Class Complaint Dismissed WITH Prejudice

The Second Circuit recently affirmed a trial court decision dismissing a proposed class action challenging the marketing of certain cosmetic products.  See DiMuro v. Clinique Labs, LLC, No. 13-4551 (2d Cir. 7/10/14) (unpublished).

Plaintiffs filed a putative class action complaint asserting claims under the Connecticut, New Jersey, and Illinois consumer fraud statutes, along with claims for breach of express warranty, breach of implied warranty, and unjust enrichment, arising from defendants’ marketing of seven different cosmetic products sold under the “Repairwear” product line. But while plaintiffs’ consolidated class action complaint asserted claims arising out of the marketing of seven different products, the named plaintiffs only alleged to have purchased and used three of the seven products.

Plaintiffs argued that they nevertheless had class standing to bring claims for Repairwear products that they did not buy-- a commonly attempted but seldom successful tactic.  Here, each of the seven different products have different ingredients, and defendant allegedly made different advertising claims for each product. Unique evidence would therefore be required to prove that the 35-some advertising statements for each of the seven different products were false and misleading. As a result, the court could not conclude that claims brought by a purchaser of one product would raise a set of concerns nearly identical to that of a purchaser of another Repairwear product. Accordingly, plaintiffs lacked standing to bring claims for the four products that they did not purchase.

The court also affirmed the dismissal of plaintiffs’ consumer fraud claims because plaintiffs failed to plead them with the requisite particularity under Fed. R. Civ. P. 9(b).  Rule 9(b) requires that a complaint specify the statements that the plaintiff contends were fraudulent, identify the speaker, state where and when the statements were made, and explain why the statements were fraudulent.  E.g., Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993). One of the cardinal purposes of Rule 9(b) is to “provid[e] a defendant fair notice of plaintiff’s claim, to enable preparation of [a] defense.” See DiVittorio v. Equidyne Extractive Indus., Inc., 822 F.2d 1242, 1247 (2d Cir. 1987). Plaintiffs’ consolidated complaint was wholly conclusory and lacked the particularity required to ensure that defendant received fair notice of the claims.

Specifically, plaintiffs’ "group-pleading" as to the products and the advertisements at issue was
inconsistent with Rule 9(b)’s particularity requirement in that the complaint failed to specify which
of the alleged statements were fraudulent and with regard to what product.  It simply alleged that the products, collectively, cannot work. Given that the seven different products have different ingredients, different intended uses, and that defendant made different advertising claims for each one, this was wholly insufficient to satisfy Rule 9(b). Plaintiffs failed to address the different product ingredients, different intended uses, and different claims.

The complaint also failed to allege that any of the named plaintiffs even used the product, let alone used the product as directed. Similarly, the named plaintiffs did not allege what results they received from their use of the product. They only alleged that they received “no value,” “did not receive what they bargained for,” or “did not get what they paid for.” Since they did not allege which particular advertising claims each of the named plaintiffs relied on when purchasing the product, the conclusion that they did not receive what they bargained for had no ascertainable meaning. 

Plaintiffs’ claims for breach of express warranty and breach of implied warranty also relied on
allegations that the products did not perform as advertised. These allegations were wholly conclusory, and did not provide a sufficient factual basis to establish a plausible breach of any specifically identified express or implied warranty.

Pretty standard stuff, really, but let's turn to the most useful aspect of the analysis.  The complaint was dismissed with prejudice.  Leave to amend is given when justice so requires.  But what too often happens is that plaintiffs file a conclusory, fishing expedition of a complaint; the defendant expends considerable cost to point out the many deficiencies of the pleading; the court dismisses appropriately dismisses the complaint, and plaintiffs use the opinion as their model to draft an amended pleading-- often repeating the process several times, until they finally get a minimally acceptable pleading that bears little resemblance to their original complaint.  Here, the court recognized that plaintiffs are “not entitled to an advisory opinion from the Court informing them of the deficiencies in the complaint and then an opportunity to cure those deficiencies.” Bellikoff v. Eaton Vance Corp., 481 F.3d 110, 118 (2d Cir. 2007). Moreover, a plaintiff need not be given leave to amend if the plaintiff fails to specify either to the district court or to the court of appeals how amendment would cure the pleading deficiencies in its complaint. The district court’s decision to deny plaintiffs leave to amend their complaint was not an abuse of discretion. First, the plaintiffs failed to provide any detail as to what facts they would or could) plead to cure their pleading deficiencies. Second -- and this is very commonly the case --  much if not all of the information necessary for a properly pled complaint was and had always been in the possession of the plaintiffs. For example, which particular representations they relied upon, if and how they had used the products, what the results were.   Useful discussion of why leave should NOT be granted in these consumer fraud cases.

Committee Approves Amendments to Civil Rules

Earlier this month, the Federal Courts' Committee on Rules of Practice and Procedure approved for publication a package of proposals that would, if enacted, impact the scope of discovery under the Federal Rules of Civil Procedure.

The agenda for the committee's June, 2013 meeting is here. The various proposals would appear to narrow discovery and try to curb some of the abuses that have occurred in recent years.  Many of these ideas came out of the 2010 Duke Conference as methods for reducing cost and delay in civil litigation.

Some highlights: New Rule 4(m) would be revised to shorten the time to serve the summons and complaint from 120 days to 60 days. The desired effect will be to get the action moving in half the time. The amendment responds to the commonly expressed view that four months to serve the summons and complaint is too long.

Rule 16(b)(2) now provides that the judge must issue a scheduling order within the earlier of 120 days after any defendant has been served or 90 days after any defendant has appeared. The recommended
revision, however, cuts the times to 90 days after any defendant is served or 60 days after any defendant appears. 

Another proposal  would add a new Rule 16(b)(3)(v), permitting a scheduling order to "direct that before moving for an order relating to discovery the movant must request a conference with the court." Many courts now have local rules similar to this proposal. Experience with these rules shows that an informal pre-motion conference with the court often resolves a discovery dispute without the need for a motion, briefing, and order. The practice has proved highly effective in reducing cost and delay.

Currently, Rules 30 and 31 establish a presumptive limit of 10 depositions by the plaintiffs, or by the defendants, or by third-party defendants, and a time limit. Rule 33(a)(1) sets a presumptive limit of "no more than 25 written interrogatories, including all discrete subparts." There are no presumptive numerical limits for Rule 36 requests to admit. The new proposals reduce the limit on interrogatories to 15. They add to Rule 36, for the first time, presumptive numerical limits of 25 RFA (other than genuineness of documents). The proposals would reduce the presumptive limit on the number of depositions from 10 to 5, and would reduce the presumptive duration to 1 day of 6 hours. Rules 30 and 31 would continue to provide that the court must grant leave to take more depositions "to the extent consistent with Rule 26(b)(1) and (2)." 

The proposed rule changes would re-emphasize the notion of proportionality in Rule 26: discovery must be proportional to the needs of the case considering the amount in controversy, the importance of the issues at stake in the action, the parties’s resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. This newly added proportionality language stems from the committee’s finding that the current rule’s “reasonably calculated” approach to the proper scope of discovery is too broadly interpreted.

Also, new proposed Rule 37(e) would provide certain protections against sanctions for the failure to produce any type of evidence (whether electronic or other evidence).  A party seeking sanctions would have to show both substantial prejudice and willful or bad faith conduct; or that the conduct irreparably denied a party any meaningful opportunity to present or defend against a claim. The amendments also seek to address the issue of parties who might otherwise be inclined to engage in burdensome and expensive “over-preservation.” 

Next step is a comment period that will extend into early 2014. It will important to keep an eye on the progress of these amendments.

Court of Appeals Affirms Dismissal of FEMA Trailer Claims

The Fifth Circuit recently upheld the dismissal of putative class actions filed by Mississippi and Alabama residents against the federal government alleging trailers provided to Hurricane Katrina-impacted citizens contained hazardous levels of formaldehyde. See In re: FEMA Trailer Formaldehyde Products Liability Litigation (Mississippi Plaintiffs), No. 10-30921, and In re: FEMA Trailer Formaldehyde Products Liability Litigation (Alabama Plaintiffs), No. 10-30945 (5th Cir. 2012).

Plaintiffs-Appellants brought this Federal Tort Claims Act action against the United States for injuries allegedly related to their exposure to elevated levels of formaldehyde contained in the component materials of the Emergency Housing Units (“EHUs”) provided to them by the Federal Emergency Management Agency (“FEMA”) after Hurricanes Katrina and Rita. Readers will recall we have posted about various aspects of this litigation before. In October 2007, the United States Judicial Panel on Multidistrict Litigation created MDL No. 07-1873 (In re: FEMA Trailer Formaldehyde Products Liability Litigation), and assigned the complex litigation to the United States District Court for the Eastern District of Louisiana.

The key facts: After the hurricanes, FEMA activated its Individual and Household Assistance Program and, from September 2005 through May 1, 2009, the agency supplied disaster victims with EHUs, at no cost, to use as temporary shelter. The EHUs were taken from FEMA’s preexisting inventory, which had been purchased from public retailers as well as directly from manufacturers. The EHUs were small, portable, and usually placed at the disaster victims’ home sites. The trailers were installed by government contractors who placed the units on blocks or piers, anchored them to the ground using straps or bolts, and connected them to public sewer and water lines.

In March 2006, when FEMA began receiving formaldehyde-related complaints, it encouraged shelter occupants to ventilate their EHUs by opening the doors and windows. In June 2006, FEMA prepared an informational brochure informing EHU occupants of the potential risks of formaldehyde exposure, encouraging them to ventilate their units, and urging them to seek medical help if they developed health problems related to formaldehyde. In September 2006, FEMA began working with the Environmental Protection Agency to test the EHUs for formaldehyde, and also developed various new mitigation techniques.  In July 2007, FEMA distributed another informational brochure to EHU occupants, set up a hotline and a dedicated call center to field formaldehyde complaints from occupants, and continued to assist occupants in locating alternative housing. FEMA subsequently entered into an agreement with the CDC to conduct additional testing, the findings of which were compiled in a third informational brochure and distributed to EHU occupants in early 2008.

The federal government filed various motions to dismiss the claims against it, or in the alternative for summary judgment, based on the FTCA’s discretionary function exception.The district court denied the motions and held that the FTCA’s discretionary function exception might not apply to some or all of appellants’ claims, the determination of which would be driven by the facts of each individual case.  The district court then denied class certification and scheduled a series of bellwether trials in the MDL, but none of the FTCA claims brought by the bellwether plaintiffs against the Government advanced to the trial stage.

The Government then moved under Federal Rule 12(b)(1) to dismiss Appellants’ FTCA claims for lack of subject-matter jurisdiction on the grounds that no analogous private liability existed under the Mississippi and Alabama emergency statutes.  The district court granted the Government’s motion and dismissed appellants’ FTCA claims. Plaintiffs appealed to the Fifth Circuit.

 A plaintiff may only sue the United States if a federal statute explicitly provides for a waiver of sovereign immunity. The United States must consent to be sued, and that consent is a prerequisite to federal jurisdiction. Delta Commercial Fisheries Ass’n v. Gulf of Mex. Fishery Mgmt. Council, 364 F.3d 269, 273 (5th Cir. 2004). Waivers of sovereign immunity are narrowly construed in favor of the United States. In re Supreme Beef Processors, Inc., 468 F.3d 248, 253 (5th Cir. 2006). The FTCA is recognized as providing a waiver of sovereign immunity and provides the sole basis of recovery for tort claims against the United States. See 28 U.S.C. § 1346 and § 2671, et seq.; In re Supreme Beef Processors, 468 F.3d at 252 n.4. But the Act provides that the United States shall be liable in the same manner and to the same extent as a private individual under like circumstances. See
28 U.S.C. § 2674.

The "same manner" analysis is a mix of federal and state law. The FTCA requires the  Government's liability to be measured in accordance with the law of the state where the alleged act or omission occurred, so here the Appellants’ FTCA claims were limited by the relevant provisions set forth in Mississippi and Alabama tort law. See 28 U.S.C. § 1346(b)(1); Richards v. United States, 369 U.S. 1, 11-14 (1962); Cleveland ex rel. Cleveland v. United States, 457 F.3d 397, 403 (5th Cir. 2006). Whether a private person in “like circumstances” would be subject to liability is also a question of sovereign immunity and, thus, is ultimately a question of federal law. See United States v. Olson, 546 U.S. 43, 44 (2005). Because the federal government could never be exactly like a private actor, a court’s job in applying the standard is to find the most reasonable analogy. LaBarge v. Cnty. of Mariposa, 798 F.2d 364, 366-69 (9th Cir. 1986). Inherent differences between the government and a private person cannot be allowed to disrupt this analysis. The Fifth Circuit has consistently held that the government is entitled to raise any and all defenses that would potentially be available to a private citizen or entity under state law. Camacho v. Tex. Workforce Comm'n, 445 F.3d 407, 410 (5th Cir. 2006). Therefore, if a private person under “like circumstances” would be shielded from liability pursuant to a state statute, lower courts must decline to exercise subject matter jurisdiction in a case like this.

Because, here, the Mississippi and Alabama emergency statutes abrogate the tort liability of a private person who, (1) voluntarily, (2) without compensation, (3) allows his property or premises to be used as shelter during or in recovery from a natural disaster, the Government’s voluntary, cost-free provision of the EHUs to disaster victims, in connection with Hurricanes Katrina and Rita, was
also immunized conduct under the statute.  Despite plaintiffs' arguments, the Government’s provision of the government-owned EHUs, as implemented by FEMA, was voluntary because it was under no contractual or legal obligation, under any federal legislation, to provide the EHUs to disaster victims in response to the disasters. The Government did not receive compensation from the disaster victims in exchange for letting them use the EHUs. (The collection of taxes by the Government was not comparable to the traditional quid pro quo compensation contemplated by the statute.) In addition, the Government’s actions relating to the EHUs fell within the time frame contemplated by the statute as “during or in recovery from” a major disaster, since FEMA’s temporary emergency housing program ran from the hurricanes up to May, 2009.

Because Mississippi and Alabama emergency laws would protect those private individuals who shelter natural disaster victims from tort liability, the federal government's voluntary provision of the trailers was likewise immunized, the court concluded.

As an alternative, the appellants asked the Fifth Circuit to certify questions to the state supreme courts of Alabama and Mississippi regarding the meaning of the state emergency statutes, but the appeals court agreed with the district court that these questions did not warrant certification. Dismissals affirmed.

Bills to Curb Frivolous Suits Introduced in Congress

With the Republicans in control of the House, many were wondering about the prospects for tort reform at the federal level.  Indeed, President Barack Obama observed in his State of the Union address on January 25, 2011, “I am willing to look at . . . ideas to bring down costs including reform to rein in frivolous lawsuits.” 

House Judiciary Committee Chairman Lamar Smith (R-Texas) earlier this month introduced legislation to reduce frivolous lawsuits. Senate Judiciary Committee Ranking Member Chuck Grassley (R-Iowa) then introduced a companion bill in the Senate (S.533).

The Lawsuit Abuse Reduction Act (LARA), H.R. 966, would impose mandatory sanctions for plaintiff lawyers who file merit-less suits in federal court. 

Chairman Smith argued that lawsuit abuse has become too common in American society partly because the lawyers who bring these cases have everything to gain and nothing to lose. Plaintiffs' lawyers can file frivolous suits, no matter how absurd the claims, without any penalty. Meanwhile defendants are faced with the choice of years of litigation, high court costs and attorneys' fees or a settlement. Our legal system encourages frivolous lawsuits while defendants are left paying the price even when they are innocent. Many of these cases have cost innocent people and business owners their reputations and hundreds of thousands of dollars.

Ranking Member Grassley noted that without the serious threat of punishment for filing frivolous lawsuits, innocent individuals and companies will continue to face the harsh economic reality that simply paying off frivolous claimants through monetary settlements is often cheaper than litigating the case. "This perverse dynamic not only results in legalized extortion, it leads to businesses spending money to defend against baseless lawsuits rather than to create new jobs."

The Lawsuit Abuse Reduction Act would take three steps to help thwart frivolous lawsuits.

* Reinstates the requirement that if there is a violation of Rule 11, there will be sanctions.

* Requires that judges impose monetary sanctions against lawyers who file frivolous lawsuits.

* Reverses the 1993 amendments to Rule 11 that allow parties and their attorneys to avoid sanctions for making frivolous claims by withdrawing them within 21 days after a motion for sanctions has been served.

The House Judiciary Committee has already held a hearing on the House version, at which witnesses included Elizabeth A. Milito of the NFIB Small Business Legal Center, Professor Lonny Hoffman of the University of Houston Law Center, and Victor E. Schwartz, well known tort reform advocate.


 

Supreme Court Hears Oral Argument in Class Action Preclusion Case

This week, we are going to explore some of the more interesting cases pending before the Supreme Court. In Smith v. Bayer Corp., No. 09-1205 (U.S., oral argument 1/18/11), the Court took up a case involving the preclusive impact of a decision denying class certification. We recently posted on a case involving the significant problem of plaintiffs hopping from court to court, state to state, shopping for a court that will certify their class after it has already been denied.

The Smith case involves the issue whether a federal court can enjoin class members from bringing a product liability class suit in state court after the federal court declined to certify a similar class.  Specifically, the Baycol MDL court in Minnesota had denied class certification, and the court of appeals upheld the injunction barring plaintiffs from bringing the same suit in state court. The court of appeals in fact unanimously affirmed, holding that the injunction was authorized by the All Writs Act and the re-litigation exception to the Anti-Injunction Act, and that petitioners did not have a due-process right to re-litigate class certification.

Plaintiffs have argued that they should not be enjoined, nor barred under the doctrine of collateral estoppel, because the state's (West Virginia's) rule for class certification is not identical to the federal rule:  while a putative class may not meet one test, it may meet the other. As plaintiffs told Justice Ginsburg, a state has the right to apply and interpret that rule of civil procedure "as it sees fit to manage its own docket and administrate its own docket as it sees fit."

The defendants argue that class members were adequately represented in the first class action, and whatever the technical differences may be, the heart of the West Virginia rule is substantively identical to the federal rule. Petitioners have not been foreclosed from seeking relief on their individual claims, but only from seeking to represent other people through a class action. Whether a class should be certified has been fully and fairly litigated in proceedings that are binding on petitioners and in which petitioners’ interests were adequately represented by an identically situated named plaintiff.  The plaintiffs' position is that class certification is a “heads-I-win, tails-you-lose” proposition. Under this theory, every unnamed plaintiff could re-litigate class certification, no matter how large the putative class, no matter how many times certification had already been denied, and no matter how adequately the class members’ interests were represented in the prior proceedings.

Part of the issue facing the Court is the application of preclusion to a non-party (as the class was not certified, absent class members were not "parties" for some purposes), and this was explored at oral argument. In response to questioning from the Court, plaintiffs argued that the re-litigation exception to the Anti-Injunction Act did not apply here. Because the plaintiffs are not the same "parties" that litigated the federal class action, and because the same issues were not litigated in the prior case -- that is, West Virginia's own class certification rule vs. Federal Rule 23.  Counsel argued that the state court has said "we do not want our legal analysis to be nothing more than a mere Pavlovian response to Federal decisional rules."

A number of Justices wondered what were the supposed differences, and part of the response to Justice Sotomayor was that the federal "court's not only trying to bind us on the procedural ruling, but is also trying to bind us in a substantive ruling as to what the elements of the claims in West Virginia are and as to what's needed to prove those claims." The state court was free to disagree with that federal ruling, counsel argued. In response to Justice Kagan, Bayer noted that the predominance requirement under the West Virginia version of Rule 23 is essentially identical to the Federal version, and there is no evidence of any content that's different from the Federal version on this point. But Justice Ginsburg pressed defendant on the issue that "sometimes Federal judges, they try their best, they're not the last word on what the State law is."

Several Justices raised the issue of forum shopping in their questions for petitioners' counsel. Justice Alito asked petitioners, whether after a class certification denial is entered in one federal court, a plaintiff's attorney could simply substitute the name of a new named plaintiff and file the same complaint in another federal court. Plaintiffs agreed that an attorney could do that.

Justice Alito asked about some of the possible implications of the plaintiffs' argument. If part of the issue is notice, would that compel federal courts to engage in a lengthy and expensive class notice period even in cases in which the class is denied? Plaintiff responded that notice would be required to bind the absent class members. Bayer argued in response to similar questions from Justice Sotomayor that the preclusion test focuses on whether the parties' interests are aligned, and the class members' interests were identical,  the first named plaintiffs understood that they was acting in a representative capacity, and the federal court took normal steps to protect the interests of non-parties, i.e., absent class members.  All that was met here. But Justice Scalia asked whether the counsel had ever been found adequate since the class was denied certification on other grounds.

Justice Kagan asked about CAFA, and Congressional intent to prevent forum shopping with classes and keep state courts from too freely certifying these kinds of class actions, which plaintiff had to concede.

Plaintiff had a hard time with the Court's questions about due process and how it affects procedural rights as opposed to substantive or property rights, particularly, as Justice Sotomayor asked, where the Federal litigation has applied essentially the same standard that the State has, and there has been adequate representation on the procedural question, and where no substantive right of a plaintiff has been extinguished. Chief Justice Roberts similarly asked about line-drawing, with a hypo about the second court limiting discovery because of what happened in the first court: "So now it's not only that you're entitled to your day in court substantively; you're entitled to your day in court procedurally as to some procedural aspects but not others?"

Justice Ginsburg asked counsel for Bayer whether there was a difference between preclusion being applied by the state court and the federal court issuing the injunction based on preclusion, calling the latter a "heavy gun.”  Meaning we're "not going to trust the West Virginia court to apply issue preclusion. We're going to stop that court from proceeding altogether."  Bayer replied that the injunction was very important because trial courts in West Virginia need not follow other trial courts, and there is no intermediate appeals court.  Thus plaintiff could go from county to county until they found a court that refused to apply preclusion.  

 

Amended Federal Rules Take Effect

Readers will recall from our previous posts that amendments to the Federal Rules of Civil Procedure were in the works for some time.  They finally took effect earlier this month. With regard to Rule 26, the amendments extend work-product protection to the discovery of draft reports by testifying expert witnesses and, with three important exceptions, to the discovery of communications between testifying expert witnesses and retaining counsel. The amendments also provide that a lawyer relying on a witness who will provide expert testimony but is not required to provide a Rule 26(a)(2)(B) report – because the witness is not retained or specially employed to provide expert testimony and is not an employee who regularly gives expert testimony – must disclose the subject matter of the witness’s testimony and summarize the facts and opinions that the witness is expected to offer.

The prior 1993 amendments to Civil Rule 26 had been interpreted by some courts to allow discovery of all draft expert witness reports and all communications between counsel and testifying expert witnesses.  The experience under those amendments revealed significant practical problems in the eyes of many litigators. The rule changes are generally seen as an improvement for trial lawyers.  Experts and attorneys may now communicate more freely, such as by email, instead of engaging in time-consuming dances designed to avoid creating potentially discoverable communications. The amendment allows attorneys and experts to exchange draft reports for review and discussion without fear of the consequence of the production of such communications. It also eliminates attorney time spent trying to negotiate a stipulation with opposing parties in order to avoid disclosure of this type of information. 

The rules still permit discovery of communications related to the experts' compensation, any assumptions provided by counsel to the expert to rely on; and facts or data that counsel provided to the testifying expert.  Time will tell if the courts interpret the latter two as being limited to disclosure of objective information the lawyer provided to the expert, and not the general conversations they had surrounding those facts or interpretations of those facts.  One likely effect is that counsel will want experts, to the extent possible, to find facts and data for themselves in public sources.

 

Oil Spill MDL May Appoint Special Master

The judge overseeing the Gulf oil spill  MDL has given notice of its intent to appoint Duke Law Professor Francis McGovern, as a special master to help the parties address several complex issues arising from the Deepwater Horizon accident.  In re: Oil Spill by the Oil Rig "Deepwater Horizon" in the Gulf of Mexico, on April 20, 2010, MDL No. 2179 (E.D. La.).

In the order last week, the court accordingly, pursuant to Rule 53 of the Federal Rules of Civil
Procedure, provided notice to the parties of its intention to appoint a special master.  In mass tort litigation, courts often appoint special masters to assist in managing the matters, especially the discovery. Rule 53 permits the court to appoint a master for pretrial matters that cannot be addressed effectively or in a timely manner by the court. Appointment of a special master to supervise discovery may be appropriate where the financial stakes justify imposing the expense on the parties, and where the amount of activity required would impose undue burdens on a judge.

The Manual for Complex Litigation says that it is preferable for the court to appoint the special master with the parties' consent, and here the court is giving the parties an opportunity to weigh in.  The success of the special master in the role the court assigns depends in the first instance on the person selected.  Prof. McGovern is well known to our readers, having served as special master or mediator in dozens of major mass torts, including several asbestos matters, DDT toxic exposure litigation, the Dalkon-Shield controversy, and silicone gel breast implant litigation.  As an academic, he has advocated for enhanced roles for court appointed special masters as "case managers" and "settlement masters." As a practicing case manager, he has helped courts to organize the pretrial administration of a case, and used ADR techniques to help the parties agree on efficient discovery approaches and schedules. (But note the Manual for Complex Litigation advises against referral of extensive pretrial management to a special master, at Section 10.14). His role as settlement master in some cases has required that he develop innovative ways to implement potential settlements. In the Dalkon Shield litigation, he helped organize and administer the distribution of the $2.4 billion trust established to compensate 100,000 women who had sued the maker of the device.

He is also a prolific author on mass torts issues, including A Model Mass Tort: The PPA Experience, 54 Drake Law Review 621-638 (2006); A Model State Mass Tort Settlement Statute, 80 Tulane Law Review 1809-1826 (2006); and A Proposed Settlement Rule for Mass Torts, 74 UMKC Law Review 623-636 (2006).

The final order appointing the special master will specify the scope of the reference, the circumstances under which ex parte communication will be deemed appropriate, and other relevant details.  Ordinarily, the special master will produce a report on the matters in his or her charge, with findings of fact and conclusions of law which would be reviewed by the district court.

 

Duke Hosts Conference on Civil Rules

At the request of the Standing Committee on Rules of Practice and Procedure, the Advisory Committee on Civil Rules sponsored a conference last week at Duke University School of Law. The purpose of the conference was to explore the current costs and burdens of civil litigation, particularly discovery, and to discuss possible solutions. The Conference was designed in part to highlight some new empirical research done by the Federal Judicial Center, and others, to assess the degree of satisfaction with the performance of the present system and the suggestions of lawyers as to how the system might be improved.  The Conference included insights and perspectives from lawyers, judges and academics, on the discovery process (particularly e-discovery), pleadings, and dispositive motions. Other topics considered included judicial management and the tools available to judges to expedite the litigation process, the process of settlement, and the experience of the state courts on these issues.

Specifically, the empirical data from the FJC was discussed by Judge Rothstein, and Emery Lee and Tom Willging of the FJC; the ABA Litigation Section research data was to be reported by Lorna Schofield; the NELA Data was next.  Prof. Marc Galanter commented on vanishing jury trial data. Litigation cost data from the Searle Institute, and RAND data were circulated. The next section of the agenda focused on pleadings and dispositive motions, fact based pleading, Twombly, Iqbal. Participants included several judges and academics. The following panel asked about excessive discovery, and included practitioners, judges, and academics. The judicial management issue, and the level of early judicial involvement, was next.

Day Two focused on e-discovery and the degree to which the new rules are working or not.  The U.S. Chamber Institute for Legal Reform weighed in with a white paper.  The conference turned next to whether the process was structured sufficiently for trial and settlements as they really occur, i.e., should the endgame be viewed as settlement rather than trial. Corporate counsel, outside lawyers, public and governmental lawyers weighed in next. The following panel offered perspectives from the state courts. Finally, the Bar Association and lawyer group proposals were on the table. The Lawyers for Civil Justice, DRI, Federation of Defense & Corporate Counsel, and International Association of Defense Counsel submitted a white paper.

One speaker summed up the two-day discussion, suggesting that consensus had formed around the proposition that federal judges should provide strong, early, consistent case management, although plaintiff lawyers felt there was no need to give the judges any more formal authority.  But there was great disagreement on critical questions of the scope of discovery, the breadth of possible voluntary disclosures, and pleading requirements. Readers have read my posts about  Twombly and Iqbal, which clarified the requirements of what must be included in a complaint.

A survey of the Oregon system, a fact-based pleading approach, was presented by the Institute for the Advancement of the American Legal System. It has not led to more dismissals, and most observers agreed that fact-based pleading was revealing the key issues and narrowing the contentions earlier. 

The notion that the cost of the process is so large that it may be making litigation beyond the reach of many potential litigants is something a number of participant expressed concern about. One judge noted that he now requires lawyers to estimate the costs of discovery, and report that to their client. One participant raised the issue of cutting off discovery for defendants who move to
dismiss, although it is unclear how that would be an effective remedy for any current unsatisfactory case management methods.

 

Supreme Court Approves Proposed Amendments to Rule 26

Last week, the Supreme Court approved the proposed amendments to Federal Rules of Civil Procedure 8, 26, and 56, and Illustrative Form 52, and transmitted them to Congress. The amendments were approved by the Judicial Conference of the United States last fall (as covered earlier here).

Readers will recall that with regard to Rule 26, the amendments would extend work-product protection to the discovery of draft reports by testifying expert witnesses and, with three important exceptions, to the discovery of communications between testifying expert witnesses and retaining counsel. The amendments also provide that a lawyer relying on a witness who will provide expert testimony but is not required to provide a Rule 26(a)(2)(B) report – because the witness is not retained or specially employed to provide expert testimony and is not an employee who regularly gives expert testimony – must disclose the subject matter of the witness’s testimony and summarize the facts and opinions that the witness is expected to offer. The prior 1993 amendments to Civil Rule 26 have been interpreted by some courts to allow discovery of all draft expert witness reports and all communications between counsel and testifying expert witnesses. The experience under those amendments revealed significant practical problems in the eyes of many litigators.

Absent congressional intervention, the amendments will become effective on Dec. 1, 2010.
 

 

 

Supreme Court Decides Class Action Erie Question- But Did They Answer the Question?

The U.S. Supreme Court last week ruled that certain state laws barring class actions cannot be utilized to dismiss such class actions in federal court. Shady Grove Orthopedic Associates PA v. Allstate Insurance Co., 2010 WL 1222272 (3/31/10).

The appellant, Shady Grove Orthopedic Associates PA, had sought to bring a $5 million class action against Allstate Insurance seeking penalties for interest on claims under no-fault accident insurance policies that the insurer allegedly paid late. The policy was governed by New York state law. And the Eastern District of New York found that a New York state law prohibited Shady Grove from bringing a class action. The law prohibits plaintiffs from recovering state statutory penalties in class actions unless class proceedings are authorized in the statute.

State substantive (contract) law governed the case, but since the case was in federal court under diversity jurisdiction, Rule 23 applied to the procedural aspects of the class action.  So how to deal with the fact that New York law does not allow such a lawsuit to seek to recover a penalty as part of the remedy? The lower courts ruled that New York’s ban on such a remedy controlled in federal court, too, because Rule 23 is only a procedural rule, while the New York law limiting the remedy was substantive.  (Remember Erie from civil procedure class?) The district court found that the interest Shady Grove sought to recover was a “penalty” under the statute, precluding a class action in the federal court, and the U.S. Court of Appeals for the Second Circuit affirmed.

In a majority opinion joined by four other justices, Justice Scalia wrote that F.R.C.P. 23, and not state law, is the controlling authority on whether this class action could be filed in federal court.  New York’s law and Rule 23, that opinion said, are directly contradictory in  that both purport to control whether the class action lawsuit could be pursued in federal court.  The Court rejected the Second Circuit's belief that § 901(b) and Rule 23 do not conflict because they address different issues: that is, the lower court thought Rule 23 concerned only the criteria for determining whether a given class can and should be certified; section 901(b), on the other hand, addresses an antecedent question, thought the lower court, whether the particular type of claim is eligible for potential class treatment in the first place.

But Rule 23 prevails if there is such a conflict.  Rule 23 provides a one-size-fits-all formula for deciding the class-action question, said Justice Scalia.  If Rule 23’s specific terms are met, the class action case may proceed, because the federal rules empower a federal court to certify a class in every case where the Rule 23 criteria are met. “Rule 23 unambiguously authorizes any plaintiff, in any federal civil proceeding, to maintain a class action if the Rules’ prerequisites are met. We cannot contort its text, even to avert a collision with state law that might render it invalid.”  By its terms ,this provision creates a categorical rule entitling a plaintiff whose suit meets the specified criteria to pursue his claim as a class action.

The Scalia group rejected Allstate's point that allowing Shady Grove to sue on behalf of a class transforms the dispute over a five hundred dollar penalty into a dispute over a five million dollar penalty. First, Allstate's aggregate liability, said the opinion, does not depend on whether the suit proceeds as a class action. Each of the 1,000-plus members of the putative class could (as Allstate acknowledged) bring a freestanding suit asserting his individual claim. More fundamentally, said Justice Scalia, the substantive nature of New York's law, or its substantive purpose, makes no difference. A Federal Rule of Procedure is not valid in some jurisdictions and invalid in others, or valid in some cases and invalid in others-depending upon whether its effect is to frustrate a state substantive law (or a state procedural law enacted for substantive purposes).


In her dissent, Justice Ginsburg worried that the majority ruling would frustrate the intent of
the Class Action Fairness Act of 2005 by making it easier to file class actions. And the decision may give plaintiffs an incentive to file class actions in federal rather than state courts, at least where the latter may apply state laws limiting class actions. But the majority found that the short of the matter is that a federal rule governing procedure is valid whether or not it alters the outcome of the case in a way that induces forum shopping. The majority rejected the dissent's apparent approach of determining whether state and federal rules conflict based on the subjective intentions of the state legislature as an enterprise destined to produce “confusion worse confounded.”

The decision came on a 5-4 vote, but the complex of opinions means only that New York may not bar this particular class action lawsuit in federal court when a federal court procedural rule allowed it. Justice Stevens wrote that he was joining only for “this case.”  In the remainder of the Stevens’ concurring opinion, he made it clear that he disagreed with Justice Scalia on the general question of whether federal courts, applying what they considered to be federal procedural rules in a state-law case, would always trump a state rule.  In particular, Justice Stevens was worried about a situation in which a state law that is procedural is so intertwined with a state right or remedy that it actually defines the scope of the state-created right.  His reading of the Rules Enabling Act was that federal courts may not craft procedural rules that modify “any substantive right.” Of course, the mere chance that a federal rule would intrude on such a right or remedy, he said, is not sufficient.

Justice Scalia responded that the test the Court has applied has always been whether the federal rule really regulates procedure, the judicial process for enforcing rights and duties recognized by substantive law and for justly administering remedy and redress for disregard or infraction of them. The test is not whether the rule affects a litigant's substantive rights; most procedural rules do. What matters is what the rule itself regulates: If it governs only the manner and the means by which the litigants' rights are enforced, it is valid; if it alters the rules of decision by which the court will adjudicate those rights, it is not.

We probably haven't heard the last of this debate.

 

Rule 15 Amendments May Impact Removal Prospects

Readers of MassTortDefense know how important the choice of forum can be for significant product liability and mass tort matters.  The differences between federal and state court -- perhaps right down the street from each other -- can be huge, with differing juror pools, differing procedural rules, differing views on class actions, different methods of selecting the judiciary, etc.

Thus, it is worth making sure a subtle amendment to Rule 15 of the Federal Rules of Civil Procedure, which took effect Dec. 1, 2009, does not miss your attention, because of the potential impact it has on removal to federal court.

Prior to the amendments to Rule 15 — which governs amended and supplemental pleadings —  a plaintiff could amend the complaint once as a matter of course before any responsive pleading was filed.  Responsive pleading came to mean the defendant’s answer, and not a motion to dismiss.  E.g., Foster v. DeLuca, 545 F.3d 582 (7th Cir. 2008).  Thus, a defendant could eliminate the plaintiff’s right to amend as a matter of course by serving an answer.  That is, under the old version of Rule 15, a defendant could prevent amendments designed to eliminate the basis for removal by serving an answer just prior to or along with the filing of the notice of removal. When a plaintiff wanted to amend after the defendant had removed and answered, the plaintiff had to obtain consent or leave of court. So what about the removal, then? Any proposed amendment to the complaint affecting the court’s jurisdiction would trigger a heightened scrutiny of the amendment.  E.g., Hensgens v. Deere & Co., 833 F.2d 1179 (5th Cir. 1987). Defendants could argue that the  proposed amendment should be rejected on this basis. 

The new Rule 15 permits a plaintiff to amend “as a matter of course” even after the defendant has served “a responsive pleading.”  A party may file an amended pleading without leave of court within 21 days after service of a responsive pleading or 21 days after service of a Rule 12 motion, whichever is earlier. After that, a party may file an amended pleading only with leave of court. 

That raises the issue for your consideration whether the new ability of the plaintiff to amend “as a matter of course,” even after the defendant has served an answer, permits the plaintiff to make one of those jurisdiction-destroying amendments.  One possibility is that courts will look at "matter of course" amendments under the new rule the same way they were analyzed by many courts under the old rule.  That is, courts were guided by 28 U.S.C. § 1447(e), which states that if after removal the plaintiff seeks to join additional defendants whose joinder would destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and remand the action to the state court. Schur v. L.A. Weight Loss Centers, Inc., 577 F.3d 752, 759 (7th Cir. 2009); Whitworth v. TNT Bestway Transp. Inc., 914 F.Supp. 1434 (E.D.Tex.,1996).  Courts, in the motion for leave context and sometimes in the "as of course" context as well, to decide between those two choices, would scrutinize the amendments closely, and due consideration is given to the original defendant’s interest in the choice of forum. Courts examine whether the purpose of the amendment is to defeat federal jurisdiction; how timely/prompt the plaintiff has been in seeking the amendment; whether the plaintiff will be prejudiced if amendment is not allowed; and any other equities. Bailey v. Bayer CropScience L.P., 563 F.3d 302 (8th Cir. 2009).

If this heightened scrutiny is applied to "matter of course" amendments made under the new version of Rule 15, removals may be in less jeopardy when when a plaintiff attempts to amend the complaint post-removal, post-answer  “as a matter of course.”

Update on Proposed Amendment to Federal Rules on Expert Discovery

Experts play a vital role in mass tort defense.  Selection, preparation, and discovery of experts are crucial pre-trial tasks of the defense attorney.  Thus, the rules of civil procedure governing those tasks really matter.

The end of the time period for public comment on proposed changes to Federal Rule of Civil Procedure 26 is rapidly approaching. The formal process to amend the rule governing expert discovery began in early 2008 when the Advisory Committee on civil rules met to consider rule changes recommended by the American Bar Association. After drafting a proposed rule, the committee published the changes for public comment. Written comments are due by February 17, 2009.  There will be a final public Judicial Conference hearing in San Francisco, California, on February 2, 2009.  Guidelines for submitting comments can be found here.


After the comment period ends in February, the advisory committee is expected to consider comments and, if needed, redraft the rule.  Under the Rules Enabling Act, the rule will then be forwarded to the Standing Committee on Rules of Practice and Procedure, which must consider the changes. The standing committee would review the rule at a meeting planned for June, and submit it to the Judicial Conference for consideration at its September session. The proposed changes could go to the U.S. Supreme Court in time for the October session. Assuming this timeline holds up, the Supreme Court must act on the changes by May, 2010. The final step will require consideration by Congress, which will have seven months to act on the proposal. By statute, non-action would allow the rule changes to take effect early as December, 2010.

But the first deadline is the looming end to the public comment period.

What would the rule do?

The key changes extend work-product protection to drafts of Rule 26(a)(2)(B) expert reports and 26(a)(2)(C) party disclosures, and also to certain attorney-expert communications. The proposed amendments are designed to reflect what the Standing Committee calls the “lessons of experience” as opposed to theory, and to provide useful discovery while reducing practices that now impede the best use of expert trial witnesses.

Under the proposal, Rule 26(b)(4) would be amended to extend work-product protection to drafts of expert reports, drafts of party disclosures, and communications between expert witnesses and counsel. Exceptions are carved out for discovery of compensation, identification of facts or data the attorney provided to the expert and that the expert considered in forming the opinions to be expressed; and any assumptions that the attorney provided to the expert and that the expert relied upon in forming opinions.

Some courts have interpreted the Advisory Committee note on existing Rule 26(a)(2)(B) to allow parties to inquire into all communications between experts and counsel, multiplying expenses with little benefit to the parties, and impeding the way cases are actually prepared for trial. This approach has also contributed to the practice of retaining two experts, one to testify and the other to consult. Many lawyers will stipulate out of discovery of draft reports and attorney-expert communication because the costs of such discovery seem higher than the infrequent, small benefits that may be gained. The changes thus are needed to create efficiencies and to reduce litigation costs.

Some academics and the plaintiffs’ bar argue, however, that any restriction on inquiry into the expert's relationship with retaining counsel is a bad idea. Some have even started a letter-writing campaign opposing the proposed amendments. Comments from DRI, on the other hand, suggest that the protections should extend to communications between attorneys and the expert's staff as well.