Asbestos returned to the Supreme Court yesterday in the context of securities litigation. The case arises from Halliburton’s purchase of Dresser Industries, a long-time asbestos defendant. Ultimately, the disaster known as Dresser forced a chapter 11 filing by Halliburton entities to deal with the asbestos problem. Along the way, Halliburton’s stock price cratered. I remember it well because my law firm had hedge fund traders calling for advice on the scope of Halliburton’s massive problems acquired via Dresser and other deals.
Former Vice-President Dick Cheney was the CEO of Halliburton when it made the decision to buy Dresser. The losses which ultimately befell Halliburton were eminently foreseeable and indeed cost the company many billions, although it later recouped some billions through settling insurance policies. (One wonders how Mr. Cheney and others made the decision to buy Dresser – in a stock deal – without meaningful indemnities. The purchase seems almost as ill-conceived as Federal-Mogul’s decision to buy asbestos giant Turner & Newall, a purchase that also caused a bankruptcy.)
Anyway, the Dresser disaster’s consequences for shareholders are now before the Supreme Court in a securities fraud case on class certification standards. Long story short, the shareholder suit involves claims that Halliburton failed to properly disclose the asbestos risks of Dresser (that’s surely true). SCOTUS has the case because of the 5th Circuit ‘s aberrant views on class certification standards. It’s aberrant standards frankly are a recipe for how to fail to disclose toxic tort risks and then try to game the system by making belated disclosures to muddy the waters.
The case is provoking much debate, including ongoing blogging at the Conglomerate by several law professors. The posts include all the links one might want.
The also produced many amicus briefs, including pro-shareholder briefs by the US government , and by Professor Coffee and others. The usual defense groups are of course applauding the 5th Circuit’s view, including DRI and the Chamber of Commerce, but they may have lost some credibility for doing so because the accounts of oral argument say that Halliburton’s counsel conceded the 5th Circuit was off the mark at least in part. The Fifth Circuit opinion is here.
My conclusion? One hopes the Justices have the wisdom to reverse the 5th Circuit. If they fail to reverse, or approve muddled mixes of disclosures, companies will have much more leeway to fail to make timely and accurate disclosures of toxic tort risks. That’s a bad outcome for everyone, except insider traders. I’m optimistic in view of the Court’s pro-disclosure opinion earlier this term in Matrixx. As covered in this prior post, the Matrixx Court held that drug companies are indeed required to fully disclose adverse facts and possibilities arising from science.