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

On Tuesday, Law360 reported that a Florida state appellate court had reversed a $41 million punitive damages award in a case brought against a tobacco company by the widow of a lifelong smoker.  See R.J. Reynolds Tobacco Co. v. Townsend, Case No. 1D10-4585, Slip op. (Fla. App. -- 1st Dist. Feb. 14, 2012).  The case is an "Engle progeny" case, in that it is a follow-on individual action arising out of the failed class action in Engle v. Liggett Group, Inc., 945 So.2d 1246 (Fla. 2006).   The Townsend case is particularly interesting because the court was confronted with a very high non-economic damages award, as well as a high punitive damages award.

Plaintiff and her husband had married young in 1956 and were married for 39 years.  Her husband was a lifelong smoker, and died of cancer at the age of 59.  The jury awarded Mrs. Townsend $10.8 million for her emotional distress caused by the death of her husband.  (The jury also determined that the husband shared 49% of the fault, and thus the defendant was only liable for roughly half of the award.)

The jury also awarded punitive damages in the amount of $80 million.  Given the jury's fault allocations, the trial court entered a judgment that included a $40.8 million punitive damages award against the defendant.

The defendant's appeal was heard before a three-judge panel of Florida's intermediate appellate court.  A majority of the panel refused to remit the compensatory award or order a new trial, even though they as much as acknowledged that the award was likely the result of the jury's inflamed passions.  But the court did intervene with respect to the punitive damages award, sending the case back to the trial court to either remit the award or order a new trial on punitive damages.

THE COMPENSATORY AWARD

The majority freely acknowledged that the types of non-economic damages at issue in this case -- mental pain and suffering and loss of consortium -- are inherently difficult to measure.  But, the majority instructed, Florida's jurisprudence puts the job of measuring such damages in the hands of the jury.  Slip op. at 4.  The majority did acknowledge that by statute, courts are required to give close scrutiny to damage awards to see whether they exceed a reasonable range of damages.  The statute even includes criteria that include whether the award appears to be "indicative of prejudice, passion, or corruption on the part of the jury."

The majority concluded that "[a]lthough the $10.8 million compensatory damage award in this case is higher than the non-economic damage awards affirmed by this Court in the other Engle progeny cases that we have reviewed to date, we cannot say that the award obviously exceeds the 'reasonable range within which the jury may properly operate.'"  Slip op. at 6 (citation and footnote omitted).  It noted that there was a $5 million award in one post-Engle appeal, and a $7.8 million award in the other.  The majority acknowledged that $10.8 million "is certainly at the outer limit of reasonableness for a case such as this," but said it did not shock the judicial conscience.

In his dissent, Judge T. Kent Wetherell II said that $5 million non-economic damage awards previously had "raised my judicial eyebrow, but the $10.8 million award in this case shocks my judicial conscience."  Slip op. at 16-17.  "[J]uries do not have free reign to turn widows of lifelong smokers into decamillionaires simply because [the defendant] is 'a deep-pocket defendant and "a present-day popular villain" and non-economic damages are difficult to measure," he cautioned. 

Judge Wetherell observed that the cases the plaintiff had relied on to justify the compensatory award were cases that involved awards to parents for the death of a child, "which is a far more traumatic loss than the loss of a spouse to lung cancer after a lifetime of smoking."  Slip op. at 18-19.  He further noted that another case relied on by the majority -- which had let stand a $4.4 million non-economic damages award to a 7-year-old who had lost his mother in a horrific car crash -- had held that $4.4 million was "on the outer limit in size" of award that could be upheld.  This award in Townsend was more than double that, and in Judge Wetherell's "view the sheer size of the award is a clear indication that the jury was acting on passion and prejudice."

Looking to the record, Judge Wetherell said the only conceivable explanation for the amount of the award was plaintiff's counsel's request, in closing argument, that the jury look to the salary of one of the defendant's experts and one of its executives as "reasonable gauges or measuring sticks" to value the time Mrs. Townsend lost with her husband because of his death from cancer.  Judge Wetherell concluded:

[I]t appears that this false comparison was merely intended to shift the jury's focus in assessing damages onto the wealth of the defendant who caused the damages, and to that end, counsel's argument was nothing more than a thinly-veiled invitation for the jury to lavishly compensate Appellee for the death of her husband simply because [the defendant] could afford to do so.  This argument was improper because compensatory damages should be based on the loss suffered by the plaintiff, not the defendant's ability to pay; however, it clearly worked, as reflected by the eight-figure compensatory damage award assessed by the jury.

Slip op. at 20.  The only evidence of Mrs. Townsend's non-economic damages, according to Judge Wetherell, "consisted of little more than her testimony describing her long and happy marriage and testimony that her husband's death has been 'very hard' on Appellee.  Surely the law requires more than a sympathetic plaintiff testifying that she is saddened by the death of a loved one to justify such a large non-economic damage award."  Slip op. at 22.

THE PUNITIVE DAMAGES AWARD

In beginning its analysis of the punitive damages award, the court recited the purposes of punitive damages and cited the line of U.S. Supreme Court precedents establishing that due process imposes a limit on the amount of such awards.

The real issue in Townsend was the relationship between the amount of the compensatory award and the amount of the punitive damages award.  The majority noted that the precedents indicated that the ratio of punitive damages to compensatory damages ordinarily cannot exceed the single digits, and it recognized that the U.S. Supreme Court had indicated in one case that a ratio of 4 to 1 "might be close to the line of constitutional impropriety."  Slip op. at 12 (citation omitted).  The court calculated the ratio here as being 3.7 to 1.  Nevertheless, it held that the punitive damage award in this case was constitutionally excessive.  Why?

There are two reasons.  First, the court measured the $40.8 million punitive award against other reported punitive awards in tobacco litigation.  It noted that the award here was much more than the $25 million award that had been approved on appeal in another case that involved "essentially the same conduct."

Second -- and perhaps even more important -- the court observed that the compensatory award itself was huge and at the outer limits of acceptability.  The court looked to the U.S. Supreme Court's analysis in State Farm v. Campbell, where the high court instructed that "[w]hen compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee."  Slip op. at 13 (citation omitted).  The Townsend court then looked to the reasoning of the Eighth Circuit in Boerner v. Brown & Williamson Tobacco Co., 394 F.3d 594 (8th Cir. 2005).  In Boerner, the jury had awarded roughly $4 million in compensatories, and $15 million in punitive damages.  The Eighth Circuit, looking at the size of the compenatory award, said that a rough 1:1 ratiio was warranted, finding the punitive award excessive under state and federal due process guarantees.  It thus reduced the punitive award to $5 million.

The Townsend majority was unwilling to pick a ratio or a number for the punitive award in its case.  It said the evidence of reprehensibility did not make a one-to-one ratio the outer limit of a constitutional punitive damages award.  And it returned the case to the trial court, either for a new trial on punitive damages or a remittitur that the plaintiff could agree to.  Although he agreed with the majority that the punitive damages award was excessive, Judge Wetherell, in his opinion, disagreed with the majority's statement that "a 1 to 1 ratio is unwarranted," and also disagreed with the majority's conclusion that the punitive damages in Townsend should not be capped at the $5 million that had been awarded in another Engle progeny case, "particularly in light of the majority's observation (with which I agree) that there is 'nothing in the record to suggest that [the defendant's] conduct toward [Appellee] was any more wanton or reprehensible than it was toward [the plaintiff in the other case]."  Slip op. at 16 n.11.

The Townsend decision is instructive because it demonstrates the types of evidence and arguments that both sides use in arguing about the size of damage awards.  Evidence of awards from other cases, as well as record evidence of what was argued in the particular case, is extremely important in crafting an argument for or against the size of a particular damage award.

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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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Monday, it was technical problems at the LexBlog network that prevented me from posting.

Yesterday, it was presenting at and attending ACI's Asbestos Litigation Conference in Philadelphia.

But today -- finally -- I get to share with you the California Supreme Court's opinion in Boeken v. Philip Morris USA, Inc., S162029, Slip op. (Cal. May 13, 2010), which presents a fascinating little question of whether a common law claim for loss of consortium is sufficiently like a statutory wrongful death claim to be barred by res judicata. 

The facts in Boeken are simple enough.  After smoking for 42 years, plaintiff's husband was diagnosed with lung cancer.  He filed suit against the defendant in March 2000.  In October 2000, plaintiff filed her own separate common law action against the defendant for loss of consortium.  (Her husband was still alive at the time.)  She alleged that as a result of his lung cancer, her husband was "unable to perform the necessary duties as a spouse" and she was "permanently deprived" of her husband's consortium, including "the loss of love, affection, society, companionship, sexual relations, and support."  In February 2001, plaintiff voluntarily dismissed her suit with prejudice.  There is no explanation in the record as to why.  Her husband was still alive at the time.

After a jury trial, her husband was awarded $5,539,127 in compensatory damages and $3 billion in punitive damages.  Plaintiff's husband died in January 2002, while the appeal was pending.  The Court of Appeal reduced the punitive award to $50 million, but otherwise affirmed the judgment.  And in March 2006, plaintiff received over $80 million in satisfaction of that judgment.

But while the appeal was pending (and after her husband had died), plaintiff had filed another action on behalf of herself.  This second action was a statutory wrongful death action seeking compensation for the loss of the husband's companionship and affection.  Plaintiff alleged that she had suffered "loss of love, companionship, comfort, affection, society, solace, and moral support."

The trial court held that plaintiff's second lawsuit was barred by the prior dismissal with prejudice of her first action.  A divided panel of the Court of Appeal affirmed.  In Boeken, a divided California Supreme Court affirmed:  "The doctrine of res judicata prohibits a second suit between the same parties on the same cause of action. . . . We conclude that plaintiff's wrongful death action involves the same primary right and breach as her former loss of consortium claim, and that therefore the doctrine of res judicata bars plaintiff's wrongful death action."  Slip op. at 1-2.

The California Supremes explained that when California became a state in 1850, the spouse of a person who was injured by a tort had no cause of action for loss of support, regardless of whether that person was wrongfully killed or merely non-fatally injured.  In short, there was no loss of consortium at common law.  In 1862, however, the Legislature passed a statute allowing spouses and close relatives to sue for pecuniary harm arising from a tort victim's death.  That statutory right was later broadened to include "non-economic" harm, including loss of society and comfort.  Slip. op. at 7.

But it wasn't until 1974 that the California Supreme Court changed the common law to provide a cause of action for "loss of consortium" for spouses of tort victims who were not fatally injured.  As the court described it, wrongful death was a creature of statute, and loss of consortium was now a common law cause of action. 

Res judicata has two aspects.  It bars subsequent claims on the same cause of action, and, as "collateral estoppel," it operates as a conclusive adjudication of issue in the second action that were actually litigated and determined in the first action.  Res judicata has three prerequisites:  (1) the issue raised in the present action must be identical to the issue litigated in the prior proceeding, (2) the prior proceeding must have resulted in a final judgment on the merits, and (3) the party against whom the doctrine is asserted must have been a party in the prior proceeding (or in privity with one).

In determining whether prong one was met, the court invoked what it called the "primary rights" theory:

The cause of action is the right to obtain redress for a harm suffered, regardless of the specific remedy sought or the legal theory (common law or statutory) advanced.  "[T]he 'cause of action' is based upon the harm suffered, as opposed to the particular theory asserted by the litigant.  Even where there are multiple legal theories upon which recovery might be predicated, only one injury gives rise to only one claim for relief.  'Hence a judgment for the defendant is a bar to a subsequent action by the plaintiff based on the same injury to the same right, even though he presents a different legal ground for relief."  Thus, under the primary rights theory, the determinative factor is the harm suffered.

Slip op at 10 (citations omitted).

The court determined that the primary right asserted by plaintiff was the right not to be wrongfully deprived of spousal companionship and affection, and the defendant's alleged corresponding duty was the duty not to wrongfully deprive her of such companionship and affection by inducing her husband to smoke cigarettes.  Looking at the prior complaint -- which had alleged that she had been "permanently deprived" of her husband's companionship and affection -- and her present complaint, which effectively alleges the same thing, the court concluded that the present suit was barred by res judicata.

Plaintiff argued that she could not have obtained damages in her first action for post death loss of consortium, only loss of consortium up to the time of her husband's death.  As such, she argued, the primary right asserted in her current wrongful death claim was different from that asserted in her first lawsuit.  The court disagreed, holding that when a spouse sues for loss of consortium regarding a living spouse, they are able to pursue future damages that are reasonably certain to occur.  And the measure of these anticipated damages takes into account the life expectancy of the spouse as well as the injured tort victim.  So the damage award on a loss of consortium claim can reflect the anticipated loss of consortium through the life expectancy of the couple if the tort had not occurred.  Slip op. at 13-14.

A rule limiting a loss of consortium claim to the lifetime of the injured spouse, and requiring a separate wrongful death claim for post-death loss of consortium, "would often lead, in the case of a life-curtailing injury, to multiple proceedings and the possibility of a double recovery or an inadequate recovery.  Id. at 18.

Accordingly, the court held that plaintiff's prior dismissal with prejudice of her first action for loss of consortium barred her subsequent lawsuit for wrongful death.

Three justices dissented.  First, they argued that a wrongful death claim includes many types of damages that a loss of consortium claim does not (including funeral expenses).  Second, they argued that if loss of consortium were truly the same as wrongful death, then the triggering of the statute of limitations on a loss of consortium claim would trigger the statute of limitations on a wrongful death claim -- even where the injured spouse had not yet died.  "But in fact it is indisputable that the statute of limitations on a wrongful death claim does not begin to run until the death of the spouse or other relative at the earliest, regardless of the timing of any predeath injuries."  Dissent at 4.

Moreover, the dissenting justices disputed whether a voluntary dismissal with prejudice can qualify for res judicata treatment since the issues have not been "actually litigated" for collateral estoppel purposes.  Dissent at 8.  They argued that where there is a corresponding settlement agreement reflecting an intention to resolve certain issues with finality, res judicata can apply, but that without such an agreement, there can be no "actual litigation" and no finality.

The decision in Boeken highlights the importance of dismissals with prejudice.  By studying the dissent, defense lawyers can identify ways in which to strengthen settlements and other agreements whereby litigants agree to drop claims with prejudice.

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The court's recent decision in In re OnStar Contract Litigation, 2009 WL 415990 (E.D. Mich. Feb. 19, 2009) is a grab bag of rulings favoring both plaintiffs and defendants.

Plaintiffs in OnStar are buyers and lessees of four manufacturers' autos equipped with the OnStar in-vehicle telecommunications system that provided "automatic crash notification to emergency responders, stolen vehicle location, remote door unlock and remote diagnostics in the event of problems with airbags, anti-lock brakes or other systems."  Id. at *1.  Plaintiffs allege that by August 2002, the manufacturers knew that because the Federal Communications Commission ruled that cell phone companies need not support analog signals after February 2008, the analog OnStar equipment would stop working by 2008.  Plaintiffs allege the manufacturers' failure to tell buyers this fact violated various state laws.  They brought a putative class action against four auto manufacturers and OnStar, alleging breach of warranties and violations state consumer protection statutes.

The defendants moved to dismiss.  They won some, and lost some.

The court began by noting the importance of a proper choice of law analysis, particularly for class certification.  But plaintiffs alleged that they needed discovery to conduct a proper analysis.  Accordingly, the court tabled any issue that required a choice of law analysis.

Except one.  None of the plaintiffs were Michigan residents, and yet they had brought a claim for violation of Michigan's Consumer Protection Act, arguing that this was proper because Michigan is the defendants' primary place of business.  The court looked to the text of the MCPA, which limits class actions under the MCPA to people "residing or injured" in Michigan.  The court rejected plaintiffs' argument that because they paid money that ultimately flowed into Michigan, they were "injured in" Michigan.  Accordingly, it dismissed the MCPA claim.  Id. at *4-*5.

But the court tabled the determination regarding other states' consumer protection statute claims because it would involve individual state-by-state analysis into whether a plaintiff may have the benefit of a discovery rule or equitable tolling of the statute of limitations due to fraudulent concealment.  Id. at *5-*6.

A number of defendants made individual arguments about the statutory claims that the court rejected.  For example:

1.  The court rejected OnStar's argument that the consumer protection act claims failed for failure to plead with particularity under Rule 9(b).  The court observed that these claims were based on a variety of theories, including warranty theories, that were not fraud-based.

2.  The court also rejected OnStar's argument that the plaintiffs failed to adequately plead a "co-venture" that would make OnStar liable for other defendants' actions.

3.  The court rejected Honda's argument that the California, New York, and Washington consumer protection act claims failed because they were inconsistent with the terms of the express warranty.  The court relied on the safety-related allegations about not having On-Star to conclude that it was possible those states would recognize a CPA claim that goes beyond the term of the express warranty.

4.  The court also rejected Subaru's argument that the fraud claims should fail because the complaint establishes that plaintiffs received constructive notice from the FCC that the analog equipment would cease to work.

5.  In addition, the court rejected Subaru's argument that the consumer protection act claims should be dismissed for being predicated on express warranty claims that are unsustainable.

6.  Volkswagen argued that plaintiffs had not pled a "transaction" under California's Consumer Legal Remedies Act because plaintiffs bought the cars from dealers, not VW directly.  The court wholly rejected the argument.

7.  The court also rejected VW's proposed interpretation of Colorado's consumer protection statute, holding that the statute does not preclude class actions for damages.

VW did, however, win one important issue regarding the statutory counts.  Section 901(b) of the New York statute precludes class actions for exemplary damages unless such a class action is expressly authorized by another statute.  Plaintiffs argued that this provision was merely procedural and thus did not apply in federal court.  The OnStar court disagreed, holding that it was substantive law that applies in federal court.  Id. at *14.

The defendants also scored an important victory on the warranty counts.  Defendants challenged the warranty claims because the OnStar equipment was fully functional for the entire term of the durational warranty.  Citing an Illinois decision, the court recognized that allowing claims beyond the durational limits in the warranty would make the manufacturer the insurer for the product and extend the relationship beyond what it had contracted.  Id. at *16.  Thus, the court held that because the Limited Warranty expired before any plaintiff first asserted a warranty claim, the express and implied warranty claims of those plaintiffs whose claims were governed by the UCC must be dismissed.  The court also held that the complaint failed to plead that the warranty terms were unconscionable.  Id. at 19.

For the remaining implied warranty claims, the court refused to rule because they required a conflicts of law determination.  And because the implied warranty claims impacted the claim asserted under the Magnuson-Moss Warranty Act, the court deferred decision on that count, too.

The OnStar decision is a good example of the use of a motion to dismiss to whittle away certain claims, leaving the others ripe for summary judgment after discovery.  Given that the remaining claims are primarily those premised on various states' consumer protection statutes, it seems clear that the defendants have strong arguments opposing the certification of a class in the action because of the difficulty of applying various states' laws in a single trial.

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In In re Cessna 208 Series Aircraft Products Liability Litigation, MDL No. 1721, 2009 WL 274509 (D. Kan. Feb. 5, 2009), the plaintiffs -- the estates and relatives of 9 Washington residents who perished in a Cessna crash near Naches, Washington -- sued the aircraft manufacturer under a variety of theories for a plane crash allegedly caused by a faulty de-icing system.  Cessna moved to dismiss the fraud and punitive damages counts of the Complaint.

Cessna's motion presented the court with two primary questions:  (1) whose law applied? and (2) were the facts pled in the complaint sufficient to state a cause of action?

The choice of law question was particularly important, because Washington -- unlike Cessna's home state of Kansas -- does not allow punitive damages.  The court used section 145(2) of the Restatement (Second) of Torts to evaluate the most significant relationship, looking at "(a) where the place of the injury occurred, (b) the place where the conduct causing the injury occurred, (c) the domicile, residence, nationality, place of incorporation and place of business of the parties, and (d) the place where the relationship, if any, between the parties is centered."

The court noted that the Restatement creates a sort of presumption that the law of the state where the injury occurred will govern, but observed that because the location of air crashes is simply fortuitous, the presumption is easily overcome in air crash cases.

The court reached a curious conclusion.  Although the injury occurred in Washington and the plaintiffs were Washington residents, the court nevertheless chose to apply the law of Kansas because it was Cessna's principal place of business and the place where the misconduct allegedly took place.  And yet, the court noted that Kansas's interests were in both "controlling behavior and in protecting defendant from liability."  Id. at *4.  Of course, the interest in protecting Cessna from liability would have been best served by applying Washington law, which does not allow punitive damages.

Indeed, the court's decision to apply Kansas law without going to the step of evaluating the "interests and public policies of potentially concerned jurisdictions" and the purposes "sought to be achieved by their relevant local law rules" was particularly ironic.  Even in states that allow them, punitive damages are never viewed as a plaintiff's right or entitlement.  Here, the court's decision favored the assertion of a punitive damages claim by residents of a state that bars them as a matter of public policy, using the law of a state that has an interest in protecting the defendant from punitive liability.

Despite the court's nonplussing decision on choice of law, the end result favored the defendant because the court concluded that plaintiffs had failed to meet their pleading burdens for fraud and punitive damages.  The court began by citing Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007) for the proposition that plaintiffs must plead facts -- not labels, conclusions, and legal elements -- sufficient to plead a plausible claim.  2009 WL 274509 at *1.  The court recognized that plaintiffs bear a clear and convincing burden of proof on the issue of reliance -- and yet plaintiffs had not pled that they themselves had received and relied upon any misrepresentations from Cessna.  The court rejected the notion that a presumption of reliance could be borrowed from securities law based on a "fraud on the market" theory.  It concluded that "[b]ecause plaintiffs have not alleged that they knew of Cessna's representations to the FAA or to pilots, they cannot establish that they received the information or that they detrimentally relied on it."  Id. at *6.

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