Heather Isringhausen Gvillo Sep. 5, 2014, 12:35pm

PHILADELPHIA (Legal Newsline) – The Third Circuit Court of Appeals has revived a complaint alleging the BASF Catalysts Inc. took part in systematic fraud with the help of attorneys from Cahill Gordon & Reindel when it fabricated false documents showing its predecessor’s talc products did not contain asbestos.

Judge Julio M. Fuentes delivered the Sept. 3 opinion in the United States Court of Appeals for the Third Circuit. Judges Theodore A. McKee and Thomas L. Ambro concurred.

The case was brought to the Third Circuit on appeal from the U.S. District Court for the District of New Jersey, where Judge Stanley R. Chesler dismissed a putative class action filed by several asbestos decedents’ families alleging BASF, its predecessor Engelhard Corp. and the Cahill law firm fraudulently fabricated evidence showing BASF’s Emtal talc did not contain asbestos, which prevented thousands of asbestos claimants from obtaining fair tort recoveries for their asbestos-related diseases.

Defendants in the case include BASF, Engelhard Corp., Engelhard’s former employees and attorneys, as well as the Cahill law firm and three BASF/Engelhard attorneys who worked as lawyers at Cahill from 1983 to 2010

According to the Amended Class Action Complaint, which was dismissed by the district court, the defendants misled claimants into believing the talc products did not contain asbestos after its own tests and records proved otherwise.

In fact, Engelhard ignored the test results entirely and instead marketed the product as a viable asbestos substitute for those wanting asbestos-free products, it is alleged. As a result, the company caused “widespread and unknowing exposure to asbestos to United States citizens, including workers and workers’ spouses and children, nationwide,” the complaint alleges.

The case is not an actual asbestos injury case. It is about the defendants’ conduct when litigating asbestos injury cases across the country.

The six named plaintiffs in this case represent the interest of a deceased spouse or relative who had worked in proximity to asbestos and died of an asbestos disease.

The plaintiffs appealed the dismissal of three claims - fraud, fraudulent concealment and violation of the New Jersey Racketeer Influenced and Corrupt Organizations Act. The appeals court reversed the lower court’s dismissal of the fraud and fraudulent concealment claims, but affirmed the dismissal of the New Jersey RICO claim.

The case has been remanded for further proceedings.

According to the complaint, Engelhard operated a talc mine in Vermont from 1967 to 1983. Some of the talc contained chrysotile asbestos fibers, as well as other asbestos forms, including tremolite and serpentine asbestos.

BASF’s predecessor, Engelhard Corp., discovered that its talc products contained asbestos after several tests were done on the products. The defendants knew of the tests and their results, and even maintained records of the documents.

That is, until 1979 when claimant David Westfall sued Eastern Magnesia Talc Company, an Engelhard subsidiary, for exposing his deceased relative to asbestos.

The tests and results were presented as evidence that the defendant knew of the hazards associated with its products.

Engelhard settled the case, but included a confidentiality clause that prohibited the parties from discussing the case or sharing the evidence. The claimants in this case allege much of that evidence has yet to be seen since.

In anticipation of more lawsuits, Engelhard allegedly ordered employees to collect all documents relating to Emtal talc in a memorandum titled “Document Retrieval Discontinued Operations.”

The document allegedly stated, “It is the policy of Engelhard Corporation to avoid the undue accumulation of documents that are no longer likely to be needed in our business operations.”

In other words, rather than confront the consequences of discovery, the defendants instead chose to “pursue a strategy of denial and deceit,” the plaintiffs’ claim.

The claimants here claim the employees complied, gathering up all evidence relating to Engelhard’s asbestos-containing talc, and either destroyed the documents or hid them.

When the defendants were satisfied, they allegedly fabricated favorable evidence, including false unsworn and sworn representations, including false affidavits, false and incorrect expert reports and discovery response verifications by Engelhard employees, officers, consultants and experts.

“Together, they assembled ‘template and stock pleading, discovery and motions documents for use by local counsel in asbestos injury claim lawsuits’ that contained false or misleading information about Emtal talc products,” the plaintiffs’ allege.

As a result, the defendants were allegedly able to mislead asbestos claimants about the facts in subsequent lawsuits. When new plaintiffs blamed Engelhard’s talc as a possible cause of their disease, the company asserted that its talc did not contain asbestos and that no tests had ever proved otherwise.

“Indeed, BASF’s lawyers threatened claimants and their lawyers ‘with the possibility of sanctions or penalties if asbestos claims or suits were not discontinued by questioning counsels’ good faith basis to continue the claims’ in light of BASF’s representations that its talc products did not contain asbestos,” the opinion states.

However, the alleged scheme collapsed during an asbestos case in the New Jersey Superior Court, where a former research chemist for Engelhard testified that he had discovered asbestos in the talc while working for the company.

He added that an Engelhard employee instructed him to turn over all of his talc-related records.

“The alleged scheme outlived most of the original plaintiffs, whose diseases have since taken their lives. It did not last forever,” Fuentes wrote.

The chemist’s testimony triggered discovery into what documents BASF had destroyed or concealed in the litigation, which led to many of these documents that had been secretly kept in a Cahill storage facility, the opinion states.

Among the documents are tests from 1972, 1977, 1978 and 1979 that establish the presence of asbestos fibers in Engelhard talc. None had ever been produced or disclosed in earlier litigation.

As a result of the chemist’s testimony, the plaintiffs bought new claims against the defendants, alleging BASF and Cahill defrauded them in their initial lawsuits, causing them to settle or dismiss claims that they would otherwise have pursued.

The district court dismissed the complaint entirely, concluding the claims were either inadequately pled or barred from law. It also held that the claims were beyond its power to grant.

The plaintiffs appealed the dismissal of claims for fraud, fraudulent concealment and violation of the New Jersey RICO Act.

The appeals court held that the district court erred when it dismissed the fraud and fraudulent concealment claims. However, the district court did not err in dismissing the RICO claim, because the plaintiffs failed to plead an injury to their business or property. Instead, they alleged an injury to the prosecution of their earlier lawsuits, which does not constitute an injury to their property.

In regards to the fraud claim, the appeals court reversed the district court’s dismissal of the claim, concluding that while New Jersey’s litigation privilege protects attorneys from defamation and a number of other tort-related claims, it does not immunize systematic fraud.

“New Jersey’s litigation privilege often immunizes lawyers and parties from recrimination based on their statements in judicial proceedings, but the privilege has never applied to shield systematic fraud directed at the integrity of the judicial process,” Fuentes wrote. “Nor should it be.”

He explained that the purpose of the privilege is to encourage open communication and provide parties with an opportunity to explore the truth without fear of recrimination.

“The purposes of the privilege are never served by allowing counsel to practice deceit and deception in the course of litigation, nor by permitting counsel to make false and misleading statements in the course of judicial proceedings,” Fuentes held.

Fuentes explained that judicial oversight or criminal or professional sanctions, acting as deterrents, are inadequate to deter systematic fraud.

Because the alleged fraud occurred in a number of states, no single court had the perspective or authority to mitigate the fraud or the ability to detect it, the opinion states.

Furthermore, the alleged fraud outlived the careers of the accused and the lives of the asbestos victims. While professional discipline would have been warranted and appropriate, “the discipline would be too little and too late to do any good for the plaintiffs or the courts,” Fuentes stated.

Additionally, the privilege did not apply to this case because the allegations are beyond the “core” of the litigation privilege and even a broad reading of the statute would not protect the defendants, Fuentes wrote.

“The defendants did not merely use a permissible procedural device in bad faith,” Fuentes wrote. “They rigged the game from the beginning.”

“According to the complaint, BASF and Cahill were not mischaracterizing the facts; they were creating them,” he added.

Because the plaintiffs allege that they were prevented from proving that the talc products contained asbestos, their lawsuits were settled on “unfavorable” terms, the opinion states.

“What could be more important to a claim that talc caused asbestos disease than proof that the talc contained asbestos?” Fuentes asked.

However, the Third Circuit affirmed the district court’s dismissal of New Jersey RICO claims.

It concluded that while the New Jersey Supreme Court has not yet decided on the matter, it doesn’t believe the higher court would “construe ‘business or property’ to include interference with the litigation of personal injury claims.”

“Injuries to one’s business or property differ from injuries to one’s person. Thus, in construing the federal RICO law, this circuit has rejected the argument that personal injuries qualify as RICO injuries to ‘business or property,’” Fuentes explained.

From Legal Newsline: Reach Heather Isringhausen Gvillo at asbestos@legalnewsline.com

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