Companies jointly liable in asbestos settlement, appeals court rules.

The Ohio Court of Appeals has held that a dozen asbestos manufacturers are liable for full payment of a settlement agreement reached four years ago between injured plaintiffs, the 12 manufacturers, and 7 other, now-bankrupt companies. (In re All Kelley & Ferraro Asbestos Cases, Nos. 78158, 78159, 78299, 78301, 80083, 80332, 80673, 81576, 2003 WL 21710597 (Ohio Ct. App. July 24, 2003).)

The ruling--in 10 consolidated appeals that resulted from 6 enforcement motions filed by the plaintiffs--holds the 12 remaining members of the Center for Claims Resolution (CCR), a nonprofit organization created to handle asbestos litigation against its member companies, jointly and severally liable for the terms of the agreement.

The 15,000 plaintiffs agreed in July 1999 to settle all pending and future asbestos claims against each of the CCR's member companies in exchange for an estimated $120 million to be paid in 12 biannual installments.

The CCR originally included 19 member companies, but a series of bankruptcies reduced the number to 12. The remaining members argued that each company is responsible for its own share of the agreement, and that when one company fails to pay its share, the burden rests with the plaintiffs to recover the deficiency. The plaintiffs responded that the member companies are jointly liable, and any underpayment of nonpayment is an internal matter for the CCR to resolve.

After the settlement was reached, "some disputes between the member companies started, and they failed to pay the full amounts of the settlement as they came due. They tried to foist that dispute on my clients," said plaintiff attorney Michael Kelley of Cleveland. "We got a judgment out of the [lower] court against them, jointly and severally, and the court of appeals basically has affirmed that position."

As the first payment came due in December 1999, one member company, GAF Corp., disputed the CCR's calculation of its share and failed to submit a payment. As a result, the CCR did not make a full payment as scheduled, noting that the deficiency was due to GAF's failure to pay its share. Plaintiffs filed the first of several motions to enforce the agreement.

More motions followed additional underpayments resulting from GAF's failure to contribute and the company's subsequent bankruptcy. Eventually, all seven member companies that declared bankruptcy failed to pay their shares.

"In the agreement itself, there is no specific language that says that [the companies are] jointly and severally liable," said Kelley. "The court found, in construing the settlement agreement, that they were jointly and severally liable because the individual plaintiffs would have no way of knowing what the relationship between the 19 different companies was, and who was paying what share, and why they paid that share. In addition to that, in what is called the 'producer agreement,' which is the agreement between the 19 companies, it clearly says that if one company drops out or for whatever reason doesn't pay, the other ones will pick up the share."

According to the court, the producer agreement that created the CCR requires all share disputes among member companies to be arbitrated through alternative dispute resolution.

"Under the [CCR's] interpretation, however, a share dispute among the members would instead be adjudicated in a court action, either As a tort of as a contract action, between the plaintiffs and the member who failed to pay its share," Justice Patricia Blackmon wrote for the majority. "This blatantly contravenes the arbitration provision in the producer agreement.... [To] read the settlement agreement as imposing several liability amounts to taking the arbitration provision out of the producer agreement and foisting what is an internal dispute on the plaintiffs."

The court also noted that the only amount specified in the settlement agreement is the amount collectively owed by CCR's members.

"This language indicates that the performance promised by the CCR members was not for each member company to individually pay the plaintiffs a certain sum of money," Blackmon wrote. "Rather, what wets promised was for the CCR members, as a group, to fund the contractual amount of $120 million."

Kelley's next step is to collect what is owed to his clients.

"We are trying to execute on the bonds that they had to post on the judgments," he said. "On those judgments for which bonds weren't posted, we're going to try to collect directly from the companies."