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Abstract: 

In Coltec Industries, Inc. v. U.S., Judge Susan G. Braden of the Court of Federal Claims ruled that Coltec was entitled to a refund of nearly $83 million for the 1996 tax year.1 In 1996, Coltec was a publicly-traded holding company comprised of 28 separate companies. In 1976, Coltec had acquired Garlock, Inc., one of whose divisions, Garlock Mechanical Packing Company, manufactured sealing products and expansion joints that used asbestos as a primary component. In 1987, Garlock acquired Anchor Packing, a business that used asbestos in manufacturing gaskets, pump packings, valves, and mechanical seals. By the early 1990s, Garlock and Anchor had been defendants in around 100,000 asbestos cases. In 1991, John Guffey, the new President and CEO of the Coltec Group, assumed primary responsibility for developing a long-term strategy for managing asbestos litigation for the Group. In 1995, Joseph Andolino, Vice President of the Coltec Group, met with an Arthur Andersen partner who suggested creating a litigation management activity fund, and mentioned that there was a tax benefit associated with the idea.2 Andolino was also interested in finding a way to “mitigate” a $240 million capital gain that would be realized if Holley Automotive were sold. Andolino retained the law firm of Kronish Lieb Weiner & Hellman, one of whose attorneys was Donald Turlington.3 Though Andolino had already met with members of Arthur Andersen, Kronish Lieb formally retained the accounting firm “to preserve and extend attorney-client privilege to Arthur Andersen’s work product.” Guffey approved the idea of creating a separate litigation management company because of the benefits of protecting the assets of Coltec and Garlock from veil piercing claims regarding asbestos. He was also aware of the tax benefits.

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