North Carolina Lawyers Weekly
When Congress passed the Racketeer Influenced and Corrupt Organizations Act (RICO) in 1970, it was chiefly intended as a way to help prosecutors take on the organized crime syndicates. But in more recent years, RICO has proved to be a versatile tool, brought to bear in civil lawsuits against organizations of all kinds, ranging from the BP, after the Deepwater Horizon oil spill, to FIFA, soccer’s international governing body–and even, occasionally, against big law firms.
In Charlotte, four national law firms that handle asbestos lawsuits are facing RICO suits brought by a gasket-making company that was bankrupted by settlements paid out to the firms’ clients. The company, Garlock Sealing Technology, alleges that the firms engaged in a pervasive pattern of intentionally concealing evidence in order to inflate the sums it could recover. Earlier this month, a federal judge turned back a motion to dismiss the cases and ruled that the company could proceed with discovery in the lawsuits.
The firms all represented plaintiffs suffering from mesothelioma, a rare and fatal form of cancer linked to asbestos exposure. At one time, some of Garlock’s gaskets contained asbestos, though of a sort that typically subjected workers to only a very low exposure.
Prior to the 2000s, Garlock was successful in settling asbestos claims for very small amounts by deflecting liability onto the companies that made the far more toxic thermal insulation that would surround Garlock’s products.
But in the early 2000s, the remaining makers of thermal asbestos insulation all went bankrupt, removing them from the tort system. A trust was established to pay out money to people harmed by the bankrupt companies, but plaintiffs increasingly focused on Garlock as a remaining viable defendant. Between 1999 and 2006, Garlock’s average settlement payment increased more than seven-fold, and by 2010 it, too, had filed for bankruptcy, in the Western District of North Carolina.
As part of the bankruptcy proceeding, U.S. Bankruptcy Court Judge George Hodges permitted Garlock to go back and conduct full discovery in 15 cases that it had settled for large sums. He found that in every single case, the plaintiffs had denied that they had been exposed to other asbestos products, but after settling with Garlock they filed claims with the asbestos trusts alleging that they were in fact exposed to those products. Hodges called it “a startling pattern of misrepresentation.”
Here RICO again
Garlock then filed separate suits against the four law firms, alleging fraud, civil conspiracy and RICO violations. The nut of the allegations is that the firms purposely hid evidence that their clients had been exposed to other asbestos products so that they could effectively double-dip and collect from both Garlock and the asbestos trusts. The firms are Simon Greenstone Panatier Bartlett, based in Texas and California; Shein Law Center, based in Philadelphia; Belluck & Fox, based in New York; and Waters & Kraus, also based in Texas and California.
Earlier this month, U.S. District Judge Graham Mullen denied motions by Simon Greenstone and Shein Law Center to dismiss the suits against them, which means that Garlock will able to proceed with discovery against the firms. (The parties have been ordered to propose a discovery plan in the other two cases.)
The firms had argued that Garlock had failed to state a valid claim in its complaint; Mullen ruled that the firms’ arguments were actually the sort that would be dealt with at the summary judgment stage—essentially, the court kicked the can down the road until after Garlock has had a chance to look for more evidence of the sort of double-dipping that Hodges cited in the bankruptcy case.
“The Court will simply note that Garlock successfully alleges that defendants engaged in a wide-ranging, systematic, and well-concealed fraud designed to suppress evidence and inflate settlement values for mesothelioma claims,” Mullen wrote in one of the orders. “Indeed, the bankruptcy court found as much when it reviewed a number of these cases.”
Garlock is represented by a team of attorneys with Robinson Bradshaw & Hinson in Charlotte. Blaine Sanders, one of those attorneys, said that the firm was “pleased that Judge Mullen has rejected the defendant’s tactical attack on Garlock’s claims. The ruling requires the defendant to finally address the merits of Garlock’s allegations and permits Garlock to begin advancing these cases towards trial.”
While RICO suits against law firms are not exactly everyday affairs, this is not the first time that such suits have been brought in connection with asbestos litigation. Last year, CSX Transportation, a railroad company, reached a $7.3 million settlement in a RICO suit against two Pittsburgh attorneys who had represented asbestos claimants against CSX. CSX had a dismissal of its claims overturned on appeal to the 4th U.S. Circuit Court of Appeals, the same appeals court that oversees North Carolina.
Some of the same issues raised in the CSX case are being contested in Garlock’s case, including whether the company brought its suit within the statute of limitations. The alleged fraud occurred in cases that were settled between 2006 and 2009, but Garlock argued that it didn’t discover the fraud until 2013. Mullen’s order postpones a ruling on that question for now, saying that it’s still too early in the case to determine when Garlock should have become aware of any alleged fraud.
Buyer’s remorse, firms say
At least one of the law firms, Simon Greenstone, also argues that Garlock’s RICO claims are barred by what’s known as the Noerr-Pennington doctrine, which precludes lawsuits based on efforts to influence the exercise of government power, including the judiciary. Garlock argues that the case falls into an exception to the doctrine carved out for “sham litigation.” Mullen, while again leaving the issue for another day, noted that attorney advocacy is not totally shielded from RICO suits.
“Defendants’ conduct as alleged in the complaint goes well past the kind of routine litigation activities that these courts have found inadequate to state a claim under RICO,” Mullen wrote. “Defendants are accused of committing rampant fraud over the course of several years and in numerous venues throughout the country. These allegations suffice to state a claim for civil RICO.”
An attorney for Simon Greenstone, Mike Magner of Jones Walker in New Orleans, drew distinctions between this case and the CSX litigation and contended that Garlock was bringing a claim under RICO chiefly as a litigation tactic. The federal claim gives Garlock standing to bring the case in federal court in its home jurisdiction of North Carolina, when most of the underlying asbestos lawsuits were filed in other states, chiefly California.
“They’re looking for a do-over. They actively pursued settlements with our clients and now they have buyer’s remorse,” Magner said. “We think that when either Judge Mullen or, if need be, a jury looks at the facts of these underlying cases, we think that they will see this as the litigation tactic that it is.”
The 10-page and six-page decisions are Garlock Sealing Technologies, LLC v. Simon Greenstone Panatier Bartlett, P.C. (Lawyers Weekly No. 15-04-0874) and Garlock Sealing Technologies, LLC v. Shein (Lawyers Weekly No. 15-04-0891), respectively. Opinion digests are available online at nclawyersweekly.com.
Follow David Donovan on Twitter @NCLWDonovan
