The Rhode Island Supreme Court may have derailed the state’s lawsuit against former lead paint companies last summer, but one critical issue still remains — and it’s worth millions of dollars.
A judge will decide whether the state must reimburse the companies for the money they spent defending a lawsuit that accused them of making and selling a toxic product.
The issue arises at a sensitive time for Rhode Island, whose sputtering economy is among the worst in the nation.
The manufacturers say they shouldn’t have to pay court costs — which include deposition and trial transcripts and filing and copying fees — now that a verdict against them has been overturned by the state’s highest court.
But lawyers for the state say it should be immune from having to pay defense costs and that it’s unfair to saddle taxpayers with the expensive, nine-year court fight.
If the companies are allowed to recoup, they warn, governments may become reluctant to sue deep-pocketed corporations that can spend millions in their defense.
“It would be absolutely devastating,” said Jack McConnell, a Providence lawyer whose law firm, Motley Rice LLC, was hired on a contingency fee basis to represent the state in the lawsuit. “It’s no doubt in my mind it would have a chilling effect on these cases being brought.”
A Providence Superior Court jury in February 2006 found three companies — Sherwin-Williams Co., NL Industries, Inc. and Millennium Holdings LLC — liable for creating a public nuisance, a verdict that could have cost them billions of dollars for cleanup.
But the Supreme Court reversed the verdict in July, saying in a 4-0 decision that the lawsuit should have been dismissed at the outsetbecause the companies didn’t have control over the lead pigment and paint after they sold it.
The companies have not submitted a bill or said how much they spent, but the amount is expected to be well into the millions. The state’s invoice, submitted after it won its landmark jury verdict three years ago, was nearly $2 million.
A fourth defendant was found not liable, and a handful of other companies were dismissed before the trial. All defendants could be eligible to submit invoices depending how Superior Court Judge Michael Silverstein rules. It’s not clear when he’ll make his decision.
The state faces a roughly $360 million budget deficit for the fiscal year ending in June, which means there could be little money to spare for reimbursement.
“We have no money,” said Rep. Thomas Slater, a Providence Democrat who sits on the House Finance Committee. “Anybody thinks we have money is crazy. We don’t have a penny extra.”
The situation is so dire that Gov. Don Carcieri in January proposed delaying payment of a $10 million legal settlement to survivors and victims’ relatives of a 2003 nightclub fire, before deciding this month that it should be covered by federal stimulus funds.
Motley Rice promised in its contract to bear “all costs and expenses of prosecuting” the case in exchange for receiving nearly 17 percent of whatever money the state recovered if it won the lawsuit.
But, McConnell said, “We certainly never offered, intended or agreed to pay defense costs in the case.”
The defendants declined to comment through a spokesman. But in court filings, they cite a Rhode Island statute that allows the winning parties in a lawsuit to recover their costs but also gives a judge discretion.
Lawsuit reform groups say the case presents an opportunity to hold states financially accountable for bringing what they believe are frivolous lawsuits.
“If there’s no cost to them and their taxpayers to bring meritless lawsuits, why should they do anything other than bring meritless lawsuits?” said Darren McKinney, spokesman for the American Tort Reform Association in Washington.
Silverstein has already issued a more limited ruling on costs.
In January, he directed the state to reimburse the companies the more than $240,000 they spent on two public health experts hired as part of the lawsuit. The experts were hired to evaluate the state’s proposed $2.4 billion plan for cleaning hundreds of thousands of older homes in the state believed to contain lead paint.
“The entire foundation for the defendants’ liability in this case is based on a jury verdict that has been reversed by the Rhode Island Supreme Court,” Silverstein wrote.
But McConnell said he hoped the judge would see the merit in the lawsuit and would not force the state to pay defense costs.
“I don’t think anyone can doubt that it was legitimately brought,” he said. “I don’t think anyone can doubt that there was great benefit to the public in it actually being brought.”
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