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PUBLIC CITIZEN'S INVOLVEMENT
IN CLASS ACTION SETTLEMENTS
TABLE OF CONTENTS
Introduction
Bowling v. Pfizer Heart Valve Settlement
Georgine/CCR Asbestos
AcroMed Pedicle Screw Class Action Settlement
AcroMed No. 2 — Lloyd Collateral Attack
AcroMed No. 3 — Sambolin Due Process Appeal
Hayden Arsenic Settlement
Telectronics "Limited Fund" Settlement
Interneuron (Redux) "Limited Fund" Settlement
Ticor Title Non-Opt-Out Antitrust Class Action
Crehan Non-Opt-Out Mortgage Escrow Case
Adams v. Robertson Non-Opt-Out Consumer Class Action
Fibreboard Asbestos Non-Opt-Out Settlement
Adkins/George Fleming Polybutylene Litigation
Broin/Flight Attendants Tobacco Settlement
Dow Corning Breast Implants
GM Truck Settlement (Philadelphia)
GM Truck Settlement (Texas)
GM Truck Settlement (Louisiana)
Ford Bronco II Settlement
Chrysler Minivan Rear Latch Defect Settlement
Ford Mustang Settlement
Vehicle Leasing Class Action I
Vehicle Leasing Class Action II
Vehicle Leasing Class Action III
Publishers Clearinghouse Rule 11 Appeal
Epstein Collateral Attack
Food Stamp/Home Utility Allowance Litigation
Trade School Class Action and Settlement
Toy Manufacturers Antitrust Settlement
Computer Monitor Settlement
Prudential Insurance Fraud Settlement
John Hancock Insurance Fraud Settlement
Oat Cereal Products (Cheerios) Settlement
Airline Antitrust Settlement
CALPERS Intervention Appeal
Dalkon Shield
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Introduction
This memo describes the class action settlements in which Public Citizen Litigation Group has had significant involvement. For each case, the memo lists the principally responsible lawyer or lawyers. The names of former Litigation Group lawyers with principal responsibility for a case are in parentheses. For questions or comments regarding a particular case, contact any of the lawyers listed for that case. For general questions or comments, contact Brian Wolfman at Public Citizen Litigation Group, 202-588-1000, e-mail: bwolfman@citizen.org. Briefs in many of the cases can be found on our website, www.citizen.org/litigation.
1. Bowling v. Pfizer Heart Valve Settlement
A. Cites: Bowling v. Pfizer, Inc., 143 F.R.D. 138 (S.D. Ohio 1992) (opinion issued during fairness hearings); Bowling v. Pfizer, Inc., 143 F.R.D. 141 (S.D. Ohio 1992) (approving merits of settlement); Bowling v. Pfizer, Inc., 922 F. Supp. 1261 (S.D. Ohio 1996) (opinion regarding attorney's fees), on reconsideration, 927 F. Supp. 1036 (S.D. Ohio 1996), aff'd, 102 F.3d 777 (6th Cir. 1996); see also Bowling v. Pfizer, Inc., 132 F.3d 1147 (6th Cir. 1998) (further appeal concerning attorney's fees); Bowling v. Pfizer, Inc., No. 98-4323 (6th Cir.) (pending appeal concerning class counsel's eligibility for "fees on fees").
B. Description: This class action involves the approximate 35,000 living patients implanted with an artificial heart valve. That valve has a tendency to fracture (resulting in death two-thirds of the time) because of design and manufacturing defects. The settlement provided for $80 million in cash for class members to settle their "fear" claims that the valve might break, money for research to try to develop a non-invasive diagnostic tool to detect problem valves, money to pay for the removal of risky valves, and a compensation scheme (ranging from $500,000 to $2 million) for U.S. class members whose valves fracture. Foreign claimants will generally, but not always, get less. Class members who suffer a fracture can ignore the automatic compensation scheme and go to court.
C. Public Citizen Involvement: We participated in the briefing and fairness hearing. We were responsible for significantly enhancing the reoperation benefits and helped (along with other objectors) on numerous other issues. We were also responsible for having the patients' spouses compensated (the settlement originally gave them zero). The defendants came up with $10 million for the spouses. The district court approved the settlement, which we appealed but later settled after obtaining a few additional improvements.
We were the only objectors that challenged the $33 million fee request made by class counsel. We took discovery on that issue (which several plaintiffs' counsel resisted). The various counsel refused to divulge their fee-sharing arrangements, and thus the court, the class members, and the public have no way of knowing whether these agreements--under which, we believe, class counsel agreed to pay large sums to other lawyers--were employed to buy off opposition or were, in reality, reasonable payments for work performed. The fee hearing was held in Cincinnati on September 14, 1995, before a visiting judge from another district appointed by Chief Justice Rehnquist. (The original district judge had recused himself on the fee request because class counsel's wife's nomination to be a federal judge in that district was pending). On March 1, 1996, the court handed down a 61-page opinion, cutting the fee for class counsel and his associated counsel to a total of $10.25 million, thus saving the class members about $20 million. The judge credited many of the arguments we made about the excessive fee request. Class counsel could also apply annually for fees for future work to implement the settlement, under strict guidelines similar to those we suggested. Our request to get access to counsels' secret fee-sharing agreements was denied, however, on the ground that counsel has complete discretion on how to divide fees once they are awarded.
Class counsel appealed the fee award to the Sixth Circuit, arguing that the $33 million request should have been granted. Meanwhile, we appealed the district court's decision permitting the fee-sharing agreements to remain secret. The Sixth Circuit affirmed all around, indicating that the fee award was well within the district court's discretion (and implying that, if anything, the award was too generous), and also holding that there was no obligation to disclose the fee-sharing arrangements now that the settlement was final on its merits. The court of appeals indicated, however, that the fee arrangements might have to be disclosed at the settlement approval stage, where there would be a concern that lead counsel might "buy off" objectors' counsel by cutting the latter counsel in on the fee.
After the Sixth Circuit affirmed the fee award, the original district judge, who had previously recused himself on fee issues, re-entered the picture and ruled on class counsel's first annual fee request for work performed to implement the settlement. The court awarded more than we recommended, but less than class counsel requested. Unfortunately, the court also stated that, over the next nine years, the court would award a set amount of $625,000 per year rather than scrutinize the work performed each year. In our view, this ruling was contrary to sound fee principles and the Sixth Circuit's earlier decision. We appealed that decision, and the Sixth Circuit agreed with us that future fee awards must be based on work actually done on a lodestar basis. The ruling has proved useful, saving the class hundreds of thousands of dollars.
One other fee issue has arisen. Class counsel has argued that he and his co-counsel are entitled to fees for time spent trying to obtain their fees, even when they are largely unsuccessful in doing so. We disagree, believing that in a common fund case such "fees on fees" are not permissible. The district court agreed with class counsel on this issue, and our Sixth Circuit appeal is pending.
Meanwhile, we have been involved in an important aspect of the settlement's implementation. Under the settlement, patients carrying certain high-risk Shiley heart valves are entitled to have valve replacement surgery paid for by the settlement fund (which includes payment for miscellaneous expenses, lost wages, and other items, as well as all reasonable medical expenses). The types of valves that qualify for these benefits are to be set by a panel of medical experts. On two occasions (most recently in late 1999), draft guidelines were issued by the panel and we submitted extensive comments. Over the years, we have argued that the guidelines are too restrictive based on existing epidemiological data comparing risk of fracture with re-operative mortality and morbidity risk. In the most recent round, the expert panel agreed with several of our positions and the guidelines have been significantly liberalized.
D. Status: As a result of our success in the fee appeals, additional cash payments to class members were made. As indicated above, we have appealed the district court's decision allowing "fees on fees." Meanwhile, our work assisting in implementing the settlement continues.
E. PCLG Contacts: Brian Wolfman, Alan Morrison.
2. Georgine/CCR Asbestos
A. Cite: Georgine v. Amchem Prods., Inc, 157 F.R.D. 246 (E.D. Pa. 1994), rev'd, 83 F.3d 610 (3d Cir. 1996), aff'd Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997), and numerous other reported decisions on related issues in both the district court and the court of appeals.
B. Description: The Center for Claims Resolution (CCR), a consortium of 20 asbestos defendants, approached two prominent plaintiffs' lawyers and literally asked to be sued by a class of all persons (and their household members and relatives) who had been exposed to CCR asbestos products in their workplaces. The class, defined to include persons who were exposed but not yet injured, involved as many as 20 million people. The complaint, answer, and settlement were filed on the same day in early 1993. The settlement provided a worker's compensation-type system of payment ranges for future victims of certain asbestos-related diseases. Although statutes of limitations were waived, certain diseases compensable in the tort system were not compensable under the settlement and other diseases (e.g., lung cancer) were much more difficult to prove. There was no inflation adjustment, even though the settlement bound class members in perpetuity. Loss of consortium claims were "settled" for zero. The settlement amounts were considerably lower than their historical averages, especially for claimants in certain jurisdictions, and, in a first for any settlement of which we are aware, the decisionmakers on most individual claims were the defendant companies!
The settlement raised serious questions of collusion and conflict of interest, most of which centered around the fact that class counsel settled, for $215 million, 14,000 of their pending cases against CCR as, in our view, a quid pro quo for doing the "futures" class action. The 14,000 cases included many claimants whose injuries would not entitle them to cash under the class action settlement. Moreover, we argued that the $215 million represented a premium over what would be paid for like cases compensated under the class settlement. Thirty-seven prominent law teachers in the legal ethics and civil procedure fields filed an amicus brief arguing that the deal was rife with conflicts. The district court rejected the brief, although it had accepted more than a dozen other amici briefs.
Thanks largely to lawyers at Baron & Budd, a firm representing some of the objectors, there were more than 30 depositions, other discovery, and an 18-day fairness hearing, plus lots of other hearings on other issues. The district court approved the settlement, and issued a preliminary injunction barring the class members from suing any CCR defendant for asbestos-related injuries in state or federal court. (The court could not issue a final decision or permanent injunction because a massive third party complaint by the CCR against its insurers was still pending). About 260,000 class members opted out, but the district court invalidated them all on the ground that many opt outs had been misled or coerced into opting out by unscrupulous lawyers (a ruling with which we largely disagreed). A new opt-out period was ordered under court supervision in which about 80,000 people opted out.
After the district court approved the settlement, the objectors appealed the preliminary injunction, raising purely threshold issues that implicated the district court's power to issue its injunction (case or controversy, amount in controversy, due process rights of "futures" and the like). After the initial briefs were filed, the Third Circuit's issued its decision in General Motors (discussed in #16 below). That case held that a settlement class action must meet the same standards for Rule 23 certification as does a case certified for litigation. General Motors enhanced our position because it was difficult to imagine that Georgine--which was never intended to be litigated at all--could be litigated as a class action.
C. Public Citizen Involvement: We represented a number of absent class members, labor organizations, and asbestos advocacy groups in opposition to the settlement. We decided early on to represent actual parties, not amici, and to take a major role in the case. Over a period of three years, we briefed all of the major legal issues (e.g., whether this trumped-up suit presents a "case" or "controversy" under the constitution, whether it comported with due process to bind people who are currently uninjured, the ethical issues, etc.), participated in discovery, and questioned witnesses at the fairness hearing, etc. We were also responsible for helping to organize the ethics professors' amicus brief, written by John Leubsdorf, a Rutgers law professor. We worked in tandem with Baron & Budd, but also raised a few issues that they did not (and we chose not to join in a few of theirs). We filed opening, reply, and supplemental briefs in the Third Circuit appeal from the district court's preliminary injunction. A six-hour oral argument was held on November 21, 1995, in which we participated.
On May 10, 1996, the Third Circuit handed down a smashing victory, holding that the class should not have been certified under Rule 23 because the claims of the class were too disparate to meet either the Rule's subsection (a) or subsection (b)(3) criteria. The Court noted that it was impossible for the class representatives to adequately represent those who had not yet suffered injuries and therefore could not know their injury-related circumstances. The unanimous panel acknowledged the strength of our due process and justiciability concerns, but did not reach those issues. Judge Wellford (a visiting judge from the Sixth Circuit) concurred in the main opinion, and also held that the complaint, as buttressed by the named plaintiffs' testimony, did not state an Article III case or controversy.
The Supreme Court granted review of CCR's petition for a writ of certiorari on the Rule 23 question that formed the basis for the Third Circuit's decision. We briefed the case before the Supreme Court on that issue, but also raised the justiciability arguments. Two other groups of objectors also participated actively in the Supreme Court, including the Baron & Budd group, represented by Laurence Tribe, who argued the case for the objectors.
The Supreme Court affirmed by a 6-2 vote. The majority opinion, authored by Justice Ginsburg, held that the class did not meet Rule 23(a)'s typicality and adequacy of representation requirements, or Rule 23(b)(3)'s requirement that common questions "predominate" over individual questions. The Court declined to address the justiciability issues. The Court suggested, but did not hold, that the class notice did not comport with due process.
Shockingly, after the Supreme Court rejected the settlement, the district court awarded class counsel more than $2 million in litigation expenses to be paid by CCR. Apparently, before the case was even filed, CCR agreed to pay class counsel's expenses, although that fact was never disclosed to the class members (nor, to our knowledge, to the court). Standing alone, we appealed the district court's decision, arguing that the agreement to pay a parties' expenses was patently collusive and at odds with the settlement agreement. After full briefing on the merits and the setting of an argument date, the Third Circuit dismissed our appeal before argument was held on the ground that class members lacked Article III standing to challenge the payment. The court of appeals then denied our request for en banc review.
D. Status: All aspects of the case have been concluded.
E. PCLG Contacts: Brian Wolfman, Alan Morrison.
3. AcroMed Pedicle Screw Class Action Settlement.
A. Cite: In re Orthopedic Bone Screw Products Liability Litigation, 176 F.R.D. 158 (E.D. Pa. 1997) (part of federal MDL 1014).
B. Description: Since the early 1990's, a large number of personal-injury actions have been filed against makers of bone screws and the surgeons who surgically implanted them. The plaintiffs alleged that the bone screws were improperly marketed for use in the spine (pedicle), although they are only medically appropriate for use in long bones (arms, legs). The plaintiffs alleged severe and debilitating back injuries. Among other proof, plaintiffs point to the fact that the FDA generally refused to approve these devices for use in the spine.
The federal cases were consolidated by the Judicial Panel on Multidistrict Litigation and sent to Senior Judge Louis Bechtle in Philadelphia. The plaintiffs' lawyers, known as the Plaintiffs' Legal Committee ("PLC"), apparently believed that one of the defendants, AcroMed Corporation, a closely-held corporation, was financially at risk because of the onslaught of litigation. In January 1997, AcroMed and the PLC entered into a "limited fund" class action settlement, and sought to certify the case on a non-opt-out basis. Without getting into all the details, the settlement provided that the class members would split $100 million cash, plus the value of AcroMed's liability insurance policies (probably worth another $10 million, but in dispute). Class members would submit proof of their injuries and other information and individual cash awards by a neutral administrator. AcroMed escrowed $10 million and promised to raise the bulk of the remainder of the $100 million by unsecured borrowing on its cash flow (i.e., its future business). (Approximately, 4500 AcroMed bone screw recipients and some of their spouses made claims on the settlement fund).
As noted above, some plaintiffs also alleged claims against their surgeons on the ground that the surgeons should have warned them of the bone screw's FDA regulatory status. Plaintiffs also claimed that surgeons took money or stock from AcroMed and put those financial interests ahead of their patients, and had other conflicts of interest. The class action settlement purported to bar such claims against doctors. The settlement release went so far as to bar claims against doctors who told their patients that the device was FDA approved when they knew it was not. The release also barred certain claims against hospitals where the surgeries took place. Neither the doctors nor the hospitals were defendants in the class action or in the multi-district proceedings, nor had they made any financial contribution to the settlement. AcroMed defended the release of the surgeons and hospitals on the ground that it needed to maintain good relations with its customers to insure future profitability.
C. Public Citizen Involvement: We represented 33 objectors, mostly from Tennessee, who had substantial claims against their doctor and the hospital at which the surgery took place. We took no position on the settlement against AcroMed, but argued that the release of the health care providers, especially on a non-opt-out basis, was unfair and violated Rule 23 and due process.
We filed comprehensive briefs and participated in the first stage of the district court fairness hearing on April 23 and 24, 1997, briefly cross-examining some of the settling parties' witnesses and commenting on the settling parties' arguments. The fairness hearing reconvened on June 3, 1997, at which time we presented oral argument on the legal issues. We also took some discovery designed to prove exactly the types of claims that were barred by the settlement's release of health care providers.
The district court approved the settlement on October 17, 1997. As to AcroMed, the district court found that the company's net worth, absent the litigation, was $104 million and that the litigation costs and potential liability was far greater, thus justifying "limited fund" non-opt-out class certification. The court also found that the settlement was fair to the class. Finally, the court approved the release of doctors and hospitals with almost no analysis, thus rejecting our clients' position. (It is now clear that the settlement, even as to AcroMed, would be impermissible under the Supreme Court's later decision in Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999) (see #12 below)).
Our clients appealed. Thereafter, AcroMed approached our clients' local Tennessee counsel and "settled" our clients' claims on secretive terms without our knowledge. Other appeals filed by subrogating health care insurance providers were later settled as well, and the overall class settlement became final in April 1998.
One other development is noteworthy. About five months after the district court approved the settlement, and shortly after our clients' appeal was bought off, AcroMed was sold to a French firm, Depuy, for about four times the supposed $104 million value that the district court found based on the settling parties' contentions. (Depuy was later acquired by Johnson & Johnson). We do not know whether AcroMed was in negotiation with its prospective buyer during the class action settlement process or whether class counsel ever explored whether AcroMed was up for sale.
D. Status: The settlement is final and our direct involvement in the class action settlement is over. However, as indicated below (#4 and #5), we are involved in two cases that are premised in part on the invalidity of the settlement.
E. PCLG Contacts: Allison Zieve, Brian Wolfman.
4. AcroMed No. 2 -- Lloyd Collateral Attack
A. Cite: Lloyd v. Cabell Huntington Hospital, Inc., and AcroMed Corporation, Civil Action No. 99-C-0289 (Cabell Cty, West. Va.), and related proceeding in federal MDL No. 1014.
B. Description: Melissa Lloyd is an AcroMed bone screw patient who lives in the tiny town of Apple Grove, West Virginia. She was a class member as defined in the AcroMed bone screw class action settlement. (For a full description of that settlement see #3 above). That class was defined to include all people who were implanted with AcroMed's bone screws on or before December 31, 1996, and Lloyd had her implant surgery two weeks earlier.
The notice of the non-opt-out class action settlement was conducted in January and February of 1997. It consisted of first-class mail notice to individuals who had already sued AcroMed or who were otherwise known to plaintiffs' counsel, several advertisements in national publications such as USA Today and TV Guide, and an ad in a newspaper in San Juan, Puerto Rico. Ms. Lloyd did not see the notice and, at the time of the notice, her injuries had not yet manifested.
After she became injured, Ms. Lloyd filed suit in West Virginia against the local hospital at which she had the implant surgery and AcroMed. AcroMed tried to removed the case to federal court in West Virginia, hoping thereafter to have the case transferred to MDL 1014 in Philadelphia before Judge Bechtle who had approved the AcroMed "limited fund" settlement. See #3 above. However, the West Virginia federal court granted Ms. Lloyd's motion to remand the case to state court on the ground that the defendant hospital had not joined in the removal request.
AcroMed then ran to the MDL 1014 court and asked for an order to show cause why Ms. Lloyd and her lawyers, Marvin Masters and Tony Majestro, should not be held in contempt of the order approving the class action settlement, which purported to bar suits by class members against AcroMed.
C. Public Citizen Involvement: We were asked by Ms. Lloyd's attorneys to appear on their behalf in the contempt proceeding just days before a November 22, 1999 , hearing before Judge Bechtle. We argued that the request for contempt was really a request to enjoin the West Virginia proceeding in light of the class action settlement, and AcroMed did not disagree. The court granted our request to brief the issues. In our briefs, filed in December 1999, we argued that the federal court in Philadelphia never obtained personal jurisdiction over Ms. Lloyd, because she was not given notice and an opportunity to opt out of the class action settlement, relying on Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812-13 (1985), and In re Real Estate Title & Settlement Services Antitrust Litig., 869 F.2d 760 (3d Cir.), cert. denied, 493 U.S. 821 (1989), and that therefore her West Virginia suit could go forward. We noted that, under In re Real Estate, AcroMed could raise a res judicata defense in the West Virginia state court, to which we would respond that no res judicata effect should be given the Philadelphia settlement in light of numerous due process violations in the original settlement. Judge Bechtle has taken the "contempt" matter under advisement.
D. Status: The request for an order to show cause re contempt is pending before Judge Bechtle in MDL 1014. Meanwhile, the state judge in West Virginia has issued a discovery schedule, with trial set for mid-2001.
E. PCLG Contacts: Brian Wolfman, Alan Morrison.
5. AcroMed No. 3 -- Sambolin Due Process Appeal.
A. Cite: In re Orthopedic Bone Screw Prods. Liab. Litig. (Alexander Sambolin, Appellant), No. 99-2054 (3d Cir.).
B. Description: The AcroMed bone screw class action settlement was signed on January 8, 1997. That settlement provided about $100 million to be split among individuals claiming injury from the defendant's allegedly defective bone screws. (For a full description of the settlement see #3 above). Notice of the settlement was provided in January and February of 1997. Notice was sent by first-class mail notice to individuals who had already sued AcroMed or who were otherwise known to plaintiffs' counsel, and a short ad was published in USA Today, TV Guide, and Parade, and on page 50 of a newspaper in San Juan, Puerto Rico. The settlement appeared to require that class members file a one-page registration form by May 1, 1997 (later extended to May 15), including name, address, social security number, and a few other items, but no information concerning the nature of the class member's injuries. The deadline was about 5 months before the district court even approved the settlement, nearly a year before all appeals were exhausted and the settlement became final, and more than two years before claim forms with allegations of injury and supporting medical data were eventually required to be filed. The notice sent by first-class mail contained a registration form, but the publication notices did not.
Meanwhile, at the time the notice was being published, Alexander Sambolin was at home in the countryside near Luquillo, a small seaside village on the Northeast coast of Puerto Rico. Six months earlier he had had his defective AcroMed screws removed because one had broken, another had loosened, and he was in excruciating pain. He never saw notice of the settlement, which was not published in Luquillo, and he never saw nor was told of the fine-print notice on page 50 of the San Juan paper. After consulting local attorneys who also knew nothing of the class action, he spoke with a Miami lawyer, learned of the class action settlement, and, within days, filed his registration form in December 1997. That filing was "late," i.e. after the May 15, 1997 deadline, but before the settlement became final and well before any claim information was filed or evaluated. Indeed, Mr. Sambolin filed his claim form with supporting medical evidence before most other class members.
After he filed his claim form, Sambolin was informed by the settlement's Claims Administrator that because he had filed "late," his recovery from the settlement fund would be reduced by 20%. He then made a written request that this reduction be waived because he never received notice of the original May 15, 1997 due date before that date, and he registered as soon as he learned of it.
Thereafter, the district court ruled that May 15, 1997 was an absolute deadline, and the Claims Administrator notified Sambolin that his claim would be denied as untimely. (The Claims Administrator has since informed us that if Sambolin's claim were considered timely, it would be significantly more valuable claim than the average claim). Sambolin then filed a motion asking the district court for relief from the district court's inflexible deadline, arguing that the class action notice was inadequate and that due process required treating his registration and claim form as timely. The district court denied that motion and Sambolin appealed to the Third Circuit.
C. Public Citizen Involvement: Shortly after the district court denied Sambolin's request for extension/waiver of the deadline, we were brought in to handle the Third Circuit appeal. Our argument is two-fold: First, it was an abuse of discretion and a violation of due process not to treat class members who filed timely proofs of claim as eligible to share in the settlement fund, since no one was prejudiced by "untimely" registrants who filed their substantive claims on time. Second, we argue more broadly that the notice of the settlement was so paltry as to violate due process, and thus no class member can be bound to due dates contained in that notice.
D. Status: The case is fully briefed in the Third Circuit, and we await an oral argument date.
E. PCLG Contacts: Brian Wolfman, Alan Morrison, Michael Quirk.
6. Hayden Arsenic Settlement
A. Cite: Hayden v. Atochem North America, Inc., et al., C.A. No. H-92-1054 (S.D. Tex.). Unpublished appellate decision: Hayden v. Atochem North American, Inc., No. 99-20249 (5th Cir. Feb. 21, 2000).
B. Description: Class counsel settled with a group of companies that caused arsenic, a known carcinogen, to be spewed from a factory in Texas, polluting the surrounding community. This caused economic damage to homes and increased risk of future diseases. The settlement provided for medical monitoring for people living in the area and some property damage relief. In addition, the settlement cut off all future personal-injury claims in court and forces everyone to file administrative claims on a relatively small fund. Originally, any class member who suffered an injury more than 7 years after the settlement was finalized would be forever precluded from any relief, even though the settling parties conceded that the latency periods for arsenic-related diseases can be up to 40 years! The settlement provided no opt-out right, so if the settlement were approved the class members' rights to go to court would be eliminated. Later, the settling parties amended the settlement, requiring people injured after 7 years to sue, but only if the district judge provided them first with some sort of certification that the case met the standard for showing causation under Texas law.
The federal magistrate handling the case approved the settlement and denied our clients the right to take discovery. We appealed to the federal district judge in September 1995, claiming that the magistrate was wrong in approving this non-opt-out personal-injury settlement. The district judge delayed ruling on the settlement for years because of the pendency of the Fibreboard settlement (case #12 above), which also concerned the propriety of non-opt-out damages class actions. However, while Fibreboard was pending, the Fifth Circuit issued its decision in Allison v. Citgo Petroleum Corp., 151 F.3d 402 (5th Cir. 1998), which held that class actions involving damages claims cannot generally be certified on a non-opt-out basis. Despite Allison, the district court thereafter certified the class under Rule 23(b)(2), which is available in injunctive relief cases, and under Rules 23(b)(1)(A) and (B), under which the settling parties had never even sought certification, and which did not appear to be remotely applicable. The district court's opinion did not even cite Allison. The court then certified the class certification issue for immediate appellate review under 28 U.S.C. 1292(b), and the Fifth Circuit accepted the interlocutory appeal.
After oral argument, the Fifth Circuit vacated and remanded in a per curiam unpublished opinion, holding that it was "unable to ascertain the basis for the district court's decision to certify a plaintiff class under existing Fifth Circuit law," and specifically directing the district court to "reconsider its certification" under Allison. Judge Jones, in a one-paragraph concurring opinion, provided "A word to the wise" that it was "highly doubtful" that the class could be certified under Rule 23(b)(2) under Allison, and noted that no party defended the district court's Rule 23(b)(1) certification.
C. Public Citizen Involvement: We are representing objectors who once lived in the area and were exposed to the arsenic, but moved away and did not get notice of the action. They objected to having their future rights released with little or no right to litigate their claims if they become injured. We filed discovery to ascertain what the settling parties knew about the value of past personal injury claims and a few other issues. We were the principal drafters of the appellate briefs, with Steve Baughman Jensen of Baron & Budd in Dallas also substantially participating, and we argued the case to the Fifth Circuit.
After the Fifth Circuit's remand, we remained involved, as there is talk of a new opt-out settlement, which may also curtail "future" class members' rights. At the very least, it is clear that the non-opt-out settlement has been permanently defeated, which is a significant accomplishment.
D. Status: After the February 2000 Fifth Circuit victory, the case is on remand in the district court. We will participate in any future settlement discussions.
E. PCLG Contacts: Brian Wolfman, Alan Morrison (Lucinda Sikes).
7. Telectronics "Limited Fund" Settlement
A. Cite: In re Telectronics Pacing Sys., Inc., 186 F.R.D. 459 (S.D. Ohio 1999), appeals pending, Nos. 99-3476 et al. (6th Cir.).
B. Description: This case concerns a defective cardiac pacemaker lead, which is a wire that conveys an electrical impulse from the pacemaker battery to the patient's heart. The lead in this case had a tendency to break, leading to serious injuries and possible death. In some cases, patients were advised to have the lead removed and replaced with a non-defective lead. The defect led to an FDA recall and a large number of lawsuits against TPLC, Inc., the lead's manufacturer. TPLC's corporate parents, the Australian companies Pacific Dunlop and Nucleus, were also targets of litigation on "veil-piercing" theories.
A class action was filed in 1995 on behalf of the 40,000 patients against TPLC and the two Australian companies. In November 1996, TPLC sold all of its assets to another company and is no longer an operating business; its only asset is approximately $78 million, which is all that remains from the sale of the company. A class settlement was reached in July 1998. The settlement sets up several different funds, including a Patient Benefit Fund of about $57 million to compensate class members for their injuries, and about $30 million mainly for various other litigation-related expenses. To fund the settlement, TPLC promised to contribute virtually all of its assets, while Pacific Dunlop contributed $10 million of the $57 million Patient Benefit Fund.
Under the settlement, class members will be compensated based on the severity of their injuries. Significantly, the parties agreed that, with respect to all defendants, the class would be certified on a non-opt-out basis under Rule 23(b)(1)(B). The theory was that TPLC was a "limited fund," whose assets would be overwhelmed by the costs of litigation and potential judgments from the pending and future suits against the company. On the other hand, the parent companies were wealthy entities that could not, and did not, claim that they were "limited funds." The settling parties instead argued that the parents should be released on a non-opt-out basis because TPLC would not settle without that release.
On a related matter, a company called Cordis, which had developed the design of the defective lead and had been a defendant in individual suits (but not in the class action), was also given an unconditional, non-opt-out release by the settlement.
The settlement agreement also provided that class counsel could seek up to 28% of the $57 million Patient Benefit Fund, plus expenses. Class counsel in fact requested the full amount: more than $17 million in fees and about $2.2 million in expenses.
C. Public Citizen Involvement: In the district court, we represented a class member who challenged the non-opt-out settlement as to Pacific Dunlop and Nucleus, but took no position as to whether a non-opt-out settlement was permissible against TPLC. We argued that Rule 23(b)(1)(B) and due process were violated by releasing solvent companies on a non-opt-out basis. We also challenged the 28% fee, saying it was far too high a percentage for a fund of this size. The district court approved the settlement, barely acknowledging our argument that a "limited fund" rationale could not possibly apply to the Australian parent companies. The court also approved the fee request.
We appealed on behalf of our district court client, and also represented a large group of objectors who had filed individual suits prior to the class action settlement, against both the defendants and Cordis. During briefing in the Sixth Circuit, the Supreme Court decided Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999) (see #12 above), which seriously questioned whether a mass-tort personal-injury settlement could ever be certified under Rule 23(b)(1)(B), and set very strict certification criteria for "limited fund" settlements.
D. Status: The case is fully briefed in the Sixth Circuit and was argued in early February 2000. We await a decision.
E. PCLG Contacts: Amanda Frost, Brian Wolfman, Allison Zieve.
8. Interneuron (Redux) "Limited Fund" Settlement
A. Cite: In re Diet Drugs Products Liab. Litig., 1999 U.S. Dist. Lexis 14881 (E.D. Pa. Sept. 27, 1999).
B. Description: This case involves the diet drug Redux sold by Interneuron. Particularly when used in connection with another diet drug, Redux caused serious lung and heart impairments. Various individual and class action suits were filed against Interneuron and manufacturers of other problem diet drugs. The federal cases were sent pursuant to the multidistrict litigation ("MDL") statute to Judge Louis Bechtle in Philadelphia.
After the MDL was constituted, Interneuron struck a non-opt-out settlement with the Plaintiffs' Legal Committee. Interneuron maintained that its limited assets justified non-opt-out certification on a "limited fund" rationale under Rule 23(b)(1)(B). Without getting into all the details, the settlement set up a fund to pay for present and future injuries suffered by class members. It required Interneuron to put $15 million into the fund within 10 days of when the settlement became final. Otherwise, the size of the fund was unknown, as it consisted of Interneuron's disputed insurance proceeds and a portion of the company's future sales, dividends, and revenues over a 7-year period, not to exceed $55 million.
C. Public Citizen Involvement: We represented two class members who were currently uninjured, but were at risk of future injury because they had taken Redux. They challenged the non-opt-out nature of the settlement, arguing that it was unlawful under Rule 23(b)(1)(B) and due process to require them to release their future, unaccrued claims against Interneuron, particularly on a non-opt-out basis. One of our clients withdrew her objections after class counsel noticed her deposition. While the objections were pending, the Supreme Court issued its decision in Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999) (see #12 above). Ortiz severely questioned whether any mass-tort class action could be certified on a "limited fund" rationale under Rule 23(b)(1)(B), but declined to rule definitively on that question. Ortiz did hold, however, that there were three presumptively necessary characteristics of a Rule 23(b)(1)(B) limited fund: (i) that the fund, set at its maximum, be inadequate to satisfy the aggregated liquidated claims, (ii) that the whole of the inadequate fund be devoted to the overwhelming claims, and (iii) that the claimants identified by a common theory of liability be treated equitably among themselves. We filed a supplemental memorandum explaining why the Ortiz criteria had not been satisfied. In a comprehensive opinion issue in September 1999, the district court agreed and refused to certify the class. The court also rejected the settlement under Rule 23(e), holding that it was not fair, adequate, and reasonable.
The defendant then moved the Third Circuit under Rule 23(f) for interlocutory review of the district court's class certification ruling. We opposed, arguing, among other things, that interlocutory review of the certification issue would be futile in light of the district court's alternative fairness holding. The Rule 23(f) motion remained pending before the Third Circuit for many months, but, for unknown reasons, in April 2000, the defendant moved to dismiss the motion, which the court of appeals promptly granted.
D. Status: The settlement has now been defeated and our involvement is over. We will stay alert to any future settlement efforts.
E. PCLG Contacts: Amanda Frost, Allison Zieve, Brian Wolfman.
9. Ticor Title Non-Opt-Out Antitrust Class Action
A. Cite: Ticor Title Ins. Co. v. Brown, 511 U.S. 117 (1994).
B. Description: In this case, a federal court in Philadelphia approved a non-opt-out nationwide class action settlement regarding alleged price fixing by title insurance companies. In doing so, the district court certified the class under Federal Rules of Civil Procedure 23(b)(1) and (b)(2), which do not require an opt out right, rather than under Rule 23(b)(3), which does. The settlement provided limited injunctive relief, but no money damages for the class members. However, the settlement purported to extinguish all claims of all class members nationwide, including their substantial damages claims. The Third Circuit affirmed the settlement approval in an unpublished order.
Later, class members from Arizona filed suit in federal court in Arizona seeking damages on the same claims that were supposedly extinguished in the Philadelphia action. The Ninth Circuit held that the Arizona action could go forward, because the Philadelphia settlement, by not according opt-out rights for the class members' substantial damages claims, had violated the class members' right to due process. Brown v. Ticor Title Ins. Co. v. Brown, 982 F.2d 386 (9th Cir. 1992) (relying on Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985)). The Supreme Court granted review.
C. Public Citizen Involvement: We wrote an amicus brief in the Supreme Court supporting the Ninth Circuit's ruling. We agreed with the Ninth Circuit's rationale, but also presented an argument not presented by the plaintiffs or previously advanced in the litigation: that the absent plaintiffs' due process rights had been violated under the balancing test of Mathews v. Eldridge, 424 U.S. 319 (1976).
D. Case Status: After oral argument, the Supreme Court dismissed the case as improvidently granted. The Court explained that since there was a possibility that Rule 23(b)(3) required opt-out rights whenever substantial damages claims were intertwined with claims for injunctive relief, the Court should avoid deciding the due process question and wait for a case that presented the Rule 23 question. See Crehan and Adams cases, #10 and #11 below.
E. PCLG Contacts: Alan Morrison, Brian Wolfman (Meredith Fuchs).
10. Crehan Non-Opt-Out Mortgage Escrow Case
A. Cite: DeBoer v. Mellon Mortgage Co., 64 F.3d 1171 (8th Cir. 1995), cert. denied sub nom. Crehan v. DeBoer, 517 U.S. 1156 (1996).
B. Description: This case presents a stark illustration of what can go wrong in a small-claims class action where individual class members do not have the wherewithal to challenge the settlement and there is therefore little organized opposition.
The plaintiffs challenged defendant's practice of withholding more money in mortgage escrow accounts (for taxes, insurance, and the like) than that permitted by federal law or the plaintiffs' individual mortgage contracts. Without a single pleading or motion filed (other than a state court complaint and a removal petition), the case was settled on a nationwide basis. First, the class got monetary damages for past improper withholding of about $105,000 (approximately 35 cents per class member!) and automatic rebating of future overages. Second, class counsel got $290,000 in fees, or almost three times the monetary relief for the class. Finally, the class got so-called injunctive relief: a promise that defendant would withhold no more than 2 months in escrow as required by federal law. In addition, each class member's mortgage contract was conformed to allow defendant to withhold the maximum escrow permitted under federal law! For a significant proportion of the class (probably about 40%), this provision permitted the defendants to withhold more in escrow than they were contractually permitted to withhold at the inception of the suit.
Finally, the settlement explicitly denied class members the right to opt out. The district court approved the settlement over the objections of several pro se objectors, including Michael and Suzanne Crehan, attorneys with an understanding of real estate transactions. Among other objections, the Crehans argued that this case was principally, if not entirely, a money damages case, in which an opt out was required under Rule 23 and the due process clause. Opting out was especially important to the Crehans because they had been pursuing their own litigation in Virginia against Mellon that would be effectively ended by a judgment approving the class action settlement. The district court overruled all objections and approved the settlement.
The Eighth Circuit affirmed. The court held that this case was a proper injunctive relief class action under Rule 23(b)(2) and that, therefore, no opt-out right was required.
C. Public Citizen Involvement: The Crehans then asked Public Citizen to take their case to the Supreme Court. We agreed to do so on the opt-out issue. We presented a split among the circuits on whether opt-out rights must be afforded under Rule 23 in hybrid damages/injunctive relief cases. Moreover, we noted that, with respect to former Mellon customers (like the Crehans), the case was only one for money damages, in which Rule 23(b)(3) required a right to opt out.
We also argued that, aside from Rule 23, the due process clause requires that class members be afforded opt-out rights where substantial money damages are involved. See Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812-13 (1985). We noted a split in the circuits on this issue. We also pointed out that the Supreme Court had granted cert on the same due process issue in the recent past in Ticor (see #9 above), only to dismiss the writ as improvidently granted because the Rule 23 issue was not also presented. The Supreme Court nevertheless denied review.
D. Status: The case is over. We are anxious, however, to press the opt-out issue if a new case presents itself. See also Adams v. Robertson (#11 below).
E. PCLG Contacts: Brian Wolfman, Alan Morrison.
11. Adams v. Robertson Non-Opt-Out Consumer Class Action
A. Cite: Adams v. Robertson, 520 U.S. 83 (1997).
B. Description: This class action was filed against the Liberty National Insurance Company, which sold cancer insurance policies in Alabama and in other states in the South and Southwest. The plaintiffs alleged that Liberty National, recognizing that its cancer policies were costly to the company, began an organized campaign to defraud its insureds by getting them to switch to new "improved" policies that actually had considerably higher premiums and provided less coverage. Several individual actions preceded the class action; in one case, a jury returned a verdict of $1 million, mainly for pain and suffering and punitive damages, which was affirmed by the Alabama Supreme Court.
The class action settled. The settlement provided class members with coverage under either the terms of the new or old policies (assuming that they got cancer), but no retroactive relief for years of inflated premiums, no damages for pain and suffering or any other item of damage, and no punitive damages. Of particular legal importance, the case was settled on a non-opt-out basis. The settling parties justified the non-opt-out provision on the ground that the settlement was for injunctive relief, not money damages (which usually requires opt-out rights). In characterizing the case as one involving injunctive relief, the settling parties ignored the fact that the complaint stated claims for money damages and that the settlement released all of the class members' claims for money damages.
The settlement was approved by the trial court, and objectors appealed to the Alabama Supreme Court. The objectors' arguments concerning the no-opt-out provision relied principally on the Alabama constitution, not the Fourteenth Amendment's due process clause under which there is a strong argument that an opt-out right is constitutionally required in class actions for money damages. The Alabama Supreme Court affirmed, without mentioning the federal due process argument. Nonetheless, the objectors sought certiorari on the due process question and the Supreme Court granted review.
C. Public Citizen Involvement: We worked closely with the attorneys for the objectors at the Supreme Court stage, writing and editing significant portions of their briefs and extensively helping their counsel prepare for oral argument.
D. Case Status: After oral argument, the Supreme Court dismissed the case as improvidently granted on the ground that the petitioners had not adequately preserved the federal due process question. We continue to look for cases that present the issue we hoped had been preserved in Adams and Ticor: whether constitutional and Rule 23 opt-out rights can be circumvented where the settling parties recharacterize a damages case as injunctive or equitable. See, e.g., Crehan v. DeBoer, discussed in #10 above.
E. PCLG Contact: Brian Wolfman (Steve Baughman Jensen, of the Dallas law firm of Baron & Budd, did substantial work with us on this case.)
12. Fibreboard Asbestos Non-Opt-Out Settlement
A. Cite: Ahearn v. Fibreboard Corp., 1995 U.S. Dist. Lexis 11062 (E.D. Tex. July 27, 1995), aff'd In re Asbestos Litig., 90 F.3d 963 (5th Cir. 1996), vacated and remanded, 521 U.S. 591 (1997), aff'd on remand, 134 F.3d 668 (5th Cir. 1998), rev'd Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999).
B. Description: In this case, filed in federal court in Texas, a deal was struck to resolve future personal-injury cases against Fibreboard, a prominent asbestos manufacturer. The funds for the deal were to come almost entirely from a massive insurance settlement between Fibreboard and two of its insurers. This case presented some of the same legal issues as did Georgine (#2 above): There were side deals with the plaintiffs' lawyers and the complaint and settlement were filed simultaneously. In addition, this was a non-opt-out settlement, which presented a very important issue not unlike what we faced in the late 1980's in the Dalkon Shield case (see #36 below). The question is whether Rule 23 and due process permit the settlement of substantial money damages claims on a non-opt-out basis. On the other hand, the substance of the deal was fairer than Georgine: payments were likely to be roughly consistent with historical recoveries in the tort system, all diseases were compensable, and the decisionmaker would be a neutral body.
C. Public Citizen Involvement: We filed an amicus brief, drafted along with other lawyers, in which we asked the Fifth Circuit to recuse the trial judge who had, in our view, pre-judged the case and played a significant role in the settlement negotiations themselves. Our appeal was rejected. We did not play any further role in the trial court, convinced that the trial judge would approve the settlement, which he did.
In the court of appeals, we assisted the Dallas law firm of Baron & Budd, which represented the principal objectors. We commented on draft briefs and conducted a moot court for the Fifth Circuit oral argument, which was held in March 1996. The Fifth Circuit affirmed the district court decision over a strenuous dissent. The majority claimed that the settlement was an equitable limited fund in light of the insurance settlement and Fibreboard's allegedly finite assets. The dissent agreed with virtually all of the objectors' arguments on justiciability and the illegality of using Rule 23 on a non-opt-out basis. The objectors sought en banc review, which was denied over 5 dissents. In March 1997, the objectors sought Supreme Court review. The Supreme Court vacated and remanded the decision in light of the recent decision in Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997) (see #2 above), which had established stringent requirements for settlement class actions and seemed to doom the Fibreboard settlement.
Nevertheless, the Fifth Circuit approved the settlement again, and this time the Supreme Court granted plenary review. The Supreme Court reversed. The Court first seriously questioned, but did not decide, whether Rule 23(b)(1)(B) or the constitution would ever permit the aggregation of individual tort claims on a "limited fund" rationale. It went on to hold that there were three presumptively necessary characteristics of a Rule 23(b)(1)(B) limited fund: (i) that the fund, set at its maximum, be inadequate to satisfy the aggregated liquidated claims, (ii) that the whole of the inadequate fund be devoted to the overwhelming claims, and (iii) that the claimants identified by a common theory of liability be treated equitably among themselves. The Court held that none of these requirements had been met in this case.
D. Status: The Supreme Court has rejected the settlement and the case is over.
E. PCLG Contacts: Brian Wolfman, Alan Morrison.
13. Adkins/George Fleming Polybutylene Litigation
A. Cite: Adkins, et al. v. Hoechst Celanese Corp., et al., No. 92-024674 (Harris County, Tex., Dist. Court), rev'd In re Polybutylene Plumbing Litig., 2000 Tex. App. Lexis 2015 (Tex. Ct. App., 1st Dist--Houston, Mar. 30, 2000). The mandamus action, discussed below, was styled Ciminello v. Hon. Russell Lloyd, No. 14-96-604-CV (Tex. Ct. App., 1st Dist.--Houston).
B. Description: This case involves the settlement of about 60,000 claims by homeowners who claim that the polybutylene ("PB") pipes in their homes are prone to leaks causing considerable property damage. Although not technically a class action, this matter affects the rights of a large group of similarly situated individuals, which is the reason we became involved.
The plaintiffs are represented by a Houston law firm headed by George Fleming, a major player in PB litigation. On the heels of huge class action settlements, Fleming settled approximately 60,000 claims. The settlement agreement provided a cash fund of up to $150 million to be divided among the clients and their lawyers, and another $20 million denominated as "expenses," and thus solely for the lawyers. Because some of these cases had previously been consolidated before Judge Russell Lloyd, a trial judge in Houston, the parties submitted the settlement to Judge Lloyd and asked him to appoint a Special Master, who in turn would approve "allocation formulae," i.e. the formulae by which the attorney's fees and expenses would be separated out from the clients' recoveries.
Fleming's allocation formulae showed that he was seeking a whopping $108.8 million of the $170 million total settlement fund. First, he claimed 40% of the $150 million cash component ($60 million). Then, he claimed that he was entitled to another $28.8 million on the ground that (i) class members were entitled under the settlement to have their homes replumbed by the defendants, (ii) each replumb was worth $1200, and (iii) $28.8 million represents 40% of the $72 million aggregate replumb value ($1200 x 60,000 = $72 million). Among the problems with this analysis was that the defendants had been providing free replumbs to homeowners for years prior to the settlement. Finally, Fleming claimed the right to $20 million in expenses, although he provided no evidence that he had incurred that (or any other) amount.
Judge Lloyd made clear his displeasure with the proposed allocation and decided to hold a "fairness hearing" on the propriety of the fees and expenses. Fleming filed papers arguing that because this wasn't a class action, his client retainer agreements calling for 40% fees were controlling, and that the court had no jurisdiction to review the allocation. Fleming did not explain why he was entitled to $20 million in expenses and made no effort to prove his actual outlays.
C. Public Citizen Involvement: We appeared as an amicus before the lower court, seeking to protect the interests of Fleming's clients who knew little or nothing of what was occurring with respect to fees. We filed a brief arguing that Judge Lloyd had jurisdiction on three independent grounds: (1) the settlement agreement itself granted him jurisdiction, inasmuch as it called for appointment of a special master to approve the fee allocation; (2) under Texas law, courts have inherent authority to supervise fees in cases before them; and (3) large consolidated actions involving common funds are akin to class actions, where fees are regularly scrutinized for fairness.
When it became clear that Judge Lloyd was not accepting Fleming's arguments, Fleming asked the Texas Court of Appeals for a writ of mandamus. The Court of Appeals granted Fleming leave to file the petition and asked the defendants to respond. The Court of Appeals also directed Judge Lloyd not to hold any hearing regarding fees until further order. We made the same arguments in the Court of Appeals, plus the additional point that mandamus is not the proper remedy because Fleming has an adequate remedy on appeal from any order Judge Lloyd might issue. In addition to appearing as an amicus, we represented a Fleming PB client who asked for our help in challenging the fees.
The mandamus was fully briefed and we presented argument in the Court of Appeals on June 26, 1996. Shortly after argument, the Court of Appeals dismissed the writ of mandamus as improvidently granted without comment. The case therefore went back to the trial court for a fairness hearing on fees.
Prior to the hearing, some informal discovery was taken, Fleming made various submissions, and a master was appointed to look into Fleming's expenses. After a two-day evidentiary hearing, at which we participated extensively, the district court found that it had jurisdiction to review Fleming's fees and awarded $33 million. The court also reviewed Fleming's actual expenses and awarded about $10.5 million.
Fleming appealed, arguing that the district court did not have jurisdiction to review his fee arrangements or the expense allocation and that the fee awarded by the district court was unreasonably low. The defendant filed a brief in opposition to Fleming's position. We did as well, representing Public Citizen as amicus and one of Fleming's clients.
While the case was pending in the Court of Appeal, Fleming sent a letter to his thousands of clients offering to "settle" the fee dispute for what amounted to 15 cents on the dollar, and many of the clients accepted. We asked the trial judge to set those settlements aside on the ground that they were misleading, but those settlements were upheld.
Meanwhile, our individual client also accepted a settlement from Fleming. We then filed a motion to intervene in the court of appeals on behalf of a husband and wife who were also Fleming clients who stood to lose considerable money because of the large fee.
The case was set for oral argument, although the Court of Appeals canceled argument shortly before the hearing and did not decide the case until much later. Nearly three years after the appeal was filed, on March 30, 2000, the appellate court reversed. It ruled that since this case was not a class action and because the settlement did not create a "common fund," there was no basis for altering the attorney fee contracts. The Court of Appeals' reasoning suggests that no fee agreement, no matter the terms or whether circumstances changed after it was signed, will ever be considered unconscionable. The Court of Appeals ignored the issue of the value of the replumb, which was a matter of contract interpretation (whether, under the contract, the 40% properly included the value of the replumb).
We moved for rehearing en banc. Thereafter, Fleming sent our clients a check, which Fleming claims was for the full amount owed before the reversal, and the clients cashed the check. We then a filed another motion to intervene on behalf of other appellants. Thereafter, the Court of Appeals denied the request for rehearing en banc.
D. Status: We are deciding whether to seek review of the appellate decision to the Texas Supreme Court.
E. PCLG Contacts: Alan Morrison, Brian Wolfman.
14. Broin/Flight Attendants Tobacco Settlement
A. Cite: Ramos v. Philip Morris Cos., 734 So.2d 24 (Fla. App. 3d Dist. 1999).
B. Description: This class action was brought by flight attendant Norma Broin and other non-smoking flight attendants against the tobacco companies, alleging that they suffered injuries--ranging from lung cancer and heart disease to sinusitis and chronic bronchitis--because of the effects of second-hand smoke in airline cabins. After an enormous effort in both the trial and appellate courts, the plaintiffs were able to get the class certified. A jury was picked and trial began.
During presentation of the defendants' case, the suit settled. The settlement had two principal components: (1) The defendants would provide $300 million to set up a medical research foundation--named after the lead plaintiff Norma Broin--to study the prevention and cure of tobacco-related illnesses; and (2) a one-year waiver of the statute of limitations, to commence when the settlement became final, on personal-injury actions brought by individual class members against the tobacco companies. In addition, in individual suits, defendants would assume the burden of proof on general causation regarding certain conditions (e.g., whether smoking causes lung cancer). In exchange, the defendants obtained the following concessions: (1) They would not have to pay any money damages to class members as part of the class action; (2) In individual suits, the class members could not seek punitive damages, could not consolidate their cases with other cases or participate in class actions, and could not maintain a claim on the basis of fraud, misrepresentation, RICO, or any other intentional tort theory. Finally, defendants agreed to pay class counsel--Stanley and Susan Rosenblatt--$46 million in fees and up to $3 million in expenses.
C. Public Citizen Involvement: Public Citizen represented 13 class members in opposition to the settlement. We argued first that establishment of a medical foundation was not appropriate because it effectively forced the class members to make a charitable donation in exchange for giving up their valuable class claims. We noted that, because the foundation was aimed at curing and preventing tobacco-related disease, and the class members were already sick, it was doubtful that the foundation, however beneficent its purposes, would benefit the class directly. We also argued that the individual class members' claims would be severely hampered by eliminating class and consolidated litigation and by barring fraud-based claims and punitive damages. Finally, we challenged the huge fee and expense request, and pointed out that class counsel did not provide the detailed time and expense information required for a lodestar calculation by Florida case law.
The trial court approved the settlement and, with one exception, our clients decided to appeal. The appellate court affirmed in all respects, holding that the settlement was fair, without directly confronting our legal arguments. The appellate court also approved the $46 million fee, holding that the counsel's vague after-the-fact description of what they had done was sufficient to meet the requirements of Florida law. Our clients decided not to seek Florida Supreme Court review, but rather to monitor the work of the research foundation. Other objectors sought Supreme Court review, but later withdrew their petitions, and the settlement is now final.
Our principal concern since losing on appeal has been the make up of the foundation board. Class counsel has proposed a nine-person board, consisting of five flight attendants, themselves, the court-appointed guardian ad litem (also a lawyer), and a former U.S. Surgeon General. We believe that, in light of the purposes of the foundation, a majority of the board should be people with medical and scientific expertise. In addition, we believe that someone with a financial background should sit on the board. We appeared at a hearing on this issue before the trial judge. It appeared that the judge will largely approve class counsel's recommendation, although there may be one additional medical person in lieu of one of class counsel.
D. Status: As indicated above, the settlement is final and is being implemented. We will continue to monitor as necessary.
E: PCLG Contacts: Alan Morrison, Brian Wolfman.
15. Dow Corning Breast Implants
A. Cite: In re Silicone Gel Breast Implant Prods. Liability Litig., 1994 U.S. Dist. Lexis 12521 (N.D. Ala. Sept. 1, 1994).
B. Description: In this case, the major breast implant manufacturers agreed with a committee of plaintiffs' lawyers, led by Stanley Chesley, Elizabeth Cabraser, and Ralph Knowles, to a very complex system of adjudicating present and future cases of personal injuries from the implants. In addition to personal injury relief, known as the disease compensation program, for injuries ranging from scleroderma to various neurological syndromes, the settlement provided medical monitoring, money to pay for explantation of implants, and other relief. About one-quarter of the $4.22 billion settlement was set aside for attorneys' fees and administrative expenses. This included fees for the class counsel and fees for counsel who represent claimants in individual cases.
A large number of class members opted out during the notice period. Nominally, the disease compensation amounts were quite generous, but that assumed only a relatively small number of eligible claimants. As it turned out, estimates of eligible claimants with current injuries showed that the numbers were quite high, indicating that the nominal amounts would be ratcheted down very significantly. The ratchet-down process would have triggered another right to opt out. If there were many opt outs, it was clear that the whole deal would fall through and/or the principal defendant, Dow Corning, would seek relief in a non-opt-out class action or through bankruptcy. It eventually did seek bankruptcy protection in Bay City, Michigan, effectively ending the class action.
C. Public Citizen Involvement: We have had considerable involvement from the start of the process because of Public Citizen Health Research Group's work alerting the public to health problems with the implants. We filed numerous objections in the litigation in Alabama. Many were on fairness grounds (e.g., the settlement lasts 30 years, but the compensation amounts are not adjusted for inflation; the spousal claims for loss of consortium are discharged by the settlement for zero dollars). As to fees, since class counsel had not yet requested fees, we did not file formal objections. However, on the question of fees for counsel representing individual claimants, we made numerous suggestions, including that individual counsel be forced to justify their fees in an adversary process run by a court master in which an institutional adversary represented the interest of the class in protecting the settlement fund from excessive requests. These ideas are fleshed out in more detail in a law review article written by two Public Citizen Litigation Group lawyers. See Brian Wolfman and Alan B. Morrison, Representing the Unrepresented in Class Actions Seeking Monetary Relief, 70 N.Y.U. Law Rev. 439, 507 (1996).
With the matter now in bankruptcy, we continue to represent objectors in that venue. A complex bankruptcy plan was approved by the bankruptcy court to compensate tort creditors as part of the overall Dow Corning reorganization. We represent a group of objectors who claim that the proposal unfairly treats spousal (consortium) claimants and claimants with multiple implants ruptures, and is unfair to several other categories of claimants. The bankruptcy court approved the plan, on grounds that displeased virtually all of the parties. Many appeals from the bankruptcy court's order, including one filed by our clients, is pending in the district court in Michigan.
D. Status: As indicated above, the Alabama class action is effectively over. We await a decision from the Michigan district court on the pending bankruptcy appeals.
E. PCLG Contacts: Alan Morrison, Brian Wolfman.
16. GM Truck Settlement (Philadelphia).
A. Cite: In re General Motors Corp. Pickup Truck Fuel Tank Prod. Liab. Litig., 55 F.3d 768 (3d Cir.), cert. denied, 516 U.S. 824 (1995).
B. Description: In settlement of a nationwide class action to obtain repair damages or retrofit of the 5-6 million side-saddle fuel tank GM Trucks, class members were to receive a $1,000 coupon, good for 15 months, toward the purchase of a new GM Truck or minivan. The class included truck owners in all states except Texas. Additionally, class members could transfer the coupon to third parties, but then the coupon was worth only $500 and could not be used in conjunction with the ubiquitous GM rebates and credit deals. There were other restrictions on the $500 coupon which made it virtually worthless. The settling parties' expert himself conceded that 54% of the class members would get nothing at all from the settlement; that expert, however, made statements that were demonstrably wrong and our experts (Jack Gillis, Dr. Paul Bloom of Univ. of N. Carolina, and Clarence Ditlow) had the better of the arguments. We believed that no more than 10% of the class would get any value.
The district court approved the settlement and awarded $9.5 million in fees and $500,000 in expenses.
C. Public Citizen Involvement: We were the principal objectors--representing ourself, the Center for Auto Safety, and numerous class members--in the district court (there were about one-half dozen other objector groups, including various governments (e.g., New York, New York City, Pennsylvania)). We took the lead in providing evidence concerning retrofit options and the valuelessness of the settlement to the vast majority of the class.
No notice of the fee request was provided to the class. Moreover, there was no hearing on fees and we were, thus, very disturbed when the court approved the $9.5 million request. In addition to this problem, after the settlement was struck, several plaintiffs' attorneys who had similar pending state court class actions had their cases magically transferred to the federal action, and they joined in the fee application. They apparently did nothing to improve the settlement or advance their clients' cause.
We were the principal appellant in the court of appeals. We asked that the settlement be rejected and that the fee request be thrown out on the ground that no notice of the fee request was given to the class members. At the least, we argued that we should be given the opportunity to oppose the fee request in the district court (which did not occur, since there was no hearing on fees and we were never served with the fee application).
D. Status: The settlement was approved by the district court in Philadelphia and was argued on August 11, 1994 before a Third Circuit panel which asked questions for over four hours. A smashing victory was handed down on April 17, 1995. The court rejected the settling parties' claims about the value of the settlement (using many of the arguments we had advanced), questioned a settlement that did nothing to fix the trucks (again using our evidence about retrofit), and severely questioned the fee arrangements. The court also tightened the standards applicable to settlement class actions. GM (but not class counsel) petitioned the Supreme Court to review the Third Circuit's decision. We drafted the opposition to GM's Supreme Court brief (in which the other non-governmental objectors joined). The petition was denied on October 3, 1995. We are continuing our efforts to participate in the ongoing litigation and are working toward a favorable resolution. See discussion of GM Truck Case (Louisiana), #18 below.
E. PCLG Contacts: Brian Wolfman, David Vladeck.
17. GM Truck Settlement (Texas).
A. Cite: Bloyed v. General Motors, 881 S.W.2d 422 (Tex. Ct. App. 1994), aff'd and remanded, 916 S.W.2d 949 (Tex. 1996).
B. Description: This is the same case as the Philadelphia GM settlement (see #16 above), except the settlement was to apply only to truck owners in Texas. Thus, the settlement was identical to the one in Philadelphia for truck owners in the other 49 states. One might ask: why did this settlement exist? The only reason we could come up with that made any sense was that the two law firms in the Texas case simply did not want to share the $10 million in fees and expenses sought in the Philadelphia case. Why did GM agree to this when it could have wrapped up the whole nation, including Texas, in Philadelphia? The only plausible explanation that we could think of is that, by settling separately with the folks in Texas, GM was able to buy off potential opposition in the nationwide case. The two Texas law firms asked for $9 million in fees and about $500,000 in expenses (in other words, almost as much as 25 law firms and dozens of lawyers asked for in the Philadelphia action). Astoundingly, GM did not oppose this extraordinary fee request, and the class counsel did not notify the class of the amount (or even an approximate amount) of the fee that they were seeking.
C. Public Citizen Involvement: When we became aware of the GM case in Philadelphia, we were working on very short notice and, with the Center for Auto Safety, wrote objections and obtained comprehensive expert affidavits. Rather than formally enter the Texas case, we simply shipped our brief and evidence down to a consumer lawyer in Texas who used much of our stuff. We lost in the trial court, won in a wonderful opinion in the Texas Court of Appeals, and the Texas Supreme Court accepted the settling parties' discretionary appeal after being urged to do so in amicus briefs by both the Texas Trial Lawyers' Association and the Texas Association of Defense Counsel. During the merits briefing, we wrote an amicus brief for Public Citizen, Consumers Union, and Consumer Federation of America (we actually did two substantive sections on the settlement and fees, and Steve Baughman Jensen of Baron & Budd did an introductory section on class action jurisprudence). Our brief was referred to repeatedly in the Texas Supreme Court argument.
The Texas Supreme Court affirmed and remanded. The Court first held that the Court of Appeals should not have held the settlement to be unfair on the ground that it was a marketing bonanza for GM. The Court believed that the plaintiffs may have gotten nothing in the case if it had gone to trial. The Supreme Court scrapped the settlement nonetheless, holding that counsel has a responsibility to notify the class members of the amount sought in fees, because the clients have an important interest in knowing how the settlement is divided between the relief and fee components. The settlement was thrown out on this ground alone. The Court went on to hold that procedures different from those used by the trial court initially had to be used on remand. First, the Court stated that the class can be certified for settlement purposes only if it can be certified for trial, adopting the Third Circuit's General Motors holding. Second, the settling parties must sustain their burden of proving the fairness of the settlement through live testimony, not simply affidavits. Finally, the court criticized the fees in the case. It questioned the amount of the fee--which it noted amounted to $1,500 per hour--and demanded an explanation as to why a separate settlement and fee was necessary in addition to the nationwide settlement in Philadelphia.
D. Status: This case has been subsumed by the Louisiana GM Truck class action (#18 below).
E. PCLG Contacts: Brian Wolfman, David Vladeck (Steve Baughman Jensen, of the Dallas law firm of Baron & Budd, did substantial work with us on this case.)
18. GM Truck Settlement (Louisiana)
A. Cites: Trial court proceedings: White v. General Motors Corp., No. 42,865, 1st Jud. Dist. (Iberville Parish, La.). First appeal: White v. General Motors Corp., 718 So.2d 480 (La. App. 1st Cir. 1998). Pending appeal: White v. General Motors Corp.. No. 99-CW-1599 (La. App. 1st Cir.).
B. Description: This is a nationwide class action involving the same GM truck defects as in the Philadelphia and Texas class actions, described fully in #16 and #17 above.
C. Public Citizen Involvement: After the Third Circuit rejected the Philadelphia GM settlement (see #16 above) and talks to resolve the federal MDL case broke down, plaintiffs' counsel turned to a dormant Louisiana action, led by attorney Mike Crow of New Orleans. We met with Crow and other plaintiffs' lawyers, at their request, to express our concerns. A settlement was crafted which, although not perfect by any means, our clients decided to support because it would provide a safety fund to develop a fix for the vehicles and because it provided a much better opportunity to create a secondary market for the settlement coupons.
On the safety side, the settlement provides $4 million to study vehicle fuel system safety funded by a trustee, wholly independent of GM. The Center for Auto Safety was concerned that this fund would provide little value to the class members because, under the terms of the settlement, the money could not be used to study vehicles more than five years old (including, therefore, the trucks at issue here). Therefore, the Center, with our assistance, negotiated a companion settlement with class counsel in which $1 million of counsel's attorney's fees will fund safety studies intended to develop a fix for the GM trucks.
In terms of economic value, the settlement provided coupons of up to $1,000 toward the purchase of almost any new GM vehicle. (In the prior settlements, the coupons could only be used to buy trucks and vans.) The principal difference from the Philadelphia and Texas settlements is that steps have been taken to provide a secondary market in the coupons. In fact, two companies immediately showed considerable interest in participating in the notice efforts and helping to create that market. The certificate is good for 33 months (more than twice as long as the certificate in the prior settlements). During the first 15 months the coupon is transferable through a process that requires endorsement (but not the naming of a specific transferee in advance nor notarization). During the final 18 months the coupon's value is discounted but it becomes a bearer coupon which could easily be sold on a secondary market.
As to attorney's fees, counsel for plaintiffs in all the prior actions and the Louisiana action sought approximately $24 million. We worked out a separate written agreement with class counsel to tie the payment of fees to the class recovery. Thus, as soon as the fee is paid, class counsel held $10 million of that fee in escrow, which can only be withdrawn in full if the plaintiffs can prove that 100,000 class members have transferred their coupons on the secondary market for at least $100 each.
The trial court approved the settlement and the fee request on December 20, 1996. The trial judge asked at that time for briefs from former Philadelphia objectors' attorneys on how a $1.2 million fund for payment of those objectors' fees should be allocated. Public Citizen requested approximately $215,000 for our work in the Philadelphia and Louisiana cases.
Other objectors appealed the trial court's approval to the Louisiana Court of Appeal, arguing that the trial court had erred in holding that class certification standards are less stringent in the context of a settlement class action. The Court of Appeal agreed, relying on Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997) (see #2 above), and reversed and remanded for consideration in light of Amchem.
On remand, the trial court made class certification findings under Amchem and re-approved the prior settlement, including the fee components. The prior objectors "settled" their objections by striking an agreement with class counsel and a market maker known as Certificate Redemption Group ("CRG"), which had the potential to expand the $1 million retrofit safety fund (by up to an additional $3 million) by requiring the market maker to contribute additional money to that fund for each certificate it transacts on the secondary market. This deal was driven by the fact that a significant amount of counsel's fees were in escrow and class counsel was required to create a secondary market in coupons to obtain their full fee.
After approval of the settlement, the trial court approved a notice to the class that would make clear the class members' rights to transact their certificates on a secondary market and provide them direct access to a market maker, if they did not want to use the certificate to purchase a new GM vehicle. GM appealed the notice order, perhaps recognizing that this notice program might cost it some real money. We have filed a brief in the Court of Appeal with other objectors supporting the trial court's broad discretion to notify the class in a manner that maximizes class benefits. So, once again, the settlement is on hold.
Meanwhile, in re-approving the settlement, the trial court again asked the former objectors to file briefs on how the $1.2 million in objectors' fees should be allocated. We made a joint request on behalf of Public Citizen and the Center for Auto safety for approximately $345,000 (split about 70/30). In early 2000, one former objector was awarded a fee from the $1.2 million fund, and so we filed a separate motion requesting payment. Much to our surprise, the trial judge denied our request without explanation. Not knowing whether the judge thought that we are undeserving or that he wants to allocate all the other amounts at the same time, we have both appealed his ruling and asked for an evidentiary hearing at which all claimants on the fund can make their case.
D. Status: The appeal regarding notice is fully briefed and we await an argument date. We will continue to be involved on all issues relating to the safety fund and the creation of a secondary market. Our fee request is still in dispute as indicated in the prior paragraph.
.E. PCLG Contacts: Brian Wolfman, Alan Morrison, David Vladeck.
19. Ford Bronco II Settlement
A. Cites: The decision overturning the settlement is reported as In re Ford Motor Co. Bronco II Prod. Liab. Litig., 1995 U.S. Dist. Lexis 3507 (E.D. La. Mar. 20, 1995). There are several other interim decisions on discovery and other issues. The district court also rejected another proposed settlement in January 1997 and explained its reasoning in a March 1997 opinion. In re Ford Motor Co. Bronco II Prod. Liab. Litig., 1997 U.S. Dist. Lexis 104971 (E.D. La. Mar. 7, 1997).
B. Description: The Bronco II's alleged defect is that it rolls over in avoidance maneuvers and other sharp steering situations because its center of gravity is too high, its wheel base is too short, and its suspension system is too rigid. In various class actions, plaintiffs sought retrofit and damages for repair and diminution in value because of the rollover problem. The class actions that were in federal court were sent to the district court in New Orleans by the Judicial Panel on Multidistrict Litigation. There, the plaintiffs' lawyers settled for a warning sticker, and other "safety" information that was already required by NHTSA about how to drive utility vehicles more safely. By lumping together all utility vehicles with the Bronco II, the plaintiffs' lawyers essentially adopted the defendants' view of the case--that all utility vehicles are alike and that roll over is the drivers' fault. The settlement also provided an "inspection" to determine whether the vehicle met Ford's specifications for tire size and vehicle height, the very specifications that the plaintiffs had originally said were defective! The inspection was, in our view, a ploy by Ford to get the 700,000 class members into their showrooms and to buy Ford's cellular phone service (a "free" phone came with the inspection if the class member was willing to buy a subscription to a cellular phone service owned by Ford). In a one-page fee request, class counsel asked for a $4 million fee to be paid by Ford! No time records or expense records were submitted--and yet, Ford did not object to the fee request.
C. Public Citizen Involvement: We were the principal objectors. We took discovery, moved to compel Ford's settlement history in Bronco II rollover personal-injury cases, and filed the briefs upon which the court relied in rejecting the settlement. We also played the lead role at the fairness hearing on November 8, 1994, in New Orleans. We were the only objectors to submit evidentiary materials from experts, with assistance from the Center for Auto Safety, including affidavits from marketing experts, engineers, and a brilliant videotape from an expert who had run side-by-side tests with the Ford Bronco II and the expert's retrofitted vehicle (the former rolled over; the latter did not). Through discovery and our evidence, we were able to show that the settlement was virtually worthless, and that the class counsel had exaggerated the value of the settlement, and had made statements in their briefs that were not accurate.
We were the only objectors to challenge the fees. The federal judge was bothered a good deal by the fee request. We had asked for and obtained all the underlying information with respect to fees and expenses (time records, expense receipts). This material undermined counsel's claim that they had done serious work on the case or had contacted experts at the time they had previously alleged. Further, we were able to show that the amount of the fees was totally out of line.
The settlement was rejected in a blunt opinion, saying that the value of the settlement was "effectively zero." The court also called the fee request exorbitant and suggested that Ford's failure to oppose the fee request was evidence of collusion. We were also successful in obtaining a ruling that counsel are obligated to disclose to the class in the class notice the amount of the fees that will be sought.
Another settlement was presented to the federal court in late January 1997 which bore a close resemblance to the original settlement. The court refused to give that proposal preliminary approval for essentially the same reasons that it rejected the initial settlement. The court again indicated that the fee request (now up to $6 million) was "unconscionable and suggestive of collusion."
D. Status: We will continue to be involved if necessary, but, at present, it appears that there is no effort to proceed on a class basis.
E. PCLG Contacts: Brian Wolfman, David Vladeck. (Robert Graham at the Center for Auto Safety also did significant work on the case, especially in obtaining expert evidence).
20. Chrysler Minivan Rear Latch Defect Settlement
A. Cite: Hanlon v. Chrysler Corp., 150 F.3d 1011 (9th Cir. 1998).
B. Description: Plaintiffs filed class action suits all over the country against Chrysler because the rear latch on its minivan was defective and had a tendency to pop open in collisions, leading to many serious personal injuries and deaths, particularly of children. The class actions asked for damages and that the company be ordered to fix the latch. A case was ultimately filed in federal court in San Francisco and settled on a nationwide basis shortly thereafter. The settlement provided that Chrysler would offer class members a new improved latch if the owner presented the van to a dealer. In addition, Chrysler agreed to spend $14 million to advertise the service campaign (monies which may have already been spent). The problem is that Chrysler had already agreed to replace the latch in an informal agreement with the National Highway Traffic Safety Administration ("NHTSA"), which had launched an investigation into the latch problem. Moreover, at the time the settlement was reached, the retrofit was not yet ready. So, class counsel apparently agreed to something it could not have properly assessed and which the government had already obtained. The agreement provided for up to $5 million in attorney's fees for class counsel.
The district court approved the settlement on the ground, among others, that the settlement is enforceable in court, although Chrysler's promises to NHTSA are not. The judge also approved the full $5 million fee, despite the lack of any evidentiary support for it, on the ground that the fee had been negotiated with the help of a mediator (a retired judge). We appealed the district court's decision. Thereafter, the settling parties discovered that they had failed to notify a sizeable segment of the class (e.g., Californians). Therefore, additional notification was provided and a supplemental fairness hearing was held at which we presented further objections (e.g., evidence concerning Chrysler's slow progress in repairing the faulty latches). The district court again approved the settlement, and we again appealed.
The Ninth Circuit affirmed on all issues in a very disappointing opinion that did not address the objectors' arguments in any detail.
C. Public Citizen Involvement: We represented various class members and the Center for Auto Safety in opposing the settlement. We took discover from class counsel and Chrysler to determine what, if anything, in addition to the NHTSA action has been achieved and how much Chrysler had spent toward the $14 million prior to entering the settlement. We argued that the settlement was unfair because it conferred no real value on the class beyond what NHTSA has already negotiated. We also challenged the nationwide class certification, arguing that it overrode the rights of class members under their state consumer protection and "lemon" laws. Finally, we opposed the fee request on the ground that it was excessive and that it was unsupported by any fee and expense records.
D. Status: In light of the adverse Ninth Circuit ruling, the case is now closed and our involvement ended.
E. PCLG Contact: Brian Wolfman (Colette Matzzie).
21. Ford Mustang Settlement
A. Cites: Dunk v. Ford Motor Co., 48 Cal. App. 4th 1794 (1996), review denied, 1996 Cal. Lexis 7005 (Dec. 11, 1996). Trial court citation: Dale v. Ford Motor Co., No. 661492 (Orange Cty., Cal., Sup. Ct.).
B. Description: The plaintiffs alleged that certain Ford Mustang convertibles had faulty door assemblies and a weak side frame causing wind noise, water leakage, and possible personal injuries (because of weakness in the side frame of the vehicle). The settlement involved a non-transferrable $400 coupon usable toward the purchase of another new Ford vehicle, good for only 12 months. The plaintiffs' lawyers put in no evidence at all about the likely redemption rate of the coupons. They employed no experts, took no discovery, and put in no affidavits about the value of the settlement. The plaintiffs' lawyers asked for about $1.5 million in fees. They drew opposition from Ford on the fees issue. The fee application was wholly inadequate -- no time records, no expense records, and much of the work for which compensation was sought was from another case, not the class action.
C. Public Citizen's Involvement: Other than a few pro se objectors, we were the only objectors to file an opposition and appear in court opposing this outrageous settlement. We put in affidavits, consisting of materials culled during our work on the GM and Bronco cases, and showed that only 2-5% of the class could be expected to get any value from the coupons, and that the rest of the class would get nothing. We also spotted a provision of the settlement agreement that would have allowed the settlement to be used to preclude any future personal injury case involving the Mustang convertible!
The judge was not generally hospitable to our objections at the fairness hearing, which lasted less than 30 minutes. He indicated his desire to approve the settlement, but he agreed with us on the provision regarding personal injuries and, thus, ordered the settling parties to include a provision specifically preserving personal injury cases. The settling parties complied and eliminated the offending language.
The trial court approved the settlement. The court awarded just under $1 million (not the full $1.5 million requested), but without saying how it had arrived at that amount. We also moved for a fee award for ourselves of about $4,000 for making the personal-injury provision improvement (probably of more value than the settlement itself), which was granted over the objections of the settling parties. We appealed, challenging both the valueless settlement and the improper fee award. We argued the appeal in May 1996.
The California Court of Appeals affirmed the settlement approval in August 1996, and further review was denied by the California Supreme Court in December 1996. The decision was a major disappointment. It ignored the fact that most class members will get nothing from the deal. The appellate court reversed the fee award, holding that in coupon settlements, where the value of the "fund" is impossible to ascertain, the trial court must use the lodestar (hourly rate) method of fee calculation. The court thus remanded the case for a redetermination of the fee. Thereafter, the trial court granted plaintiffs' counsel request for $1.5 million in fees, about half a million more than the court originally awarded. No party appealed that ruling.
D. Case Status: The case is concluded. We will continue to represent objectors who wish to oppose similar no-value coupon settlements.
E. PCLG Contacts: Brian Wolfman, Allison Zieve.
22. Vehicle Leasing Class Action I
A. Cite: Laughman v. Wells Fargo Leasing Corp., 1997 U.S. Dist. Lexis 13614, 1997 WL 567800 (N.D. Ill. Sept. 2, 1997).
B. Description: This class action challenged the legality, under the federal Consumer Leasing Act and state consumer protection laws, of the language in certain form contracts used by Wells Fargo to lease cars to consumers. Among other things, the forms allegedly misled consumers about early termination charges, which could cause consumers to pay substantial penalties to Wells Fargo.
The case settled for a $75 non-transferable coupon toward a new car lease with Wells Fargo. In other words, the settlement provided no value for the class members unless they signed a new lease with Wells Fargo. The coupon is good for one year or until 90 days after the expiration of the class member's current lease, whichever is longer. Moreover, in order to get the coupon, class members had to have filed a claim form with Wells Fargo within 90 days of the distribution of the class notice.
The only class member who would get any cash recovery is the named plaintiff Mark Laughman, who would receive $2,000. The record contains no evidence suggesting why Mr. Laughman is entitled to this substantial cash payment.
Finally, class counsel sought $75,000 in fees, about triple his lodestar.
C. Public Citizen Involvement: We assisted Robert Graham, a Center for Auto Safety attorney and former Litigation Group summer intern, in preparing the objections on behalf of several class members. The objectors argued at the January 31, 1997, fairness hearing that the settlement provided no value to the class, released valuable claims under state law, and forced class members unfairly to give up potential counterclaims and defenses in Wells Fargo lease foreclosure actions. We also argued that the differences in state-law rights of this nationwide class precluded class certification. The objectors also opposed the payment to Mr. Laughman and the attorney's fee request.
D. Status: The district court rejected the settlement on Rule 23 grounds under Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997) (see #2 above), holding that, because of differences in state law, common questions did not predominate over individual questions. With the settlement defeated, our involvement is over.
E. PCLG Contacts: Brian Wolfman, Allison Zieve.
23. Vehicle Leasing Class Action II
A. Cite: Clement v. American Honda Finance Corp., 176 F.R.D. 15 (D. Conn. 1998).
B. Description: This case is one in a series of cases brought against financial institutions that finance the leasing of automobiles. The case was brought on behalf of a class of people who leased cars from American Honda Finance Corp., who terminated their leases early, and who were assessed penalties that, according to the complaint, were not properly disclosed at the time the lease was signed. The complaint, both in this case and suits against other financing companies, alleged that the disclosures were inadequate under the federal Consumer Leasing Act, as well as under state laws proscribing unfair and deceptive practices. The federal Act holds out the possibility of recovering $1000 per violation, and various state laws also provide for liquidated damages when unfair practices are proved. The proposed settlement provided that consumers would recover coupons, worth either $75 or $150, that could be applied to the purchase or lease of a brand new Honda vehicle. The coupons were not transferable to anyone other than members of the same household, and they had to be used within two or three years. Under the settlement, the class representatives were to receive $2,500 each, more than the federal statutory damages limit, and the defendant would pay class counsel $140,000 in fees.
C. Public Citizen Involvement: Representing an individual class member, Public Citizen submitted objections criticizing this coupon settlement as offering very little to consumers and arguing that the claims were too disparate to be lumped together into a single nationwide class action settlement. We also challenged the class representative payments and the fees.
D. Status: The court rejected the settlement in a comprehensive, forceful opinion, addressing all of the issues that we raised. The court rejected the settlement on class certification grounds, relying in part on the decision in Laughman v. Wells Fargo Leasing Corp., 1997 U.S. Dist. Lexis 13614, 1997 WL 567800 (N.D. Ill. Sept. 2, 1997) (see #22 above), but also went on to reject the settlement on fairness grounds, and because of the payments to the named plaintiffs, and the attorney's fees.
E. PCLG Contact: Brian Wolfman (Cornish F. Hitchcock).
24. Vehicle Leasing Class Action III
A. Cite: Shore v. Ford Motor Credit Company, 91 M1 202394 (Circuit Court, Cook County, Ill.).
B. Description: The legal basis for this class action is the same as the two previously discussed cases. But the settlement had a bizarre twist: The settlement provided that statutory damages for the class were $425,000. There were, however, well over one million class members, so the agreement provided that 100,000 class members would be picked at random to receive $4.25 in damages, with the remaining class members getting zero in statutory damages. The settlement also provided a mechanism for class members to apply for actual damages, but the claim form and the substantive requirements were so complex and convoluted that it appeared, in our view, that few, if any, class members would qualify.
C. Public Citizen Involvement: We argued that the settlement could not be approved on fairness and class certification grounds. As to fairness, we placed particular emphasis on the complexity of the claim form, and the judge expressed concern in that regard. After several hearings, the judge rejected the settlement on fairness grounds.
D. Status: During the course of the settlement proceedings, another objector group also came forward, arguing that its lawyers should be appointed to represent a more narrowly defined "actual damages" class. After the settlement was rejected, that group of objectors attempted to gain class certification and try the case on its merits. We have taken no active role in that regard, but will review future settlement developments if any.
E. PCLG Contact: Brian Wolfman (Colette Matzzie).
25. Publishers Clearinghouse Rule 11 Appeal
A. Cite: Vollmer v. Publishers Clearinghouse, No. 00-1562 et al. (7th Cir.).
B. Description: This case involves lawyers for class action objectors who have been sanctioned by a federal district judge for seeking intervention and discovery, and for, in the judge's view, objecting for personal gain, rather than to help their client. The underlying class action was brought on behalf of millions of magazine subscribers who claimed to have been duped into buying the subscriptions by Publishers Clearinghouse's ("PCH") sweepstakes and other schemes. In essence, the plaintiffs alleged that PCH's mailings deceive consumers into believing that they are "winners" who can collect thousands, and even millions, of dollars if they purchase PCH's magazines.
The class action settled. The settlement purported to require PCH to reform some of its practices and to set up a claims procedure that would allow class members to seek magazine subscription reimbursement. Without getting into detail, suffice it to say that there are serious concerns about the fairness of the settlement regarding both the injunctive relief (which arguably would allow the defendant to continue much of the complained of practices) and damages (which, because of the amount of the overall relief and the complexity of the claims process, would likely leave most class members with no relief at all). In addition, there were serious questions about whether class counsel was entitled to the hefty $3 million fee that the settlement authorized them to seek. Objectors included various states attorneys general, who had filed their own actions against PCH, and objectors represented by AARP. Nevertheless, the district court approved the settlement and the fee.
During the objections period, a class member named Hawk, represented by two California attorneys, Lynde Selden and Richard Rosenthal, also objected. Hawk was the husband of a secretary in Selden's office, and had come to Selden for representation. Hawk moved to intervene in the case (which was required by Seventh Circuit law to preserve the right to appeal from approval of a class settlement) and sought discovery. At a hearing on the intervention motion, the district judge made clear that he thought that Hawk's objections were frivolous and were made for improper purposes by Selden and Rosenthal. Shortly after the hearing, the judge ordered Selden, Rosenthal, and Hawk to show cause why they should not be found to have violated Rule 11, and demanded that they return for a Rule 11 hearing. The judge buttressed his Rule 11 inquiry by pointing to the fact that Hawk had sought intervention for limited purposes (to take discovery and for purposes of appellate standing) and that their grounds for objection were frivolous. The judge also exclaimed that he had done some ex parte research on the lawyers, which he implied had confirmed his suspicions that they were objecting as "claim jumpers." The judge demanded that Selden and Rosenthal submit evidence of the fees that they had sought in all cases in which they had represented class action objectors, implying that they had done so on a regular basis. (In fact, they had rarely done so).
At the subsequent hearing, the judge determined that Selden and Rosenthal should be sanctioned under Rule 11, and set a hearing to determine the amount of the sanctions. He asked the settling parties' counsel to calculate the amount of fees that they had incurred in dealing with Hawk's objections, which they reported was about $65,000. At a subsequent hearing, the judge imposed a $50,000 sanction and ordered that Selden and Rosenthal pay that amount to a charity in East St. Louis, Illinois. The lawyers appealed to the Seventh Circuit.
Meanwhile, Hawk has continued to press his request for intervention and his objection to the settlement in the Seventh Circuit. Despite a request to have the sanctions appeal and the merits appeal separated, the Seventh Circuit has consolidated them and required that they be briefed together.
C. Public Citizen Involvement: We were asked by the lawyers for representation on the sanctions issue, and agreed out of concern that objectors and their counsel would be chilled if the district court's order were upheld. On appeal, we argue that there was no evidence that the objections were frivolous or for an improper purpose or that Hawk's motion to intervene was inappropriate. In addition, even assuming that Rule 11 had been violated, we argue that the sanction chosen--a payment to a charity--is not allowed by the text of the Rule and is, in any event, grossly excessive.
D. Status: Briefing in the Seventh Circuit is underway, and we await argument and decision.
E. PCLG Contact: Paul Levy.
26. Epstein Collateral Attack
A. Cite: Epstein v. MCA, Inc., 50 F.3d 644 (9th Cir. 1995), rev'd and remanded, Matsushita Elec. Indus. Co. v. Epstein, 516 U.S. 367 (1986), rev'd Epstein v. MCA, Inc., 126 F.3d 1235 (9th Cir. 1997), op. withdrawn and aff'd, 179 F.3d 641 (9th Cir. 1999), cert. denied, 120 S. Ct. 497 (1999).
B. Description: A full description of the facts of this case is too involved for this memo. The reader can refer to the opinion at 50 F.3d 644 for a full rendition. Briefly, this case involves two securities class actions concerning the giant merger of MCA and Matsushita--one in Delaware state court, relying on state law, and one in federal court in California, relying on federal securities law. The common allegation was that two MCA insiders had taken advantage of their positions and were granted favorable treatment by Matsushita compared to other MCA stockholders. Ultimately, a Delaware class action settlement was approved. Under that settlement, MCA shareholders got pennies and the class' claims--including all federal securities claims--were released against all defendants, including Matsushita. The federal securities claims could not be brought in Delaware state court (since federal jurisdiction is exclusive in federal securities matters) and there was no plausible theory for liability under Delaware law against Matsushita, which was not even a defendant in the Delaware action until a settlement had been reached.
The Delaware settlement was approved at a point in time where the California district court had rejected the federal claims on their merits (and had also denied class certification). Thereafter, however, the Ninth Circuit reversed the district court on the merits (holding that the MCA insiders had been given preferential treatment in violation of federal law), and instructed the district court to certify the class. Moreover, the Ninth Circuit refused to give the Delaware class action judgment preclusive effect on the ground that, because the Delaware plaintiffs could not plead the federal securities claims, they should not be able to release them either.
The U.S. Supreme Court reversed. The Court framed the issue as whether a federal court can refuse to give full faith and credit to a state court judgment simply because it releases claims within the federal court's exclusive jurisdiction. Under its prior precedents, the Court said, if Delaware law would give preclusive effect to the judgment, the federal court must also do so. The Court construed Delaware law to give preclusive effect to the judgment releasing federal claims and thus reversed the Ninth Circuit on that question. Nonetheless, a concurring opinion specifically, and, we believe, the whole Court implicitly, left open the question whether the federal court could refuse to give effect to the Delaware judgment on the ground that the class had not received adequate representation under Hansberry v. Lee.
Thereafter, on remand, the Ninth Circuit granted the plaintiffs' motion to submit additional briefing on the adequacy issue, and held, in a 2-1 opinion that because the plaintiffs in the Delaware action had not been adequate representatives for the class, it did not have binding effect. The defendants then asked for rehearing and en banc consideration, and after a considerable delay, one panel member changed his vote, and the court affirmed on the ground that the adequacy issue had been fully litigated in Delaware and thus should be given full faith and credit in the federal courts. The federal court plaintiffs then petitioned the Supreme Court again, arguing that their collateral attack was proper since they had not receive adequate representation in the Delaware action, but the Court denied review.
C. Public Citizen Involvement: At the Supreme Court level, we provided brief-writing assistance and advice regarding oral argument to the plaintiffs. On remand in the Ninth Circuit, we wrote an amicus brief arguing that the Delaware plaintiffs inadequately represented the class by settling the state court claims for essentially zero while releasing the federal claims which are probably worth hundreds of millions of dollars. Despite the Supreme Court's full faith and credit ruling, the fact that the Delaware plaintiffs could not plausibly leverage the federal claim in their negotiations (because they could not be tried in Delaware), we argued, should be seriously considered in the adequacy of representation analysis. We concluded that, on the facts of this case, the Delaware plaintiffs' representation was inadequate and that, therefore, the federal action was not precluded.
D. Status: The federal court action is now concluded in the defendants' favor. Apparently, the federal court objectors are now attempting to have the Delaware courts reconsider its prior judgment on fraud or similar grounds. At present, we do not plan to become involved in Delaware.
E. PCLG Contacts: Alan Morrison, Brian Wolfman.
27. Food Stamp/Home Utility Allowance Litigation
A. Cite: Hannah, et al. v. Glickman, et al., No. 94-3004 (D.S.D.). Related cases: South Dakota v. Madigan, 824 F. Supp. 1469 (D.S.D. 1993), appeals dismissed, Nos. 93-2869, et al.; Larry v. Yamauchi, 753 F. Supp. 784 (E.D. Ark. 1990).
B. Description: This case differs from all but one of the other class action settlements described in this memo in that Public Citizen attorneys represented the plaintiff class, not objectors. In Hannah and the related cases, food stamp recipients challenged a policy of the United States Department of Agriculture ("USDA") that required that federal housing subsidies used by tenants solely to defray their home utility bills be counted as "income" for the purpose of calculating their food stamp allotments. In effect, this policy treated monies dedicated for payment of heating and electric bills as available for the purchase of food, thereby dramatically reducing the food purchasing power of some of the poorest Americans. The plaintiffs argued that the USDA policy violated several provisions of the Food Stamp Act.
C. Public Citizen Involvement: Plaintiffs--represented by a soon-to-be Public Citizen attorney--lost the Larry case in early 1990. Shortly thereafter, we brought the South Dakota case as co-plaintiffs with the State of South Dakota, which also believed that the USDA policy violated federal law. The case was not a class action, and we won in a powerful opinion issued in mid-1993. Meanwhile, USDA appealed its loss in South Dakota to the Eighth Circuit, and we argued the case in St. Louis in May 1994. USDA informed us that it did not plan to implement the South Dakota decision retroactively for all South Dakotans, even if it lost the appeal, even though the statute appeared to require a period of retroactive entitlement. Therefore, we filed the Hannah case, seeking wrongfully denied retroactive benefits for a class of all affected South Dakotans.
Thereafter, with our Eighth Circuit appeal still pending, we participated in discussions toward the repeal of the USDA policy nationwide. These efforts were successful and the policy was repealed as of August 1, 1994. In the Federal Register notice announcing the new policy--which provided $160 million in benefits per year nationwide--USDA adopted many of the legal arguments that we had been making over the years and cited our litigation. The announcement of the new policy effectively mooted most of the South Dakota litigation before the Eighth Circuit, but not the Hannah class action litigation concerning retroactive benefits.
The prospective change in USDA policy set the table for months of negotiations with USDA, which, in January, 1996, culminated in settlement of the Hannah class action, subject to court approval. Under the terms of the settlement, up to $300,000 in retroactive benefits would be divided among the class members, based on individual damages calculations. Public Citizen would receive about $60,000 in attorney's fees. The settlement also included a comprehensive notice program to inform class members about the settlement, instruct them on how to file claims, and permit them to object to the proposed settlement and attorney's fees.
The class action notice and claims forms were sent to class members, resulting in approximately a 25% return rate. The district court held a hearing in July 1996 and approved the settlement. At about that time, we made additional notice efforts beyond those required by the settlement. These efforts included sending a very short notice and claim form to class members who had not already filed a claim form, and using the internet and a CD-Rom address locator to find class members for whom we did not have accurate addresses. Ultimately, over half the class members filed claims and obtained their back food stamps, skewed toward class members with larger claims. In the end, approximately $245,000 of the maximum $300,000 retroactive award was obtained. During the distribution process, we answered many class members' questions and obtained benefits for class members whose claims had run into bureaucratic snafus.
D. Status: All claims have been paid and the case is now closed.
E. PCLG Contacts: Allison Zieve, Brian Wolfman.
28. Trade School Class Action and Settlement
A. Cites: Armstrong v. Accrediting Council for Continuing Education and Training, Inc., 961 F. Supp. 305 (1997); see also 832 F. Supp. 419 (1993), vacated 84 F.3d 1452 (D.C. Cir. 1996), 980 F. Supp. 53 (D.C. Cir. 1997), aff'd, 168 F.3d 1362, amended 177 F.3d 1036 (D.C. Cir. 1999), cert. denied, 120 S. Ct. 785 (2000).
B. Description: In this class action, Public Citizen represented the plaintiffs, who were former students of a vocational school in the District of Columbia, known as NBS Automotive School. The suit alleged that the accrediting agency that certified the quality of the school's program engaged in fraud. Vocational schools that participate in the federal student loan program must obtain accreditation from a private accreditation agency recognized by the Department of Education. The Department relies on private accrediting agencies to identify those schools that are of sufficient quality to qualify for the federal student loan and aid programs. In this action, the plaintiffs alleged that the Accrediting Council for Continuing Education and Training ("ACCET") engaged in fraud and misrepresentation by continuing to represent that NBS was accredited for more than two years after NBS's accreditation had expired, and that the accrediting agency's representations allowed NBS to improperly recruit students and receive federal student loan funds. After investigations of the school were launched by local and federal agencies, the school closed and filed for bankruptcy in 1990.
After the district court rejected the private accrediting agency's arguments that it could not be held liable for fraud, the parties agreed to mediation and a settlement was reached. Under the settlement, each claimant was required to submit a statement verifying that he or she received a federally insured loan to enroll in NBS Automotive School in the District of Columbia during the two-year period that the school's accreditation was allegedly misrepresented. The claimants' statements were verified using Department of Education databases listing the students who have been held responsible for loans arranged by NBS. The mediator adjudicated a dispute concerning the adequacy of the claims in favor of the former students. Ninety-seven former students filed approved claims and a settlement fund of $65,000 was distributed among these claimants in late 1998. As part of the settlement, the accrediting agency also paid the costs incurred in publishing the notice of class certification and notice of settlement.
C. Public Citizen Involvement: Since December 1991, we have been counsel in a number of actions seeking relief for students who attended NBS in various fora, including the complaint in this action alleging fraud by NBS's accrediting agency, ACCET. The district court certified the class in November 1995, and, after extensive discovery and several rounds of motions, we obtained a landmark ruling from the district court holding, for the first time, that accrediting agencies that allow schools to use a false accreditation to recruit students and obtain federal funds may be held liable for fraud or misrepresentation. We suggested that the parties use mediation to pursue a settlement before the trial on the class fraud claim, and that mediation resulted in the settlement described above. Public Citizen waived any claim for attorney's fees as part of the settlement.
D. Status: All claims have been paid and the case is now closed.
E. PCLG Contact: Michael Tankersley.
29. Toy Manufacturers Antitrust Settlement
A. Cite: In Re Toys "R" Us Antitrust Litigation, 191 F.R.D. 347 (E.D.N.Y. 2000).
B. Description: In September 1997, a Federal Trade Commission administrative law judge found that Toys "R" Us had engaged in anti-competitive conduct by using its market power to orchestrate and enforce agreements between itself and leading toy manufacturers to restrict the sale of toys to discount "wholesale" or "warehouse" clubs. Following the ALJ decision, which was approved by the FTC in October, 1998, dozens of federal antitrust nationwide class actions and state parens patriae actions were filed in state and federal courts against Toys "R" Us and the toy manufacturers on behalf of all toy purchasers. The federal cases were transferred for pretrial purposes to the Eastern District of New York and a consolidated class action complaint and an amended parens patriae complaint were filed in April 1998.
Thereafter, the actions settled on a nationwide basis. Although the complaints alleged that the defendants' conduct had cost toy consumers upwards of $60 million of dollars in damages, and sought injunctive relief and treble damages, the proposed settlements did not provide effective injunctive relief nor a monetary recovery to any class member. Instead, the settlements provided that defendants would provide $36 million in toys for distribution to needy children and $20 million in cash to pay for attorneys' fees and costs, with the remainder going to support charities chosen by each State. The injunctive relief consisted of defendants' agreement "not to violate" federal and state antitrust laws.
C. Public Citizen Involvement: Public Citizen represented Joan Yarborough, a Public Citizen employee and frequent Toys "R" Us shopper, in objecting to the settlements. We argued at the October 15, 1999 fairness hearing that the settlement, with its charitable distribution scheme and "do-not-violate-the-law" injunction, was inadequate because it did not provide any benefit to the class members in exchange for the dismissal of their claims. We argued that, in order to be adequate, the settlement should include injunctive relief that would provide class members a true benefit by specifically restricting the behavior of defendants.
D. Status: The district court approved the settlements. It noted that the charitable distribution of toys and money will benefit children nationwide, rejecting the argument that agreements not to break the law amounted to ineffectual injunctive relief, since contempt penalties could be imposed if defendants violated the settlement agreements. The court equated the "deterrent" effect of the agreements on defendants with a "benefit" provided to the class. We did not appeal.
E: PCLG Contact: Erica Craven, Alan Morrison.
30. Computer Monitor Settlement
A. Cite: In re Computer Monitor Cases, San Francisco Superior Court Judicial Council Coordination Proceeding No. 3158
B. Description: This case arises out of the computer industry's alleged misrepresentation of computer monitor screen size. In 1995, the California Attorney General and a coalition of District Attorneys negotiated a successful settlement under which the computer companies agreed to disclose actual viewable screen size and to desist from misleading advertising. Meanwhile, a number of state court class actions had been filed and were consolidated by the California Judicial Council. When the proposed nationwide class action settlement was announced, however, it caused quite a furor in the popular press. In exchange for giving up their rights under state law, the nationwide class (an estimated 40 million consumers, businesses, and governmental entities) would receive a $13 rebate off their next purchase of a computer monitor or system while plaintiffs' counsel would receive $6.1 million in fees and costs. If the class member did not want to purchase a new monitor or computer system, the consumer members of the class could hold on to their rebate forms and submit them for $6 in the year 2000.
After a fairness hearing on June 30, 1997, in San Francisco, and some additional briefing and hearings, the trial court approved the settlement.
C. Public Citizen Involvement: Representing individual objectors, Public Citizen submitted detailed objections criticizing the lack of value to class members and the appallingly high fees for the plaintiffs' lawyers.
D. Status: The settlement is now final and our involvement is over.
E. PCLG Contacts: Brian Wolfman (Colette Matzzie).
31. Prudential Insurance Fraud Settlement
A. Cite: In re Prudential Ins. Co. of America Sales Practice Litig., 148 F.3d 283 (3d Cir. 1998), aff'g in relevant part, 962 F. Supp. 450 (D.N.J. 1997).
B. Description: This settlement involves the largest of a series of massive, nationwide life insurance fraud class actions brought against major insurance companies by the Milberg, Weiss law firm. The basic fraud allegations are three-fold: (1) that agents touted life insurance as good "investments" when in fact they were nothing more than insurance; (2) that agents fraudulently encouraged customers to "replace" their policies with new policies, which meant more premiums and commissions, but generally no countervailing benefit for the customers; and (3) that agents told customers that, after a certain number of years, their premiums would vanish, when in fact the fine print indicated that premiums would only vanish in certain circumstances (depending on interest rates).
The case settled for two types of relief. The first, available to all class members, gave class members discounts and other benefits on class members' existing policies and on new Prudential insurance and financial products. The second provided an alternative dispute resolution mechanism that allowed class members to adjudicate their fraud claims before neutral arbitrators. The settlement also provided that class counsel could seek up to $90 million in fees without objection from Prudential, and class counsel sought the full amount.
Significantly, the settlement released a fourth category of claims, referred to simply as "other" improper sales practices. The complaint made no mention of such claims and no litigation document of which we are aware described these "other" practices, nor did the document setting forth the ADR procedures suggest how such claims could be vindicated. The clear purpose of adding these claims was to provide an all-encompassing res judicata effect to any claim by any Prudential insured during the class period (which extended over 14 years), even those claims that had yet to accrue.
Objectors came forward, most significantly objectors represented by Pittsburgh attorney Michael Malakoff, who was counsel in a West Virginia state court class action limited to West Virginians, that raised some, but not all, of the claims raised in the federal action. Malakoff pursued the objections aggressively by seeking discovery and filing many briefs and other documents.
Malakoff's clients' objections were rejected on their merits in the district court, and the district court approved the settlement and the full fee. The objectors appealed to the Third Circuit on many grounds. The Third Circuit rejected all of the merits objections, but vacated and remanded the fee issue for further evidence concerning the value of the settlement and whether class counsel's efforts could reasonably be said to have created that value. Malakoff's clients sought review in the Supreme Court, which was denied. We have been informed that the ADR component of the settlement was highly successful, resulting in approximately $2 billion in approved claims, about double that which class counsel had predicted when the fairness issue was pending in the district court.
While the settlement approval was pending before the district court, Milberg Weiss sought sanctions against Malakoff, arguing that, in a number of respects, Malakoff's aggressive opposition to the settlement, including his attempt to have the district judge recused, was frivolous. That matter was held in abeyance until after the settlement was approved. Ultimately, however, the district court, affirming in part the recommendation of a magistrate judge, found sanctionable conduct and assessed $100,000 in fees against Malakoff.
C. Public Citizen Involvement: We closely monitored the case in the district court and filed an amicus brief in the Third Circuit that focused on the "other claims" issue, which the parties had largely ignored. We maintained that the release of such claims could not be sustained under Article III's case or controversy requirement or Rule 23 certification standards, and also rendered the settlement unfair. The court of appeals allowed us to file a reply brief (very rare, if not unheard of, for an amicus) and the issue took up considerable time at oral argument, in which we fully participated. However, as indicated, our arguments, like all other arguments against the settlement, were ultimately rejected.
Malakoff's sanction is presently on appeal in the Third Circuit, and we intend to file an amicus brief arguing that he should not have been sanctioned. As in the PCH class action (see #25 above), we are concerned that objectors will be chilled if their aggressive response to class settlements result in sanctions.
D. Status: The merits of the dispute are over. As indicated above, the ADR appears to have been very successful. We are presently providing amicus support on the sanction appeal.
E. PCLG Contacts: Brian Wolfman, Alan Morrison.
32. John Hancock Insurance Fraud Settlement
A. Cites: Duhaime v. John Hancock Mut. Life Ins. Co., 177 F.R.D. 54 (D. Mass. 1997) (settlement approval); Duhaime v. John Hancock Mut. Life Ins. Co., 989 F. Supp. 375 (D. Mass. 1997) (class counsel's fees); Duhaime v. John Hancock Mut. Life Ins. Co., 2 F. Supp.2d 175 (D. Mass. 1998) (fees for objectors); see also Duhaime v. John Hancock Mut. Life Ins. Co., 183 F.3d 1 (1st Cir. 1999) (regarding propriety of objectors' undisclosed side settlement).
B. Description: The allegations in this class action and the terms of the settlement are quite similar to those in the Prudential case described in #31 above. Therefore, the settlement and approval process is not set forth here, except where it differs significantly from Prudential.
The principal feature of this settlement, like Prudential, was the establishment of an ADR system to adjudicate the class members' fraud claims. The settlement differed in one respect in that the claims of certain class members (based on type of policy purchased and from whom) were deemed automatically worthy of monetary relief (presumably because of the extent of the fraud or misrepresentation uncovered during the litigation).
Class counsel requested $39 million in fees, which was the maximum request authorized by the settlement agreement.
C. Public Citizen Involvement: Public Citizen was contacted by former Senator Howard Metzenbaum, a class member (and Public Citizen board member) who found the class notice impenetrable. After reviewing the settlement and notice, we filed objections on Senator Metzenbaum's behalf, focused on notice issues and attorney's fees. As to notice, we were concerned that the original notice to the class made it nearly impossible for class members entitled to automatic relief to know that they were entitled and how to go about getting it.
Regarding fees, class counsel claimed that they were entitled to $39 million because that amount was about 9% of their expert's estimate of the settlement's $400 million plus value. We responded that there was no way of knowing the value of the settlement, particularly its ADR component, until the ADR was complete. Therefore, we recommended granting a partial fee up front, holding back the rest to see whether counsel's prediction was accurate, and then awarding additional fees based on the actual relief to the class. We argued that this staged approach would best align counsel's interests with those of their clients.
On our merits objections, after filing our papers, we were approached by the parties, with whom we negotiated specific language changes for further notices to be sent to class members after settlement approval. These changes would alert class members entitled to automatic relief to both its existence and the method for obtaining it.
As to fees, counsel wanted their full fee up front and no compromise was possible, so we argued the objection to the district court. On the same day that the court approved the settlement on its merits, it also largely adopted our staged fee approach, holding back approximately $16.5 million in fees, and, for the reasons that we had advanced, requiring counsel to file a supplemental application after the results of the ADR process were known.
Thereafter, we submitted our own modest fee request (about $60,000 based on a straight lodestar request), arguing that we had helped the class as a whole both in improving the notice and the fee-award mechanism. In a published opinion that should be useful to future objectors, the district court approved our request and ordered that it be paid out of the $16.5 million in escrowed fees.
With the merits over, we became embroiled in one significant post-judgment controversy. One group of objectors appealed from the settlement approval, and shortly after filing the appeal, "settled" their objections, for significant amounts of cash (in what their lawyer described off-the-record as a far better deal than that accorded the class). Metzenbaum asked for discovery in an effort to obtain further information, arguing that Rule 23 required disclosure and court approval of such side settlements. The district court denied Metzenbaum's request and he appealed. In a very disappointing decision, the First Circuit affirmed, holding that ordinarily such side settlements, even if they indisputably involve favored treatment for certain class members, are not subject to any judicial scrutiny.
D. Status: The settlement has been approved and our First Circuit appeal is completed. When class counsel make their supplemental fee request, we will respond if necessary.
E. PCLG Contacts: Brian Wolfman, Alan Morrison (Douglas Stevick).
33. Oat Cereal Products (Cheerios) Settlement
A. Cite: In re General Mills Oat Cereal Litigation, No. 94 CH 06208, 94 CH 06244 (Cook Cty Cir. Ct, Chancery Div.).
B. Description: This case was brought to recover damages "suffered" by all purchasers of General Mills oat-containing cereals because the oats were sprayed with a trace amount of a pesticide not approved by FDA for use on oats. The settlement gave coupons to the general public to buy more oat-containing General Mills cereals, including such favorites as Cheerios and Kix and less well known (but no doubt nutritious) brands such as Frankenberry and Kaboom. Class members were entitled to these coupons only if they mailed in UPC labels to General Mills; i.e., only if they buy more cereal. The class members could, in theory, obtain a cash refund for one box of cereal per household, but only if they saved the box tops from boxes of cereal purchased more than a year before the settlement! The defendants have agreed to pay the plaintiffs' lawyers $1.75 million in attorney's fees, subject to court approval. The plaintiffs' fee application revealed that counsel was seeking in excess of $1200 per hour--assuming that all hours claimed were accurate, reasonably spent, and non-duplicative--for each partner, associate, law clerk, and paralegal.
C. Public Citizen Involvement: We filed extensive objections to the settlement and the fee. We also moved the court to amend the judgment approving the settlement to state that if the fees are less than the $1.75 million requested that the amount saved go to the class members, not General Mills.
D. Status: A fairness hearing was held in state court in Cook County, Illinois on May 22, 1995. The court approved the settlement (thus, implicitly rejecting all our arguments concerning the lack of fairness of the settlement), but ordered the plaintiffs' counsel to provide additional evidence that their fee was appropriate. After additional materials were submitted, the court also approved the fee request in its entirety. Although we disagreed with the decisions on the merits and fees, we decided not to appeal.
E. PCLG Contacts: Brian Wolfman, David Vladeck (Cornish H. Hitchcock).
34. Airline Antitrust Settlement
A. Cite: In re Domestic Air Transp. Antitrust Litig., 148 F.R.D. 257 (N.D.Ga. 1993).
B. Description: This antitrust class action against all the major domestic airlines alleged price fixing through signaling of price increases/decreases. The settlement gave class members--people who had traveled by plane through certain hubs during the class period--coupons for money off on future air travel.
C. Public Citizen Involvement: We filed objections on behalf of Public Citizen, Ralph Nader, the Center for the Study of Responsive Law, and others. We were helpful in changing certain terms of the settlement (e.g., making the coupons redeemable by travel agents) and were the principal objector to class counsel's $24 million fee request, which was cut to about $16 million. We were awarded about $19,000 in fees ourselves.
D. Status: The settlement was approved by the district court. No appeal was taken and the case is now over.
E. PCLG Contact: Alan Morrison, Brian Wolfman (Cornish H. Hitchcock).
35. CALPERS Intervention Appeal
A. Cite: Felzen v. Andreas, 134 F.3d 873 (7th Cir. 1998), aff'd by an equally divided Court, California Public Employees' Retirement Sys. v. Felzen, 525 U.S. 315 (1999).
B. Description: In recent years, a number of federal circuit courts have held that an absent class member does not have "standing" to appeal a district court's approval of a class action settlement unless that class member has intervened in the action in the district court. Other circuits disagree. Our concern is that an intervention requirement serves no purpose (since an absent class member is already a "party" for res judicata purposes) and is a trap for unwary class members who do not know they must move to intervene in the district court to preserve their appellate rights.
This litigation presented a related issue on which the circuit courts are also split: whether an objecting shareholder must be an intervenor to appeal the approval of a shareholder derivative settlement under Rule 23.1. The Seventh Circuit held that intervention was necessary, and in doing so also held that intervention was required in the class action context. The Supreme Court granted certiorari. The circuit split was never resolved, however, because Justice O'Connor recused herself, and, thereafter, the Court affirmed the Seventh Circuit, without opinion, because it was equally divided.
C. Public Citizen Involvement: Over the last decade, we have maintained that class action objectors need not be intervenors to appeal the approval of a class settlement. Therefore, we wrote an amicus brief when this Rule 23.1 case reached the Supreme Court. Although we believe that intervention is not required in either the Rule 23 or 23.1 context, the Rule 23.1 issue presents an arguably closer question. Shareholders other than the named plaintiffs are not technically "parties," since the case is brought on behalf of the corporation. Assuming that "party" status is necessary to take an appeal (an assumption that we do not think applies in this context), then intervention is arguably required. As noted above, however, absent class members are already parties to the action in all relevant respects, most importantly that they can be personally bound by the class action judgment. Thus, our brief explained why an intervention requirement was particularly inappropriate in the class action context. During oral argument in the Supreme Court, a number of questions focused on the class action-related issues discussed in our brief.
D. Status: As indicated above, the issue was not resolved by the Supreme Court, and the case is now over.
E. PCLG Contacts: Brian Wolfman, Alan Morrison.
36. Dalkon Shield
A. Cite: In re A.H. Robins Co., 880 F.2d 709 (4th Cir.), cert. denied, 493 U.S. 959 (1989).
B. Description: This class action was filed alongside a bankruptcy proceeding initiated by A.H. Robins, maker of the Dalkon Shield IUD, which was the subject of thousands of personal injury cases. The IUD caused many severe health problems including infertility and spontaneous abortions, and the allegation was that the company knew of the problems and hid them. The bankruptcy filing came after numerous substantial verdicts.
The class action was filed against Robins and its insurer, Aetna. One theory for including Aetna as a party in the lawsuit was that Aetna was liable to the plaintiffs under its liability insurance contracts with Robins. In that sense, Aetna was a limited fund, as Robins arguably was in light of its bankruptcy. However, Aetna was also sued as a co-conspirator in the cover-up of the Dalkon Shield's problems and, in that sense, it clearly was not a limited fund since the claims were not limited by the insurance proceeds.
The non-opt-out class settlement provided several billion dollars for victims who would file claims against the Dalkon Shield Trust. The Trustees would make "offers" to claimants based on their injuries. If the claimant wanted to reject the offer, she could go to arbitration or court, but could not recover punitive damages. After the settlement was approved, the judge decided that a claimant who opted to go to court would be subject to a hold back which, in effect, provided that the claimant could only recover $10,000 of any jury verdict up front, with the rest paid only after all (non-court) claimants were paid. Of course, this hold back had the effect of discouraging claimants from going to court.
C. Public Citizen Involvement: We represented claimants in opposition to the settlement and were the principal objectors in the court of appeals, where, in addition to some difficult bankruptcy issues, we argued that the claims against Aetna could not be settled on a non-opt-out basis since Aetna was not a limited fund. These arguments are not dissimilar from the arguments that will be raised in Fibreboard discussed above. We made the same arguments to the Supreme Court where review was denied. We later represented claimants who challenged the holdback in the district court and the court of appeals.
D. Status: The case is over. We lost the original appeal in the Fourth Circuit in a lengthy opinion in which the court held, erroneously in our view, that this was an appropriate non-opt-out case. The Supreme Court denied our petition for review even though there was a split in authority on the relevant issues. We also lost the holdback appeal in the Fourth Circuit.
E. PCLG Contact: Alan Morrison.
Dated: May 26, 2000
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