Fraudulent Conveyance, Asbestos and A Very Interesting Arbitration
Over the years, I’ve had the good fortune to work as a trial lawyer on some very interesting issues in cases at intersections between business law, tort law and science. The outcome of the most recent trial is now public. As a member of the trial team for plaintiff, I focused on presentation and cross-examination of experts. For now, here’s a summary from an August 30, 2018 news article at Crain’s Cleveland News:
“An arbitration panel has ordered subsidiaries of power management giant Eaton (NYSE: ETN) to pay $293 million related to claims stemming from the company’s $13 billion acquisition of Cooper Industries in 2012.
Eaton, which is based in Dublin, Ireland, but has its North American headquarters in Beachwood, said in a news release issued late Wednesday, Aug. 29, that it intends to challenge the arbitration award “on several grounds,” though it did not provide details of its planned challenge.
For now, though, Eaton said it estimates the arbitration award will lead to an after-tax expense of $205 million in the third quarter of 2018, reducing quarterly earnings per share by 47 cents.
The panel’s award was issued last Thursday, Aug. 23, and stems from claims made by Pepsi-Cola Metropolitan Bottling Co.
Eaton said in the release that the dispute is related to Pepsi’s claims that it was harmed by a 2011 asbestos settlement agreement that resolved litigation Pneumo Abex LLC had previously brought against various Cooper Industries units.
“The litigation involved, among other things, a guaranty related to Pneumo Abex’s friction products business,” Eaton said in the release. “Pepsi claimed that the value contributed to Pneumo Abex and a newly established trust in exchange for a release of the guaranty was substantially below reasonably equivalent value, and that an inability of Pneumo Abex to satisfy future liabilities may result in plaintiffs suing Pepsi under various theories.”
Eaton said there are no other pending claims related to the contributions made for the release of the guaranty.
In a July 30 filing with the U.S. Securities and Exchange Commission, Eaton provided some background on the case.
From that filing:
In November 2015, after a Texas court ruled that Pepsi’s claims should be heard in arbitration, Pepsi filed a demand for arbitration against Cooper (and Cooper subsidiaries including Pneumo and the Pneumo Abex Asbestos Claims Settlement Trust). Pepsi subsequently dropped claims against all parties except Cooper. An arbitration under the auspices of the American Arbitration Association commenced in October 2017. Pepsi’s experts have opined, among other things, that the value contributed to the Trust for a release of the guaranty was below reasonably equivalent value, and that an inability of Pneumo to satisfy future liabilities may result in plaintiffs suing Pepsi under various theories. Cooper submitted various expert reports and, among other things, Cooper’s experts have opined that Pepsi has no basis to seek any damages and that Cooper paid reasonably equivalent value for the release of its indemnity obligations under the guaranty. The arbitration proceedings closed in December 2017. On July 11, 2018, the arbitration panel made certain findings and concluded that the value contributed to the Trust did not constitute reasonably equivalent value, but ordered the parties to recalculate the amount that should have been contributed to the Trust as of the date of the 2011 transaction.
Eaton posted sales of $20.4 billion in 2017. It has about 96,000 employees worldwide and sells products to customers in more than 175 countries.