179 F. Supp. 2d 233 (S.D.N.Y. 2001)
Defendant law firms Baron & Budd, Ness Motley, Loadholt, Richardson & Poole (“Ness Motley”), and Weitz & Luxenberg, and individual defendants Russell Budd (“Budd”), Frederick Baron (“Baron”), Ronald Motley (“Motley”), Joseph Rice (“Rice”), Perry Weitz (“Weitz”) and Robert Gordon (“Gordon”) (collectively, the “Defendants”) have moved pursuant to Federal Rule of Civil Procedure 12(b)(6) for an order dismissing the First Amended Complaint of G-I Holdings (“Holdings”) in its entirety.
This promises to be a hard fought battle between the successor to an asbestos manufacturer and the defendant law firms and their partners. Holdings seeks retribution against the Defendants for prosecuting fraudulent claims against its predecessor manufacturer which resulted in its bankruptcy and improperly thwarting legislation to deal with the asbestos litigation crisis. To contain and categorize this fight in terms of prima facie tort, antitrust, racketeering and contract concepts is a complex and challenging undertaking in which skilled counsel for both sides have been diligent and helpful. For the reasons set forth below, the prima facie tort claim (Claim I) is dismissed, the tortious interference with contract claim (Claim II) is dismissed, the tortious interference with economic advantage (Claim II) survives, the antitrust claim (Claim III) is dismissed, the RICO claim (Claims IV-VI) is dismissed for failure to plead predicate acts of witness tampering and extortion and to plead fraud with particularity, the RICO conspiracy claim (Claim VII) is dismissed, the contract claim (Claims VIII and IX) survives and the fraudulent inducement claim (Claim X) is dismissed.
Holdings is a New Jersey corporation and is a holding company which includes certain former asbestos manufacturers, and is the successor by merger to GAF Corporation (“GAF”). Plaintiffs have initiated many thousands of tort actions against GAF Corporation and Holdings arising out of the manufacture of a product known as Calsilite, an insulation product containing asbestos.
The Defendants are law firms and their principals. They have represented many of the plaintiffs in the asbestos litigation against Holdings.
This action was initiated by the filing of an action by Holdings against the Defendants on or about January 10, 2001, alleging violations of the federal Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. (“RICO”). The First Amended Complaint (the “Complaint”) under consideration here was filed on April 30, 2001 and alleges inter alia that the Defendants engaged in a scheme to inundate the judicial system, and Holdings, with hundreds of thousands of asbestos cases without regard to their merit, and in various illegal acts in connection with such litigation including suborning false testimony. The Complaint contains ten counts and alleges that Defendants (1) maliciously interfered with GAF’s right to petition Congress (prima facie tort) (Claim I), (2) tortiously interfered with GAF’s contracts and economic advantage (Claim II) (3) violated federal antitrust law (Claim III), (4) violated the RICO statute (Claims IV-VII), (5) breached its contracts with GAF (Counts VIII, IX), and (6) fraudulently induced GAF to enter into contracts they never intended to honor (Count X).
The instant motion to dismiss was filed June 4, 2001 and was marked fully submitted on September 5, 2001, at which time oral argument was heard.
None of the facts set forth below represent findings by the Court. As befits a motion to dismiss under Rule 12(b)(6) Fed. R. Civ. P., the facts are assumed to be as alleged in the complaint for purposes of the instant motion.
For many years prior to the late 1960’s, asbestos was considered a strategic military resource, widely used in the United States in numerous military, industrial and commercial applications, including the production of high-temperature thermal insulation and fire retardant products. Over time, it was discovered that the application and removal of certain asbestos-containing products (friable asbestos products) created airborne dust containing asbestos fibers. In the late 1960’s, medical studies emerged linking the inhalation of asbestos fibers to malignant diseases and nonmalignant asbestosis, a scarring of lung tissue accompanied by an impairment of lung function. As a result, the manufacture of friable asbestos-containing products essentially ceased in the early 1970’s. Soon thereafter, lawsuits began to be filed seeking damages for personal injury as a result of exposure to asbestos. What started as a trickle soon turned into a tide of litigation on a scope not previously seen before.
Prior to the dissemination of the medical studies, dozens of companies in the United States manufactured asbestos-containing products. One such manufacturer was the Ruberoid Company. In the 1940’s and 1950’s, Ruberoid manufactured for the United States Navy, as well as others, in accordance with government specifications, a product called Calsilite — a thermal insulation product used to protect steam lines on ships and other high temperature applications. In 1967, the Ruberoid Company merged with General Aniline and Film Corporation. Prior to the merger, General Aniline and Film Corporation neither manufactured nor sold any asbestos-containing products. Shortly after the merger, all manufacture of Calsilite was halted. The GAF Corporation came into existence in 1987 and in 1989 was liquidated, and its assets and liabilities were thereafter acquired by GAF Building Materials Corporation. GAF has been named as a defendant in tens of thousands of asbestos personal injury lawsuits, and it has defended such lawsuits in its own name.
As the number of asbestos filings grew, certain law firms came to dominate asbestos litigation. Defendants Baron & Budd, Ness Motley, and Weitz & Luxenberg are three law firms that have spent more than twenty years litigating asbestos claims in courts throughout the country.
In 1978, approximately 125 plaintiffs’ asbestos attorneys banded together to form and fund the Asbestos Litigation Group (“ALG”) in order to promote asbestos litigation. Defendants were active in and effectively controlled the ALG. Acting jointly through the ALG, and through less formal asbestos-related organizations, defendants solicited tens of thousands of asbestos claimants and sued manufacturers without regard for, or in conscious disregard of, the merits of their claims against particular individual defendants such as GAF.
Defendants have received profits from their litigation by, among other things, charging their clients contingency fees, as high as fifty percent in some cases, notwithstanding the fact that many of these cases involve virtually no risk of non-recovery. It is estimated by Holdings that the Defendants have obtained billions of dollars in fees as a result of their role in asbestos litigation.
Defendants have used the profits from asbestos litigation to expand their recruiting network, enabling them to solicit tens of thousands of additional clients on a nationwide basis and through advertising in union and trade publications, which publications were mailed to the membership of virtually every trade union that ever worked near or within an industry even tangentially associated with asbestos, such as steelworkers and masons. Defendants also have established a local counsel network, which reaches into virtually every jurisdiction in the United States, to file claims on behalf of the claimants so solicited. Pursuant to agreements with each network member, a share of the fees thus generated is typically channeled back to the referring ALG member, and ultimately to the ALG, to be invested in future claimant solicitations, including mailed advertisements in newsletters. This has resulted in the filing of further claims.
Because most American asbestos manufacturers stopped manufacturing friable asbestos products in the 1970’s, the most severe instances of asbestos exposure occurred during and immediately after World War II. Given the average gestation period for asbestos-related illnesses of approximately 30 years, the number of seriously ill plaintiffs has substantially diminished over time. Thus, the number of legitimate asbestos claims began to decrease in the late 1980’s as did the number of solvent asbestos companies.
In 1982, Johns-Manville Corporation (“Manville”), the largest U.S. manufacturer and supplier of construction products containing friable asbestos fibers, filed for bankruptcy protection. Since then, asbestos litigation has driven some twenty-five additional companies into bankruptcy, including, most recently, such major companies as GAF, Owens Corning, The Babcock & Wilcox Company, Armstrong World Industries Inc., Pittsburgh Corning Corporation, and W.R. Grace and Company. In the wake of the many asbestos-related bankruptcies, the Defendants targeted the solvent companies, by encouraging their clients to identify those companies’ products as the source of their primary exposure. For example, after the Manville bankruptcy, asbestos plaintiffs’ testimony abruptly appeared to shift from targeting Manville products to targeting the products of other still-solvent manufacturers.
In response to all of the above factors, Defendants resorted to unethical and improper conduct to keep their asbestos litigation machine running at full tilt. After having largely exhausted the supply of plaintiffs who actually became sick as the result of prolonged exposure to asbestos, Defendants increasingly solicited non-sick claimants who can allege, merely, that they were exposed to asbestos at some point in time. Defendants have then tutored these solicited clients to identify the products of the few remaining viable asbestos defendants as the source of their exposure.
Thus, despite the settlement of most of the legitimate asbestos claims, over 150,000 asbestos cases are still pending against GAF and were, prior to January 5, 2001, being filed against the company at a rate of almost 70,000 per year. The vast majority of claimants in these cases do not suffer from cancer or asbestosis and, in fact, have no impairment of lung function at all.
Many of the claims filed by Defendants are or should be known by them to be completely meritless.
It has been and continues to be Defendants’ strategy to inundate asbestos defendants with lawsuits regardless of the merits of the allegations so that those companies cannot defend themselves against each individual claim and are compelled to agree to massive group settlements that include an ever-increasing proportion of non-sick claimants.
In addition to overwhelming the asbestos defendants and the judicial system with a torrent of claims that cannot reasonably be adjudicated on an individualized basis, the Defendants have held the claims of their legitimately sick clients hostage by refusing to settle those claims while assembling huge inventories of non-sick claimants. This practice enables the Defendants to use the claims of sick clients to leverage large aggregate settlements of claims that have no merit. Once such aggregate settlements are concluded, the Defendants take it upon themselves to apportion what is left of the settlement dollars, after their fees and expenses are deducted, among their clients. The clients are not informed as to the basis of the allocation, and the non-sick clients are substantially overpaid relative to their truly sick counterparts.
As a result of these practices, the Defendants’ few sick claimants have waited years and some have even died before receiving compensation. Also, by settling on this “book of business” basis, the Defendants effectively make it impossible for their clients to make an informed decision about whether the settlements are fair and reasonable based on their own individual circumstances.
In furtherance of their scheme, the Defendants have also encouraged asbestos claimants and other witnesses to fabricate evidence to overcome the obstacles posed by non-sick plaintiffs, faded memories, meritorious defenses and the reduced number of viable companies that can still be named in asbestos lawsuits. These practices have been utilized in order to enhance the settlement value of asbestos cases and, thus, the amount of fees earned, all at the expense of GAF and the other companies that have been forced to pay out billions of dollars on non-meritorious claims.
Since numerous companies have produced asbestos products, the liability of any particular company depends upon the existence of evidence that the claimant involved actually had been exposed to that company’s product. In most instances, this requires that the client testify that he was exposed to the product. To ensure this result, Baron & Budd has used a “Product Identification Department,” staffed by “Product ID” paralegals, whose job it is to make certain that the client affirmatively identifies specific products from his purported memory and that the client identify the “right” product, i.e., one that was sold by a still solvent company.
The fabrication of product identification evidence is not limited to Baron & Budd but is a pervasive practice employed by the Defendants and their affiliates. W.R. Grace and Company is but the most recent producer to note that the bankruptcy of one or more former asbestos producers creates a “spike” in claims against those former producers that are still solvent. If product identifications were truthful, the solvency or insolvency of one former producer would have no effect on the assertion of claims against other former producers because a company’s solvency cannot legitimately affect a claimant’s bona fide recollection as to the products to which he or she was exposed.
Consistent with their efforts to fabricate product identification evidence, the Defendants have also encouraged the fabrication of false testimony to stack the litigation deck in their favor. To that end, Baron & Budd went so far as to author a 20-page script entitled, “Preparing for Your Deposition” (the “Memorandum”) to assist the firm’s clients in providing helpful deposition testimony. The Memorandum goes beyond providing general tips on how a witness should conduct himself or herself during a deposition and provides specific “facts” that all clients should testify to, specific responses that all clients should give, and specific information all clients should not divulge, regardless of what the truth might be in a particular case. The Memorandum counsels witnesses to memorize the information contained in the “Work History Sheets” created by Baron & Budd paralegals and otherwise coaches clients on hints and signals that will help them determine what the “right” answer is. Nowhere does the Memorandum instruct its reader to tell the truth, and the clear import of the Memorandum is that the helpful, and necessary, “right” answer is all that matters, regardless of the truth.
For example, the Memorandum contains a series of instructions telling witnesses to identify only those products listed on the Work History Sheets prepared by Baron & Budd lest the witness identify the product of a bankrupt entity from whom no damages or attorneys’ fees could be collected. The Memorandum urges claimants to memorize the product names provided by Baron & Budd on the “Work History Sheets” and to testify that they actually saw those names on containers where they worked.
Through the distribution of the Memorandum, Baron & Budd also encouraged its clients to testify only about the installation of new products (which theoretically could be identified by its container) and not to admit that some or all of their exposure arose from the replacement or removal of old products that could not be identified by brand.
The Memorandum instructs clients falsely to claim equal exposure to all products and to deny that they ever saw any warnings or had any knowledge concerning the harmful effects of asbestos.
The Memorandum also contains a series of pointers on how witnesses can guess the “right” answers where they have no independent knowledge or recollection and carefully instructs the witness how to take cues and interpret signals from Baron & Budd attorneys during the deposition.
For example, the memorandum instructs clients:
Baron & Budd conducted regular in-house training sessions concerning the giving of misleading and false deposition testimony and issued various memoranda instructing employees how to prepare clients for giving testimony without regard to its truth.
In an apparent effort to cover the tracks of their fraudulent coaching, the Memorandum also instructs clients that, “You may be asked how you are able to recall so many product names. The best answer is to say that you recall seeing the names on the container or on the product itself. The more you thought about it, the more you remembered.” Most revealing, and in apparent acknowledgment of the fact that asbestos product identification and other matters may be independently (or “creatively”) added to litigation materials by Baron & Budd, the Memorandum instructs, “[S]ay that a girl from Baron & Budd showed you the picture of MANY products, and you picked out the ones you remembered.” It offers further that, “If there is a MISTAKE on your Work History Sheets, explain that the ‘girl from Baron & Budd’ must have misunderstood what you told her when she wrote it down.”
The Complaint also alleges the Baron & Budd Defendants’ created and delivered false affidavits in connection with mass settlements.
As a prerequisite to implementation of certain mass settlements with (among others) GAF, Defendants were required to provide sworn affidavits from their clients stating the specific asbestos-containing products to which these clients had been exposed during the relevant time periods. Such affidavits were essential to the consummation of these settlement agreements.
Upon information and belief, many Baron & Budd clients were reluctant to sign the affidavits, as they had no recollection of the products to which they had been exposed and were afraid that, if they signed the affidavits, they might be required to go to court. Upon information and belief, Baron & Budd personnel would persuade these clients to sign the affidavits by assuring them that this was a purely mechanical process — they needed only sign the document, have it notarized, and send it in, and they would then be assured of receiving money.
Upon information and belief, as a result of this inducement, Baron & Budd clients signed affidavits in which they swore under oath that they were exposed to specific products when they had no independent recollection that they had been. Upon information and belief, although Baron & Budd employees were aware that the affidavits were false at the time they were signed, Baron & Budd nonetheless presented these affidavits to asbestos Defendants, including plaintiff, as true.
These false and fraudulent affidavits were submitted to plaintiff and/or its agent through the United States mails and/or by private or commercial interstate carrier.
In reliance on Baron & Budd’s fraudulent assertion that such affidavits were true, asbestos Defendants, including plaintiff, paid out millions of dollars in asbestos settlements that they otherwise would not have paid, a large portion of which was paid to Baron & Budd in attorneys’ fees.
Baron & Budd’s encouragement of false testimony was not limited to depositions. As a prerequisite to implementation of certain mass settlements with GAF, among others, the Defendants were required to provide sworn affidavits from their clients stating the specific asbestos-containing products to which these clients had been exposed during the relevant time periods. Such affidavits were essential to the consummation of these settlement agreements.
Many Baron & Budd clients were reluctant to sign the affidavits, as they had no recollection of the products to which they had been exposed and were afraid that if they signed the affidavits, they might be required to go to court. Baron & Budd personnel would persuade these clients to sign the affidavits by assuring them that this was a purely mechanical process, that they needed only sign the document, have it notarized, and send it in, and they would then be assured of receiving money.
As a result of this inducement, Baron & Budd clients signed affidavits in which they swore under oath that they were exposed to specific products when they had no independent recollection that they had been. Although Baron & Budd employees were aware that the affidavits were false at the time they were signed, Baron & Budd nonetheless presented these affidavits to asbestos defendants, including Holdings and its predecessors, as true.
In reliance on Baron & Budd’s fraudulent assertion that such affidavits were true, asbestos defendants, including Holdings, paid out millions of dollars in asbestos settlements that they otherwise would not have paid, a large portion of which was paid to Baron & Budd in attorneys’ fees.
The Defendants’ efforts to manufacture favorable testimony was not limited to the scripting of claimants’ testimony. Baron & Budd, along with Ness Motley, hired doctors who attributed virtually any lung abnormality to asbestos exposure, regardless of what the medical evidence actually showed.
Defendant Ness Motley provided a different form of inducement to medical experts to obtain their favorable testimony. Certain of defendant Ness Motley’s female secretaries and paralegals were expected to, and did, “entertain” expert witnesses who would visit the firm in connection with pending asbestos litigation. At least one partner of the firm indicated to his secretary that she should have sex with a particular expert witness, and Motley supplied several female employees with cash and encouraged them to “be nice to” certain of the firm’s experts and out-of-state co-counsel.
These practices induced false and misleading testimony to be given by expert witnesses in support of claims brought against GAF and others, which resulted in GAF’s payment of inflated verdicts and settlements in a number of cases. These inflated verdicts and settlements and, in general, Ness Motley’s ability to produce on demand whatever medical testimony it needed, also had the effect of raising the “going rate” for settlement of Ness Motley’s cases, thereby causing GAF additional injury.
Well aware of the effect that asbestos litigation was having on both state and federal courts, in 1990 the Chief Justice of the United States appointed a Judicial Conference Ad Hoc Committee on Asbestos Litigation to investigate and report on the growing problem posed by the flood of claims. In its 1991 Report, the Ad Hoc Committee found that:
[D]ockets in both federal and state courts continue to grow; long delays are routine; trials are too long; the same issues are litigated over and over; transaction costs exceed the victims’ recovery by nearly two to one; exhaustion of assets threatens and distorts the process; and future claimants may lose altogether.
The Ad Hoc committee’s report concluded that the situation required the creation of a national asbestos dispute resolution scheme, and on the basis of that report, the Judicial Conference of the United States urged Congress to do so.
In 1993, following a series of discussions among representatives of the asbestos plaintiffs’ bar and The Center for Claims Resolution (“CCR”), of which GAF was a member, a global, class action settlement was reached, affecting all current and future asbestos claims asserted against GAF and the other then-members of the CCR. This settlement, which is commonly referred to as the Georgine settlement, was approved by the United States District Court for the Eastern District of Pennsylvania, which had before it at the time all of the then-pending federal asbestos cases. The Georgine settlement was designed to assure prompt payment with reduced transaction costs to sick individuals through an administrative facility and to defer the claims of non-sick individuals until such time as they became sick.
In June 1997, the Georgine settlement was disapproved by the United States Supreme Court in Amchem Products, Inc. v. Windsor, 521 U.S. 591, 117 S. Ct. 2231, 138 L. Ed. 2d 689 (1997). The Court had no quarrel with the settlement criteria set forth therein, but determined that the settlement did not comport with the requirements of Rule 23 of the Federal Rules of Civil Procedure. In its opinion in Amchem, the Supreme Court urged Congress to implement legislation to establish an asbestos dispute-resolution system, explaining that “a nationwide administrative claims processing regime would provide the most secure, fair, and efficient means of compensating victims of asbestos exposure.” Id. at 628-29, 117 S. Ct. 2231.1
In the wake of Amchem, a number of companies formed the Coalition for Asbestos Resolution (“CAR”), the goal of which was to work toward the adoption of legislation establishing a fair and efficient administrative facility for resolving asbestos claims. When it was formed, CAR’s members included Kaiser Aluminum Corporation (“Kaiser Aluminum”), Georgia-Pacific Corporation (“Georgia-Pacific”), Westinghouse, United States Gypsum Company (“US Gypsum”), ABB Combustion Engineering, Turner & Newell PLC (“Turner”), Armstrong and GAF.
The Fairness in Asbestos Compensation Act (“FACA” or the “Act”) was first introduced in October 1998, near the end of the 105th Congress. With the support of GAF and the CAR, it was reintroduced at the start of the 106th Congress in early 1999. The legislation, which was co-sponsored by over 102 Republican and Democratic senators and congressmen, was designed to compensate individuals who are actually sick and to defer resolution of the claims of “non-sick” individuals until such time as those individuals actually developed an asbestos-related illness.
Pursuant to the Act, an industry-funded national claims facility was to be created that would have applied essentially the same objective medical criteria that were embodied in the Georgine settlement. These criteria have been approved by leaders in the public health community, including Dr. Louis W. Sullivan, former Secretary of the Department of Health and Human Services, who testified before the House Judiciary Committee that the criteria contained “generous” impairment guidelines that are “designed to ensure that no individual suffering from asbestos-related impairment be excluded from compensation.” The FACA eliminated the statute of limitations defense as a bar to recovery for currently non-sick claimants, thus enabling such individuals to obtain fair compensation if and when they become sick in the future.
The Act, unlike the Georgine class action settlement, did not impose any limit on the liability of GAF or any other former asbestos producer. What the FACA did cap was Defendants’ contingency fees, which were to be limited to 25% of a claimant’s recovery. The Act would have dramatically reduced the legal fees and transaction costs associated with asbestos litigation that are alleged to consume approximately 60 cents of every dollar spent on the litigation. The Act would also have expedited compensation of genuinely sick individuals, while preserving for claimants who develop asbestos-related illnesses in the future resources that are now being rapidly depleted by the current process of asbestos litigation. GAF and its Chairman, Samuel J. Heyman (“Heyman”), were active and public supporters of the Act.
The Defendants vigorously opposed the FACA because, by their own estimate, it could have drastically reduced their then-current inventories of claimants by as much as 80% by deferring the resolution of “non-sick” claims, and capping their fees at 25%. Thus, under the leadership of Baron and Rice and through the American Trial Lawyers Association (“ATLA”), of which Baron was president, Defendants and other members of the asbestos bar launched their attack on the Act and on any company that supported it.
The Defendants’ tactics with respect to the Act began in 1998 when the Act was first introduced in Congress. To support the proposed legislation, James Kelly (“Kelly”) of Georgia-Pacific intended to testify before Congress and prepared a written statement of testimony for the House Judiciary Committee. At the time, Georgia-Pacific was a member of CAR and Kelly was the chair of CAR.
Shortly before Kelly was scheduled to appear before the House Judiciary Committee, one or more of the Defendants met with representatives of Georgia-Pacific and threatened Georgia-Pacific that if Kelly testified in support of the Act and if Georgia-Pacific otherwise continued to support the reform effort, Defendants would wreak economic havoc on Georgia-Pacific through asbestos litigation. As a result of the threats, Kelly abruptly resigned his position as chair of CAR, and had his company, Georgia-Pacific, withdraw from the organization.
The Defendants’ prior attempts to strong-arm their opponent had driven numerous companies into bankruptcy. Owens Corning was the first. As a result of the Defendants’ extortionate threats, Owens Corning was ultimately forced to abandon its defense efforts rather than face bankruptcy.
Threatening asbestos defendants is alleged to have been a regular course of conduct for Defendants. When W.R. Grace and Company and Raymark attempted to expose the fraudulent use of the Baron & Budd Memorandum in litigation, they too were visited by the Defendants with a campaign of retaliation and intimidation. The campaign was wholly successful; both companies were driven into bankruptcy as a result.
In February 1999, Rice, on behalf of the Defendants and other firms working with them, invited the remaining companies supporting the Act and several other former asbestos producers to a meeting on February 24. The invitation stated that the plaintiffs’ attorneys calling the meeting represented 80% of the pending asbestos plaintiffs’ cases, and that they sought a meeting for a “frank discussion” of the current status of the national asbestos litigation.
The February 24 meeting was attended on the asbestos plaintiffs’ side by Rice, Motley, Baron, Weitz and Gordon, among others. Representatives of GAF, Kaiser Aluminum, W.R. Grace and Company, Owens Corning, Owens-Illinois, Inc., U.S. Gypsum and others were also present. The meeting was chaired by Rice.
At the meeting, representatives of GAF made it clear that Heyman expected to testify before Congress in support of the Act. Rice and his co-conspirators made it equally clear that they would do whatever it took to kill the Act, including retaliating against any company that supported it, specifically including GAF. Motley also threatened that if Heyman persisted in his support of the legislation, he would be targeted for personal retaliation as well.
Acting as spokesman for the group, Rice stated that efforts to promote or support the Act were viewed by the Defendants as starting a “nuclear war.” He insisted that the Defendants were prepared to “fight on whatever level necessary” to defeat the legislation. He also threatened that further support for the Act would result in “war” that would break out on every front, and that any company that did not renounce its support for the legislation would be engulfed in asbestos litigation that “will rage like a fire you will never control.”
As a result of the extortionate threats made at the February 24 meeting, ABB Combustion Engineering withdrew from the CAR.
Two days after the February 24 meeting, defendant Rice, on behalf of the Defendants and the other asbestos plaintiffs’ attorneys, invited the industry participants to a follow-up meeting to be held on April 8, 1999. On the evening before the April 8 meeting, the Defendants and their fellow asbestos lawyers met secretly with one of Washington’s leading lobbyists, who informed them that there was a serious chance for passage of the Act.
At the April 8 meeting, the Defendants threatened, intimidated and coerced the former asbestos producing companies in even harsher terms to oppose the Act. Defendants threatened that they would financially cripple any company supporting the Act. To that end, Rice and others made it clear that withdrawing support for the Act was no longer enough and that the Defendants were now demanding that companies sign letters opposing the Act, thereby misrepresenting their companies’ actual view.
Rice further stated that the asbestos plaintiffs’ attorneys had agreed that companies “supporting the legislative effort do not have common interest with the rest of us,” and “shouldn’t be here.” He specifically identified GAF as such a company and stated that the asbestos plaintiffs’ attorneys were united in the demand that the representatives of GAF, whom he identified, leave the meeting. This message was echoed by Weitz, who announced that he and his colleagues “were not prepared to have discussions with anyone endorsing the legislation” and that they “needed to know which Defendants stood on which side of the river.”
F. Kenneth Bailey (“Bailey”), of Williams Bailey Law Firm, LLP (“Williams Bailey”), spoke next. Bailey, on behalf of Williams Bailey, is party to a settlement agreement relating to asbestos litigation pending in Texas, in which Williams Bailey undertook to recommend to its clients the acceptance of agreed-upon settlement amounts. Nonetheless, Bailey stated that as a result of GAF’s support of the Act, he would recommend to his clients not to accept any settlements with the CCR, and would go to trial in all cases against the members of the CCR. Weitz, whose firm is party to a similar settlement agreement relating to New York-based claims, similarly stated that he and his firm would likewise no longer settle any cases with the CCR as a result of GAF’s support of the Act.
Weitz also identified Kaiser Aluminum as another supporter of the Act that would be targeted. At that time, Weitz was in possession of the final draft of a settlement agreement with Kaiser Aluminum. Weitz stated that if Kaiser Aluminum supported the Act, he would not enter into any settlements with it and that any former asbestos producer that was supporting the Act would become the target of a crushing number of new claims.
The Defendants and the other asbestos plaintiffs’ attorneys then left the room and caucused. When they returned, Rice, on behalf of all the asbestos plaintiffs’ lawyers, stated that from that point on they would refuse to meet with any company that had not, in advance, provided to them a written statement stating that the company opposed the Act. Rice stated that the asbestos plaintiffs’ lawyers in attendance had just discussed the matter and were “monolithic on this.” Addressing the room, he asked if any of the other plaintiffs lawyers disagreed with that assertion. None did.
Representatives of GAF stated that they wished to continue to attend any meetings between the asbestos plaintiffs bar and asbestos litigation defendants. Rice then insisted that all of GAF representatives, including the company’s general counsel, leave the meeting.
Shortly after the April 8 meeting, and as a result of the extortionate threats made at that meeting and the earlier meeting on February 24, Kaiser Aluminum, Westinghouse, U.S. Gypsum, Turner and Armstrong withdrew from the CAR.
Having successfully extorted the other CAR members to bow to their demands, the Defendants zeroed in on GAF. On April 12, 1999, Weitz and Gordon met with GAF’s general counsel and reiterated the threats of the two prior meetings. They stated that if GAF continued to support the Act, there would be “full-fledged war,” and the asbestos plaintiffs’ bar would have a “nuclear response,” that the asbestos plaintiffs’ bar wanted to isolate GAF to send the message to all other asbestos litigation defendants, that actual opposition to the Act was the only means by which asbestos defendants would be permitted to negotiate with the asbestos plaintiffs’ bar, that, regarding the Act, the goal was not merely to win but to destroy any opposition, that the asbestos plaintiffs’ bar would make GAF the main target in the asbestos litigation, and that GAF would have to make a decision within the next few days that would determine whether the company would survive.
After the meeting with GAF, the Defendants decided to increase the pressure by other means. They turned their sights on CCR and threatened, inter alia, that they would stop settling cases with the CCR and extract a premium for settling cases as long as GAF continued its support of the Act and remained a member of the CCR. The pressure was extremely effective. On December 27, 1999, CCR expelled GAF from membership. Stripped of the protections afforded by being a member of the CCR, GAF became an easier target for the Defendants, who sharply escalated their settlement demands in connection with cases then pending against GAF.
The legislation was defeated. As a result, the Defendants continue to litigate meritless claims today. Making good on their threats, the Defendants along with their colleagues in the plaintiffs’ asbestos bar filed a large number of new claims, and GAF went into bankruptcy on January 5, 2000.
In connection with the negotiation of the Georgine settlement, the CCR had entered into so-called futures agreements (“Futures Agreements”) with many of the nation’s leading plaintiffs’ asbestos law firms, including Weitz & Luxenberg and Ness Motley, and firms affiliated with Ness Motley (“Affiliated Firms”). The Futures Agreements served as a corollary to the Georgine settlement by incorporating the Georgine medical criteria and providing a mechanism by which any future filing of claims by “non-sick” individuals would be deferred, even if the Georgine settlement was ultimately not upheld on appeal. The Futures Agreements further provided that the CCR would as an alternative dispute resolution mechanism toll the running of the statute of limitations for Defendants’ clients (and future clients) who did not have any of the conditions set forth in the Georgine medical criteria (and whose claims were not already time barred). The Defendants agreed, in turn, to recommend to their clients that they defer filing an asbestos claim until they met the criteria.
In this way, the Futures Agreements provided added assurance to GAF and the other CCR members that regardless of the fate of the Georgine settlement in the appellate courts, those companies would not be subjected to the tremendous litigation costs associated with defending tens of thousands of claims by plaintiffs who had not developed (and might never develop) an asbestos-related disease.
In entering into the Futures Agreements at the time of the Georgine settlement, the Defendants represented that they believed that the Georgine medical criteria were “reasonable” and that acceptance of the ADR procedure “will be in the interest of its future clients who do not have a medical condition” defined by the criteria in the Agreement “in that it offers such clients an alternative to immediate litigation or settlement and release of their claims for asbestos injury.” The typical Futures Agreement expressly states that the subscribing firm will:
recommend that its clients seriously consider this alternative dispute resolution procedure. With respect to all clients who accept this alternative dispute resolution procedure, [defendant law firm] agrees to defer filing any asbestos-related personal injury claims against CCR or any of its current members until such time, if ever, as the claimant develops one of the asbestos-related diseases described [herein].
The Futures Agreements formed a substantial part of the inducement for CCR’s agreement to settle some 50,000 pending asbestos cases for approximately $750 million. That sum was paid to Defendants by CCR. Ness Motley, Weitz & Luxenberg and their affiliated firms received a substantial portion of this $750 million and retained significant share of those funds for their own accounts, as attorneys’ fees. GAF contributed approximately $200 million toward the $750 million settlement payment and did so in reliance on the plaintiffs’ lawyers’ commitment to adhere to the medical criteria and procedures set forth in the Futures Agreements. GAF would never have agreed to pay such sums had it known that Ness Motley, Weitz & Luxenberg and the affiliated law firms had no intention of adhering to the commitments set forth in the Futures Agreements.
By their express terms, the Futures Agreements were triggered by the Amchem decision rejecting the Georgine settlement and became binding upon the participants. Nonetheless, despite the plain language of the Futures Agreements and the hundreds of millions of dollars they received in connection with them, Weitz & Luxenberg and Ness Motley immediately breached their obligation to recommend the ADR procedure and the deferral of claims on behalf of non-sick clients. Indeed, following the lifting of the injunction that was entered by the District Court that approved the Georgine settlement, Weitz & Luxenberg and Ness Motley and, at the direction of Ness Motley, the affiliated law firms, began filing non-sick claims at an ever greater rate than they had filed them before the Georgine settlement, and continued to do so unabated at least until the GAF bankruptcy.
The standard of review under Rule 12(b)(6) requires the court to accept as true all reasonable inferences which can be drawn from the complaint. A complaint is not to be dismissed unless it appears “beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957); accord Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S. Ct. 2229, 81 L. Ed. 2d 59 (1984); Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47 (2d Cir. 1991), cert. denied, 503 U.S. 960, 112 S. Ct. 1561, 118 L. Ed. 2d 208 (1992).
A federal court sitting in diversity applies the choice of law principles of the forum state to decide which state’s substantive law controls. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941). However, when the forum state is New York, “[a] court is free to bypass the choice of law analysis and apply New York law in the absence of a material conflict.” Simon v. Philip Morris Inc., 124 F. Supp. 2d 46, 70 (E.D.N.Y. 2000) (citing Curley v. AMR Corp., 153 F.3d 5, 12 (2d Cir. 1998)).
Laws are in material conflict if the differences in the laws “have a significant possible effect on the outcome of the trial.” Simon, 124 F. Supp. 2d at 70. Consequently, “[i]f the party urging a choice of law analysis fails to demonstrate a true conflict between New York and another state’s laws, no choice of law analysis need be undertaken.” Bass v. World Wrestling Fed. Entertainment, Inc., 129 F. Supp. 2d 491, 504 (E.D.N.Y. 2001).
When the law of a particular state is not established, federal courts sitting in diversity predict how the state court would resolve any ambiguities. Fieger v. Pitney Bowes Credit Corp., 251 F.3d 386, 399 (2d Cir. 2001) (citing Michalski v. Home Depot, Inc., 225 F.3d 113, 116 (2d Cir. 2000)). To do so courts look to decisions of the state’s trial and appellate courts. Michalski, 225 F.3d at 116.
Holdings raises a choice of law issue as to the prima facie tort claim, the tortious interference claims, the breach of contract claim and the fraudulent inducement claim, arguing for the application of New Jersey law in each instance. As to each of the issues concerning which Holdings raises a choice of law issue, there is no material difference between New Jersey and New York law, and New York law will be applied. As to each choice of law question raised, the issue is considered in each of the relevant sections of the opinion as set forth below.
Claim I of the Complaint alleges malicious interference with, and conspiracy to interfere with the right to petition Congress (prima facie tort). In support of this claim, Holdings alleges that GAF possessed the right to petition government and that the Defendants interfered with this right in such a manner as to constitute a prima facie tort.
New Jersey law recognizes an action for prima facie tort but has not yet set forth the pleading or other requirements for the doctrine. Despite minimal references to prima facie tort in New Jersey case law and even scarcer discussion of the doctrine, in 1998 the New Jersey Supreme Court finally discussed the doctrine in Taylor v. Metzger, 152 N.J. 490, 706 A.2d 685 (N.J. 1998). Holdings cites Taylor for the proposition that New Jersey would apply the Restatement’s prima facie tort formulation. However, in affirming the dismissal of a prima facie tort claim in Taylor, the New Jersey Supreme Court first outlined the general nature of prima facie tort, citing to the Restatement (Second) of Torts as well as to the New York case of Freihofer v. Hearst Corp., 65 N.Y.2d 135, 490 N.Y.S.2d 735, 480 N.E.2d 349 (1985). See Taylor, 706 A.2d at 700. In contrast to the Restatement formulation, the Freihofer court specifies the pleading requirements for prima facie tort.
Because New Jersey has not set forth pleading requirements for a claim of prima facie tort, a question is presented as to the resolution that the New Jersey courts would adopt. Fieger, 251 F.3d at 399. In Taylor, the New Jersey Supreme Court did not rely upon the Restatement of Torts to describe the general nature of a prima facie tort but to the Restatement and a New York case which sets forth the New York’s pleading requirements. For its factual holding, it relied on a law review article, a New Mexico case and another New York case, without citing the Restatement. See Taylor, 706 A.2d at 700.
Further, the few holdings present in cases under New Jersey law comport with those of New York cases. See, e.g., Bishop v. Inacom, Inc., No. Civ. A. 99-664, 1999 WL 1416919 (D.N.J. 1999) (stating that no prima facie tort claim could lie unless the plaintiff established “that [the defendant] in fact owed a duty to act in a certain manner” id. at *10 (citing Riggs v. Schappell, 939 F. Supp. 321, 329 (D.N.J. 1996); Brody v. Albert Lifson & Sons, 17 N.J. 383, 111 A.2d 504 (1955)) and rejecting the claim). This further supports the conclusion that a New Jersey court would adopt the pleading standards applied under New York law. See Michalski, 225 F.3d at 116 (“Other data” to use in predicting how a state court would resolve an ambiguity in state law “include relevant case law from other jurisdictions on the same or analogous issues, scholarly writings in the field, and any other resources available to the state’s highest court”).
In this instance, there is no genuine conflict. Holdings cites Lombard v. Economic Development Admin. of Puerto Rico, No. 94 Civ. 1050, 1995 WL 447651 (S.D.N.Y. July 27, 1995), for the proposition that “causes of action with differing elements” are in conflict. However, that case is inapplicable here because New Jersey simply has no detailed elements, such as pleading requirements. Consequently, elements that have not been developed cannot be in conflict with those in New York.
Because there is no material conflict in the applicable law, New York law is appropriately applied to this cause of action.
To plead a cause of action for prima facie tort adequately under New York law, a plaintiff must allege (1) intentional infliction of harm; (2) resulting in special damages; (3) without excuse or justification; (4) by an act that would otherwise be lawful. Twin Labs., Inc. v. Weider Health & Fitness, 900 F.2d 566, 570 (2d Cir. 1990) (applying New York law). The difference between the formulation in New York and that adopted by the Restatement (Second) of Torts § 870, is a requirement that the “sole motivation for the damaging acts has been a malicious intention to injure the plaintiff.” Twin Labs., 900 F.2d at 570. Holdings pleads that the Defendants’ conduct was undertaken:
initially so that plaintiff would desist from supporting the Act and thereafter as an object lesson to plaintiff, and the universe of asbestos Defendants in general, as to the harm that would befall those that did not toe the line.
The Defendants maintain that this allegation concedes that the conduct was motivated by other factors than a malicious intent to injure the plaintiff: (1) a desire to encourage plaintiffs to desist from supporting the Act, (2) to encourage others to toe the line, and (3) to prevent the passage of a bill they considered harmful to their interests. As the Second Circuit noted in Twin Labs, “motives other than disinterested malevolence, ‘such as profit, self-interest, or business advantage’ will defeat a prima facie tort claim.” Id. at 570 (citation omitted).
When a plaintiff sets forth allegations that indicate that other motives were involved in the complained of conduct besides disinterested malevolence, the cause of action must be dismissed. See e.g., Lennon v. Seaman, 63 F. Supp. 2d 428, 434 (S.D.N.Y. 1999) (“[P]laintiff has actually alleged that the defendants’ motivations behind the theft and use of Lennon’s items were monetary in nature,” thus requiring dismissal of the claim). Here, the facts alleged do not demonstrate that the Defendants were motivated solely by a desire to harm Holdings. In addition to the allegation cited directly above, Holdings alleges that the Defendants’ actions were directly motivated by their desire to defeat FACA, alleging that the Defendants made threats and took actions against any company that supported the act. Complaint ¶ 101.
In support of its contention that “sole motivation” has been adequately pleaded, Holdings relies on Burns, Jackson, Miller, Summit & Spitzer v. Lindner, 108 Misc. 2d 458, 437 N.Y.S.2d 895 (1981), and on the Third Department’s decision in Mahoney v. Temporary Commission of Investigation of the State of New York, 165 A.D.2d 233, 565 N.Y.S.2d 870 (3d Dep’t 1991). According to Holdings, these cases show that a prima facie tort claim may survive even when a “sole motivation” of disinterested malevolence has not been pleaded if the end sought to be achieved was legitimately desired and a determination is made weighing the social benefits of the defendant’s actions with the harm to the plaintiff.
However, while the trial court in Burns, Jackson denied a motion to dismiss a prima facie tort claim on the ground that there was neither a “legal” nor “social justification for the allegedly tortious conduct,” 437 N.Y.S.2d at 902-03, the New York Court of Appeals subsequently affirmed the dismissal of that same claim. See Burns Jackson, 464 N.Y.S.2d 712, 451 N.E.2d at 468. In so doing, the Court of Appeals relied entirely on the fact that the plaintiff had not alleged that the defendants’ sole motivation was “disinterested malevolence.” Id. The court ignored the trial court’s theory that a non-malicious motivation could defeat a claim of prima facie tort only if the motivation was legally or socially “legitimate.” Id.
Mahoney is likewise inapposite. In that case, the Appellate Division held that the defendants’ justification did not address the specific acts of misconduct alleged. 165 A.D.2d at 239, 565 N.Y.S.2d 870. Here Holdings has affirmatively pleaded that the specific acts of the Defendants were motivated by economic self-interest.
Finally, Holdings contends that it was not until after the Defendants were unable to persuade it to change its position that the Defendants engaged in the alleged conduct underlying the prima facie tort. Because the Complaint alleges that the Defendants’ conduct occurred after Holdings refused to change its position, Holdings contends that the desire to have it withdraw its support for the Act could no longer have been a motivation for Defendants’ actions. See Kahuna Group, Inc. v. Scarano Boat Building, Inc., 984 F. Supp. 109, 115 (N.D.N.Y. 1997) (summary judgment motion seeking dismissal of a prima facie tort claim denied because the “alleged tortious conduct continued past the point where [defendants] stood to gain financially from continuing to injure plaintiff”). However, simply because GAF decided to continue supporting the FACA does not establish that the Defendants’ continued opposition to the measure, and continued conduct toward Holdings, became acts of disinterested malevolence. Even as the allegations are pleaded, the Defendants continued to have an interest in opposing the act and that defeats Holdings’ claim of disinterested malevolence.
The failure to plead disinterested malevolence adequately is fatal to Holdings’ prima facie tort claim. For the reasons stated, Claim I is dismissed.
Claim II of the Complaint pleads alternative claims for tortious interference with contract and tortious interference with economic advantage. These claims are based on alleged interference with the relationship between GAF and CCR which handled the litigation of claims against it and other manufacturers.
Under New York law, the elements of a claim for tortious interference with contract are: (1) existence of a valid contract between plaintiff and a third party; (2) defendant’s knowledge of the contract; (3) defendant’s intentional procuring of the breach of that contract; and (4) damages. William Kaufman Organization v. Graham & James LLP, 269 A.D.2d 171, 173, 703 N.Y.S.2d 439, 442 (1st Dep’t 2000). As discussed more fully in this section, New York and New Jersey law do not conflict in any material way with respect to this claim and consequently no decision as to the applicable law need be made. See, e.g. Curley v. AMR Corp., 153 F.3d 5, 12 (2d Cir. 1998).
Holdings has not adequately pleaded the existence of a valid contract between GAF and CCR. The Complaint states: “Prior to December 17, 1999, plaintiff had a contractual relationship with CCR under which CCR investigated claims, tried cases, and negotiated settlements on a bulk basis on behalf of all of its members, thereby substantially reducing GAF’s transaction costs in the asbestos claim resolution process.” However, an allegation of interference with “contractual relations” is insufficient where the plaintiff does not refer to a valid, existing contract or any terms of contract with a third party. Martin Ice Cream Co. v. Chipwich, Inc., 554 F. Supp. 933, 945 (S.D.N.Y. 1983). Here Holdings has pleaded a “contractual relationship” with CCR and describes the nature of the relationship, and the specific benefits derived from it, but fails to identify a valid, existing contract. See also Tuff-N-Rumble Management, Inc. v. Sugarhill Music Publishing Inc., 49 F. Supp. 2d 673, 678 (S.D.N.Y. 1999) (applying N.J. law); Universal Marine Med. Supply v. Lovecchio, 8 F. Supp. 2d 214, 221 (E.D.N.Y. 1998) (N.Y. law requires proof of “the existence of a valid contract between itself and a third party for a specific term”).
Moreover, New York law requires that to plead tortious interference with contract properly, the plaintiff must allege “breach” of an existing contract. See Robins v. Max Mara, U.S.A., Inc., 923 F. Supp. 460, 468 (S.D.N.Y. 1996); see also NBT Bancorp, Inc. v. Fleet/Norstar Fin. Group, Inc., 87 N.Y.2d 614, 641 N.Y.S.2d 581, 664 N.E.2d 492, 496 (1996). Additionally, while New Jersey law does not explicitly identify breach as an element of this cause of action, inducing a third party to violate some provision of its contract with the putative plaintiff is implicit in the element of “interference” with the pre-existing contract. See, e.g., Tuff-N-Rumble, 49 F. Supp. 2d at 678; Score Board, Inc. v. Upper Deck Co., 959 F. Supp. 234, 238 (D.N.J. 1997) (interference arose from violation of restrictions of pre-existing contract). Similarly, while the Restatement (Second) of Torts does not identify “breach” as a distinct element of the tort, the commentary to the section is full of references to breach or breaking of contracts. See Restatement (Second) of Torts § 766, Comments c, d, f, g, o, p, and q. Therefore, breach of contract must be pleaded.
Breach, however, is not adequately pleaded. Holdings has alleged “[o]n December 17, 1999, CCR expelled GAF from membership” and that “... Defendants caused CCR to expel GAF, thereby deliberately interfering with GAF’s ongoing economic and contractual relationship with CCR.” According to Holdings, it is entitled to the inference that it can prove facts that demonstrate that its expulsion from the CCR was a breach of the contract between Holdings and the CCR. However, no breach is alleged. Even if Holdings were to prove the above allegation in all respects, there would still be a failure to demonstrate breach of a contract between Holdings and the CCR. Therefore, the claim for tortious interference with contract in Claim II is dismissed.
Though inadequate to establish a claim for tortious interference with contract, Claim II of the Complaint adequately pleads tortious interference with economic advantage. The elements of a claim for tortious interference with economic advantage are: (1) a prospective contractual relation or business with a third party; (2) defendants’ interference with that relation; (3) defendant acted with the sole purpose of harming plaintiff or used dishonest, unfair or improper means; and (4) injury to the plaintiff. The only elements of a claim for tortious interference with economic advantage that differ from those for a tortious interference with contract are the level of the relationship interfered with and the level of interference. Because courts are more protective of contracts than prospective relationships, a higher degree of interference is required to plead the claim. See Lane’s Floor Coverings, Inc. v. Ardex, Inc., 1996 WL 19182, at *3 (E.D.N.Y. Jan. 4, 1996).
The allegations discussed above plead the existence of a relationship under which it can recover for tortious interference with a prospective contractual relationship. Cf. Catskill Development, LLC v. Park Place Entertainment Corp., 144 F. Supp. 2d 215 (S.D.N.Y. 2001) (plaintiff did not state a claim for tortious interference with contract because the contracts relied upon were unenforceable yet plaintiff nevertheless stated a claim for tortious interference with a prospective contractual relationship).
To state a claim for tortious interference with economic advantage, a plaintiff must plead facts that demonstrate that “the defendant acted with the sole purpose of harming the plaintiff or that the defendant used dishonest, unfair or improper or wrongful means.” See Id. (Emphasis added). Under the standard articulated by the New York Court of Appeals in NBT Bancorp, Inc. v. Fleet/Norstar Financial Group, Inc., 87 N.Y.2d 614, 624, 664 N.E.2d 492, 497, 641 N.Y.S.2d 581, 586 (1996) and recognized in Sepenuk v. Marshall, 2000 WL 1808977 (S.D.N.Y. Dec. 8, 2000), “wrongful” acts are not limited to criminal or fraudulent acts, but include acts that consist of “physical violence, fraud or misrepresentation, civil suits and criminal prosecutions, and some degrees of economic pressure; they do not, however, include persuasion alone, although it is knowingly directed at interference with the contract.” Id. (quoting Guard-Life Corp. v. S. Parker Hardware Manufacturing Corp., 50 N.Y.2d 183, 191, 406 N.E.2d 445, 449, 428 N.Y.S.2d 628, 632 (1980)).
Here, Holdings has alleged numerous wrongful acts, described fully in the facts section, by Defendants which interfered substantially with the economic relationship established between GAF and CCR. Holdings has thus adequately alleged a cause of action for tortious interference with economic advantage.
For these reasons, Claim II survives as to the allegations of tortious interference with economic advantage and is dismissed as to the tortious interference with contract claim.
Claim III of the Complaint pleads a violation of federal antitrust law, 15 U.S.C. § 1. The antitrust claim theory put forth by Holdings in this case is certainly unique. Although a plaintiff’s duty is merely to provide “a short plain statement of a claim for relief which gives notice to the opposing party, [which] is all that is necessary in antitrust cases.” George C. Frey Ready-Mixed Concrete, Inc. v. Pine Hill Concrete Mix Corp., 554 F.2d 551, 554 (2d Cir. 1977). Allegations of competition and competitive injury are critical to a viable antitrust claim, because the antitrust laws were designed for “the protection of competition.” See Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488, 97 S. Ct. 690, 50 L. Ed. 2d 701 (1977) (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320, 82 S. Ct. 1502, 8 L. Ed. 2d 510 (1962)). As detailed above, Holdings attempts to define a relevant market consisting of the disposition of asbestos-related personal injury claims and alleges improper means by which Defendants have inflated the value of their clients’ personal injury claims to artificially high levels not justified on the merits. However, the Complaint fails to adequately allege that competition is a factor in this case.
Despite liberal standards of pleading generally applicable to antitrust complaints, “conclusory allegations which merely recite the litany of antitrust will not suffice.” Drug Emporium, Inc. v. Blue Cross of Western New York, Inc., 104 F. Supp. 2d 184, 187 (W.D.N.Y. 2000) (citing John’s Insulation, Inc. v. Siska Constr. Co., 774 F. Supp. 156, 163 (S.D.N.Y. 1991)). Accordingly, in an antitrust action, “it is not ... proper to assume that the [plaintiff] can prove facts that it has not alleged or that Defendants have violated the antitrust laws in ways that have not been” set forth. George Haug Co. v. Rolls Royce Motor Cars, Inc., 148 F.3d 136, 139 (2d Cir. 1998) (citation omitted).
Holdings points to two paragraphs of the Complaint which it contends summarizes the harm to competition. However, ¶¶ 167 and 168 simply allege improper means by which Defendants have inflated the value of their clients’ personal injury claims to artificially high levels not justified on the merits. In Volvo North America Corporation v. Men’s International Professional Tennis Council, 857 F.2d 55 (2d Cir. 1988), where the plaintiffs charged the defendants with “coordinat[ing] horizontal competitors [in] banding together to eliminate competition among themselves and to use their collective power to limit the competitive opportunities of outsiders,” id. at 66, the claim survived based on the attendant restrictions on competition. There is no allegation in the Complaint that Defendants here acted to restrict or harm competition in the “market” of asbestos claim litigation. The closest Holdings can get is to claim is that through coercive acts aimed at plaintiff, the Defendants inflated the cost of those claims. That is insufficient.
Moreover, the construction urged by Holdings requires accepting that the claims constitute a “commodity”, the litigation (or settlement) of which constitutes a “market”. No support for this construction is offered. Thus, the allegations in the Complaint are insufficient to establish that any “market” exists in the first place. Such a novel notion as a competitive market for personal injury claims requires more than the conclusory allegation as that contained in ¶ 162 of the Complaint.
For the reasons stated, Claim III is dismissed.
Claims IV, V and VI of the Complaint plead violations of the Federal Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. A civil RICO claim has three fundamental types of elements: racketeering activity, structure, and injury. A plaintiff must plead underlying predicate acts of racketeering enumerated in 18 U.S.C. § 1961(1), but merely doing that does not make a RICO claim. A plaintiff must also tie those acts of racketeering into one of the structural matrices of “person[s],” “enterprise[s],” and “pattern[s] of racketeering activity” set forth in the three substantive subsections of 18 U.S.C. § 1962, or plead a conspiracy to violate one of those subsections, and must also establish injury to its business or property that is proximately caused by the violation, 18 U.S.C. § 1964(c). Because Holdings has failed to plead the underlying predicate acts under RICO adequately, the claims are dismissed.
The predicate acts of extortion in this case revolve around the Defendants’ alleged threats, made repeatedly and forcefully over a period of years, to inflict ruinous litigation on anyone who got in the way of their litigation strategy and to encourage other plaintiffs’ asbestos lawyers to do the same.
Extortion under The Hobbs Act is defined as follows:
The term “extortion” means the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right.
18 U.S.C. § 1951 (1992).
The parallel provision of the District of Columbia provides that a person commits the crime of extortion if:
[t]hat person obtains or attempts to obtain the property of another with the other’s consent which was induced by wrongful use of actual or threatened force or violence or by a wrongful threat of economic injury ...
D.C. Code § 22-3851.
The extortion paradigm is “Give me X or else I will do Y,” and in this case the “or else” was the alleged threat of ruinous litigation at the hands of Defendants and others in the asbestos bar.
Holdings’ extortion claim fails however, because GAF’s First Amendment right to petition government2 does not constitute “property” that can be extorted. Research has revealed no cases directly on point for the proposition that First Amendment rights are property under the Hobbs Act. The use of the Hobbs Act in connection with a First Amendment right is indeed novel and ingenuous.
The Second Circuit endorses an “admittedly expansive” view of the concept of property under the Hobbs Act. See United States v. Arena, 180 F.3d 380, 392 (2d Cir. 1999), cert. denied, 531 U.S. 811, 121 S. Ct. 33, 148 L. Ed. 2d 13 (2000). This expansive view includes “in a broad sense, any valuable right considered as a source or element of wealth.” United States v. Tropiano, 418 F.2d 1069, 1075 (2d Cir. 1969), cert. denied, 397 U.S. 1021, 90 S. Ct. 1258, 25 L. Ed. 2d 530 (1970).
Both the Second Circuit and numerous judges in this district have sustained RICO and/or Hobbs Act convictions under the theory that democratic participation in union affairs guaranteed by the Labor-Management Reporting and Disclosure Act (“LMRDA”), 29 U.S.C. § 411, are property rights.3 See United States v. Bellomo, 176 F.3d 580, 592-93 (2d Cir.) (the right to democratic participation in a union election is property and its intangible nature does not divest it of protection under the Hobbs Act), cert. denied, 528 U.S. 987, 120 S. Ct. 447, 145 L. Ed. 2d 364 (1999); United States v. Bellomo, 954 F. Supp. 630, 642 (S.D.N.Y. 1997) (“Every judge in this district to consider the matter has found that union members’ rights to free speech and democratic participation in union affairs are property for the purposes of the Hobbs Act.” (citations omitted)); United States v. District Council of New York City and Vicinity of United Brotherhood of Carpenters and Joiners of America, 778 F. Supp. 738, 756 (S.D.N.Y. 1991) (intangible right of union members to democratic participation is a property right under the Hobbs Act); United States v. International Brotherhood of Teamsters, 765 F. Supp. 1206, 1210 (S.D.N.Y.) (the Teamsters’ right to democracy and self-governance under the LMRDA are extortable property under the Hobbs Act), appeal dismissed, 1991 WL 346072 (2d Cir. Sept. 17, 1991), cert. denied, 502 U.S. 1075, 112 S. Ct. 975, 117 L. Ed. 2d 139 (1992); Rodonich v. House Wreckers Union, 627 F. Supp. 176, 178-79 (S.D.N.Y. 1985) (union rights arising under the LMRDA are no exception to the rule that intangible business rights are property under the Hobbs Act).
Accord United States v. Debs, 949 F.2d 199 (6th Cir. 1991), cert. denied, 504 U.S. 975, 112 S. Ct. 2945, 119 L. Ed. 2d 569 (1992); United States v. Local 560, 780 F.2d 267 (3d Cir. 1985), cert. denied, 476 U.S. 1140, 106 S. Ct. 2247, 90 L. Ed. 2d 693 (1986).
In finding intangible democratic rights to constitute “property” under the Hobbs Act, the Honorable Lewis A. Kaplan reasoned in Bellomo that the union members’ “rights to participate effectively in their affairs have direct economic value because [of] the advancement of the members’ economic interests ...” 954 F. Supp. at 643. Yet while the right to petition Congress may have some economic value to those who are attempting, in one legitimate manner or another, to influence legislation or the legislative process, it does appear distinguishable from the rights guaranteed union members under LMRDA.
Participation in union affairs is more clearly “economic” in nature than petitioning government since the raison d’etre of a union is to secure the economic rights of its members. See Id. at 643. Under Tropiano, the concept of property includes, “any valuable right considered as a source or element of wealth.” United States v. Tropiano, 418 F.2d at 1076.
Petitioning government for economically favorable legislation, even if by an interested business entity, cannot be considered a “source or element of wealth” without unreasonably expanding the scope of the definition of “property” covered by the Hobbs Act. The right to participate in union affairs is directly related to the ability of a union member to improve his or her working conditions or salary and to retain his or her job. By contrast, there is no direct or inherent connection between the ability of citizens to lobby government to enact legislation and their ability to maintain or increase their personal wealth. The legislative process simply contains too many uncertainties, variables and hurdles for there to be a direct nexus between the exercise of a right to petition government and the acquisition of economic wealth.
Holdings also cites cases where the right to conduct business and provide abortion services has been held to constitute “property” capable of protection under the Hobbs Act. See, e.g. Rodonich v. House Wreckers Union, 627 F. Supp. 176, 178-79 (S.D.N.Y. 1985) (intangible business rights constitute “property”); United States v. Zemek, 634 F.2d 1159, 1174 (9th Cir. 1980) (“right to solicit business free from threatened destruction” constitutes “property”); Northeast Women’s Center, Inc. v. McMonagle, 868 F.2d 1342, 1350 (3d Cir.) (right to provide abortion services, employees’ right to employment, and patients’ right to contract with center constitute “property”). The right to provide abortion services is in effect an application of the more general right to do business. See id. at 1350. None of these cases involve a determination that a First Amendment right constitutes extortable property.
Therefore, the right to petition Congress is considered to be fundamentally different from the right to do business or the right to participate in democratic union affairs or to improve one’s economic situation. Although the exercise of the right to petition may sometimes be linked with a desire to achieve economic gain, the connection between petitioning and the procurement of wealth is neither strong nor direct. Thus, the right to petition Congress is not properly included within the concept of Hobbs Act “property.”
The definition of “property” under § 22-3801 of the D.C Code is defined as “anything of value,” and includes real property, tangible or intangible personal property, and services. Though this definition “is not limited” to the examples set forth in the definition, D.C. Code § 22-3801(3), D.C. Code § 22-102 defines “anything of value” as including “not only things possessing intrinsic value, but bank notes and other forms of paper money, and commercial paper and other writings which represent value.”
According to Jeffcoat v. United States, 551 A.2d 1301, 1303 (D.C. 1988), an item may constitute property even if the plaintiff cannot demonstrate its “specific monetary worth”, id. at 1303, and the value of something should be determined by its “useful functional purpose.” Yet the item must at least have monetary worth of some degree even if less than “the smallest coin” referred to by the court in Jeffcoat.
No authority is provided, and research has uncovered none, for the notion that a constitutional right falls into the same category as the negotiable items of monetary value referred to in the applicable statutes. Even if FACA had directly permitted GAF to retain its wealth, it does not follow that the right to petition government for the enactment of FACA necessarily increases wealth.
Accordingly, because the right to petition Congress does not constitute “property”, Holdings has failed to allege extortion in violation of the D.C. Code.
The Defendants have also relied upon what the Second Circuit stated in United States v. Jackson, 180 F.3d 55 (2d Cir. 1999): “[A] threat to cause economic loss is not inherently wrongful; it becomes wrongful only when it is used to obtain property to which the threatener is not entitled.” Id. at 70. The threats alleged in the Complaint are economic in nature. See, e.g., Complaint ¶¶ 9, 101, 129, 131 and Pl. Mem. at 39 (“To be sure this is not a case in which the threats involved physical violence ... [H]ere, the ‘or else’ is a threat of purely economic harm.”). The “property” at issue here is GAF’s right to petition Congress, and the alleged Hobbs Act violation can survive only if the Defendants had no right to seek that “property.”