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SCHIFF HARDIN AND CO-COUNSEL FINALIZE $575 MILLION SETTLEMENT IN LANDMARK FRAUDULENT CONVEYANCE CASE
Savvy tactics, creative lawyering and remarkable collaboration lead to The Flintkote Company’s historic recovery from Imperial Tobacco Canada Ltd.
In one of the largest U.S. legal settlements of its kind in the past decade, Schiff Hardin LLP, working with co-counsel at Snyder Miller & Orton LLP, The Law Offices of Alan Pedlar and Kelly Wooster, Esq., is pleased to announce the recovery of $575 million from Imperial Tobacco Canada Limited (ITCAN) on behalf of The Flintkote Company. First announced in December, the parties’ agreement was approved by the U.S. Bankruptcy Court on August 10 and by the District Court in Delaware shortly thereafter. Flintkote’s plan of reorganization became effective on September 30, resulting in the transfer of the settlement funds to Flintkote and its Bankruptcy Code Section 524(g) Trust, bringing the case against ITCAN to a close.
The settlement is among the largest ever in a case involving an intentional fraudulent conveyance — a claim that is notoriously difficult to prove and that requires sophisticated legal knowledge and experience, as well as remarkable attention to detail and the wherewithal to persevere through nuanced, enduring litigation. The plaintiff’s team, made up of lawyers from four disparate firms working together, reviewed millions of pages of documents over nearly a decade of litigation in state and federal courts; took testimony from dozens of witnesses across the United States and Canada; and argued and won key pretrial motions on the scope of the fraudulent transfer claims, the application of federal bankruptcy law in state court proceedings, and complicated privilege issues.
“A tremendous undertaking”
Retained by Flintkote and its creditors’ committees, Schiff Hardin’s legal team was led by Eliot S. Jubelirer and Wendi J. Berkowitz. But the case was a close collaboration with co-counsel whose joint leadership, input and consensus were vital to every major decision in the case. The Dividend Recovery Litigation team, in addition to Eliot Jubelirer and Wendi Berkowitz, consisted of Steve Snyder, James Miller, Luther Orton, Peter Meringolo and Jennifer Shoda of Snyder Miller & Orton LLP; The Law Offices of Alan Pedlar; and Kelly Wooster, Esq.
“This was a tremendous undertaking and I am so impressed by the dedication and commitment of our team,” said Eliot Jubelirer, co-lead counsel and partner at Schiff Hardin. “This was the most efficient and well-functioning team of co-counsel I have ever encountered. Our firm’s leadership also deserves immense credit for its patience and fortitude in supporting the team and our client through a difficult process that we brought to a successful and unprecedented conclusion.”
“I’d like to congratulate Eliot and the entire legal team on this tremendous victory,” said Marci Eisenstein, Managing Partner of Schiff Hardin. “Our litigators resolve difficult legal challenges by taking the time to understand how a dispute impacts business goals and operations, and only then develop a strategy to achieve the desired outcome. Providing exceptional client service is the cornerstone of our lawyering, which is reflected in this remarkable outcome for Flintkote.”
Painstaking review, creative arguments
The events that led to the litigation took place in 1986-87. That’s when ITCAN’s predecessor Imasco Limited purchased the ultimate parent of Flintkote, which was a large maker and seller of construction products including many that contained asbestos. Aware that Flintkote faced massive future asbestos liability, Imasco dismantled Flintkote, separating Flintkote’s profitable operating companies’ assets from the asbestos liabilities, selling off the newly cleansed subsidiaries, and using the proceeds to pay down debt Imasco incurred in its acquisition of the parent company, as well as pre-existing non-Flintkote debt.
Twenty years later those actions formed the basis of the intentional and constructive fraudulent conveyance claims drawn up by the plaintiff’s counsel. Such claims rarely succeed—they require plaintiffs to prove either that a debtor transferred assets with the intent to hinder, delay or defraud creditors, or left the debtor with unreasonably small capital to operate going forward. The creditors in this case were men and women who claimed they were made sick by the asbestos from Flintkote’s products. To marshal that proof, the plaintiff’s legal team pored over a vast trove of paper and electronic documents in order to reconstruct events that had occurred decades earlier. This enabled the team to craft precise, often creative arguments to ensure key facts would be admitted into evidence at a jury trial. Those efforts proved crucial in prompting ITCAN’s settlement offer, as did Schiff Hardin’s and Snyder Miller & Orton’s extensive experience in asbestos defense, which helped the plaintiff’s team create an exacting picture of Flintkote’s real-world liability.
The case also involved vexing and first-impression issues of privilege, as many of the documents in Flintkote’s massive archive were claimed by ITCAN to be subject to ITCAN’s own privilege, thereby impeding Flintkote’s use of its historical documents to press its case. In a unique twist, initial phases of the litigation saw the judge presiding over the case accompanying the parties to depositions, even in far-flung cities, to maximize efficiency by rendering privilege rulings on the spot. And the plaintiff’s team used thorough jury preparation to shape arguments in a way that would play well in court.
Furthermore, co-counsel made a number of important tactical decisions. Choosing a court, for example, proved extremely complicated, involving the interplay between state and federal substantive law and remedies. The decision to file the claims in state court in California, utilizing state substantive law and bankruptcy-created remedies, enabled the case to go forward against ITCAN within the statute of limitations — which could have been fatal in another venue.
“The victory underscores the breadth and depth of our complex commercial litigation practice and our ability to prevail in the most perilous, sophisticated and protracted of legal disputes,” commented Wendi Berkowitz, partner at Schiff Hardin. “It was imperative for us to achieve a favorable settlement for our client, which represents thousands of current and future victims of asbestos exposure, or move forward to a day of reckoning before a jury. This settlement represents an important step in bringing closure to Flintkote’s current and future asbestos creditors.”