eBearing News - Kaydon Wins Dismissal of 8-year-old Lawsuit by Keene Creditors

Kaydon Corporation (USA) reported it and several other companies have been granted summary judgment and dismissal of an eight-year-old case filed against them by creditors of Keene Corp., a former sister division of Bairnco Corp. (USA). Kaydon and the other companies involved have referred to this as the "Transactions Lawsuit," differentiating it from others stemming from related situations. The Transactions Lawsuit was significant for Kaydon because the complainants sought $700 million, plus treble damages, interest, and even a RICO complaint. In addition, they had been seeking to rescind part of the asset transfer and sale which had made Kaydon a separate entity again.

Founded in 1941, Kaydon now manufactures standard and custom-engineered bearings, hydraulic cylinders, slip rings and filters, supplying a broad and diverse group of industrial, aerospace, medical and electronic equipment, and aftermarket customers. In the bearing industry, Kaydon is a key manufacturer of slip-ring and specialty bearing products sold to security, military and industrial markets for industrial and aerospace applications. The company also includes Cooper Roller Bearing (UK), a leading manufacturer of split roller bearings, thrust bearings and other custom bearings.

The long and winding road leading to Kaydon's involvement in the Transactions Lawsuit goes back 35 years, underscoring the widespread impact of asbestos litigation on businesses in the United States today.

In 1968, Keene Corp. acquired Baldwin-Ehret-Hill, a small manufacturer of insulation, acoustical ceilings and ventilation systems. BEH was merged into Keene Building Products Corporation. Between 1968 and 1972, BEH used asbestos in its insulation and acoustic products, leading to Keene's involvement in asbestos litigation.

Between 1977 and 1993, Keene was named in over 190,000 asbestos-related suits -- an average of 2,000 new suits were being filed against Keene every month.

In the mid-1980's, Keene's parent, Florida-based holding company Bairnco Corp., was trading assets among its various operating components and spinning off separately traded operations. Among those transactions, certain Keene assets were separated from and acquired by Kaydon. In 1984, Bairnco spun off Kaydon as a separately traded company.

Bairnco spun off Keene as a separately traded entity in 1990. By early 1993, Keene had resolved over 95,000 of the asbestos claims, spending $450 million in the process. But it still faced 100,000 more and 2,000 being added each month. By late 1993, Keene's assets had been essentially wiped out, with its only real asset being one remaining operating subsidiary, Reinhold Industries, Inc. Keene filed for Chapter 11 bankruptcy protection in December 1993.

In mid-1995, Keene's unsecured creditors initiated the "Transactions Lawsuit," naming Bairnco and Bairnco's former subsidiaries, including Kaydon. The creditors claimed Bairnco, before spinning off Keene, had illegally engineered the gradual selloff of Keene's assets to other Bairnco subsidiaries at far less than fair value as Keene became financially unstable -- illegally shielding those assets, including Kaydon, from Keene's creditors. The lawsuit sought $700 million in restitution, interest, punitive damages, and a trebling of damages under RICO laws. The RICO aspect was later dropped, as were claims against 14 of the original 21 defendants.

Along the way in July 1996, Keene's reorganization plan was approved, separating Keene from its asbestos liabilities by creating the Keene Creditors Trust to handle all Keene-related asbestos claims. Keene itself was merged into and renamed Reinhold Industries.

Also in 1996, the Keene Creditors Trust took over the lawsuit against Bairnco and its former subsidiaries and has pursued it until now.

Bairnco is a holding company, currently operating Arlon in its Engineered Materials and Components sector and Kasco in the Replacement Products and Services division. Bairnco's annual sales are approximately $120 million.

In mid-2002, Bairnco and the other defendants including Kaydon, filed a motion with the U.S. District Court for the Southern District of New York, asking for summary judgment, dismissal and an end to the Transactions Lawsuit.

The trial court has granted the motion and dismissed the lawsuit in its entirety.

In its 74-page Opinion, the The Federal Court said, "Plaintiffs have been unable ... to support their theory with any concrete evidence. To the contrary, on the record before the Court, no reasonable jury could find that Keene and its officers, directors, lawyers, and auditors engaged in any scheme to defraud. Although the asbestos cases were a real concern to Keene as early as the 1970s, the evidence shows, as a matter of law, that there were no fraudulent conveyances here. Instead, a reasonable jury could only find that the transactions were legitimate."

Following the ruling, Kaydon's President and CEO, Brian Campbell said, "The Court's well-reasoned order is a resounding and tremendous victory for Kaydon and its shareholders. As we have said continuously since the inception of this litigation, Kaydon has always believed that it had meritorious defenses to the claims made by the plaintiffs in the case. This litigation has been extremely time-consuming, distracting and costly, involving not only hundreds of hours of management's time and efforts, but also legal costs and other expenditures in excess of $16 million."

He added, "Although the plaintiffs have the right to appeal the Court's order in this case, we believe the Court's decision will withstand any possible appeal."