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It’s too soon to tell what will happen to Georgia-Pacific Corp.’s 51 in-house attorneys or its outside law firms in the wake of the announcement that Koch Industries Inc. will buy the company.But Wichita, Kan.-based Koch will need plenty of legal experts to handle the asbestos-related litigation it’s purchasing along with Georgia-Pacific’s building materials, cardboard boxes and consumer paper product businesses.Georgia-Pacific was fighting 57,400 asbestos-related claims as of Sept. 30, according to a filing with the U.S. Securities and Exchange Commission. Georgia-Pacific has spent $945 million in its history to settle asbestos claims and pay attorney fees.”This is absolutely a headache for any company,” said E. Elaine Shofner, a partner at Hawkins & Parnell who has defended smaller companies against asbestos suits. “Numerous companies have gone bankrupt from asbestos litigation.”Some companies that cited asbestos suits as a reason to file for bankruptcy protection include W.R. Grace, Owens Corning and Johns Manville.Georgia-Pacific stopped making products with asbestos in 1977, when it discontinued the use of asbestos in making joint systems and in gypsum products. But the burden of the product, which can cause cancer, has lingered. Shofner said Georgia-Pacific continues to be one of the primary U.S. companies named as a defendant in asbestos suits because of its well-known name — and because it is headquartered in Georgia, where many asbestos suits are filed. But Koch, which will become the largest privately held U.S. company in terms of sales after its purchase of Georgia-Pacific is finalized, is better able to absorb the massive litigation costs related to asbestos, said James F. Ponsoldt, an antitrust and corporate law professor at the University of Georgia.”The costs hurt Georgia-Pacific’s share price, which negatively affects its ability to raise capital,” said Ponsoldt. “A private company like Koch has its own means of raising capital that are independent from the stock market.”Koch, which is paying $13.2 billion and assuming $7.8 billion in debt for Georgia-Pacific, probably received a discount on its purchase because of asbestos liability, Ponsoldt said. “Koch sees that Georgia-Pacific is wounded, and the cost of Georgia-Pacific, even though it was a premium, is less than what it would have cost Koch to start in that area on its own,” Ponsoldt said. THE CLUTCHES OF LITIGATIONSome Wall Street analysts said Monday that a privately held company such as Koch would benefit more than a publicly held company such as Georgia-Pacific from being in cyclical industries like building materials, because Koch doesn’t have the pressure of increasing its stock price.Koch also may be counting on help from Congress. A bill is being considered that would establish a federally administered $140 billion trust fund — paid for by both insurers and defendant companies — that sets out fixed payments for nine levels of asbestos-related diseases. The bill was voted out of the Senate Judiciary Committee in June and is being negotiated.Koch — which operates in numerous industries including oil refining, ranching and finance — is a major player in Washington, having given heavily to Republican political groups. CEO Charles Koch founded the Cato Institute, a libertarian think tank.There is also the chance that asbestos litigation could be winding down in the U.S., eventually freeing Koch of the problem. The number of claims filed against Georgia-Pacific through September of this year declined to 8,000 — down from 22,800 claims filed against the company for the same period in 2004, according to the SEC filing.Also, National Economic Research Associates advised Georgia-Pacific that it should expect the number of claims filed against it to decline every year through 2014, according to the SEC filing.Hawkins & Parnell’s Shofner said people with asbestos-related illnesses are finding new companies to sue, and she does not expect the filing of asbestos suits to end any time soon.”I am representing smaller companies who have never been sued before, because plaintiffs are trying to get their money from any source possible,” she said.As part of the purchase agreement, Koch said it will operate Georgia-Pacific from Atlanta as an independently managed company. Georgia-Pacific CEO A.D. “Pete” Correll will remain as chairman until the sale is completed, then retire and be replaced by a Koch executive.Georgia-Pacific’s legal counsel in the sale was Shearman & Sterling and King & Spalding. Koch Industries’ counsel was Latham & Watkins. UNLIKELY THREAT TO LAWYERS’ JOBSA large acquisition of this sort does not always result in the closing of the in-house law department of the company being acquired, said Daniel J. DiLucchio Jr., a principal with legal consulting firm Altman Weil.”It’s rare that you would see the entire law department eliminated,” DiLucchio said. “Usually there is an attempt at integration.”Georgia-Pacific’s in-house legal department employed 51 attorneys as of the end of 2004, according to Corporate Legal Times magazine. That was up from 43 attorneys in the previous period. At the end of 2002, the most-recent period for which the magazine had data, Koch Industries’ law department employed 91 attorneys.There probably will be a review of the outside law firms that Georgia-Pacific has used, DiLucchio said. Troutman Sanders has defended Georgia-Pacific in a number of employment discrimination suits. Nelson Mullins Riley & Scarborough has been Georgia-Pacific’s counsel in some asbestos-related litigation.Neither Robert W. Webb Jr., Troutman’s managing partner in Atlanta, nor Sara S. Turnipseed, a partner at Nelson Mullins Riley & Scarborough who handles Georgia-Pacific, returned phone calls seeking comment.Two members of Georgia-Pacific’s legal department left the company this year. Gordon R. Alphonso joined McGuireWoods as a partner earlier this month. Joanna B. Apolinsky joined the faculty of John Marshall Law School.Georgia-Pacific’s general counsel, James F. Kelley, and Koch Industries’ GC, Tye Darland, did not respond to requests for interviews.

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