (D.C. Cir. 1981). The Supreme Court denied certiorari in March 1982. 455 U.S. 1007 (1982).

The INA decision was significant, for it resolved any continuing doubts about the availability of insurance coverage. Keene's available insurance coverage effectively totaled some $390 million, not including defense costs that were to be absorbed by Keene's insurers without charge to policy limits. (DXs 98, 101, 131 at DP 1044024, 436 at BZ 111684 n. 9; Bailey Decl. ¶¶ 6-8). Members of Keene management have stated under oath that, with the INA decision, they believed that Keene had more than enough insurance to cover its asbestos liabilities. (Bailey Decl. ¶¶ 7-9; Mileaf Decl. ¶¶ 6, 7; Bertrand Dep. at 23). ARKO partners also believed the insurance coverage of $390 million was more than enough to cover all asbestos claims. (Anderson Dep. at 130, 245; Herner Dep. at 440).

In addition, there were excess and property damage insurers to pursue as well. (DXs 131, 139 at LIPPE 209241-42, 209249). Keene later confirmed an additional $13.5 million in coverage and negotiated $23 million more in coverage upon its withdrawal from the Asbestos Claims Facility. (Vaccaro Decl. ¶ 5; DX 391 at LIPPE 382377). Keene also recouped asbestos-related defense costs by virtue of the insurance: from 1982 through 1990, Keene received more than $93 million in coverage for defense costs outside of policy limits. (Vaccaro Decl. ¶¶ 9-10).

d) The Forecasts

In its 1980 first quarter 10-Q, Keene reported that it could not reasonably estimate the number of future asbestos-related claims. (DXs 38, 54 at AA 526-27). Keene's outside auditor, Arthur Andersen & Co. ("Andersen"), told Keene that if Keene could not provide an estimate of these liabilities, "[Andersen] cannot be expected to give an unqualified opinion" of Keene's 1980 financial statements. (DX 38; see Denkensohn Dep. at 164; Trivisonno Dep. at 226-28, 230-31, 308-10, 317). As a consequence, Keene sought to develop a realistic forecast, in light of the constraint that "nobody [could] predict the future." (Herner Dep. at 301, 308; Mileaf Decl. ¶¶ 5, 6).

One consideration was the latency period for the manifestation of asbestos-related diseases, which ranged, depending on the disease, from 15 to 35 years. (DX 18 at LIPPE 50712). Keene made some analyses, looking at randomly selected sample cases and considering when claimants had been exposed to asbestos. (See DX 73 at LIPPE 50057; Herner Dep. at 314-32, 608-36).

In a January 21, 1981 letter to Andersen, Keene estimated that some 30,000 new asbestos cases would be filed against it over the course of the next eight years. (DX 74 at LIPPE 49934). This was in addition to the 5,950 cases then pending, for an estimate of 35,950 cases total. (Id. at LIPPE 49939). Keene estimated that "[t]he average settlement or cost" was $2,800, not including defense costs. Settlements had been averaging $3,700 per case, but that included a $280,000 settlement in the Lopez case. Keene came up with the $2,800 figure by removing Lopez, which it considered had been mishandled, and factoring in the lower cost of settling the California and Mississippi cases. (Id. at LIPPE 49934, 49938).

In the letter, Keene estimated that "the present value of assumed settlements" was $9.234 million, which represented 12.2% of Keene's pro forma net worth. (Id. at LIPPE 49935, 49939; see DX 68 at LIPPE 333876). The $9.234 million figure was the present value of what Keene expected it would have to pay, after factoring in taxes and insurance coverage. (DX 74 at 49934-35, 49939). This forecast was made, however, before the Court of Appeals ruled in the INA decision in October 1981. (Id.).

Upon review of the letter, and based on its prior analyses as well, Andersen concluded that Keene's estimate of future liabilities was reasonable. Andersen gave Keene's financial statements an unqualified — or clean — opinion. (DX 77; see DX 68 at LIPPE 333875; Bailey Decl. ¶ 15).

In January 1982, Keene provided Andersen with an update of its asbestos forecast, based in part on its actual experience for 1981. (DX 113). During 1981, 4,573 cases had been filed, compared to the 5,500 cases that had been estimated previously. (Id. at LIPPE 49752; see DX 74 at LIPPE 49939 (predicting 5500 cases would be resolved in 1984 and assuming three-year life for cases)). Keene continued to predict that 30,000 new cases would be filed over the next eight years. (DX 113 at LIPPE 49752). The average settlement or cost per case, net of defense costs, was estimated to range from between $2,000 to $5,000, increasing in the long term. (Id. at LIPPE 49752-53).

Keene estimated the present value of the cost to be $10.599 million, or 11.4% its pro forma net worth. (Id. at 49756, 49764). Again, this factored in taxes and insurance coverage: although Keene estimated that all the cases filed through 1991 would cost in excess of $100 million to resolve, after tax adjustments and insurance coverage, and discounted to present value, Keene estimated its cost to be $10.599 million. (Id. at 49753, 49756, 49764). In addition, although the Court of Appeals had by now ruled in the INA case, Keene continued to take a more conservative approach in its forecast because a petition for certiorari was pending in the Supreme Court. As Keene noted, however, "[i]f [the Court of Appeals's] decision stands . . ., Keene's financial liability for asbestos cases should be significantly reduced." (Id. at 49754-55). In fact, two months later, the Supreme Court denied the petition for certiorari. INA v. Keene Corp., 455 U.S. 1007 (1982).

In January 1983, Keene again wrote to Andersen to report on the status of asbestos claims. Keene noted that its 1983 report was substantially different from prior reports for two reasons: the INA insurance litigation and the bankruptcy filing in 1982 of Johns-Manville Corporation ("Manville") and its affiliates. (DX 139 at LIPPE 209229; see Mileaf Decl. ¶ 7). Keene noted that approximately 5,000 cases were filed in 1982, as compared to the previously predicted number of 5,500 cases. It noted that Keene continued to believe that, together with pending cases, approximately 36,500 cases would be filed against it. (DX 139 at 209231). Keene noted that in the Manville bankruptcy proceedings, Manville had projected that 52,000 cases would be filed against it. (Id. at 209232). It further noted that because Keene had not been named in all the lawsuits against Manville, the Manville projection "tends to support our previous projections." (Id.). As for insurance, Keene reported that it had at least $386.5 million in available insurance. (Id. at 209240). Keene also had a reserve fund of $15,329,859 for the asbestos case expenses as of December 31, 1982. (Id. at 209242). Keene concluded that the cost — including defense costs — to resolve all the predicted cases would be approximately $196.69 million. (Id. at 209247).

From 1984 through 1986, Keene continued to make estimates each year of anticipated asbestos claims. It continued to conclude that the available insurance was more than adequate to cover the estimated total cost of the asbestos claims. (See Bairnco Mem. at 22 (chart) (citing Vaccaro Decl. ¶ 11; DXs 139, 196, 252, 275)).

In 1987, Keene reported that it could not estimate the number of future cases because of the increasingly unpredictable rate of new case filings. (DX 322 at LIPPE 389727, 389735). In fact, the number of cases filed had grown from 5,102 in 1983 to 6,222 in 1984 to 9,168 in 1985 to 12,906 in 1986. (Id. at 389748). The 1986 figure included all cases against all ACF producers, while the prior numbers were claims against Keene only. (See DX 341 at LIPPE 389845). Nonetheless, Keene concluded that "despite the continued high rate of new case filings, Keene believes, based on the facts available to it today, that there is sufficient insurance available to handle existing and possible future cases." (DX 322 at 389740).

In January 1988, Keene again reported to Andersen, and again it declined to forecast the number of future cases. (DX 341 at LIPPE 389844, 389855). Keene noted that new case filings for 1987 (against all ACF Producers) had increased to 23,039. (Id. at 389845). Keene's average share of total indemnity costs was $4,960 per case in 1987, $4,028 per case in 1986, and $3,691 per case in 1985. (Id. at 389846). Keene continued to state its view that it had sufficient insurance coverage to cover the claims, as it had "at least $390,000,000" for the period from 1956 through 1982. (Id. at 389867). It also had a reserve of some $18 million set aside for the asbestos claims as of the end of 1987. (Id. at 389873).

In January 1989, Keene again reported to Andersen, and again it declined to forecast the number of future cases. (DX 391 at LIPPE 382376). It noted that by the end of 1988, there were approximately 65,385 cases pending against members of the Center (which was created in 1988), as opposed to 59,542 cases pending against those same companies as of year-end 1987. (Id. at 382382). Significantly, Keene reported also that there had been a decline in the number of new case filings and an increase in the rate of disposition of cases. In 1988, there were 17,982 new filings (including both the ACF and the Center) as opposed to 23,039 new filings in 1987 (cases against all ACF Producers). (Id. at 382383-84). Keene also reported that its share of total indemnity costs had dropped on a per-case basis from $4,641 for ACF cases to $2,980 for Center cases. (Id. at 382385). Keene also reported that the amount of its insurance coverage for the period 1956 through 1982 had actually increased, to $413 million, because of an additional $23 million in coverage received in 1988. (Id. at 382402). Of this amount, some $159 million had been used, leaving some $254 million. (Id. at 382404). In addition, Keene still had an $18 million reserve for the asbestos cases. (Id. at 382408). Keene concluded:

We believe that when all factors are taken into account based on the information available to us today, acknowledging that we have not predicted any particular number of cases to be filed, that there will be sufficient available insurance when added to Keene's reserve that the personal injury asbestos case liability and the property damage asbestos case liability will not have a material adverse effect on the financial position of Keene at December 31, 1988.
(Id. at 382376).

e) The Manville Case

When Manville filed for bankruptcy in 1982, Keene looked to Manville's experience as a check on its own forecasts. Manville was the "industry leader" and had a much larger market share than Keene in terms of asbestos products. (Mileaf Decl. ¶ 7). Manville had projected that some 52,000 cases would be filed (DX 139 at Lippe 209232; see Bailey Decl. ¶ 12), and Manville was publicly criticized at the time by members of the plaintiffs' asbestos bar — including Stanley Levy, one of the Trust's attorneys in this case — as exaggerating the number of future claims. (DXs 128, 187 at LIPPE 87516, 87519, 87541). Keene took note of this criticism. (See Bailey Decl. ¶¶ 11-12; Mileaf Decl. ¶ 7; Herner Dep. at 464 ("I got the plaintiffs' lawyers themselves saying this is about how many — the plaintiffs' lawyers actually saying that the ERI report was too high because it was stating a number of cases that were too high."); see DX 139 at LIPPE 209229, 209232-34).

In the Manville bankruptcy case, certain parties moved to dismiss the petition on the grounds, in part, that Manville had filed its petition in bad faith because it had overstated the "problem of uncontrolled proliferation of asbestos health suits." In re Johns-Manville Corp., 36 B.R. 727, 729 (Bankr. S.D.N.Y. 1984). The court denied the motions to dismiss, holding that "Manville has credibly analyzed its position." Id. at 734.

By August 1986, however, for purposes of establishing the Manville Personal Injury Settlement Trust, the parties involved in the Manville proceedings were estimating that between 83,000 and 100,000 claims would be filed at $25,000 per claim. (DX 541 at CND 1018272, 1018358).

f) The Views as to Keene's Solvency

ARKO, Keene's counsel and experts in asbestos litigation, represented to Andersen each January from at least 1980 through 1990 that it was ARKO's opinion that the asbestos cases would not have a material adverse effect on Keene's financial condition. (DXs 530 (1980), 75 (1981), 114 (1982), 535 (1983), 195 (1984), 251 (1985), 540 (1986), 544 (1987), 342 (1988), 390 (1989), 435 (1990)). In essence, each year ARKO advised Keene and Andersen that in its view the asbestos claims did not render Keene insolvent. (See, e.g., Herner Dep. at 442-43).

Likewise, from 1980 through 1988, after evaluating the impact of the asbestos claims, Andersen gave Keene (or Bairnco) a "clean" opinion on its financial statements. (DXs 68 at LIPPE 333875 (1980), 106 at BZ 119941 (1981), 137 at BZ 97900 (1982), 188 at BZ 119690 (1983), 247 (1984), 269 at BZ 119346 (1985), 315 at BZ 1003268 (1986), 340 at BZ 119140 (1987), 387 at BZ 16201 (1988)). The 1988 report was certified by Andersen on January 23, 1989. (DX 387 at BZ 1003268). These opinions were based not just on Keene's representations and ARKO's opinions, but also on Andersen's own research and analyses. (See, e.g., DXs 268, 316, 327, 338, 381, 382, 386, 401, 498).

Keene's managers and lawyers have stated under oath, in affidavits and in deposition testimony, that throughout the 1980s at least through the dates of the transactions at issue in this case, they never believed that Keene was insolvent or would be rendered insolvent by virtue of the asbestos cases. (See, e.g., Bailey Decl. ¶¶ 15, 22, 23; Cafiero Dep. at 207-08; Prata Dep. at 71-72; Betrand Dep. at 23; Conway Dep. at 152-53; Mahoney Dep. at 89). Their testimony is corroborated by numerous contemporaneous documents showing that its managers believed that Keene was going to survive or that the worst was over. For example, in a document relied on heavily by plaintiffs, Keene's general counsel, Howard Mileaf, acknowledged in June 1981 that there was the potential for thousands of claimants "to show up every year," but he also predicted:

[T]he whole problem should reach a crescendo by 1990 or earlier at which point Keene's status will become measurable and a fairly routine procedure will be established. . . .
Keene's leadership role in the insurance, supplier and government lawsuits puts the company in a unique . . . position to survive and indeed, flourish during this period.
(PX 203 at LIPPE 51600-01 (emphasis added)).

g) Keene's Net Worth

Keene's financial statements showed its net worth at year-end for each year in the 1980s through 1991 as follows:

1980 $70.7 million

1981 $84.7 million

1982 $94.0 million

1983 $105.9 million

1984 $117.7 million

1985 $120.1 million

1986 $116.5 million

1987 $123.3 million

1988 $127.8 million

1989 $131.7 million

1990 $133.3 million

1991 $134.1 million

(Bailey Decl. ¶ 55; see also DX 501 at KELT 3521; Tersigni Dep at 318-19 (agreeing Keene's net worth showed "a general upward trend through 1990")).

At least in the later years, a substantial part of Keene's net worth was the result of substantial amounts of cash and other liquid assets on hand. As of December 31, 1987, Keene had more than $75 million in cash and other liquid assets. That amount increased to almost $110 million as of December 31, 1988 and to more than $140 million as of December 31, 1989. (Fichthorn Decl. ¶ 43; see Bairnco Mem. at 179 (chart with citations to financial statements)).

2. The Transactions

At the end of the 1970s, Keene's management decided that the company should move away from being a large conglomerate. Although defendants have provided evidence that Keene's management felt that the company's earnings were depressed because of its nature as a conglomerate (see, e.g., DXs 48, 49; Bailey Dep. at 605-06), plaintiffs have presented evidence that a substantial consideration was also Keene's growing concern over the increasing number of asbestos claims. assume, for purposes of this motion, that Keene was seeking ways to address the adverse impact that asbestos cases were having on its value and earnings. Indeed, Keene began to consider restructuring.

One proposal was for Keene to "spin-off" its Kaydon division. In this connection, Keene sought legal advice from Debevoise, Plimpton, Lyons & Gates ("Debevoise"). On November 21, 1980, Debevoise provided a memorandum to Keene's board of directors. (DX 62; see DX 63).

The memorandum addressed a number of matters, including issues presented by the asbestos cases. Specifically, Debevoise raised the issue whether the proposed spin-off — which, as contemplated, did not call for the payment to Keene of any consideration — could later be attacked as a fraudulent conveyance. (DX 62 at LIPPE 52954-55). Debevoise concluded that "Keene should not undertake the Spin-off" unless the board believed that enough assets would be "left behind" to meet all liabilities of Keene, "whenever and however incurred," and Keene would not be rendered insolvent. (Id. at LIPPE 52954).*fn2

Based on Debevoise's advice, Keene decided that it could not go forward with the proposed spin-off — one that involved the payment of no consideration. (Bailey ...

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