Toal
COLUMBIA, S.C. - A South Carolina judge has overstepped her authority and threatens international relations by asserting control over foreign companies facing asbestos suits in her court, a Canadian firm said in an appeal to the U.S. Supreme Court.
The South Carolina Supreme Court earlier this year allowed a receiver appointed by Judge Jean H. Toal to use insurance policies issued to Atlas Turner to pay asbestos plaintiffs in South Carolina, despite repeated U.S. Supreme Court decisions limiting the power of state courts to seize assets outside their borders.
That receiver argued his position in a brief submitted Monday - one day before the American Tort Reform Foundation named South Carolina’s asbestos court the No. 3 “Judicial Hellhole” in the country.
“South Carolina’s asbestos judge has demonstrated a clear bias against corporate defendants, reflected in rulings that lead to unfair trials and excessive verdicts and the frequent appointment of receivers to maximize recoveries from insurers,” the ATRF report says.
Atlas Turner, a unit of publicly traded Canadian company Mazarin, is one of those corporate defendants. It once mined asbestos that was sold throughout the U.S.
In a plea to the U.S. Supreme Court supported by the U.S. Chamber of Commerce and insurance companies, Atlas Turner said the South Carolina ruling, if allowed to stand, would upset relations among states and nations as courts fight over who has the authority to collect assets in other jurisdictions.
Judge Toal has control of the state’s asbestos docket and has used her power to settle cases against out-of-state companies on terms that are favorable to plaintiffs in her court but which may remove money to pay damages elsewhere, it says.
“Allowing one court to control all a defendant’s property, regardless of where it is, would `invite jurisdictional conflicts among states seeking to exert control over the same property,’” Atlas Turner said in its brief.
Plaintiff Donna Welch, represented by Public Citizen, said the Supreme Court shouldn’t take up Atlas Turner’s appeal because the only property involved is insurance contracts and they don’t fall under the legal doctrines Atlas Turner cites. Furthermore, it appears there’s no insurance left to pay her claim, Welch argued.
Central to the dispute is Judge Toal’s use of a receiver, local plaintiff attorney Peter Protopapas, to “marshal assets” of companies facing asbestos lawsuits. For Protopapas, the arrangement is highly lucrative: He’s earned millions of dollars in fees in more than 20 receiverships, under an agreement granting him a third of whatever he collects.
Most of the early receiverships involved long-defunct companies whose only “assets” were old insurance policies that Judge Toal has decided are property subject to her jurisdiction. Protopapas resolved most of those cases by settling with insurance companies, sometimes allowing them to “buy back” policies in an attempt to put them out of reach for other plaintiffs.
But conflict arose when Judge Toal appointed Protopapas receiver over companies that are still in operation. In Atlas Turner’s case, the judge asserted jurisdiction even though the Canadian company never did business in South Carolina and has no property there. A U.K. court also issued a global injunction and $1.4 million fine against Protopapas in a case against Cape Intermediate Holdings, a unit of U.K.-based Altrad Group. The South Carolina Supreme Court has stayed proceedings against Cape as it considers a similar challenge to Judge Toal’s authority.
Judges can assert “personal jurisdiction” over a company if its products were sold in a state. The Supreme Court has repeatedly found there is a difference when the case involves property, or in rem procedures, however. The South Carolina Supreme Court conflated personal and in rem jurisdiction when it allowed Judge Toal to seize insurance policies issued in Canada to Atlas Turner, the company said in its brief.
The U.S. Chamber, in its brief, said judges can order a defendant to turn over assets in another state or hold them in contempt if they refuse. But judges need the approval of courts in other jurisdictions if they want to enforce such an order outside their own state borders, the Chamber said.
Judge Toal’s receivership strategy is “a complete end-run around these settled principles,” the Chamber said. “The decision below licenses a receiver to impair, deplete or deny Atlas Turner access to its assets, like insurance coverage, that otherwise would be available to address the company’s daily liabilities and overall operations.”
Protopapas, in a brief to the court, said there is no reason to hear an appeal since the South Carolina Supreme Court already sharply narrowed his powers to collecting money to pay actual court judgments. In previous receiverships, Judge Toal has allowed Protopapas to collect insurance proceeds and place them – minus his 33% fee – in secretive partnerships that can pay the money out to lawyers or plaintiffs as he sees fit. In Atlas Turner’s case, Protopapas said, no insurance policies are available to pay damages.
At least three states prohibit judges from doing what South Carolina has authorized, the Chamber said. The Arizona Supreme Court in 2009 ruled it didn’t have jurisdiction over Western Union money transfers from other states to Mexico that Arizona officials said were proceeds from human and narcotics trafficking. Western Union was subject to personal jurisdiction in Arizona but courts there could only seize assets within the state.
The Montana Supreme Court similarly rejected an Oregon divorce court’s order awarding property in Montana to a man’s ex-spouse. And a federal court in New Jersey blocked Protopapas from interfering in the bankruptcy of a company based in that state, saying only a receiver appointed by a New Jersey court could do so.
The federal Eleventh Circuit ruled the other way in a 1991 case, however, allowing an Alabama court to appoint a receiver to collect a defendant’s assets located offshore. The South Carolina Supreme Court cited that case to justify its ruling in the Atlas Turner dispute, although the state isn’t within the 11th Circuit.
“Under the South Carolina Supreme Court’s decision, a foreign company exporting goods to that state risks appointment of a South Carolina receiver over its foreign property—a prospect certain to stifle foreign commerce with the United States,” the Chamber said.
The decision also could encourage forum-shopping, as plaintiff lawyers seek out courts with sympathetic judges who will allow them to seize assets wherever they are located, something that may have happened in South Carolina. Asbestos lawsuits have doubled there since Judge Toal was appointed sole judge in charge of the asbestos docket there.
