The Answer Briefs of Class Counsel and the defendants, as well as those of the various amici, all argue that the settlement must be viewed as a whole; we agree. But the whole is the sum of its parts, both positive and negative, and here the Settlement's concessions clearly outweigh its benefits. As we demonstrate below, appellees' responses do not provide meaningful answers to the showing in our Initial Brief that the settlement's three most significant benefits are either vastly overstated or are highly speculative, based on the actual record then before the Circuit Court.
But even more significant is fact that Class Counsel fail to mention the concessions made in their description of the settlement (Br. 10-16), and, in their only real discussion of a trade-off (Br. 56-57 n. 25), it appears that all that was surrendered was the right to seek punitive damages. The prohibition of all class actions, or any other form of aggregation, is not mentioned at all, nor is the elimination of all intentional tort claims, including fraud and RICO.
Before explaining why the bitter plainly outweighs the sweet, we first deal with the claim made by Class Counsel (but not in defendants' brief, see p. 13, n. 2) that the Williams Objectors are not proper appellants in this Court. Finally, we respond to the arguments of Class Counsel (but not defendants) that $49 million in fees and expenses were properly awarded despite the total absence of time records or meaningful information on which a lodestar figure could be constructed, let alone any basis for a multiplier of 5, another point that Class Counsel do not even mention in their brief.
On July 26, 1998, this Court ruled that the Circuit Court should have granted motions to intervene by those objectors who are proper class members; therefore, any person who is a class member and whose intervention motion was denied is a proper appellant in this Court. The opposition to Class Counsel's motion to dismiss filed by the Williams Objectors (Appendix A to this Reply) included documents that established appellants' membership in the class. Since Class Counsel never offered contrary proof, the Williams Objectors assumed that the issue of their right to appeal had been resolved, and hence did not burden the Court with reargument on that point. Our brief (at 7-8) did describe their class membership, and then in footnote 6, page 21, mentioned this Court's prior ruling and reserved the right to reply, if Class Counsel insisted on challenging appellants' status as class members.
Class Counsel contend that, by failing to repeat our arguments in our Initial Brief, we have "abandoned" the victory that we won at the motion to dismiss stage, citing cases requiring a point to be raised "on appeal" to be preserved. But "on appeal" must mean in the appellate court, which we clearly did in successfully opposing the motion to dismiss. If Class Counsel had not moved to dismiss, we would have addressed the standing issue in our Initial Brief, but since we had briefed the issue, and the Court had ruled in our favor, it was unnecessary to burden the Court by rearguing the intervention point.(1)
The only issue that the Court did not decide is whether the Williams Objectors had made a prima facie showing that they were class members (even though the notice did not impose any such requirement). As the attachments to Appendix A, as well as other evidence in the record below (R. 10134-36) demonstrate, we submitted unchallenged evidence in the Circuit Court as to the class status of all 13 objectors, including affidavits for 2 of them. With this record, we assumed (wrongly it appears) that Class Counsel, who supposedly represent all class members, would not attempt to avoid defending the merits of this settlement by insisting that we argue the class status for the Williams Objectors, which no one had contested below or on the motion to dismiss. Accordingly, this effort of Class Counsel to avoid having to defend the settlement and their fees should be rejected.(2)
Before turning to the specifics of the settlement, Class Counsel repeatedly ask the Court to overlook any deficiencies because of the enormous risks that they undertook. We acknowledge those risks, but risks alone cannot justify a finding that any settlement is a reasonable one, let alone one with such minimal benefits for the class and $49 million for Class Counsel. If there were substantial net benefits for the class, then the risk of losing them might support a compromise, but the problem here is that all the benefits flow to defendants, and none of significance go to the individual class members.
A. Limitations. Class Counsel (although not the defendants) put the waiver of the statute of limitations first on the list of benefits, even though there are some class members, such as Angela Williams, for whom it is of no help.(3) But the justifications offered do not answer our basic point that the failure of defendants to make what would appear to be a simple, nearly class-wide motion on limitations grounds speaks volumes about its lack of merit.
Class Counsel notes that defendants' answers all contained what is a standard limitations and repose defense. However, when they did make a limitations motion in December 1996, it applied only to Norma Broin, and it was largely based on her special circumstances. If that motion had been granted, there would still have been 22 class representatives in the case, and so Judge Kaye wisely postponed ruling on it until Stage II. Contrary to defendants' claims that they were "precluded" or "foreclosed" by that ruling (Br. 8, 37) from making a class-wide motion on limitations grounds against those whose claims were "presumptively barred" (Br. 22), the ruling said no such thing. Nor could it logically have been read that way: a decision to postpone ruling on a motion limited to a single plaintiff could not have meant that a motion that might have eliminated most of the class would not have been entertained. Moreover, the notion that defendants were somehow cowered into not moving is hardly believable, especially since they took the far more aggressive stance of moving to decertify the class that Judge Kaye had already approved.
The only rational explanation for defendants' failure to make a broad statute of limitations motion is that they knew it would be futile because plaintiffs had a tolling response that was inextricably tied to their claim on the merits that the tobacco industry had known of, and covered-up, the effects of second-hand smoke. Even if class members knew of the harms caused by second-hand smoke (Defs. Br. 22), it was industry's false denials that would overcome the statute. Since that issue was going to be tried to a jury, there was no way for defendants to overcome it on summary judgment, whether in the guise of a statute of limitations motion or otherwise.
Actions speak louder than words, especially words uttered after a settlement, when their aim is to justify a result. There may be some class members who have real statute of limitations or repose problems, but nothing in the record suggests that these problems are anywhere near as pervasive as appellees and the Circuit Court contend. If there had been a problem of this magnitude, defendants would have made a motion long before trial, and, according to appellees, it would have been granted as to virtually all of the class. The considered decision of defendants not to make such a motion undermines any notion that their waiver of the statute was an important benefit for any significant segment of the class.
B. The Foundation.(4) In our view, there is substantial doubt that the creation of a research foundation can be the principal benefit in a settlement of a money damages class action in which class members receive not a penny. But the Court need not reach that issue because this foundation is so ill-defined, in terms of its mission and its governance, that class members have no reasonable assurance that it will deliver any benefits to them.(5)
If anything, events since the settlement was approved, cited by Class Counsel or their amici, prove how much more information was needed, and how much work had to be done, before the Circuit Court would be in a position to make a judgment about whether the actual operation of this foundation would benefit the class. For example, the meetings described in note 30 of Class Counsel's brief (p. 65) should have taken place, and their results been available to the class and the Court, before the foundation was approved, not afterwards. Similarly, the various substantive comments and organizational matters referred to in Appendix 2 to the amicus brief of John Ostrow are vitally important and should have, but were not, explored by Class Counsel, objectors, and Judge Kaye before any approval was given to the foundation. Since the foundation's research and possible treatment for class members may be the only tangible benefits that many of them will receive (especially for those with modest claims for money damages), it was plainly wrong for the Circuit Court to have postponed these issues until some future date, with no assurances that class members would have any role in the process, or that the foundation would in fact deliver what is, at most, a potential benefit to the class. Indeed, the recent settlement between the tobacco industry and the State Attorneys General includes, as one element of relief, the creation of a $1.5 billion foundation in which the governance structure and the specific functions of the foundation are spelled out in considerable detail, and not left to the uncertain future. Master Settlement Agreement, Sections VI(e),(f) (App. B to this Reply), available at http://www.naag.org/settle.htm. Put another way, this foundation might produce benefits for some class members, but, based on the record below, it was impossible to know whether such hopes would materialize for any significant part of the class.(6)
C. Future Litigation Class Counsel insists that this settlement should not be rejected because, although it delivers no money to the class now, Stage I would not have delivered any either. Instead, they argue, the focus should be on what will happen to individual claimants once the settlement becomes effective. So let's see.
The first question is, what valid causes of action remain for individual class members? All claims of intentional wrongdoing are eliminated, which leaves only such claims as negligence, breach of warranty, and strict liability. But none of these class members bought a cigarette from any of the defendants, and so it is difficult to see how traditional product liability law can come to their rescue. And, despite prodding from objectors, Class Counsel has yet to identify what legal theory, as applied to second-hand smoke injuries, remains available to class members, let alone will lead to any recovery, since the jury will not be told about the industry's massive efforts to conceal the dangers from second-hand smoke, given Class Counsel's agreement to bar all claims for intentional torts.
Second, there must be attorneys ready to take all these individual cases, not just the lung cancer claims, and not just in South Florida, since Class Counsel extol as a virtue the right to sue elsewhere (which class members would have had without the class action). Again, the principal obstacle is the record: it contains only a statement by Class Counsel and a list of 11 law firms that have expressed an interest in representing class members. In a filing that underscores the paucity of proof in the record below, one of these firms submitted an amicus brief to this Court, appending its July 1998 letter to the Miami Herald, that asserts its willingness to handle flight attendant cases after the appeal is decided. Where was that letter, or better yet an affidavit, from that firm when the matter was before Judge Kaye? And why does even that letter not say how many cases the firm will take and for what types of illnesses? And how would the firm respond to the question of what viable causes of action remain, as well as the other problems raised by objectors? And where are letters from the remaining firms?
Once again, it may be that there are law firms, in South Florida and elsewhere, that are willing to handle valid, provable claims for all class members who wish to bring them, but there is no basis in this record to establish those propositions. Although the Circuit Court purported to make "findings" on this and other benefits, they cannot be sustained because there is no record evidence to support them.(7)
D. The Concessions. Appellees' briefs give the impression that the only thing of substance that was surrendered was punitive damages, and even they weren't worth very much because the Circuit Court might have dismissed those claims. Appellees are wrong on both counts.
As to claims for punitive damages themselves, they are valuable not only because they can produce an award that makes a case worth bringing (or as here, increase its worth in settlement), but they also serve the very important function of focussing the attention of the jury on the misconduct of the defendants. Furthermore, the trial court did not dismiss the punitive damages claim, but insisted that defendants put on their case. However, even if the punitive damages claim were not winnable in this case, future individual plaintiffs might have had a better record (bolstered, for instance, by the disclosures in the case brought by Minnesota - see A. 75), but that opportunity has been surrendered forever for the entire class.
At least as important for individual class members is the loss of any right to sue for intentional torts of any kind, not just fraud, but claims under RICO or any other theory that would also focus the attention of the jury on the defendants' misdeeds. Given the lack of privity between class members and sellers of tobacco products, torts based on negligence or traditional products liability, even if legally viable, will have much less jury appeal than intentional wrongdoing, but all of the latter are now foreclosed.
Finally, unmentioned by appellees is the loss of any opportunity to achieve efficiency in litigation by class members. Not only are class actions barred, but so are all other forms of consolidation or aggregation. Thus, if two flight attendants worked side by side for their entire careers, lived in the same building, and contracted the same diseases, their cases could not be tried together. Such mandatory inefficiencies will seriously impede class members in getting their cases to trial, will significantly lessen any incentive for defendants to settle, and will make those cases that are litigated much more expensive to try on a per plaintiff basis. Indeed, every one of the state tobacco cases that settled was an aggregate action (like this case), whereas the industry has never settled with an individual plaintiff.
Class Counsel would no doubt respond that these obstacles are not significant and that experienced trial lawyers have agreed to take these cases notwithstanding these concessions. But there is no direct evidence on this point, let alone have these lawyers been cross-examined on the specific nature of their commitments. Accordingly, there is no basis for any court to accept what is, on this record, merely wishful thinking.
There is one other matter that bears noting. Despite all of the alleged defects in plaintiffs' case, defendants still were willing to pay nearly $350 million to get rid of it. No one has ever accused the tobacco industry of operating a charity. Thus, the only sensible conclusion that can be drawn from these payments is that there were substantial risks to defendants and that the industry got its money's worth. The real issue is, did the class? And on that question this record is overwhelming: whatever benefits the settlement may produce to some class members are far outweighed by the major concessions that were made to obtain them.(8)
The same objections regarding the absence of record evidence and lack of meaningful procedures regarding the merits of the settlement apply with full force to the award of fees. In addition, there are three specific errors of law regarding fees, each of which alone requires reversal of the order approving the fees.(9)
Class Counsel assert that fee awards are reviewed under an abuse of discretion standard, but as the decision in Kuhnlein v. Department of Revenue, 662 So.2d 309 (Fla. 1995), makes clear, a claim that a lower court applied an erroneous legal standard is reviewed de novo. The first error, which goes to the heart of the rationale behind Kuhnlein, is that the submissions of Class Counsel were inadequate as a matter of law to enable the Circuit Court to make the required lodestar determination. Class Counsel's answer is that "reconstructed" fee records can suffice, which is correct, but their submissions did not begin to satisfy that standard. Indeed, Class Counsel's own brief describes their affidavits as "outlining the number of hours" spent (Br. 28) (emphasis added). Our Initial Brief (40-47) details these inadequacies and cites cases that allow reconstructed records. All of them make clear that what is reconstructed must be sufficiently detailed to serve as a replacement for properly maintained time records. Webster's Third International Dictionary p. 1897 (1961) has several meanings for reconstruct, but two are most apt here: "to construct again: as a(1): to build again REBUILD (reconstructing destroyed railroads)," and "d(2) to restore . . . in the original form or in a replica of the original form."
Thus, if one entered a contract to reconstruct a house that was burned down, surely no one would accept performance in the form of an artist's impressionistic rendering, even if it included all of the rooms and the exterior, because it would be of almost no use to the owner. So here, the submissions of counsel are of no use to a concerned client, who wants to know what his lawyer had done to deserve $46 million in fees, nor are they of any use to a court in carrying out its mandate under Kuhnlein to calculate Class Counsel's fee using a lodestar as the starting point. What we said in our Initial Brief, and what remains unanswered by Class Counsel, is, if this is all that is needed for a lodestar, why would anyone care what the Supreme Court said in Kuhnlein? And if there were any doubt on the issue of the kind of record that must be made to support a fee application, two cases cited by Class Counsel -- Loper v. Allstate Ins. Co., 616 So.2d 1055, 1060-61 (Fla. 1st DCA 1993), and Glades, Inc. v. Glades Country Club Apts., 534 So.2d 723, 724-25 (Fla. 2d DCA 1988) -- establish that detailed evidence (generally including actual or reconstructed time records, as well as live testimony) is required and that the trial court is required to make specific findings on the reasonable hours expended, the reasonable hourly rate, and the basis of any multiplier to be awarded.
Second, Class Counsel's principal response to our objection to the use of the time of a doctor to compute a lawyer's fee is that we waived it by not objecting below to this specific defect. Presumably, the Circuit Court was aware of Dr. Rapaport's profession, since it was included in the opinion (R. 11203), and thus our objection would not have mattered. We also strenuously objected to the lack of time to review the papers on both the merits and fees, which were not served until two weeks after our objections were due, only four business days before the hearing. Our failure to note this error was directly attributable to the unrealistic time frame allowed and to our need to focus our attention on the merits of the settlement, which was the first issue the court would have to resolve. But more fundamentally, even if there had been no objectors, the Courts are obligated to follow the law. We do not object to the Court considering the properly documented time of Dr. Rapaport, but there is no basis for including it in a lodestar for an attorneys' fee, and then multiplying it by 5.(10)
Finally, even if the lodestar had been properly calculated, the fee of $46 million could not be upheld because the Circuit Court gave no explanation of why it awarded the maximum multiplier allowed by law. Again, although risk is one factor in setting fee award, it cannot substitute for results, another point that Class Counsel decline to address in their Answer Brief. If this settlement could be lawfully approved, its benefits are marginal at best, and surely cannot justify applying Kuhnlein's highest multiplier. After all, suppose the class actually received the $300 million in the form of cash benefits, or better yet, the figure was $600 million: would Class Counsel have been limited to the same fee as in this case, based on the same lodestar? To ask the question is to answer it.
Class Counsel makes one other desperate effort to save their fee. Although they represent the class and are legally obligated to protect their interests, Counsel argues (Br. 74) that objectors have no right to oppose their fees because if they were reduced, any reduction would be returned to defendants. Counsel did not answer the counter-arguments made in our brief (39-40, see also supra, note 6), but what is even more striking is that defendants, who would supposedly benefit from asserting this theory, have not done so. Nonetheless, Class Counsel, who are supposed to be champions of the class, have put their own interests in preserving their fees ahead of those whom they represent, by standing up for defendants instead of the members of the class and reaching out to undermine a claim that would redound to the benefit of their own clients.
It seems that defendants, but not Class Counsel, understand that "[t]he interest of class counsel in obtaining fees is adverse to the interest of the class in obtaining recovery because the fees come out of the common fund set up for the benefit of the class." Rawlings v. Prudential-Bache Properties, Inc., 9 F.3d 513, 516 (6th Cir. 1993). We do not suggest that Class Counsel had an obligation not to defend their fees, but they do breach their fiduciary duty to the class if they do so on grounds that are unrelated to the merits of the fee dispute and that will, if sustained, benefit defendants and harm their own clients.
The approval of the settlement agreement and attorneys' fees should be set aside, and the case remanded for further proceedings.
Alan B. Morrison Richard I. Bennett
Brian Wolfman The Biltmore Hotel Executive Offices
Public Citizen Litigation Group 1200 Anastasia Avenue, Suite 360
1600 20th Street, N.W. Coral Gables FL 33134
Washington, D.C. 20009
2. As we argued in opposing the motion to dismiss (App. A, p. 10, n.4), class members are entitled to appeal even without intervening. In rearguing the intervention point, Class Counsel cite Felzen v. Andreas, 134 F.3d 873 (7th Cir. 1998) (Br. 42), apparently unaware that the Supreme Court granted certiorari on September 29, 1998, sub nom. California Pub. Emp. Sys.v. Felzen, No. 97-1732, on the very point cited by Class Counsel. See 67 U.S.L.W. 3185.
3. Although, as Class Counsel states (Br. 23, n.13), Ms. Williams began work as a flight attendant shortly before the domestic ban on smoking was instituted, her affidavit (App. A, Ex. 3) explains that she was flying international flights to which the ban did not apply. Therefore, she is properly part of the class, but she has no statute of limitations problem, since she first became ill two or three years ago, after the complaint was filed, when the statute became tolled for the entire class.
4. Class Counsel cannot resist embellishing the purpose of the foundation in the settlement agreement from -- "to sponsor scientific research with respect to the early detection and cure of disease associated with cigarette smoking" (Defs. App. A ¶8) -- to "research for the early detection, treatments [added term], and cures of diseases of flight attendants [replacement for prior phrase]" (Br. 16).
5. Class Counsel's reliance on Bowling v. Pfizer, Inc., 143 F.R.D. 141 (S.D. Ohio 1992), and In re Prudential Ins. Co., 148 F.3d 283 (3rd Cir. 1998) (Br. 63-64), is mystifying because, in contrast to this case, both of those settlements conferred substantial monetary benefits directly on class members. In Bowling $80 million in cash was paid directly to the class, there was a guarantee of $500,000-$2,000,000 if any class member was injured or died from the defective product, and the $75 million research fund was directed solely at the health risks from the product at issue. 143 F.R.D. at 148-50. Prudential provided a fund -- not less than $410 million -- to be divided up among those who proved that they were injured (148 F.3d at 297), which is how most settlements operate when it is not clear from defendant's records who is entitled to recover how much.
6. Class Counsel attempts to downplay the significance of the foundation to the settlement by pointing to the assertion by Judge Kaye that he would have approved the settlement even without the foundation (Br.16). But eliminating the foundation would almost certainly affect the views of many class members, including the class representatives whose support Class Counsel rely on heavily. Moreover, even Judge Kaye's views were colored by the $300 million that will go to the foundation. Thus, when attempting to justify the $46 million in fees, he noted that it was only 15% of the foundation amount and 13% of the combined total (R. 11196). His statement bears on the issue of who would be entitled to any funds resulting from a reduction of counsel fees by making it clear that, formalisms aside, Class Counsel created a common fund, from which they seek $46 million. See Initial Brief at 39-40, infra at 14-15. Thus, in setting their fee, the common fund multiplier of 5 applies, and so does the requirement that unawarded fees belong to the class, just as in Kuhnlein v. Department of Revenue, 662 So.2d 309 (Fla. 1995).
7. Given the magnitude of this case, it was also clear error for the Circuit Court to have decided these issues with such inadequate procedures. Contrary to defendants' suggestion (Br. 42), we do not insist that judges conduct trials to approve settlements, but they must provide procedures commensurate with the issues to be resolved and the amounts at stake. For example, the district court in Amchem Products, Inc., v. Windsor, 117 S.Ct. 2231 (1997), held an 18-day evidentiary hearing, after many weeks of discovery, in order to provide an appropriate record for the appellate courts. See Georgine v. Amchem Products, Inc., 83 F.3d 610, 621 (3rd Cir. 1996). At the very least, something more than five hours of non-evidentiary argument was required to probe the factual and legal issues raised by the settlement. Moreover, there is surely no basis for Class Counsel's assertions (Br. 55) that what emerged from that hearing were "findings of fact" to which some deference is owed, or that the "trial court found that there would be substantial benefits to the members of the class from the foundation" (Br. 63) (emphasis added).
Similarly, Class Counsel mischaracterizes the affidavits of two ad litums as "Findings" (Br. 16), and relies heavily on affidavits from supposed experts, such as Professor John Freeman. But his statements about the number of hours spent by Class Counsel are not based on his examination of any records, but come entirely from what counsel told him; this may explain why his "calculations" (Br. 72) produce exactly 15,925 hours for both Susan and Stanley Rosenblatt for more than six years of work (A.28 at 13-14). Nor is the fact that there was "plenty of information about the case" (Br. 69 n 33) of any relevance to class members who did not know which parts of the record Class Counsel would rely on. In any event, the Circuit Court's opinion did not purport to rely on the whole record (let alone the trial transcript, which is not even filed with the record in this Court), but only the submissions made in connection with the settlement (A.1 at 1).
8. The other claimed benefits either are of minimal significance and would be available to those who opted out of the class (the cost of a video tape that defendants plainly would have to produce) or apply to the world (possible changes in smoking on international flights). The only other arguably direct beneficial change is the shift in the burden of proof on general causation, but the real issue in most cases is not whether second-hand smoke can cause lung cancer or the other covered diseases (on which the evidence is overwhelming), but whether the level to which this plaintiff was exposed caused a particular disease. And on that issue of specific causation, the settlement does not help the class.
9. Our Initial Brief pointed out that the Circuit Court allowed Class Counsel to collect $3 million in expenses with no submission and with no approval by the Court (Br. 48-49). Class Counsel responded (Br. 74 n.35) by quoting the Final Judgment that requires the submission, by November 1998, of a "final cost itemization" to the Circuit Court, but that does not require court approval or provide any role for other class members in reviewing that submission to assure that it is not a hidden vehicle for increasing counsel fees.
10. In a desperate effort to avoid reversal on this point, Class Counsel cited § 57.14 Fla. Stat. 57.104 as a basis for allowing the time for Dr. Rapaport as a paralegal (Br. 72). But that provision plainly does not apply to medical advice, as is clear from the remainder of the statute that Class Counsel omitted from its quotation.