Nearly thirty years after asbestos products were removed from the market, industrial manufacturers still face ongoing litigation for personal injuries resulting from this toxic substance.  Asbestos-related illness can be a major source of liability for any company connected to the historical manufacture or distribution of asbestos-contaning products, and it is common for parties to seek ways to limit their liability exposure into the future.   Earlier this month, however, the Third Circuit ruled on a case where rather extraordinary – and unethical – measures were allegedly taken to conceal the truth about a business’ asbestos history.

In a class action against BASF Catalysts, as well as  its predecessor-in-interest and its attorneys, plaintiffs alleged that the defendants conspired to withhold information from thousands of asbestos-related injury claimants, thus preventing them from recovering damages in court.  Specifically, the defendants are accused of destroying or hiding documents which showed that talc products sold by BASF’s predecessor had contained asbestos.  Additional allegations include producing fraudulent documents to deny the presence of asbestos in these products, and then arguing in courts and during settlement negotiations nationwide that in the absence of any evidentiary showing that the talc products contained asbestos, it was impossible for their talc products to have caused the victims’ asbestos disease or death.

In the lawsuit, plaintiffs sought - in additional to punitive damages –  injunctive and declaratory relief that would allow victims to file or refile suit against BASF - regardless of whether their past claims were already settled or voluntarily dismissed - without being barred by defenses such as res judicata and statute of limitations, defenses they argue would not have been available had the plaintiffs not been dissuaded by the alleged fraud from vigorously pursuing their claims in the past.  At the district court, the plaintiffs’ fraud claims were dismissed on the grounds that the New Jersey litigation privilege banned the claims and that plaintiffs did not meet the pleading requirements.  The New Jersey litigation privilege is intended to protect litigants and attorneys from civil liability for representations made during judicial proceedings.  The Third Circuit reversed the finding that the privilege applied, holding that the privilege was not intended to cover allegations of systematic schemes to defraud.  Moreover the Third Circuit held that allowing the litigation privilege to protect defendants in this type of action would run counter to the privilege’s goals, which are to encourage open communication and to facilitate the uncovering of the truth among adversaries.  The district court also dismissed fraudulent concealment and spoliation claims on the grounds that they were not pled sufficiently; and again the Third Circuit reversed, finding that the plaintiffs’ allegations sufficiently touched on all elements of the claims.  Where the district court held that to support a spoliation claim, plaintiffs were required to demonstrate that they would have prevailed in the underlying action, the Third Circuit found this to be too high a bar, and held instead that spoliation may occur whenever the destruction of evidence leads to any effect on the size of a damage award or the expenses and efforts needed to litigate a claim.

Finally, the Third Circuit reversed the district court’s finding that injunctive relief would be an improper interference with state court proceedings.  Because there is no currently pending state court action involving BASF’s asbestos products, the Third Circuit held that it is proper for the federal district court to issue a ruling that may affect future state court cases, as the federal court is an appropriate forum to decide the issue at this time.  The Third Circuit did, however, refuse to issue declaratory relief in the form of prohibiting the defendants from raising res judicata or statute of limitations defenses in the future, on the grounds that such issues are not yet ripe and therefore the plaintiffs do not have standing to argue the merits of such hypothetical future defenses.  The injunctive relief allowed by the Third Circuit would therefore only prohibit future acts of spoliation and fraud, and the case was remanded for further proceedings consistent with these instructions.  The issue of punitive damages was not addressed by the Third Circuit.

This is an interesting case that highlights the complexities that can sometimes be involved in uncovering the evidentiary history of a personal injury action.  It should go without saying that it is never worthwhile – no matter the extent of the potential liability – for a party or its attorneys to expose themselves to the fallout that accompanies allegations of fraud or spoliation of evidence, a prospect far more costly than facing and defending the truth from the outset.  But, this opinion offered some additional insight on the ability of federal courts to be involved in issuing judgments related to state court misconduct, including the limitations on their ability to issue declaratory relief.  This is likely not the end of asbestos litigation against BASF and its predecessors, who will have to find a way to defend not only the underlying personal injury claims but also these new allegations of misconduct in state courts around the nation.  We will continue to follow this matter to see how it plays out, both substantively and procedurally, and what the final costs will be to plaintiffs and defendants alike.