Craig Smith salvaged Raytech and left sick workers behind
By Dan Levine, New Haven Advocate
Hoyt Farm Road stretches through a patch of woodsy New Canaan affluence about two minutes from the Merritt Parkway. To find Craig Smith's house, drive past the mansions with wraparound driveways and stone lions perched on pedestals facing the street.Halfway between the road and the 3,600-square-foot, six-bedroom structure, a tasteful two-foot stone ledge divides the front lawn. The façade ends at a garage on the far left with four cars parked in the driveway: Jeep, Volkswagen, Mercedes, Corvette.
Craig Smith is not in Connecticut today. He is in North Wales in the United Kingdom, attending to business at Friction Dynamex, a brake and clutch linings factory he bought five years ago.
He bought it with money meant for victims of asbestos-related illnesses, according to a lawsuit filed in Hartford. After workers at the Caernarfon plant in Wales walked off the job last April, protesting a 15 percent pay cut proposed by Smith, he fired 87 employees and brought in bodies willing to work on his terms, sparking mass protests.
Not that Smith lets it faze him. The Caernarfon situation is just another controversy in an executive career that has played out in the midst of one of the costliest and deadliest battles corporate America has ever fought.
Until Jan. 12, 1998, Smith was president and chief executive officer of the Raytech Corporation, a Stratford company that still manufactures auto parts today. Formerly called Raymark, Raytech is more easily recognized by its original name: Raybestos-Manhattan.
For decades, Raybestos manufactured auto parts in Connecticut; the company employed thousands of Fairfield County residents and paid real living wages. It enjoyed a sparkling public image and sponsored one of the nation's premier women's softball teams, the Raybestos Brakettes.
But top executives at Raybestos-Manhattan concealed a deadly secret: The company had used mass quantities of asbestos in its products since the 1920s, due to the material's unparalleled ability to resist high heat. Executives first learned of the link between asbestos and lung cancer in the 1930s, but consciously decided to keep the news quiet. Raybestos workers continuously breathed the fibers, and when they began to die from mesothelioma and the first lawsuits surfaced in the 1970s, plaintiffs' attorneys unearthed documents indicating management knew of the dangers.
The company already faced a growing mountain of asbestos-related claims when Smith joined the outfit in 1980. Five years later, he became president, and by April 1988, the company had been named as a defendant in approximately 68,057 asbestos-related personal-injury cases.
Smith immediately embarked on a series of maneuvers designed to accomplish a single goal: to make Raymark's profitable assets safe from the reach of people dying from asbestosis, and their lawyers.
His reasoning is simple and quite unabashed. The vast majority of asbestos claims against the company are without merit, cooked up by greedy, unscrupulous trial lawyers who just want to make a buck, Smith says. They should not be able to sap the company's strength.
Far from accomplishing his goal, though, critics say Smith's strategy merely delayed paying off legitimate claims. Federal judges across the country, meanwhile, have refused to let Raytech off the hook from the legacy of its predecessors.
But Smith might find a savior in President George W. Bush. Last week, blue chip stocks rose on rumors that the president was planning to use his State of the Union address to push for limits on industrial asbestos liability, according to Reuters.
Court became Smith's second home in the 1990s. In Hartford, he defended himself against charges he stripped company assets to benefit his family. In Georgia, he sued the tobacco companies for their role in causing the lung disease suffered by Raybestos claimants, a move critics derided as an attention-diverting PR stunt. The case is currently pending.
And he sued longtime adversary Fred Baron, an asbestos plaintiffs' attorney who represents thousands of clients, for calling him a crook in The New York Times. A judge dismissed the libel claim for lack of jurisdiction.
But once all of the business decisions and controversy are stripped away, two distinct pictures of Craig Smith emerge. His friends speak of a religious Mormon from Utah who truly believes he is on the right side in a battle of good vs. evil.
"He's one of the most generous people you could ever know. He's as straight as they go," says Rodney Hawes, ex-CEO of Life Re, an insurance company formerly based in Stamford.
Listen to his adversaries, though, and you hear a different story.
"I think Craig was a good businessman. He was a smart guy, but ... I can't imagine anyone would hire him to run a publicly traded company today," says Steve Kazan, an Oakland, Calif.-based asbestos plaintiffs' attorney who has fought against Raybestos in the courts since the 1970s. "I think it's ended up that his mother would be ashamed."
On a sunny Friday afternoon in early January, 61-year-old Craig Smith strides into his lawyer's office beside the Metro North station in New Canaan for an interview with the Advocate. Navy blue pleated slacks are belted around his trim waist, and a blue Tommy Hilfiger sweater with thin red and white stripes fits perfectly over his broad shoulders, making Smith an athletic specimen of the Fairfield County Executive Dressed Down.
When describing himself, Smith casts his eyes toward the conference room table and answers with halting, yet calm speech. "Just a businessman who grew up in Utah," he says.
Springville is a rural town 50 miles south of Salt Lake City. He grew up in a religious house - Church of Jesus Christ of Latter Day Saints. Asked if he maintained his religious upbringing, Smith does not hesitate.
"Mmm, hmm," he says quickly, then falls silent for about 10 seconds before he continues. "We probably spend more time at that than we do most other things."
Actually, Smith served as bishop of his church ward (like a parish) for five years, says Hawes, also a fellow Mormon. The Mormons have a lay ministry, so the bishop leads church services and functions like a priest. But Smith himself did not mention this.
Responding to a reporter's question, Smith notes he played four sports in high school and lettered in all of them. He also captained the basketball team that won the state championship his senior year, but while many men might boast about this Hoosieresque accomplishment into old age, Smith never brought it up himself.
After graduating from Springville High School, a place where Smith says he only knew three people who were not Mormon, he entered Brigham Young University on a tennis scholarship. He was married June 20, 1960, his 20th birthday, to a 17-year-old bride, and they have had seven children together.
When talking about himself, Smith constantly fidgets, running his hands across his smooth, clean-shaven face - a contrast to the way both friends and adversaries describe his overall demeanor.
"Conversations with him are not dominated by him talking about his accomplishments," says Jim Quigly, a Smith friend and partner in Deloitte Touche, a consulting firm.
Before he joined Raybestos, Smith moved from company to company, but steadily upward. He was working for Kennecott Carborundum, a mineral company, when Raybestos' new boss Fred Ross asked Smith to come aboard as president of the firm's industrial division. Smith moved his family from Western New York and bought the house on Hoyt Farm Road.
By 1985, Smith says Raymark shareholders were unhappy with the way the company's CEO handled the lawsuit torrent, which led to his installation at the top. "The problem with the asbestos litigation is, the volume is, uh, kind of overwhelming if you try to deal with it on an individual case basis," Smith says.
Instead of settling all cases, Smith says he decided to take a different approach. "I thought we needed to take much more severe action to get the company out of the problems it was in," he says.
That belief led to Smith's settlement "matrix," famous in asbestos litigation circles. A mesothelioma patient could get $902 for their illness; less severe cases would get far less - it all went according to a set schedule. Some plaintiffs' attorneys with serious claims took Smith's matrix as a joke - the dollar amounts were way too low to consider.
But Smith claims the scheme began to reduce frivolous claims against the company. By April 1988, more than 30,000 cases were settled, costing the company $279 million, according to court documents. It is unclear how many of those claimants took the matrix.
The larger point, however, is that Smith believes he took away an economic incentive for plaintiffs' attorneys to file suit against his company. It is a theme he's pursued for years. To show that it is the attorneys themselves who are the energy behind the lawsuits, he gleefully points to a memo that surfaced from asbestos attorney Baron's law offices in 1998, describing how asbestos plaintiff attorneys coach workers for deposition testimony.
Baron did not return numerous calls for comment. But he has argued that coaching is what any good attorney does. And although Smith and Baron continuously feud in the courts and the press, Smith says it is nothing personal. He even sent Baron The Book of Mormon for Christmas.
"I think from his perspective, he has felt he is standing for principle and for what is right," Hawes says. "The fact that trial lawyers are pushing to the limits, he felt that their case was not only unjust, but unfair."
Alice Terrace is a dead-end street tucked in a post-World War II working-class neighborhood of Stratford. Number 11 sits on a tiny lot, a rusted metal mailbox hanging next to a screen door with a faded paper American flag taped to it. A dented Dodge parked next door boasts a blue and white bumper sticker, instructing: "Work Harder! Millions on Welfare Depend on You!"
Edna Boston lays in the dark, rear bedroom, illuminated only by the Today Show flickering across the television screen. It is under 40 degrees outside, but an air conditioner hums in the background. Covered by a floral printed top sheet, Boston's body disappears at the waist with only faint outlines of underutilized legs.
Boston's constant companion is an oxygen tank, its plastic tubes always strapped into her nostrils. Diagnosed with pleural plaque asbestosis, Boston's lungs cannot keep the oxygen level steady in her blood. Purple blotches called "onion skin" cover her arms, the result of steroids administered during respiratory failures.
She says she used to smoke two packs a day. But Boston also worked at Raybestos Manhattan for 10 years, starting in 1969, which might explain the doctor's diagnosis.
Her husband and sister already worked in the factory when she started. "I worked on an assembly machine," Boston says, her slow speech punctuated by a wet cough. "The transmission rings used to come out on a conveyer belt and we had to drop the [asbestos] wafers onto the steel, the clutches."
Boston's sister, Mary Derrick, remembers workers goofing around, throwing asbestos at each other. For years, no warning labels advised against touching it.
The late 1970s were tough on the family. Doctors diagnosed Boston's husband with asbestosis, but the couple continued to work at the factory. When he eventually stopped, it was too late. William Boston was 46 when he died in 1983.
His autopsy showed his lungs covered with asbestos fibers. Boston eventually won a cash settlement from asbestos manufacturers (she will not disclose the amount), along with a workers' compensation claim from Raybestos.
Boston hasn't filed a claim against Raymark for her own illnesses, though. She says she has been slow to prod her lawyer to do it. But even if she does file, and even if she can prove her illnesses resulted from Raybestos' asbestos, Boston may get even less money now than under a 1980s-era settlement.
In his ongoing attempts to keep plaintiffs (or potential plaintiffs like Boston) at bay, Smith undertook a massive corporate reorganization of Raymark, beginning in 1986. The maneuvers are complicated, but in essence:
- Smith launched Raytech, a new subsidiary of Raymark, in June 1986.
- Raytech soon became its own publicly traded company.
- In 1988, Raymark sold Raytech its profitable divisions, attempting to insulate the moneymakers from the asbestos claims. Raytech continues to manufacture products today, and Raymark absolved Raytech from any liability. The rest of Raymark, which included insurance policies to cover the lawsuits, came under Smith's ownership.
He claims Raytech paid fair market value for Raymark's assets, and that Raytech's bid just happened to beat out the competitors. But in 1988, a federal court struck down Smith's maneuver.
"It was designed with the improper purpose of escaping asbestos-related liabilities," the court ruled. "It is inconceivable that in an arms-length corporate transaction, a buyer would have purchased an entity so lacking in assets and laden with liabilities."
Courts across the country refused to revisit the ruling, and the U.S. Supreme Court upheld it. Thus Raytech was still on the hook for the asbestos claims, and so the company filed for Chapter 11 bankruptcy in 1989.
"The fact is, his company was involved - in the 1930s - with really actively suppressing the hazards they knew about working with asbestos," says David Shaw, an asbestos plaintiffs' attorney based in Fairfield. "Under the law, a corporation is a continuing entity. It doesn't die. A lot of executives don't understand why the sons are being punished for the sins of the father."
Raytech continued to operate like a normal company, protected from new asbestos suits by bankruptcy laws. And Smith says he is proud of his management of the corporation during this era.
"From 1990 through when I left, we had grown the business by about 8 percent annually and earnings of 22 percent compounded annually," he says. "We went from losing $11 million to making $25-26 million in profit."
Then a judge quashed a separate bankruptcy action against Raymark, the corporate vessel still owned by Smith, in 1996. Another tidal wave of asbestos lawsuits against Raymark rolled in, but the ruling brought something else for the company: $27 million in cash.
The money came from insurance policies owed to the company. The judge ordered that Raymark could only use the funds to pay or defend asbestosis claims.
Smith had other plans.
Two years before the judge's ruling, he hired a man named James Cobb to be president of Raymark; Smith knew him from a Mormon mission his daughter attended in Geneva, Switzerland, according to a court affidavit. So in November 1996, Smith's son (the other part owner of Raymark) instructed Cobb to loan $8.5 million of the $27 million pot of insurance money to a company called Investors International, according to the lawsuit.
But Investors International is no ordinary company - it is owned by one of Smith's daughters. Before it received the loan, Smith says Investors International acted as a kind of private bank, supplying car and small business loans for family members and friends.
Investors International agreed to pay Raymark 9.5 percent interest on the loan. Then the company loaned the money - at a higher interest rate - to another corporate entity in Britain, owned on paper by Smith's wife. That's how the British company used the insurance proceeds to buy the brake lining factory in Wales, which Smith runs.
Raytech's creditors, aka plaintiffs' attorneys, were not pleased, and they sued Smith in Hartford Federal Court. Their argument: Smith was siphoning off money that should go to people dying with asbestosis.
Smith vehemently denies this charge. He says that the money ultimately was supposed to go toward claims, but the judge never told Raymark how it could invest the money. Raymark received a higher revenue stream by investing the money with his daughter's company than it did by investing in treasury bills, Smith says.
Investors International offered its stock to Raymark as collateral for the loan, Smith says. But Smith acknowledges that his daughter's company probably could not have received that kind of loan from any other source. And who would have ultimately lost if the money was not paid back?
"If it wasn't paid back the people that would have lost would have been either plaintiffs' attorneys in fees, or defense attorneys, or asbestos claimants," Smith says, rattling off his longstanding adversaries.
Would he have lost sleep if those people lost money? "Oh, sure," Smith says. "People, if they're owed, they should be paid."
But Hartford Federal Judge Dominic Squatrito didn't buy Smith's argument. "The end result was that insurance funds specifically earmarked for tort claimants were used to benefit Craig Smith and his family," the judge wrote in an April 2001 pretrial ruling. "There is no evidence that the transaction was fair to the corporation."
The insurance money case was slated to go to trial last November, but the parties settled just before jury selection was to start. The settlement details are confidential, so it is impossible to know how much money Smith had to repay to Raymark, but both sides say they are pleased with the agreement.
Raytech's 10-year bankruptcy proceeding might be coming to an end. A preliminary settlement would turn 90 percent of the equity in the company to creditors, mostly plaintiffs' attorneys representing asbestosis claimants.
Smith continues to run his plant in Wales. After the settlement agreement was reached in Hartford, some Welsh union officials feared that the factory would close because Smith would have to pay back too much money, according to British newspaper accounts. But managers in Wales say that will not happen.
Workers continue to picket in front of the factory. A delegation of the dismissed is slated to meet with British Prime Minister Tony Blair this week.
Thousands of asbestos claimants in the United States will continue to wait for their money until the Raytech bankruptcy settlement is finalized.
Fighting asbestos attorneys is not about money, Smith says. "Life has been pretty sweet for me and my family," he pauses, "but it's never been the purpose in my business career to accumulate wealth. That's kind of a by-product of performance. I do most of the things I get involved in reasonably well and that's more important to me than if I'm going to make more money than someone next door."
This month, Smith and a group of his friends are planning a trip to Casa de Campo in the Dominican Republic. The resort boasts one of the best golf courses in the word, with seven holes directly alongside the ocean.
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