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For BASF, Huge Potential Liability Emerges Years After Takeover
2015-09-03 04:00:01.11 GMT


By Jef Feeley and David Voreacos
(Bloomberg) -- When BASF SE acquired Engelhard Corp. nine
years ago for $5 billion, executives unknowingly inherited a
ticking legal time bomb.
It all began decades ago over the seemingly mundane
industrial product talc, used in everything from wallboards to
handling auto tires on the factory line.
In 1983, Engelhard quietly settled a lawsuit after its
officials testified in depositions that talc produced by a
company mine contained cancer-causing asbestos. All evidence was
sealed and Engelhard and its law firm repeatedly said in
subsequent lawsuits spanning more than two decades that the
company’s talc was asbestos-free.
It wasn’t until 2009, after BASF assumed Engelhard’s
liabilities, that another picture began to emerge. A former
Engelhard scientist testifying in a lawsuit filed by his own
daughter said he was told that “asbestos in trace amounts was
found in talc,” and the company’s legal department “told us to
purge our records” relating to the mine. A co-worker testified
about test results in the 1970s showing the presence of asbestos
in the talc.
Those revelations pulled back the curtain after a quarter
century, setting off a fight over what Engelhard knew about its
talc, how its lawyers may have acted and whether thousands of
people around the U.S. should have the right to reopen or bring
new lawsuits, this time against BASF, for asbestos illnesses. It
also raises fundamental questions about whether justice is
possible if companies and lawyers hide evidence in civil
litigation.
“This has really opened a Pandora’s Box,” said Tom Bevan, a
lawyer in Boston Heights, Ohio, who represented hundreds of
people who sued Engelhard in the 1990s and is involved in a
current federal case against BASF. “I wouldn’t want to be a BASF
shareholder right now with potentially billions of dollars in
liability coming down the pike because of the lies of a company
it bought.”

Distance Itself

BASF, based in Ludwigshafen, Germany, faces about 300
lawsuits related to the talc. The company, which is the world’s
largest chemical maker and had $74.3 billion in revenue last
year, has tried to distance itself from the alleged behavior of
Engelhard and its former law firm, Cahill Gordon & Reindel LLP.
Plaintiffs’ lawyers say as many as 10,000 potential cases
related to Engelhard’s talc could be reopened.
The company, which hasn’t disclosed any cost estimates over
talc-related asbestos cases, disputes Bevan’s assessment of
possible damages. “This is baseless speculation by plaintiffs’
lawyers,” spokeswoman Robin Rotenberg said in a statement. “As a
matter of policy, BASF does not speculate” on potential
liabilities.
Cahill spokeswoman Lynn Tellefsen declined to comment and
the firm said in a federal lawsuit that it behaved properly.
BASF replaced the firm in 2010.
Plaintiffs’ lawyers and legal experts vary in their
estimates of potential damages against BASF. “There’s no
question in my mind that it might cost BASF billions of dollars
to put these cases behind them,” said Erik Gordon, a University
of Michigan law professor. Others aren’t so sure. While Jonathan
George, an attorney at Waters, Kraus & Paul, which has sued the
company, said “there is potential substantial liability by
BASF,” he contends billions of dollars is “unrealistic.”
One case, which seeks class-action status, claims Engelhard
and Cahill engaged in fraud and fraudulent concealment by lying
about the talc, while hiding and destroying evidence. The
company and law firm have consistently denied wrongdoing in
court papers.
Another case, pending in state court in New Jersey, seeks
to force BASF to produce dozens of documents about the talc that
the company maintains are confidential.
The company “has not found that exposure to Engelhard’s
talc caused injury due to asbestos contamination,” Rotenberg
said.

Recent Litigation

BASF has said in recent litigation that some asbestos
existed in Engelhard’s talc but denied it caused injuries. The
talc was used in wall board, joint compound and auto body
filler. Tires workers used it to help grip products. But did
they inhale asbestos that came from Engelhard’s mine? BASF says
that will be hard to prove. The company also says it will be
hard to convince a judge to accept a class action.
“Plaintiffs face serious obstacles in attempting to certify
a class based on events that took place in thousands of
different asbestos cases litigated in different courts and at
different points in time by different lawyers,” BASF lawyers
said in a May 4 court filing.
Former workers blame Engelhard’s talc for ailments ranging
from mesothelioma, a cancer linked to asbestos, to lung
ailments. The average mesothelioma case is worth about $4
million, says Mark Lanier, a veteran Texas plaintiffs’ lawyer
who has tried more than 50 asbestos cases. Asbestos settlements
may ultimately cost corporations and insurers more than $265
billion, according to the Rand Institute, a non-profit research
group.

Dying Daughter

BASF first had to defend the litigation practices of
Engelhard and Cahill in 2009, when Donna Paduano sued in state
court in New Jersey over her mesothelioma. Paduano, who never
worked at Engelhard, claimed she was exposed to asbestos from
her father’s clothes or visits to his workplace.
A deposition by her father, former Engelhard scientist
David Swanson, triggered an investigation by lawyers who
uncovered test results showing the presence of asbestos in
Engelhard talc more than 25 years earlier. Paduano has since
died, as has Swanson, who had lung cancer but took no legal
action. Swanson’s testimony stunned Paduano’s lawyer,
Christopher Placitella.
“It was the first time any of us had heard” the company
knew its product contained asbestos, he said. “I was afraid that
this guy would turn out to be a nut and that my whole case would
go down the toilet.”
Instead, BASF settled the lawsuit with Paduano’s family
before her death, and Placitella began a years-long quest to
understand what Engelhard and Cahill did and what evidence they
may have hidden or destroyed.
The coverup began, Placitella claims, after a lawsuit filed
in 1979 blamed the mesothelioma death of a tire worker on
Engelhard talc. Engelhard settled in 1983 and the pre-trial
evidence, including testing that showed varying levels of
asbestos from a Vermont mine that the company ran since 1967,
was sealed -- a common practice in corporate litigation.

‘Document Retrieval’

The company closed the mine in 1983 and later issued a memo
entitled, “DOCUMENT RETRIEVAL -- DISCONTINUED OPERATIONS,”
instructing Engelhard staff to collect documents for discard
relating to several companies, including the talc mine’s
operator. The memo said the company would retain copies of
“documents to be preserved.”
In recent years, BASF and its new law firm, Kirkland &
Ellis LLP, have “expended an extraordinary amount of resources
to locate Engelhard documents -- including those maintained in a
warehouse by Cahill -- to find former Engelhard employees and to
learn the facts about the Engelhard legacy talc operations,”
BASF’s Rotenberg said. They provided “tens of thousands of
relevant documents” to plaintiffs’ lawyers, she said.
At the same time, BASF is opposing an application for
class-action status filed by the survivors of six people who
died of asbestos-related disease. And it’s fighting cases by
workers who claim that an auto-body filling compound they used
exposed them to asbestos from Engelhard’s talc. In a personal
injury case that ended in mistrial when the plaintiff died in
2013, BASF lawyers said that no Engelhard mine worker ever got
ill from the company’s asbestos.
Placitella filed a federal lawsuit in New Jersey against
BASF on behalf of six plaintiffs. Should the case receive class-
action status, he says he intends to share evidence of the
alleged cover-up with thousands of victims who may move to
reopen their asbestos cases in state courts ranging from
Pennsylvania to Kentucky. Those plaintiffs had previously sued,
but their cases were either thrown out or settled for nominal
sums.
A federal judge initially dismissed Placitella’s case on
procedural grounds, but in a reversal last year, a three-judge
appellate panel in Philadelphia revived his fraud and fraudulent
concealment claims.
In reinstating most of the plaintiffs’ claims, the panel
didn’t rule on the merits of the case, returning it to U.S.
district court for further proceedings. But it also spelled out
its disdain for the sort of conduct described in the complaint.
If indeed “they rigged the game from the beginning,” the
judges said, “how then can calculated false and misleading
statements serve the truth-seeking function of the litigation?
According to the complaint, BASF and Cahill were not
mischaracterizing the facts; they were creating them.”

For Related News and Information:
Top Stories:TOP
Bloomberg legal resources: BLAW
BASF earnings graph: BAS GY <Equity> FA ISBAR
BASF cash flow: BAS GY <Equity> FA CF

To contact the reporters on this story:
Jef Feeley in Wilmington, Delaware at +1-302-661-7616 or
jfeeley@bloomberg.net;
David Voreacos in federal court in Newark, New Jersey, at
+1-212-617-0768 or
dvoreacos@bloomberg.net
To contact the editors responsible for this story:
David Glovin at +1-212-617-4455 or
dglovin@bloomberg.net
Rick Schine, Heather Smith

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-0- Sep/03/2015 05:31 GMT