FIREPROOF

Free Times

Asbestos Has Made Attorney Michael Kelley A Multimillionaire. And He Is Just Warming Up.

Thomas Kelly

The gleaming white Lear 55 turbo jet idles on the tarmac at Burke Lakefront Airport, waiting for a single VIP passenger. A black Mercedes 600 pulls up and a husky, middle-aged man in wrinkled shirtsleeves steps out. He wears no tie, his shock of rust red hair needs cutting, his shoes need a polish and he's carrying an overstuffed cardboard box instead of a sleek briefcase. The security people at Burke might mistake him for a vagrant and chase him away, except they know Michael Kelley. It's his Mercedes. It's his jet.

Kelley steps onboard. The Lear seals up and shoots down the runway. Three hours later, he is sitting in the best restaurant in St. Petersburg, dining with Ohio's most famous TV star and political flirt, Jerry Springer. The two have known each other since 1986, when Kelley pitched in on the young Cincinnati mayor's first gubernatorial campaign, a strong effort that came up short, falling to future Gov. Dick Celeste in the Democratic primary. Kelley wants Springer to run again in 2006, and he's willing to help again … big time. Springer listens closely. Kelley is one of the leading political contributors in Ohio. When he talks, candidates listen.

The next morning, Kelley is back on the Lear, hopping over to Miami for a negotiating session with Pfizer, the pharmaceutical giant. Two of Pfizer's manufacturing subsidiaries are embroiled in asbestos litigation and there is a room full of Pfizer representatives there, hoping to reach a settlement, but they have to deal with Michael Kelley.

Kelley is a lawyer, a specialist in asbestos injury cases. In the Pfizer matter alone, he has about 1,000 clients, more than most attorneys will represent in their entire careers. After hours of wrangling, there is no final resolution. Still, Kelley is pleased with the progress. "It will only take one more meeting," he says with certainty, "and we'll end up about $150 million."

For many lawyers, winning $150 million in a single, consolidated case would be the event of a lifetime. For Kelley, it's just another day in the life.

Last year, he was part of the four-lawyer team that settled all asbestos claims against Honeywell Corp. for more than $1 billion. In 2002, he was one of three attorneys representing more than 120 others and all their clients in hammering out a similar deal with Halliburton — yes, that Halliburton — for the staggering sum of $3.4 billion.

Wednesday morning, Kelley is winging his way back to Cleveland. He's not on the Lear this time, he's on the Challenger 500, the firm's other private jet, this one much larger, with room for several others who are joining him for a summit with 100 Cleveland corporate attorneys to discuss yet another multimillion-dollar settlement for yet another super-sized group of clients with a common claim.

Michael Kelley's law firm has lots of clients, 38,000 in all. Kelley & Ferraro, LLP, is the No. 1 asbestos specialty law firm in Ohio and one of the best in the nation. Kelley himself is a pioneer of asbestos litigation, winning cases since 1982. It is rewarding to Kelley that he has been able to secure compensation for thousands of injured people. After 22 years, he still takes to the courtroom floor to plead individual cases himself.

It is rewarding in other ways as well. Kelley's firm has already earned more than $350 million for its work on asbestos cases. Asbestos paid for the two jets, as well as Kelley's two Mercedeses, a Jaguar, a Hummer and a $300,000 Bentley that makes the long drive from his 10-acre estate in Hunting Valley a little less tedious.

Michael Kelley may be the wealthiest practicing attorney in Ohio, and he is not about to apologize for it. He grew up the son of a Cleveland firefighter and a mother who worked at the family parish to help make ends meet. He started earning his own way at 13, shoveling ice all summer at a local dairy for $2 an hour, providing just enough to "pay my taxes, pay my union dues and pay for my education at Ignatius." He went on to CWRU, then to night school at Cleveland Marshall for his law degree. That's where he met Lynn Arko, youngest daughter of the couple that owned Arko's, a shot-and-beer joint in the old Slovenian neighborhood at 40th and St. Clair. Former municipal judge Lynn Arko Kelley is now an associate member of the firm. They have two teenage sons: Brendan, a student at Gilmour Academy, and Chris, recently graduated and headed for Tulane. The Kelleys have donated more than $3 million to Gilmour just because "our sons go there." They have given millions more to other institutions and causes, including St. Ignatius and their college alma maters. "We believe in giving back," says Kelley, "and we believe in education."

And asbestos. Asbestos has been bad for many people, bad for many companies, bad for Cleveland and bad for America, but asbestos has been very good to Michael Kelley. And it's going to get even better. He expects his firm's total earnings from asbestos could triple before the last case is closed, many years from now. That would mean more than $1 billion in asbestos profits. For Kelley, his family, his clients and his firm, the American Dream is made of asbestos.

You remember asbestos. It used to be great stuff. They made those kitchen gloves out of it. Never burn your hand again. Fireproof. They made lots of things out of asbestos and put it all over homes and buildings for most of the last century. Why not? The only fibrous mineral, asbestos isn't just fireproof, it is sturdy, lightweight, cheap, easy to weave or mold, and it lasts forever. Asbestos was a wonderful thing, and we used it every way we could.

But the wonders of asbestos proved too good to be true. In some uses, the minute asbestos fibers were "friable" — easily crushed to a fine dust, promptly airborne and, unfortunately, very noxious. The tiny fibers attack lung tissue. In bad cases, they cause asbestosis, a progressive impairment of lung capacity. In worse cases, asbestos causes mesothelioma, a deadly cancer.

All commercial and consumer uses of asbestos were banned in the early 1970s, after government testing confirmed that friable asbestos was a health hazard. Legal claims against manufacturers for asbestos injury began in earnest shortly after, as the human toll mounted. There were thousands of workers with asbestos-related diseases. Because symptoms of asbestos disease can remain latent for many years, there were thousands more to come.

Legal claims against manufacturers for asbestos injury began in earnest shortly after the ban went into effect. Talented trial lawyers insisted that the asbestos companies were responsible for all the harm done by asbestos, subsequent pain and suffering, and punitive damages for being callous or stupid or both. Courts and juries agreed. Precedents were set.

Subsequent decisions opened the floodgates. Generous juries raised punitive damage awards to stunning levels. One jury in Mississippi found in favor of six former railroad workers who had occasional exposure to asbestos. None provided any evidence of serious asbestos injury or disability. The jury awarded them $130 million.

By 1982, experts predicted that asbestos litigation would exact a steep toll on American business. They estimated as many as 60,000 claims might be made, at a cost to companies and insurers that could reach $28 billion.

They were a little off the mark.

More than 750,000 asbestos claims have flooded the courts. Total costs to date have surpassed $68 billion. Asbestos has become an unprecedented disaster, a tragedy for victims and a crushing burden for American industry. That is the bad news. There is much worse yet to come.

Thirty years after termination of sale and use, logic says that the asbestos crisis should be behind us, but litigation is actually growing at unprecedented rates. A record 74,000 new cases were filed in 2003. The pace this year is higher still. Experts now say that the total number of claims may approach 3 million, with total costs of $275 billion in cash, the permanent loss of a million quality jobs and the collapse of hundreds of productive American companies (77 are gone already).

The original defendants — major companies that made and sold asbestos products — are all bankrupt, crushed under the weight of asbestos lawsuits, but that has only accelerated the pace of new claims.

Any corporation that used, sold or handled anything with asbestos content or had any form of asbestos present in the workplace became a target for lawyers on the prowl for deep-pocket defendants. Under provisions in American law for "joint and several liability," these companies share responsibility for asbestos injuries. And if primary defendants are tapped out, they must make up the difference. More than 8,500 of these "bystander businesses" have been invited to the asbestos party.

We're No. 1

Ohio is in the unfortunate position of taking a triple asbestos hit. It ranks among the leading states in number of asbestos lawsuits, number of companies targeted as asbestos defendants and extent of losses in the industrial sector.

And — wouldn't you know it — Cleveland is the Asbestos Capital of Ohio, with a good shot at the national title. With 40,000 cases pending, Cleveland ranks No. 3 in asbestos litigation among major cities.

The region's historic industrial assets are asbestos liabilities. Many of the manufacturing, automotive, construction and chemical giants that thrived here in the last century are in the crosshairs. Several have been hard hit already. Ford and GM, of course. The big railroads — Chesapeake & Ohio, B & O, Nickel Plate, NYRR — and their modern heirs. Union Carbide, Dupont, PPG, Owens-Corning, U. S. Gypsum, G.E. — all had a major presence here and all are billion-dollar defendants. Leading local companies have joined the parade, including stellar names like Lubrizol, Eaton Corp., Lincoln Electric, RPM, Clark Industrial and Tasco. Oglebay Norton filed bankruptcy in February. NAR (North American Refractories) filed last year. TRW and Faseco have run from Cleveland, but they can't hide from asbestos litigation. And there are many more: insulators, auto parts suppliers, brake manufacturers, gasket companies, construction wholesalers, contractors, suppliers and fabricators. Asbestos was so ubiquitous prior to 1970 that, according to the report of the U.S. Senate Judiciary Committee, "No company can be sure it is not at risk." That caveat applies to Cleveland more than any other place in America.

Asbestos is now a major industry, generating billions in annual revenues, with profit margins and growth prospects exceeding the best Fortune 500 companies. But critics say that the asbestos industry is a monster that is choking the legal system and threatens to decimate the most productive force in history — the entire American industrial sector. And the harshest critics go one step further. They say asbestos litigation has become a colossal scam engineered by a small clique of trial lawyers. They say that more than 90 percent of asbestos claims are unwarranted, made on behalf of clients who have not suffered any injury from asbestos, propelled by wholesale perjury, false evidence and legal racketeering.

The data and statistics provided by analysts like Lehman Bros. and Rand Corp. only add fuel to the fire. They confirm that less than 9 percent of asbestos dollars are actually providing compensation to real victims. A lot more is ending up in the pockets of uninjured claimants, "profiteer plaintiffs" who join mass tort cases to pick up easy money. But the lion's share isn't going to any claimants, injured or uninjured. It stays with the lawyers. More than 57 cents of every asbestos dollar comes right off the top for legal costs and fees.

"Among ordinary people, there is a word for this: fraud. This is legalized fraud." That is the testimony of Lester Brickman, professor emeritus at New York's Cardoza School of Law before the Senate Judiciary Committee last year. Brickman is regarded as a leading expert on legal ethics in general and asbestos litigation in particular. In a recent speech at the Harvard Club, Brickman called for a federal grand jury to investigate the entire system.

Corporate leaders and insurance executives across the nation applaud Brickman. Michael Kelley has a slightly different opinion. "He's out of his mind," says Kelley. "He's a 14-carat, gold-plated moron." Kelley has no patience with those who paint all asbestos lawyers with the same brush, the ones who say it's all a scam. "That's bullshit," he says. "These [our clients] are human beings, their injuries are real, they were caused by asbestos, and the companies they worked hard for are responsible to them. They're not the bad guys. The goddamn Brits — the insurance companies — and the others that just don't want to pay what they owe — they're the bad guys."

Kelley is also dismissive of recent attempts to make fundamental changes in U. S. liability law to provide relief to corporate defendants. "You don't go out in the fifth inning and say, 'OK, the Indians are winning, stop the game.' You can't do that. And you can't say, 'Some companies are getting hurt here; stop suing them.' … Is it costing jobs? Yeah, it is, because there are people who are dead, who were killed by asbestos, and they can't work anymore."

While a fierce defender of his own practice, Kelley aims some of his harshest comments at his fellow asbestos attorneys. "Yes, some of the lawyers are 'terrorists' — they want to take out all of corporate America. I don't want that. My goal is to reach an accord that will keep them [the companies] in business and satisfy my clients' needs…. These other guys, they just go in and bomb 'em. They're totally crazy."

And Kelley doesn't take the Fifth Amendment when it comes to specific allegations about gaming the system. "There are lawyers that have 'relationships' with the guys in the trucks and the doctors they get, and a lot of those people are bogus," he says. "They should be put out of business. I don't have a problem with that."

The "guys in the trucks" remark refers to an innovative client recruitment tactic employed by several firms. They underwrite fleets of mobile X-ray units that circulate in working class neighborhoods, offering free lung screenings to retired workers. Participants are asked to sign a consent form for legal representation, just in case the test discloses signs of asbestosis. Hazy medical criteria turn this public service into a prescription for abuse. The clearest indication of asbestosis discernible on X-rays is scarring of lung tissue. But smoking can scar lung tissue as well. So can at least 60 other diseases, long-term exposure to more than 100 other airborne chemicals and even one-time inhalation of certain toxic compounds. The courts must rely on doctors to sort out the options and determine the proximate cause.

The "doctors they get" are called "B-readers," paid by the law firms to analyze the X-rays, report on any perceived symptoms of impairment, and, in their expert opinion, the likely cause. Critics point to this B-reader system as another key ingredient in the asbestos recipe for fraud and profiteering. The number of asbestos injuries discovered by B-readers doesn't violate any criminal statutes, but it certainly defies the laws of probability. While it is most unlikely that more than a tiny percentage of random X-rays could indicate asbestos disease, many B-readers provide law firms at least 25 percent positive findings. Some reach 50 to 70 percent or higher on a consistent basis. One oft-cited B-reader in Florida reviewed 26,000 X-rays and found that every single one of them indicated asbestosis, qualifying for a legal claim and compensation.

Michael Kelley shakes his head at the B-reader statistics. "Are they actually filing fraudulent claims? I don't know if they are or they aren't," he says. "Look, it's a bad system, but it's the best we've got. Because there are some problems, does that mean that all the judges and all the lawyers in the entire system are totally corrupt? Give me a break."

Kelley's firm is not involved with any mobile X-ray programs. They do not recruit clients through aggressive advertising. Kelley says they never encourage phony testimony or false product identification. They don't pressure B-readers to provide positive results. Even Kelley's adversaries attest to the firm's conduct. "Michael Kelley has done an admirable job of representing his clients," says Matt O'Connell of Sutter, O'Connell, Mannion & Farchione in Cleveland. O'Connell has been defending companies against asbestos claims for almost as long as Kelley has been making them. While denouncing a system that is "out of balance" and "unfair to both sides," filled with "people whose tactics are extremely suspect," O'Connell confirms that Kelley's firm is "skilled, principled and professional."

Kelley will need all his skills as the asbestos war expands to new fronts. The hand-to-hand combat is still in the courtroom trenches, but the heavy artillery and tactical weapons are shifting to state legislatures and the halls of Congress. Pummeled in the judicial system, corporate America is seeking legislative relief in an attempt to stop the bleeding. But the trial lawyers, flush with cash from asbestos and their last big score, tobacco litigation, are proving to be just as adept at politics as they are at litigation. In the two battles raging right now, in Washington and Ohio, the lawyers are more than holding their own.

In Washington, the U. S. Senate spent more than a year working on a reform bill that would completely overhaul the system. The FAIR Act would create the largest trust fund in history — more than $120 billion — to compensate all legitimate asbestos victims, with the entire tab paid by corporate defendants, at no cost to taxpayers. It would also reduce legal costs and fees by as much as 80 percent. For trial lawyers, that's not a solution, that's a disaster. They poured tens of millions into "campaign contributions" and a furious lobbying effort to defeat the bill.

The bill was scheduled for a vote last April, and supporters were sure they could muster a majority. "It will never happen," Michael Kelley predicted in March. "The FAIR Act will die in the Senate on April 19th."

On that exact date, trial lawyers' allies put up procedural roadblocks that kept the FAIR Act from reaching the floor and effectively killed the legislation. As the Wall Street Journal opined, " … The trial lawyers all but own the U. S. Senate."

Ohio is another story.

The state's version of asbestos reform legislation, House Bill 292, passed by a landslide margin in December and was forwarded to the Ohio Senate. House Bill 292 establishes strict medical criteria requiring claimants to provide proof of real injury, confirmed by independent review, to qualify for consideration.

Leading the counterattack against HB 292 is the Committee to Protect Ohioans, a recently formed PAC that "represents more than 30,000 workers and other Ohioans," according to committee spokesman Tom Bevan. But it appears that is only wishful thinking. As of now, there are no 30,000 workers, only a few asbestos attorneys, including Michael Kelley and Bevan himself, a Northfield attorney with 6,000 asbestos clients. They put up more than $400,000 to underwrite a TV ad blitz and a lobbying campaign to send an unequivocal, hardball message to legislators: Vote against this bill or we will contribute whatever it takes to defeat you in the next election. Only strong reassurances of safety in numbers from Speaker Larry Householder kept the voting bloc intact.

The committee response was unprecedented. For the first time ever, an expensive political campaign was mounted after the votes were cast. Prime-time TV attack ads were launched directly at Householder, accusing him of personally "locking Ohioans out of the courts." True to their word, the lawyers initiated reprisals against uncooperative legislators, and they started with the biggest dog in the kennel.

In spite of scare tactics, the Senate passed the bill with minor modifications. A final House-Senate version was quickly adopted, passed and signed into law by Gov. Taft, making Ohio the first state to enact asbestos litigation reform.

The trial lawyers lost the battle, but the war is far from over. Immediate constitutional challenges to HB 292 are anticipated, and several clauses are perceived as vulnerable to nullification.

That will shift the fight to the Ohio Supreme Court, where three crucial seats will be decided this November. With asbestos reform in play, look for interested parties on both sides to make the 2004 Supreme Court races the most contentious and expensive in state history. Reform proponents will lavish donations on Republican candidates. Trial lawyer dollars will pour into Democrat coffers. An embarrassment of riches will turn the elections of the state's most esteemed judicial officials into mud-wrestling contests in a money pit.

Even those elections or a subsequent decision upholding the legality of the asbestos reform law do not mean an end game is near. "We'll take it to the Supreme Court," says Kelley. "We'll take it to the Hague if we have to." It may be years before the cases are decided, and all appeals are exhausted.

Back in court, the "bad system" remains in firmly in place. Another 6,000 asbestos cases will be filed this month. Two more companies will be forced into bankruptcy. Greater Cleveland will lose 800 more jobs. Michael Kelley's firm will rack up another $10 million in asbestos winnings and add at least 1,000 new clients. It looks like they'll need another jet.