Saturday, April 30, 2011
Bloomberg News and the New York Times published an article yesterday detailing a Missouri jury's findings in a lawsuit against Phillip Morris, R.J. Reynolds, Lorillard, and other cigarette makers. Roughly forty MIssouri hospitals alleged that the tobacco companies manipulated the nicotine in cigarettes, misrepresented the health effects of smoking, and requested more than $455 million in damages. After deliberating for seven days, the jury rejected the hospitals' claims. The hospitals are still deciding whether to appeal.
The Wall Street Journal Law Blog has a related article, The Best and Worst Weeks for Big Tobacco.
Thursday, April 28, 2011
Wednesday, April 27, 2011
In the first of four cases which will shape the future of complex litigation, the Supreme Court held today that the Federal Arbitration Act preempts California contract law and upheld an arbitration contract barring class actions. You can find coverage at Scotusblog and on BNA.com if you have access to it.
While this has no direct relevance that I can think of to mass torts (although it has relevance to mass consumer actions, in the sense that its going to kill them), it is tangentially related in the sense that preemption doctrine and mass tort issues have been intertwined for some time. I recommend Catherine Sharkey's work on preemption. You can find some of her articles on SSRN, such as Backdoor Federalization, written with Sam Issacharoff, also Products Liability Preemption: An Institutional Approach and Preemption by Preamble.
If you are interested in the future of small claims class actions, I highly recommend the work of Myriam Gilles, which has been quite precient on the subject. See her pieces on SSRN: Opting Out of Liability: the Forthcoming Near Total Demise of the Modern Class Action (written in 2004 and now coming to pass) and the more recent Class Dimissed: Contemporary Judicial Hostility to Small-Claims Consumer Class Actions.
Saturday, April 23, 2011
Our own Howie Erichson (Fordham) has posted a forward to the Fordham Law Review's symposium on Civil Procedure and the Legal Profession on SSRN. Here's the abstract:
This Foreword introduces the papers of the 2011 Fordham Law Review symposium on Civil Procedure and the Legal Profession. The papers address a number of topics at the intersection of procedure and legal ethics, including sanctions, conflicts of interest, work product doctrine, evidence preservation, attorneys’ fees, class actions, and the duties of MDL leadership counsel. The Foreword introduces these papers and briefly reflects on the perspectives of proceduralists and ethicists.
Maria Glover, currently a Climenko Fellow at Harvard, has posted the abstract of her article, The Structural Role of Private Enforcement in Public Law, on SSRN. Although I haven't seen the piece yet, the abstract raises significant questions about the role of private attorneys' general in an disaggregated regulatory system and the article looks like a worthwhile read. Here's the abstract:
The American regulatory system is unique in that it relies upon a diffuse set of regulators, including private parties, rather than upon a centralized bureaucracy, for the effectuation of its substantive aims. In contrast with the traditional conception of private enforcement as an ad hoc supplement to public law, this Article argues that private regulation is part of the structure of the modern administrative state. Private enforcement and the mechanisms that enable it are not merely add-ons to our regulatory regime, much less are they fundamentally at odds with it.
Yet these mechanisms today are being restricted in numerous ways, and on numerous fronts, in the form of judicial and legislative efforts to reform substantive tort law, prohibitions on the use of the class action device, the recalibration of procedural mechanisms through private contract to discourage suit, and pre-emption of state law causes of action, just to name a few. These types of restrictions, however well-intentioned, threaten to undermine substantive regulatory law, yet little thought has been given to the systemic consequences of these reform efforts. In fact, as this Article posits, these efforts raise ‘quasi-constitutional’ concerns that derive from fundamental precepts of our representative government - concerns that, once appreciated, can help set sensible boundaries on reform.
This Article then provides a conceptual framework for designing appropriate mechanisms of enforcement in light of the contours of particular regulatory regimes. This framework seeks to effectuate and extend the systemic interests in aligning private enforcement mechanisms with the regulatory goals of particular areas of substantive law, and at the same time seeks to balance the value of such mechanisms with concerns that they will generate undesired regulatory consequences by suggesting mechanisms, not yet in existence, that address potential pathologies. In doing so, this framework replaces current, one-size-fits-all approaches to a number of seemingly disparate debates across our legal landscape, including those regarding restrictions on private mechanisms of enforcement, with one that seeks to align private enforcement mechanisms with the needs of various regulatory schemes. By offering sounder analysis of, and adding conceptual clarity to, these various debates, this framework offers the hope of eventual resolution of these seemingly intractable disputes. More fundamentally, this framework will help judges and legislatures better design mechanisms to enable private regulation to serve well its structural role in the American system.
Mass torts encompass a broad array of harms, including, as many of you may recall, The Buffalo Creek Disaster, as publicized by Gerald Stern's book of the same title. Following up on coal mine safety, Anne Marie Lofaso (West Virginia) has an interesting piece titled What We Owe Our Coal Miners, which is forthcoming in the Harvard Law Review. Here's the SSRN abstract:
In 2007, I published Approaching Coal Mine Safety from a Comparative Law and Interdisciplinary Perspective, which raised, but did not answer, the following question: What do citizens of a “just” society owe workers, such as coal miners, who daily risk their lives for our collective comfort? I endeavor to answer that question in What We Owe Our Coal Miners.
I begin with three observations. First, borrowing from philosopher Thomas Scanlon, I observe that justice requires us to justify dangerous jobs by presenting reasons that “no one could reasonably reject as a basis for informed, unforced, general agreement.” In this context, I note that underground miners put themselves in physical danger and health risk to generate energy for all members of our society. Accordingly, those who benefit from the fruits of their labor owe reasons to those miners. Second, I acknowledge my own bias to live in a society that directly values the dignity of human life. Third, I note that the free-market argument does not directly value life, but values efficiency instead, which leads inevitably to markets clearing at a Kaldor-Hicks efficient level of fatalities as an acceptable risk rather than policies promoting the safest possible workplace.
Accepting that, in reality, the political will does not exist to stop underground mining, the question becomes – what do we owe our coal miners? My conclusion, of course, is safer working conditions, but not after considerable deconstruction of free-market justifications. I begin by relating the human cost of meeting global energy demand through the profitable coal mining industry. Using economic data and historical circumstances, I then show the enormous power disparity between the well-compensated coal mine operators and coal miners, who actually risk their lives and health to mine the coal that generates about half of U.S. electricity. I draw the conclusion that the coal industry is particularly well-suited for collective bargaining because it is precisely the type of industry – large disparities in labor-management bargaining power with the potential for enormous disruptions in interstate commerce – that Congress had in mind when passing the National Labor Relations Act.
In searching for a solution that presents sufficient reasons to justify coal mining, I test the hypothesis whether coal mining laws have in fact resulted in safer mines. Using a broken stick statistical method, I show that coal mine laws have in fact resulted in safer mines. Observing further that union mines have resulted in fewer disasters than nonunion mines in the past several decades, I argue for imposing the union model on top of this regulatory floor of rights. This solution has the added benefit of empowering those individuals who are actually risking their lives for our collective comfort. I end with the hope that this model for dignifying human life can be used for analyzing other dangerous jobs in crucial industries.
Friday, April 22, 2011
An earlier post highlighted one side of the debate over the future of mass torts by Sergio Campos (in Pennsylvania's online companion, Pennumbra). Here's an update with both sides, including our own Howie Erichson (as well as the SSRN link):
In this series of essays, Professor Sergio Campos and Howard Erichson debate the wisdom of compelled collective treatment of mass tort claims.
Campos urges abandonment of the "day in court" model and adoption of mandatory class actions for mass torts. Campos advances a view of mass tort claims as collective property and offers a reading of the Supreme Court's due process precedents that would permit mandatory collective treatment. Collective ownership of claims would allow plaintiffs' lawyers to litigate based on aggregate stakes and thus would reduce mass harms. Given the priority of reducing mass harms, Campos argues, individual ownership of claims should not be accommodated.
Erichson responds that mandatory class actions are not necessary to level the field in mass torts. Mass representation by lawyers and the work of leadership counsel in multidistrict litigation can provide many of the benefits of collectivization without ultimately depriving claimants of the decision whether to release their claims in settlement. Emphasizing the agency risks of class actions as well as the availability of non-class settlement mechanisms, Erichson argues that absolute collectivization carries real dangers but only illusory benefits.
Andrew Popper (American University) has posted his recent piece, Capping Incentives, Capping Innovation, Courting Disaster: The Gulf Oil Spill and Arbitrary Limits on Civil Liability, on SSRN. Here's the abstract:
Limiting liability by establishing an arbitrary cap on civil damages is bad public policy. Caps are antithetical to the interests of consumers and at odds with the national interest in creating incentives for better and safer products. Whether the caps are on non-economic loss, punitive damages, or set for specific activity, they undermine the civil justice system, deceiving juries and denying just and reasonable compensation for victims in a broad range of fields.
This Article postulates that capped liability on damages for offshore oil spills may well have been an instrumental factor contributing to the recent Deepwater Horizon catastrophe in the Gulf of Mexico. More broadly, it argues that caps on damages undermine the deterrent effect of tort liability and fail to achieve economically efficient and socially just results.
Wednesday, April 20, 2011
I just saw a summary of a talk at Columbia Law School by Curtis Milhaupt, an expert on Japanese Law. Here's what he says about liability for Tokyo Electric Power Co. (TEPCO):
Japanese law provides for strict and unlimited liability for a nuclear plant operator except for damages caused by a “grave natural disaster of exceptional character, which Milhaupt said would seem to apply here.“To an American lawyer, if this doesn’t constitute a grave natural disaster, I don’t know what would,” said Milhaupt, an expert on Japanese law. “But very interestingly, several government officials came out shortly after the accident and said this exception does not apply.”Even if Tepco were to claim the exception did apply, Milhaupt said that could create problems for the company. “The public anger at Tepco is so great that this may be a pyrrhic victory.”Milhaupt, the Parker Professor of Comparative Corporate Law and Fuyo Professor of Japanese Law, said that suits may also be brought under Japanese corporate and securities laws. “One could imagine suits brought against Tepco by investors for misleading disclosure with respect to its crisis management systems,” said Milhaupt. He added that Tepco’s board of directors might also be sued for ignoring signs that its disaster prevention systems were woefully inadequate.
This could drive TEPCO into bankruptcy, but it won't because TEPCO is too big to fail. Milhaupt says
“Bankruptcy for Tepco is extremely unlikely. It’s too important a company for Japan and the impact on the other power companies would be too great,” Milhaupt said. “Whether through nationalization, or through capital injections, the bottom line is the Japanese government will have to support Tepco for years to come.”
Tuesday, April 19, 2011
As all class-action enthusiasts know, neither plaintiffs lawyers nor defendants like for class members to exercise their opt-out rights. Opting out from the plaintiffs' attorneys' perspective diminishes their fee award and undermines their ability to deliver total peace to the defendant; the defendant wants finality and closure, which opt outs undermine. So, lawyers developed mechanisms to thwart class members from opting out, such as including walk-away provisions, liens on the defendants' assets in favor of those remaining in the class, and most-favored-nation provisions in the settlement.
Recently, attorneys have begun settling mass-tort cases outside of the class-action process. (As most of you know, CAFA makes it increasingly difficult to certify mass-tort cases as Rule 23(b)(3) class actions--not that they were ever easy.) Merck settled the Vioxx litigation by contracting with the plaintiffs' attorneys and requiring those law firms to recommend the deal to 100% of their clients (with the caveat that the plaintiffs' attorneys deemed the settlement in their clients' best interests), and to withdraw from representing those clients who refused. Moreover, Merck could walk away from the deal if fewer than 85% of the claimants signed on. Thus, while claimants technically opted "into" the settlement offer, realistically claimants had to opt out of their lawyer-client relationship if they didn't want to settle.
Yesterday's article in the NY Times by John Schwartz and Cambell Robertson, "Many Hit by Spill Now Feel Caught in Claims Process," illustrates the new, new opt out: plaintiffs' lawyers are claiming to represent clients who have never consented to an attorney-client relationship. Consider this excerpt from the article:
Last summer and fall, numerous Vietnamese households — including some who say they were not even affected by the spill — received letters signed by Mr. Watts, of San Antonio. The letters, in Vietnamese, addressed some recipients by name and others as: “Dear Client.” The letters directed people to send their financial records and added, “Do not sign anything from BP or anyone else except Watts Guerra Craft,” the name of the firm.
“As far as I know almost every other house got it,” said Felix Cao, a law student at Loyola University in New Orleans. “I don’t know how they even found my address.”
Mr. Cao said he did not know whether he had become a client or simply a marketing target. He said he was not affected by the spill.
Nor was Nga Nguyen, who lives in New Orleans and also received one of the letters. “I think they just went through the phone book,” she said.
Let me be clear: the Gulf Coast Claims Facility is a private compensation scheme set up by BP. The claims pending before Ken Feinberg are NOT class actions. Thus, no attorney-client relationship exists absent either class certification and a judicial determination that lawyers are adequately representing absent clients (in the MDL pending before Judge Barbier) or an individual's affirmative consent to enter into an attorney-client relationship.
Yet, if this is what attorneys are doing, the new, new opt-out requires "clients" to opt out of an attorney-client relationship they never formed. The result is nothing short of lawless.
Monday, April 4, 2011
Adam Liptak has an article on the NYTimes week in review entitled "When a Lawsuit is Too Big." In the piece he presents all kinds of arguments, including the argument that class certification can give the plaintiffs too much leverage in settlement negotiations. His example for this blackmail problem is an antitrust suit with millions of class members that was certified by then-judge Sotomayor and settled for $3 billion. But he misses the punchline: the named plaintiff in that suit was Wal-Mart.
A $3 billion dollar settlement is really big; it seems kind of scary and aweful and a good reason to dislike class actions. But is it too big? I don't know. It depends on the value of the underlying claims. If someone does $3 billion worth of damage, they should pay. Remember that time you broke your neighbor's window with a baseball? Same concept here, just a larger scale.
Liptak missed some other points. First, what's really the effect of these cases on defendants? Liptak should have interviewed Michael Selmi, who wrote an article back in 2003, discussing none other than the Wal-Mart v. Dukes case, called "The Price of Discrimination." In that article, Selmi shows that antidiscrimination suits rarely affect stock prices and expressed concern that damages in such suits are insufficient to really affect behavior.
Second, are these suits really unfair to the women in question? That is an important issue that needs to be explored, one that was raised by Justice Roberts in oral argument in the Wal-Mart v. Dukes, as well as by Justices Ginsburg and Sotomayor. The concern is about the ability of the courts to determine back pay on a statistical basis. I address this problem in a paper called "The Curse of Bigness." The bottom line is that a statistical model for determining back pay can be pretty accurate and is more likely to yield horizontal equity (that is, give similarly situated people the same amount) than individual suits. Furthermore, given the passage of time and the number of Wal-Mart employees over whom a given manager has oversight, the likelihood that a manager will have a specific and reliable piece of information about a given employee that is both relevant to the calculation and that is not captured in other data that Wal-Mart does keep electronically (such as tardiness, for example), is highly unlikely. If there is such a case, or many such cases, Wal-Mart can bring them to the district court's attention.
So when is a class action lawsuit too big? This is just the wrong question to ask. I know that people would really prefer to ask it, but the question reflects a misunderstanding of the law. The right question to ask is this: When are class members too heterogenious?
Consider the following simple hypothetical. Big Bank has twelve million customers. It erroenously deducted $25 from the account of each individual account. The bank is clearly in the wrong, but it refuses to return the money. Just filing a small claim action costs at least $25 in most states, so it is not economically viable for each person to file a lawsuit. Filing in federal court costs much more. In this case, all twelve million customers are identical. Wait a minute, you say, doesn't it matter that there are twelve million people in this class? No. The important question is not how many class members, but whether they are sufficiently alike. Here they are identical, so it is a good case to bring as a class action. Homogeneity, not size, is the key inquiry. It doesn't matter that there are twelve million people, just that they are all the same in the relevant way.
Now imagine that the hypothetical class of twleve million is not all the same but instead breaks down into three categories. Category A were charged $25 and suffered no other adverse consequences. Category B were charged $25 which caused them to overdraft on their account, triggering an overdraft fee. Category C were charged $25 and overdrafted on their account, but the amount by which they exceeded their balance exceeded $25 - they would have overdrafted anyway. Are they still sufficiently homogeneous? Yes. It is easily and objectively ascertainable from bank records who falls into Category A, B & C. Each of these can be placed in separate sub-classes or merely treated differently in the litigation (Category A & C gets $25, but Category B gets $25 plus their overdraft fee). They are sufficiently homogenous and the class is manageable, but the class members are not identical.
Wal-Mart v. Dukes presents a harder case than these hypotheticals. That's one reason it is before the Supreme Court whereas a run of the mill consumer class action is not. But its the same question. Ask not whether the Dukes class action is too big, but whether the Dukes class members are sufficiently alike.
Sunday, April 3, 2011
With the Supreme Court hearing oral arguments in Wal-Mart Stores, Inc. v. Dukes last Tuesday, there's a good bit of focus from around the web on the individualized hearings aspect of Randall v. Rolls-Royce Corp., a Seventh Circuit opinion decided on March 30, 2011. In Randall, Judge Posner affirmed the denial of class certification for a Title VII and Equal Pay class action because plaintiffs' were inadequately represented and because backpay would require individualized hearings.
What was most interesting to me about the case, however, was its tie-in to Smith v. Bayer Corp., which is still pending before the Supreme Court. Recall that Smith v. Bayer Corp. presents the question of whether to afford preclusive effect to a federal court's decision not to certify a class.
In Smith v. Bayer, I found two things troubling about the Eighth Circuit's opinion below (In re Baycol Products Liability Litigation). First, the appellate court suggested that plaintiffs should've intervened in the first suit to preserve their right to appeal, but, because the class was never certified, no notice was ever sent out to the class members. How should the plaintiffs have known to intervene without any formal notice that the lawsuit was pending?
Second, although the class was never certified, the appellate court nevertheless claimed that the plaintiffs were adequately represented. This is odd. Parties can be bound to a decision when they were parties to the previous suit, in privity with those parties, or were adequately represented. Putative class members are generally not considered parties to a suit until the class has been certified; here, the plaintiffs in the second suit were not the named plaintiffs in the first suit.
Similarly, it's hard to see how the parties in the second suit were adequately represented in the first suit. Can a court really conclude that a putative class was adequately represented when it chooses not to certify the class and it's the certification decision that operates to legitimize the actions of the class representatives and class counsel to act on behalf of the class? This also raises personal jurisdiction questions. Following the rationale from the Supreme Court's opinion on personal jurisdiction in Phillips Petroleum v. Shutts, it's hard to see how the second plaintiffs would be bound by the federal court's decision not to certify the class. In Shutts, the court likened the failure to opt out of a (b)(3) class to consent to jurisdiction. Courts have long held that plaintiffs consent to personal jurisdiction by submitting their claims to the court. So, by failing to opt out, the plaintiffs effectively "consented." But in the Baycol litigation, there was no certification, thus no chance to opt-out, thus no consent. From that, it would seem that there was no personal jurisdiction (one of the questions certified in Smith v. Bayer). Likewise, this seems to put us quite close to the doctrine of virtual representation that the Supreme Court struck down in Taylor v. Sturgell.
The logical question that follows shows just how slippery the Eighth Circuit's reasoning was in In re Baycol and it's also the tie-in to the Seventh Circuit's opinion in Rolls-Royce: What is the preclusive effect of a decision not to certify the class when class counsel is incompetent? Can a court really say that the class was adequately represented after it explicitly finds that adequacy isn't met?
The Seventh Circuit in Rolls-Royce took great pains to explain how plaintiffs' counsel dropped the ball, picked poor class representatives, and did not diligently pursue the case. Should this effort and the resulting decision not to certify the class really preclude subsequent attorneys from trying to certify a similar class? Granted, the district court in Rolls-Royce also granted summary judgment to the defendants, so these circumstances are a bit different, but it doesn't take much imagination to see the harm that could result from the Eighth Circuit's reasoning.