May 2003

                                                  MASS TORT LITIGATION

                                                       On March 14, 2003, a federal            Genlyte Group Incorporated, Kasco Corp.,
                                             court dismissed a lawsuit against former          Shielding Systems Corp. and Arlon, Inc. -
                                             corporate affiliates of Keene Corporation         purchased Keene's businesses during the
                                             ("Keene") and a former corporate officer,         1980s for less than fair value in order to
SUMMARY                                      finding that there was no evidence that the       shift those assets into affiliated companies
JUDGMENT                                     defendants had engaged in a scheme to             that were not burdened with asbestos lia-
                                             divert Keene's assets from its future             bilities.
GRANTED TO                                   asbestos creditors. Lippe v. Bairnco
DEFENDANTS                                   Corp., ___ F.Supp.2d ___, 2003 WL                          Defendants moved for summary
IN ASBESTOS                                  1191204 (S.D.N.Y. Mar. 14, 2003). The             judgment, arguing that there was no evi-
FRAUDULENT                                   decision represents a complete vindica-           dence to support plaintiffs' allegations.
                                             tion for the defendants in this nearly ten-       Judge Denny Chin, United States District
CONVEYANCE SUIT                              year-old litigation arising from the 1993         Court for the Southern District of New
BY                                           bankruptcy of Keene, an original defen-           York, agreed:
                                             dant in the asbestos litigation. The deci-
                                             sion also confirms that other companies           “To the contrary, on the record before the
                                             facing potentially significant liabilities can,   Court, no reasonable jury could find that
                                             with proper business motives, sell assets
                                                                                               Keene and its officers, directors, lawyers,
                                             or restructure without running afoul of
                                             fraudulent conveyance laws.                       and auditors engaged in any scheme to
                                                                                               defraud. Although the asbestos cases
                                                      The plaintiffs, Trustees of the          were a real concern to Keene as early as
                                             Keene Creditors Trust, alleged that Keene         the 1970's, the evidence shows, as a
                                             management knew as early as 1980 that
                                                                                               matter of law, that there were no fraudu -
                                             Keene's asbestos liabilities someday
                                             would bankrupt it, and schemed to divert          lent conveyances here. Instead, a reason -
                                             Keene's valuable assets from future               able jury could only find that the transac -
                                             asbestos claimants. The Trustees specifi-         tions were legitimate. The purchasing
                                             cally alleged that the corporate defen-           entities gave Keene $273.6 million in con -
                                             dants - Bairnco Corp., Kaydon Corp., The

McCarter & English, LLP

sideration for the transferred assets, and plaintiffs                 The court also concluded that the plaintiffs              McCarter & English, LLP, represented defen-   ABOUT THE AUTHOR
have presented no admissible evidence to show that         lacked standing to bring fraudulent conveyance              dant The Genlyte Group Incorporated in Lippe v.
                                                                                                                                                                                        Charles Rysavy’s practice concentrates on
less than fair value was paid. Moreover, Keene had         claims. As a matter of law, fraudulent conveyance           Bairnco.
                                                                                                                                                                              complex, multi-party products liability and toxic tort
                                                           claims require proof that creditors were injured or
more than $390 million in insurance coverage for the                                                                                                                          litigation, including numerous matters involving
                                                           harmed by the challenged conveyance, even where                      If you have any questions regarding this
asbestos claims as well as other substantial assets.                                                                                                                          asbestos, chemicals, radiation, various medical
                                                           the claim is one of an actual intent to defraud. The        alert or any other mass tort-related issue, please
Keene could not predict the future, and it had no rea-                                                                                                                        devices and industrial machinery. He can be reached
                                                           Trustees' only alleged "harm" was that Keene sup-           contact Charles Rysavy at 973.639.7913 or email
                                                                                                                                                                              at 973.639.7913 or
son to know, at the time of the transfers, that years      posedly had not received fair value for the assets it       him at
later it would be rendered insolvent by a flood of         sold to the defendants. The uncontroverted evidence
                                                           showed otherwise, in part because Judge Chin had
asbestos filings.”
                                                           granted defendants' earlier motions to strike plain-
                                                           tiffs' fair value experts. Unable to prove that Keene's
        Id. at *1. Indeed, the court observed that
                                                           asbestos creditors had been harmed, the Trustees
Keene's own estimates of its anticipated future
                                                           had no standing to challenge the conveyances as
asbestos liabilities totaled substantially less than its
then-available insurance coverage. Id. at *4-*5.
                                                                     Also of particular importance was the court's
         As for the transactions, the court found they
                                                           ruling that, under the Uniform Fraudulent
were undertaken in good faith, based on the follow-
                                                           Conveyances Act, Keene was not "insolvent" at the
ing: the transactions were done openly and reported
                                                           time of any of the transfers because the fair salable
in public filings; fair value was paid; there was con-
                                                           value of its assets exceeded its "'probable liability on
temporaneous evidence of legitimate business pur-
                                                           [its] existing debts as they [became] absolute and
poses; an investment banker rendered fairness opin-
                                                           matured.'" Id. at *20 (quoting N.Y. Debt. & Cred. Law
ions to Keene; Keene retained no control over the
                                                           § 271). In assessing Keene's "probable liability," the
businesses after each sale; Keene was paid cash,
                                                           court considered Keene's "reasonable belief" as to
which was not placed out of its creditors' reach; and
                                                           its probable future liabilities, concluding that "a rea-
Keene management relied on the advice of its coun-
                                                           sonable jury could only find that Keene had, or
sel and outside auditors. Id. at *22-*25. Notably,
                                                           believed it had, more than sufficient assets to cover
Judge Chin accepted, for purposes of this ruling, that
                                                           its probable liabilities at the time of the transaction."
Keene's asbestos liabilities were "a substantial con-
                                                           Id. at *19 (emphasis supplied); *20-*21. This ruling
sideration" behind the transactions, because "Keene
                                                           contrasts with Official Committee of Asbestos
was seeking ways to address the adverse impact that        Personal Injury Claimants v. Sealed Air Corp. (In re
asbestos cases were having on its value and earn-          W.R. Grace & Co.), 281 B.R. 852 (D.Del. 2002),
ings." Id. at *8. In effect, the court concluded that a    where the court held that, for purposes of determin-
company facing growing asbestos liabilities may            ing solvency in a fraudulent conveyance action under
restructure, in part for the purpose of reducing the       the Uniform Fraudulent Transfer Act, post-transaction
adverse effect of those liabilities on the company as      filings -- even if not reasonably foreseeable -- must
a whole, without running afoul of fraudulent con-          be considered current "debts" as of the time of the
veyance laws.                                              transfer.

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