News reports a few weeks ago noted that Speaker Bill Howell had personally muscled a bill through the House Commerce and Labor Committee (to the point of removing Democrats prior to the session from the committee who had previously voted against the proposed legislation) and then lobbied GOP House members individually to approve the item limiting the asbestos liability of a single Fortune 500 Company, Crown Cork and Seal.
Follow up editorials and a number of blog posts framed the issue as a paradigm example of how corporate interests rule in the General Assembly’s favor factory and how campaign contributions routinely influence Assembly decision-making.
This has become an increasingly popular narrative about legislatures, given the public’s intense distrust of politicians and the proliferation of Washington-style lobbying in state capitals like Richmond.
Yet the Crown Cork issue is actually far more complex than the story-line of a corporation feeding at the government trough would have it.
At its heart is a serious question of whether state government should try to remedy a legal situation that seems to be unfair to a company with Virginia ties.
A Brief Background
In 1963, Crown Cork and Seal purchased the Mundet Cork Company for $7 million, a bottle cap manufacturer that had a small division that made cork, fiberglass and asbestos insulation.
Corwn Cork incorporated the bottle cap manufacturing business and, within 90 days, sold off the insulation business.
In 1972, OSHA adopted asbestos regulations.
Since that time, Crown Cork has paid out more than $600 million dollars in claims/settlements under the doctrine of successor liability, a concept that makes a company which purchases another company liable for the legal obligations that the purchased entity had incurred.
Crown is now asking the Virginia legislature to pass a bill- similar to that approved in 11 other states - that would limit its future liability (after July 1, 2010) to the $7 million that it paid for Mundet Cork (adjusted for 2010 dollars).
Let’s turn to the argument that Crown (and its lobbying corps) are making to the Assembly.
Crown Cork is a bottle cap and can manufacturer. It has never been involved in the production and sales of asbestos products.
In class action suits, it is lumped together with companies that had asbestos as a primary product line, and has been compelled to pay out more than $600 million in claims for a product that it never made, far beyond the worth of the company that it originally purchased.
Its capacity to survive and prosper is limited due to the future liability it continues to have for a product that it never produced or sold.
Doesn’t a sense of basic fairness make it reasonable to say that Crown Cork has paid enough and that Virginia, where the company has a plant, should provide the kind of relief that eleven other states have offered?
Critics of Howell and the bill that passed the House argue the following:
It is bad public policy to propose legislation that impacts a single company. If it’s Crown Cork today, who will it be tomorrow?
The doctrine of successor liability is settled law and Crown is simply paying the price for a bad business decision that was made decades ago. Companies that make bad or unfortunate decisions must suffer the consequences, even if these might appear to be disproportionate. Why should the General Assembly bail a company out that made a rotten acquisition?
If the doctrine of successor liability is seriously weakened (either generally or through special case exceptions), companies that engage in actions that harm individuals and communities will simply reorganize and sell the offending division as a means of evading accountability.
Individuals who are harmed though no fault of their own could find themselves without any legal recourse for compensation.
What’s the Bottom Line?
It is hard to fault Crown Cork for seeking relief.
It never produced asbestos.
It’s total liability has far exceeded the entire value of the company it acquired- talk about a gift that keeps on giving.
Using any commonsense notion of fairness, it would be hard to argue that Crown Cork has been treated fairly.
But the question ultimately comes down to what should the legislature do about it?
Should the Assembly find a way to limit Crown Cork’s future liability and send a message that Virginia stands ready to assist companies that find themselves in similar circumstances?
11 states have done just this.
Or does the Assembly suggest that it is not possible to rectify the treatment Crown has received in the American legal system (fair or unfair) without establishing other legislative precedents that’ll be more problematic for the Commonwealth in the long run?
Crown Cork will have to answer this question to the Senate’s satisfaction if its members will vote to give it the same relief that the House ultimately supported.