Monday, October 16, 2006
Tobacco companies have petitioned the Second Circuit for review of Judge Jack Weinstein's class certification decision in Schwab v. Philip Morris on the grounds that they "risk a multi-billion dollar verdict in a manifestly unlawful class action" in which the district court "committed fundamental legal errors."
Under Federal Rule of Civil Procedure 23(f), the Court of Appeals has discretion to decide whether to accept the appeal, since it's an interlocutory appeal of a class certification decision rather than an appeal from a final judgment. Given the size and significance of this class action, as well as the number of hotly disputed legal issues it raises, I'll be surprised if the Second Circuit declines the appeal. And assuming they take the appeal, I'll be surprised if they don't stay the proceedings in the district court. (Under Rule 23(f), an appeal does not automatically stay the district court proceedings, but either the district judge or the court of appeals may order a stay. In his class certification decision, Judge Weinstein explicitly declined to grant a stay, and set trial for January 22.)
Judge Weinstein's memorandum and order, all 540 pages of it (not counting the 998-page appendix), will give the Second Circuit plenty to think about. In classic Weinstein fashion, the opinion works the substantive law in order to facilitate aggregation. On the critical issue of whether the fraud-on-the-market theory of reliance can be extended to the RICO claims in this light cigarettes case, he says, "These doctrines are flexible; they permit deviations in favor of class certification." (p. 208) As always, he offers a powerful policy argument in favor of aggregate litigation, noting repeatedly that denial of class certification would be a "death knell" for this litigation because of the small size of the individual claims. (pp. 27, 219, 538) In response to the argument that due process requires individual proof as to each claim, he endorses the practical necessity of aggregate proof: "Examining each grain of sand is too burdensome in a survey of a beach." (p. 480) At Findlaw, Tony Sebok offers a thoughtful analysis of the problems with such aggregate proof of reliance and damages.
Parts of the district court opinion seem directed unabashedly to the Second Circuit. Judge Weinstein repeatedly emphasizes the enormity of the record in the case and the extent to which the issues are fact-sensitive. In denying certification of interlocutory appeal under 28 U.S.C. 1292(b), he notes the "probability that an interlocutory appeal would require lengthy appellate consideration and the likelihood that continued district court proceedings without appeal might moot the issues." (p. 537) In refusing to stay the proceedings, he emphasizes the importance of moving forward without delay: "This suit has been pending for almost two and a half years. Discovery is essentially complete. Legal questions antecedent to trial have been resolved. Further delay would run afoul of the first mandate of the Federal Rules of Civil Procedure: the courts shall 'secure the just, speedy, and inexpensive determination of every action.'" (p. 538, quoting Fed. R. Civ. P. 1)
Other parts of the opinion, however, seem directed to the parties and meant to encourage settlement of the class action. Judge Weinstein offers his frank opinion on the merits, telling the plaintiffs that their case is strong on liability but weak on damages: "While evidence of fraud on the class appears to be quite strong -- and defendants have been less than candid in insisting that there was no fraud -- evidence of the percentage of the class which was defrauded and the amount of economic damages it suffered appears to be quite weak -- and plaintiffs have been less than candid in failing to acknowledge that deficiency in their proof." (p. 22) He then goes even further and states that "the court believes, on the evidence thus far produced, that the amount of possible damages has been grossly exaggerated by plaintiffs." (p. 26) Why, in a class certification decision, would a judge comment so bluntly on the merits? Presumably, to give the parties enough information, along with just enough risk, to drive a settlement. The court's comments, along with the early trial date, denial of a stay, refusal to certify an interlocutory appeal, and the suggestion that the court would entertain a motion to alter the class definition "if that would assist the parties in negotiating a global settlement" (p. 540), all seem geared toward encouraging the parties to negotiate a class settlement.
Much of that settlement pressure will disappear, however, as soon as the Second Circuit does the expected and accepts the appeal.