Recent Developments

• Engle Court Paves Way for Record Punitive Award

A Florida trial court has paved the way for a record $145 billion punitive damages award against the tobacco industry.

Engle v. R.J. Reynolds, No. 94-08273 (Fla. Cir. Ct., Dade Cty) involved thousands of smokers. Among the rulings in Engle was the certification of a 700,000-member class of smokers. Federal and state courts in similar cases rejected the Florida trial court’s approach.

The following issues likely will be raised on appeal: Defendants maintained that there was a predominance of numerous factual and legal issues such as addiction, causation, fraud and reliance that could not be determined on a class-wide basis. When individualized issues predominate over issues that are common to all class members, certification cannot be granted. See Federal Rules of Civil Procedure, Rule 23(b)(3); Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997); Castano v. American Tobacco Co., 84 F.3d 734 (5th Cir. 1996). Also, defendants maintained that the three smokers chosen as class representatives were not adequate class representatives as required by the Federal Rules; two manifested their diseases after the class cut-off date, and the third named plaintiff’s claims were time-barred.

Defendants have questioned the trial court’s decision to allow the jury to consider the issue of punitive damages without first determining compensatory damages for individual smokers. Such an approach, they argued, threatens the due process rights of defendants. Under the Supreme Court’s guidance in cases such as BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996), punitive damages awards must be in reasonable proportion to compensatory awards. Here there were no compensatory awards made to the hundreds of thousands of persons in the class. There also is a dispute over whether class-wide punitive damages award were based on a representative sample of the class. And, finally, the trial court denied the defendants’ request to argue to the jury that they had already been punished by the $246 billion master settlement agreement with the state attorneys general, in which the companies agreed to change their marketing practices in addition to paying into the settlement.

• With the election of George W. Bush and the start of a new Congress, civil justice watchers are beginning to focus on whether class action reform may be adopted. Last summer, the Senate Judiciary Committee approved S.353, the Interstate Class Action Fairness Act. The act would allow massive, multi-state claims to be removed from state court and heard in federal court, as long as the constitutional requirement of minimal diversity is satisfied. Similar legislation, H.R. 1875, the Interstate Class Action Jurisdiction Act, introduced by Reps. Bob Goodlatte, R-VA, Rick Boucher, D-VA, Jim Moran, D-VA, and Ed Bryant, R-TN, had passed in 1999 in the House.
• As part of the American Legislative Exchange Council’s Civil Justice Task Force, ALEC’s Model Legislation on the Class Actions Improvements Act was approved by the Board of Directors in September. This Model Act, which provides a model for legislation that states could adopt, makes several revisions to the basic class action statute or rule that has been adopted in some form by most states (i.e., Rule 23 of the Federal Rules of Civil Procedure). The revisions clarify Rule 23 by making more specific interpretations of the rule that have been offered in recent years by federal (and some state) courts. The Model Act tracks Rule 23, making five basic changes that states could implement to improve their statutes and/or court rules governing the use of class actions. The main changes proposed are: The Model Act would authorize appellate review of trial court orders certifying or denying certification of proposed classes, tracking a recent similar change to federal Rule 23. The Model Act would establish a rule limiting the scope of plaintiff class actions to residents of the state in which the class action is filed. The Model Act would adopt an explicit "classwide proof" prerequisite for class certification, embracing a policy of federal courts to ensure that the due process rights of unnamed class members and defendants are protected at trial. The Model Act would add a "maturity" factor to the class certification prerequisites to ensure class actions are not employed prematurely. The Act would also add an "administrative process" factor to the class certification prerequisites, codifying the federal court policy that class actions are not needed where the allegations asserted are within the purview of a federal or state regulatory agency.
• Judge Linda Quinn certified a class action lawsuit against eBay on November 17. The suit, first filed in April, contends that eBay should be responsible for assuring the authenticity of the goods auctioned on its site. Seven plaintiffs contending that they purchased sports memorabilia with forged autographs have thus far joined the case. Judge Quinn has offered both sides the opportunity to present oral arguments. eBay plans to accept this offer in hopes it may lead the judge to reverse the class action certification.
• Billionaire investor Kirk Kerkorian filed an $8 billion lawsuit in U.S. District Court in Delaware in November against DaimlerChrysler, accusing chairman Juergen Schrempp of lying when promoting the $34 billion deal as a merger of equals. Class-action suits were subsequently filed by three other law firms. Wolf HaldensteinAdler Freeman & Herz filed suit seeking to undo the deal on behalf of all shareholders who sold their Chrysler shares to DaimlerChrysler for shares in the merged company. The lead plaintiff in this suit is Philadelphia lawyer Stanley Kops, whose profit-sharing plan holds DaimlerChrysler shares. Schoengold & Sporn and Milberg Weiss Bershad Hynes & Lerach also have filed suits. Another New York law firm, Kirby McInerney & Squire, was preparing to file a similar suit.
• Two class action lawsuits accuse General Motors and Nissan Motors of charging black consumers higher finance rates than white consumers for auto loans. The suits are seeking a change in the auto loan companies’ practices and a return of funds for black consumers who allegedly paid more than $100 million over the objective lending rate over the last 11 years. The cases were filed in 1998 under seal and gained class-action status for the finance companies in August from two federal judges who refused to dismiss the suits. The U.S. Justice Department also joined the case in August, taking the position that finance companies should be held liable under the Equal Credit Opportunity Act. The Nissan lender’s trial, scheduled for September 2001, has been conditionally expanded by U.S. District Judge Todd Campbell to include blacks across the country. The General Motors lender’s trial, scheduled for February 2002, was limited by U.S. District Judge Aleta Trauger to black consumers in Tennessee.
• In an October ruling, Alameda County Judge Michael Ballachey held Ford Motors liable for consumer fraud for building and concealing a potentially dangerous design defect in an ignition part. He then ordered a recall of all makes and models of Fords built between 1983 and 1995, the first mass recall of vehicles in history, which could cost the company over $500 million. A second jury trial, which likely will not begin until after March, will consider punitive damages. Ford is facing five other class-action suits over the ignition modules, in Alabama, Illinois, Maryland, Tennessee, and Washington.
• An October 19 ruling by the 9th Circuit U.S. Court of Appeals in Powers v. Eichen found that judges approving class action attorneys’ fee awards must clearly define their reasons should they depart from the standard award. The three-judge 9th Circuit panel also allowed unnamed class-member objections to appeal fee awards without intervening in the suit as a named party. Powers v. Eichen involved a suit brought forward by unnamed class member Wilfred George, who appealed the district court’s order awarding attorneys’ fees to class counsel in the amount of thirty percent of the settlement. George had been a stockholder in Proxima Corp. in a stock fraud litigation suit organized by the Milberg Weiss. The court determined that, although the district court properly calculated the attorneys’ fees as a percentage of the gross settlement amount, it did not adequately explain the basis for the award.
• A panel of 11 federal judges assigned an Indiana judge on October 25 the task of handling consolidated discovery for all federal personal injury and class-action cases filed against Bridgestone/Firestone and Ford Motors in the wake of the tire product liability cases. U.S. District Judge Sarah Evans Barker was assigned to hear pretrial motions. Barker will not have control over individual cases filed in state courts; however, defense attorneys can argue that state cases are duplicative and that Barker should take over that discovery process as well.
• Lawyers filed lawsuits in federal courts in California and New Jersey in September regarding the drug Ritalin. A previous suit had been filed in Texas. The lawsuits claim that the Novartis Pharmaceuticals Corporation, the drug’s manufacturer, and the American Psychiatric Association, conspired to create a market for Ritalin and expand its use. Ritalin has been increasingly prescribed for children diagnosed with Attention Deficit/Hyperactivity Disorder. The new lawsuits seek to halt what some call unlawful practices and ask that profits from sales of the drug be returned to consumers. Mississippi lawyer Richard Scruggs and Washington lawyer John Coale are involved in bringing the lawsuits.
• In June, the California Supreme Court ruled in Kraus v. Trinity Management Services Inc. and Cortez v. Purolator Air Filtration Products Co., that the state’s unfair competition law can not be used to force businesses to disgorge ill-gotten gains into a fund to benefit all potential victims. The court ruled that such broad-based relief is available only through the filing of a class action, holding that the unfair competition law — California Business & Professions Code §17200 — only compels that restitution be made to those individuals who suffered financial loss who appear in a timely fashion. Both cases involved attempts by alleged victims of wrongdoing to have businesses disgorge unfairly gained profit into funds that could be used to repay and benefit all potential victims. Kraus was brought by San Francisco tenants who said a landlord’s nonrefundable security and administrative fees were unfair, while Cortez involved claims of unpaid overtime.
• In October 2000, Qwest and class counsel agreed to settle Colorado phone users’ claims that US West, a recent acquisition of Qwest, made them wait too long for phone service. Under the agreement, plaintiffs’ counsel walked away with $7.2 million in fees plus $300,000 for expenses. Actual class members became eligible for an average payment of $60, although some class members may receive as little as $3.79. (Qwest Settles Lawsuit Filed by Phone Users Unhappy With Delays, Assoc. Press State & Local Wire, Oct. 7, 2000).
• During settlement talks between Coca-Cola and class action plaintiffs’ counsel, discussions were temporarily derailed when one of the original plaintiffs overheard his lawyers privately talking about the money they believed they would net in an anticipated $250 million settlement. This plaintiff along with several others were dropped as named plaintiffs and told to find another lawyer because they tried to add another attorney to the team to represent class members’ interests. (R.Robin McDonald, Settlement Lacks Some Details But is Still Binding, Fulton County Daily Report, Dec. 14, 2000).
• Courts are increasingly holding that an agreement to arbitrate cannot be avoided even though 1) had the claim been brought in court, the plaintiff could bring it as a class action, and 2) the plaintiff could not bring a class action in arbitration. A recent case on this point is Johnson v. West Suburban Bank, 225 F.3d 366 (3rd Cir.2000). The Third Circuit reversed the trial court, which held that an arbitration clause was not enforceable because the plaintiff had the right to bring a class action under the Truth in Lending Act. The appellate court held that, although "class" claims could not be brought in arbitration, the plaintiff was bound to pursue his TILA claims in that forum. This is similar to the holdings of numerous district and appellate courts addressing federal statutes that provide for "class" claims. In Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991), Gilmer argued that he could not be required to arbitrate his claims because, among other reasons, he could not bring the class action contemplated by applicable federal statutes. The Supreme Court rejected the argument and compelled arbitration. More recently, in Green Tree Financial Corp. v. Randolph, 531 U.S. __, 2000 WL 1803919 (12/11/2000), the District Court compelled arbitration, specifically rejecting Randolph’s argument that she was entitled, under TILA, to bring a class action which was unavailable in arbitration. The 11th Circuit reversed on other grounds and was subsequently reversed by the Supreme Court. Randolph urged the alternative argument that the 11th Circuit should be upheld because she had a right to pursue a class action in court. The Supreme Court refused to reach the issue, which had not been addressed in the circuit court.
• Following the federal courts’ lead and recognizing its own unique problems, Alabama has been trying to tighten its rules governing the certification of class actions. Starting with a string of cases in 1997 — Ex parte State Mut. Ins. Co., 715 So. 2d 207 (Ala. 1997); Ex parte American Bankers Life Assurance Co. of Florida, 715 So. 2d 186 (Ala. 1997); Ex parte Mercury Fin. Corp., 715 So. 196 (Ala. 1997); Equity Nat’l. Life Ins. Co., 715 So. 2d 192 (Ala. 1997); and First Nat’l. Bank of Jasper, 717 So. 2d 342 (Ala. 1997) -- the Alabama Supreme Court laid out strict guidelines for certification, even if the certification is conditional. These cases were steps in the direction of ending Alabama’s reputation for what some commentators had called Alabama’s "drive-by class action certifications." In Ex parte Citicorp Acceptance Corp., 715 So. 2d 199 (Ala. 1997) and Ex parte Prudential Ins. Co. of America, 721 So. 1135 (Ala. 1998), the Supreme Court’s decisions ensured that defendants would receive notice before the certification of a class action. In Ex parte AmSouth Bancorporation, 717 So. 2d 367 (Ala. 1998), the Supreme Court stated the proposition that a trial court should be able to look behind the pleadings in certain cases before certifying a class. These cases represent a small beginning in Alabama’s reformation of state class action jurisprudence.