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Fitch Monitoring Sherwin-Williams on Reversal of Rhode Island Verdict

July 2, 2008

On July 1, 2008, the Rhode Island Supreme Court overturned a February 2006 verdict wherein a Rhode Island (RI) jury found that The Sherwin-Williams Company (SHW) and two other companies (NL Industries and Millennium Holdings) were liable for creating a public nuisance in a lead-based paint lawsuit brought by the State of Rhode Island. The state had proposed that the defendants spend $2.4 billion in clean-up costs for hundreds of thousands of homes in the state. Fitch Ratings continues to monitor the other pending lead-based paint cases involving SHW.

Fitch currently rates SHW as follows:

–Long-term Issuer Default Rating (IDR) ‘A’;

–Short-term IDR ‘F1′;

–Rating Outlook Stable

Yesterday’s ruling is important because it reverses the first successful public nuisance claim against the paint industry, and, for that matter, the first successful lead-based paint lawsuit of any kind against the paint industry. While the February 2006 jury verdict against SHW and the other defendants opened the possibility for new lead-based paint cases across the country, the reversal of the jury verdict by the RI Supreme Court may potentially discourage other states from suing paint manufacturers or, more specifically, suing and using public nuisance theory as the basis for potential lawsuits. Since the February 2006 ruling against the three paint manufacturers, Ohio is the only other state that has sued. While the reversal of the RI jury verdict was based on RI law, the decision could influence court opinions in other jurisdictions where lead-based paint lawsuits are pending. In addition to the state of Ohio, a case is also pending in Santa Clara, California.

In March 2006, Fitch affirmed its ratings and revised its Outlook for SHW from Positive to Stable following the verdict against the company. The Stable Outlook, at that time, took into account the uncertainty of the financial impact of the RI verdict as well as other pending cases on the company’s credit profile and that those cases, particularly the RI case, were unlikely to be resolved in the near term.

The decision of the Rhode Island Supreme Court follows favorable rulings for SHW and other paint companies in other court cases in 2007. In June 2007, the New Jersey Supreme Court reversed an earlier decision by the Appellate Division and reinstated the dismissal of the public nuisance claims brought by counties and cities of New Jersey. This decision concluded the case in favor of SHW and the other defendants. During the same month, the Missouri Supreme Court affirmed summary judgment for the defendants, which concluded the public nuisance case in favor of SHW and the other defendants. In June 2007, a Milwaukee, WI, jury concluded that although the presence of lead paint in Milwaukee is a public nuisance, the defendant, NL Industries, was not at fault for the public nuisance. (Note: Mautz Paint, which was previously acquired by SHW, was also a defendant in the Milwaukee case but the trial court entered an order severing and staying the claims against Mautz Paint.) The City of Milwaukee is appealing the jury verdict and the trial court’s denial of the City’s post-trial motions. Finally, in November 2007 a Milwaukee jury sided with the defendants (SHW, other alleged former lead pigment manufacturers, and the Lead Industries Association) in a personal injury case (Thomas v. Lead Industries Association, et al.) in Wisconsin. The plaintiff filed post-trial motions for a new trial, which were denied by the trial court. On March 4, 2008, final judgment was entered in favor of SHW and the other defendants. The plaintiff has filed an appeal of the final judgment.

Founded in 1866, The Sherwin-Williams Company is one of the world’s leading companies engaged in the manufacture, distribution, and sale of coatings and related products to professional, industrial, commercial and retail customers. The company is structured in three business segments: the Paint Stores Group (62% of 2007 sales), the Consumer Group (16%), and the Global Group (22%). The Paint Stores Group is the exclusive North American distributor of Sherwin-Williams branded paints and related products. The Consumer Group sells paints, coatings and related products under various branded names (Dutch Boy, Pratt & Lambert, Martin-Senour, Thompson, Minwax, etc.); licensed products (Martha Stewart); and private labels (Wal-Mart, Sears). The Global Group develops, manufactures, distributes and sells a variety of paint and coatings products worldwide.

Fitch’s rating definitions and the terms of use of such ratings are available on the agency’s public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch’s code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the ‘Code of Conduct’ section of this site.




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