The TortsProf Blog has an interesting post arising out of a law firm client threatening to pull business from the firm unless the firm caused a lawyer to cut a deal with the client. The lawyer refused and then sues for tortious interference. The TortsProf blog covers a lawyer-favorable ruling from an appellate court.
Here is the online version of a brief but useful article Tort Source on case law on the admissibility of accident reconstruction animations
Apple is being sued in class actions because its Siri software does not work as well as shown on tv, according to the plaintiffs' complaints. The defense ? So far they include hat the users complaints are unique, and the purchasers did not return the phones within 30 days. The latter seems a loser defense. That's about the same as saying you can't sue over a defect in a car if you kept the car after finding the defect. Or, imagine if you received a defective medical device - apparently it has to be pulled out immediately or you lose the right to sue. Odds on that defense succeeding?
One of these days, suits of this sort seem likely to gain traction. When devices were new, beta perhaps made sense. Today it sometimes seems it's an excuse for selling lousy software that no one bothered to test. Certainly manufacturers of physical devices have paid dearly when they failed to test - why should software be different when its operating in the static environment of Apple products? It's one thing to be lenient when the software fails when interacting with products made by others that the OEM cannot control, but Apple controls the physical device and the software. If it fails to work, it's Apple's fault.
Law firm are starting to generate some headlines - and material payments - in some of the cases alleging that law firms aided and abetted corporate malfeasance. LAW360 includes an article that opens with news of to significant settlement payments:
California Voters Could Make the State The World's Second Largest Funding Source for Cancer Research
The human and financial costs of cancer are staggering, and now California's voters are being given a chance to fight back by approving a new tax of $ 1 per pack of cigarettes. If the new tax is approved, most of the money generated would be used to fund cancer research. The proposed new tax will be voted on in June during primary voting - the tax is embodied in Proposition 29.
The tax is plainly a good idea, especially when one considers the enormous costs of cancer. For the globe, annual direct and indirect costs of cancer are estimated at $1.5 trillion, annually, as described before on this blog. And, the numbers for the US alone are staggering, as described in a press release from the NIH. "Based on growth and aging of the U.S. population, medical expenditures for cancer in the year 2020 are projected to reach at least $158 billion (in 2010 dollars) – an increase of 27 percent over 2010, according to a National Institutes of Health analysis. If newly developed tools for cancer diagnosis, treatment, and follow-up continue to be more expensive, medical expenditures for cancer could reach as high as $207 billion, said the researchers from the National Cancer Institute (NCI), part of the NIH. The analysis appears online, Jan. 12, 2011, in the Journal of the National Cancer Institute."
Set out below are key excerpts from a new Science magazine article on Proposition 29:
Securities claims continue to intensify against lawyers for their roles in events.
LAW 360 recently posted a story on a suit proceeding against Proskauer in connection with Mr. Stanford's scams. ("[A] fourth suit revived by the ruling alleges Proskauer attorney Thomas V. Sjoblom and others facilitated the scheme by hampering a U.S. Securities and Exchange Commission investigation into the scheme.")
Another suit is proceeding against Quarles & Brady. ("Aggrieved investors in a company called Radical Bunny LLC contend the company sold unregistered securities to fund Mortgages' operations and falsely claimed loans it made to the mort were backed by collateral. Mortgages allegedly sold its own stock and separately raised millions through Radical Bunny's securities sales, U.S. District Judge Frederick J. Martone wrote in his order.")
A person with externally caused disease by definition has lost some or all happiness because of the disease. Tort law offers money as a partial offset to loss of happiness. Much tort law is based on judgments and guesses about human behavior, suffering and happiness, with many tort law rules being decades old, and some centuries old.
Updated thinking may be starting to arrive, and may even involve science and tort law. That possibility seems more real when one considers the interesting dialogs, research and books ongoing in the areas of risk, decision making and happiness. One such discussion is Peter Huang's lengthy and substantive post at the Conglomerate, the several books cited in it the post, and posts he put up past week at the Conglomerate.
Imagine what tort law rules might become if we actually look carefully at rules and assumptions which are often taken for granted but seem dubious. For example, why do/should courts assume that warnings are read and understood? The assumption seems especially dubious today when we have warnings printed in tiny fonts in one language on generic package inserts that are so absurdly broad they lose all meaning. And, can we really say that a manufacturer is really fulfilling its personal responsibility when it uses generic, cheap inserts instead of tailored, useful means for communication ?
Consider also that society is seeing increasing disintermediation as highly skilled professionals (e.g. really smart doctors; really good engineers) become less and less accessible due to adoption of cookie cutter processes that focus on eliminating or reducing the use of high value/high cost professionals. Does the learned intermediary doctrine make sense when learned intermediaries are largely pushed out of their traditional roles as advisers ?
And, what about the problem of professional competence. Today, knowledge is growing so fast that doctors and other professionals are hard pressed to keep up. Should tort law continue to apply "local standards of care" or should there by a new rule requiring a local doctor and/or hospital to at least offer a recommendation to real experts. The standard of cancer care, for example, is far lower in a rural hospital than it is at MD Anderson, Memorial Sloan Kettering or Mayo. Would you - presumably a smart professional - accept treatment at a low standard of care or do you demand the benefit of and access to the best possible care?
Click here to link the tort reform observations of The Epicurean Deal Maker, a/ka/ TED.
The corporate aiding and abetting debate goes on at OpinioJuris. This latest post includes a helpful link to and quote from the complaint to put matters into better context. They are:
"Here is paragraph 37 of the Complaint:
Despite the well-documented use of child labor on cocoa farms in Cote d’Ivoire, Defendants not only purchased cocoa from farms and/or farmer cooperatives which they knew or should have known relied on forced child labor in the cultivating and harvesting of cocoa beans, but Defendants provided such farms with the logistical support to do so with little or no restrictions from the government of Cote d’Ivoire."
As to corporate liability under ATS for aiding and abetting a tort, the debate goes on here, here and here at OpinioJuris as to the amicus brief first noted here. The issue in short is whether Nestle can be held liable under the ATS if it knew it was contracting with persons who were violating local labor laws, or whether it also must be proven that Nestle intended its contracting to help further the violations of local labor laws. That issue includes sub-issues regarding the degree of international consensus required to establish a rule of international law and how one proves up an international consensus. The issues plainly are important to companies contracting with known law breakers.
OpinioJuris includes three posts on corporate aiding and abetting liability in the context of an appeal to the Ninth Circuit in Doe vs. Nestlé. One post links to and previews an amicus brief written by various law professors for the National Association of Manufacturers. They are Professors Samuel Estreicher, John McGinnis, Michael Ramsey, Mark Weisburd, Ernest Young and Julian Ku. That brief of course opposes any “extension” of corporate liability. Two other posts - here (disagrees with reliance on Visaljavic) and here (disagrees with reliance on Rome Statute) - are by Kevin Jon Heller, and contradict the legal arguments advanced by NAM. As frequent readers may recall, Mr. Heller's views were noted before on GlobalTort - here and here. It will interesting to see the outcome.
More Insider Trading Convictions Against Galleon Traders - - What About Madoff-Like Claw-backs from Investors Who Received Ill-gotten Gains ?
Bravo, again ! Last month Galleon's boss was convicted on multiple counts of insider trading. This week, AUSA's in New York obtained additional insider trading convictions against former Galleon traders, as described here in Dealbook.
Now, the NYT's insightful and provocative financial reporter, Joe Nocera, is asking the right questions. They include asking whether we will or should see efforts to claw-back from investors the ill-gotten gains achieved through insider trading. After all, aren't investors aiding & abetting when they invest in businesses operating outside the law?
Mr. Nocera does not cover the topic, but RICO law provides analogies, and may even be applicable. Under RICO, the financial fruits of crime are frequently subject to forfeiture, including forfeiture by "innocent" persons, such as the family members of criminals. For historic perspective, go here for paid access to an early 1980s law review on RICO, go here for a 1990s article on RICO, and go here for a 2010 article on property rights, divorce and property subject to RICO forfeiture.
Perhaps Judge Rakoff would cover the topics during his teaching at Columbia - he is a scholar as to RICO, white collar crime and other subjects, including science, as is described here by Wikipedia. Indeed, Judge Rakoff wrote this treatise on civil and criminal use of RICO.
Mr. Nocera artfully raises the issues relevant to public policy, such as deterring the creation of wealth through illegal and/or fraudulent investment tools. Thus, he writes:
But there were plenty of red flags around Rajaratnam, too. Hedge fund managers will tell you that there were always rumors about insider trading at Galleon. Indeed, it was at the heart of Rajaratnam’s business model.
It is implausible that every one of Rajaratnam’s sophisticated investors were in the dark. Yet the law says that, unlike the Madoff investors, they bear no responsibility for ignoring red flags. On the contrary: They are being rewarded for looking the other way. And even though Rajaratnam is likely to spend years in prison — and will have to pay tens of millions of dollars in restitution and fines — he will remain supremely wealthy, as will his family. This is one more contrast to Madoff, whose family is likely to be penniless by the time the trustee is finished.
The phrase I find myself muttering a lot these days is: “There oughta be a law.” There oughta be a law, for instance, that executives who create corporate cultures that encourage employees to commit fraud, as Angelo Mozilo did at Countrywide, should be held criminally liable for fostering that culture. But there isn’t any such law, so Mozilo gets a pass, despite all the fraudulent mortgages Countrywide underwrote.
The more I think about it, the more I’m convinced that there ought to be a law that says that if a fund manager’s “edge” is insider trading, his investors should have to pay a price, too. Maybe then, they’d be less willing to look the other way when their fund manager starts doing things he shouldn’t.
Piracy on the water is now attracting investment capital and it's being used to upgrade equipment, according to a U.S. Navy official and Bloomberg's account of the story. Bloomber's story has more detail, but the opening is set out below. As the Bloomberg story notes, crime flourishes when other work is not available.
The article notes that many ships fail to follow best practices, and thus make themselves easy targets. It's interesting to read this and wonder how much of a subsidy our nation and others are providing to the insurance industry by providing warships and soldiers to reclaim pirated ships and protect foolish ship owners. Insurers spend lots of time placing ads claiming they find and root out lots of fraud and crime. If all those words are true, one wonders why they can't manage their insured ships away from the pirates.
"Piracy syndicates are selling shares in planned attacks, fueled by a surge of ransom payments that help attract investors, the U.S. Chief of Naval Operations said.
Piracy syndicates in villages, mainly in largely ungoverned Somalia, solicit investors who buy shares in the attack missions and gain a corresponding share of ransoms paid by the shipping industry, Admiral Gary Roughead said.
“The ransoms fuel the business, the business invests in more capability, either in a bigger boat, more weapons, better electronic-detection means to determine where the ships are,” Roughead said in an interview in Bloomberg’s Washington Bureau today. “So it’s a business.”
The average ransom payment rose 36-fold over five years to $5.4 million last year, compared with $150,000 in 2005, according to the Louisville, Colorado-based One Earth Future Foundation. The payments are fueling increased raids, adding at least $2.4 billion to transport costs because vessels are being diverted onto longer routes to avoid attacks off east Africa, the non-profit group said earlier this year. "
Apparently black marketeers from Russia can beat out big tobacco in the race to the bottom. Go here for the story and a picture of the contraband Jin Ling cigarettes.
Liability for aiding and abetting tortious conduct is back in focus due to legislation proposed by Senator Specter that would overturn Stoneridge. A post on the D & O blog post collects current nformation, also with links also to Pointof Law. Past GlobalTort posts are collected under the topic aiding and abetting.
One has to wonder why financial professionals thunk they can ealistically argue they are especially deserving of protection against this common law cause of action that is not as radical as some claim. In Illinois, for example, well-regarded Jenner & Block litigated and lost the Thornwood appellate decision regarding an aiding and abetting claim against the firm in connection with a client engagement. . Key excerpts are as follows;
"In Illinois, a claim for aiding and abetting includes the following elements:
"(1) the party whom the defendant aids must perform a wrongful act which causes an injury; (2) the defendant must be regularly aware of his role as part of the overall or tortious activity at the time that he provides the assistance; (3) the defendant must knowingly and substantially assist the principal violation." Wolf v. Liberis, 153 Ill. App. 3d 488, 496 (1987)(recognizing the elements of claims for aiding and abetting and concert of action but failing to find liability where there were no allegations that the codefendant agreed to assist or substantially assisted in the commission of tort resulting in the plaintiff's injury).
Further, the Restatement (Second) of Torts controls recovery under the theory of concert of action in Illinois. Wolf, 153 Ill. App. 3d at 496. It provides:
"For harm resulting to a third person from the tortious conduct of another, one is subject to liability if he (a) does a tortious act in concert with the other or pursuant to a common design with him, or (b) knows that the other's conduct constitutes a breach of duty and gives substantial assistance or encouragement to the other so to conduct himself, or
(c) gives substantial assistance to the other in accomplishing a tortious result and his own conduct, separately considered, constitutes a breach of duty to the third person." Restatement (Second) of Torts §876 (1979).
Although Illinois courts have never found an attorney liable for aiding and abetting his client in the commission of a tort, the courts have not prohibited such actions. In Reuben H. Donnelley Corp. v. Brauer, 275 Ill. App. 3d 300 (1995), for instance, the court considered a claim of aiding and abetting made against one defendant and his attorneys. While not specifically considering whether the claim could be maintained against the attorneys as a matter of law, the court implicitly accepted that such a claim could be maintained when it held that there could be no liability because the underlying conduct involved a breach of contract, not a tort. Brauer, 275 Ill. App. 3d at 310.
Similarly, Illinois courts recognize that claims for conspiracy may be maintained against attorneys where there is evidence that the attorneys participated in a conspiracy with their clients. See, e.g., Bosak v. McDonough, 192 Ill. App. 3d 799, 804-05 (1989) (recognizing conspiracy claim against attorney but finding insufficient evidence to impose liability). Accordingly, we see no reason to impose a per se bar that prevents imposing liability upon attorneys who knowingly and substantially assist their clients in causing another party's injury. As we have recognized, " '[o]ne may not use his license to practice law as a shield to protect himself from the consequences of his participation in an unlawful or illegal conspiracy.' " Celano v. Frederick, 54 Ill. App. 2d 393, 400 (1964), quoting Wahlgren v. Bausch & Lomb Optical Co., 68 F.2d 660, 664 (7th Cir. 1934). The same policy should prevent an attorney from escaping liability for knowingly and substantially assisting a client in the commission of a tort."
Go here to see the new filings summary from the Madison County Record. Of 28 cases, 14 are said to be lung cancer cases and 14 are mesothelioma cases. 13 of the lung cancer cases are filed by Simmons, Browder et al and 1 by the Gori, Julian firm. One could infer that Simmons, Browder et al want to make sure they have plenty of work to fill slots in trial dockets, and want to guard against a falling rate for persons to develop mesothelioma.
The post is here. Well worth reading.
More great new science at the observable cellular level. As described below, scientists used tools to observe cellular level shapes, and then figured out a way to "staple" some proteins to better take on the needed shape to fit cellular receptors. How cool and important is this discovery? Very - the science is so good it was published in Nature this month. Go here to Science Daily for the broader whole story; excerpts are below.
Why does this relate to law? As these techniques are used to actually implement ways to "turn off" cancer, they will become the remedies sought by persons facing cancer allegedly or actually caused by particular substances.
"ScienceDaily (Nov. 12, 2009) -- Scientists have devised an innovative way to disarm a key protein considered to be "undruggable," meaning that all previous efforts to develop a drug against it have failed. Their discovery, published in the November 12 issue of Nature, lays the foundation for a new kind of therapy aimed directly at a critical human protein -- one of a few thousand so-called transcription factors -- that could someday be used to treat a variety of diseases, especially multiple types of cancer.
Based on his work as an oncologist, Bradner became deeply interested in a human protein called NOTCH. The gene encoding this protein is often damaged, or mutated, in patients with a form of blood cancer, known as T-ALL or T-cell acute lymphoblastic leukemia.
Abnormal NOTCH genes found in cancer patients remain in a state of constant activity, switched on all the time, which helps to drive the uncontrolled cell growth that fuels tumors. Similar abnormalities in NOTCH also underlie a variety of other cancers, including lung, ovarian, pancreatic and gastrointestinal cancers.
Even with this deep scientific knowledge, drugs against NOTCH -- or any other transcription factor -- have traditionally been extremely difficult, if not impossible, to develop. Most current drugs take the form of small chemicals (known as "small molecules") or larger-sized proteins, both of which have proven impractical to date for disabling transcription factors.
A few years ago, Bradner and his colleagues hatched a different idea about how to tame the runaway NOTCH protein. Looking closely at its structure as well as the structures of its partner proteins, they noticed a key protein-to-protein junction that featured a helical shape.
"We figured if we could generate a set of tiny little helices we might be able to find one that would hit the sweet spot and shut down NOTCH function," said Bradner.
Creating and testing these helices involved a team of interdisciplinary researchers, including Greg Verdine, Erving Professor of Chemistry at Harvard University and director of the Chemical Biology Initiative at Dana-Farber Cancer Institute, as well as scientists at Brigham and Women's Hospital and the Broad Institute's Chemical Biology Program, which is directed by Stuart Schreiber.
Verdine invented a drug discovery technology that uses chemical braces or "staples" to hold the shapes of different protein snippets. Without these braces, the snippets (called "peptides") would flop around, losing their three-dimensional structure and thus their biological activity. Importantly, cells can readily absorb stapled peptides, which are significantly smaller than proteins. That means the peptides can get to the right locations inside cells to alter gene regulation."
Wondering what the Daubert case law will look like in a few years as great new science pushes past epidemiology as new machines and techniques make cause and effect more or less directly observable ? Worried about Alzheimer's perhaps being part of your future and wondering what's ahead? Wondering why nations need to invest more n fundamental science at national laboratories such as Brookhaven and Argonne ? If any of those topics are in mind, consider reading a short article that reports on a new molecular level discovery made by scientists at the storied Cold Springs Harbor Laboratory using the National Synchrotron Light Source at Brookhaven National Laboratory. For the article online, go to ScienceDaily (Nov. 13, 2009). Key excerpts are below:
"A team of scientists at Cold Spring Harbor Laboratory (CSHL) reports on Thursday their success in solving the molecular structure of a key portion of a cellular receptor implicated in Alzheimer's, Parkinson's, and other serious illnesses
"Without a highly detailed molecular picture of the ATD, however, efforts to rationally design inhibitors cannot proceed. Hence the importance of Furukawa's achievement: a crystal structure revealed by the powerful light source at Brookhaven National Laboratory, that shows the ATD to have a "clamshell"-like appearance that is important for its function. The results are published in a paper appearing online Thursday ahead of print in The EMBO Journal, the publication of the European Molecular Biology Organization. (emphasis added)
The team obtained structures of the ATD domain with and without zinc binding to it. Zinc is a natural ligand that docks at a spot within the "clamshell" in routine functioning of the NMDA receptor. Of much greater interest is the location and nature of a suspected binding site of a small molecule type that is known to bind the ATD and inhibit the action of the NMDA receptor.
These inhibitor molecules are members of a class of compounds called phenylethanolamines which "have high efficacy and specificity and show some promise as neuroprotective agents without side effects seen in compounds that bind at the extracellular domain of other receptors," Furukawa explains. Now that his team has solved the structure of the ATD domain of the NR2B subunit, it becomes possible to proceed with rational design of a phenylethanolamine-like compound that can precisely bind the ATD within what Furukawa and colleagues call its "clamshell cleft," based on the crystal structure they have obtained."
Here is a link to an American Lawyer article detailing a defrauded investor's suit against the SEC for failing to uncover and stop Mr. Madoff's fraud. According to the article, plaintiff's counsel is a former SEC lawyer who acknowledges sovereign immunity rules but has tried to plead around them. The claims are asserted under the Federal Tort Claims Act.
Talk about a global tort. While waiting to transport one of my daughters this evening, I spent a few minutes reading the guilty plea (thanks, NYT) by Sanford's CFO, James Davis. What raw fraud and greed. Hard to imagine why it was so hard for regulators to figure it out.
Reading the plea, it seemed to me plain that "Lawyer A" will be soon charged with being a central part of the fraud over at least the last two or three years of the scheme. So, I ran a quick Google search to see who might be lawyer A. The search turned up a late Friday AmLaw blog post that provides lots of reminders about past stories on Sanford, and reports in this post that an investor class action was filed late Friday afternoon against the Proskauer law firm and Thomas Sjoblom, saying he is "Lawyer A."
Not a good year for the legal profession.
Asbestos Plaintiff's Lawyers Ask W.R. Grace Bankruptcy Court to Order that Its Findings - on Solvency - Do Not Matter In any Other Forum
The W. R. Grace chapter 11 case has produced a striking motion that highlights the too often bizarre and unconstitutional nature of much that happens in mass tort chapter 11 cases. In their motion, available here [Docket # 22543], the Asbestos Creditors Committee and the Futures Representative ask the bankruptcy court, Judge Judith Fitzgerald, to issue an order that any post-trial findings she makes on the solvency of Grace are to have no effect outside of her courtroom. The motion goes on to say that Grace does not object to the motion or proposed order.
As proof that I am not making up this motion "to pay no attention to the findings," set out below are key quotes from the motion and the proposed order. The full text quotes are followed by analysis of why the motion is rather absurd, why it was filed, and why it is unfair to co-defendants who remain stuck in asbestos cases in which Grace was, is or should be a co-defendant. The short answer, in my opinion, is that the motion to pay no attention to the findings is a transparent ploy to game the state courts by having them treat Grace as if it is insolvent even though it is in fact solvent. Why? Because Grace being viewed as insolvent by state court judges will in some cases block state court proceedings from properly allocating fault and/or monetary losses to Grace, thus defeating state laws on allocating fault and loss among multiple tort defendants.
1) Key Quotes from the Motion to Pay No Attention
The following are the key portions of the motion to "pay no attention to the findings:"
"In support [of this motion], the ACC and the FCR state as follows:
1. As the Court is aware, the Bank Lenders, various unsecured creditors, and the Official Committee of Unsecured Creditors (collectively, the "Unsecured Creditors") object that the Debtors are solvent and, therefore, the Unsecured Creditors are entitled to receive post-petition interest. The Unsecured Creditors have indicated that they intend to litigate this issue at the upcoming confirmation hearing.
2. Whether the Unsecured Creditors are entitled to post-petition interest, and
if so, at what rate is, at bottom, a contractual dispute between the Debtors, on the one hand, and the Bank Lenders and other Unsecured Creditors, on the other hand. Neither the ACC nor the FCR are parties to the relevant contracts, and are not participants in that dispute. Accordingly, the ACC and the FCR are not required, and do not intend, to present evidence on these issues."
Here is the request for relief:
"WHEREFORE, the ACC and the FCR respectfully request entry of an order, in the form of the proposed order attached hereto, providing that any findings or conclusions by the Court with respect to solvency shall only be used for the purpose of determining whether the Unsecured Creditors are entitled to postpetition interest and shall not be used by any party for any other purpose, and granting such other and further relief as the Court may deem just."
Set out below is the key portion of the proposed order - note that it is NOT limited to the bankruptcy court case and instead refers to any proceedings anywhere, such as a state court asbestos law suit where Grace being solvent might make it possible for other defendants to allocate fault or liability to Grace:
IT IS HEREBY ORDERED that:
Any findings made or conclusions reached by the Court with respect to the Debtors' solvency shall be used only for the purpose of assisting the Court to resolve the question of whether Unsecured Creditors, as defined in the Motion, are entitled to postpetition interest and shall not be used by any party in any proceeding for any other purpose. (emphasis added)
IT IS SO ORDERED.
2) Analysis of the Motion to Pay No Attention to the Findings
The ACC's motion is striking for multiple reasons. To begin with, consider its premise. According to the ACC and Futures Rep, they are parties to the case with notice and a meaningful opportunity to be heard, but they say they can just sit back and not present evidence and not be bound by whatever happens. That certainly seems rather absurd when the entire chapter 11 case was driven by present and future asbestos claiming. Indeed, the ACC spent several years contending that Grace is insolvent due to an alleged $ 6 billion or more of "asbestos liabilities." But, the ACC and the Futures Representative caved in and settled the present and future asbestos claims against Grace for far less than $ 6 billion after Grace went to enormous effort and expense to prove the bogus nature of many or most asbestos claims against it. The settlement in fact is said by Grace to have a present value of less than $2.5 billion and even the plaintiff's lawyers are said in this AmLaw article to have conceded the present value is less than $ 3 billion. And, when one looks at the settlement, only $ 250 million of present cash is being paid out by Grace itself before 2019- the deal,as described before here, is:
"The trust that will pay out asbestos claims will be funded by a $250 million cash contribution from Grace (payable on the company's emergence from Chapter 11); an additional $1.55 billion from Grace paid over 15 years, beginning in 2019; Grace's asbestos insurance coverage, worth an estimated $600 million; warrants to purchase Grace shares; and more than $1.2 billion in previous settlements with companies accused of fraudulently purchasing Grace assets."
It's rather hard to imagine that $ 250 million is even close to being the tipping point for Grace between solvency and insolvency.
The motion of the ACC and the Futures Representative also is striking for what it says about bankruptcy court proceedings. If anyone can figure out whether any entity such as Grace is or is not solvent, doesn't it make sense that it might be an experienced bankruptcy judge? And, if the court does make findings on solvency, why wouldn't the findings bind parties such as the ACC who were given meaningful prior notice of the hearing and the opportunity to participate in the hearing ?
As referred to above, another question of course is: why have the ACC and the Futures Representative asked the bankruptcy court to order that its findings on solvency should not mean anything anywhere else in the world. And, why would Grace not object to the motion when it has spent several years in arguments denying the extent of its alleged "asbestos liabilities" and, thus, its insolvency ?
In my opinion, the motivation for the motion is that a bankruptcy court finding that Grace is solvent would create an inconvenient truth for asbestos plaintiffs. Why? My view is that the asbestos plaintiff's bar does not want Grace found solvent because that ruling would have an adverse impact in state court asbestos tort cases where various state law rules apply to the allocation of damages and/or fault to solvent and insolvent entities.
Specifically, so long as Grace is viewed as insolvent, the laws of some states will completely block or limit the ability of co-defendants in asbestos trials to have financial liability or fault allocated to Grace. But if Grace is deemed solvent, those joint and several liability rules may not be applied and then co-defendants could use trial to have fault or damages attributed to Grace even if Grace does not have to actually pay out any cash. For example, in some states, a trial finding that Grace is 50% or more at fault could cause other defendants to become only severally liable for economic losses equal to their allocated percentage of fault. Thus, a finding that Grace is solvent could and should cause plaintiffs in some individual cases to collect less money from co-defendants when a jury or judge finds that Grace in fact was at fault for a particular person's asbestos disease. In short, joint and several liability rules why the ACC and the Futures Representative filed their motion asking that the bankruptcy court to order the rest of the world not to pay any attention to what the bankruptcy court says about Grace's solvency.
The ACC/Futures Rep. motion to "pay no attention to the findings" also indirectly highlights other absurdities and inconsistencies in the relationships between and interactions of state and federal tort trials and chapter 11 proceedings. The absurdities arise in both chapter 11 cases actually caused by mass tort claiming and in chapter 11 cases such as GM and Chrysler where the chapter 11 case was not specifically caused by a mass tort problem but the chapter 11 case injunctions have huge impacts on underlying tort cases as they purport to cut off present and future rights to bring lawsuits against debtors, insurers and others. Trying to cover all the inconsistencies would require a book, but the following provides some examples.
One example of inconsistency arises from the positions the plaintiff's bar takes regarding the role of federal supremacy. In most state court tort cases, plaintiff's lawyers bitterly oppose federal supremacy and federal preemption. Time and again, plaintiff's lawyers argue that state law should control tort issues. And, in the GM and Chrysler chapter 11 cases, the ACC and other tort claimants argued at length that state law rights could not and should not be cut off by an order and injunctions issued in a chapter 11 judge court. And, in the future, tort claimants of all kinds no doubt will say that plaintiffs were denied due process in the GM and Chrysler cases, and are not bound by those federal court orders.
In other contexts, however, the plaintiff's personal injury bar and future's representatives go to great lengths to support the power of bankruptcy courts to issue sweeping orders binding everyone in the world to whatever went on the bankruptcy court. In asbestos bankruptcies, the plaintiff's bar time and again argues that bankruptcy courts can and should deem themselves to have incredibly broad powers to create billion dollar trusts to help debtors exit chapter 11 and at the same time pay money to real - and not real - "victims." Along the road to the creation of such trusts, plaintiff's lawyers unabashedly sell the certainty created by the bankruptcy court injunctive orders under section 524(g) of the bankruptcy code. Look back at the terms of the Grace deal above - the plaintiffs bar sold certainty to Grace, to insurers, and to entities that bought assets from Grace.
Particularly worth noting is the way the plaintiff's bar sells certainty to insurers. The deal invariably is: agree to pay $ x now, $ x over ___ future years, and then you, the insurance company, can have the benefit of a federal court injunction protecting your company and its insurance policies from any more lawsuits involving asbestos or any other tort claims arising from the debtor. That certainty, it is said, will protect the insurer against "direct action" claims by plaintiffs, against contribution claims by other insurers, and against claims arising from what the insurer may or may not have hidden from the public. Indeed, being able to sell that kind of certainty was the central point of the facts related to this year's Supreme Court opinion in the Manville/Travelers case, which I've touched on before at posts such as this one. Thus, in that context, plaintiff's lawyers embrace and extol federal bankruptcy court supremacy and want bankruptcy court orders to apply in every case and every time so that the plaintiff's can sell more certainty to more entities at higher prices. Thus, that's one example of glaring inconsistency as the plaintiff's bar extols federal supremacy in that setting, but denies it in other state court settings and seeks to moot it through their motion to "pay no attention to the findings." (And by the way, the Supreme Court's oral argument questions - and its opinion - in Manville/Travelers both reflect the Court's lack of a meaningful record on or other knowledge of what actually happens in the chapter 11 mass tort cases that some of the justices characterized as "mysterious.")
The plaintiff's bar is enormously clever and creative. They have created two different compensation systems - one composed of $ 30 billion or more of asbestos trusts and the other composed of ordinary tort law suits. To better serve their clients and their own pocketbooks, the plaintiff's bar seeks to keep the two compensation systems apart so that they can have their cake and eat it too (a phrase Bates White has been the first and most public to apply to the situation). The motion to "pay no attention to the findings" is merely one of the more recent examples of how the two systems can be and are in fact being gamed. How can this happen? Because the two different systems are run by judges who have little or no detailed understanding of what is happening in the other system, and because almost all bankruptcy and state court trial court judges view their primary job as getting individual cases resolved, regardless of the consequences for others.
One final thought. Doesn't the motion bring to mind the Wizard telling Dorothy and the others to pay no attention to the man behind the curtain?
# 1 - Growing Battles Over Techniques and Rules Used on Wall Street, in Tort Trials, and By Government to Shift Financial Obligations for Tort Losses
The tort litigation industry is seeing new battles emerge at the micro and macro level regarding the techniques and rules used on Wall Street, in tort trials, and by government to shift financial responsibility for payments for expenses arising from legitimate and illegitimate tort claimants. The battles are ongoing at both the micro and macro level, and will take years to resolve. Over time, billions and ultimately trillions of dollars are at stake when one considers direct and indirect payments, plus stock price changes, legal fees, and other associated costs and expenses of tort litigation and ancillary litigation. Posts over the next few weeks will present examples of the battles and their consequences. Throughout, one key is to look for whether, when and how one person/entity (or a group) are allowed to make deals that increase or decrease the risks and financial obligations for others involved in the same tort.
Today's example is a micro battle being fought in Illinois in a case arising from falling scaffolding killing Mr. Ready during a construction project at a power plant. One issue is whether fault can be apportioned at trial against defendants that settled before trial. Why does that matter? Because the plaintiff and one or more defendants can and may agree to a settlement contract because the settlement monies paid 1) will give plaintiff some level of financial certainty and 2) will shift to the remaining defendants the risk and financial obligation for the plaintiff's losses as determined at trial because the settlement, if approved, will by statute block the remaining defendants from suing the settling defendants for "contribution," and may block the trial defendants from asking the jury to apportion a percentage of fault to the settling parties. Further, the settlement also may influence whether the remaining defendants can offer trial proof of the actions of the settled defendant even if even if the jury is not allowed to apportion a percentage of fault to the settled defendants.
So, the most basic macro issue is whether and when this private settlement contract between three private parties will become the operative event that will enable the government (the courts) to take pre-existing claims and legal rights of the other defendants. In this instance, the defendants are Mr. Ready's employer, the general contractor and a subcontractor. In teh case, the employer and the general contractor settled, leaving the subsontractor exposed to a trial, which it lost. And, of course, lurking in the background are the insurers for those entities. But, for the macro level, bear in mind that some companies are self-insured, and some companies were insured but that insurance is or may be gone because the insurer actually is insolvent or may be trying to run away from "incurred but not reported" losses (that is, future losses) by ceasing its business operations and/or invoking a dissolution process specific to insurers. And, the issues arise in the context of events during a trial held during a period of time for which a "tort reform statute was said to be applicable.
In short, the Illinois Supreme Court held, under the statute, that the jury could not apportion fault against the settled defendants. Thus, the private settlement was converted into a government enforced agreement with legal consequences for the remaining defendant, which had not objected to the settlement. Left open by the Supreme Court was whether the jury should have been allowed to hear evidence about the actions (or inaction) of the settled parties. On remand, the appellate court held that the trial court should have allowed the jury to hear evidence of the actions of the settled defendants. The case may now be headed back to the Supreme Court of Illinois.
The Illinois Supreme Court's opinion from late 2008 is here (for now, but will move later when the opinion is archived.) Here is the June 30, 2009 opinion of the appellate court on remand. Here is a press article updating the case history, and explaining that the case is perhaps headed back to the Illinois Supreme Court. Here prior commentary by a large law law firm that represents corporate defendants.
An Amlaw article here details global government cooperation with respect to potential claims arising from the Madoff ponzi scheme. Accoridng to the article:
"Gerhard Jarosch, spokesman for the Vienna public prosecutor's office, told The Associated Press his office is aiding the U.S. Justice Department and Britain's Serious Fraud Office in separate investigations of Bank Medici AG and its chairwoman, Sonja Kohn."
"The Wall Street Journal, citing affidavits filed in the case, reported Friday that prosecutors from all three investigations believe Madoff -- sentenced a week ago to 150 years in prison -- paid Kohn in exchange for allegedly funneling billions of dollars in European investments to Madoff. "
$ 1 Billion Class Action Suit for Mexican Investors Invokes Aiding + Abetting Claim Against Stanford Insurer and Broker
The AmLaw blog post here describes and includes a link to a newly filed complaint that seeks $ 1 billion and a class action for Mexican investors hurt by the Stanford ponzi scheme. The complaint invokes aiding and abetting claims against Willis and an insurance broker. Of note, the complaint was not filed by a typical class action firm and instead was filed by Strasburger & Price, an old-line and full-service Texas law firm typically aligned with corporate interests that some might think would indicate the firm would not file a class action suit. According to the article:
"The complaint states that the defendants gave Stanford Financial "safety and soundness" letters designed to help it market its investments. "Willis and BMB crossed the line from being mere insurance brokers for the Stanford Financial Group," the complaint alleges. "In creating and submitting these letters into the stream of commerce, [the defendants] actively and materially aided Stanford Financial to perpetrate the massive Ponzi scheme now alleged by the SEC."
Science moves much faster than does "the law," and the changes in science over time will have a profound impact on the framing and resolution of legal issues.
For a new example, consider that respected medical journals Nature and Nature Genetics this month published articles from three research teams asserting identification of one or more genes they say are materially related to an increased risk of contracting non- small cell lung cancer, which comprises about 80% of lung cancers. Having one copy of the gene is said to be a characteristic of about 50% for persons of European descent, and far lower among persons from Asia and Africa. According to the authors, inheriting one copy of the gene raises the risk by about 28%, and inheriting two copies of the gene raises the risk by 70-80%. Some of the authors suggest the gene may be tied to the tendency to smoke. The press articles indicate that the research teams made the usual prediction that tests for the two genes will be available in the future.
The implications for law in general are profound when one considers all of the societal and legal issues related to health itself, and the obligations of insurers, governments or individuals for the expenses of treating (or, some day, preventing) a non small cell tumor in the lung. Those many issues are far beyond the scope of this blog. Here, the focus will remain on the potential tort litigation issues that may flow from these studies, and the other studies that surely will follow.
For example, many asbestos claimants with "lung cancer" attibute the disease in whole or in part to inhalation of asbestos fibers and/or cigarette smoking. In such cases, what difference should it or does it make if the claimant has one or more copies of the identified genes, and has the non small cell tumor? Defendants may ask for genetic testing and if they find the presence of one or two copies of the gene said to be relevant, they may argue that their presence breaks the legal causation chain and so precludes liability. Defense counsel also may invoke Daubert principles and seek to bar expert testimony from plaintiff's experts if the testimony is not focused in persons with two copies of the gene - will that tactic be allowed to work ? How soon?
Plaintiffs' counsel, on the other hand, may be expected to argue that the "two copies" claimant is just like the "eggshell skull" plaintiff we all heard about in law school. We were taught that the general rule is that a liable defendant cannot avoid financial responsibility simply because a particular person had an especially thin skull. Will that rule continue in force in the age of genomic testing? Should it stay in force as is, or does it need modification?
Plaintiffs also may use the presence of two copies of the gene to try to meet legal standards they cannot meet today for some claimants advancing fear of cancer claims or other claims. For example, some state law opinions (e.g Havner in Texas) will for the most part refuse to permit a claim unless the plaintiff proves that there is a relative risk of a specific disease created by "exposure" to a substance that is at or exceeds 2.0. Will science over time allow plaintiffs' lawyers to meet the 2.0 standard for claimants with the "two copies" even if the 2.0 standard could not be met for a person without the two copies of the "lung cancer" gene?
These and many other issues are arriving fast. For press articles with more details on the lung cancer studies, see: