A judge holds a gavel above a block in a courtroom.
The influence of a South Carolina judge who employs a controversial tactic is spreading, a major insurance company is warning the U.S. Supreme Court.
National Union Fire Insurance Company of Pittsburgh urged justices to hear the case of Judge Jean Toal, a former state supreme court justice who now oversees the state’s asbestos court. There, she has appointed a Columbia attorney as “receiver” over mostly defunct companies that are named in asbestos lawsuits.
Because the latency period for asbestos-caused disease is so long, some companies that could possibly be blamed are no longer in business. So the receiver acts in their interest, and that means suing insurance companies that issued policies decades ago to create a secretive stockpile of cash in Delaware that is used to pay plaintiffs, attorneys and himself.
A few amicus briefs came in Tuesday to encourage the Supreme Court to take the case of a foreign company still in business. The receiver is acting in its name and suing associated entities he says are responsible for its asbestos liabilities, despite international injunctions against the move.
“Although South Carolina’s unconstitutional receivership practices alone would warrant this Court’s review, the Court should be aware that some states are seeking to follow South Carolina’s lead, magnifying the problem,” attorneys for National Union wrote.
Illinois, for example, enacted the Receivership Act, which took effect this year and allows courts there to appoint receivers if the corporation is “insolvent,” among other factors. The state has a long been a hotbed for asbestos litigation, with Madison County annually topping the list of the most-filed cases in the country.
Combined with legislation that allows plaintiffs to sue out-of-state corporations if they sell their products in the state, no matter where their headquarters are, the Receivership Act is “especially troublesome,” National Union warns.
Other judges have allowed receivers to step in to prevent corporations from declaring bankruptcy, and noteworthy is a developing situation in other South Carolina courts.
It started with a lawsuit over PCB contamination by Richland County property owners against Burlington Industries, a North Carolina company that operated several sites in South Carolina and went bankrupt 25 years ago before being purchased and merged into Elevate Textiles.
When the plaintiffs, Barbara and John Mimms, attempted to serve the company, no one responded because it no longer exists. It didn’t take long for lawyers at Richardson Thomas – also an asbestos firm – to get the idea for a receiver to act in the company’s name.
Former U.S. Attorney Peter McCoy Jr. was appointed in May 2022, years after the asbestos receivership strategy had started. He then used his new authority to file third-party complaints against insurers that did business with Burlington, citing policies that expired more than 50 years ago under the idea that contamination by Burlington occurred while they were in effect.
Some insurers resisted the receivership, especially considering it was approved before they were ever made aware of the Mimmses’ lawsuit. Insurers were not defendants – only Burlington.
Judge Jocelyn Newman affirmed the receivership, which led to a group of settlements. Proceeds, like in the asbestos court, were sent to a Delaware qualified settlement fund and not disclosed in publicly available court records.
In appointing McCoy, she wrote that she expected him to “investigate the existence of all insurance coverages potentially available to the company in receivership.” When Arrowood settled, McCoy asked for a $50,000 fee but filed later requests under seal.
Some insurers were dismissed and some settled, and the Mimmses’ case was seemingly closed. But the receivership persisted elsewhere. With his work done, McCoy asked that Peter Protopapas – the asbestos receiver – take his place. Later, L. Walter Tollison III assumed the position.
The rationale was that Burlington continues to be sued. Twenty plaintiffs filed a PCB lawsuit, and another sued over asbestos. Then came lawsuits from government officials over chemicals known as PFAS, which are used in firefighting foam and commercial products and persist in the environment and the human body. The exact effects of PFAS in the body are not known, though states have passed maximum contaminant levels and hired private lawyers to sue companies like 3M and DuPont.
First, Columbia and the Grand Strand Water & Sewer Authority sued. They were followed by Florence, Cheraw, Georgetown, the Joint Municipal Water and Sewer Commission, Lexington and Saluda County. Those cases have been removed to federal court in South Carolina, which houses the federal multidistrict litigation for PFAS.
The Burlington qualified settlement fund has so far paid out close to $600,000, with more in reserve, court records show. Settlements with insurers in which they buy-back their policies are confidential.
McCoy, before stepping down as receiver, sued a group of insurers on behalf of Burlington to pay for future environmental claims. Aside from waivers in those policies protecting them from covering Burlington in litigation of that type, they say, insurers say the receiver was only appointed in the Mimmses’ case, which is over, and can’t use that power to start a quest against them.
Newman is now asked to dissolve the receivership over Burlington, with insurers claiming it violates state law to keep it alive.
“South Carolina law permits a receiver to preserve assets in aid of a pending case,” they said. “It does not permit a receiver appointed prejudgment in one case to continue exercising authority after that case has ended, much less to pursue unrelated claims, to administer unrelated assets, or to serve as the continuing representative of a dissolved foreign corporation in other litigation. Yet that is precisely what the Receiver seeks to do here.”
A pair of rulings by the state Supreme Court kept Toal’s receiverships alive, with the most recent spawning the appeal to the U.S. Supreme Court. The other said court oversight of companies is justified only “in the rarest of cases,” though it nevertheless affirmed the receivership of a Canadian company.
Out of the Palmetto State, though, the U.S. Court of Appeals for the Third Circuit struck the move in the case of New Jersey-based Whittaker Clark, when Protopapas attempted to stop the company from declaring bankruptcy.
Allowing him to do so would have been “an unprecedented exertion of power over a foreign corporation whose internal affairs are governed by the laws of a sister state, as well as a radical intrusion into the province of a co-equal sovereign,” the court held.
