Sherwin Williams' Lead Trial: Once This Cloud is Duly Lifted, the Bull Will Run

I received several emails yesterday after my Sherwin Williams (SHW) post on Wednesday asking how I could be so sure the lower courts decision would eventually be tossed. I am going to direct you to a paper from the Washington Legal Foundation that eviscerates the lower court's handling of the case. It a matter of "when" not "if" this ludicrous ruling will get tossed.

A note: The text below (except for the comments at the end beginning with "Sherwin's stock...") is taken from the paper, and I have noted here what I feel are the most important sections for those of you who do not wish to read all 34 pages:

On a cold gray February day in 2006, a jury in Rhode Island found three companies liable for creating a “public nuisance.” In that case, styled as Rhode Island vs. Atlantic Richfield Co, the State of Rhode Island sued four former manufacturers of lead pigment. The State claimed that the manufacturers were responsible for creating a “public nuisance” in Rhode Island during the century before residential sale of lead paint was banned in 1978. The case made national headlines because, for the first time, lead pigment manufacturers were found liable for problems allegedly caused by poorly maintained lead-based paint in privately owed homes.

One year later, on another cold gray February day, the Rhode Island trial court (the “Court”) issued a long awaited decision regarding the Defendants’ post verdict motions. In a 198 page decision, the Court found that a multitude of alleged legal errors by the Court an alleged misconduct by the State’s trial team either did not occur or were not sufficiently serious to require a new trial. In the same decision, the Court ruled that the State’s “non-delegable” duty to perform lead abatements was in fact partially delegable – so long as the State remained ultimately responsible.

But the Court’s ruling was much more than a lengthy disposition of procedural and substantive issues regarding the trial and the verdict. In a decision that dispensed with the most fundamental requirements of American tort law, this Rhode Island trial court held that merely manufacturing and marketing a product is sufficient to impose liability on a defendant—even in the absence of any evidence that a defendant's product produced harm to any person where the nuisance allegedly exists. With this broad stroke, the Court ruled that neither product identification nor evidence of specific injuries attributable to a particular defendant is necessary before a defendant is ordered to abate a nuisance.

As a result of this ruling—which is preliminary and may not be subject to appeal presently (it now is - my comment) —this Rhode Island Court has created an extraordinarily dangerous vehicle for lawsuit abuse—a tort where liability is based upon unidentified ills allegedly suffered by unidentified people caused by unidentified products in unidentified locations. At least in Rhode Island, product liability law has been swallowed up by the amorphous concept of “public nuisance”—a development that should alert every industry to the dangerous alliance of public authorities and private counsel, and their opportunistic distortions of traditional legal principles.

The extensive trial held in 2006 was not the first trial in this case. In 2002, a jury deadlocked 4-2 against the State’s original public nuisance claim.The jury deadlocked because they were not able to agree as to whether the State had established the existence of a public nuisance. In response, the State persuaded the Court to lower the threshold for finding a public nuisance. Additionally, in the second “all-in” trial, the Court allowed the State to try the manufacturers not on their own conduct, but on the conduct of their trade associations, conduct that did not occur in Rhode Island, but rather happened in other states.

And then, in the second trial, the State refused to disclose new evidence that, by the State’s own standards, the childhood lead poisoning “problem” in Rhode Island was eliminated before the trial ended. In spite of this evidence, known only to the State, the State argued to the jury that the level of childhood lead poisoning in the State had reached a “plateau,” and was no longer declining. Thus, the jury was deprived of critical evidence—unknown to Defendants until after the verdict was returned—that flatly undermined the presence of the “nuisance” the State wrongly claimed to exist.

As a result of the Court’s jury instructions, and the State’s trial tactics, the jury’s decision against the Defendants, in hindsight, now seems predictable and, indeed, inevitable. Although the second jury was also initially deadlocked 4-2 in favor of the defense, post-verdict interviews indicated that the Court’s jury instructions essentially directed a finding liability. According to one juror, the jury instructions “didn’t give the paint companies much of a window to crawl through.” Some, such as the private contingent fee lawyers that Rhode Island hired to prosecute its case, claim that what happened in Rhode Island constitutes “justice.”

Others, including these authors, take a different view. The Judge’s rulings and the State’s conduct resulted in a monstrous mosaic of serious errors, many of which, standing alone, constitute reversible error. When viewed as a whole, the Rhode Island Court’s decision abdicates the judiciary’s fundamental role to ensure procedural and substantive fairness to all parties—a role that is enshrined in our most honored jurisprudential traditions.

It is not the role of the judiciary—and certainly not the role of a trial judge—to blithely “change the law” when precedents raise barriers to a plaintiffs’ recovery, especially when, in order to do so, the court must sweep centuries of common law tradition under the rug. Such an analogy is particularly apt in this case because, like soil under the carpet, the injustice of the Court’s ruling persists—even when covered by almost 200 pages of creative justifications.

According to the Court, “based on the evidence that a public nuisance exists … and on common sense, the jury properly could have concluded that whoever sold and promoted lead pigment in Rhode Island proximately caused the public nuisance. In effect, the sale and promotion would complete the chain of causation that begins at manufacture, and ends with the existence of the public nuisance.” The authors wonder if “common sense” also dictated that the Court ignore all of the landlords and property owners who improperly maintained the lead-based paint or allowed it to deteriorate to where it became a health hazard.

The trial court defined a public nuisance injury simply as “the cumulative presence of lead pigment in paints and coatings in [or] on buildings in the state of Rhode Island." This wrongly suggests that an injury to a large number of individuals is the same as an injury to the community as a whole. Case law clearly states that “harm to individual members of the public” (no matter how many) is not the same as harm “to the public generally."

In its jury instructions, the Court altered the language in comment g of §821B of the Restatement (“A public right is one common to all members of the general public”). Instead of following the Restatement, the Court instructed the jury that: "A right common to the general public is a right or an interest that belongs to the community-at-large. It is a right that is collective in nature. A public right is a right collective in nature and not like an individual right that everyone has not to be assaulted defamed, or defrauded, or negligently injured."

As will be discussed elsewhere in this article, the State provided no proof that the “nuisance” existed anywhere except in private residences. Accordingly, the alleged problems did not threaten the exercise of any rights held by the public at large, such as the use of public buildings or resources, but rather related to the exercise of private rights by private individuals in their private abodes. Since no “collective” right was impacted that applied to the general public, the trial court’s instructions overstepped the bounds of public nuisance as defined by the common law, and dissolved the distinction between public and private nuisance as separate causes of action.

Thus, for the first time in common law jurisprudence, the Rhode Island Court held that the characterization of a nuisance as “public” or “private” depends not upon its impact on rights held by the community at large, but rather upon the number of persons allegedly affected by the problem. The State’s intrusion into areas governed previously by personal claims is an alarming expansion of governmental power. Using the “common law” to justify such a usurpation of private interests is not only unprecedented, but also sets a dangerous precedent that may be used to justify even greater expansions of governmental authority into private spheres.

As the situation now stands, the Rhode Island trial court has unleashed a phenomenon bounded only by its own ingenuity—a phenomenon that contains seeds of abuse that, unless constrained, threaten the fundamental structures of representative democracy by imposing liability without wrongdoing and remedies without injury. At its essence, the new “claim” imposes liability solely upon the basis of a person’s status as a product manufacturer, making them responsible not for what they have done, but rather for who they are.

Sherwin's stock is being held back by this abhorrence, once this cloud is duly lifted, the stock will run. What I would like to see for a change is a shareholder lawsuit against the State of Rhode Island for the financial harm we have suffered as owners. Our loss would be both the artificial stagnation of the stock price, the money spent on this litigation that cannot be used for corporate purposes or returned to us owners as a dividends or share repurchases and the time executives have spent on the litigation, not the selling of paint and coatings.

Perhaps that would put an end to these games and discourage those greedy little localities in Ohio contemplating a similar exploitation of our legal system.

SHW 1-yr chart