COLUMBIA, S.C. (Legal Newsline) - Two portraits of Canadian companies were painted Tuesday as the South Carolina Supreme Court was asked to decide what, if any, limits there are on the controversial measures taken by the state's asbestos judge.
Sides wrapped in Judge Jean Toal's receivership machine - in which she grants a Columbia personal injury lawyer control of companies in order to sniff out their insurance coverage in order to pay asbestos plaintiffs - presented their arguments to the justices in what was said to be the 43rd appeal related to the issue.
The receiver, Peter Protopapas, has obtained tens of millions of dollars from insurance companies, at least, and put them in secretive Delaware funds. Critics complain Judge Toal has no authority to give him this power, which is so-far unchecked by any appeals court in the state.
Tuesday's hearing concerned the Canadian companies Asbestos Corp. Ltd. and Atlas Turner, who mined asbestos until the 1980s. Protopapas has been appointed receiver of both, which they called a "nuclear option."
So the justices were presented with two different versions of the companies and must choose which is more likely.
The first says ACL and Atlas are Canadian companies, separate but owned by the same parent, who wouldn't produce certain information to Judge Toal because of a law in their country that threatens criminal penalties if they do so. They also couldn't provide corporate witnesses to speak about their asbestos activities 40 or more years ago because they have since passed.
As punishment, Toal struck their responsive pleadings in two cases and gave Protopapas the power to sue their former insurers - even though ACL is a solvent company with a board of directors and stockholders that is doing its best to participate in the South Carolina lawsuits against it.
The second version of the companies, presented by lawyers for Protopapas, is wildly different. In their eyes, the companies are refusing to defend themselves while hiding insurance assets that should go to asbestos plaintiffs. They bank on the court's inability to make it over the border to Canada to collect any judgments plaintiffs win.
So, the appeal asks whether Toal was right to hold them in contempt for not producing witnesses and documents and if she had the power to appoint a receiver.
"I'm not gonna bring somebody down from Canada and try to put them on the stand because there's nobody to do so," attorney Stephen Brown of Clement Rivers said for ACL and Atlas.
"That is why the receivership went entirely too far. The jurisdiction of the trial court stops at the state line of the State of South Carolina."
Appeals courts have approved Toal's orders through the years, including instances when she added more money to jury verdicts on her own because she felt jurors lowballed the plaintiff.
Justice John Cannon Few was upset by Brown's perspective on the power of South Carolina courts, especially when jurisdiction has been established. ACL has faced 300 claims in the state, with all but two being dismissed or settled.
"It seems to me that you're taking this confines of South Carolina thing a little too far," Few said.
"This idea that the South Carolina circuit court... has to stop at South of the Border on I-95 up toward Canada is wrong. The court in South Carolina has the authority to get involved in at least some way with the existence and availability of your client, and that's right, isn't it?"
Brown replied, "No, Sir."
"Well, yes it is right," Few said, "because the court in South Carolina can order you to produce (a copy) of an insurance policy. Then the answer to my question is right.
"The court can get involved at least at some level in trying to figure out the role of insurance in paying a judgment that might occur in South Carolina. I'm not talking about a receiver right now but I'm fixing to."
Toal found the companies' unwillingness to present corporate witnesses and documents constituted a "moral fraud," which in a case from more than 100 years ago was enough to appoint a receiver - even before any judgment had been obtained.
It's this timeline that presents a dilemma for the justices. Should the court have to wait until there's money that is supposed to be paid to a claimant before taking the receivership step.
Attorneys for Protopapas argued, that in these cases, she was justified, and that someone with a potential claim against a company can be classified as a creditor before any judgment is entered.
The "moral fraud" of not participating in one's own defense to confuse recovery was reason enough, they said. And there is evidence the companies are buying back their old policies for confidential amounts and hiding the money, they added, which necessitates a receiver to figure out how much is available for asbestos plaintiffs.
Justice Few grew increasingly agitated with Brown during arguments, especially over what Toal meant by "moral fraud."
"She wasn't talking about you asserting a personal jurisdiction defense," he said. "She's talking about you going home and hiding insurance policies, saying 'Oh we live in Canada, therefore we can't give you insurance policies.'
"So you're deflecting. You spent 10 minutes doing it with me when I was trying to get a straight answer on what's a court to do when a party who does business here and subject to our jurisdiction refuses to comply with our law on discovery. All you wanna do is talk about bigger things that look more grotesque.
"You've been up there 45 minutes. You haven't given us one reason why you think the circuit judge was wrong to strike your answer. I get why. You also haven't given us one reason why the circuit judge was wrong to get information about insurance. I understand why."
Brown said his clients are constrained by the Quebec Business Concerns Record Act, which says no person shall provide documents to any "legislative, judicial or administrative authority outside Quebec."
"My client has before it two choices: abide by the rules of civil procedure in a case where personal jurisdiction has been found on a ruling by the trial court, or violate the (QBRCA), which would expose it to criminal liabilities in Canada, its home jurisdiction," Brown said.
Notably absent from the hearing was the insurer Lloyds of London, which asked for permission to present its arguments. It was rejected by the court the night before the hearing.
Lloyds has argued South Carolina courts can't assert control over the companies because they never engaged in business in the state and have no assets there.
Most companies over which Protopapas has been appointed receiver have stopped operating, but in another case involving a foreign business, a United Kingdom court has taken action against him as receiver for Cape Plc.
Protopapas has expanded his approach to include suing Altrad Group, a multinational corporation that owns Cape Plc, a U.K. unit that once mined asbestos in South Africa.
He’s also sued Anglo American and DeBeers, which he says controlled Cape and engaged in a conspiracy to hide assets from U.S. plaintiffs.
Judge Toal appointed Protopapas receiver over Cape, even though it has never done business or held assets in South Carolina. Altrad has mounted a fierce counterattack, including obtaining a global injunction against Protopapas in the U.K. High Court of Justice, which threatens the receiver with jail if he persists in claiming to act as the legal representative of Cape.
The defendants – and the U.K. court – say if Protopapas is truly the receiver for Cape, he is violating his legal duties by making arguments that benefit the plaintiffs and lawyers suing the company.
A trial in Toal's court involving those companies has been stayed until the Supreme Court rules in the case of the Canadian companies.