The 4,400 past and present Avoca-area residents involved in environmental contamination litigation over the defunct Kerr-McGee Corp. creosote wood-treatment plant were entitled to $949 million but ended up receiving $329.7 million, a new court filing said.
Stanley Waleski, one of these plaintiffs, is trying to make a Philadelphia law firm pay the $619.3 million difference, according to a class action suit he has filed on behalf of the group in Luzerne County Court.
His complaint accuses law firm Montgomery, McCracken, Walker & Rhoades LLP of breach of contract for failing to take actions seeking top-dollar compensation for the local victims in the 2009 bankruptcy of Kerr-McGee and related entities.
The Montgomery firm had been hired for its bankruptcy expertise in January 2009 by the Powell Law Group, which had initiated 2005 litigation against Kerr-McGee for the 4,400 plaintiffs that was resolved through the bankruptcy. The Montgomery hiring occurred months before Powell Law founder and Hazleton-area native Robert Powell was charged as part of a federal corruption probe into Luzerne County’s court system.
Attorneys Natalie D. Ramsey, a Montgomery firm partner, and Leonard A. Busby, a former partner and current senior counsel at the firm, also were named as defendants.
The defense must respond to the filing by July 6, the court record said.
Scranton attorney Daniel T. Brier, of Myers, Brier & Kelly LLP, is representing the Montgomery defendants and could not immediately be reached for comment Friday.
Pittsburgh attorney Scott M. Hare filed the suit.
The Avoca plaintiffs have blamed cancer, respiratory problems, heart conditions, rashes and other medical issues on carcinogens and chemicals used at the Kerr-McGee operation for four decades until 1996.
Waleski’s 24-page filing, which refers to the Montgomery firm defendants as “Montgomery” for simplification, outlines a series of allegations:
Early in the bankruptcy case, Powell Law attorneys repeatedly warned Montgomery that other potential claimants might attempt to “intrude upon” the Avoca plaintiffs’ “rightful recovery,” particularly a group from Mississippi where Kerr-McGee also had a site.
The bankruptcy court in New York City set an Aug. 12, 2009, deadline for claimants seeking payment, requiring substantive individual proof of claim submissions and advising that improperly filed claims would not be entitled to payment.
Powell Law promptly completed detailed individual claims for each of the more than 4,400 Avoca plaintiffs that were filed by Montgomery before the deadline.
On or around Aug. 3, 2009, a “Mississippi Ad Hoc Committee” allegedly formed days earlier filed a group claim seeking $12.5 million that did not contain the required detailed, individual proof of claims.
Despite repeated requests from Powell Law, Montgomery failed to object to this Mississippi group claim, which ended up totaling at least $140 million that otherwise would have went to the Avoca plaintiffs.
As part of the bankruptcy, Montgomery took responsibility for drafting trust documents governing how funds set aside for personal injury claims would be managed and paid.
Montgomery became involved in this drafting as counsel for Michael E. Carroll, a member of the “creditors’ committee,” which acts as a fiduciary on behalf of all creditors seeking payment.
The filing alleges the firm’s decision to represent Carroll was an undisclosed conflict of interest because it had been hired to represent the “uniquely-situated” interests of the Avoca plaintiffs, not all creditors as a whole.
Montgomery failed to draft the trust documents in a fashion to protect the Avoca plaintiffs’ claims or to exclude improper competing claims, such as those of the purported Mississippi claimants.
The bankruptcy court confirmed the trust documents as part of the Chapter 11 plan, effective Feb. 14, 2011.
The next day, on Feb. 15, Montgomery “purported” to terminate its representation of the Avoca plaintiffs without consent or agreement from the plaintiffs or Powell Law.
Powell Law retained Weitz & Luxenberg, a New York City firm known for asbestos-related litigation, to handle the Avoca claims in 2012, court records show.
Cincinnati-based Garretson Resolution Group Inc., the trust overseer, issued a final report in January 2014 announcing the maximum claim totals for personal injury claims.
It was $949 million for the Avoca plaintiffs, $343 million for the Mississippi ones and $39 million for others.
In light of that report, Powell Law attempted to contact Montgomery throughout February 2014 instructing it to contest the allowance of the Mississippi claims, but Montgomery did not take action.
The bankruptcy settlement with Kerr-McGee and related entities, which took effect in January 2015, ended up totaling $5.15 billion, with $618 million carved out for the Avoca, Mississippi and other personal injury claims.
Facing a loss of damages and “abandoned” by Montgomery, Powell Law appealed to Garretson, the trustee, with an objection about the allowance of the competing Mississippi claims.
Garretson filed a motion seeking instruction from the bankruptcy court in April 2015. That June, the court determined the Avoca plaintiffs had no standing to object to the claims administration process because they had not filed an objection to the Mississippi group claims before the plan was confirmed. The court also noted the trust documents could have been drafted differently to give the Avoca plaintiffs greater rights to challenge the Mississippi claims.
Waleski’s filing argues the entire $618 million would have been paid to the Avoca plaintiffs if Montgomery had objected to the Mississippi group claim and “properly drafted the trust documents to protect the interests of the Avoca plaintiffs.”
The suit seeks interests and costs on top of $619.3 million in damages.
In a different case in Ohio, the Montgomery firm said Powell Law’s complaint about its handling of the Mississippi claims was “specious” because the bankruptcy court made it clear an objection to the claims of the other injured parties would not have been well received by the court.
When Garretson, under pressure from Powell Law, asked the bankruptcy court for clarification on the Mississippi claims, the bankruptcy court “emphatically rejected” Powell Law’s arguments that these claimants were not entitled to a portion of the recovery funds, the Montgomery firm said.
The ruling conflicts with Powell Law’s “phantom malpractice” argument that the Montgomery firm should have been able to prevent the Mississippi claims from being allowed, it said.
The Montgomery firm also maintained the settlement amount for the Avoca plaintiffs far exceeded original estimates and was evidence of its “exceptional work” in the suit. Powell Law’s malpractice defense was “absurd in the context of such an incredible surplus.”
“Presumably, the Powell Law Group contends that the $125 million it stands to receive is not enough,” its filing said.
The Montgomery firm successfully obtained payment for its services in the Avoca case from legal fees that had been earmarked for Powell Law and held by Garretson, the trust overseer.
A court granted the Montgomery firm’s motion for summary judgment and awarded the firm $2.95 million plus interest in August 2016. Powell Law lost its appeal, and Garretson released the full payment to Montgomery last October, according to Garretson’s recent 2017 audit report. The court had estimated the total payment around $3.49 million.
The Montgomery firm had argued the payment was warranted and that waiting for Powell Law to honor it would be like playing “Russian roulette.”
The Montgomery firm’s payment was supposed to come from Powell Law’s “own contingent fee paid to it by its own said clients, and from no other source,” the agreement said.
Powell Law was entitled to 40 percent of the Avoca recovery, plus reimbursement for other expenses, according to its agreement with the Avoca victims.
However, Powell Law has pointed out its contingency fee will be split with other firms that have been retained to work on the case.
Waleski directed all inquiries to his attorney in Pittsburgh.
More than 35,000 people from this area, Mississippi and other parts of the country who did not receive any payment to date are seeking compensation from another fund set up in the bankruptcy, last valued at $22.25 million, for future tort claims.
Reach Jennifer Learn-Andes at 570-991-6388 or on Twitter @TLJenLearnAndes.