NORMA R. BROIN, et al.,
PHILIP MORRIS INCORPORATED, et al.
This appeal challenges the approval of a settlement of a certified nationwide class action brought by flight attendants who have illnesses attributed to occupational exposure to second-hand smoke. No class member will receive a dollar of the money damages sought in the complaint, but instead the defendants will pay $300 million to create a research foundation and $49 million to Class Counsel for their fees and expenses. Although the settlement confers certain minimal procedural benefits should class members bring individual actions against these tobacco companies, the settlement eliminates all claims for punitive damages, all opportunities for consolidation or aggregation, and all claims based on fraud, RICO, conspiracy, or other intentional torts, which are the class's best weapons and the reason why the defendants settled at all.
The approval of both the settlement and the fees cannot stand. As to the settlement, the diversion of $300 million from the class to a research foundation, especially where there is no basis to conclude that the resaerch will ever benefit any class member, let alone a significant portion of the class, is so unlawful as to vitiate the entire settlement. Moreover, the other alleged benefits -- principally the one-year extension of the statute of limitations -- cannot salvage the deal because they do not provide any significant benefits to the class, and what little help they provide is overwhelmed by the concessions made by Class Counsel. In addition, the procedures followed were fundamentally unfair to objecting class members, whom Class Counsel was obligated to represent, and were so inadequate as to deprive the Circuit Court of a record from which it could determine whether the settlement was fair.
Even if the settlement were approvable, the fee award cannot stand because Class Counsel did not submit the type of information from which a proper lodestar can be determined, as required by Kuhnlein v. Department of Revenue, 662 So.2d 309 (Fla. 1995). Moreover, the fee application was incredible on its face, was contradicted by the record, and sought attorneys fees based on a claim of thousands of hours of service by a doctor. And in awarding $46 million based on the largest multiplier allowed by law, the trial court never stated why so weak a settlement can support the highest possible fees, even taking into account the considerable risk of non-recovery.
The facts are set forth in the Memorandum Opinion and Order of February 5, 1998 (R. 10871-923), and therefore we shall include only those that are necessary to understand the issues on appeal. The settlement arises out of a class action filed by Norma R. Broin and other named plaintiffs on October 31, 1991, on behalf of a class of non-smoking flight attendants who have worked or are working for U.S.-based airlines. R. 1349, ? 48. Defendants are the major tobacco companies and affiliated trade groups. The class includes only flight attendants who are currently suffering from a tobacco-related illness and specifically excludes flight attendants who may contract such illnesses in the future. R. 9083.
A. Pre-Settlement Proceedings.
The plaintiffs assert that, as a result of breathing second-hand smoke as flight attendants, they suffer from many diseases, ranging from cancer to heart disease to infertility to general respiratory ailments. R. 1353, ? 82(b). Plaintiffs seek recovery under Florida law on theories of strict liability, breach of implied warranty, negligence, fraud and misrepresentation, and conspiracy to misrepresent and commit fraud. R. 1375, ? 142. The second amended complaint --- under which the settlement occurred -- seeks only traditional damages relief on behalf of the class for bodily injury, medical expenses, loss of earnings, and pain and suffering. Id. The plaintiffs also demanded punitive damages on account of defendants' "outrageous conduct." R. 1376, ? 144. No injunctive relief, much less the establishment of a research fund, was sought in the complaint.
A major focus in the early phases of the case was class certification. By Order dated May 12, 1992, Judge Kaye denied class certification, plaintiffs appealed, and this Court reversed and remanded for a further hearing. Thereafter, on December 12, 1994, Judge Kaye certified a class, estimated to include 60,000 members, of "All non-smoking flight attendants who are or have been employed by airlines based in the United States and are suffering from diseases and disorders caused by their exposure to second hand smoke in airline cabins" (R. 1866, ?28).
Several points are significant about the certification ruling. First, the claims were understood by all to be solely for money damages, a fact confirmed by the notice that was eventually sent to class members in January 1997. R. 2291, ?2. Second, the class was not limited to those persons who recently began to suffer from second hand smoke and hence were not barred by Florida's four year statute of limitations (or some shorter period of some other jurisdiction). In fact, the court observed that "It is of no moment that different statutes of limitations may apply or that different choice of law provisions may govern" (R. 1865, ?26). Finally, the court emphasized that certification was proper because requiring individual actions (as the settlement does) "would be overwhelming and financially prohibitive to individual flight attendants" (R. 1860, ?13).
Both prior and subsequent to these class certification rulings, the defendants moved to dismiss on a variety of grounds, but at no time did they move to restrict the class to those who became ill within four years of the filing of the complaint because of the statute of limitations. They did subsequently move to strike Norma Broin as a class representative on limitations grounds, but their theory did not apply across the board, but was limited to her special circumstances. R. 2170-91.
After the opt-out period ended on May 1, 1997, the case proceeded to a two-phase trial, beginning with jury selection on June 2, 1997. Defendants' motions for directed verdicts were pending, and the companies were in the process of presenting their case, when a settlement was reached on October 9, 1997.
B. The Settlement.
The basic provisions of the settlement are straightforward. The defendants will provide $300 million, payable in three equal installments, to establish a non-profit research foundation, whose purpose will be to improve early detection of, and find cures for, tobacco-related diseases. R. 9086, ?? 7-8. The Foundation will be managed by a board of trustees, including flight attendants, nominated by class counsel. Id. ? 8. The defendants also agreed to support the enactment of "appropriate federal legislation" to prohibit smoking on regularly scheduled international flights originating or terminating in the United States. R. 9088, ? 11.
Class members may still bring individual suits against the industry to recover for their smoking-related injuries, and the defendants agree to waive, for one year after final approval of the settlement, any applicable statute of limitation or repose. In those individual suits, the defendants would have the burden of proof regarding general causation, i.e. that second-hand smoke causes tobacco-related illness, but only with respect to some of the smoking-related diseases alleged in the complaint. R. 9089, ?12(d). Class members have the right to use evidence submitted in the Stage I trial before the lower court, "subject to all objections by any party," and the defendants shall provide individual claimants a copy of the video testimony from that trial. Id. ? 12(e).
Finally, the settlement provides that class members bringing individual suits may sue in the Eleventh Judicial District of Florida (where Florida substantive law will apply), as well as in any other forum where venue is proper. R. 9088, ?12(c). The class notice, but not the settlement agreement, states that "Class Counsel and other independent counsel will be available to represent Class Members" in individual cases. R. 9140, ? V.
In exchange, the defendants retain certain rights and obtain certain benefits. First, and most significant, although class members may bring individual lawsuits against the tobacco companies, that right is circumscribed in several important respects: (a) no class member may seek punitive damages (or any other type of non-compensatory damages); (b) no class member may seek recovery on any fraud, misrepresentation, RICO, suppression, or concealment theory, or any theory based on defendants' willful or intentional conduct; and (c) no class member may seek joinder with any other plaintiff in a suit against the defendants or utilize any form of aggregated litigation. R. 9088, 9090, ??12(a), 12(g).
Finally, the settlement provides that Class Counsel Stanley Rosenblatt and Susan Rosenblatt will seek an attorney's fee of $46 million and that the defendants will not oppose that request. R. 9087, ?10. The defendants also agreed to pay the Rosenblatts' expenses, estimated at $3 million. Id.
C. The Approval Process.
The day after the settlement was reached, the parties submitted it to the trial court for preliminary approval and for an order providing for notice and setting a fairness hearing. R. 9074. The date chosen was Monday January 26, 1998, and under the parties' proposed order, all objections were to be filed three weeks before that on January 5th. R. 9140, ?? II, VII. The only requirement for submissions by the parties in support of the settlement, or for Class Counsel to submit their petition for fees and expenses, was that all such papers had to be filed seven days before the hearing, which was Martin Luther King's birthday. R. 9076, ?9. As a result, many of Class Counsel's papers, including their Petition to approve the settlement and their fees, were not served and filed until January 20th.(1)
On January 5th, class members Angela Williams, Robert Levine, and Jean Golem filed objections that included affidavits from Williams and Levine showing their membership in the class. R. 9161-92. Subsequently, they were joined by ten other flight attendants, many of whom had filed timely individual pro se objections setting forth their opposition to the settlement and their class membership and who had later contacted undersigned counsel to represent them; each Williams Objector was identified by their airline-employer and the disease they were suffering. R. 10134-36. The Williams Objectors twice moved to intervene, principally to assure that their rights to appeal an adverse decision were not foreclosed by failing to do so, but also to have the right to take discovery which they believed was needed to make the necessary factual record. R. 10852, 10831. At no time below did either Class Counsel or defendants question the class membership of any of the thirteen.(2)
Because the principal claimed benefit from the settlement was the $300 million foundation, the focus of the Williams Objectors was the legality of trading away rights to claims for money damages sought throughout the case for a research foundation that was unlikely to benefit any, let alone a significant number of, class members. Those objections, which are more fully described below, also pointed out that the Foundation could do almost anything it wanted, much of which would be irrelevant to class members who were already suffering from diseases and for whom early detection would be useless. The Williams Objectors also expressed concern over the governance of the Foundation and the lack of any controls over what it would do, other than that Class Counsel would nominate the trustees, subject to the court's approval. R. 9168-69.
When it came time for the parties to support the settlement, the focus shifted away from the Foundation to the waiver of the statute of limitations, which had been mentioned only in passing in the settlement notice. According to Class Counsel, as much as 80% of the class was time-barred, and it was only through this waiver that any of them would ever recover.(3) Counsel never explained how the class, which had no time limits in its definition, had become certified with such a glaring defect, nor how the class representatives, whose claims were supposedly barred, could be adequate representatives for class members, including objectors, who had no statute of limitations problem.
Class Counsel also trumpeted the settlement's other procedural advantages which, in their view, made individual actions realistic opportunities for recovery. In particular, they claimed that twelve law firms in South Florida that had agreed, after the settlement was announced, to represent class members in individual actions. R. 9817. The record contained no written assurances from these firms as to the number or kind of cases they would handle, or whether they would handle claims based on asthma, sinusitis, and other less serious illnesses which, as the Report in note 3 makes clear, comprise the vast majority of the claims suffered by class members. Moreover, these firms are only in South Florida, but many class members live elsewhere and, under the settlement, can sue wherever venue is proper.
The Foundation was also defended, but only in the most conclusory terms: the fund "would inure to all class members' benefit" (R. 9815) and provide "a definite benefit to all class members" who "would have an opportunity on an ongoing basis to be kept advised as to the Foundation" (R. 9816). Nor was there any explanation of what the Foundation would do, who would govern it, what types of research would be conducted, and how it would result in direct benefit to class members who, by definition, already suffer from a smoking-related disease.
Defendants filed a separate memorandum supporting the settlement, predictably emphasizing all the hurdles that the class had to overcome before establishing any of the elements needed to prevail, let alone be entitled to recover actual damages. R. 9854-9919. What the memorandum did not explain was why, given those alleged weaknesses, the companies were willing to pay $349 million to the Foundation and Class Counsel.
The procedures crafted by Class Counsel for attorneys fees were similar to those for the consideration of the merits of the settlement agreement: objections first and then the supporting documentation. For the merits, at least there was an 18-page settlement agreement from which objectors could glean the claimed class benefits, but for attorneys fees and expenses, all that was known was that Class Counsel would ask for $46 million and $3 million, respectively, and that the defendants would not object. Nonetheless, objections to fees also had to be filed on January 5, 1998. The Williams Objectors opposed the size of the award, especially in light of the minimal benefits to the class from the settlement. R. 9176-80. They also set forth the applicable law, based on Kuhnlein v. Department of Revenue, 662 So.2d 312 (Fla. 1995), which requires courts to use the lodestar method and, in common fund cases like this, permits a multiplier of up to five where exceptional results are obtained. But beyond that, objectors could do nothing until the fee application and supporting papers were received which, as noted above, was not until January 20, six days before the hearing.
Despite both the mandate of Kuhnlein and the size of the fee request, there were no time records submitted for any attorney for any time period, even for the two years after Kuhnlein removed all doubts that the lodestar would be used in common fund cases like this. The two principal lawyers on the case -- Stanley and Susan Rosenblatt -- submitted affidavits totalling less than twelve pages, and the other six people in their office, whose time they included in their lodestar and for which they also sought a maximum multiplier of five, submitted their own affidavits of two or three pages each. R. 9715-21; 9767-74, & 9782-93. Two of the attorneys were hired in March 1997, just for the trial, and another worked from May 1991 to May 1992, at the beginning of the case. The largest portion of "associate" time that Class Counsel sought to include in the lodestar was that of Stanley Rapoport, who is not a lawyer, but a doctor who is a Rosenblatt employee. He claims to have worked 60% of his 65 hours per week for 6.5 years on Broin (R. 9767-68), for a total of 13,000 hours, or nearly one-fifth of the total of 67,166 hours in the lodestar used by the Circuit Court (R. 10920).(4)
The second notable aspect of the fee affidavits was the sheer number of hours that each affiant claimed to work each week (four of them for 6.5 years), not including the 6 months immediately before and during the trial when work weeks allegedly increased considerably. Both Stanley and Susan Rosenblatt claim to have worked 69 hours a week, with at least 65 percent of his time, and 70 percent of her time, spent on Broin. R. 9783, 9790. These hours are alleged to be billable hours, six days a week (they do not work on the Sabbath or Jewish holidays), for the entire time until June 1997 when they increased their billable hours to 95 per week. Id. Their associates also claimed similar work schedules in the pre-trial period: Schneider (65 hours/week), Rash (70-80 hours/week), and Davis (70 hours/week). R. 9715-21. Even Doctor Rapoport was working 65 hours each week. R. 9767-68. Apparently, those averages include time off for holidays and sickness, but allow for a two-week vacation.
Third, it is impossible to determine from these extremely general affidavits what legal work was done by whom. Recognizing that the affidavits alone would not suffice, the Rosenblatts submitted a 136-page statement setting forth all of the services performed in the case. R. 9954-10089. It is not a chronological list, nor is it a summary of services by types of activities, i.e., research and drafting complaints, defending motions to dismiss, work on class certification, discovery, factual research, and trial preparation, to list just a few major topics. Moreover, it did not attempt to remedy the absence of time records by estimating what amounts of time were spent (and by whom) on specific categories of work. Instead, the first 19 pages are an overview of what was done, and the remainder is an amplification and repetition of the summary. In short, the statement shows what everyone admits: the case was very complex and time-consuming, but no more.
Fourth, none of the attorneys regularly charges an hourly rate, but each asserted what they believe to be a reasonable rate at this time (even though the services may have been performed six years earlier). Supporting affidavits from members of the bar agreed generally with the rates claimed, but neither Class Counsel and their associates, nor the other affiants, provided any explanation of how they determined the rate for each attorney. Moreover, most of the affidavits, including those of lead counsel, have very little detail as to their experience in general, let alone their experience in complex class litigation, such that they could reasonably be expected to be paid at the rates of $175/hr (for someone admitted in 1995) to $300 and $350/hr for Susan and Stanley Rosenblatt. The affidavit of Burton Young states that the specific rates he sets forth are reasonable, but his specialty is family law (R. 9930), and this is a products liability class action. The other attempt at specificity cited a survey of hourly rates in the National Law Journal, but it contained no information for Miami (R. 10409).
Class Counsel sought a multiplier of five, and they emphasized the high risk in this case, which objectors never disputed. But their papers barely mentioned the other essential component of a multiplier -- the results for the class. In particular, neither they nor their supporters ever attempted to measure this settlement against what a victory might have achieved if the compensatory and punitive damages that the class notice of January 1997 said were sought were actually recovered for the entire class. Instead, they discussed the numerous obstacles to victory and the non-monetary benefits from settlement, factors that, at most, bear on whether the settlement should, on balance, have been approved.
The fairness hearing was conducted like an appellate argument: no witnesses were allowed, and only counsel argued. Despite the complexity of the matter, the argument of counsel for the parties, five sets of objectors, and the two Ad Litum took only a little more than four hours. R. 10632, 10747, 10801.
D. The Opinion Approving the Settlement and Fees.
Ten days later, Judge Kaye issued his decision approving the settlement largely because of the difficulties that he saw in plaintiffs' case. The judge first addressed the claimed benefits from the waiver of the statute of limitations in ten lines (R. 10888-89). He asserted that "nearly all class members with disease [which is, in fact, all class members] faced serious statute of limitations problems," and he noted that defendants had moved for summary judgment "as to the Class Representatives under the statute of limitations" on which he had deferred ruling (id.). But he never explained how the class was certified, let alone got to trial, with such an alleged facial defect. He returned to the limitations issue when he cited the affidavits of Class Counsel and others who concluded that "many claims on their face, are time-barred" from which he found, without further explanation, that "almost all class members faced substantial risks with statutes of limitation/repose defenses raised" (R. 10904).
Judge Kaye's discussion of the alleged benefits from the Foundation was similar. He provided no explanation to support his assertion that the Foundation "will provide benefits to all class members" (R. 10898) and that "members with disease will benefit from research as to cures and will also benefit from the early detection of diseases for which they are at risk of developing" in addition to those which they already have to qualify as class members. Id. He then added that, even without the Foundation, "the benefits of the other non-monetary provisions of the proposed settlement warrant approval of the settlement." Id. Finally, he stated that there is authority for establishing a foundation with the proceeds of recovery, even where it "will not directly benefit class members. Edwards v. Alaska Pulp Corp., 920 P.2d 751, 753 (Alaska 1996)." Id.(5)
The court also found that the other claimed benefits supported the settlement. In particular, it accepted the representations of Class Counsel as to the availability of trial counsel in South Florida to represent individual class members on a reduced fee basis, although there was no written promise by any firm in the record, let alone assurances that class members with less serious illness would be represented in Florida or where they lived. R. 10883. And, as noted above, in assessing the settlement, the court devoted considerable time to pointing out the weaknesses of plaintiffs' case but did not conclude that it was hopeless, just that their chances were "far less than 50/50" (R. 10890). Barely noted were the very significant concessions on punitive damages, aggregation, and elimination of all fraud, conspiracy, and intentional torts claims from future litigation.
The court concluded that "the objectors have not established sufficient grounds to convince this Court to reject this settlement" as if they had the burden on that issue (R. 10905). The judge also found, again without amplification, that the objectors' attorneys "have not established standing on the part of their clients" and "[a]lternatively, the objections raised are legally and factually insufficient." Id.
Turning to the issue of attorneys fees, and notwithstanding the limited record, Judge Kaye approved the $46 million fee request in its entirety. Even though he used Class Counsel's proposed multiplier of five, which, under Kuhnlein, is only available in common fund cases, he treated defendants' fee payments as completely separate from their payments to the Foundation because it "was not the intent of the parties to create a common fund" (R. 10810). He stated that the number of hours expended was 67,166, but did not explain where that figure came from (none of the individual affidavits had a total for the affiant) or how he picked the hourly rates chosen (R. 10919), some of which differed from the rates in the fee affidavits. Instead, he simply concluded that Class Counsel's submission "supplies the Court with a sufficient basis to determine a reasonable fee using the lodestar approach" in Kuhnlein, while also noting that the $46 million is 15% of the Foundation funding and 13% of the combined amount (R. 10913). His review of the services rendered was limited to a single page (R. 10914) and simply discussed the principal issues in the case. In the end, it appears that Judge Kaye did not actually use a lodestar method, but instead employed a variety of alternatives to justify the fee sought (R. 10919-22).
When it came to setting a multiplier, his focus again was on the chance of success which, he repeated, was "much lower than 50/50" (R. 10921). The court had previously noted the results obtained when assessing the significance of the litigation (R. 10917), but even that nine line paragraph lacks a single adjective of high praise for the results that would be expected before the maximum multiplier was awarded. Judge Kaye also did not attempt to measure these results against what would have been achieved if the class had won at trial.
Finally, Judge Kaye did not examine the $3 million request for expenses, nor could he have done so since Class Counsel made no submission whatsoever to justify that amount. That was in keeping with the settlement agreement which only required the defendants, after court approval of the settlement, to pay Class Counsel $3 million "which Class Counsel estimates to be the appropriate level of costs in this litigation" (R. 9087-88, ?10). Class Counsel is obligated only to "provide an appropriately documented statement of costs" to defendants, not the court, and any difference between that statement and the estimate "will be added to or subtracted from the fee approved by the Court." Judge Kaye was given no role on expenses by the settling parties, and he simply allowed them to carry out their agreement.
I. The settlement was improperly approved because the minimal benefits fall far short of the concessions made. In exchange for the dismissal of all class claims, class members will receive not a dollar, but only the right to start their own individual lawsuits, in which they will no longer be able to assert claims for punitive damages or rely on the theories based on fraud, conspiracy, and other intentional torts, which are the class's strongest claims. The defendants will make a $300 million payment, but it will go to a research foundation that will focus on diseases related to smoking, not to class members. Because the class was certified solely as one seeking money damages, there was no legal basis to transform the relief requested. Moreover, the structure and mission of the Foundation are so open-ended that there is no basis to conclude that any member of the class will receive any benefit from it, let alone the medical treatment that they all need.
In contrast to the settlement's concessions, which are clear, the claimed benefits are largely illusory. The extension of the statute of limitations would be useful only if there were a problem, and defendants' own conduct proves there is none. Thus, at no time in the more than six years that this case was pending, did defendants move to dismiss anyone but named plaintiff Norma Broin on this ground, even though this supposed problem would apply to almost everyone. The reason why no such motion was made is equally obvious: given the allegations of fraud and concealment, any such motion would have been futile.
The theory behind the settlement is that all class members will now be able to maintain their own lawsuits, but that theory depends entirely on hope, not record evidence. Class Counsel claim that twelve Florida law firms will take on these cases, but there is not a single letter or affidavit from any of the firms making such a promise, let alone agreeing to handle the vast majority of claims that involve modest damages and the certainty of an all-out defense by the industry. Furthermore, since most class members do not reside in Florida, assistance from these firms will be of little or no help to them. The possibility that an appreciable number of these cases will be brought is further undermined by the elimination of punitive damages, consolidation, and the class's most promising theories of recovery.
II. The Circuit Court's approval of $46 million in attorneys fees must also be reversed because Class Counsel did not supply the information to enable the court to calculate a lodestar. They kept no time records and made no attempt at reconstruction. Instead, they submitted the most sketchy affidavits, making inherently unbelievable assertions as to hours spent, with no description of the tasks performed by which attorneys in which time-frames. The only other submission was a statement of services that lacked any organization and that simply repeated, sometimes in identical language and sometimes in different formats, general statements as to the types of work performed. If this submission suffices, the Kuhnlein mandate to use a lodestar is meaningless.
The court also erred in awarding the maximum multiplier allowed by law, principally because it did not take into account the very limited benefits, if any, to the class. Although the risk of non-recovery was great here, Kuhnlein itself allowed a multiplier of 5 only because the class recovered 100% of what was sought. Here, by contrast, class members will receive no money, but only the right to start another lawsuit, shorn of the best claims, plus a hope that the Foundation may find a cure for the diseases they already have. Those are not the benefits that produce multipliers of 5 and fees of $46 million, on top of $3 million in undocumented expenses.(6)
I. THE SETTLEMENT COULD NOT BE APPROVED AS A MATTER OF LAW.
To obtain a settlement, Class Counsel agreed to abandon this certified class action that had been on trial for four months and to eliminate the right of class members (i) to sue for punitive damages, (ii) to bring another class action or use any other form of aggregation or consolidation in litigation against defendants, and (iii) to rely on claims of fraud, conspiracy, RICO, or any other type of intentional tort in any future suit against defendants. To support these major concessions (which the Circuit Court barely mentioned), Class Counsel relied on three categories of alleged benefits: (A) the $300 million Foundation, (B) the extension of the statute of limitations for one year, and (C) various procedural and other advantages that the settlement confers on class members who actually bring their own individual actions. As we now show, the Foundation is not lawful consideration for the rights surrendered and does not, in any event, provide any significant benefit to the class; the extension of the statute of limitations is virtually meaningless; and the procedural advantages are quite modest and will be useful only if class members are able to sue, and there is no evidence to support Class Counsel's claims that attorneys will be willing to take these thousands of difficult and generally low-dollar cases.
A. Creating a Foundation Was Not Proper Consideration
To Settle This Damages Class Action.
When the settlement was announced, the focus was on defendants' $300 million payment to establish a research foundation. It is the first substantive matter in the agreement (R. 9086, ??7-8), followed by counsel fees and expenses (?10), the promise to support legislative bans on smoking in international flights (?11), followed in ?12 by the various litigation changes (good and bad), including the statute of limitations (?12(b)). The only thing of value that defendants actually gave up on their own is the payment of money: the rest depend on someone else -- Congress to enact legislation and class members and their lawyers to bring individual suits. Thus, in assessing the benefits to the class, it is obvious that the Foundation is the centerpiece, notwithstanding Class Counsel's attempt to downplay it in their Petition seeking court approval, or as the Circuit Court found when it decided that the settlement could be approved without it (R. 10904). The vital role that it plays in the settlement is best understood by asking this question: Would Class Counsel ever have proposed, and would the class ever have supported, a settlement that simply included the legislative support and procedural change provisions (plus attorneys fees and expenses of $49 million), but no Foundation?
We assume for purposes of this appeal that the combined value of the benefits ($300 million, plus various arguable future litigation advantages) roughly equal the costs to the class (various future litigation disadvantages, such as the waiver of punitive damages). And we also assume, but do not concede, that a $300 million cash payment to the class members themselves would be a reasonable settlement in light of the risks of litigating the class action to final judgment. The fundamental problem is not the amount of the payment, but that it is going to a research foundation, and not to the class members.
The class representatives and Class Counsel have decided to trade the most significant components of the class members' claims (punitive damages, fraud-based and intentional torts, and the right to aggregate) for a research foundation they will control. If Norma Broin and other class members want to sell their claims in that fashion, they are, of course, free to do so, but neither Florida law nor the Constitution of the United States allow them to trade the Williams Objectors' or the other absentees' claims as the settlement does.
There is reason to doubt whether the Foundation will be of any value to any class member. After all, billions of dollars have been spent to date to cure cancer, with little discernible effect, especially on lung cancer. But even assuming that the $300 million will be put to good use, the money must be used exclusively for the benefit of the class. For example, Ms. Williams has early-onset asthma, which requires medication and has dramatically altered her life style. R. 9182-83, ?? 3-6). Similarly, Mr. Levine, like many other class members, suffers from severe sinusitis. R. 9184-85, ??3-5. Any Foundation money spent for "early detection" of tobacco-related disease simply will not assist Ms. Williams, Mr. Levine, or any other class member since, under the class definition, they all already suffer from some smoking-related disease. Moreover, for class members who already have serious, terminal ailments, such as many of those listed in the second amended complaint (e.g., stomach cancer), a research foundation directed to cure future disease cannot conceivably benefit them. Indeed, the class includes the survivors of former flight attendants for whom a research foundation is of no possible benefit. In sum, the core component of the settlement -- the $300 million research foundation -- renders the settlement fundamentally unlawful because the Foundation will not benefit the persons on whose behalf the class action was filed. See Eisen v. Carlisle & Jacquelin, 479 F.2d 1005, 1018 (2d Cir. 1973)(non-monetary recovery of no benefit to class would violate due process), vacated and remanded on other grounds, 417 U.S. 156 (1974).(7)
Nor can the settlement be justified on a cy pres theory. In some circumstances, a limited portion of a class action fund can be directed to a charity whose purposes directly relate to the relief sought in the complaint. See, e.g., In re Agent Orange Prod. Liab. Litig., 818 F.2d 179, 184-86 (2d Cir. 1987). Such cy pres disbursements are permissible when there is left-over money following distribution of a cash fund and further distribution is impractical. Because the settling parties here make no such claim, the creation of the Foundation is an improper use of settlement proceeds. In re Matzo Food Prods. Litig., 156 F.R.D. 600, 606 (D.N.J. 1994)(rejecting settlement because payment went to charity rather than to class members).
The conclusion that a "charitable giving" theory is unacceptable here is underscored by the jarring disconnect between the establishment of the Foundation and the damages such as lost wages and medical expenses sought in the second amended complaint, on which the trial was conducted. Ms. Williams, for instance, has ongoing medical expenses relating to her adult-onset asthma. If we assume that her expenses and lost wages will come to $10,000 over her lifetime, it is difficult to see how a $10,000 charitable contribution to combat smoking-related disease will get Ms. Williams one step closer to recovering those losses. See Jewish Guild for the Blind v. First Nat'l Bank in St. Petersburg, 226 So.2d 414 (Fla. 2d DCA 1969)(where testamentary trust provided for acquisition or construction of separate building for blind children, cy pres doctrine did not permit installation of facilities in existing building, even though trust principal was inadequate for acquisition or construction of separate building); In re Ford Bronco II Prod. Liab. Litig., 1995 U.S. Dist. Lexis 3507, *19 (E.D. La. 1995)(rejecting class action settlement in part because settlement provided only a non-monetary package of benefits and none of the damages relief sought in complaint).
Class Counsel's decision to direct the settlement's benefits to a charitable foundation also demonstrates a lack of adequate representation under Rule 1.220(a)(4). As noted above, the second amended complaint seeks only compensatory and punitive money damages to pay for the class members' personal injuries. When notified of the class certification and their right to opt out in January 1997, the class members were told the same thing: that this class action sought damages for tobacco-related injuries. And when plaintiffs tried their case in chief, they were attempting to establish defendants' liability so that the class members could come forward in "Stage II" and prove their money damages.
Little did the absent plaintiffs know that lead plaintiff Norma Broin's chief goal in this class action was not to collect the money damages that she demanded in the complaint or proclaimed in the January 1997 notice, but to prove a point:
We have accomplished a huge amount of what we set out to do. This [lawsuit] was never about money to me. It was
about exposing the lies, deception, and fraud [of the tobacco industry].
"Ex-Utahn Sought Truth, Not Money," The Salt Lake Tribune (Oct. 11, 1997)(quoting Norma Broin)(emphasis added). R. 9188.
The inadequate representation that upended the settlement in Amchem Prods., Inc. v. Windsor, 117 S. Ct. 2231 (1997), pales in comparison to the inadequate representation here. In Amchem, the named plaintiffs entered into a settlement that would provide them cash payments if they contracted certain asbestos-related diseases. The Court ruled that the named plaintiffs were not adequate representatives under Fed. R. Civ. P. 23(a)(4) -- the federal counterpart to Rule 1.220(a)(4) -- because they sought to represent both currently-injured class members and those who might be injured in the future. Id. at 2250-51. As the Court pointed out, the interests of these two groups were divergent because currently injured plaintiffs would be seeking to maximize current benefits, while those seeking insurance against future injuries might want protections against inflation, a future opt-out right, and other benefits that the settlement did not provide. Id. at 2251.
But at least in Amchem there was a direct nexus between what the plaintiffs sought in the complaint and the benefits provided in the settlement: cash recoveries for the present or future asbestos-related injuries of the class. And despite the settlement's crippling intra-class conflicts, the settlement did, in fact, provide cash recoveries. Here, by contrast, the complaint has Norma Broin leading the charge to collect money damages for class members such as the Williams Objectors, but she now proclaims that "[t]his [case] was never about money to me." Thus, the settlement establishes a research foundation but pays no money to any class member. Indeed, it tells the class that their only chance of recovering damages is through the very type of individual litigation that the class action was brought to avoid.
Finally, as the U.S. Supreme Court has said repeatedly, the requirement of adequate representation in state-court class actions has its roots in the Fourteenth Amendment's Due Process Clause. See, e.g., Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812 (1985); Hansberry v. Lee, 311 U.S. 32, 42-43 (1940); see also Matsushita Elec. Indus. Co. v. Epstein, 116 S. Ct. 873, 889 (1996)(Ginsburg, J., concurring). Because the causes of action held by absent class members are a form of property protected by state law, see Logan v. Zimmerman Brush Co., 455 U.S. 422, 428-29 (1982), they cannot be compromised unless the named plaintiffs have provided adequate representation. Shutts, 472 U.S. at 812. Although the Florida Supreme Court has yet to develop a due process class action jurisprudence, we have no doubt that Article I, Section 9 of the Florida Constitution -- which is modeled on the Fourteenth Amendment's due process clause -- incorporates the same principles enunciated by the Supreme Court of the United States.
Here, it is uncontested that the named representatives have drastically altered the nature of the class members' rights in their causes of action. They can no longer seek punitive damages. They can no longer bring any claim based on fraud, concealment, or any other intentional tort theory, which is quite troubling since the plaintiffs' strongest causes of action are those based on fraud and deceit, and, according to Ms. Broin, the class action was principally "about exposing the lies, deception and fraud" of the tobacco industry. Class members will also no longer be allowed to join with others in fighting the tobacco industry, and the $300 million extracted from the defendants in compromise of the claims of the class (which are worth far more than the sum of the individual claims) is not going to the injured flight attendants but to the Foundation. If the Florida class action rules permit this kind of settlement, the Due Process Clauses of the Florida and United States Constitutions do not because the representation of the class is wholly inadequate.
Even if it were lawful to create a foundation in settlement of a damages class action, this Foundation cannot be so used because there is no reasonable assurance that the money will be wisely used and will primarily, if not exclusively, benefit class members. As presented to Judge Kaye, the Foundation had no articles of incorporation, no bylaws, and no research plan (even in outline form) indicating the diseases to be targeted, the allocation of funding among disease, and the projected annual budget for the Foundation. Moreover, the class has no idea of who might govern the Foundation, let alone their qualifications. For all we know, Class Counsel could nominate no one but class representatives, and if that satisfied the lower court, that would be the Board. Although Judge Kaye stated that he would retain jurisdiction over the Foundation, there is no explanation of what that means or who would have the right to complain (and under what standards or criteria) if the Board was not funding research that benefited the class. The notion that these vital details can be left for another day (R. 10902) is simply not a proper answer to class members whose rights are being compromised now on a wholesale basis.
Part of the problem is that Class Counsel, their supporters, and the Circuit Court all seem to believe that, since the Foundation's goals are broadly stated, it will benefit everyone, including members of the class. The fundamental flaws with that approach are that the class does not include everyone in the world, that not all flight attendants have been injured by second-hand smoke, and that only the already-injured class members are being forced to surrender valuable rights to obtain whatever benefits the Foundation may produce. If the Foundation were established in a way that gave reasonable assurances that it would be run by trained professionals and its work was directed toward curing (or at least treating) the diseases that class members already have, that would be a very different situation than the open-ended Foundation, with unknown governance, that Class Counsel has proposed. The lower court appeared to recognize that the Foundation must provide "direct" benefits for the class; its error was in assuming that research that might benefit anyone in the world satisfies that test. Indeed, if the trial court were correct, any research foundation that might benefit anyone could be used to support not just this settlement, but any settlement that could conceivably help members of the class. We know of no case that supports that proposition, nor have the supporters of the settlement cited one.(8)
Because this Foundation may not properly be considered in evaluating the reasonableness of the settlement, and because it is such a central part of the deal, the approval of the settlement cannot stand, even if there were other significant benefits, which, as we now show, there are not.
B. The Statute of Limitations Extension Is Almost Worthless.
Although the settlement was initially heralded because of the Foundation, Class Counsel largely shifted ground when they made their supporting submissions less than a week before the fairness hearing. The real benefits then became (i) extension of the statute of limitations, and (ii) the recruiting of attorneys in Florida who will represent class members in their individual actions that will replace the class action. Neither supposed benefit can justify the approval of the settlement, and certainly not on the basis of the record before the Circuit Court.
The claimed benefit from the statute of limitations waiver fails because there is no significant limitations problem that needs to be solved. This class was certified for trial, after this Court's reversal of the denial of class certification by the trial court. Any alleged statute of limitations issue would have been obvious from the start since many of the class representatives themselves had been ill for years, and all of them knew that the plane cabins were filled with smoke. Although some members of the class (including Objector Williams) became ill only after the complaint was filed, and hence would not be barred under any applicable statute, many members surely would have been barred unless there was some basis for tolling.
The answer to the statute of limitations question lies in Counts IV and V of the second amended complaint alleging fraud, conspiracy and concealment (R. 1362-75). If proven, those facts would toll the statute. See, e.g., Grossman v. Greenberg, 619 So.2d 406, 408 (Fla. 3d DCA 1993). Thus, for the class to win this case against the tobacco industry, it had to show the industry's knowledge of, and responsibility for, the health risks from second-hand smoke, which the industry had been denying for years. Of course, that proof might fail, but if it did, the complaint would also likely fail on the merits, which means that there might be two reasons for most of the class to lose, instead of just one.
Moreover, defendants' own conduct confirms the logical conclusion that there is no class-wide statute of limitations problem. At no time did defendants ever move for summary judgment on the statute of limitations, nor even attempt to limit the class by excluding from the definition anyone who became ill prior to October 31, 1987 (four years before the complaint was filed), from which the Florida statute would run.(9)
In addition, shortly before trial, defendants did make a statute of limitations motion, but only to dismiss Norma Broin as class representative (R. 2170). The fact that defendants made so limited a motion -- and the court deferred ruling on it (R. 2690) -- coupled with the fact that a motion to limit the class to those with post-October 1987 illnesses would have been easy to make and, if successful, greatly reduced the size of the class and hence the risk to defendants, removes any doubt that such a motion would have had no chance for success. That is because the class had a response -- concealment would overcome the statute -- and the validity of that response was in large part a factual question that could not be resolved on summary judgment.
There is another very serious problem that Class Counsel have refused to acknowledge if, in fact, the claims of 50-80% of the class, including most of the class representatives, were time-barred: how could the class be composed of those with valid claims and those with time-barred claims, and in particular, how could class representatives with barred claims adequately represent those with no timeliness problem (such as Objector Williams) who only recently became ill? This issue of adequacy of representation under Rule 1.220(a)(4) rises to the level of an actual conflict of interest because the settlement trades off valuable claims and procedural rights for a waiver that Class Counsel contend between 20-50% of the class do not need. Neither the class representatives nor their counsel could represent both time-barred and timely class members when the rights of one are so clearly being traded for benefits to another. See Amchem, 117 S. Ct. at 2251. Class counsel cannot have it both ways: either there was a statute problem for a large percentage of the class, in which case there could not be a single class, represented by one set of counsel, or there was no statute problem that would irreconcilably divide the class. In our view the latter is the correct answer, but if it is not, the Circuit Court had to decertify the class, or at least create subclasses with separate representation, thereby destroying the settlement.
There is a further reason why the Circuit Court should not have found that the waiver was a substantial benefit to the class. Although the waiver was in the settlement agreement, there was no hint that it, rather than the Foundation, would be the centerpiece of Class Counsel's support for the settlement until Class Counsel filed supporting papers, just days before the fairness hearing. Moreover, the factual basis for this claim was no more than a series of conclusory affidavits by Class Counsel and class representatives baldly asserting that as much as 80% of the class were barred by the statute (Report, supra, note 3), with no specifics as to how that figure was derived and on what basis the legal conclusions were reached, especially given the contrary positions taken by Class Counsel (and implied by defendants' inaction) throughout the litigation.
To make matters even worse, the Circuit Court simply accepted the assertions of Class Counsel as factually and legally correct. Obviously, there was no time to depose witnesses or to serve other formal discovery before the hearing. Class Counsel did not present any witnesses at the hearing, and the trial court did not allow objectors to call witnesses or cross-examine Class Counsel's witnesses. In essence, without any factual predicate, and without allowing any discovery, the trial court granted "summary judgment" to Class Counsel on this aspect of the settlement, despite the enormous impact on the class members and the serious factual and legal issues raised by objectors.
A fairness hearing should not be a trial on the merits, but it should at least be based on a meaningful adversary proceeding in which there is a modicum of notice of the principal points and factual claims made by the moving party, a reasonable opportunity to take discovery, and, where there are genuine issues of fact to be resolved (or at least assessments made about them), a hearing at which live witness appear and are cross-examined before the trier of fact. See General Motors Corp. v. Bloyed, 916 S.W.2d 949, 958 (Tex. 1995)(proponents of class action settlement may not rely on affidavits, but must present evidence by sworn testimony "with the opportunity for questioning by the court and vigorous cross-examination by counsel representing objecting class members"); accord Girsh v. Jepson, 521 F.2d 153, 157 (3d Cir. 1975); Greenfield v. Villager Industries, Inc., 483 F.2d 824, 833 (3d Cir. 1973). We do not suggest that all of these procedures are needed in every case, or that the trial judge does not have discretion in tailoring the proceeding to the facts of each case. But where the settlement is of this magnitude, and the disputes about the alleged value of the settlement so pronounced, the trial judge abused his discretion by failing to provide some sort of adversary proceeding to resolve the essential factual and legal issues needed to reach an ultimate judgment on the settlement's fairness and legality.
C. Any Other Benefits Are More Than Offset By Concessions.
Paragraph 12 of the settlement also provides for other litigation changes, some helpful to class members, but others quite harmful. The helpful ones are rather modest, and no one contends that, on their own, they justify the settlement. Instead, they are relied on to support the claim that class members will now be able to bring their own individual cases, with a better chance of success than they would have had before this case. The assumption underlying this contention is that all class members who want to sue will be able to find lawyers willing to handle their cases under these more favorable conditions.
Class Counsel did not promise to represent thousands of class members on an individual basis. Instead, after the settlement was reached, they claim to have recruited twelve highly-regarded Florida law firms to represent class members. The principal problem is that any commitments that may have been made are unenforceable, and, in fact, there is not a single document signed by any law firm promising to represent any class member, let alone promises to represent them all. All that was submitted were statements by Class Counsel that they had received assurances from the law firms listed that they would represent class members. Obviously, without written promises, the statute of frauds, ?725.01, Fla. Stat. (1998), which the courts of this state strictly construe, see Tanenbaum v. Biscayne Osteopathic Hosp., Inc., 190 So.2d 777, 779 (Fla. 1966); Ostman v. Lawn, 305 So.2d 871 (Fla. 3d DCA 1974), would bar enforcement of these promises against these attorneys for refusing to take a case, assuming their promises were otherwise enforceable.
As the Court is aware, cases against tobacco companies are hard fought and expensive and can only be attempted if there is a significant likelihood of a sizable recovery. But with the elimination of punitive damages, that possibility is essentially eliminated, as is the likelihood of establishing liability because claims for fraud, conspiracy, and other intentional torts may no longer be maintained, and those claims formed the legal cornerstones of this case before they were released in the settlement. We have the gravest doubts that claims for strict liability, breach of warranty, and negligence by victims of second-hand smoke have much of a legal basis, even assuming that all of the factual allegations could be proven. Perhaps even more significant is the fact that only a relatively few class members are seriously ill, which means that for the rest of them, they could hope to recover only a modest sum, even if they prevail.
This latter point is vital because it raises serious questions about whether attorneys will actually handle their cases, given the very limited possible recoveries and the virtual certainty that the cases will be complex and very hard fought by the industry. Once again, the record, which Class Counsel, as the moving party, needs for support of the settlement approval, is lacking because there is no evidence that there are enough lawyers to handle the cases involving the less serious, as well as the more serious, injuries. Moreover, the only lawyers Class Counsel say have committed to handle these cases are in South Florida, but the settlement allows cases to be brought wherever venue is proper. Since Class Counsel have also argued that the ability of class members to sue where they reside is a substantial benefit, that benefit evaporates unless lawyers can be found to take these cases. Thus, even if the twelve law firms actually took every one of the cases that class members wanted to bring in Florida, that would do nothing for the vast majority of the class who would like to sue elsewhere. At the very least, the Circuit Court was obligated to explore these gaps in the record, but, instead, it simply accepted Class Counsel's claim that a lawyer would be found for everyone who wanted one.
Even if the settlement were properly approved, the Circuit Court erred in approving the $46 million in fees and the $3 million in expenses sought by Class Counsel and agreed to by defendants. That is an enormous amount for a law firm of no more than five lawyers at any time, even for a case like this that spanned more than six years. And it is especially generous given the limited benefits that the class will receive from this settlement. Indeed, in Kuhnlein, where counsel achieved a 100% recovery of $188 million for the class, the fee was less than $6.5 million, using the maximum multiplier of 5. 662 So.2d at 315, 320. These facts should have, but did not, cause the trial judge to review the fee request with considerable care.
Moreover, as various courts have recognized, see, e.g., In re General Motors Corp. Pick-Up Truck Fuel Tank Prod. Liab. Litig., 55 F.3d 768, 819-20 (3d Cir.), cert. denied, 116 S. Ct. 88 (1995); Weinberger v. Great Northern Nekoosa Corp., 925 F.2d 518, 522-24 (1st Cir. 1991), judges should be especially careful in approving a fee to which the defendants have consented because of the possibility that money or other benefits that should have gone to the class, ended up going to Class Counsel. The Circuit Court, however, gave no serious scrutiny to the details of the fee request and the requirements of Florida law, let alone a heightened form of review that should have been applied when there is no longer adversity between the existing parties. Kuhnlein, 662 So.2d at 318 (Kogan, J. dissenting, "judge must act as a fiduciary . . . by taking a more active role in determining a fee in common-fund cases"); Edwards v. Alaska Pulp Corp., 920 P.2d 951, 956 n.7 (Alaska 1996) (cited by Circuit Court, R. 10932).
As this Court is aware, the Florida Supreme Court has held that the lodestar method must be used to set fees in all class actions; in statutory fee cases, a multiplier of up to 2.5 is permitted, and in common fund cases, the multiplier can go as high as 5. Kuhnlein, 662 So.2d at 315, Since class counsel sought a multiplier of 5, they have admitted that this is a common fund case, which means that, if any portion of the fee (or the $3 million in alleged expenses) is found to be excessive, it will be used to benefit the class, either directly, or at least by adding it to the $300 million that would go to the Foundation.
The Circuit Court, however, declined to treat this as a common fund case because "it was not the intent of the parties to create a common fund" (R. 10916). But the intent of Class Counsel and the defendants cannot alter the law of Florida, which determines whether there is a common fund. As a matter of simple economics and common sense, if more money went to Class Counsel, there would be less for the Foundation and other purposes. The fact that attorneys' fees may have been negotiated after the settlement on the merits was reached does not alter the situation. See, e.g., General Motors, 55 F.3d at 819-20. More importantly, Class Counsel cannot have it both ways: if this is not a common fund case, the maximum multiplier that can be awarded is 2.5, not the 5 used by Judge Kaye, in which case the fee ruling would have to be reversed on that ground alone. In our view, this is a common fund case, and we analyze the fee ruling on that basis.
B. Class Counsel Failed to Establish a Proper Lodestar.
The trial court's approval of the fee was initially flawed because Class Counsel failed to comply with the requirements for a lodesta