More thoughts on litigation by shareholders of Sherwin Williams (SHW) vs The State of Rhode Island
The Court Said:
“we conclude that the state has not and cannot allege any set of facts to support its public nuisance claim that would establish that defendants interfered with a public right or that defendants were in control of the lead pigment they, or their predecessors, manufactured at the time it caused harm to Rhode Island children.”
They continued:
“defendants were not in control of any lead pigment at the time the lead caused harm to children in Rhode Island, making defendants unable to abate the alleged nuisance, the standard remedy in a public nuisance action.”
Here is a veiled rebuke of the original trial Judge Silverstien:
“This Court is bound by the law and can provide justice only to the extent that the law allows. Law consists for the most part of enactments that the General Assembly provides to us, whereas justice extends farther. Justice is based on the relationship among people, but it must be based upon the rule of law. This Court is powerless to fashion independently a cause of action…..”
This is what Silverstien did in the original trial by even letting it go forward as a public nuisance action.
Here is the best part:
“After all, the judiciary’s “duty [is] to determine the law, not to make the law.” City of Pawtucket v. Sundlun, 662 A.2d 40, 57 (R.I. 1995). “To do otherwise, even if based on sound policy and the best of intentions, would be to substitute our will for that of a body democratically elected by the citizens of this state and to overplay our proper role in the theater of Rhode Island government.” DeSantis v. Prelle, 891 A.2d 873, 881 (R.I. 2006).”
In January 2000, defendants moved to dismiss all counts of the state’s complaint pursuant to Rule 12(b)(6) of the Superior Court Rules of Civil Procedure. With respect to the public nuisance claim, defendants asserted that they did not control the lead pigment at the time it caused harm to Rhode Island children and that, therefore, they cannot be held liable for public nuisance.
Now, where have I read that before? Oh yea…..I the RISC decision, almost verbatim!!!!!!!
In 2000 Sherwin asked for the State’s Claim to be dismissed for the very reason it was dismissed by the RISC almost a decade later. Judge Silverstien, ignoring the actual laws of the State of Rhode Island dismissed Sherwin’s motion. 8.5 years of legal fees that should have never been incurred.
What Rhode Island did was the equivalent of charging the person who laid the asphalt on the highway with murder because a pothole on the road 3 decades later caused an accident in which someone died. They knew the correct claim, product liability was un-winnable so they trumped up another charge. Why the dramatic analogy? Had they prevailed, lead paint would have been the next asbestos and the defendants would have faced bankruptcy just as asbestos defendants like USG (USG) and Owens Corning (OC) did as suits would have mushroomed.
In dismissing the Illinois public nuisance lead litigation, the court made the following analogy should public nuisance become defined the way states wanted it to:
“Similarly, cell phones, DVD players, and other lawful products may be misused by drivers, creating a risk of harm to others. In an increasing number of jurisdictions, state legislatures have acted to ban the use of these otherwise legal products while driving. A public right to be free from the threat that other drivers
may defy these laws would permit nuisance liability to be imposed on an endless list of manufacturers, distributors, and retailers of manufactured products that are intended to be, or are likely to be, used by drivers, distracting them and causing injury to others.”
Again, 8.5 years of legal expenses that according the the RISC, if the laws of the State has be applied, should have never been incurred.
As proof of this, the RISC, in its decision said “We agree with defendants that the public nuisance claim should have been dismissed at the outset because the state has not and cannot allege that defendants’ conduct interfered with a public right or that defendants were in control of lead pigment at the time it caused harm to children in Rhode Island.”
“For the alleged public nuisance to be actionable, the state would have had to
assert that defendants not only manufactured the lead pigment but also controlled that pigment at the time it caused injury to children in Rhode Island and there is no allegation of such control. Translation? The State did not even allege the necessary elements for a public nuisance case!! Yet, Judge Silverstien allowed the action to go to trial. Kind of like charging someone with theft when nothing is stolen.
Am I right? Just ask the RISC who said “In denying defendants’ motion to dismiss, the highly respected trial justice, however well intentioned, departed from the traditional requirements of common law public nuisance.”
8.5 years of unnecessary legal fees, not just in Rhode Island but in New Jersey, Ohio, Wisconsin, California and Missouri. Suits were filed in all these jurisdictions AFTER the case in Rhode Island was brought to trial.
Let’s look at numbers now:
The suit is not about lost stock price appreciation. That would be a guesstimate based on today’s environment. How would we argue what mattered more, the litigation or housing etc. We need a number we can prove. Take the total legal fees incurred and multiply them by Sherwin’s return on equity (29% average since litigation began) and lets find out what it cost us in earnings.
The reason to do this is because that money, if it had been left in Sherwin’s control would have grown at that rate annually based on the last 8 years results. Now, were that money not spent on the litigation, we would have seen the results directly on the bottom line so we need to find out the EPS impact of the litigation.
I have spaced the legal fees equally over the course of 8 years. There is now way to know when what was incurred. I have scoured SEC filings and cannot ind the answer. Each amount is compounded at 29% annually over 8 years then I divided it by the 119 million shares outstanding.
$50 million gives us $223 million in equity and $1.87 in EPS lost
$100 million gives us $446 million in equity and $3.74 in EPS lost
$250 million gives us $1.16 billion in equity and $9.74 in EPS lost.
$500 million gives us $2.3 billion in equity and $19.32 in EPS lost.
Now, you would apply a moderate PE of 15 times each amount and we can come up with a per share appreciation (or lack thereof) due to the litigation.
Sherwin or its shareholders need to pursue these amounts (adjusted for details of course) against RI. It is justified because, as the RISC said “the public nuisance claim should have been dismissed at the outset”.
The irony here is that I am sure they could find someone to take it on a contingency fee. Should Sherwin not do it, a class action shareholder suit would be the way to go. We are the owners of the company and have been economically harmed by the persecution err… prosecution.
Clearly I am waiting to see what Sherwin does as rumors are now they will pursue legal costs but things are getting rolling on this end.
Interested parties may email me.
For everything lead, email James Cordrey at Lexis/Nexis and visit Jane Genova at Law and More
Full decision:
Disclosure (“none” means no position):Long SHW, none
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