Segal McCambridge Legal Blog

Selected portions below from the Wall Street Journal

Company Lawyers Sniff Out Revenue

By VANESSA O’CONNELL

Companies are warming to a new way of generating revenue: suing for it.

Ford Motor Co., Tyco International Ltd. and Michelin SCA, among others, say their lawyers are devoting more time and effort to bringing in extra cash by thinking like plaintiffs.

Following in the footsteps of several big drug and technology companies, which have aggressively pursued alleged patent infringers, companies in a range of industries have stepped up legal action, not only in the patent arena but also against suppliers, insurers and even utilities they think have done them wrong or owe them money.

The sums they win from these “plaintiff recovery” lawsuits usually aren’t big enough to be singled out in earnings statements. Nor do individual cases typically have a material impact on the bottom line. But, taken together, they can produce hundreds of millions of dollars in added revenue for a company in a single year, potentially turning its legal department into a profit maker.

“It adds up to real money over time,” says Tom Sager, general counsel at chemical maker DuPont Co. In one case, DuPont won roughly $92 million in a settlement with its insurers, which it had sued in Texas seeking reimbursement of asbestos claims against the company.

Now, DuPont is looking into pursuing money from parties whose alleged mistakes or faulty equipment, it says, led to shutdowns or production disruptions at its plants. It is also expanding its recovery efforts abroad, including to Russia, Kazakhstan and China. That may require filing more lawsuits in emerging markets.

The recent enthusiasm for litigation—or threats of litigation—as a revenue-raising tool comes as companies move toward trimming their overall legal spending and asking their in-house legal staffs to do more.

The trend also coincides with a big push by business lobbyists for caps on damage awards in certain types of lawsuits and steps to make it tougher for consumers to band together to sue companies.
…
The strategy was inspired in part by intellectual-property litigation, which can yield lucrative technology-licensing deals.

Since 2008, corporate spending on intellectual-property litigation in the U.S. has risen by an average 3.4% a year, according to BTI Consulting Group Inc., a Wellesley, Mass., firm that surveyed 370 lawyers at Fortune 1000 companies.

That compares with an average yearly increase of 1.9% in spending on all U.S. commercial litigation and a 1.5% average annual increase in corporate spending on all litigation, BTI says.
…
At DuPont, lawyers recovered nearly $3.6 million during the first quarter of 2011. That came on the heels of the $454.7 million it took in last year from 198 separate recoveries—half of them outside the U.S. The individual sums ranged from less than $16,000 to almost $185 million. Half required litigation or a formal arbitration process, according to DuPont’s Mr. Sager.

Companies have long pursued recoveries on a case by case basis, but what’s different now is that in-house lawyers are making the chase a priority, says Judith A. Reinsdorf, Tyco’s general counsel. In March lawyers at the Switzerland-based manufacturer launched an “Asset Recovery” program under which it will seek to collect unpaid debts, royalties or refunds from suppliers or others that it thinks will require legal action. “We hope to help the company’s bottom line,” Ms. Reinsdorf said. “It’s about getting smarter.”
…
To some, the trend smacks of misplaced priorities. Kenneth S. Resnick, general counsel at General Electric Co.’s GE Oil & Gas, says it suggests that a business is “failing at something else if it has to rely on lawyers” to recover money for supplier errors.

Suing to recover revenue also risks becoming a distraction for management, other critics say. “The legal department could be subjecting its senior management to having to give depositions, and it certainly is opening the company up to discovery, in the form of answering interrogatories and producing company documents,” says E. Berton Spence, a former head of litigation for Regions Financial Corp, a lender in the Southeast.

Lawsuits that look like “slam dunks” often turn into “long, hard fights for little reward,” he adds.

The full article is here

The Wall Street Journal Law Blog also has a post, entitled “Corporate America Discovers Its Inner Plaintiffs' Lawyer“

The U.S. Supreme Court has weighed in on the issue of statistical significance in case reports, opining that the idea that such significance be present in order to establish causation is "flawed." Matrixx Initiatives Inc., et al., No. 09-1156 (U.S. Sup. Ct.).

In the March 22 unanimous decision written by Associate Justice Sonia Sotomayor, the Supreme Court found that an intermediate appellate court was correct in reversing a ruling in favor of defendant Matrixx Initiatives Inc., since a "reasonable investor" would have relied on any information of adverse reports relating to the defendant's product.

The underlying action was filed by James Siracusano, who alleged that Matrixx Initiatives Inc. had violated the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5 when it did not disclose evidence of a potential link between Zicam Cold Remedy and the loss of smell.

Matrixx filed to dismiss the lawsuit on grounds that the plaintiff had not "pleaded the element of a material misstatement or omission and the element of scienter." While the District Court overseeing the case granted the motion, the U.S. 9th Circuit Court of Appeals reversed, leading to the instant appeal.

On appeal, Matrixx urged the Supreme Court to reverse the 9th Circuit's ruling, arguing that the reports it received regarding Zicam and the loss of smell were not based on statistically significant evidence.

In reversing the decision, however, the Supreme Court cited Basic Inc. v. Levinson, in which it states that the "materiality requirement is satisfied when there is "'a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information made available.'"

In the instant circumstances, adopting Matrixx's position would effectively exclude information that "would otherwise be considered significant to [a reasonable investor's] trading decision," the Supreme Court opined in its headnote. "Matrixx's premise that statistical significance is only reliable indication of causation is flawed," the Supreme Court said.

"Both medical experts and the Food and Drug Administration rely on evidence other than statistically significant data to establish an inference of causation. It thus stands to reason that reasonable investors would act on such evidence. Because adverse reports can take many forms, assessing their materiality is a fact-specific inquiry, requiring consideration of their source, content, and context.... Something more than the mere existence of adverse event reports is needed to satisfy that standard, but that something more is not limited to statistical significance and can come from the source, content, and context of the reports."

As such, the Supreme Court upheld the 9th Circuit's decision and found that "the complaint's allegations, 'taken collective,' give rise to a 'cogent and compelling' inference that Matrixx elected not to disclose adverse event reports not because it believed they were meaningless but because it understood their likely effect on the market."

SCOTUSBlog.com has a write-up which can be found here

The Supreme Court slip opinion can be found here

Two follow-ups on the recent $322 Million asbestos verdict in Mississippi in an alleged asbestosis case.

From the Wall Street Journal Law Blog

* May 6, 2011, 5:32 PM ET

By Ashby Jones

Mississippi Jury Returns Largest Asbestos Verdict in U.S. History

Asbestos litigation.

Ho-hum, right? After all, it's about as current as Ivan Lendl, as hip as Vanilla Ice, as played out as Gary Hart.

Uh, yeah, time for you to give asbestos litigation another look.

The news: A jury in Mississippi on Thursday has awarded a 48-year-old man the largest plaintiffs' asbestos verdict in U.S. history.

In a case against Chevron Phillips Chemical and Union Carbide Corporation, Thomas Brown Jr., was awarded $322 million dollars for future medical expenses, pain and suffering, and punitive damages. Click here for the article, from the Laurel Leader-Call.

According to the story:

Brown, who worked in the oil fields of Mississippi from 1979 to the mid 80's, was diagnosed with asbestosis and is currently on oxygen 24-hours a day. He worked as a roughneck mixing drilling mud on drilling rigs in Mississippi and offshore in the Gulf of Mexico, and inhaled asbestos dust while on the job

"Brown inhaled asbestos dust while mixing drilling mud sold by CP Chem and manufactured by Union Carbide," said Allen Hossley, a lawyer for the plaintiff. "Although the asbestos was known to cause cancer and lung disease, CP Chem and Union Carbide continued to market these almost 100 percent pure asbestos products long after they knew the dangers."

The jury found that CP Chem and Union Carbide were liable to Brown for defectively designing their product and failure to provide an adequate warning.

A Union Carbide spokesman told the LB:

This verdict is outrageous and completely unsupported by the facts or applicable law. . . . There were numerous judicial errors as to both the substantive law and the conduct of the trial that prejudiced Union Carbide's defense and provide strong grounds for appeal. Union Carbide has confidence in the Mississippi appellate courts and believes . . . that this verdict will be completely set aside by post-trial motions or through the appellate process.

A call by the LB to CP Chem was not immediately returned.

—————
From the Laurel Mississippi Leader-Call

Leader Call
May 6, 2011
Smith County jury awards $322M verdict
Largest asbestos verdict in U.S. history

By Charlotte Graham, countyreporter@laurelleadercall.com
Laurel Leader-Call

RALEIGH — A Smith County jury has awarded a 48-year-old Brookhaven man the single largest plaintiff’s asbestos verdict in United States history.

In a case against Chevron Phillips Chemical (CP Chem) and Union Carbide Corporation, Thomas "Tony" Brown Jr., was awarded $322 million dollars for future medical expenses, pain and suffering, and punitive damages.

Brown, who worked in the oil fields of Mississippi from 1979 to the mid 80's, was diagnosed with asbestosis and is currently on oxygen 24-hours a day. Asbestosis is a debilitating lung disease caused by asbestos exposure and induces lung scarring and shortness of breath, which progresses over time. Exposure to asbestos can cause cancer and death.

Brown, who worked as a roughneck mixing drilling mud on drilling rigs in Mississippi and offshore in the Gulf of Mexico, was represented by Allen Hossley, Dawn Smith, and Ray Turcotte of the Hossley Embry law firm in Dallas, along with Gene Tullos and Gary King of Tullos & Tullos of Raleigh.

"Brown inhaled asbestos dust while mixing drilling mud sold by CP Chem and manufactured by Union Carbide," said Allen Hossley. "Although the asbestos was known to cause cancer and lung disease, CP Chem and Union Carbide continued to market these almost 100 percent pure asbestos products long after they knew the dangers."

The jury found that CP Chem and Union Carbide were liable to Brown for defectively designing their product and failure to provide an adequate warning.

Hossley went on to say that many industrial companies like CP Chem and Union Carbide put innocent workers at an extreme health risk just to insure greater profits.

"It's my commitment to make sure that these irresponsible companies are held accountable to the lives and families that they have destroyed," he said. "Despite stronger regulations, many people are still suffering the lasting effects from asbestos exposure."

Brown was unable to read and write when he started working in oil fields as a floor hand at age 16 and defendants argued that because Brown couldn't read, he didn't deserve protection under Mississippi's statue requiring defendants to warn the oil-field workers about the known dangers of their asbestos drilling products.

"The jury's verdict made it clear that the people of Mississippi think that everyone, including the young men entering the work force that can't read, deserve equal protection under Mississippi law," said Dawn Smith.

Attempts to reach the defendant's attorney's were unsuccessful Thursday.

Representing Defendant CP Chem was Alex Cosculluela of Adams and Reese of Houston, Texas; Jeffrey Trotter of Adams and Reese of Jackson; Robert Johnson of Natchez and David Garner of Raleigh.

Representing Defendant Union Carbide was Michael Terry of Hartline, Dacus Barger Dreyer, LLP of Corpus Christi and Marcy Croft of Forman Perry Watkins Krutz & Tardy of Jackson.

Taken in part from the Wall Street Journal
WASHINGTON—On April 27, 2011, the Supreme Court handed business a powerful shield against consumer class actions, ruling that state laws can’t override contract clauses requiring customers to present complaints individually to a private arbitrator.

In a 5-4 ruling, split along its usual conservative-liberal divide, the court held that a “national policy favoring arbitration” pre-empted California law intended to protect consumers from widespread fraud.

California consumers had sued AT&T Inc. for allegedly defrauding them by charging $30.22 in sales tax on cellphones it advertised as free.

AT&T invoked the arbitration clause of its form contract, which required complaints to be resolved through private arbitration in an “individual capacity” and barred “any purported class or representative proceeding.”

California courts had found such provisions “unconscionable,” legal parlance for a contract term so unfair it is void. In a 2005 opinion, the California Supreme Court said that when a company schemes “to deliberately cheat large numbers of consumers out of individually small sums of money,” class actions may be the only effective form of redress. While the fraud might reap a windfall, the court’s reasoning went, each individual’s loss would be too small to dispute unless grouped into a single claim.

The 1925 Federal Arbitration Act, adopted to force states to honor arbitration clauses, says arbitration clauses can’t be set aside unless they violate the laws governing contracts in general. The question before the Supreme Court was whether the California rule simply applied general fairness principles to arbitration clauses or specifically targeted arbitration.

Writing for the majority, Justice Antonin Scalia said that class actions inherently conflicted with arbitration’s goals of speed and efficiency.

“The switch from bilateral to class arbitration sacrifices the principal advantage of arbitration—its informality—and makes the process slower, more costly, and more likely to generate procedural morass than final judgment,” he wrote in an opinion joined by Chief Justice John Roberts and Justices Anthony Kennedy, Clarence Thomas and Samuel Alito.

Justice Scalia cited statistics showing that the average individual arbitration was resolved in six months or less, while class arbitrations could drag on for years. Moreover, “class arbitration greatly increases risks” for business, he wrote. “Faced with even a small chance of a devastating loss, defendants will be pressured into settling questionable claims.”

In a dissent joined by Justices Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan, Justice Stephen Breyer wrote that since the California rule applied equally to class litigation and class arbitration, it can’t “fairly be characterized as a targeted attack on arbitration.”

The Federal Arbitration Act, Justice Breyer wrote, intended to preserve the states’ traditional authority over contract law, insisting only that arbitration receive equal footing with other contracts.

“California is free to define unconscionability as it sees fit, and its common law is of no federal concern so long as the state does not adopt a special rule that disfavors arbitration,” he added.

Wednesday’s decision was the latest in a series that has given arbitration clauses nearly ironclad protection.

In a statement, AT&T said that individual arbitration “often benefits consumers” because claims can be resolved faster than a more complicated class action. “We value our customers, and AT&T’s arbitration program is free, fair, fast, easy to use, and consumer friendly,” the company said.

Some lawmakers, however, say consumers are powerless when banks, software makers and others condition their products on form contracts whose fine print locks them into arbitration.

“In arbitration, there is no transparency, nor is there an independent arbitrator,” said Senate Judiciary Committee Chairman Patrick Leahy, a Vermont Democrat who has held hearings on consumer arbitration.

After Wednesday’s decision, “Congress needs to respond with legislation to clarify the original intent of the Federal Arbitration Act,” Mr. Leahy said.

The full Wall Street Journal article is here

The Wall Street Journal Law Blog post, “After AT&T Ruling, Should We Say Goodbye to Consumer Class Actions?” can be found here

The SCOTUS opinion, AT&T MOBILITY LLC v. CONCEPCION ET UX, 09-893 can be found here

From the Dow Jones Daily Bankruptcy Review
Insurers Win Right To Attack Global Industrial Chapter 11 Plan
Peg Brickley
04 May 2011

A split appeals court in Philadelphia Wednesday voted six to four to give insurance companies a shot at upsetting the confirmation of the Chapter 11 exit plan of Global Industrial Technologies Inc., one of many companies that resorted to bankruptcy to deal with massive claims for asbestos damages.

The majority said the insurance companies didn’t get a full hearing on their contention that improper collusion swelled the number of claims for silica-related injuries that were dealt with in Global Industrial’s Chapter 11 emergence plan.

A maker of refractories and other industrial products, Global Industrial filed for Chapter 11 protection in 2002. The Chapter 11 plan that was confirmed about five years later proposed to deal with both asbestos-related and silica-related injuries.

Silica, like asbestos, is a toxic material blamed for lung injuries. Global Industrial’s Chapter 11 plan proposed to let the company escape the overhang of hundreds of millions of dollars worth of potential liabilities by setting up trusts that would pay damage claims for both silica and asbestos.

The number of silica-related claims boomed once Global Industrial made it known its Chapter 11 case would set up a way to address silicosis damages. As a result, Global Industrial’s Chapter 11 plan affected the pocketbooks of Hartford Accident & Indemnity Co. and other insurers, the Third Circuit Court of Appeals found.

“When a federal court gives its approval to a plan that allows a party to put its hands into other people’s pockets, the ones with the pockets are entitled to be fully heard and to have their legitimate objections addressed,” the majority wrote.

A bankruptcy judge in Pittsburgh, backed up by a federal district court judge, said the insurance companies’ rights weren’t affected by Global Industrial’s Chapter 11 plan because whether the insurers would have to pay for silicosis damages depended on the terms of their policies, not on whether the claims were made against the company or against a bankruptcy trust. Invalid claims presented for payment to the asbestos trust are subject to challenge, just like claims presented against a company.

The appeals court majority, however, said the insurance companies should have been given a chance to prove their potential liability was increased as a result of Global Industrial and plaintiffs’ lawyers working together to create an “explosion of new claims.”

A four-judge minority said the bankruptcy court was “fully aware of past abuse in the realm of silicosis claims” and required evidence under penalty of perjury that the claims filed in Global Industrial’s case were legitimate before signing off on the company’s Chapter 11 plan.

Wednesday’s ruling will only prolong the period of uncertainty dogging Global Industrial, “a move that may very well imperil the financing on which the reorganized entity is relying to succeed,” according to the dissenting judges.

Global Industries Technologies Inc. (GIT) (In re: Global Industrial Technologies, Inc., et al., No. 08-3650, 3rd Cir.).

As of May 6, 2011, the Third Circuit Opinion can be found here

From The Wall Street Journal, the full article can be found here

“Allright, BCS, if you haven't already, it's time to crank up your lawyers.

And it's time to get them up to speed quickly, because the Department of Justice on Tuesday came knocking with a very pointed message: Tell us why the playoff system the NCAA has set up for college football's highest level continues to exist.

Or, to put it another way, why a playoff system doesn't exist and why we're left with this nonsensical bowl system which, year after year after year seems to leave deserving teams out of the national championship conversation.

Click here for the letter, sent by Christine Varney, the head of the DOJ's antitrust division, to Mark Emmert, the president of the NCAA. The letter reads, in full:

Dear Dr. Emmert:

Serious questions continue to arise suggesting that the current Bowl Championship Series (BCS) system may not be conducted consistent with the competition principles expressed in the federal antitrust laws. The Attorney General of Utah has announced an intention to file an antitrust lawsuit against the BCS. In addition, we recently received a request to open an investigation of the BCS from a group of twenty-one professors, a copy of which is attached. Other prominent individuals also have publicly encouraged the Antitrust Division to take action against the BCS, arguing that it violates the antitrust laws.

On March 2,2011, the New York Times reported that the National Collegiate Athletic Association (NCAA) was "willing to help create a playoff format to decide a national championship for the top level of college football." In that context, it would be helpful for us to understand your views and/or plans on the following:

1. Why does the Football Bowl Subdivision not have a playoff, when so many other NCAA sports have NCAA-run playoffs or championships?

2.What steps, if any, has the NCAA taken to create a playoff among Football Bowl Subdivision programs before or during your tenure? To the extent any steps were taken, why were they not successful? What steps does the NCAA plan to take to create a playoff at this time?

3. Have you determined that there are aspects of the BCS system that do not serve the interests of fans, colleges, universities, and players? To what extent could an alternative system better serve those interests?

Your views would be relevant in helping us to detennine the best course of action with regard to the BCS. Therefore, we thank you in advance for your prompt attention to this matter.

As the WSJ's Darren Everson writes, the letter represents the "most dramatic event in a series of recent developments buffeting the BCS."

BCS executive director Bill Hancock said he's confident the BCS complies with the law. "Goodness gracious, with all that's going on in the world right now and with national and state budgets being what they are, it seems like a waste of taxpayers' money to have the government looking into how college football games are played," he said.”

From SMSM Attorney Misty Martin

On March 30, 2011, the Illinois Appellate Court issued a ruling upholding a jury's finding that a third-party logistics provider, CH Robinson, was responsible for a driver's negligent operation of a tractor-trailer. This case involved a serious accident: the driver of a tractor trailer failed to stop and avoid a traffic jam, ran over several vehicles, causing serious injuries to one person and the death of two others. The jury awarded plaintiffs $23,775,000. The issue on appeal concerned the liability of CH Robinson. CH Robinson is a third-party logistics provider, that is, it arranges transportation services for its clients, it does not actual provide any of the actual transportation. CH Robinson argued at trial that the driver was an independent contractor and, accordingly, CH Robinson should not be found liable. Both the trial court and appellate court disagreed. The appellate court found there were substantial facts indicating the existence of an agency relationship between the driver and CH Robinson and CH Robinson was properly held vicariously liable for the driver's negligence.

This is significant ruling in the industry and should cause concern to logistic providers and those companies that hire independent contract drivers (like shippers and manufacturers). Historically, these types of companies have been successfully in shielding themselves from liability based on the independent contractor relationship. However, in this recent case, the appellate court found the existence of an agency relationship despite contractual evidence that the parties intended the driver to be an independent contractor. Those in the third-party logistics industry, as well as shippers, manufacturers and their insurers, should be aware of this case and risk, particularly any requirements or governance over the drivers they hire to transport freight.

Sperl v. C.H. Robinson Worldwide, Inc., 2011 Ill. App. LEXIS 307 (Ill. App. 2011) can be found online here

Jury Awards $322 Million in Asbestosis Case Involving Drilling Mud
Additives

In what is believed to be the largest asbestos verdict in the history of the United States, a Smith County, Mississippi jury has awarded $322 million to a plaintiff who claimed he developed asbestosis as a result of working with drilling mud additives.

Jurors allocated 50 percent liability each to the two remaining defendants, Chevron Phillips Chemical Company and Union Carbide Corp.

Judge Eddie Bowen presided over the trial that began with just over one week of jury selection, followed by two-and-a-half weeks of trial.

Plaintiff, Thomas Brown claimed exposure to asbestos in the defendants' products during work he completed mixing drilling mud from 1979 to 1985. As a result of this exposure, Brown says he developed asbestosis. The plaintiff asserted claims for failure to warn, design defect, damages, and fear of cancer.

The defendants argued during trial that their products were not defective in design and that there were no other feasible alternative designs. Chevron Phillips Chemical Co. and Union Carbide Corp. also contended that the products functioned as expected and that the warnings were compliant with OSHA standards.

Local sources indicate that the Plaintiff was allegedly a 1/0 asbestotic who weighed 300 lbs. He complained of shortness of breath. Plaintiff was only able to show approximately $44K in medicals. Despite this dearth of evidence, the jury awarded $11 million for future medical expense. The jury awarded another $11 million for pain and suffering (despite Mississippi having a $1 million cap on non-economic damages). Finally, the jury awarded punitive damages of $150 million against each defendant bringing the total verdict to $322 million.

Reports are that the judge, Eddie Bowen, was quite new and allowed "everything in” offered by the plaintiffs. Off the record, reports are that the plaintiff's attorney, Gene Tullos “owns the county” and apparently the jury since 4 former Tullos clients were on the jury. Additionally another four jurors were allegedly related to plaintiffs in earlier cases prosecuted by Attorney Tullos.

Testifying on behalf of the plaintiffs were Steven W. Stogner, M.D., plumonology; Edwin C. Holstein, M.D., occupational medicine; and Edward R. Ziegler, P.E., C.S.P., petroleum engineer.

Among those testifying on behalf of the defendants were Robert Ross, M.D., pulmonologist/B-reader; and William Dyson, Ph.D.

Counsel for Chevron Phillips were Alex E. Cosculluela of Adams and Reese in Houston and Jeff Trotter of the firm's Jackson, Miss. office; Robert L. Johnson III of Robert L. Johnson II Law Offices in Natchez, Miss.; and David Garner of G. David Garner Law Offices in Raleigh, Miss.

Union Carbide was represented by Michael G. Terry of Hartline, Dacus, Barger, Dreyer and Kern LLP in Corpus Christi, Texas; and Marcy B. Croft of Forman, Perry, Watkins, Krutz & Tardy LLP in Jackson, Miss.

The plaintiff was represented by D. Allen Hossley, Dawn M. Smith and Raymond Turcotte of Hossley Embry in Dallas; and Gene Tullos and Gary King of Tullos & Tullos in Raleigh, Miss.

The Plaintiff’s press release is here