$50 Million Award
"Where's the Beef?"
LITIGATOR PROFILE: William B. Hanley tried the case featured in this week's At Issue and won $51 million by asking the jury, "Where's the beef?" regarding the defendant's case.
LEONARDO NOVARRO
When B.F. Goodrich Co. asserted some irregularities and held back $2.4 million from a deal with one of William B. Hanley’s clients, Hanley had one question for company executives. "Where’s the beef?" Hanley asked.
After a jury trial and a directed verdict, an Orange County Superior Court judge concluded that there was no meat to Goodrich’s claims.
Hanley represented James J. Lockshaw and 26 former shareholders of Tolo Inc., an Irvine firm Lockshaw founded 45 years ago in a garage and built into a $24 million-a-year business before selling it to Rohr Inc., who, in turn, sold it to B.F. Goodrich in 1997.
As part of the deal, 10 percent of the sale price, or $2.4 million, was set aside for two years as possible compensation for any indemnity incurred by the old company, a standard procedure in such purchases.
In October 1999, nine days before the two-year period expired, Goodrich sent a letter to the former Tolo shareholders saying it would not pay the balance because of irregularities committed by the former company, Tolo.
When Lockshaw and the other shareholders tried to find out what those irregularities were, B.F. Goodrich officials refused to tell them. The company claimed it was being investigated by the government and that disclosing the information would put it in jeopardy.
Lockshaw and the shareholders in May of last year filed suit, claiming breach of contract and fraud, in Orange County Superior Court. Lockshaw v. Rohr, 00CC05238 (Orange County Super. Ct., verdict May 18, 2001).
The case went to trial May 8 before Judge Francisco Firmat. On May 18, after each side presented its case, Hanley, arguing the defendants had presented no evidence to back their allegations of mishandling, asked Firmat for a directed verdict on the breach of contract claim.
"My argument was the old commercial by Wendy’s [hamburger restaurant chain]," Hanley says.
"Remember the elderly lady who kept asking "Where’s the beef?" That’s exactly what we have here. After all the witnesses testified, where’s the beef? I argued there was none, no evidence to support their claim."
Firmat agreed. More than once during the trial, he told the defendants’ attorney, Gregg Sindici of Littler Mendelson in San Diego, that his clients had to produce evidence supporting their claim.
However, in testimony and in a pretrial deposition, Bud Wetzler, a high-ranking official of B.F. Goodrich in Chula Vista, said the company had no intention of divulging that information.
After Firmat found both Rohr and B.F. Goodrich guilty of breach of contract, he turned over the fraud claim to the jury, which deliberated a half day before coming back 11-1 with a guilty verdict against B.F. Goodrich, awarding $48 million in punitive damages.
The jury also assessed $2.8 million in compensatory damages, including the $2.4 million in contention, against both Rohr and B.F. Goodrich.
Both decisions are being appealed***.
While Sindici would not comment on the case, the jury’s verdict apparently left Goodrich officials stunned.
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A simple "Where's the Beef?" argument worked wonders for a company that believed its purchaser lacked a substantial reason to withhold full payment.
"This was a good-faith contract dispute. For it to have reached the point it has reached, it’s very hard for us to believe," Kevin Ramundo, a spokesman for the company, said after the trial.
He also told the Los Angeles Times that the jury’s award was "twice what we paid for the company — and 20 times what we were with-holding. We believe the appeals court will validate what we believe — that there were serious errors in the course of the trial."
The only error, in Hanley’s mind, was the company’s repeated refusal to say where the accusations of impropriety originated and on what evidence they were based.
Hanley’s contention was that Goodrich was trying to recoup on losses after mishandling several contracts it acquired from Tolo.
Lockshaw was a hands-on manager who dealt personally with the government on any contracts.
"If there was a problem, he’d sit down with them and resolve it," Hanley says. "In the entire 46 years of his career, there were numerous awards because of the quality of the product and level of service he provided."
Larger companies, Hanley contends, don’t assume the same responsibility.
"To them, a $10 million contract is nothing," Hanley says.
Hanley likened Lockshaw to an aerospace pioneer who started his company from scratch, out of his own savings, taking on small government contracts for the Navy and Air Force in the 1950s. Within a few years, the company had become a highly reliable contributor to the growing aero-space industry, and it eventually grew to employ 200 people.
According to Hanley, Tolo received numerous awards for its government work.
"Every lunar landing had some product manufactured by Tolo," Hanley says. "Jim Lockshaw was known for taking on and completing government contracts where the prior contractor had failed to perform."
In 1997, the shareholders, all of them Tolo employees, decided to sell the company. Right before the sale, Tolo had developed a process called GRID-LOCK, a form of structural technology that enabled it to build lighter and stronger parts used in the manufacture of products by the aerospace industry.
Actually, Hanley says, it was not the company that interested Rohr and B.F. Goodrich, but the GRID-LOCK patent that was behind the decision to buy Tolo.
Goodrich’s claims of impropriety focused on two products manufactured at Tolo: special power units that enable craft to be operated on the ground so they can be serviced and casings for bombs used by the Navy to destroy mines.
Goodrich claimed that, before the sale, Tolo had shipped numerous power kits to the government that were short of parts. Goodrich claimed Tolo had cannibalized the parts to be used elsewhere and that it engaged in "irregularities" in making the bomb casings. It never said what those irregularities were, however.
When Lockshaw and several former shareholders of Tolo tried to find out what was behind the claims, Goodrich officials said they couldn’t disclose that information because they had reported the improprieties to the government and were under investigation.
During the trial, under repeated questioning by Hanley, two of the company’s attorneys, Al Krasne and David Wilson, took the same position as Wetzler. Hanley called several shareholders who also worked for the company to testify that no such improprieties existed, but the official refusal by Goodrich to reveal the basis of its claims sealed the case for him, Hanley says.
Hanley, who represented Lockshaw on several matters in the past, called Goodrich’s decision to renege on the contract "very poor judgment."
In addition, the defendants were pitted against someone who had devoted his life to building a company out of nothing, earning government awards and accolades every step of the way.
And he is likable, to boot, Hanley says.
"In this case, when it came to the jury, they loved my client," Hanley says. "A juror came to me afterwards and said that everyone on the jury loved Jim Lockshaw. That’s what I had intended: to show what kind of man he was, how he started, what kind of people worked for him and what they thought of him.
***Subsequent to this article appearing in the Los Angeles Times a confidential settlement was reached between the parties after the verdict was reversed on appeal.
