The New York City Asbestos Litigation Just Became More Complicated

Pursuant to the Decision and Order of the Hon. Sherry Klein Heitler, dated April 8, 2014, asbestos plaintiffs for the first time since 1996 may seek permission from the New York City trial judges to charge the jury on the issue of punitive damages. Until Judge Heitler’s ruling, the New York City Asbestos Litigation (“NYCAL”) Case Management Order, as amended May 26, 2011 (“CMO”), provided that counts for punitive damages were to be “deferred” until such time as the Court deemed otherwise, upon notice and hearing. Therefore, punitive damages still could be sought, but only after a hearing to determine if it was appropriate to award them.

The importance of Justice Heitler’s ruling cannot be understated. As she notes, “tens of thousands of complex, time-consuming asbestos personal injury actions have been filed in New York County Supreme Court alone.” Her ruling is likely to have an impact on the thousands of future or presently pending cases.

Justice Helen E. Freedman, who oversaw the creation of the CMO in 1988, which governs all NYCAL cases, explained in a well-reasoned Southwestern Law Review article published in 2012, why she added the provision in 1996 that punitive damages claims should be deferred. According to Justice Freedman:

1. Punitive damages have little or no place in asbestos litigation. To charge companies with punitive damages for wrongs committed twenty or thirty or more years before, serves no correct purpose. In many cases, the wrong was committed by a predecessor company, not even the company now charged, and the responsible individuals are long gone;

2. Punitive damages only deplete financial resources that are better used to compensate injured parties;

3. Since some states do not permit punitive damages, and the federal MDL, precludes them, disparate treatment among plaintiffs would result if permitted in New York City; and

4. No company should be punished repeatedly for the same wrong.

Justice Freedman’s rationale is as valid today as it was in 1996. The only thing that has changed is that multiple bankruptcies, oftentimes involving companies whose only wrongdoing was to acquire the stock of another entity with some asbestos involvement, continue to corrode the fiber of American industry and plaintiffs have look farther and farther afield to find “fresh” defendants, many of whom have only de minimis relationship to asbestos.

Although Justice Heitler contends that the defendants, in opposing the motion, failed to provide empirical proof that punitive damages awards have contributed to bankruptcies, she overlooks the reality that defendants make oversized settlements based upon their potential exposure and that the threat of punitive damages increases that exposure calculus exponentially. One only need read the Garlock decision written by the Hon. George R. Hodges, United States Bankruptcy Judge for the Western District of North Carolina, to appreciate how settlement negotiation leverage in asbestos litigation can contribute to corporate insolvency.

Justice Heitler bases her ruling on constitutional equal protection grounds. And yet, paradoxically, she seeks to minimize the potential repercussions of her ruling (and reassure defendants) by demonstrating how other New York asbestos courts have been restrained in awarding punitive damages due to both New York’s “heavy burden” for seeking punitives and federal due process standards. If the award of punitives in New York courts outside NYCAL’s jurisdiction is so difficult to obtain, where is the loss of equal protection by requiring the filing of a notice and conducting a hearing in NYCAL?

Justice Heitler was reassured by the plaintiff asbestos lawyers that, if punitives were to be permitted, they would not abuse this long sought after opportunity and only seek punitives in the most egregious cases. However, after giving the foxes the keys to the hen house, what leverage did she retain to ensure restraint? The Decision and Order seems to suggest that these particular foxes would be content to take one plump hen and be content. She writes:

“While Plaintiffs have evinced their intention not to abuse this opportunity, it is appropriate for the court to caution the plaintiffs’ bar not to overstep this permission by attempting to seek punitive damages indiscriminately. Punitive damages should only be sought in the most serious cases to correct for the most egregious conduct, and must present a valid reference to corrective action.”

Every plaintiff lawyer has a duty to maximize his client’s recovery in a personal injury action, particularly when the client is suffering from a horrific illness like mesothelioma. If the lawyer believes he can elicit a more attractive offer from a defendant by threatening to seek punitive damages, how could he not do so within the bounds of ethical conduct? Justice Heitler notes that the use of asbestos peaked in the 1960’s and 1970’s when asbestos was used in the more than 3,000 industrial applications. Today, there are probably none. If that is the case, how can a plaintiff make a “valid reference to corrective action” in any demand for punitive damages?

When Is A Cleanup “Voluntary” Under CERCLA?

 Nothing in §107(a)(4)(B) references “voluntary” cleanups, and nothing in that section restricts its application to “voluntary” cleanups or actors. Sections 107(a) and 113(f) of CERCLA allow private parties to recover expenses associated with cleaning up contaminated sites. Similarly, nothing in Atlantic Research and its progeny restricts the application of cost recovery actions under CERCLA §107(a)(4)(B) to “voluntary” cleanups.  If that is the case, what is the basis for the contention that only PRPs that perform cleanups voluntarily are entitled to pursue §107 cost recovery claims?

Section 107(a) defines four categories of PRPs and makes them liable for, among other things, “(A) all costs of removal or remedial action incurred by the United States Government or a State or an Indian tribe not inconsistent with the national contingency plan” and “(B) any other necessary costs of response incurred by any other person consistent with [such] plan,” §§107(a)(4)(A)-(B). This is the language on which the Supreme Court relied in its decision in Atlantic Research.Similarly,  Atlantic Research is best understood in the context of the development of the law of recovery of CERCLA response costs. Historically, some courts interpreted §107(a)(4)(B) as providing a cause of action for a private party to recover voluntarily incurred response costs and to seek contribution after having been sued. However, after the enactment of §113(f), which authorizes one PRP to sue another for contribution, many courts held §113(f) to be the exclusive remedy for PRPs. In Cooper Industries, Inc.,  the Supreme Court demonstrated the limitations of §113, and held that a private party could seek contribution under §113(f) only after being sued under §§106 or 107(a).  In Atlantic Research, the Supreme Court held that §107(a)(4)(B)’s plain language allows a PRP to recover costs from other PRPs, providing a cost recovery remedy to PRPs that had not been sued under §§106 or 107(a).

The Atlantic Research decision uses the term “voluntary” at times, but does not define the term or use it literally.  After all, only parties that do not have liability under CERCLA or other regulatory schemes truly engage in “voluntary” response actions. Rather, in Atlantic Research and its progeny the term “voluntary” is simply used to draw a contrast with private parties who have been sued under CERCLA §§106 or 107(a) and, therefore, pursuant to Cooper Industries, qualify to seek contribution from other liable parties under CERCLA §113.  Despite the Court’s use of the terms “voluntary” and “involuntary” to distinguish between payments recoverable under §107(a) and those recoverable under §113(f), the operative principle appears to be that §107(a) is available to recover payments only in cases where §113(f) is not. This is what a federal district trial court concluded recently in Appleton Papers Inc. v. George A. Whiting Paper Co., No. 08-C-16, 2008 WL 3891304 (E.D.Wis. Aug. 20, 2008).  In E.I. Dupont de Nemours & Co. v. United States, 508 F.3d 126 (3d Cir. 2007), the Third Circuit distinguished between “those who voluntarily admitted their responsibility” and those who have “in fact been held responsible (via adjudication or settlement with the EPA)” in discussing who may bring an action under CERCLA §107(f). Id at 133. Therefore, a PRP who conducts a dialog with a regulatory agency concerning how best to clean up a site does not make the PRP who admits liability and accepts responsibility any less a volunteer under CERCLA and applicable case law. In Champion Laboratories, Inc. v. Metex Corp., No. 02-5284, 2008 WL 1808309 (D.N.J. Apr. 21, 2008), the Hon. William H. Walls held that a plaintiff undergoing an ISRA  cleanup in New Jersey could pursue a CERCLA §107 claim.. The New Jersey district court clearly  did not find the pendency of an ISRA cleanup any impediment to plaintiff’s pursuit of a CERCLA §107 claim. The whole point of the Atlantic Research decision is that PRPs may, without regard to their own disposal activity, avail themselves of CERCLA §107.

Nothing in CERCLA §107(a)(4)(B) or any decision post-Atlantic Research conditions a party’s eligibility to bring a cost recovery action under CERCLA §107(a)(4)(B) on that party’s response action having been purely voluntary. Any other interpretation of “voluntariness” under CERCLA, if adopted, would have the anomalous result of barring the doors of the courthouse to CERCLA plaintiffs who cannot bring a CERCLA §113 claim (having not been the prior subject of a §106 or §107 claim by the United States), but whose cleanup may not have been “voluntary” in the strictest sense. It was clearly not the intention of Atlantic Research to limit access to the courthouse to only a restricted sub-class of CERCLA §107 plaintiffs.