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

My colleague, John Beisner, is involved in this case, so I'll merely report the decision here.

This morning the Kentucky Court of Appeals reversed a trial court's certification of a class of Vioxx users who asserted a diminished value theory of recovery under various consumer fraud causes of action.  See Merck & Co. v. Ratliff, No. 2011-CA-000234-MR, Slip op. (Ky. App. Feb. 10, 2012).

The court embraced the "rigorous analysis" standard and cited Dukes.

The court held that the fraudulent misrepresentation and negligent misrepresentation causes of action presented too many individual issues that predominated over any common issues, making class certification reversible error.

Plaintiffs also had asserted a fraud-on-the-market theory.  The court observed that such a theory has been employed by other courts in the securities context to create a presumption that class members relied on the defendant's alleged misrepresentations.  But the court refused to import such a concept into Kentucky law, particularly in a consumer products case:

In the present case we have a corporate defendant that has allegedly disseminated false, fraudulent, or misrepresentative information into the marketplace.  However, while we have sympathy for the users of Vioxx whose physicians may have relied upon such false or incomplete information, the "fraud-on-the-market" approach has never been recognized in this jurisdiction for a fraud or misrepresentation case.  Further, every other jurisdiction we found which has been confronted with the theory has rejected it outside the securities litigation context. . . .

For this reason, we decline to recognize a similar theory here.  Causation, reliance, and damages are required to be shown on an individual basis.  Thus, if the action were tried as a class, after the common questions of Merck's representations in its marketing campaign were decided, the case would essentially fragment into a series of amalgamated "mini-trials" on each of these individualized questions. . . .

Thus, we find that common questions do not predominate.  Further, because these individualized questions would substantially overtake the litigation, and would override any common questions of law or fact concerning Merck's conduct, we find that a class action is not the superior mechanism by which to try these cases. . . .

Slip op. at 15-16 (citations omitted).

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Conventional wisdom says that classes involving personal injuries or emotional distress damages cannot be certified because individual issues predominate those types of claims.  As Law360 reported on Tuesday, that conventional wisdom was confirmed by a recent decision in the litigation involving Similac powdered infant formula, which the manufacturer had recalled based on reports of beetle larvae contamination that allegedly caused some infants to suffer gastrointestinal problems.  See Brandner v. Abbott Labs., Inc., Civ. A. No. 10-3242, Slip op. (E.D. La. Jan. 23, 2012).

Plaintiff sought certification of a Louisiana-only Rule 23(b)(3) class of purchasers of Similac products bearing recall lot numbers that were purchased during the recall purchase period.  She asserted claims for personal injury and emotional distress damages under Louisiana's Product Liability Act, and she asserted economic loss under a theory of redhibition.

The court described its job as identifying the substantive issues that would control the outcome of the case, assessing which issues would predominate and whether they were common to the class, and then determining whether there is a way to try the case that would prevent "'the class from degenerating into a series of individual trials.'"  Slip op. at 6 (quoting Madison v. Chalmette Refining LLC, 637 F.3d 551, 555 (5th Cir. 2011)).

The court examined the elements of an LPLA claim, and quickly concluded that it needed to go no further than holding that the elements of predominance and superiority were not met:

The Court finds that the individual issues predominate over issues common to the class.  First, despite Brandner's argument to the contrary, the LPLA requires a plaintiff to demonstrate that the product was unreasonably dangerous when it left the manufacturer's control.  Courts routinely deny claims when the plaintiff cannot establish this element of an LPLA cause of action.  Whether each class member purchased contaminated Similac is subject to individualized, not collective, proof.

Second, each putative class member must establish that Abbott's actions were a proximate cause of his or her injury. . . .  The court need not determine predominance with respect to general causation, because proving specific causation would require a determination of "an individual's family and medical history; age; gender; diet; . . . the timing of ingestion of the product; . . . whether that individual suffered an injury, when the injury occurred, the type of injury suffered, and the number of occurrences of the injury; the likelihood of injury; and/or the foundation as to whether a justifiable fear of injury exists." . . .  This highly individualized inquiry leads the court to conclude that issues common to the class do not predominate.

Third, all plaintiffs who claim emotional distress . . . would have to establish not only the distress but also the attendant damages. . . .  The damages issue requires a determination of whether plaintiffs sought medical treatment, psychiatric treatment, the degree to which plaintiffs manifested generalized fear, and the severity of plaintiffs' emotional distress.  Because the determination of whether each member suffered emotional distress turns on a highly individualized assessment, questions of fact regarding individual members predominated over common issues of fact.

. . . Establishing emotional [distress] damages would entail the exact type of 'mini-trials' the Fifth Circuit has cautioned against.

Slip op. at 9-13 (citations omitted).

The court also denied certification of the redhibition claim, which required claimants to establish that the product had a physical imperfection or deformity at the time it was purchased in order for the claimants to recover the purchase price, as well as any interest.  Plaintiff argued that the fact of the recall made the redhibition claim subject to common proof.  The court held otherwise.  Because the defendant's testing had not found contamination in every batch, and because many of the lots that were included within the recall simply were not tested at all, there was no way to know on a class-member-by-class-member basis whether the product actually was contaminated.  If it was not, there was no claim under Louisiana redhibition law.  Moreover, the recall was voluntary and did not admit contamination of each of the recalled lot numbers; in fact, the recall notice had said the possibility of contamination was remote.  Accordingly, the court held that common issues did not predominate for this cause of action as well.

Because the court was able to decide the class certification motion on the issues of predominance and superiority, it did not engage in an analysis of Rule 23(a) factors or have to construe the Supreme Court's Wal-Mart v. Dukes decision.

Although the result in Brandner is hardly surprising, it is a good reminder why class actions for personal injuries and emotional distress simply are not suited for class action treatment.

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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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Last Thursday the Sixth Circuit issued an opinion that makes a strong case for challenging class certification at the outset of the case. 

In Pilgrim v. Universal Health Card, LLC, 2011 WL 5433770 (6th Cir. Nov. 10, 2011), the plaintiffs brought a putative nationwide class action against the defendants, asserting that the defendants' marketing of a membership program for access to a network of low-priced healthcare providers was deceptive and violated state consumer protection statutes.  The class purportedly encompassed over 30,000 people from all fifty states.  Plaintiffs alleged that the newspaper advertisements -- in the form of "advertorials" -- deceived people into believing they were news articles and labeled the program as "free" even though it required a nonrefundable registration fee and only gave members one month without charging a membership fee.  Moreover, plaintiffs asserted that some of the advertised healthcare providers in their area were not actually part of the program and did not offer membership discounts.

At the responsive pleading stage, one of the defendants moved to strike the class allegations, arguing that because the consumer protection laws of all fifty states must be applied, common issues did not predominate.  The district court granted the motion to strike, and then dismissed the case for lack of subject matter jurisdiction.  The Sixth Circuit affirmed.

The plaintiffs argued that they should have been allowed to take class discovery and file their own motion for class certification in their own time.  The Sixth Circuit rejected that argument, observing that Rule 23(c)(1)(A) encourages a decision "at an early practicable time" in the litigation and holding that either plaintiff or defendant may move for a determination of the class certification issue.  2011 WL 5433770 at *5.  The court cautioned that a district court must undertake a rigorous analysis of the class certification prerequisites, which may require delving into the merits of the case.  Thus, there will be times where class discovery is required in order to decide the class certification issue.  But sometimes the issue is just so plain from the pleadings themselves that they cry out for early resolution:

The problem for the plaintiffs is that we cannot see how discovery or for that matter more time would have helped them.  To this day, they did not explain what type of discovery or what type of factual development would alter the central defect in this class claim.  The key reality remains:  Their claims are governed by different States' laws, a largely legal determination, and no proffered or potential factual development offers any hope of altering that conclusion, one that generally will preclude class certification. 

Id. at *6.

The court then held that the district court properly concluded that each class member's claim would be subject to the law of the state of her residence.  Plaintiffs had argued that the law of the defendants' residence should govern.  The court -- applying Ohio law and the standard factors from Section 6 of the Restatement (Second) of Conflict of Laws -- strongly rejected this argument, noting that it would lead to the absurd result that a state could cram down its lenient laws on nonresidents injured outside of that state.  The court held that:

the State with the strongest interest in regulating such conduct is the State where the consumers -- the residents protected by its consumer-protection laws -- are harmed by it.  That is especially true when the plaintiffs complain about the conduct of companies located in separate States . . ., diluting the interest of any one State in regulating the source of the harm yet in no way minimizing the interest of each consumer's State in regulating the harm that occurred to its residents.

Id. at *3.  The court also noted that no potential common fact issues could salvage the case from the need to apply fifty states' laws.  Moreover, it concluded that the defendants' program did not operate the same way in every state, and that the plaintiffs thus would have to make different particularized showings for individual plaintiffs, including what different advertisements showed in various states.

The court instructed that the district had erred when it concluded that -- by striking the class allegations and noting that none of the individual claims would meet the threshold jurisdictional amount individually -- the case should be dismissed.  Jurisdiction is measured as of the time of the filing of the initial pleading.  Nevertheless, because the plaintiffs had not challenged the jurisdictional holding on appeal and had indicated that they would abide by it if the class ruling were affirmed, the Sixth Circuit affirmed the trial court's dismissal of the lawsuit without prejudice to refiling in state court.

The decision in Pilgrim is strong authority supporting the efficiency of a motion to strike class allegations where it is clear from the complaint that the proposed class would involve the application of fifty states' laws, which cannot be performed consistent with the predominance and superiority requirements of Rule 23(b)(3).

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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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You don’t often catch me reading bankruptcy court opinions. I find the Bankruptcy Code impenetrable, and I’m ecstatic that there are smart people at my firm who want to practice in this area so that I don’t have to.

But occasionally a bankruptcy court has something important to say about mass tort litigation.  And so, last week I uncharacteristically sat reading a bankruptcy court decision, In re Motors Liquidation Co., 2011 WL 284933 (Bankr. S.D.N.Y. Jan. 28, 2011).  I even wrote up a post that – to my utter annoyance [insert curse words here] – disappeared into the ether before I could upload it.  That turns out to have been a good thing, though, as there have been subsequent developments that I am now able to share with you in this post.

In Motors Liquidation, Judge Robert Gerber was faced with two basic questions.  First, could the claims against the Old General Motors brought under the Alien Tort Statute be certified as class claims in the proof of claim process?  Second, could ATS claims even be asserted against Old GM at all, given the Second Circuit’s holding in Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111, 149 (2d Cir. 2010) that corporate liability cannot form the basis of a suit under the ATS?

Judge Gerber’s opinion gives these two questions straightforward and frank consideration, ultimately answering both in the negative.  Despite the fact that it is a bankruptcy court opinion, Judge Gerber’s opinion is instructive for how questions regarding corporate ATS liability should be answered in the Second Circuit post-Kiobel.

Despite the fact that there is some question about the applicability of Rule 23 to some stages of the bankruptcy process, Judge Gerber’s opinion makes it plain that under classic Rule 23 jurisprudence, there simply is no way that the sweeping class pled in the Apartheid litigation could possibly meet the predominance and superiority requirements of Rule 23(b)(3). The proposed classes spanned over twenty years’ worth of alleged misconduct that purportedly gave rise to at least four causes of action under international law:  “crimes against humanity,” “extrajudicial killing,” “torture,” and “cruel, inhuman or degrading treatment.”  Moreover, the legal issues were complicated by the fact that the Old GM was alleged to have aided and abetted these crimes, not committed them itself directly.  This added layers of questions about action and intent for each incident.

Judge Gerber explained this eloquently:

For both the more general claim of “crime against humanity,” on the one hand, and the more specific ways by which people were injured, on the other, I just see too many individual issues.

The complication (and in my view it’s a major one) is the difficulty in establishing, for so many people’s unique injuries, causation and the requisite purpose on the part of Old GM personnel with respect to whatever was being done to cause or facilitate the particular injury alleged by the claimant (or class member) involved – which in my view is not just a matter of damages but a matter necessary to fix liability in the first place. . . .

. . .

. . . [Claimants’] rights to recover against the Old GM for such injuries would depend not just on their individual damages (which, if that were all, would likely not defeat class certification), but also on the numerous combinations of injury involved, action causing it, assistance of that action, and purpose on the aprt of Old GM personnel to facilitate the commission of the primary violations of international law and resulting injury on which the aiding and abetting claims would be based.

. . .

. . . As relevant here, apartheid was implemented in many different ways, injuring people in many different ways, and Old GM’s alleged wrongful acts and purpose, if any, would have a nexus to the affected people in too many different ways. . . .

. . . [C]laims of secondary liability for aiding and abetting . . . at least normally requires showings not just of the primary violation, but of additional matters applicable to the aider-and-abettor, such as substantial assistance, and a purpose or intent to advance the primary violation.

2011 WL 284933 at *5-*8 (citations omitted).

Judge Gerber also recognized that because any classwide trial would be unmanageable, the superiority requirement of Rule 23(b)(3) also could not be met:

But to proceed on a class action basis, I’d have to choose between holding one or more trials of extraordinary complexity, on the one hand, or taking inappropriate shortcuts as to individual issues of wrongful conduct, causation and requisite purpose and assistance, on the other. . . . I think any shortcuts that would have to be taken to make class action treatment superior as an administrative matter would have to come at the expense of due process concerns.

Id. at *9.

Judge Gerber’s opinion states the obvious, but it is still remarkable for doing so clearly in the face of the inevitable criticism that would come from any opinion finding against classwide recovery in the face of an evil such as Apartheid, no matter how far removed the defendant may have been from it.  The simple truth is that it is beyond cavil that a class action over aiding and abetting millions of individual acts in furtherance of Apartheid over a more than twenty-year period presents too many individual issues to be adjudicated in a single classwide trial consistent with a defendant’s due process rights.  Judge Gerber’s opinion gives the roadmap to this conclusion.

As for the second question, Judge Gerber recognized that the Second Circuit in Kiobel already instructed that there cannot be corporate liability under the Alien Tort Statute:

No corporation has ever been subject to any form of liability whether civil, criminal or otherwise) under the customary international law of human rights. Rather, sources of customary international law have, on several occasions, explicitly rejected the idea of corporate liability. Thus, corporate liability has not attained a discernable, much less universal, acceptance among nations of the world in their relations inter se, and it cannot, as a result, form the basis of a suit under the Alien Tort Statute.

Id. at *13.

The plaintiffs offered Judge Gerber a number of reasons to ignore Kiobel.  It was subject to a motion for rehearing.  The opinion had raised the issue sua sponte and not had the benefit of briefing by the parties.  Another panel of the Second Circuit had not reflexively followed Kiobel yet in an appeal.

But Judge Gerber rejected all of these arguments, sticking to the limited scope of his authority:

[T]hose are points for the Circuit to consider, not me; I’m bound as a lower court in the Second Circuit to abide by any Second Circuit holding. As “corporate liability . . . cannot . . . form the basis of a suit under the ATS,” and each of the claims submitted by the Aparthied Claimants is alleged against a corporation, I must disallow the remaining claims.

Id. at *14 (citation omitted).

Judge Gerber was right.  One week later, the Second Circuit issued two orders:  one from the panel that heard the case denying rehearing by the panel, and another order denying the petition for rehearing Kiobel in banc, reflecting a tied 5-5 vote.  The former order really merits reading, as it places the debate about corporate liability under the ATS in context.  This much is abundantly clear:   Kiobel is Second Circuit law and can no longer be avoided.

Interestingly, some of the news services have been reporting that the Eleventh Circuit recently decided an ATS case that creates a split with Kiobel.  See Baloco v. Drummond Co., No. 09-16216 (11^th Cir. Feb. 3, 2011).  But although Baloco results in the continuation of ATS claims against a corporate defendant, nowhere does it undertake an analysis of whether customary international law actually allows claims against juridical entities.  Rather, in Baloco, the court held that family members of union leaders killed in Columbia adequately pled causes of action under the ATS, the Torture Victims Protection Act, and Columbian wrongful death law. The court in Baloca also considered whether the plaintiffs were bound by the res judicata effect of a prior action, holding that the minor children – who, according to the pleadings, had not been represented by guardians in the prior proceeding – could not be bound by the res judicata effect of the prior proceeding.

Notably, Judge Gerard E. Lynch, in dissenting from the denial of in banc rehearing in Kiobel, argued that that Kiobel had caused a circuit split with the 11th Circuit due to its decision in Romero v. Drummond Co., 552 F.3d 1303, 1315 (11th Cir. 2008).  We no doubt will see this argument advanced forcefully in certiorari petitions in the U.S. Supreme Court.

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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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District Judge David H. Coar has issued an important opinion analyzing Rule 23(b)(3)'s superiority requirement in the context of recalled products with manufacturer-sponsored refund programs.

In In re Aqua Dots Prods. Liab. Litig., 2010 WL 3927611 (N.D. Ill. Oct. 4, 2010), Judge Coar was the MDL transferee faced with 14 putative class actions that were brought in the wake of Spin Master's recall of its Aqua Dots toys.  Aqua Dots, you may remember, are small, brightly-colored beads that fuse together when sprayed with water.  In 2007, Spin Master discovered that they had been manufactured with the wrong adhesive -- one that was converted by the human body into the illegal drug gamma-hydroxy butyrate (GHB, known as the "date rape drug") when ingested.  In conjunction with the CPSC, Spin Master voluntarily recalled approximately 4.2 million Aqua Dots products on November 7, 2007.  Of those, over 1,300,000 had been sold to consumers.

The recall was all over the news, and retailers like Wal-Mart, Target and Toys "R" Us collected the toys and issued refunds.  In total, roughly 600,000 products were returned -- usually for a refund, although some consumers accepted a free replacement toy.  The recall/refund offer for the affected Aqua Dots products remains available to this day, and there was no evidence that anyone was denied the right to return an affected product for a refund.

Despite the success of the recall/refund program, Spin Master was hit with so many putative class actions that an MDL was formed.  The cases generally fell into three groups.  One wanted a nationwide class for alleged violations of reporting requirements under the federal Consumer Product Safety Act.  There were nine single-state classes asserting state-law claims of unjust enrichment, breach of express and implied warranties, and violations of state consumer protection statutes.  And there was an unjust enrichment class seeking four subclasses composed of groupings of states with materially identical requirements.  Apparently each class also wanted punitive damages and/or treble damages and declaratory or injunctive relief. 

Judge Coar began his analysis with the superiority requirement because he found that it ended the inquiry.  The initial question was a legal one:

A threshold legal question is whether a defendant-administered refund program may be found to be superior to a class action within the meaning of Rule 23(b)(3), which permits the court to certify a class only if it finds, among other things, that "a class action is superior to other available methods for fairly and efficiently adjudicating the controversy."

Id. at *3.

As Judge Coar explained, the cases on the question are split between the "textual approach" -- which holds that the term "adjudicating" precludes consideration of non-judicial alternatives -- and the "policy approach" -- which focuses on the efficiency purpose of the inquiry thus asks whether nonjudicial remedies may obviate the need for court involvement.  Id.  The court undertook a thorough examination of the precedents supporting the policy approach (going back to 1967), and it sided with them, concluding that "when a defendant already is offering an effective remedy for putative class members through out-of-court channels, a class action threatens to consume substantial judicial resources to no good end."  Id.

Judge Coar grounded much of his opinion in Thorogood v. Sears, Roebuck & Co., 547 F.3d 742 (7th Cir. 2008), observing that by ensuring that the class action is premised on the realistic prospect of a remedy that the class members could not otherwise obtain, the court is also protecting the interests of absent class members, who may have different interests than those of class action lawyers who want to obtain a fee for providing the same or similar relief.  Aqua Dots, 2010 WL 3927611 at *5.  The court even noted that none of the named plaintiffs in the case before it had requested a refund from the defendant, and that class counsel had expressly advised one such plaintiff not to do so.  The court concluded:

At bottom, this is a suit to recover the purchase price of tainted Aqua Dots.  Since the defendants will provide a refund -- without needless judicial intervention, lawyer's fees, or delay -- to any purchaser who asks for one, there is no realistic sense in which putative class members would be better off coming to court.  From their perspective a class action is not the superior alternative.  The court therefore declines to certify any of the proposed classes.

Id. at *7.

Judge Coar also had some important things to say about unjust enrichment class actions, which he said were "fraught with procedural and choice of law problems that further preclude certification."  Id.  Even with the subclassing proposed by the plaintiffs, Judge Coar concluded that the classes were unmanageable because the legal rules simply were not identical:

Furthermore, the unjust enrichment subclasses pose insurmountable choice-of-law problems.  As other members of this court have pointed out, the law of unjust enrichment varies too much from state to state to be amenable to national or even multistate class treatment.

Id. at *8.  He gave a number of examples, and then concluded that it was "emphatically not the case here" that the subclasses were governed by the same legal rules, "and any attempt by the court to tinker with the composition of the subclasses to satisfy this requirement would be futile anyhow."  Id. at *10.

Judge Coar's decision should give encouragement to defendants who -- faced with the need to recall a product -- do the right thing and implement a robust recall and replacement program.  His opinion would suggest that the more that you can document how successful your recall was -- and promote the ease of obtaining the refund for all class members -- you may have a substantial defense to so-called "economic loss" class actions that ordinary defendants simply do not possess.

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This decision is just in from my colleagues, who -- with lawyers at Shook, Hardy & Bacon -- were successful in defeating certification of a statewide consumer fraud class action.  See Judy v. Pfizer, Inc., Case No. 042-01946-02 (Mo. Cir. Ct. [22d Cir., City of St. Louis] July 27, 2010).  The decision is instructive for a number of reasons.

First, it once again illustrates the importance of the class definition in class action litigation.  In Judy, the plaintiffs sought to represent "all persons and entities who/which . . . expended any sum of money in order to purchase Neurontin in the State of Missouri for any off-label use" during a ten-year class period.  (Slip op. at 2.)  Plaintiffs' theory of the case was that the defendant had violated Missouri's Merchandising Practices Act by deceptively marketing Neurontin for off-label uses for which the medicine had no proven scientific efficacy.

The court concluded that the class definition was overbroad because it included many people who suffered no injury at all:

The record before the Court shows that the efficacy of Neurontin varies from patient to patient and from use to use.  In addition, the evidence in the record shows that Neurontin is effective for the treatment of many conditions, including neuropathic pain.  As such, the Court cannot certify a potential class premised on Neurontin being ineffective for the treatment of off-label conditions because more than a small number of uninjured individuals would be included in the class definition.

Slip op. at 12.  As the court had explained earlier in the opinion, the class definition must make the identification of the class members administratively feasible at the outset of the litigation and cannot include large numbers of people who have suffered no injury.  Slip op. at 4 (citing, inter alia, State ex rel. Coca-Cola Co. v. Nixon, 249 S.W.3d 855, 861 (Mo. 2008)).  Here, as in Nixon, it was impossible to adjust the class definition to include only those people who derived no benefit from the product, as that would require individualized merits determinations that would make this a failsafe class.  See Slip op. at 4, 12.

The decision in Judy is also instructive because it distinguished Plubell v. Merck & Co., 289 S.W.3d 707 (Mo. App. 2009).  Plaintiffs argued that Plubell had held that the allegation that "Vioxx was worth less than the product as represented" adequately pled "objectively ascertainable loss" under the MMPA by using a "benefit-of-the-bargain" rule.  But the court in Judy held that Plubell was inapposite because:

. . . Plaintiffs are identifying a loss only as to some of the purchasers of the product.  Plaintiffs have not identified any product that is priced based on a purchaser's intended use, nor is the Court aware of such a product. . . [U]nder Plaintiffs' theory the represented value of Neurontin would differ from use to use.  In addition, there is no evidence in the record that the price of Neurontin is in any way predicated on the level of scientific efficacy for which it was proven to have for on-label uses, as such Plaintiffs have not shown that anyone within the proposed class was injured under their theory.   

Slip op. at 11.

Ultimately, the court held that the complaint not only failed to provide an adequate class definition, but that it also failed the predominance and superiority prongs of the class certification rule.  In addition, because the named plaintiffs were only individuals, the court also concluded that plaintiffs failed to establish that their claims would be typical of entities (such as insurers) that paid for Neurontin.  Moreover, the court questioned whether such entities could maintain a claim under the MMPA, which allows for claims by persons who buy merchandise for "personal, family, or household purposes."

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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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The Ninth Circuit's recent en banc decision affirming the largest Title VII class action in history has been the subject of a lot of commentary and debate recently.  See Dukes v. Wal-Mart Stores, Inc., 2010 WL 1644259 (9th Cir. Apr. 26, 2010).  Legal bookies give strong odds for the Supreme Court to grant certiorari in the case.  I won't undertake to summarize the full opinion; my colleagues already have done that.  One of the points of controversy, however, is just how much impact, if any, Dukes should have on consumer class actions and mass torts.  Here are some random thoughts on that subject that I have jotted down on train rides and in other public places:

1.  This is an employment discrimination opinion that ought to have little applicability to consumer class actions.  My labor law colleagues tell me that statistical proof is common in their cases; in fact, it apparently helps define certain disparate impacts.  That's awfully different from consumer fraud cases, where the elements of reliance and causation are defined individually and are subject to individual rebuttal evidence.  The majority in Dukes even recognized that special rules apply in employment discrimination cases:  "the typical situation presented in such a case implicates significant differences in the doctrine that require explanation to reach a resolution here and in future Title VII class action certification decisions."  Id. at *4.  See also id. at *16 ("the statistical disputes typical to Title VII cases often encompass the basic merits inquiry and need not be proved to raise common questions and demonstrate the appropriateness of class resolution.").

2.  To the extent generalizations can be made from Dukes beyond the employment discrimination context, it is clear that the Ninth Circuit now has squarely joined the camp of Circuits requiring courts to conduct a "rigorous analysis" of whether the class action prerequisites are satisfied, and trial courts cannot now hide behind Eisen to avoid looking beyond the pleadings to determine how the case actually will be tried.  Id. at *5 ("Courts have thus strayed from Falcon when they have myopically invoked Eisen to avoid considering facts properly relevant to the Rule 23 determination because the facts happen to be relevant to the later merits inquiry as well."), *9 ("The district court must analyze underlying facts and legal issues going to the certification questions regardless of any overlap with the merits."), *12 ("A district court must sometimes resolve factual issues related to the merits to properly satisfy itself that Rule 23's requirements are met . . .").

3.  The majority's seeming rejection of the use of Daubert to challenge expert testimony at the class certification stage is clearly grounded in its belief that employment discrimination actions are different, and that the fact that there are competing statistical proofs does not mean that the case cannot be certified, but rather goes to the merits.  See id. at *22-*24.  This does not mean that the Ninth Circuit has rejected the use of Daubert on expert testimony as to whether something like the need for medical monitoring is capable of common proof.

4.  It is still possible, under the test articulated by the Dukes court to determine whether monetary relief "predominates," to argue that where monetary relief is dressed up as "equitable" relief, the "key procedures that will be used," the "new and significant legal and factual issues," and the need for individualized hearings make the monetary relief superior in strength, influence and authority to the so-called "injunctive" relief.  See id. at *35-*36.  The majority's conclusion that the request for back pay did not predominate was driven by the statutory history of such relief and the fact that the drafters of Rule 23(b)(2) clearly envisioned statutory employment discrimination actions proceeding under that provision.  The majority's analysis of the issues raised by punitive damages highlight the types of arguments that are still available in consumer class actions.  Id. at *38-*39.

5.  Perhaps the most troubling part of the opinion is the dicta describing how statistical proof and fluid recovery was used in a 1996 decision in a case brought by torture victims.  Id. at *42-*43.  It is plain, however, that such methodologies -- which ignore the individual nature of the liability determination and the defenses thereto -- have been widely rejected since 1996 in cases like McLaughlin v. American Tobacco Co., 522 F.3d 218 (2d Cir. 2008).  Indeed, Judge Jack Weinstein, who has long been a proponent of the use of statistical proof to facilitate class actions, has described this as the "individualized proof rule" in denying the State of Mississippi the ability to premise its claim for relief on such statistical proof.  See Hood v. Eli Lilly & Co., 2009 WL 4260857 (E.D.N.Y. Dec. 1, 2009).

It should surprise no one that I am much more persuaded by Chief Judge Kozinski's dissent in Dukes, and that I hold out hope of working on an amicus brief for the case in the Supreme Court.  In the meantime, it seems clear to me that defendants in consumer class actions and mass tort cases can raise significant challenges to the use of Dukes in such litigation. 

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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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It's not often that you find a Supreme Court Justice commenting on mass tort class actions.  But on Tuesday, retired Justice David H. Souter sat by designation on the First Circuit and issued an opinion in Gintis v. Bouchard Transp. Co., 2010 WL 617395 (1st Cir. Feb. 23, 2010).  Of course, if you read this blog, you remember Gintis:  it was part of the competing class actions that arose out of an oil spill in Buzzards Bay that I posted about previously.  The District Court ultimately denied class certification of a public nuisance class because the individualized issues of "special injury" and damages predominated over the common issues.

On appeal, Justice Souter reversed the decision below because the trial court did not engage in a rigorous analysis of whether the class certification requirements were met.  As Justice Souter characterized the opinion below, it "listed the elements to be proven by evidence that ultimately must speak to individual claims, and cited one precedent example among cases going different ways."  Id. at *2.

Although Justice Souter did not dictate what the outcome should be on remand, it was clear that he believed a class should be certififed.  Noting the defendant's objection to the use of its records and its challenge to the plaintiffs' expert's appraisal methodology, he posited that the defendant's "arguments in this appeal appear to show that substantial and serious common issues would arise over and over in potential individual cases."  Id. at *3.  He opined that with likely recoveries being between $12,000 and $39,000, and the defense challenging injury, causation, and compensation, this may be one of those cases "that may well go to the very reason for Rule 23(b)(3), mentioned before (i.e., to make room for claims that plaintiffs could never afford to press one by one)."  Id.

You may remember that the District Court's decision had raised an interesting question:  what is the preclusive effect of the state court's refusal to certify a broad class of property owners all over Buzzard's Bay?  (Instead, it certified a much smaller class of property owners from one small town.)  Justice Souter relegated that question to a footnote:  "that judgment has no prelusive effect against these plaintiffs, who were neither parties to the state action nor in privity with those who were."  Id. at n.2.

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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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I knew it was too good to be true.  A few months ago I posted about a decision from the Arkansas Supreme Court that affirmed dismissal of a deceptive trade practices claim because it fell within a safe harbor of regulatory approval.  At the time, I asked if there had been a sea-change in Arkansas class action jurisprudence.  Today, I'm sad to report that the answer is "no."

If there's one thing I learned growing up in Southwest Missouri, it's that everything is just a little bit different in Arkansas.  (Even my friends from Rogers, Arkansas concede as much.)  Apparently that principle goes double for class actions.

At a time when the Supreme Court, most federal Circuit Courts of Appeal, and many state supreme courts have held that due process requires a rigorous analysis of how a case is actually going to be tried before a class can be certified, Arkansas continues to instruct its trial courts to retreat from any sort of reality that touches upon the substantive elements of a claim.  See Rosenow v. Alltel Corp., 2010 WL 199247 (Ark.  Jan 21, 2010).  

In Rosenow, a customer sued his mobile phone service provider for damages allegedly resulting from the early termination fee in its standardized customer contract.  Plaintiff asserted on behalf of those who paid the early termination fee a putative statewide class action for violation of Arkansas' Deceptive Trade Practices Act and for common law unjust enrichment.

The trial court rejected class certification, holding that although a number of elements of Rule 23 had been met, the commonality, predominance and superiority requirements were not met.  In doing so, the trial court had relied upon the defense expert's testimony that determining whether the early termination fee (i.e. liquidated damages provision) was a reasonable approximation of the defendant's damages would be an individualized inquiry that would make the class unmanageable.

The Arkansas Supremes reversed, articulating a theory of class actions that is just a little bit different than anywhere else.  According to the Arkansas Supremes, so long as there are common issues, the class should be certified for trial of those issues even if it must later be bifurcated into a second phase of individual trials over things like damages, and in deciding whether the class action prerequisites are met, courts should not inquire into defenses to plaintiffs' claims, as that is an impermissible inquiry into the merits of the case:

In this case, Appellant alleges that the common wrong giving rise to this litigation is that the Appellees engaged in an unfair and deceptive business practice of imposing the early termination fee.  Appellant further asserts a laundry list of common questions of law and fact that stem from this alleged common wrong.  There must be a determination on these common issues.  The mere fact that individual issues and defenses may be raised regarding the recovery of individual members cannot defeat class certification where there are common questions concerning the defendant's alleged wrongdoing which must be resolved for all class members.  Moreover, an attempt to raise defenses at this stage is an attempt to delve into the merits of the case. . . .

* * *

This court has further said that if a case involves preliminary issues common to all class members, predominance is satisfied even if the court must subsequently decertify a class due to individualized damages.  However, if the preliminary issues are sufficiently individualized, then predominance is not satisfied and class certification is improper.  Indeed, a case that presents numerous individual issues regarding the defendants' conduct, causation, injury and damages will best be resolved on a case-by-case basis.  Stated another way, predominance does not fail simply because there are individual issues that may arise; the central question to be resolved by the circuit court is whether there are overarching issues that can be addressed before resolving individual issues. . . .

* * *

Here, by focusing on the merits of the case, the court noted that it might be necessary to conduct thousand[s] of mini-trials that would overwhelm its docket and thus concluded that the superiority requirement was not satisfied.  However, as we have explained, the circuit court's reasoning was based on an impermissible evaluation of the merits of this case.  Accordingly, the circuit court abused its discretion in finding that the requirement of superiority could not be satisfied.

Id. (citations omitted).  Because the defense expert's testimony addressed issues of how to prove damages and the reasonableness of the liquidated damages as compared to actual damages, the Arkansas Supremes concluded that it was concerned with the underlying merits of the case and the trial court had abused its discretion in refusing to strike such testimony.

Of course, Rule 23 is a procedural device that is not intended to change the substantive elements of underlying claims or defenses viz a viz any individual class member.  See, e.g., Compaq Computer Corp. v. LaPray, 135 S.W.3d 657 (Tex. 2004).  By wholly ignoring how the defendant will prove its defenses with respect to each class member in a classwide trial, the Arkansas approach effectively alters substantive elements of the defenses -- which is not what the drafters of Rule 23 intended.  Thankfully, Arkansas remains an outlier jurisdiction, and the trend toward rigorous analysis of how the case will actually be tried -- both the causes of action and the defenses -- remains the norm in class action jurisprudence.

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That Fred Burnside gets TWO gold stars today!  First, he informed me that the Ninth Circuit refused to hear the appeal of the decision denying class certification in the Xbox litigation.  Now he shares with us a well-written opinion from the Washington Supreme Court holding that a trial court in wireless telephone litigation correctly refused to certify a nationwide class action.

The decision in Schnall v. AT&T Wireless Servs., Inc., No. 80572-5 (Wash. Jan. 21, 2010) (en banc) is particularly timely because its reasoning on the Washington Consumer Protection Act stands in stark contrast to the decision I highlighted on Tuesday, which had effectively read the causation requirement out of Florida's Deceptive and Unfair Trade Practices Act.  But I've gotten ahead of myself.

In Schnall, plaintiffs had brought a putative nationwide class action against AT&T Wireless, claiming that its collection of a "universal connectivity charge" violated the customers' contracts and violated Washington's Consumer Protection Act.  The trial court had refused to certify the class, but the intermediate appellate court had reversed, reasoning that the challenge to a standardized contract was capable of class adjudication.

The Washington Supreme Court reversed the class certification, making four important points.  First, the court held that the trial court had not abused its discretion in holding that the need to apply the law of 50 states made the putative nationwide class fail the predominance requirement.  The Washington Supremes observed that the trial court was correct in honoring the choice of law provision in the contracts, which required the application of the law of the place where the customer signed the contract.  Further, it cited at length the federal precedents recognizing that the need to apply the law of 50 states generally makes class certification untenable, because the variations in state laws may swamp common issues and defeat predominance.  Slip op. at 11.  For example, in the context of the Schnall complaint, the court observed that, for those states that recognize it, "[t]he availability of the voluntary payment doctrine alone could abrogate AT&T's liability for all customers who voluntarily paid the [fee] after receiving the informational flyer."  Id. at 12.

Second, the Washington Supremes noted in their analysis of the superiority factor that:

Washington has no interest in seeing contracts executed by AT&T representatives in other states with citizens of those states examined and adjudicated in Washington courts.  Certified as a nationwide class action, this case would present an unwarranted and unnecessary burden on the state judicial system, all at a large cost to taxpayers.  There is no sound reason in this case for this court to force Washington trial courts to entertain the contract claims of citizens from around the nation.  Their state courts are equally as prepared, if not better situated to apply the contract laws of their states.  The trial court did not abuse its discretion by denying nationwide certification of the plaintiffs' contract claims.

Id. at 15 (citation omitted).

Third, the Washington Supremes recognized that the state's Consumer Protection Act ("CPA") does not apply extraterritorially to provide a cause of action to nonresidents whose claims arose in other states.  Id. at 16.  This geographic restriction is inherent in the language of the statute, but as the court recognized, it also emanates from the CPA's "history as a tool used by the State attorney general to protect the citizens of Washington."  Id.  The AG, the court noted, has no power beyond the state's borders and is charged with protecting only Washington residents.  Thus, regardless of whether it is the official Attorney General or a "private attorney general" suing to enforce the statute, the jurisdictional limitation applies and a "private claimant cannot state a CPA claim by proving the defendant's practices affect the public interest or the citizens of another state."  Id. at 17 (emphasis in original).

Fourth -- and this is where the decision stands in stark contrast to the one I discussed on Tuesday -- the Washington Supremes reiterated that even for Washington plaintiffs, proof of causation is an essential element of a CPA claim.  Id. at 18.  Indeed, "proximate cause in a class action cannot be established by 'mere payment' of an allegedly injurious charge."  Id.  Rather, "in the context of private CPA actions where plaintiffs seek damages, more than a mere capacity to deceive must be shown to establish 'some causal link between defendant's unfair act and [consumer's] injury," and, "[i]n the context of private misrepresentation cases, a plaintiff can satisfy the 'but for' causation requirement by showing she relied on the misrepresentation."  Id. at 20 (citation omitted).  In the context of the Schnall case, that meant that where the plaintiff actually knew that the charge was being levied, the alleged "misrepresentation" had been eliminated as the "but for" cause of the injury.  Id. at 21.  Accordingly, even for Washington residents to whom the CPA applied, the issue of causation could be an individual issue that would defeat predominance.  But because the trial court had not analyzed that question sufficiently, the Washington Supremes remanded the case with instruction to consider the question in the context of a statewide class.

The court's conclusion forcefully shuts Washington's doors to putative nationwide class actions:

In sum, we agree with the trial court that this action should not be certified as a nationwide class action.  Washington need not apply its Consumer Protection Act, or its contract laws, to the citizens of other states in order to protect the interests of the citizens of Washington.  A nationwide class would be unmanageable and unduly burdensome on the trial court and the state judicial system and serve no real benefit to plaintiffs who are free to bring statewide class actions in their home states. 

Id. at 22.

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California state courts are reluctant to apply their Unfair Competition Law to a nationwide class.  Perhaps it's because they recognize that theirs is one of the most liberal (and standardless) consumer fraud statutes in the nation.  Whatever the cause, this reluctance made it all the more notable when Judge Christina A. Snyder held -- with little conflicts-of-law analysis whatsoever -- that the UCL could be applied to a nationwide class of advertisers suing Citysearch.  See Menagerie Productions v. Citysearch, 2009 WL 3770668 (C.D. Cal. Nov. 9, 2009).

Plaintiffs sought to represent a nationwide class of advertisers who had elected to have their advertising priced by the number of clicks on their ads.  CitySearch recognized that "spiders," "robots," and other tools often try to click on advertisers' ads, and these do not represent potential sales.  Thus, CitySearch represented that it employed "industry leading traffic quality systems . . . to detect unusual and fraudulent click behavior.  Attempts to artificially drive up an advertiser's clicks, whether manually or via robots or other deceptive tools, will be detected by our systems and automatically thrown out."

Plaintiffs claim CitySearch failed to identify fraudulent clicks, and that they paid too much for their advertising as a result.  They asserted breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the Unfair Competition Law.

The court found that the requirements of Rule 23(a) were met, ignoring the defendant's arguments that plaintiffs had not seen the alleged misrepresentations and that CitySearch had had individual dealings with complaining advertisers, which made the plaintiffs' claims atypical.

The court then analyzed whether the proposed class met the requirements of Rule 23(b)(3).  It held that the breach of contract count met the predominance requirement because the language of the contract -- which was the same for all class members -- was unambiguous, and it specified that California law would govern.  Even if the language were not unambiguous, the court reasoned, the extrinsic evidence that the court would rely upon would be representations on CitySearch's website that were uniform for all class members.  It similarly held that the breach of the covenant of good faith and fair dealing count also met the predominance requirement.

On the UCL claim, the court found that the predominance requirement was met for the "fraudulent" prong of the UCL because, it reasoned, there was no need to adjudicate individual circumstances; rather, applying In re Tobacco II, 46 Cal. 4th 298, 320 (2009), the court concluded that the case would be adjudicated under a "reasonable consumer standard" that focuses on whether members of the public were likely to be deceived."  Thus, there would be no individualized proof of deception, reliance, and injury caused thereby.

The court reached a different conclusion for the "unfairness" prong of the UCL.  There, the court held that the test for "unfairness" requires a balancing of effects and motives that make the plaintiffs' individual expectations relevant in determining the extent of the harm.  As such, the court concluded that the predominance requirement was not met for claims under the "unfairness" prong of the UCL.

Incredibly, the court's entire analysis of whether the UCL could be applied to a nationwide class based on the California residence of defendant CitySearch is contained in this sentence:

Furthermore, the Court agrees that California's UCL can be applied to the nationwide class, as CitySearch has not shown that any "differences between California law and the law of other jurisdictions are material," nor that "other states have an interest in applying their laws to this case."

2009 WL 3770668 at *15 (citation omitted).  To begin with, the burden on choice of law is the plaintiffs' as proponents of the class, not CitySearch's.  As yesterday's post showed, without an extensive choice of law analysis, plaintiffs cannot even begin to meet that burden.  But beyond that, come on:  there is no evidence of the differences between the California UCL and other states' UCLs being material?  Really?!!  How about the fact that every other state requires some sort of proof of actual deception that causes injury -- for each class member?  Or the fact that some states, like South Carolina, do not even allow class actions under their consumer fraud statutes?

The CitySearch opinion has a number of points that would appear to present appealable error, including the court's conclusions on superiority in which the proposed trial plan utterly ignores the defendants' individual defenses.  But this conclusion -- applying California's UCL to a nationwide class -- is the most wrong and least supported in the opinion, which should make it rife for an appeal to the Ninth Circuit.

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Last month I posted about an advisory opinion issued by Judge Jack Weinstein in which he indicated that he likely would dismiss a putative class action over allegedly fraudulent sales practices involving pre-paid phone cards because the issue was better handled by the federal regulatory authorities than the courts.  I pointed out at that time Judge Weinstein's unusual tactic of summoning the federal government, in the presence of an assistant US Attorney, to explain the federal government's activities in combatting fraud in the pre-paid phone card industry.

Well, it's now official.  Last week Judge Weinstein denied class certification and granted summary judgment in the case, holding that the superior method for dealing with the allegations of fraud in the litigation would be to have the Federal Trade Commission and Federal Communications Commission uniformly regulate the industry.  See Ramirez v. Dollar Phone Corp., 2009 WL 3747215 (E.D.N,Y. Nov. 10, 2009).  Judge Weinstein explained:

In general it is inappropriate to deny those wronged civilly a fallback court-supervised remedy when the administrative law segment of our justice system has neglected to provide an available superior form of protection.  There are, however, instances where the litigation remedy is relatively so inferior as to warrant denying it altogether in the hope that administrative justice will prevail.  This is such an instance.

The superior and sensible way to deal with this controversy, involving as it does a multibillion-dollar national and international communications industry that serves millions of people in every state, many of them poor and uneducated, is for the Federal Trade Commission ("FTC") or another federal agency with authority in this area to issue appropriate regulations.  Certification is denied.

. . . [N]either the FTC nor any other governmental agency has comprehensively addressed the serious problems raised by the instant litigation.  Plaintiff's allegations present issues better addressed and resolved on a uniform, national basis, rather than by piecemeal state-law-based litigation.  While utilization of cy pres or the fluid recovery doctrine might provide a viable remedy with some benefit to the class and society, this is the unusual situation where the present action's limited patchwork repairs are not worth the costs or benefits of allowing the case to go forward.

Id. at *1 - *2.

Judge Weinstein observed that providing relief to the class would require using cy pres and fluid recovery remedies, and complained that these types of remedies have been rejected by appellate courts.  It also would require injunctive relief, which "would engage the court in inappropriate detailed continuing supervision of the industry."  Id. at *19.

Ramirez is an important precedent, but it is all the more important because its author historically has been such an advocate of using courts to solve social problems.  Ramirez is an articulate recognition of the principle that regulation by litigation can create chaos and inconsistencies in the law that do not help consumers or industry.  Where that is the case, the answer is not serial class actions, but rather uniform government action, and sometimes the wisest course of action is for a court to stay its hand.

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It's not often that one encounters a judge with the chutzpah to order the federal government to appear in his courtroom in a private civil case and then attempt to shame a federal agency -- or even Congress -- into action.  But anyone with more than a passing background in class actions, torts and consumer fraud already has figured out that I am writing about Judge Jack B. Weinstein, who possesses an abundance of creativity and is unafraid to use it in addressing legal problems.

Recently Judge Weinstein issued an advisory opinion -- which he called a "Preliminary and Provisional Draft Memorandum and Order" -- in a putative consumer fraud class action against telephone service providers who supply services to holders of pre-paid telephone cards.  See Ramirez v. Dollar Phone Corp., 2009 WL 3171738 (E.D.N.Y. Oct. 1, 2009).  From his advisory opinion, it is clear that Judge Weinstein sees an injustice that he believes needs correcting.  He noted that his class action was one of 22 pending since 2003 involving prepaid calling cards, which had been before 15 different judges in 6 different district courts.  Slip op. at *10. 

In such cases, it is typically alleged that the following information is not adequately disclosed to consumers:  (1) the price a consumer pays per billing increment, (2) the "per call" fee typically imposed, (3) the higher rate often charged for calls to mobile phones, and (4) that providers often charge a weekly fee and the circumstances in which that fee applies.  Id. at *6.  The consumers "are typically low-income consumers who cannot obtain traditional phone service, many of them recent non-English-speaking immigrants who use the cards to call home."  Id. at *2.  According to Judge Weinstein, the Federal Trade Commission has not issued any comprehensive national regulations governing phone cards, and although there is a bill pending in Congress on the subject, Congress to date has not passed a statute addressing the problems.  Moreover, a handful of states have enacted statutes imposing a patchwork of different obligations on those who sell pre-paid phone cards, making compliance difficult for those who market the cards.

In Ramirez, the plaintiff claimed to have lost $2 in fees and charges on his phone card, and he sought to represent a Rule 23(b)(2) and (b)(3) class of phone card consumers from 11 states with allegedly similar consumer fraud acts.  The defendant moved to dismiss, citing a failure to meet Rule 9(b)'s pleading standard, a lack of standing under most states' consumer fraud acts, and failure of subject matter jurisdiction for certain states' consumer fraud acts.  As only Judge Weinstein can do, he told the parties to treat the motion as one for summary judgment and "requested" the federal government to appear to answer questions.

An AUSA from the Eastern District of New York appeared at an August 31 hearing in this private civil class action:

He stated that the FTC has been active in bringing deceptive practices cases against prepaid calling card distributors. . . .  No information was available at the time of the hearing regarding applicable federal regulations or federal agency policies concerning the prepaid calling card industry. . . .  The government was requested to submit a report within 45 days of the hearing regarding any applicable federal regulations, federal enforcement activity, and the policies of the FTC, the Federal Communications Commission, and any other concerned federal agency.  Id. at 35-37 (requesting "a comprehensive discussion of what they have done and what they plan to do about this and what they -- by 'they,' I mean the Federal Government, Department of Justice and the administrative agencies -- suggest that this Court do about it.").

Slip op. at *8 (citations omitted).  The court set a hearing for October 16 "at which time the government, the parties, and any other interested person who wishes to be heard may appear orally or by written submission."  Id. at *19.

Judge Weinstein's advisory opinion is careful to say that is not actually a ruling on the motion to dismiss nee summary judgment motion, but indicated that the court is "disinclined to allow plaintiff's class action to go forward."  Id. at *8.  The court explained that the defendant service providers are not the proper parties to be sued because they do not make the calling cards or the packaging with the allegedly deceptive statements.  That is done by third party distributors.  Borrowing from the precedent of handgun litigation, Judge Weinstein reasoned that "it is doubtful whether [defendants] would be liable for inadequate disclosures if third-party distributors, rather than [defendants], determined the material printed on the cards."  Id. 

Ultimately, the Judge Weinstein advised that any class would fail the superiority requirement:

In the present case, the amount that would be recovered by any class members is small, to the point that it would probably not even warrant submitting a claim form were the class certified and successful in obtaining a recovery.  Moreover, many members of the class are undoubtedly illegal immigrants who would be afraid to participate in a legal proceeding that might reveal their presence.  The only real immediate monetary beneficiaries of handling the claims of class members through a class action would be the attorneys who hope to collect fees.  That does not seem a sufficient basis for certification.

A more appropriate way to protect the rights of the Rule 23(b)(3) class is through regulation and enforcement activity by a federal administrative agency.  The only effective remedy for the harms alleged would be a uniform system of regulation of the prepaid calling industry based on legislation or public administrative rulemaking, including public hearings, resulting in rules that would cover the entire country and take account of international implications.  The court system cannot efficiently carry the burden of protecting this class.  To use the truncated powers of a misshapen Rule 23(b)(3) class action to address the issues raised in plaintiffs' complaint would be unfaithful to the premise and reason for the class action -- considerations of equity and good judgment.

. . . It is industry-wide federal regulation, rather than any injunctive relief the court could provide in this limited civil action concerning only some of the many conflicting state laws, which is required effectively to address the conduct alleged in plaintiff's complaint.

Id. at *9-*10.

Describing the patchwork of state laws and limited federal enforcement actions, Judge Weinstein also advised:

This sprawling, hit-or-miss, repetitive, costly, and confusing series of civil litigations across many states is an absurd way to control a vital national and international form of communication.  It is intolerable for a multi-billion dollar industry affecting the lives of millions of consumers, many of them low-income or recent immigrants to whom telephone contact with loved ones abroad is vital to their own and their families' health and happiness. . . .  The present chaotic situation is also harmful to the service providers and distributors, who face widely varied state regulatory regimes, in the absence of clearly announced federal regulations.

Id. at *17; see also id. at *18 ("While the federal administrative system dithers, the courts and states struggle -- unsuccessfully -- to meet a serious set of national and international communication problems that require a uniform national approach.  Piecemeal civil litigation alone cannot address these issues.").

Unfortunately I am presenting on a panel at the time of Judge Weinstein's October 16 hearing.  But I would welcome a report from a reader who attends.  Two things are certain:  it won't be boring, and it will be unlike any motion to dismiss hearing you've ever seen in a civil class action case.

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Conventional wisdom says that the need for individual proof of damages does not preclude class certification.  But as Judge Dennis Cavanaugh recently recognized in Kings Choice Neckwear v. FedEx Corp., 2009 WL 689718 (D.N.J. Mar. 11, 2009), the need for individual proof of damages can destroy the predominance that makes the class manageable.

In Kings Choice, plaintiff was a frequent customer of FedEx who used a standard shipping agreement that allowed FedEx to recover "all reasonable costs incurred by FedEx" in collecting payment.  Plaintiff received a letter from FedEx's collection agency demanding payment of outstanding fees plus a 25% collection fee.  Plaintiff paid the collection fee under protest, and then brought a class action for breach of contract, violation of the New Jersey Consumer Fraud Act, and unjust enrichment, claiming that the 25% collection fee did not represent the "reasonable costs" allowed by the shipping agreement.

The court held that the requirements of Rule 23(a) were met, but that the proposed class failed the predominance and superiority requirements of Rule 23(b)(3).  As the court explained:

By its very nature, determining the reasonableness of the 25% collection fee is a highly fact-specific inquiry that depends upon a series of individualized variables within the collection process, including, inter alia, the frequency and manner of attempted contacts with the debtor, the necessity of retaining a collection agency or outside attorneys, and the extent to which legal remedies were pursued.  While Plaintiff suggests that a cost-averaging approach is appropriate because collection efforts are mostly uniform with only a negligible difference in cost, the Court finds differently and holds that determining "reasonableness" would require an untenable inquiry into the facts of each specific case.  Furthermore, assuming, arguendo, that liability could be established on an aggregate basis, it nonetheless appears that the Court would be required to conduct a series of "mini-trials" to determine damages.  The amount of damages owed to each individual class member will differ depending upon a series of individualized factors, including, inter alia, the cost of collection, whether payment was actually made, whether a reduced payment was negotiated, and whether any interest is owed.  Because it appears that FedEx sometimes waives collection fees and at other times negotiates reduced fees, the Court would be forced to inquire as to each individual class member to determine the amount paid, and, if reduced, whether the amount constituted a "reasonable" approximation of the collection costs. . . . [T]he Court finds that determining damages in this case on a class-wide basis would require significant individualized inquiry and would present manageability problems.

Id. at *4. 

In concluding that the class device was not superior to other methods of adjudication, the court also noted that the laws of 51 jurisdictions likely would have to be applied, further compounding the disparities among class members and presenting the court with insuperable obstacles.  Id. at *5.

Kings Choice is a good reminder to not let an old canard about damages keep you from making a compelling argument that the individualized inquiry required to determine damages can present such manageability problems that a class should not be certified.

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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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