LOS ANGELES (Legal Newsline) - A federal judge has ordered a Dallas asbestos law firm to show cause why its case against John Crane Inc. over the company’s allegations of racketeering shouldn’t be dismissed for failure to prosecute.

Judge Consuelo B. Marshall for the U.S. District Court for the Central District of California issued her one-page order last week.

In the Oct. 24 order, Marshall denied the parties’ joint request for entry of judgment.

In August, the court issued an order granting JCI’s motion to dismiss, dismissing without leave to amend Simon Greenstone Panatier Bartlett PC’s claims under the Declaratory Judgment Act and dismissing with leave to amend the firm’s breach of contract claim, with an amended complaint to be filed no later than Sept. 15.

“Plaintiffs have not filed an amended complaint,” Marshall wrote in her order last week. “Accordingly, Plaintiffs are ordered to show cause, in writing, no later than November 3, 2016, why this action should not be dismissed with prejudice for failure to prosecute and obey court orders.”

In February, the plaintiffs firm filed a breach of contract lawsuit against JCI in the Los Angeles federal court. The firm, which has an office in that city, also asked the judge to rule that JCI is breaching previous settlement agreements.

The complaint was filed in response to JCI’s January motion that seeks approval to join a Racketeer Influenced and Corrupt Organizations lawsuit against Simon Greenstone. JCI wants to make its own racketeering claims in addition to those already stated by Garlock Sealing Technologies.

In its response, filed Wednesday, Simon Greenstone argues Marshall should not dismiss the action for failure to obey court orders “for the straightforward reason that Simon Greenstone has not failed to obey any of this Court’s orders.”

The firm argues that the court’s Aug. 26 order did not require it to amend its complaint; it only permitted it to do so.

“The Court’s August 26 Order is explicit that although the Court was permitting Simon Greenstone to amend its complaint to re-assert Count 3, it was not requiring it to do so,” the plaintiffs wrote. “The Order tells Simon Greenstone what it must allege to sufficiently state a breach-of-contract claim ‘should [it] choose to file an amended complaint.’”

Simon Greenstone, in its response, asks that the court, instead of dismissing the action, enter a final judgment dismissing its claims in the form set out in the proposed judgment jointly submitted by the parties and attached to the joint request for entry of judgment.

“Simon Greenstone did not act sanctionably by declining the opportunity to amend its complaint and indicating to the Court that it had made this choice by asking the Court to enter a final judgment,” the firm wrote.

In early June, JCI filed lawsuits against Shein Law Center, a Philadelphia firm, and Simon Greenstone under the RICO Act. The basis of the claims is evidence uncovered by Garlock Sealing Technologies three years ago during its bankruptcy proceeding.

“The defendants devised and implemented a scheme to defraud JCI and others, and to obstruct justice,” the JCI complaints state.

“The defendants fabricated false asbestos ‘exposure histories’ for their clients in asbestos litigation against JCI and others and systematically concealed evidence of their clients’ exposure to other sources of asbestos.”

Now, Simon Greenstone wants JCI’s complaint against it dismissed for lack of subject matter jurisdiction and failure to state a claim.

“... This Court lacks personal jurisdiction over Simon Greenstone because JCI’s Complaint is based solely on litigation conduct allegedly engaged in by Simon Greenstone in lawsuits litigated out of state, in California, Texas, and Pennsylvania,” attorneys for the firm wrote in a Sept. 7 motion, filed in the U.S. District Court for the Northern District of Illinois.

“For similar reasons, even if personal jurisdiction existed, this Court would be an improper venue for JCI’s suit, because, among other reasons, the events or omissions giving rise to the claim occurred in the states in which the underlying litigation occurred, and not in this district.”

According to minutes from a Sept. 29 status hearing before Judge Amy J. St. Eve, the firm’s motion to dismiss has been entered and JCI’s response is due by Nov. 10. Replies are due by Dec. 2.

JCI argues that both of its lawsuits -- against Shein and Simon Greenstone -- seek “redress” for what the U.S. Bankruptcy Judge George Hodges, of the U.S. District Court for the Western District of North Carolina, has referred to as “wide-ranging, systematic and well-concealed fraud” against asbestos defendants such as itself.

In 2014, Garlock used the evidence from its 2013 bankruptcy estimation trial to file lawsuits against five firms -- Shein, Simon Greenstone, Belluck & Fox of New York City, and Dallas firms Waters & Kraus and Stanley-Iola.

The Garlock lawsuits alleged the five firms told different stories about their clients’ exposures to asbestos in civil lawsuits than they did in the bankruptcy trust system.

Hodges agreed in a landmark 2014 decision.

The firms delayed the submission of their clients’ claims to trusts that were established by bankrupt former asbestos defendants. This was done so Garlock could not assign blame for the plaintiff’s disease to the companies in the trust system, the judge ruled.

The bankrupt companies were forced to establish trusts because they could not afford to pay their asbestos liabilities. Asbestos victims submit claims to trusts in a process separate from the victims’ civil lawsuits against companies that are not bankrupt.

Garlock had submitted evidence in 15 cases during a trial to determine how much it would need to place in its trust.

“These fifteen cases are just a minute portion of the thousands that were resolved by Garlock in the tort system,” Hodges wrote.

“And they are not purported to be a random or representative sample. But the fact that each and every one of them contains such demonstrable misrepresentation is surprising and persuasive.

“More important is the fact that the pattern exposed in those cases appears to have been sufficiently widespread to have a significant impact on Garlock’s settlement practices and results… It appears certain that more extensive discovery would show more extensive abuse.”

Garlock’s evidence, which was originally sealed but eventually uncovered by a successful legal challenge from Legal Newsline, showed that after several dozen asbestos defendants established bankruptcy trusts, its own liabilities increased. The company’s average mesothelioma settlement rose from almost $10,000 in 1999 to nearly $80,000 by 2010.

Garlock’s allegations were part of a strategy to limit the amount it would need to put in the trust it is establishing to resolve its asbestos liabilities. Hodges ruled Garlock needed to only put $125 million in its trust, more than $1 billion less than plaintiffs attorneys had requested.

A recent proposed settlement put a stay on Garlock’s RICO lawsuits. They apparently will be dismissed when the settlement, which requires the establishment of a $480 million trust, is finalized.

Before the stay, JCI sought to intervene. Now it has filed its own complaints instead.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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U.S. District Court for the Central District of California
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U.S. District Court for the Northern District of Illinois
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