Craig v. Lake Asbestos,

843 F.2d 145 (3rd Cir. 1988)

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Nature of the Case

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Facts

Craig (P) sued to recover damages for personal injuries from exposure to asbestos while employed for Owens Corning. The defendants included all the corporations that had manufactured, sold, or supplied asbestos to Owens. One of those defendants, North American Asbestos Corporation (NAAC) was dismissed from the suit because it has been dissolved in 1978. The remaining defendants settled with Ps. One of those, Lake Asbestos (D) settled conditionally in order to preserve its right of indemnification for contribution from Cape Industries, which had owned all the stock of NAAC and from Charter Consolidated, which owned the majority of Cape's shares. The parties stipulated that Cape was the alter ego of NAAC. Both Charter and Cape were publicly held companies. Both were incorporated in the U.K. Cape engaged in mining of asbestos in South Africa until 1979. Capes wholly owned subsidiary, NAAC, sold the fiber in the U.S. Charter owned 16% of Cape in 1965 and by gradual purchases eventually owned 67.3% by 1978. From 1965-69 Charter placed two of its executives on the board of Cape. After 1969, it placed a third when it got a majority of the shares of Cape. Cape's board consisted of between 10-14 directors. The majority were Cape employees. After losing an asbestos case, Cape declined to defend and default judgments were issued for $78 million. Cape had no assets in the U.S. to attach. English courts required new trials to enforce the judgments and product liability law in the U.K. made it impossible to establish liability. NAAC was dissolved in 1978 and CPC took its place. CPC distributed asbestos to the former customers of NAAC for several years until terminating in 1981. In 1979, Cape sold all its asbestos mining and marketing subsidiaries to Transvaal (TCL) with an agreement that Cape would indemnify TCL for judgments in the U.S. cases instituted within three years after the date of sale only on condition that TCL would continue Cape's policy of defaulting on judgments in the U.S. Thus, Cape avoided any payment of claims. The District Court determined that Charter was an alter ego of Cape and entered judgment holding Charter liable for Cape's tort obligation in the amount of $40,000. The court also found that Cape's purposeful scheme to insulate itself from liability by liquidating NAAC and continuing to market under CPC was a fraud and injustice and that the strategy of not appearing in asbestos litigation was the proximate cause of injury to Ps and D, the codefendant.