Garlock urges NC court to maintain jurisdiction in RICO cases

By Heather Isringhausen Gvillo | Nov 29, 2014

Garlock urges NC court to maintain jurisdiction in RICO cases

CHARLOTTE, N.C. (Legal Newsline) – In a response to several requests to transfer four RICO cases resulting from the Garlock Sealing Technologies bankruptcy proceeding, the debtors accused the motions of bearing “a strong scent of forum shopping.”

Garlock filed separate memorandums in opposition to defendants Waters & Kraus and Belluck & Fox’s motions to transfer on Thursday, seeking to maintain jurisdiction in the U.S. District Court for the Western District of North Carolina. It argues that hearing the adversary proceedings and the underlying bankruptcy case in one district will be “consistent with both the interest of justice and the convenience of the parties.”

Furthermore, Judge Max O. Cogburn, who previously presided over the cases before they were transferred to Magistrate Judge David S. Cayer’s courtroom, said they should be litigated in one district court in order to avoid inconsistency.

Garlock argues that “the strong presumption in favor of retaining venue here and a balancing of the relevant factors demonstrate that the court should deny the motion[s] to transfer.”

The RICO cases were filed in response to Hodges’ Jan. 10 ruling in favor of Garlock in the United States Bankruptcy Court for the Western District of North Carolina, ordering the gasket manufacturer to put $125 million in an asbestos trust – roughly $1 billion less than what plaintiffs’ representatives felt was proper. In his decision, Hodges noted how attorneys had been withholding evidence while pursuing claims against Garlock, thus inflating settlements.

While evaluating Garlock’s proper liability, allegations surfaced that plaintiffs’ attorneys had engaged in “fraud, deceit and other activities prohibited by the Racketeer Influenced and Corrupt Organizations Act (RICO)” when settling asbestos plaintiffs’ claims with Garlock.

As a result, Garlock and Garrison Litigation Management Group filed four separate RICO lawsuits in the US District Court for the Western District of North Carolina against Belluck & Fox, LLP, Simon Greenstone, Waters & Kraus LLP and Shein Law Center Ltd.

Waters & Kraus seeks to transfer to the Northern District of Texas, and Belluck & Fox seeks to transfer to the Southern District of New York.  Defendants Simon Greenstone, which seeks to transfer to either the Northern District of Texas or the Central District of California, and Shein Law Center, which seeks to transfer to the Eastern District of Pennsylvania, also filed motions to transfer, but Garlock has not responded to their motions yet. Because each motion to transfer is similar, Garlock’s additional responses will likely be similar to those that are already filed.  

During the estimation proceeding, Garlock was given permission to conduct full discovery into 15 case and partial discovery into hundreds more, revealing the plaintiffs’ alleged practice of withholding asbestos exposure evidence in an effort to inflate settlement awards.

Of those 15 cases, Garlock points out that 13 of them are subjects of the RICO cases. The remaining two cases were discussed in the Chandler case.

The Chandler case was filed in 2012 and involved the same allegations as the present RICO cases – that plaintiffs’ counsel concealed exposure evidence.

The defendants in that case did not object to litigating it in this district court. The ACC intervened when it joined the defendants’ motions for judgment on the pleadings and summary judgment and still did not object to the venue. When the court denied the motions in January 2013, the ACC pushed for a short discovery period and summary judgment hearing.

The bankruptcy court denied the motions on July 10, 2013, just before the estimation trial began.

Garlock argues that after the court denied the motions, the plaintiffs’ firms began to question whether the Western District of North Carolina was a “desirable” forum.

The debtors also note that while the defendants in these RICO cases are knowledgeable about the Chandler case, they do not mention it in their briefs.

Furthermore, while a number of the defendants are members of the ACC and did not object to the venue in Chandler, the motions to transfer represent “a distinct change of tactics for plaintiffs’ firms in these concealment cases.”

“There should be no mistake concerning the reason for this change of tactics,” the debtors wrote. “[The defendants’ briefs] may offer an assortment of arguments, but the principal motivation is transparent: the defendants seek to distance themselves from this district because of the indisputable connections among the estimation order, Chandler and these adversary proceedings.”

The defendants’ change of tactics may also be a result of the court’s estimation order, which Garlock calls the “second and more consequential adverse ruling,” in which the court found that the suppression of evidence causing Garlock’s inflated settlements was one of the central issues affecting the decision.

Garlock explains that the allegations it makes in the RICO cases mirror the bankruptcy court’s findings.

Although the RICO case complaints are to remain sealed until redactions have been completed, Garlock notes that the first case it addresses in its complaint against Waters & Kraus is the Treggett case.

Treggett is a California case involving a former Navy machinist mate aboard a nuclear submarine in which Garlock had to pay $9 million in actual damages. During trial, the plaintiff did not admit to additional exposure from amphibole asbestos insulation, but instead claimed that 100 percent of his work was on gaskets.

Garlock attempted to show that the claimant was exposed to Unibestos amphibole insulation manufactured by Pittsburgh Corning, but the plaintiffs denied any additional exposure. Moreover, the plaintiffs’ counsel fought to keep Pittsburgh Corning off the verdict form and claimed there was no Unibestos insulation on the ship.

Garlock’s discovery disclosed that the same lawyers who denied that Unibestos was aboard the ship filed a claim in the Pittsburgh Corning bankruptcy seven months before the trial began

Furthermore, the plaintiffs lawyers filed 14 trust claims, including several claims against amphibole insulation manufacturers after the verdict. In total, the lawyers failed to disclose 22 additional exposures.

The debtors explain that these adversary proceedings are in response to the “startling pattern of misrepresentation” Hodges discovered in the bankruptcy estimation proceeding.

Garlock argues that the defendants’ motions ask the court to “disregard the strong presumption” that this district, the bankruptcy forum, should hear the adversary proceedings.

While the defendants claim the RICO cases are completely separate from the Garlock bankruptcy proceeding, the debtors contend that they still have a “substantial” presence in the Garlock bankruptcy case, which is litigated in this district.

Furthermore, the defendants are members of the Asbestos Claimants Committee and represent individual claimants in the bankruptcy case, claiming a contingency fee on any recoveries obtained by the clients from Garlock’s bankruptcy estate.

Also, three Waters & Kraus defendants and one Belluck & Fox defendant were witnesses at the bankruptcy trial last summer.

Therefore, Garlock argues that transfer would be improper.

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

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