Pfizer wins third case over subsidiary's asbestos-containing product

By Heather Isringhausen Gvillo | Jun 26, 2014

BALTIMORE (Legal Newsline) - Pfizer was recently granted summary judgment in an asbestos lawsuit alleging it should be held liable as an apparent company for a product manufactured by its subsidiary Quigley Company, Inc.

Judge John M. Glynn of the Circuit Court for Baltimore City said the case appears to pierce the corporate veil for trying to hold a stockholder liable for the wrongdoings of a bankrupt corporation.

At a June 2 motion hearing, Glynn heard arguments from both sides regarding claimant Carl Stein's asbestos lawsuit.

This is the third court to reject attempts to hold Pfizer liable for alleged injuries sustained from exposure to Quigley's asbestos-containing Insulag product, which was used in building blocks.

"While we have great sympathy for the Stein family, three separate courts now have reached the proper conclusion that there is no basis for claims against Pfizer for a product that was manufactured and sold by Quigley," Pfizer spokesman Steve Danehy stated. "The decision in favor of Pfizer in all of the cases making apparent manufacturer claims related to Quigley products confirm that there is no justification for these suits against the company under any theory."

After hearing the arguments, Glynn concluded that he does not believe that a reasonable person under the provided circumstances could have read the Insulag documents and come to the conclusion that Pfizer was the manufacturer.

"I don't think a reasonable person would have any - as I said, they might be confused - but 'apparent' means, to my mind, that the authority is plain and obvious on its fact, not is it possible," Glynn concluded. "And I don't think any reasonable person would say, reading these documents, Pfizer manufactured this product. Therefore, I'm granting the motion for summary judgment."

Sheila Birnbaum of the Quinn, Emanuel Urquhart & Sullivan law firm gave a history of Pfizer and Quigley's relationship during the hearing.

The product giving rise to the issue is Insulag, which was designed and patented by Quigley in 1936. The product was then sold to steel companies.

Then in 1968, Pfizer bought all of Quigley's stock, meaning Quigley had been manufacturing and selling Insulag for more than 30 years before Pfizer came into the picture, Birnbaum explained.

She added that nothing changed after Pfizer bought the stock. Quigley maintained its own sales team, manufacturing plant and continued to sell its products to steel mills. In fact, she argues, the sales and marketing materials clearly show that Pfizer was only the parent company of Quigley by specifically saying Quigley is a subsidiary of Pfizer.

Pfizer sold its Quigley assets in 1992 but continued to own Quigley stock through the 2004 bankruptcy filing and still owns the stock today.

Birnbaum believes the plaintiffs are trying to get "two bites of the apple" by collecting from Quigley's bankruptcy trust and collecting from Pfizer through settlement or trial.

Birnbaum explained that this case grows out of Quigley's bankruptcy and Pfizer's channeling order as the parent company.

When Quigley filed for bankruptcy in 2004, Pfizer contributed nearly $1 billion to the bankruptcy trust. In response, the court issued Pfizer a channeling order.

The channeling order states that Pfizer cannot be sued in any court for issues regarding ownership, management or control of Quigley, with one "narrow" exception permitted by the U.S. Court of Appeals for the Second Circuit. The appeals court ruled that plaintiffs could sue Pfizer, as a parent company, on a Section 400 apparent manufacturer claim. All other claims are barred.

She defined an apparent manufacturer as one that appears to be a manufacturer of a product because its logo or name is printed on the product's label or tag even though the company was never actually involved in the manufacture process.

"So you then stand in the shoes as a manufacturer because you appear to be the manufacturer," she said.

However, in order to be sued as an apparent manufacturer, she added, the company must be involved in the chain of distribution, meaning they must be either the seller or distributor with its name on the product.

Attorney James Stoll of the Brown Rudnick law firm represented Stein at the hearing. He argued Pfizer is misinterpreting Section 400, saying an apparent manufacturer doesn't just have to be the actual seller or distributor in order to be held liable.

He cited Section 400, which states, "Thus, one puts out a chattel as his own product when he puts it out under his name or affixes it to his name or trademark. When such identification is referred to on the label as an indication of the quality of wholesomeness of the chattel, there is an added emphasis that the user can rely upon the reputation of the person so identified."

Stoll argued that by putting Pfizer's name on the product, it ensured the public that it is safe to use, and therefore assumed responsibility for the product.

"The mere fact that the goods are marketed with such additional words as made for the seller or described him as a distributor particularly in the absence of a clear and distinctive designation of the real manufacturer or packer is not sufficient to make inapplicable the rule stated in the section," Stoll said. "The casual reader of a label is likely to rely upon the featured name, trade name, trademark, and overlook the qualification of description of source."

However, Birnbaum argued that Stoll is trying to stretch the apparent manufacturer theory beyond its scope, which she said he cannot sustain, by making claims barred by the channeling order.

"The law of Maryland is clear," Birnbaum said. "You have to be a seller. And, your honor, we think summary judgment should be granted for Pfizer."

"If you expand the law way beyond the state of Maryland, that is opening up a hornet's nest for every logo manufacturer," she added.

To support her argument, she referenced the Armour case as an example of what Maryland law says about apparent manufacturers. Armour as the parent company of a Brazilian subsidiary that manufactured corned beef. In this case, Armour was sued as the apparent manufacturer, but it was the only company to its name on the pacckaging.

Because Armour was the only name provided on the product, it sold the corned beef as its own. As a result, the public would not have the opportunity to sue the real manufacturer because another name was not indicated on the product.

Ultimately, Glynn said he was bothered by the fact that every case cited to establish apparent authority involved situations where there was actual language on the product labels suggesting the corporation being sued was directly involved in the design or manufacture of the product, and such language was available to the "consumer public," not a "sophisticated public," which is the case here.

Glynn was referring to the fact that every document the two parties relied on to support their arguments included internal corporate documents, meaning the logos would have been presented to the "sophisticated public" involved in the trade rather than the general public exposed to the product.

The documents included purchase orders from Quigley to Bethlehem Steel, which is a steel company that had been doing business with Quigley for decades before Pfizer bought stock in the company.

Birnbaum argued that the long relationship between Bethlehem Steel and Quigley proves the steel companies saw Quigley as the lone manufacturer.

However, Stoll pointed out a questionable phrase on the packaging under both names that says "manufacturers of refractory, specialties and insulations."

Birnbaum asserted that Quigley alone referred to itself as the "manufacturers of refractory, specialties and insulations" up until the time Pfizer's logo was included on the invoices.

Stoll disagreed, saying Pfizer wanted customers to believe that because Quigley referred to itself in plural form historically, that the same plural phrase including both names negates the inference that they are putting the products out as their own.

Additionally, he said that when OSHA issued regulations on asbestos-containing products, it was Pfizer that did the redesign in its own labs, which provided evidence that Pfizer is more than just a parent company.

"The name alone should be enough," Stoll said. "That is what the cases hold. If you think you need direct involvement, we have provided plenty of evidence from which the jury can reasonably draw the inference. And, indeed, what Pfizer is asking you to do is to draw the opposite inference."

Ultimately, Glynn found these exhibits largely useless because internal corporate documents don't have anything to do with what the public thinks when purchasing the product, and concluded that it sounds as though Pfizer is "involved in counting the money."

"It just looks like it logically makes a difference whether it is within the trade or whether it is to the public," Glynn said.

"In other words, you sell things to the public, they're not going to be sophisticated. They're not going to be deriving all sorts of exotic theories regarding who actually made this and where it came from. They're looking at it and it says, you know, Sears or whatever it says or Armour, and they think what they think. You're dealing in this case with a product where most of your evidence appears to be on accounting or business documents, bills - bills of business documents."

Because the documents presented don't say anything explicit about the manufacturer, he questioned what is apparent from the documents and what a reasonable person under the circumstances of the case believe if they read the documents.

"Reading these documents myself, I can understand clearly how a reasonable person could be unclear on what the status of these companies was and how they related to the manufacture and distribution of these products," he said.

Birnbaum further argued that reliance lies at the heart of the apparent manufacture theory, noting how Bethlehem Steel knew Quigley was the manufacturer and didn't rely on Pfizer for anything.

She added that Stoll stands on the idea that the theory is based on a thought of reliance but it is not part of the proof. Therefore, she said, the plaintiffs will instead argue that Pfizer had substantial control of Quigley as its parent.

Stoll, however, said this is where the reliance issue gets confused by Pfizer. He explained that reliance is not an element of the cause of action. Rather, it is "presumed based on the appearance of the logo or the name on the product.

"When you have a trademark or trade name on the product, it is presumed, because you placed it there, that the public will rely on it," he said.

"You emblazon your logo on that product, and you become liable. Why is that? Because the logo, the purpose of putting your trademark and trade name on the product is to convey to the public something important about that product. And that importance is that this - look at us. We're Pfizer. We're internationally known. We are this terrific company and we want you to rely on that. So that is what the purpose of putting the name on the product is," he added.

On the belief that Stoll is, in fact, basing his claims on control, Birnbaum accused him of piercing the corporate veil because control claims are barred by the channeling order.

Stoll disagreed, saying that prior to Quigley's bankruptcy, Pfizer had been sued "thousands and thousands and thousands of times," adding that it typically settled and never went to trial as far as he knew.

While lawsuits against Quigley were direct, those brought against Pfizer were derivative claims, he argued, and had nothing to do with Pfizer's direct action regarding its name being on the products.

"So all of the types of things that are enjoined by the injunction are causes of action that have nothing to do with actual direct behavior. They simply happen to arise theoretically out of generalized behavior such as that would give rise to piercing the corporate veil; you didn't treat the company as a real company. You engaged in a fraud, if you will, on the market; alter ego theory; successor liability if you have done a de facto merger or something like that," Stoll said.

Birnbaum clarified that Pfizer has been sued as a parent corporation of Quigley but had never been sued as an apparent manufacturer until after Quigley's bankruptcy.

"That was the first time once there was the bankruptcy, as an attempt to get around the bankruptcy issues in the bankruptcy bars," she said.

Regardless, Glynn said he is troubled by how similar the case is to a piercing-the-corporate-veil case.

"We're not trying to pierce the corporate veil," Stoll said.

"We're just saying look at what they have done to be involved in designing the asbestos-free product. Look at what they have done in terms of issuing invoices and purchasing the product for Quigley. Look at how the customers York Insulation thought they were dealing with Quigley as a division of Pfizer. Those are just elements of showing - pieces of evidence of showing what Pfizer did involve itself in the manufacture and sale of the product," Stoll said.

At that, Glynn asked how they couldn't be piercing the corporate veil while trying to hold the stockholder liable for the behavior of the subsidiary.

Stoll responded saying the plaintiffs are holding Pfizer liable for their own direct conduct.

"Let me give you a hint. When I ask you a question, the answer to which is obvious, just admit it," Glynn responded.

Stoll apologized and explained that putting a company name on a product comes with legal consequences.

"When it is an inherently dangerous product, you take on the non-delegable duty to warn. And you put your name on a product that is a voluntary act. That is your act. That creates direct liability against you. It has nothing do with piercing the corporate veil, alter ego, any of those things," he said.

Still, Glynn had his doubts.

"One of the things that bothers me about this is this whole concept of whether this is really a piercing the corporate veil case or not or just looks like one," he said. "Because obviously, much of Western corporate development was based on the creation of the corporate structure which insulates stock holders from liability for except - limits them to the value of their stock for the wrongdoing of any other entity that - other than the value of their stock - limits their liability to anything other than the value of their stock for any wrongdoing by the corporation."

Pressed for time, Glynn had to eventually step in and call an end to the arguments, saying the case is an obvious mess and ruling in favor of Pfizer.

"Even though one could spend a lot of time mulling over this, I'm not sure you become any smarter about it after you spend a lot more time than you might be when you first thought about it," he said.

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

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