Consumer Class Actions and Mass Torts : Class Action Lawyer & Attorney : J. Russell Jackson : Skadden Law Firm : Complex Class Actions : Consumer Class Actions & Mass Torts Law Blog

Readers of this blog know that I'm a big fan of Andrew Trask and his blog Class Action Countermeasures.  He has an interesting post today about what he calls "Cause Lawyers" (and what I generally call "true believers"):  plaintiff lawyers who bring class actions to advance a social agenda rather than getting rich.  They often work for non-profit organizations for low wages.  Their job satisfaction comes from changing the behaviors of their target defendants in ways that legislators or regulators either cannot or will not.

Andrew is absolutely right that these lawyers are distinctly different personality types from what he calls "entrepreneurial class counsel," i.e., those who bring class actions to get rich.  He cites an article that paints the true believers as having a binary world view (us/them, right/wrong) and offers some advice for negotiating with them.

I think it's far too easy to ascribe such character traits to "Cause Lawyers," and I wanted to offer some nuance based on my experience with them.  I actually like and respect most of the "Cause Lawyers" I've dealt with over the years, and have been able to forge some beneficial relationships with them.

To begin with, Cause Lawyers are usually very bright.  Because they operate in a particular field that interests them, they usually are experts in that field.  They likely know the cases, regulations, and history of regulation in that field better than you do.  And believe me, they know the players.  They likely have met with the relevant government officials repeatedly, urging them to action.  Do not underestimate a Cause Lawyer adversary.

Although Cause Lawyers have an idealistic streak, for sure, they seldom get to indulge it in practice.  They work for organizations that have limited budgets and often very broad agendas.  They will fight hard to achieve a favorable result, but they also understand that if they can achieve something less than complete victory through a deal with your client, they should take that and move on to the other cases in their "quasi-legislative" agenda.

Cause Lawyers are just that:  lawyers.  They know the strengths and weaknesses of their case.  They often are pushing at the very edge of the law -- they're very creative -- and they understand that lawyers in that position have a substantial risk of losing, at either the trial or appellate level.

Cause Lawyers are also people.  They respect adversaries who treat them as equals, speak frankly, and live up to their commitments.

In short, Cause Lawyers can be very practical in negotiations, but you have to understand where they are coming from.

Here are some of my thoughts on litigating against and negotiating with Cause Lawyers:

1.  Understand your client's motivations and objectives.  The Cause Lawyer has sued your client for a reason:  she wants at least a change of your client's behavior, maybe more.  You first need to understand your client, why it conducts its business as it does, what it might be willing and/or able to change within its overall business objectives, and what changes it would be unwilling to make and why such changes are unreasonable.

2.  Get to know the Cause Lawyer.  I find that it's important to sit down early with the Cause Lawyer.  I want her to get to know me as an honorable adversary whom she can trust to do what I say I'll do.  I want to listen very carefully to what she wants to achieve with the litigation (always thinking in the back of my mind of possible mutually-acceptable compromises).  I want her to understand that there is a rational business reason for my client's behavior and that it is a good corporate citizen.  And I want her to understand the strength of our factual and legal defenses, as well as that continued litigation is going to require a significant commitment of the plaintiff's limited resources.

3.  Be Creative and look for a way for both sides to shine.  Cause Lawyers may be idealists at heart, but they understand that change comes incrementally.  If they can have an industry player cooperate with them on a policy, they understand that its easier to get the rest of the industry to follow.  Often there is a win-win compromise to be reached with Cause Lawyers where your client can receive kudos for being the first to tackle a thorny public policy issue.

4.  If it becomes apparent early on that a reasonable compromise that makes business sense is simply not possible, make good on your promise of take-no-prisoners litigation.  This is in keeping with the maxim that the Cause Lawyer should be able to trust you to do precisely what you say you'll do.

The Cause Lawyers I have dealt with, for the most part, have been practical lawyers with a policy agenda who understand that businesses have legitimate interests and that litigation is a costly and unpredictable way to legislate policy change.  Often, they tell me, corporate defendants respond to Cause Lawyers' suits by digging in their heels early on, without taking time to understand that in many respects, the suit or demand letter is really the organization's attempt to get the company's attention and obtain a seat at the decisionmaking table. 

I worry that painting a picture of Cause Lawyers as "hyper loyal" or "bipolar" (us/them) -- as does the article Andrew cites -- will feed into some defense lawyers' inclinations to dismiss the importance of engaging with Cause Lawyers early in the process, when real progress can be made and catastrophe can be avoided.

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Have you ever tried to pound a square peg into a round hole?  See Wenger v. Cardo Windows, Inc., 2012 WL 280254 (N.J. Super. -- App. Div. Jan. 31, 2012).

In Wenger, plaintiffs received a postcard advertising the sale of replacement windows for their home.  They called and set up an appointment.  A salesman visited and, at the conclusion of his presentation, plaintiffs signed a Purchase agreement for 20 windows at $10,700.  They also signed a financing document to finance the cost over 60 months.  They also received a Notice of Cancellation, which would allow them to cancel the order.

Plaintiffs reflected on the deal and signed and submitted the Notice of Cancellation.  The seller wouldn't take "no" for an answer.  It reduced the price and had plaintiffs sign some more forms.  Plaintiffs then spoke to their roofing contractor, who said they needed single-unit bay windows that would be secured from the sides, not the top and bottom.  The defendant wouldn't do that.  So once again plaintiffs canceled the order. 

The defendants sued plaintiffs in small claims court for $3,000.  Plaintiffs brought a class action in New Jersey state court.  Initially, the trial court dismissed claims under New Jersey's Consumer Fraud Act, Contractor's Registration Act, and Home Improvement Practices regulations, and the appellate division affirmed.  But the appellate division had instructed the trial court to reconsider its dismissal of the claims under New Jersey's Door-to-Door Home Repairs Sales Act, Home Repair Financing Act, and Truth-in-Consumer Contract Warranty and Notice Act, as well as the FTC's "Cooling Off Rule."  On remand, the trial court granted class certification on those causes of action.  The appellate division refused to take the appeal, but the New Jersey Supremes instructed the court to do so.  And so the appellate division came to consider whether class certification was proper.

The defendant had numerous arguments for why there was no commonality or predominance, and why plaintiffs failed the typicality and adequacy of representation tests.  Simply put, plaintiffs were unlike most class members because they never paid any money or received any windows.  There were numerous oral interactions, in addition to the paperwork.  And there was the dispute on the type of windows plaintiffs needed.

The appellate division didn't care.  It kept claiming that the case was about the forms that were signed and whether or not those complied with the statutes.  The forms were the same, it reasoned, and thus the class could be certified.  The court never discussed the commonality standard of Wal-Mart v. Dukes.

The defendant argued that the class action was not superior, since there was no Consumer Fraud Act claim and no class member could recover any actual damages; rather, the most they could recover would be $100 statutory damages.  As such, the binding effect of the class judgment could harm class members with actual damages.  The appellate division swatted this concern away with the observation that class members with actual damages could opt out and the maxim that class actions provide a useful mechanism for the recovery of low-dollar claims.

Interestingly, no one appeared to challenge the class definition itself, which was:  "All person who . . . received a transaction document from Defendants the same or similar to the transaction documents given to Plaintiffs."

It will be interesting to see what, if anything, the New Jersey Supreme Court does with this case.

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Still need proof that the U.S. Supreme Court's decision is going to have far-reaching effects in the world of mass torts and consumer class actions?  Look no further than Price v. Martin, No. 2011-C-0853, Slip op. (La. Dec. 6, 2011).

Price was a class action that had been certified by the trial court and affirmed on appeal.  It alleged that the various owners of a wood treatment facility ran it in such a way as to pollute the neighborhood's air, soil and water -- including plaintiffs' properties -- with various chemicals, including dioxin.  The class of over 3,000 people alleged that it had suffered property damage, diminished property values, and increased risk of disease.  It asserted theories of nuisance and negligence.  The class was defined as all people or entities who, from 1944 to the present, owned or were present on property in a defined area who claim property damage and diminished property value.

The Louisiana Supreme Court began its analysis by indicated that it had granted certiorari "to examine whether [the lower] courts engaged in the rigorous analysis required to determine whether this action meets the requirements imposed by law for class action certification."  Slip op. at 5.  The court concluded that they had not, and therefore reversed and remanded the case.

The court explained that Louisiana's class action rules were extensively revised in 1997 to essentially adopt Federal Rule of Civil Procedure 23.  Citing Dukes, the court explained that a class action is an "exception to the rule that litigation be conducted by and on behalf of individual named parties only."  Slip op. at 6 (citation omitted).  That is why there is a rigorous analysis standard on whether the requirements for class certification are met.  And that rigorous analysis, the court explained, often will overlap with the underlying merits of the claim.  Id. at 7 (citing Dukes).

The court bought in to the Dukes formulation of the commonality requirement completely:

The mere existence of common questions, however, will not satisfy the commonality requirement.  Commonality requires a party seeking certification to demonstrate the class members' claims depend on a common contention, and that common contention must be one capable of class-wide resolution--one where the 'determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.' Wal-Mart Stores, Inc., 131 S. Ct. at 2551. . . .

In the context of mass tort litigation, this court has further refined the commonality requirement, stating that, in such cases, 'in order to meet the common cause requirement, each member of the class must be able to prove individual causation based on the same set of operative facts and law that would be used by any other class member to prove causation.'

Id. at 10-11 (citations omitted).  The court, citing Dukes, reiterated that not only must there be a common question that is suitable for classwide resolution, but the proof of commonality must be significant.  Id. at 13.

This class failed the commonality requirement for a variety of reasons.  The facility's owners -- and its operations -- changed significantly over the 66-year period of emissions.  Depending on the date and the nature of the emission, different owners could be responsible.  Moreover, even the legal standards applying to the discharge of the chemicals changed over time, such that "[c]lass members who owned property damaged by emissions in the 1950s will not be able to rely on the same environmental standards invoked by those who own property damaged by emissions in the 1980s."  Id. at 14.  Thus, the "issue of breach will thus turn on different conduct, by different defendants, at different times, under different legal standards."

Citing Dukes, the court also noted that plaintiffs could not prove common causation, i.e., that the facility was the source of dioxin in area attics.  Id. at 15.  The court explained:

Given the multitude of alternate sources of PAHs and dioxins proven to exist in the area in question and the inability of plaintiffs to link those contaminants solely to emissions from the Dura-Wood facility, it is clear that plaintiffs have failed to offer significant proof that causation for each class member will be determined by a common nucleus of operative facts.

Id. at 18.  The court concluded that:

Plaintiffs do not in fact allege that damage has been caused by only one defendant; they allege damage emanated from one facility, but that facility was operated successively and independently by more than one owner over a period of 66 years, providing more than one source of emissions from multiple operations performed according to varying standards of conduct.  [A prior Louisiana case] instructs that, unlike the present case, only mass torts 'arising from a common cause or disaster' are appropriate for class certification. 

Id. at 21.

The court also held that plaintiffs failed to meet the predominance requirement for largely the same reason as why they had failed the commonality requirement.  It also held that the district court erred in finding a class action superior to other methods of adjudication.  But the reasoning seems to implicated adequacy of representation concerns as much as anything.  The court reasoned that by defining the class to include such a long period covering property owners, there were conflicts of interest between present and prior property owners.   The court also found that the need for individual adjudication of so many issues meant the class was not superior because it could not vindicate the public policies underlying class actions.  Id. at 26.

Louisiana thus falls squarely in the camp of states aligned with the U.S. Supreme Court on the rigorous analysis required for class actions, as well as the reinvigorated commonality standard.  And it applies the rule in tort cases -- not just in the employment discrimination context that was at issue in Dukes.  Look for more state court decisions adopting the Dukes approach.

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What exactly is it about food products litigation that brings out plaintiffs' lawyers' claws?  Today we have two decisions rendered on the same day that address a fight between competing law firms to control putative class actions in food litigation.

The first is Glover v. Ferrero USA, Inc., 2011 WL 5007805 (D.N.J. Oct. 20, 2011).  It involves various class actions alleging that the maker of Nutella -- a delicious hazelnut spread -- fraudulently markets the product as healthy when, in fact, it is not.

What we'll call "Group 1" of plaintiffs' lawyers filed two putative nationwide Nutella class actions in California .  What we'll call "Group 2" of plaintiffs' lawyers filed a similar putative nationwide Nutella class action in New Jersey three weeks later, and subsequently filed in New Jersey yet another putative nationwide class action.

Group 1 and Group 2 proceeded to fight like cats in a gunny sack over who would control the litigation.  Group 2 filed a motion with the Joint Panel on Multidistrict Litigation to have the cases transferred into an MDL based in New Jersey.  The JPML denied the request. 

Group 1 then launched an assault on Group 2, filing a motion to have its plaintiffs intervene in the New Jersey actions for the purpose of filing a motion to dismiss them under the "first filed" rule, which is the basic principle that in cases of concurrent federal jurisdiction, the court that has first possession of a subject must decide it.

In analyzing Group 1's motion to intervene, the court applied the four factors applicable to intervention as of right under Rule 24(a)(2):

first, a timely application for leave to intervene; second, a sufficient interest in the litigation; third, a threat that the interest will be impaired or affected, as a practical matter, by the disposition of the action; and fourth, inadequate representation of the prospective intervenor's interest by existing parties to the litigation.

2011 WL 5007805 at *2.

Although the court found the intervention motion to be timely, it held that Group 1 did not have sufficient interest in the litigation that merited protecting.  The court explained that a mere economic interest in the litigation is insufficient to support a motion to intervene as of right, and thus the mere fact that the lawsuit may impede the proposed intervenor's right to recover in a separate suit ordinarily does not support intervention.  More important, the interest expressed by the proposed intervenors was not an interest in participating in the New Jersey case; rather, it was an interest in shutting it down under the first filed rule.  The court reasoned that the first-filed rule was inapplicable, in large part because the actions were not duplicative.  Group 1's California actions sought to represent a class that stretched back to the year 2000, and it sought to apply only California law and statutes to the class claims.  Group 2's New Jersey actions, by contrast, represented purchasers from 2008 to the present, and sought to apply New Jersey law and statutes to the nationwide class.  Thus, the class periods and the claims were different.  (The court noted in a footnote that it was unlikely indeed that California law would be applied to the nationwide class, as the defendant had no connection to that forum.  It was, however, a resident of New Jersey.)

The court also observed that by denying intervention, it wasn't affecting Group 1's ability to litigate the California action.  No class had been certified in either forum, and there was much litigating to be done -- including over choice of law -- before either set of plaintiffs could be deemed to represent anyone other than themselves.

The court proceeded to consider whether to allow discretionary intervention under Rule 24(b)(1)(B).  For the same reasons that it denied intervention as of right, it denied discretionary intervention.

The second opinion to consider the issue is Askin v. The Quaker Oats Company, 2011 WL 5008524 (N.D. Ill. Oct. 20, 2011).  This case involved various putative class actions alleging that Quaker's marketing of its granola and oatmeal products as "heart healthy" was fraudulent because their ingredients contain trans fats. 

This litigation was even more hard-fought than Nutella.  Here, what we'll call "Group A" of plaintiffs' lawyers filed three sets of putative nationwide class actions in California.  After the third filing, the plaintiffs moved to consolidate and appoint their counsel as interim class counsel.  One of the plaintiffs, however, substituted in a new firm, which we'll call "Group B."  Group B filed a copycat class action in Illinois, and then within a week filed a petition with the JPML seeking to consolidate and transfer the actions to Illinois.  The JPML denied the petition.

Immediately thereafter, Group A sought to consolidate all of the California cases before the same judge and have themselves appointed interim class counsel.  Group B opposed and sought appointment as interim class counsel.  Group A won its motion in California, and Group B then amended its complaint in Illinois to include "allegations that are partly copied from the California consolidated complaint."  The defendant, Quaker Oats, moved to dismiss the Illinois action under the first-to-file rule and for plaintiff's lack of standing.  Group A sought to intervene in the Illinois action to assert its own motion to dismiss under the first-to-file rule.

The district court -- like the New Jersey district court in the Nutella litigation -- applied the four factors to conclude that Group A did not meet the prerequisites for intervention as of right.  The Group A plaintiffs argued that they would be harmed in their California litigation by the stare decisis effect of any decision by the Illinois court.  The court, reviewing precedents, held that this was not enough to justify intervention as of right:

That is because 'the opinion of a single district judge rarely yields an effect broader than the force its reasoning carries,' and that reason is not enough to justify 'adding as parties all who might be concerned about the court's choice of words.'  Thus in a situation where a proposed party 'has nothing to contribute except legal argument,' concerns about stare decisis do not rise to the standard of Rule 24(a)(2).

2011 WL 5008524 at *4 (citations omitted); see also id. ("their interest in avoiding the possible stare decisis effect in California of decisions related to the first-to-file question here does not have sufficient teeth to meet the Rule 24(a) standard for intervention as of right").

The court also considered and rejected Group A's interest in retaining its role as interim class counsel:  "But the Guttmann plaintiffs have not cited any cases in which a law firm's interest in protecting its role as interim class counsel is characterized as the kind of 'direct, significant, legally protectable' interest required to justify intervention as of right."  Id. at *5.

Nevertheless, the court decided to exercise its discretion to allow Group A to intervene under Rule 24(b)(1)(B).  In support of this decision, the court noted that it already had pending the defendant's motion to dismiss in favor of the first-filed rule.  Because it was not fully briefed, allowing intervention and giving the Group B plaintiffs the opportunity to file a consolidated response would not delay the proceedings.  Moreover, the court reasoned that the absent class members should not have to rely on the defendant to make the first-filed argument for them.

Glover and Askin are instructive because they demonstrate just how much effort competing plaintiffs' firms put into trying to obtain (and retain) control of class action litigation, even in (or perhaps especially in?) dubious cases that involve significant defenses and choice-of-law issues. 

A question for my readers:  In your experience, are intervention motions becoming commonplace in competing class actions?

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Last year I posted about a fascinating opinion in which a district court held that the superiority requirement of Rule 23(b)(3) was not met where the defendant already had engaged in a voluntary recall program for a toy that had inadvertently presented serious health risks to children who ingested it.  The court had reasoned that the voluntary recall program was superior to class litigation that would do nothing except add transaction costs to the same relief.

This week Ted Frank alerted me to a Seventh Circuit decision affirming that denial of class certification, but for different reasons.  See In re Aqua Dots Prods. Liab. Litig., No. 10-3847 (7th Cir. Aug. 17, 2011).  First, it held that the district court was wrong about Rule 23(b)(3)'s superiority requirement; superiority only looks to whether the proposed class would be superior to other litigation options, not voluntary recall and refund campaigns.  Andrew Trask discusses this portion of the opinion more fully here.

But in inimitable Easterbrook style, the court observed that "[a]lthough the district court's rationale is mistaken, it does not follow that the court's decision is wrong."  Slip op. at 7.  Instead of hanging its hat on superiority, the district court should have relied on Rule 23(a)(4)'s adequacy of representation requirement because "[a] representative who proposes that high transaction costs (notice and attorneys' fees) be incurred at the class members' expense to obtain a refund that already is on offer is not adequately protecting the class members' interests."  Slip op. at 7.  Indeed, "[t]he principal effect of class certification . . . would be to induce the defendants to pay the class's lawyers enough to make them go away; effectual relief for consumers is unlikely."  Slip op. at 8.

The Seventh Circuit also had some important things to say about manageability.  To begin with, a nationwide class's claim for punitive damages would present thorny choice of law problems.  Moreover, the court held that providing notice to anonymous purchasers -- coupled with the problem of determining who used the toys without problems, making them ineligible for class membership -- would present "serious problems of management."  Id. at 8.  Similarly, trying to assign class members to various subclasses for purposes of state consumer protection statutes would be "very difficult." 

Once again, this case should serve as an encouragement to companies that want to voluntarily remedy a newly-discovered problem with their products.  Here, a well-publicized recall program that provided substitute products or refunds served to avert a class action altogether.

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A recent decision denying class certification in two putative class actions brought over a coal ash spill reminds us that numerosity is not a throw-away element of class certification and it cannot be satisfied merely by spouting a number of claimants who "may" be affected by the challenged conduct.  The decision was first reported by Law 360 (subscription required).

In Mays v. Tennessee Valley Authority, No. 3:09-CV-06 (Varlan/Guyton) (E.D. Tenn. May 10, 2011), the plaintiffs asserted a number of causes of action against the defendants because the defendant's dike failed and allowed coal ash to spill into rivers and allegedly harm properties downstream.  The cases were consolidated before a single judge.  One of the classes was defined as all people who owned property on the adjoining the TVA's property or downstream from the plant on the Emory or Clinch rivers on Dec. 22, 2008.  It asserted a private nuisance claim only.  The other class actions originally had asserted claims for personal injury, medical monitoring and property damage, although the class certification motion only sought certification of property damage claims.  The motion originally had been heard by a magistrate judge who issued a report and recommendation against class certification.  The District Court adopted the report and recommendation.

Interestingly, the court stressed that it was required to give "rigorous analysis" to class certification motions and look beyond the pleadings to the merits of the case, if necessary.  Slip op. at 29-30.  Of course, the rigorous analysis standard -- which rejects the misreading of Eisen that some courts have used to justify turning a blind eye to anything related to the merits of the case -- came into play in the Wal-Mart v. Dukes case and may receive further explanation by the Supreme Court in the next six weeks.

The Mays court began its class certification analysis with the numerosity requirement.  As I have lamented in this space before, too many people (courts, lawyers, litigants) treat numerosity as a throw-away requirement.  If there are potentially more than some magic number of claimants (often 40 or 100), some treat numerosity as "established" and can get very upset if a defendant won't concede it.

A word of advice:  don't.

As the Mays court explained, numerosity requires much more than simply counting how many people might have claims.  Rather, the proponent of class certification has the burden of establishing the actual impracticability of joinder.  Slip op. at 11 (citation omitted).  Thus, the court can consider a number of factors, including the ease of identifying and locating class members, their geographical dispersion, and ease of service if they were joined.  As the court explained:

. . . The joinder inquiry, like that required for the entire class certification inquiry, requires a fact-specific analysis that turns on the unique circumstances of each case and not on a single factor, such as the number of potential claimants. . . .

Plaintiffs argue . . . that there are a number of properties within the proposed class definitions where coal ash may be present and that these property owners may want to bring claims against TVA.  However, beyond providing the Court with estimates of the number of potential claimants, plaintiffs have not shown what make joinder impracticable given the large number of individual cases that have been filed and are proceeding to trial, the relatively small geographic area in which potential claimants reside or are located, the publicity surrounding the coal ash spill and this litigation, the close proximity of this Court to the location of the potential claimants, the number of attorneys willing to take these cases, the Court's familiarity with this litigation, the Court's ability to resolve broad legal questions and pre-trial discovery issues, and the procedures put in place for moving these cases forward and toward trial.

Slip op. at 12-13 (citations omitted).  The court also rejected the plaintiffs' argument that some claimants may not be able to afford bringing suit, reasoning that such speculation "is not specific evidence showing or indicating that there are indeed barriers to filing suit that would weigh towards a finding of class certification."  Id. at 13.

The Mays court concluded that although plaintiffs had identified a large number of people who might have been affected by the coal ash spill, they had not met their burden to prove "that joinder of these potential claimants is impracticable, or that potential claimants could not bring suit on their own."  Id. at 14.

The court also found that the plaintiffs were inadequate class representatives because they did not seek certification of (and thus risked losing, through res judicata and issue preclusion) personal injury and medical monitoring claims like the ones they had asserted on behalf of many of the named plaintiffs in their complaints.  The Mays court concluded that claim-splitting matters:

. . . [T]he Court finds that it cannot conclusively determine the res judicata effect of a decision yet to be handed down by this Court.  Such a decision is for the forum presented with the issue if and when it arises.  The Court believes that it can, however, assess the risks of such a determination and weigh it in the Court's consideration of class certification.  Accordingly, given the potential effect of res judicata, the application of which may preclude subsequent litigation under certain conditions, along with the application of the single injury rule, which Tennessee courts appear to follow, the Court finds that whether putative class members could bring these claims in a subsequent suit is, at best, undeterminable. 

Id. at 16-17 (citations omitted).  Because claims that had once been asserted by the putative class representatives have now been abandoned without any indication that the absent class members have willingly abandoned those claims, the court concluded that plaintiffs failed to adequately represent the class under Rule 23(a)(4).

The Mays court also determined that the commonality and typicality requirements were not satisfied because "the ultimate determination of each plaintiff's claim will turn primarily on individualized inquiries into how the coal ash affected each plaintiff's specific property interest.  Given the unique location of each plaintiff's individual property, and the unique situation of each plaintiff and his or her use and enjoyment of the property, individualized inquiries will apply to both the property damage and nuisance claims."  Id. at 22-23.

For similar reasons, the court concluded that the proposed class failed the predominance inquiry of Rule 23(b)(3):

[T]he Court agrees with Judge Guyton that these individualized inquiries, such as whether coal ash is or was present on a specific property, the proximate causation inquiry as to whether nondiscretionary conduct for which TVA can be sued caused coal ash to be present on a specific property, how each plaintiff's property interest and use and enjoyment of property has been impacted by the coal ash, and the extent of each plaintiff's damages, will predominate.

Id. at 26.

The Mays opinion is a strong, workmanlike analysis of each element of the class certification inquiry and what issues will have to be tried.  It is notable because -- even though it arose out of a common incident (a coal ash spill) -- the court recognized that the individual issues involved in establishing liability and damages would make the case unmanageable to be tried as a class action.

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A putative class action over "Cobra Sexual Energy" once again raises the issue of whether a plaintiff with claims for economic loss only can represent a class that includes people who may have claims for personal injuries.  In Peviani v. Natural Balance Inc., 2011 WL 1648952 (S.D. Cal. May 2, 2011), a woman who bought for her husband a male aphrodisiac from CVS brought a putative class action, claiming not only that the product didn't work (sorry, Mr. Peviani), but also that it puts those who take it at risk of developing hypertension, stroke, cardiac arrythmia, manic-like symptoms, suicidal tendencies, and missed diagnosis of prostate cancer.  Id. at *1.

What causes one to make a federal case out of frustrated expectations?  Apparently, the packaging.  This "dietary supplement" claimed to be a "powerful men's formula" that "provides 'sexual energy' by '[s]cientifically blending select, high-quality herbs, like "horny goat weed" and "other organic substances."  It also, apparently, made claims of providing numerous health benefits.

Plaintiff -- a resident of (where else?) California -- brought on behalf of a nationwide class claims for violation of California's Unfair Competition Law, False Advertising Law, and the Consumer Legal Remedies Act.  Interestingly, she apparently made no breach of warranty claims.

The class was defined broadly as "all persons . . . who purchased, on or after November 30, 2006, Defendant's Cobra Sexual Energy in the United States for household use rather than resale or distribution."  Id. at *1.

The court considered plaintif's motion to certify a class under Rules 23(b)(2) and 23(b)(3).  Citing the Ninth Circuit's decision in Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571 (9th Cir. 2010), U.S. District Judge Anthony Battaglia recognized that he must subject the motion to "rigorous analysis" and consider facts relating to the underlying merits if necessary to make findings under Rule 23.  2011 WL 1648952 at *2.

The court held that Mrs. Peviani failed the typicality requirement for this class of purchasers of a male aphrodisiac because she had not actually taken the product and thus had not experienced and was not at risk of experiencing the physical symptoms that formed part of her claim.  The court concluded that "[i]n this significant respect, Plaintiff's interests are not aligned with the claims of male consumers, specifically those males experiencing the serious health consequences alleged by Plaintiff."  Id. at *3. 

The court acknowledged that she had standing to bring her claim for economic loss based on her reliance on the allegedly deceptive statements in deciding to purchase the product, but held that such economic loss "alone is insufficient to certify a class under Rule 23(a)(3) inasmuch as class members that consumed Cobra would likely have causes of action unavailable to the Plaintiff.

For similar reasons, the court held that Mrs. Peviani was an inadequate representative of males who, like Mr. Peviani, consumed Cobra and may suffer differing injuries and have differing causes of action.  Id. at *4.

Peviani is a classic example of courts rejecting a class that risks res judicata on absent class members' personal injury claims while prosecuting only economic loss claims.  Admittedly, however, this class definition was not as artful as some, in that it did not attempt to carve out of the class those people who had suffered actual personal injury from the Cobra product.  Still, it seems clear that Mrs. Paviani's experience of the product was quite different from that of the rest of the class, and that Judge Battaglia likely would have had ruled the same way on typicality and adequacy of representation even if the class definition had expressly carved out personal injury claims.

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The Supreme Court issued an interesting decision today holding that the Federal Arbitration Act ("FAA") preempts any state law that would require consumer contracts including arbitration provisions to make class arbitration available.  The Court's analysis of the FAA's Savings Clause -- which broadly interpreted Congress's purposes and objectives in passing the FAA -- just goes to show that the Court continues to be all over the lot when it comes to preemption analysis.  Perhaps what is most interesting about the opinion is what it portends for Wal-Mart v. Dukes, which should be decided later this term.

In AT&T Mobility LLC v. Concepcion, No. 09-893 (U.S. Apr. 27, 2011), the plaintiff claimed AT&T should not have charged him sales tax on a phone it marketed as "free."  The mobile phone contract between the parties precluded class arbitration, providing instead that the plaintiff could proceed in arbitration only on an individual basis (or in small claims court).  It also required AT&T to make an initial settlement offer, pay the costs of all nonfrivolous claims submitted to arbitration, forego attorneys fees for itself, and pay a $7,500 minimum recovery and two times the plaintiff's attorneys fees if the plaintiff received an arbitration award that was more than AT&T's last settlement offer.

California's Supreme Court previously had held that including class action waivers in consumer arbitration contracts was unconscionable as a matter of California law. 

Section 2 of the FAA, however, provides that agreements to arbitrate are "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."  9 U.S.C. sec. 2 (emphasis added).  In a 5-justice majority opinion (Roberts, Scalia, Kennedy, Thomas, and Alito) written by Justice Scalia, the court held that California's common law rule was preempted by the FAA because California's rule "'stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'"  Slip op. at 18 (citation omitted).  Specifically, "[r]equiring the availability of classwide arbitration interferes with the fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA."  Slip op. at 9.

As Justice Scalia explained, "The point of affording parties discretion in designing arbitration processes is to allow for efficient, streamlined procedures tailored to the type of dispute."  Slip op. at 10.  But the California rule -- which would operate in consumer disputes where there is a "contract of adhesion" -- operated directly contrary to the goal of streamlining the resolution of disputes.  Indeed, by creating a mandatory right to class arbitration, that rule provided a disincentive to product suppliers to provide for arbitration at all.  Slip op. at 13. 

The majority had some interesting things to say about the difference between individual and class proceedings -- things that may portend a reversal in Wal-Mart v. Dukes.  Most notable is that the majority recognized that when a class is involved, more formal structural protections are necessary to preserve the due process rights of absent class members and defendants:

This is obvious as a structural matter:  Classwide arbitration includes absent parties, necessitating additional and different procedures and involving higher stakes.  Confidentiality becomes more difficult.  And . . . arbitrators are not generally knowledgeable in the often-dominant procedural aspects of certification, such as the protection of absent parties.  The conclusion follows that class arbitration, to the extent it is manufactured by [the California rule] rather than consensual, is inconsistent with the FAA.

First, the switch from bilateral to class arbitration sacrifices the principal advantage of arbitration -- its informality -- and makes the process slower, more costly, and more likely to generate procedural morass than final judgment. . . . [B]efore an arbitrator may decide the merits of a claim in classwide procedures, he must first decide, for example, whether the named parties are sufficiently representative and typical, and how discovery for the class should be conducted. . . .

Second, class arbitration requires formality.  If procedures are too informal, absent class members would not be bound by the arbitration.  For a class-action money judgment to bind absentees in litigation, class representatives must at all times adequately represent class members, and absent members must be afforded notice, an opportunity to be heard, and a right to opt out of the class. . . .

Third, class arbitration greatly increases the risk to defendants. . . .  Defendants are willing to accept the costs of . . . errors in arbitration, since their impact is limited to the size of individual disputes, and presumably outweighed by savings from avoiding the courts. . . . We find it hard to believe that defendants would bet the company with no effective means of review, and even harder to believe that Congress would have intended to allow state courts to force such a decision.

Slip op. at 13-17.

None of these statements are particularly groundbreaking.  And yet, as I've noted at Point of Law, these are issues -- adequacy of representation, opt-out rights where money damages are involved, predominance and the due process rights of defendants -- that are front and center in the Wal-Mart v. Dukes case that is expected to be decided later this year.  The opinion in Concepcion suggests that there are at least five Justices who may be willing to take some of these issues head-on in the Dukes opinion.

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When Judge Anthony Scirica writes an opinion on class action issues, it behooves class action lawyers to pay attention.  His recent opinion in In re Pet Food Prods. Liab. Litig., 2010 WL 5127661 (3d Cir. Dec. 16, 2010), is no exception.

In Pet Foods, the court reviewed the approval of a class action settlement of litigation over pet food that allegedly was contaminated with melamine and cyanuric acid, which can lead to acute renal failure in dogs and cats.  There had been over 100 putative class actions filed in the wake of the contamination and recall, alleging violations of state consumer protection statutes, breach of warranty, negligence, and products liability.

The proposed settlement created a $24 million cash fund.  The attorneys' fees and expenses accounted for 31% of the fund ($7.44 million).  Payments for claims related to veterinary screenings where the pet was deemed healthy were limited to an aggregate of $400,000.  And payments for claims regarding the return of the price of the pet food were limited to $250,000.  Undocumented claims -- which still must be verified by a sworn statement -- were limited to $900.  The remaining claims (such as for injured or deceased animals' veterinary visits) would be paid in full from the remainder of the fund.  If the fund had any excess, it would be paid to animal welfare charities.  And if it was exhausted, the claims would be reduced and paid on a pro rata basis.

Judge Scirica began his analysis by articulating the standards for appellate review of a class action settlement.  He observed that the fact of settlement is relevant to the certification question, and thus the court need not inquire whether the case could be tried as a class.  Id. at *5.  Citing Amchem, he observed that a key to the careful inquiry that is required is adequacy of representation.  

Some objectors to the class argued that the adequacy of representation requirement was not met because the "return of the purchase price" claims were severely limited and not treated the same as the veterinary costs claims for pets that were injured or killed by the contamination.  The objectors argued that there should have been subclasses with separate counsel to represent their interests.

Judge Scirica noted the propriety of subclasses to prevent conflicts of interest in representation of groups of class members whose interests diverge.  The review of a district court's decision not to certify a subclass is abuse of discretion review.

But Judge Scirica rejected the objectors' claims that they required separate treatment and representation.  All of the claims covered by the settlement were for economic damages.  (Don't tell that to the owners of deceased pets.)  And all of the damages claims were for present -- not future -- losses.  Indeed, the objectors did not identify actual adverse interests that required the establishment of subclasses,  Id. at 8.  Even those class members who had veterinary claims also had purchase price claims.  At the end of the day, the objectors' claims amounted to the fact that the purchase price claims were capped at $250,000, while other claims were not.  But mere "differences in settlement value do not, without more, demonstrate conflicting or antagonistic interests within the class."  Id. at *9.  Rather, differences in allocations reflect different values of the claims.  Id. at *10.

In fact, the court said that the "[o]bjectors have not convinced us that 'the refund claims are as strong a claim as is imaginable.' . . .  But we are skeptical of objectors' theory because defendants inititated the recall, class members are automatically legally entitled to 100% recover of the money paid for recalled pet food."  Id.

The court concluded that the arguments regarding the strength of the claims were -- just like the arguments regarding the disparity of allocation -- best addressed as a "Rule 23(e) adequacy of allocation question, rather than a Rule 23(a) adequacy of representation question."  Id. at *11.

Ultimately, however, the court listened to the objectors' complaints and, under a Rule 23(e) analysis, concluded that the case must be remanded to the district court to get more information regarding the $250,000 cap on purchase price claims.  The court reasoned that where funds for some claims are capped, while others are not, the settling parties should have provided detailed information on why they set the cap where it was set:

The settling parties also should have provided information to determine the range of reasonableness of the $250,000 allocation 'in light of the best possible recovery,' and 'in light of all the attendant risks of litigation.' . . .

Here, the settling parties failed to provide the District Court with estimations of recoverable damages for the Purchase Claims including sales information quantifying the amount of recalled pet food sold to consumers and the amount of refunds already paid to consumers.  If available, this information would have enabled the court to make the required comparisons and generate a range of reasonableness to determine the adequacy of the settlement amount.

Id. at *17 (citations omitted).  Accordingly, the court reversed and remanded the case to the trial court for further proceedings.

Judge Joseph Weis filed a separate concurrence in which he argued that the district court should have required more information to justify the 31% award for attorneys' fees and expenses.  Particularly where attorneys are riding on the coattails of a government investigation and recall, the fee should be scrutinized.  Id. at *23 ("Counsel should not charge the class for acquiring evidence of culpability by piggy-backing on the criminal and agency proceedings.  Although the liability here may well not have been foolproof, seeking recovery for loss caused by a recalled contaminated product is hardly an insurmountable task.").

Judge Weis also attacked the notion of cy pres distribution of funds in class action settlements.  Although it seems like there were plenty of claims to these funds so that a cy pres distribution would be unlikely, the court noted that unclaimed funds traditionally escheat to the state, and such a rule would be fitting where the government investigated and encouraged a product recall.  He also noted that where, as here, certain class members would not receive recovery because of a cap on certain types of claims, leftover settlement funds also could be used to compensate them, rather than pay a charity that has no connection to the litigation.

Pet Food is an important reminder to class action practitioners to properly document the record regarding the decisions to cap certain types of claims.

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Well, the nattering nutrition nannies are at it again!  The Center for Science in the Public Interest has sued McDonald's in a putative class action alleging consumer fraud.  See Parham v. McDonald's Corp., Case No. ______, (Cal. Super. -- San Francisco Dec. 15, 2010) (Class Complaint).

What evil can such a corporate behemoth have perpetrated?  Did it make any false statements in advertising?  No, that's not alleged.  Did it fail to disclose some questionable food additive?  No, that's not alleged.  So what is this awful thing that McDonald's has done?

It puts free toys in Happy Meals.

Yes, ladies and gentlemen, that's the evil that CSPI has chosen to expend its resources on.  Toys in Happy Meals.

A Happy Meal, for those of us who don't have kids, consists of a hamburger, cheeseburger, or 4 chicken McNuggets with a side (small fries or apple slices that can be dipped in a caramel sauce) and a drink (soft drink, low-fat milk, or apple juice).

Happy Meals don't make CSPI happy.  It claims they have too many calories, saturated fat, sugars, and sodium, and not enough complex carbohydrates (because McDonald's uses white flour, rather than whole wheat flour, in its buns).

So what's so wrong about putting toys in Happy Meals, you ask?  Well, it makes kids want them.  And that, according to CSPI, is inherently deceptive.

Here's the basic argument from CSPI's complaint:

1.  Children 8 and under don't understand that advertising is trying to persuade them.

2.  The FTC says advertising to adults that does not disclose that it is advertising designed to persuade is inherently deceptive.

3.  Thus, advertising to children 8 and under is inherently deceptive.

4.  Such advertising -- particularly with toys -- interferes with parents' relationships with their kids because it causes the kids to nag the parents to got to McDonald's.  When parents don't give in, it creates animosity.  When they do, kids consume "unhealthy" meals.

Plaintiffs clearly have pled this complaint to avoid federal court.  They assert a class of California parents and a class of California children (age 8 and under) who have seen Happy Meal marketing in the last 4 years.  In an attempt to avoid CAFA removal, they seek only injunctive relief and disclaim any relief constituting restitution, penalties or damages.  Compl. para. 20.  (Given the rules against claim-splitting, that raises certain adequacy of representation concerns, doesn't it?)  The complaint pleads that "the amount in controversy is far below $75,000 [and] [n]o matter how evaluated, the amount in controversy falls far short of $5,000,000."  Id.

The complaint pleads two basic causes of action:  violation of California's Unfair Competition Law and its Consumer Legal Remedies Act.  Interestingly, the UCL claim appears to only rely on the "unlawful" prong, pleading a violation of the CLRA as a predicate violation for the UCL claim.

Here are the plaintiff-specific allegations for the plaintiff in this case:

94.  Maya, age six, continually clamors to be taken to McDonald's "for the toys."

95.  Maya and other members of the Children Class have been deceived by McDonald's marketing practices.

96.  Maya does not understand that McDonald's marketing efforts are intended to make her want to eat Happy Meals.  Maya interprets this marketing as good advice for proper eating.

97.  Often, Maya wants Happy Meals because toys based on trusted characters from television and movies (such as Shrek) endorse the Happy Meals in McDonald's advertising.

* * *

100.  McDonald's has unfairly influenced Maya.  It's Happy Meals advertising aimed at Maya has influenced her desire to eat the poor-nutrition Happy Meals, thereby harming Maya's health without her knowledge or comprehension.

* * *

103.  . . . Maya's friends are McDonald's viral marketers.

104.  Maya learns of Happy Meal toys from other children in her playgroup, despite [her Mother's] efforts to restrict Maya's exposure to McDonald's advertising and access to Happy Meal toys.  This is McDonald's advertising directive -- to subvert parental authority and mobilize pester power in order to sell unhealthful meals to kids using the lure of a toy.

* * *

107.  Although [her Mother] frequently denies Maya's repeated requests for Happy Meals, these denials have angered and disappointed Maya, thus causing needless and unwarranted dissension in their parent-child relationship.

Compl. paras. 94-107.

Based on these allegations, plaintiffs want the court to "[e]njoin McDonald's from continuing to advertise Happy Meals to California children featuring toys."

CSPI's complaint fundamentally challenges whether any product manufacturer can lawfully advertise products to children.  Under it's theory, no advertising to children would be lawful because children purportedly don't understand the concept of advertising.  (Notably, there are many social science articles that discuss how young people actually do understand that advertisers are trying to persuade them.) 

But the simple fact is that advertising to children -- which has been studied and considered by the Federal Trade Commission -- is lawful.  It's also commercial speech protected by the First Amendment.  And while activist groups like CSPI might like to turn off all media, home school our kids, and force them to eat like Euell Gibbons, no state's consumer fraud law allows them to impose such a viewpoint on the rest of us.  Parents decide where and what their children ages 8 and under will eat, and there is no "deception" or falsehood in the advertising that plaintiffs complain about that prevents parents from making those decisions responsibly.

Let's hope the court that ultimately decides this lawsuit -- whether it is a federal court or state court -- will recognize that CSPI's suit requests a dangerous extension of consumer fraud statutes that has no basis in California law.

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Colleagues at my firm are involved in this litigation, so I'll stick to brief reportage, but the MDL transferee presiding over Light Cigarette Litigation, Judge John A. Woodcock, Jr., issued an opinion on Wednesday denying class certification for lack of predominance, superiority and/or constitutional standing.  See In re Light Cigarettes Marketing Sales Practices Litig., No. 1:09-md-02068-JAW, Slip op. (D. Me. Nov. 24, 2010).

In the cases, plaintiffs are suing Philip Morris USA and Altria Group, claiming that the marketing for light cigarettes was misleading in that it caused people to think they would consume less tar and nicotene by smoking light cigarettes than they would if they smoked regular cigarettes, when in fact they allegedly would not.  Plaintiffs alleged that smokers "compensated" for the cigarettes' lower tar and nicotene levels by, inter alia, smoking heavier and blocking ventilation holes, so that they ended up consuming the same amount of tar and nicotene as the smokers of regular cigarettes.

The plaintiffs' lawyers were very careful about the classes and claims that they first advanced for class certification.  They moved to certify a class of California residents, asserting claims under the Unfair Competition Law, the Consumer Legal Remedies Act, and the False Advertising Law.  They moved to certify a class of District of Columbia residents under the DC Consumer Protection and Procedures Act and common law unjust enrichment.  They moved to certify a class of Ilinois residents under the Illinois Consumer Fraud Act and common law unjust enrichment.  And they sought to certify a Maine class just under the theory of unjust enrichment.

The court first analyzed the requirements of Rule 23(a), and concluded that the proposed classes met each of these requirements:  numerosity, commonality, typicality and adequacy of representation.  Notably, the court rejected the defendants' argument that plaintiffs -- by splitting causes of action and abandoning personal injury claims and other causes of action for economic harm -- had failed the adequacy of representation requirement.  Slip op. at 25-26.  The court acknowledged the general rule against claim-splitting, but reasoned that personal injury damages are different enough from causes of action for economic harm that the former could not be said to be capable of being obtained in this putative class action.  (The court did not, however, address the fact that many of the causes of action the plaintiffs failed to assert, such as for common law fraud and breach of warranty, were capable of being pursued in the action and would be barred by the res judicata effect of any classwide judgment in the case.)

The court concluded, however, that the predominance requirement of Rule 23(b)(3) was not met because plaintiffs could not establish causation and injury with classwide proof:

Whether the class members were damaged because of the Defendants' misrepresentations is an individual inquiry that cannot be proven on a class-wide basis.  The record contains unrefuted evidence that many light cigarette smokers do not fully compensate when they smoke and that the extent of their compensation can only be predicted by assessing their smoking habits. . . .  If smokers did not fully compensate, they were not injured by the representations because they received lower levels of tar and nicotene.  There is also significant record evidence that many smokers did not believe the Defendant's claims that light cigarettes had lower tar and nicotene and smoked light cigarettes for reasons unrelated to the alleged health benefits. . . .  For these smokers, there is no causal conection between the misrepresentation and the purchases of light cigarettes. 

Slip op. at 28-29 (citations omitted).

In analyzing the argument, the court recognized that Illinois' ICFA, Illinois unjust enrichment, and California's CLRA, all require proof of causation.  Plaintiffs said they could put on classwide proof of causation, but the court disagreed.  The plaintiffs also argued that California's UCL and DC's CPPA, along with the unjust enrichment causes of action in Maine and DC, do not require proof of injury or causation. 

The court conceeded that the elements of unjust enrichment in Maine and DC do not articulate a precise injury and causation requirement.  Nevertheless, the court held that they were inherent in the cause of action:

However, the Plaintiffs do not explaine why it is unjust for the Defendants to retain the money from someone who did not believe their representations when purchasing, did not purchase because of their representations, or received the benefit promised. . . . [Plaintiffs] have not established why, absent injury and causation, the Defendants' 'retention of the benefit is unjust."

Id. at 33.

The court also acknowledged that the DC CPPA and California's UCL purport not to require injury and causation of absent class members.  But the court held that it would be without Article III  jurisdiction to adjudicate a class action for which the claimants had not experienced an injury caused by the challenged conduct:

Here, the proposed classes include class members without standing.  Each state's class effectively includes everyone who purchased light cigarettes in the respective limitations periods, and this group necessarily includes class members who knew light cigarettes were not healthier than other cigarettes, notwithstanding Defendants' alleged representations to the contrary.  Those class members were not injured by the Defendants' misconduct and thus do not have standing. 

Id. at 37.

Importantly, the court also held that the defendants' affirmative defenses -- the statute of limitations and the voluntary payment doctrine -- presented individual issues that could not be adjudicated on a classwide basis and thus prevented class certification.  Id. at 40-41.  Additionally, the court concluded that "[d]espite the strong policy in favor of certification, individual issues of injury, causation, and affirmative defenses defeat the superiority of class treatment."  Id. at 42.  Finally, it found the California plaintiff's claim for certification of injunctive relief under Rule 23(b)(2) failed because it was mooted by the federal Family Smoking Prevention and Tobacco Control Act, which included a prohibition on certain marketing that was "broader than the relief [plaintiff] seeks."  Id. at 43.

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Senior US District Judge W. Harold Albritton recently issued an opinion in a nuisance case that once again reminds us of the importance of having a class that is capable of objective, ascertainable definition at the outset of the litigation.   See Benefield v. International Paper Co., Civ. A. No. 2:09cv232-WHA, Slip op. (M.D. Ala. Oct. 20, 2010). 

In Benefield, the plaintiffs alleged that the defendant's paper mill had discharged hazardous substances over the course of many years, resulting in property damage to properties within a two-mile radius of the facility.  The class was defined as all people who, as of the date of the filing of the Complaint, owned real property located within two miles of the facility which was contaminated by what was released from the defendant's facility and who suffered as a result a diminution in property value of $100 or more.  Slip op. at 2.  There were a number of exclusions, including people who suffered personal injuries and people who were litigants or class members in other similar cases.

The court denied class certification, beginning its analysis with the problems with the class definition.  Establishing that each property was contaminated would require individualized proof, the court concluded, as would determining whether the property value was diminished by more than $100.  Slip op. at 7-8.  Although the court ultimately concluded -- unlike many other courts -- that the admissibility of expert testimony was not ripe for adjudication at the class certification stage, the court focused on the weaknesses in the plaintiffs' experts' blanket conclusions and ill-conceived methodologies in rejecting the class definition:

In short, while the Plaintiffs have argued, correctly, that this court should not engage in any merits determination in determining whether the class should be certified, the Plaintiffs have asked the court to find facts, based on disputed evidence, to determine who is in the class.  The court concludes, therefore, that it is not administratively feasible for the court to determine whether a particular individual meets the class definition. 

Slip op. at 8 (citation omitted).  The court also noted that the exclusions carved out of the class definition also presented their own problems:  "That [personal injury] exclusion will require a determination of which people within the geographic area who own residential property also have personal injuries caused by releases from the Facility, which itself poses causation issues, and therefore makes the class definition improper."  Id. at 9.

The court went on to consider the standing of one plaintiff, who could not establish by deed or will that he actually had an ownership interest in his property.  The court concluded that he lacked standing to assert claims on behalf of property owners.  (He had asserted some damage to personal property as well, but the court indicated that this presented typicality/adequacy of representation problems, although it might cure his personal standing problem.)

The other plaintiff presented multiple typicality and adequacy problems.  First, he jointly owned his property with his wife, and his wife was the plaintiff in a similar action that had been carved out of the class definition.  Moreover, after filing the class certification motion, plaintiff filed an amended complaint that asserted claims for public nuisance, private nuisance, and fraud.  Yet he did not seek class certification for those claims.  This led the court to conclude that his adequacy was "undermined by the pendency of those claims."  Slip op. at 15 ("because Johnson's claims are factually the same as only some of the putative class, he is pursuing some damages not sought by the entire class, and he apparently seeks to recover on theories not asserted on behalf of the entire class, his claims are not typical, and he is not an adequate class representative").

In analyzing the predominance requirement of Rule 23(b)(3), the court observed that the claims for public nuisance, private nuisance, abnormally dangerous activity, and fraud likely would require "highly individualized determinations."  Slip op. at 19.  Moreover, there were significant individualized damages issues that -- when combined with the individualized causation issues -- counseled against certification.  Id. at 21. 

The court also found the superiority requirement lacking, particularly in light of the other actions already pending.

Benefield is a good reminder that how one defines the class -- and who is excluded from the class -- matters, and can prove fatal to a putative class action.

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Class actions for personal injuries are almost never certified.  Invariably, they present too many individual issues -- particularly of specific causation -- for common issues to predominate over individual issues in a classwide trial.

It was little surprise, then, when U.S. Magistrate Judge Jeremiah McCarthy recommended denying certification of a personal injury class in a case arising out of the sale of ground beef tainted with E.coli bacteria.  See Patton v. Topps Meat Co., LLC, No. 07-CV-00654(S)(M), Report and Recommendation, Slip op., (W.D.N.Y. May 27, 2010) (available here at Law360, subscription required).

In Patton, Topps Meat Company -- which distributed meat to Wal-Mart, Pathmark, and Shoprite stores -- had issued two voluntary recalls of some 21.7 million pounds of ground beef products based on potential E.coli contamination.  The recalls bankrupted Topps.  The Centers for Disease Control and the Department of Agriculture investigated and found 40 cases of E.coli infection traceable to Topps' product in 8 states.

All of the named plaintiffs claimed to have experienced personal injuries as a result of consuming contaminated meat.  They sought to certify 2 classes:  a personal injury class, and a "consumer class" for those who suffered only economic harm.  They asserted a variety of legal theories, including strict liability, negligence, breach of implied warranty of fitness, negligence per se, and breach of consumer protection statutes.

Magistrate Judge McCarthy recommended denying certification of any class in a Report and Recommendation, which plaintiffs must object to by June 14.  He first analyzed the Rule 23(a) factors, and then proceeded to the 23(b) factors.

Interestingly, he agreed with plaintiffs that the numerosity requirement was met.  The CDC had identified only 40 cases of E.coli contamination, and of those, 9 people already had filed suit.  That hardly suggests to me that joinder of all class members was impracticable.  Nevertheless, the court credited the testimony of plaintiffs' expert that for every case diagnosed by the CDC, there are 20 cases that go undiagnosed.

Magistrate Judge McCarthy held that the typicality requirement, however, was not met.  Although the issue of general causation -- i.e., whether E.coli could cause the type of injuries suffered by class members -- was likely common to the class, he reasoned that the issue of specific causation -- i.e., whether E.coli caused each class member's individual symptoms -- was not capable of classwide proof.  Instead, it would require individualized proof, which was made all the more difficult because none of the named class representatives had tested positive for E.coli in their stool samples.  Moreover, some of the putative representatives' symptoms fell outside the "window of outbreak" and "incubation period" to be expected if s/he had E.coli contamination.  In short, because the proof about each putative class representative would be highly individualized and not tend to establish the claim of any other class member, the class members failed the typicality requirement.  Slip op. at 8-9.

The Magistrate Judge also concluded that the putative class representatives failed the adequacy of representation requirement because they would have to focus too much on establishing the elements of their individual claims.

Plaintiffs had sought to certify a limited fund class under Rule 23(b)(1)(B).  Magistrate Judge McCarthy ultimately rejected plaintiffs' speculation that the pool of available insurance coverage was only $11 million.  With other defendants and their available insurance, it was much more than that.  But as the Magistrate Judge correctly pointed out, Justice Scalia's opinion in Ortiz v. Fibreboard Corp., 527 U.S. 815, 843-44 (1999), seriously calls into question whether Rule 23(b)(1)(B) can ever be used to "aggregate unliquidated tort claims on a limited fund rationale."  Slip op. at 12.

As for the predominance requirement of Rule 23(b)(3), Magistrate Judge McCarthy correctly held that common questions of law do not predominate because the court could not impose the law of New York on foreign plaintiffs who bought, consumed, and were injured by products in their home states.  The law -- particularly the law of consumer fraud -- was simply too different to be applied in a single classwide trial.  Plaintiffs did not disagree, but simply argued that New York had an interest in imposing its law because Topps was a New York company.

Judge McCarthy also correctly concluded that common fact issues could not predominate the personal injury class where issues of specific causation for each class member were so important.

Plaintiffs argued that an issue class certification under Rule 23(c)(4) was justified, but Magistrate Judge McCarthy -- citing the Second Circuit's seminal decision in McLaughlin v. American Tobacco Co., 522 F.3d 215, 234 (2d Cir. 2008) -- recognized that merely obtaining a finding on specific causation would do little to advance the ball in this litigation, and would not reduce the range of issues in dispute or promote judicial economy.  Slip op. at 19.

Interestingly, in adjudicating the question of whether the consumer class for economic harm should be certified, the Magistrate Judge did not undertake as extensive an analysis of each Rule 23 factor.  He addressed some arguments on typicality, finding that the plaintiffs met the typicality requirement.  Rather, his rejection of the consumer class turned almost exclusively on his determination that a class action was an inferior method of adjudicating the class members' claims, thus failing the superiority requirement.  The defendants already had a refund program in place, where all a claimant had to do to recover what she paid for the beef was to submit her proof of purchase.  The Magistrate Judge cited authorities finding such refund programs to be superior to creating new class action litigation. 

Patton is one of those opinions that leads you to ask the fundamental question "Why do we need a class action in this instance?"  Those with any serious physical injuries -- which are undoubtedly few -- can bring an individual claim.  (Plaintiffs indicated that the average recovery for E.coli personal injury claims is $1.4 million.  Slip op. at 17.)  And anyone who simply spent money on the beef can get their money back directly from defendants' refund program.  What can be achieved by injecting a class action into the situation, other than creating a large claim for counsel fees?

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I've always wondered how people end up becoming plaintiffs in consumer class actions.  Thanks to the recent decision in Farokhzadeh v. Too Faced Cosmetics, B213306, Slip Op. (Cal. App. -- 2d Dist. Apr. 26, 2010), now I know.

A woman goes to the cosmetics store looking for lip gloss.  She see's an in-store display for "FUZE Slenderize Guilt Free Lip Gloss" that promises:  "Always on the lips . . . Never on the hips!"  She buys it for "about like $20."

The woman uses the lip gloss for a couple of weeks and begins talking about it with her friend, an unemployed lawyer.  He asks her if the product has helped her to lose weight.  She says "no."  He says "like, oh, you should contact [a lawyer]."  A few days later, she calls him and gets a referral to a plaintiffs' law firm.

Despite the fact that she had determined the lip gloss was not performing on its promise to help her lose weight, plaintiff continued to use the lip gloss and did not return it to the retailer "because, in her own word, of 'laziness.'"   Indeed, she still had the lip gloss in her purse at the time of her deposition, some 10 months after having purchased it.

The trial court had ruled on the plaintiff's motion for class certification some six months before the California Supremes' decision in In re Tobacco II Cases, 46 Cal. 4th 298 (2009).  The trial court questioned plaintiff's standing, given that she did not return the lip gloss and still used it, and that the lip gloss was cheaper than other products that were just pure lip gloss without "appetite supression qualities."

Applying Tobacco II, the Court of Appeal, in an unpublished decision, held that the plaintiff had standing and had "lost money" within the terms of the statute even though the Fuze lip gloss was cheaper than some standard lip gloss products that did not tout weight loss properties.

But the court upheld the trial court's holding that plaintiff was an inadequate class representative:

There is substantial evidence in the record supporting the trial court's conclusion that Garokhzadeh had no interest in vindicating her own consumer rights, let alone protecting the rights of any other consumer.  In fact, she did nothing until after she had been prompted by a friend with a legal background to "contact [a lawyer]."  By her own admission, she suffered from "laziness" when it came to vindicating her own rights.  We believe that the trial court reasonably concluded that she was not a person who would willingly assume the fiduciary responsibility to prosecute a UCL action on behalf of absent class members.

Slip op. at 8.

This decision highlights the importance of using discovery to thoroughly explore adequacy of representation issues, even in those jurisdictions that seem predisposed to find adequacy where class counsel themselves are adequate.  Where, as here, the plaintiff has been less than vigilant in pursuing her own claim, you may be able to argue that she cannot adequately pursue claims on behalf of others and effectively manage class counsel.

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Recently another federal court refused to certify a medical monitoring class because it presented too many individual issues.  In Gates v. Rohm and Haas Co., 2010 WL 774327 (E.D. Pa. Mar. 5, 2010), the residents of McCollum Lake Village in Illinois sued the defendant, alleging that its specialty chemicals manufacturing facility contaminated their Village with vinyl chloride, causing a significantly increased risk of developing brain cancer and a drop in property values.  They asserted the following claims:  medical monitoring, public and private nuisance, negligent and intentional trespass, strict liability, negligence, negligence per se, CERCLA, and conspiracy.  They sought class certification under Rules 23(b)(2) and 23(b)(3).  After a three-day hearing, the court denied certification, holding that individual issues predominated.

Although the court found that the numerosity, typicality, and commonality requirements of Rule 23(a) were met, it expressed concern about the adequacy of representation requirement because the class, as defined, ran the risk of precluding people who later developed physical injuries from bringing claims for such injuries under the general rule against claim-splitting.  The court ultimately assumed, without deciding, that the adequacy of representation requirement was met.

In analyzing the medical monitoring claim under Rule 23(b)(3), the court took issue with the failure of plaintiffs' experts to establish a minimum exposure level that applied to the entire class and represented a significant increase in the risk of developing disease.  Plaintiffs experts had earlier admitted that such figures were necessary to establish the need for medical monitoring, but all that they ultimately could deliver were average exposure levels.  They acknowledged that the putative class members' actual exposure levels varied significantly based on how long they spent outside, whether they also worked in the village, etc.  Relying on Rowe v. E.I. DuPont de Nemours & Co., 2008 U.S. Dist. LEXIS 103528 (D.N.J. Dec. 23, 2008), the court rejected the use of exposure levels from risk assessments and concluded that individualized issues predominated and precluded certification of the medical monitoring class.

The court also held that the medical monitoring requested -- annual MRIs in asymptomatic individuals -- were problematic from a class certification perspective; the risks for various individuals (children, people with kidney disease, claustrophobic patients) made it unlikely that "'informed physicians, unaffected by litigation considerations, would recommend routine monitoring' with MRIs in asymptomatic patients such as the proposed class members."  Gates, 2010 WL 774327 at *19 (citation omitted).

The court also rejected class certification under Rule 23(b)(2), holding that for the same reasons the class failed the predominance requirements, it also failed the "cohesiveness" requirement inherent in Rule 23(b)(2).

Finally, the court also rejected the property damage class proposed for certification under Rule 23(b)(3).  For that class, the court concluded that plaintiffs could not prove that each property was exposed to vinyl chloride, and certainly not in the same amounts.  Moreover, the fact of damages and the extent of damages were considerations weighing against a finding of predominance and superiority.

Gates is an example of a court that took its responsibilities seriously, holding three days of class certification hearings and receiving copious amounts of expert testimony on the key issues.  It did not lightly come to the conclusion that the prerequisites of Rule 23 were not met. 

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Last week the Ninth Circuit issued an opinion that highlights the fact that no matter how broadly you draft the release in a class action settlement, you can't necessarily count on a subsequent court enforcing it.

In Hesse v. Sprint Corp., No. 08-35235, Slip op. (9th Cir. Mar. 2010), plaintiffs brought a class action against Sprint, alleging that it improperly charged Washington State's business and operations tax as a line item to its customers when the law disallows such a pass-through and instead requires it to be part of the company's "operating overhead."  Plaintiffs assert causes of action under Washington's Consumer Protection Act, breach of contract, and unjust enrichment.

Sprint moved for summary judgment in the trial court, holding that the action was barred by the release and judgment in a nationwide class action settlement entered by a Kansas state court (the "Benney Settlement") in 2006.  The Benney Settlement involved a class of Sprint customers who were charged various federal regulatory fees between 2000 and 2006.  The class in the Benney Settlement released:

any and all claims  . . . that have been, could have been, or in the future might be asserted in the [Benney] Action[] or in any other court or proceeding which relate in any way to the allegations that . . . Sprint failed to properly disclose or otherwise improperly charged for surcharges, regulatory fees, or excise taxes, including but not limited to the [federal] Regulatory Fees; and all other causes of action . . . whether based on federal, state, or local statute . . . that have been, could have been, may be, or could be alleged or asserted by any Class member . . . against [Sprint] relating to . . . the subject matter of any of the claims alleged in the Benney Action.  

Slip op. at 3852.

The plaintiffs in Hesse admittedly were members of the Benney class.  The question, then, was whether the release in the Benney Settlement precluded plaintiffs' claims premised on Sprint's charging of a state-law tax (Washington's B&O tax) when the underlying claim in the Benney action had been the charging of federal regulatory taxes.

The Ninth Circuit held that "the release cannot preclude the Washington Plaintiffs' claims because the Benney Class Plaintiff did not adequately represent the Washington Plaintiffs and because the Washington Plaintiffs' claims are based on a set of facts different from those underlying the claims settled in the Benney Settlement."  Id. at 3854.

The Ninth Circuit cited Matsushita Elec. Indus. Co. v. Epstein, 516 U.S. 367 (1996) to conclude that although the subsequent class could not mount an all-out collateral attack on the prior state court judgment, it could seek limited review of whether the procedures in the prior litigation afforded them due process.  Slip op. at 3855.  The Ninth Circuit found that the Kansas court had not made an explicit finding that the class representative in the Benney Settlement adequately represented class members who also had claims based on state taxes.  Accordingly, the Ninth Circuit undertook its own analysis of the adequacy of representation in the Benney Settlement.

The Ninth Circuit held that because the named plaintiff in the Benney Settlement -- who, like me, hails from Missouri -- did not have claims based on Washington's B&O tax, he did not adequately represent the plaintiffs in the Hesse class.  This was not only because he did not "vigorously prosecute the claims relevant to this case," but also because he "had an insurmountable conflict of interest with those members of the class."  Id. at 3857-58.

The Ninth Circuit took care to indicate that it was not invalidating the Benney Settlement -- at least as to the release of all claims pertaining to the federal regulatory fees at issue in Benney.  Instead, it held "only that any release of the B&O Tax Surcharge claims at issue in this case by the judgment approving the Benney Settlement would violate due process."  Id. at n.5.

So are class action settlements only able to release the claims that the plaintiffs brought in the case?  The Ninth Circuit said no, a release may be broader than the claims stated, but only to a point:

A settlement agreement may preclude a party from bringing a related claim in the future "even though the claim was not presented and might not have been presentable in the class action," but only where the released claim is "based on the identical factual predicate as that underlying the claims in the settled class action."

Id. at 3860 (quoting Williams v. Boeing Co., 517 F.3d 1120 (9th Cir. 2008)).  The Ninth Circuit concluded that because "the Washington Plaintiffs' claims do not share an identical factual predicate with the claims resolved in the Benney Settlement," they were not derived from the same transaction or occurrence and thus could not be precuded by the Benney Settlement.

The Hesse opinion is an important read for all counsel who draft class action settlements.

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Yesterday the Texas Supreme Court issued a class action opinion that raises the fundamental question of what are the responsibilities of class representatives?  In some jurisdictions, courts refuse to entertain challenges to the adequacy of class representatives, reasoning that so long as class counsel are capable, the class will be adequately represented.  Texas lies at the other end of the spectrum, viewing the class representative as a real client who actually makes the decisions in the litigation, not the class counsel.  Whether the class representative is a mere figurehead witness or an actual litigant has a significant impact on the adequacy of representation analysis.

In Southwestern Bell Telephone Co. v. Marketing on Hold, Inc., No. 05-0748, slip op. (Tex. Feb. 19, 2010) (now reported at 2010 WL 572876), the plaintiff and putative class representative, Marketing on Hold, was a company that audits its customers' telephone bills and seeks adjustments on their behalf for improper charges in exchange for 50% of what it recovers.  The company convinced five of its customers to assign to the company their causes of action against Southwestern Bell, lowering its fee to 30% of recovery.

The theory of class recovery was that Southwestern Bell charged its customers a municipal fee that it had not been authorized to charge from 1991 to 1998.   

The defendant challenged the plaintiff's standing to sue, arguing that the assignments of claim were void as against public policy.  The Texas Supreme Court rejected this argument, observing that the assignability of a cause of action is generally freely permitted.  Slip op. at 5.  The court noted that plaintiff "already had a substantial financial interest in the claims against Southwestern Bell prior to assignments" (id.), and thus was not a "stranger/entrepreneur" whose actions "disrupt the class suit vehicle and distort the judicial process."  Id. at 6.  Accordingly, the court held the assignment was not against public policy and thus the plaintiff had standing to sue.

In analyzing the prerequistes to class certification under Texas's class action rule, Rule 42, the court found for the plaintiff on typicality and predominance.  But the court held that the company with assigned claims failed the adequacy of representation test:

We believe courts should scrutinize carefully the motivating interests and incentives of parties that agree at an apparent financial loss to obtain the right to serve as the class representative. . . .

. . . We agree that [plaintiff's] interests conflict with those of the absent class members.  [Plaintiff] is not an injured claimant seeking relief to make itself whole, but voluntarily assume the classwide injury in order to serve as the class representative.  Unlike the class, [plaintiff] has a materially lesser interest in making itself and the class whole because it was never personally aggrieved by Southwestern Bell's alleged overcharging, and its maximum recovery is less than half the value of any individual claim for damages.  For example, because [plaintiff] never paid the alleged overcharges at issue and can retain at best only thirty-percent of any recovery, [plaintiff's] incentive in settling quickly in order to minimize litigation expenses differs from class members who have overpaid and may be willing to hold out for a settlement that approximates their actual damages.  For the same reason, [plaintiff's] motivation may encourage pursuit of theories of relief that are more efficient for it, but yield less recovery for absentee class members.

Id. at 16-17 (citation and footnotes omitted).  The court went on to explain that although the plaintiff appeared to take a loss (30% rather than its contractual 50%) on the assigned claims of five customers, it still had a number of other contracts with other customers through which it stood to benefit by gaining control of the class action. 

This troubled the court because of its view of the responsibilities of a class representative:

Class representation vests a great deal of power in the class representative.  The class representative decides, among other matters, which claims to pursue and which to forgo, and the remedies and strategies to pursue in supervising class counsel. . . .

[Plaintiff's] lack of any claim of its own makes it unique among the members of the class.  Its only knowledge of the claims it holds must be obtained from its assignors. . . . Both [of plaintiff's officers] indicated that they would rely heavily on [plaintiff's] counsel to conduct the litigation.  While we recognize that class counsel's control over class litigation is often greater than it is in non-class litigation, the class action rule contemplates that the class representative is "not simply lending [its] name [] to a suit controlled entirely by the class attorney."  7A Charles Alan Wright, Federal Practice and Procedure sec. 1766 (3d ed. 2005).  In this case, [plaintiff's] interest in the litigation by assignment removes it and its counsel one step further from the class members, enhancing the risk of conflicts.

Id. at 17-18.  The court thus concluded that plaintiff failed to meet the adequacy of representation requirement.

Where the class representative is expected to control the litigation, Marketing on Hold demonstrates how entrepreneurial speculators who invest in litigation can present special opportunities for mischeif that counsel against allowing them to participate as class representatives.

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A recent decision from the Louisiana Court of Appeals demonstrates once again why personal injury claims simply cannot be tried as class actions.  In Pollard v. Alpha Technical Services Inc., 2010 WL 323576 (Jan. 28, 2010), plaintiffs alleged that for more than forty years, industrial property in Harvey, Louisiana had been used to clean oilfield pipes of scale or crust that had built up in the interior of the tubing.  This scale or crust was alleged to be barium sulfate -- later identified as radium sulfate -- and other radioactive materials.  Plaintiffs alleged that "toxic dust" from the industrial property was deposited in their residential neighborhood, causing "various diseases and illnesses, including prenatal complications, various types of cancer, neurological disorders, impairment of kidney function," and impairment of liver function.  Id. at *2.

The trial court conducted a class certification hearing and determined that the putative class failed to meet the class certification prerequisites.  Plaintiffs appealed, and the Court of Appeals determined that, for the most part, the trial court had not abused its discretion in its analysis.

I say "for the most part" because the Court of Appeals did hold that the trial court abused its discretion in finding that the numerosity requirement was not satisfied.  Plaintiffs estimated the potential class to be between 2,000 and 4,000 people.  The trial court determined that 3,748 people already had indicated their intention to opt out.  Id. at *5.  The plaintiffs argued that there can be no opt outs until a certified class exists and absent class members can evaluate whether to participate.  The Court of Appeals agreed, holding that "the trial court was manifestly erroneous in finding that the plaintiffs failed to satisfy the numerosity requirement."  Id. at *6

But the Court of Appeal affirmed the trial court's remaining conclusions.  It found no abuse of discretion in the trial court's conclusion that the commonality requirement had not been satisfied:

There is no controlling issue subject to proof on a class-wide basis.  The differences in amounts and lengths of exposure, the personal history, habits and supposed illnesses of each particular claimant and the differences in operations and locations and customers of the five pipe-cleaning defendants, taken together and taken separately, mean that Plaintiffs cannot identify any common issue that can be resolved with respect to putative class members.

Id. at *7.

Similarly, the trial court was correct in concluding that the typicality requirement was not met:

The class representatives' claims are widely divergent from those of the putative class members. . . .  Some class representatives claimed no medical condition whatsoever, implicitly conceding that none could have been caused. . . .  Others claim widely varying problems, ranging from loss of smell to skin rashes to nosebleeds to hammer-toe to miscarriages to cancer.

Id.

And the trial court was correct in holding that the named class representatives could not adequately represent the absent class members because of the differences in their injuries.  Id. at *8.

The trial court also was correct in holding that the proposed class definition failed to properly identify at the outset who was in the class.  The trial court noted the inconsistencies and errors made by Plaintiffs' expert in modeling air dispersion and trying to establish times, spatial boundaries, and exposure levels for defining the class.  The trial court found that the proposed class definition "could potentially include anyone who once drove through the area," and it could not be saved by defining the class as persons who suffered injury from exposure because that would require a merits-based determination to be made in mini-trials at the outset just to decide who was in and out of the class.  Id. at *9.  The Court of Appeals agreed, but observed that if the other problems with the class had not been so insurmountable, it might have been inclined to remand so that plaintiffs could more narrowly define the class.  However, given the other fatal problems with the class, the court simply affirmed the trial court's conclusion on the class definition as well.  Id. at *11.

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A recent decision of the Southern District of New York reminds us that even where the subject of the suit is a standardized contract, there can still be individual issues that preclude class certification.

In Spagnola v. Chubb Corp., 2010 WL 46017 (S.D.N.Y. Jan. 7, 2010), some insureds sued their insurer, Great Northern Insurance Company, along with two related insurers over policies that allegedly were supposed to increase coverage daily to reflect the current effect of inflation. Plaintiffs claimed that the insurers left them underinsured and sued under a variety of theories.  The district court previously had dismissed all of the causes of action, and the Second Circuit had affirmed dismissal of all but the breach of contract count -- to the extent that it was based on the increase in coverage and premiums in a way that did not reflect current property costs and values.  Id. at *2. The Second Circuit also had instructed that the voluntary payment doctrine -- which precludes a plaintiff from recovering for payments made with full knowledge of the facts -- was not ripe to support dismissal as pled here at the motion to dismiss stage.

On remand, Judge Harold Baer, Jr. considered two basic questions:  (1) could plaintiffs maintain suit against the "related" companies, and (2) should it grant the defendant's motion to deny class certification.  

Plaintiffs' policies were written by a subsidiary of the Chubb Corporation.  In addition to their insurer, Plaintiffs sued Chubb and its largest subsidiary, Federal Insurance Company, which allegedly manages the other Chubb subsidiaries.  Of course, plaintiffs were asserting a breach of contract theory only at this point, and they had a contract only with Great Northern; neither Chubb nor FIC were signatories to the policies.  Judge Baer thus considered whether plaintiffs had adequately alleged alter ego liability or an agency theory to keep the two non-signatory defendants in the case.  

Although plaintiffs pled a credit agreement that considered Chubb and its subsidiaries as a whole, as well as the overlap of senior management, officers and directors, and advertising that refers to the "Chubb Group," the court held that it was insufficient to pierce the corporate veil:

Although Plaintiffs have alleged facts to suggest some overlap between the operations between Chubb and its subsidiaries, this overlap is not unusual and Plaintiffs' allegations do not rise to the level that indicates the kind of complete domination and control that is required under the first prong of the alter-ego analysis.  Indeed, courts routinely refuse to pierce the corporate veil based on allegations limited to the existence of shared office space or overlapping management, allegations that one company is the wholly-owned subsidiary of another, or that companies are to be "considered as a whole."

Id. at *7 (citation omitted).

In considering the agency theory, the court held that plaintiffs had pled no facts establishing that Chubb or FIC had actual authority to act as Great Northern's agent.  However, the court held that plaintiffs had pled enough facts to keep Chubb in the case at the motion to dismiss stage on the issue of apparent authority: 

Specifically, Plaintiffs have alleged that the cover letter enclosing the policies bore the Chubb trademarked logo; that an integrated advertising and marketing campaign relating to the Policies referred only generally to "Chubb"; that insureds under the Policies were directed to make all inquiries to Chubb and to make payments "payable to Chubb."  The Court agrees with Plaintiffs that they have thus sufficiently alleged that insureds could have reasonably believed that they had contracted with Chubb and not Great Northern, notwithstanding the express terms of the policies.

Id. at *10.  The court, however, dismissed the complaint against FIC because no such evidence was pled against it.

In considering the defendant's motion to deny class certification, the court held that the plaintiffs had satisfied the elements of commonality and typicality, but they failed the elements of adequacy of representation, predominance and superiority.  For some of the policies, the insurer bore the risk of underinsurance, but for others, that risk was borne by the insured.  Plaintiffs, who held policies where the insurer bore the risk, could not be expected to adequately represent the interests of those with policies where they bear the risk of loss.  Moreover, one of the plaintiffs had purchased his policies outside the defined class period and was a close personal friend of class counsel.  Accordingly, the adequacy of representation element was not satisfied.

In analyzing predominance, the court concluded that the class members' claims were not capable of classwide proof, but would require an analysis of individual issues, including:

the unique characteristics of each class member's home, whether each policyholder's coverage was actually increased using CPI or some other guideline, the amount of the increase, whether the policy requested that the increase be waived or revalued, and actual replacement cost of each policyholder's home.  Compounded with these individual questions is the lingering concern relating to the potential unique defense of voluntary payment, among others.  Ultimately, the Court or the jury will be tasked with the determination, for each individual class member, whether they knew or should have known of the circumstances surrounding the increases in their respective coverages but continued to pay, or whether such payment was the result of a mistake of fact or law relating to their obligation to pay.

Id. at *19.  Accordingly, the predominance requirement of Rule 23(b)(3) was not met.  Similarly, the need for individual mini-trials to resolve class members' claims and the affirmative defense of the voluntary payment doctrine made the class action fail the superiority requirement as well.

The decision in Spagnola is a clear-eyed analysis of how claims relating to standardized contracts can nevertheless involve individual issues that make classwide adjudication impossible.

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It's hardly news when another court refuses to certify a personal injury class action.  These days, it's almost a given that such litigation presents too many individual issues of fact to meet the predominance standard of Rule 23(b)(3).

But the recent decision from Judge Terrence Boyle in the Panacryl Sutures Multidistrict Litigation is notable for its considerable discussion of the choice of law problems presented by such claims.  See In re Panacryl Sutures Prods. Liab. Cases, No. 5:08-MD-1959-BO, Slip op. (E.D.N.C. Nov. 13, 2009).  In this case, plaintiffs alleged that they suffered personal injuries as a result of having been implanted with absorbable surgical sutures that were designed to remain in the body for 24-36 months after surgery to provide wound support.  The sutures had been the subject of a Class II recall by the defendant.  Plaintiffs alleged that they were prone to cause a high rate of infection, and that the defendant failed to warn of that fact.  Interestingly, the opinion never once quotes the proposed class definition, but we know that it was a putative nationwide class with representatives from North Carolina, Wisconsin, and Arkansas.

The court began its analysis with the choice of law issue, and it took the plaintiffs to task for not having provided a comprehensive survey of the substantive laws potentially applicable to all class members' claims, holding that they failed to carry their burden of proving that common questions of law predominate.  Slip op. at 4.

Nevertheless, the court completed the analysis, noting the differences in the substantive laws of the various states, and examining the factors identified in Section 6 of the Restatement (Second) of Conflict of Laws to determine what law governs in a tort action.  The court rejected the plaintiffs' suggestion that the law of the manufacturer's residence should govern, instead holding that the interests of the class members' home states in protecting their residents from in-state injuries caused by foreign companies outweighed New Jersey's interest in regulating domestic corporations.  Slip. op. at 6-7.  It noted that plaintiffs would not likely have imagined that their claims could be governed by foreign New Jersey law, and that the defendant had to expect to be subject to the laws of all jurisdictions in which it sold products.  The court also held that the plaintiffs' home states were where the injuries occurred, where the conduct causing the injury (sale and marketing) occurred, and where the relationship between the defendant and the plaintiffs was centered.  Id. at 9.

The court also cited a recent New Jersey Supreme Court decision -- Rowe v. Hoffman LaRoche, Inc., 917 A.2d 767 (N.J. 2007) -- in which the court held that applying New Jersey law to a Michigan plaintiff's claims merely because the drug was made in New Jersey "completely undercuts Michigan's interests, while overvaluing our true interest in this litigation."  Accordingly, the court held that the law of each class member's home jurisdiction would apply to his or her claims.

The court found that the numerosity and commonality requirements of Rule 23(a) were satisfied, but the conflict of laws problem required a finding that the typicality and adequacy of representation requirements of Rule 23(a) were not satisfied.  Slip op. at 12-14.

In analyzing the predominance requirement of Rule 23(b)(3), the court noted that "[c]ourts have generally found that common questions of fact do not predominate in medical products liability cases."  Id.  But beyond the individual fact issues trumping the predominance of any common issues, the conflict of law issues also required the same result.  Indeed, once again the court took plaintiffs to task for failing to provide an "'extensive analysis' of the laws of the interested jurisdictions showing that variations among the applicable state laws do not pose 'insuperable obstacles" to class certification."  Id. at 15.

Judge Boyle also rejected a proposed trial plan that would have used "issue classes" to decide common issues even though Rule 23(b)(3)'s requirements were not satisfied.  In the proposed trial plan, "Phase One" would have addressed "common issues of liability and general causation," and "Phase Two" would have consisted of "individual trials to determine specific causation and damages."  Id. at 18.  In rejecting the plan, the court stated:

But Rule 23(c)(4) may not be used to manufacture predominance for the purposes of Rule 23(b)(3).  Plaintiffs' trial plan does not eliminate the necessity of applying the laws of several jurisdictions or the individualized inquiry into whether Panacryl Sutures caused each plaintiff's injuries.  And even under Plaintiffs' proposed trial plan, the difficulty of applying the laws of several states to issues of liability and general causation would remain.

Id. at 19.

Judge Boyle's opinion is an excellent recent example of a trial court confronting head-on the proof problems presented by a personal injury class action and refusing to vary the substantive law (including the elements of causes of action, as well as individual defenses) just to achieve the so-called "procedural efficiency" of a classwide trial.

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In January I reported on a decision in which the Sixth Circuit Court of Appeals affirmed the denial of class certification in a case involving a train derailment which resulted in the release of sulfuric acid in a small community.  Recently a federal district court reached a similar result in a case involving the post-Christmas 2004 release of anhydrous ammonia from a railroad tank car in Lake Charles, Louisiana.  See Williams. v Union Pac. R.R. Co., 2009 WL 612339 (W.D. La. Jan. 19, 2009) (Rept. & Recc.), aff'd in part, rev'd in part, 2009 WL 604126 (W.D. La. Mar. 9, 2009).

In Williams, plaintiff sought to recover on behalf of a class of some 3,500 people exposed to the ammonia as property owners, residents, or holiday guests for personal injury, mental distress, property damage, and business interruption. 

The Magistrate Judge held a class certification hearing and issued a report and recommendation.  Plaintiff had submitted 14 affidavits from individuals claiming ammonia exposure, meteorological data establishing plumes, the names of 937 people alleging exposure, and census data suggesting there were 965 households within a one-mile radius of the exposure site.  The defendants challenged numerosity, typicality, commonality and adequacy.  In particular, they faulted the named plaintiff's ability as a 73-year-old retiree who had not worked since 1955 to represent the class and establish economic damages.  According to the Magistrate Judge, the prerequisites of Rule 23(a) all were met. 

The District Court, however, disagreed, examining the issues de novo.  It held that "there was a lack of appropriate definitive evidence in the record to support" the elements of numerosity and adequacy of representation.  2009 WL 604126 at *2.

The Magistrate Judge also had concluded that the case did not meet the predominance requirement of Rule 23(b)(3) for a number of reasons.  First, the damages calculation was not formulaic, but instead would require individual determinations, and "'where individual damages cannot be determined by reference to a mathematical or formulaic calculation, the damages issue may predominate over any common issues shared by the class.'"  2009 WL 612339 at *7 (citations omitted).

Plaintiff proposed, as an alternative, a phased trial plan, with a class trial to establish liability and a separate trial to determine individual causation and damages.  The Magistrate Judge rejected this approach because it would degenerate into a series of individual trials:

"Rarely, however, will a mass trial lead to the prompt entry of judgment in favor of a large group of plaintiffs against one or more defendants because even if the first jury finds, for example, that the defendant's product could have caused the plaintiff's injury, individual trials will still be necessary to determine specific causation, whether any affirmative defenses are available to the defendant, and the extent of the plaintiff's damages."

Id. at 9 (citation omitted).

The Magistrate Judge held that individual issues predominated, and that the predominance of individual issues detracted from the superiority of the class action device as a means of resolving the claims before it.  The District Court agreed, holding that the "diversity in the types and degrees of damages allegedly suffered by the prospective plaintiffs . . . is both evident and sufficient to deny certification."  2009 WL 604126 at *2.

Notably, in between the class certification hearing and the District Court's decision, a minor defendant -- the Calcasieu Parish Polce Jury -- had reached a settlement with the named plaintiff in which neither she nor any class member would receive a dime of compensation.  Instead, the police jury would pay money that would be applied solely to the costs of the litigation.

The District Court refused to approve the settlement, noting that under AmChem Prods., Inc. v. Windsor, 521 U.S. 591 (1997), a settlement class must at the very least meet the elements of Rule 23(a).  Because the Court concluded that plaintiff had not satisfied the numerosity and adequacy standards, it refused to engage in a fairness hearing for the settlement.  2009 WL 604126 at *1-*2.

Williams is yet another instructive opinion that reminds us that just because damages may flow from the same incident, the class action tool may not be the superior way to adjudicate those damages where they are not subject to a simple mathematical formula.

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