Stay in Amarin Extended

The court recently extended its stay of the proceedings in Amarin Pharma Inc.'s suit against the FDA challenging threatened agency action concerning the alleged promotion of drugs for off-label uses See Amarin Pharma, Inc. v. FDA, No. 15-cv-3588 (S.D.N.Y.,  order 10/30/15).  The stay to December 17th is reportedly to give the parties more time to engage in settlement discussions. This one remains a case to watch for those in the pharma practice area.

First Amendment doctrine, and its relationship to the FDCA, has changed dramatically since the FDCA and many of its implementing regulations were adopted.  And one may question whether the FDA has kept up with these changes.

Earlier this Summer, the district court granted a motion for preliminary injunction in favor of Amarin, reaching the merits of Amarin’s First Amendment claims.  The case concerned Vascepa , an omega-3 fatty acid obtained from fish oil. Vascepa was approved to reduce triglyceride levels in adult patients with severe (≥ 500 mg/dL) hypertriglyceridemia. Amarin was seeking a new indication pursuant to a Special Protocol Assessment (“SPA”) agreement with FDA, for patients with “persistently high” triglycerides (≥ 200 and ≤ 500 mg/dL).  While Amarin believed it had satisfied all of FDA’s requirements to obtain the new approval, FDA disagreed and rescinded the SPA. FDA went further to warn Amarin that any effort by Amarin to market Vascepa for the proposed supplemental use could constitute "misbranding" under the Federal Food, Drug, and Cosmetic Act.

Amarin filed a civil complaint against FDA, claiming that this threat of prosecution for misbranding had a chilling effect on its commercial speech.  Amarin proposed to engage in truthful, non-misleading speech about Vascepa directly with healthcare professionals, such as disseminating study results and reprints of peer-reviewed scientific publications. The company also proposed to make "contemporaneous disclosures” to ensure that the messages were not at all misleading.

The court noted that in contrast to FDA’s long-standing position that off-label promotion of drug products can constitute criminal misbranding, off-label use is not illegal and may even be the standard of care in some circumstances.  The company relied on the Second Circuit's First Amendment decision in Caronia, but the FDA argued Caronia was a narrow, fact-bound decision, turning on particular jury instructions given at the sales rep's  trial. At the least, it ought to be construed in harmony with FDA regulations distingusihing between directed off-label speech and requests by the practicioner for information. The court rejected FDA’s interpretation, finding the FDA may not bring such an action based on truthful promotional speech alone. “Where the speech at issue consists of truthful and non-misleading speech promoting the off-label use of an FDA-approved drug, such speech, under Caronia, cannot be the act upon which an action for misbranding is based.”

With this rule in mind, the court evaluated and ruled on each of Amarin’s proposed off-label statements concerning Vascepa along with FDA’s responses.  This included the “agreed-upon statements and disclosures,” which were found to be “based on current information, truthful and non-misleading.”  And then the additional “contested disclosures” (such as “not-approved for” use language). The court eventually crafted a revised hybrid disclosure on that.  The court also said the proposed cardiovascular disease claim, as revised during litigation, given its qualified phrasing and its acceptance in other contexts by the FDA, was presently truthful and non-misleading.

 

The court offered a few important caveats: a manufacturer that leaves its sales force at liberty to converse unscripted with doctors about off-label use of an approved drug invites a misbranding action if false or misleading (e.g., one-sided or incomplete) representations result.

And the dynamic nature of science and medicine is such that knowledge is ever-advancing. A statement that is fair and balanced today may become incomplete in the future as new studies are done or new data is acquired.

Again, one to keep an eye on.
 

 

Court of Appeals Considering Significant Mass Tort Settlement Issue

When a defendant settles a mass tort, it wants to achieve peace; one of the worst things that can happen is for plaintiffs to attempt to pursue claims that were and ought to have been extinguished in the settlement.  An important version of this issue arises in the Vioxx mass tort. See In re: Vioxx Products Liability Litigation, No. 12-30560 (5th Cir. 2012).

Amicus, the Product Liability Advisory Council, weighed in on the issue, emphasizing the policy implications.  Merck entered into a class action settlement in the Vioxx MDL. Afterwards, plaintiffs in Missouri sought to pursue claims that had already been resolved in the settlement. Specifically, the state court plaintiffs sought recovery of alleged economic damages for the price of Vioxx prescriptions that were owned, not by the Missouri plaintiffs, but by the MDL plaintiffs who settled their claims and were paid already.  The MDL court stepped in, issuing an injunction under the All Writs Act, to protect and effectuate its orders regarding the settlement.  The district court concluded that the injunction was necessary to prevent interference with years of effort, at great expense, to reach the massive settlement. Plaintiffs appealed.

PLAC noted that an MDL court has authority and flexibility to decide a case and to manage it, including to effectuate binding settlements that state courts may not frustrate or imperil. Injunctions in aid of the settlement are valid exercises of a federal court's authority under the All Writs Act.

The policy underlying this view is that, otherwise, the finality of virtually any class action involving pendent state claims could be defeated by subsequent suits brought in those states, asserting rights derivative of those already released by class members.  As a practical matter, no defendant in consolidated federal court actions could reasonably be expected to consummate a settlement of the claims if those claims could later be reasserted under state law by different plaintiffs seeking recovery of the money already paid to the federal court plaintiffs.

The "clear and present risk" to the finality of the settlements reached, argued PLAC, was the duplication of effort, the re-litigation of claims that were settled, and a possible double recovery of the damages. The success of any federal court settlement is dependent on the parties' ability to agree to a release of all claims in exchange for fair consideration; if any of those claims can be re-litigated, there could be no certainty about the finality of the federal settlement, nor the amount a defendant will pay.  This would threaten settlement efforts by the district courts, and hamper the utility of the MDL forum.  Indeed, MDL litigation presents a unique opportunity to resolve large numbers of claims in an efficient manner. Parallel state court actions that functionally would require defendants to pay twice on the same claims would severely curtail the incentive to settle.

PLAC argued that the had been careful not to over-reach; the injunction forbids recovery only of the claims that have already been settled.

Medical Monitoring Class Actions

Last week I spoke at a CLE seminar on "Chemical Products Liability & Environmental Litigation."  The seminar was ably co-chaired by Ted Ray from ExxonMobil and Eric Sarner from Praxair.

My topic was Medical Monitoring Class Actions, with an emphasis on the trend by plaintiffs to seek (b)(2) certification, describing the money damages they want defendants to pay for future medical testing as some sort of court-supervised program and thus injunctive/equitable in nature.

By popular demand (ok, a handful of requests), I am making some slides on the topic available here.  Hope readers of MassTortDefense find them a useful resource.

Injunction Issued in Protracted Dryer Litigation

We have posted before about the ongoing Thorogood v. Sears Roebuck & Co. litigation, when the 7th Circuit rejected the proposed class action; when the court held that a "copycat" class action suit could not go forward in federal court in California;  and when the court reaffirmed its decision in an unusual opinion on the petition for rehearing.

The district court had certified a multi-state class of Kenmore-brand clothes dryer purchasers. On appeal, the Seventh Circuit called the case “a notably weak candidate for class treatment.” Not only did common issues of law or fact not predominate over the issues particular to each purchaser of a stainless steel Kenmore dryer, as Rule 23(b)(3) requires, there were, the court said, “no common issues of law or fact.” 547 F.3d at 746-47.

The same plaintiffs' lawyer then brought Murray v. Sears, Roebuck & Co., No. 4:09-cv-5744-CW (N.D. Cal.). Murray was a member of Thorogood’s class, and he brought essentially the identical claim in California. Sears Roebuck sought an injunction halting the new class action in front of Judge Leinenweber, who had presided over and eventually dismissed Thorogood’s original class suit, but he ruled that Sears could obtain adequate relief against being harassed by repetitive litigation by pleading collateral estoppel in Murray’s suit in California. Sears appealed, asking the court to to reverse the district court's denial of Sears’s motion to enjoin the virtually identical class action suit.

Ordinarily the ability to plead res judicata or collateral estoppel gives a litigant adequate protection against being harassed by repetitive litigation by the loser in a previous suit against him. But this case was unusual, said Judge Posner for the panel, both because it involved class action litigation and because of the specific tactics employed by class counsel. Class members are interested in relief for the class but the lawyers are primarily interested in their fees, and the class members’ stakes in the litigation are ordinarily too small to motivate them to supervise the lawyers in an effort to align the lawyers’ incentives with their own. The defendant wants to minimize outflow of expenditures and the class counsel wants to increase inflow of attorneys’ fees. "Both can achieve their goals if they collude to sacrifice the interests of the class.” Leslie, “The Significance of Silence: Collective Action Problems and Class Action Settlements,” 59 Fla. L. Rev. 71, 79-81 (2007). And when the central issue in a case is given class treatment and so will be resolved once and for all, a trial becomes a roll of the dice. Depending on the size of the class, a single throw may determine the outcome of an immense number of separate claims (hundreds of thousands, in the dryer litigation)—there is no averaging of decisions over a number of triers of fact having different abilities, priors, and biases. The risk of error becomes asymmetric when the number of claims aggregated in the class action is so great that an adverse verdict would push the defendant into bankruptcy; in such a case the defendant will be under great pressure to settle even if the merits
of the case are slight.

In the most recent iteration, the district court -- nothing the "tortured path" the case has taken through the judicial system -- has followed the direction of the 7th Circuit. Needless to say,  the parties disagreed as to the terms of the injunction that should be issued.  The primary areas of dispute were whether the injunction should be broad enough to encompass class action claims against co-defendant Electrolux and whether former members of the class should be allowed to pursue class-wide discovery against Sears as a non-party.   Sears argued that its advertising would still be at issue, and that Electrolux was obligated to indemnify Sears for any damages related to the marketing of the dryers.  That is, the only basis for Murray’s claims against Electrolux was the same advertising and marketing by Sears at issue in this case. As such, allowing Murray and his lawyers to continue to burden Sears with class-wide discovery concerning that issue would defeat the purpose of the injunction and circumvent the ruling in Thorogood.

The court concluded that any injunction should not allow class-wide discovery from Sears related to its advertising or representations regarding the composition of the dryer drums. Based on the representations of Murray’s counsel to the California court, it was clear that if his class action suit against Electrolux were allowed to continue, his attorneys plan to seek the same discovery from Sears as they would have if Sears itself were the defendant. No matter what it is called — third–party discovery, non–party discovery — by any name the Seventh Circuit has held that this amounts to irreparable harm.

Regarding whether the focus of the injunction should be on the issues that were litigated and decided in the previous Thorogood rulings, or on the identity of the parties, the court decided that the injunction precedents were couched in terms of the issues decided in the prior case, not the specific parties involved. There was no indication in any of the Seventh Circuit’s rulings that this conclusion depends on the party sued over these representations. Moreover, an injunction is not invalid merely because it may benefit non-parties. See Easyriders Freedom F.I.G.H.T. v. Hannigan, 92 F.3d 1486, 1501–02 (9th Cir. 1996).

Thus, the Court found that Sears would invariably be drawn into the defense of any class-action lawsuit regarding its marketing of the dryers as containing stainless steel drums, regardless of what party is named as a defendant. This would defeat the purpose of the Seventh Circuit’s ruling in Thorogood and prevent Sears from receiving the full measure of relief ordered by the Seventh Circuit. Murray and the other members of the class were free to pursue on a class basis claims against Electrolux not related to Sears’ marketing of the dryers, but they may not use a suit against Electrolux as a back-door method of evading the Seventh Circuit’s ruling in Thorogood.

 


 

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.  

 

Seventh Circuit Sticks to Its Criticism of CopyCat Class Action

Last month we posted about a class action decision from the Seventh Circuit, in which the court of appeals approved an injunction against copycat litigation once class certification was denied.  Thorogood v. Sears, Roebuck & Co., No. 10-2407 (7th Cir., 11/02/10).

Ordinarily the ability to plead res judicata or collateral estoppel gives a litigant adequate protection against being harassed by repetitive litigation by the loser in a previous suit against him. But this case was unusual, said Judge Posner, both because it involved class action litigation and because of the specific tactics employed by class counsel. Class members are interested in relief for the class but the lawyers are primarily interested in their fees, and the class members’ stakes in the litigation are ordinarily too small to motivate them to supervise the lawyers in an effort to align the lawyers’ incentives with their own. The defendant wants to minimize outflow of expenditures
and the class counsel wants to increase inflow of attorneys’ fees. "Both can achieve their goals if they collude to sacrifice the interests of the class.” Leslie, “The Significance of Silence: Collective Action Problems and Class Action Settlements,” 59 Fla. L. Rev. 71, 79-81 (2007). And when the
central issue in a case is given class treatment and so will be resolved once and for all, a trial becomes a roll of the dice. Depending on the size of the class, a single throw may determine the outcome of an immense number of separate claims (hundreds of thousands, in this home dryer
litigation)—there is no averaging of decisions over a number of triers of fact having different abilities, priors, and biases. The risk of error becomes asymmetric when the number of claims aggregated in the class action is so great that an adverse verdict would push the defendant into bankruptcy; in such a case the defendant will be under great pressure to settle even if the merits
of the case are slight.

The plaintiff appellee filed a petition for panel rehearing, and rehearing en banc. All the judges  voted to deny the petitions, and typically that is the end of the appeal.  But the court wrote an opinion about the denial, "in view of the accusations leveled in the petition by the plaintiff’s lawyer."

On the merits, said the court, the petition ignored the principal reasons for enjoining the copycat class actions, and said virtually nothing about the All Writs Act, which was the very grounds for the prior decision.  The petition also ignored the point that class certification was improper given the nature of the plaintiff's claim, which did not present common issues that would support a class action.  It ignored the panel's criticism of the district court reasoning, and mischaracterized the scope of the injunction, as individual claims were not enjoined.

The petition's main concern was with the language used in the opinion describing plaintiff counsel as pugnacious, pertinacious to a fault, and a "nuisance." To which the panel responded that the petition ignored the facts and analysis that supported those characterizations, and the right of a court to  and the duty of a court to note unacceptable tactics.

The petition claims the panel did not treat the counsel with respect, to which the court noted that the lawyer had compared Judge Posner to Simon Cowell.

What the panel had said is that the structure of class actions gives plaintiff lawyers an incentive to negotiate settlements that enrich themselves but give scant rewards to class members. With numerous citations, the panel noted that the criticisms in the prior opinion of the tactics employed by some class action lawyers are not criticisms made by judges alone, let alone judges of the panel or judges of the Seventh Circuit.

So far from retracting any criticisms or modifying any language, the court reaffirmed its key criticisms.

Court of Appeals Enjoins Copycat Class Actions

The Seventh Circuit has held that a "copycat" class action suit cannot go forward in federal court in California after a similar class action had already been denied certification in federal court in Illinois.  Thorogood v. Sears, Roebuck & Co., No. 10-2407 (7th Cir., 11/02/10).

The first class action in the package of related cases was filed in state court in Illinois but removed to federal court under the Class Action Fairness Act.  Thorogood, a Tennessean, bought a Kenmore-brand clothes dryer from Sears (Kenmore is a Sears brand name). The words “stainless steel” were imprinted on the dryer, and point-of-sale advertising explained that this meant that the drum in which the clothes are dried was made of stainless steel. Thorogood claimed to have thought that this meant that the drum was made entirely of stainless steel, whereas part of the front of the drum—a part the user would see only if he craned his head inside the drum—is made of a ceramic-coated steel. 

The district court certified a multi-state class of Kenmore-brand clothes dryer purchasers. On appeal, the Seventh Circuit called the case “a notably weak candidate for class treatment.” Not only did common issues of law or fact not predominate over the issues particular to each purchaser of a stainless steel Kenmore dryer, as Rule 23(b)(3) requires, there were, the court said, “no common issues of law or fact.” 547 F.3d at 746-47.  It was well-nigh inconceivable, said the court,  that the other members of the class had the same understanding of Sears’s advertising as Thorogood claimed to have. Sears hadn’t advertised the dryers as preventing rust stains on clothes; and it’s not as if such stains are a common concern of owners of dryers—there was no suggestion of that either.

Stainless steel appliances are popular even among consumers, undoubtedly the vast majority, who do not expect a dryer to cause rust stains. Stainless steel does not rust, and that is certainly a plus, clothing stains to one side. But ceramic doesn’t rust either.  Advertisements for clothes dryers mention a host of features that might matter to consumers, such as price, size, electrical usage, appearance, speed, and controls, but not the prevention of clothing stains attributable to rust. The litigation of the class members’ claims would thus have devolved into a series of individual hearings in which each class member who wanted to pursue relief against Sears would testify to what he understood to be the meaning of a label or an  advertisement that identified a clothes dryer as containing a stainless steel drum. Few if any of them would have shared Thorogood’s alleged concerns, which, were a confabulation, said the court.

After the court of appeals thus ordered the first class decertified, thus shrinking the suit to Thorogood’s individual claim, Sears made Thorogood an offer of judgment under Rule 68 of $20,000 inclusive of attorneys’ fees. The district judge, believing that Thorogood should receive no attorneys’ fees, dismissed the suit. The Seventh Circuit affirmed the district court’s denial of attorneys’ fees and dismissal of the suit. 595 F.3d 759 (7th Cir. 2010).

The same plaintiffs' lawyer then brought Murray v. Sears, Roebuck & Co., No. 4:09-cv-
5744-CW (N.D. Cal.). Murray was a member of Thorogood’s class, and he brought essentially the identical claim in California.  Sears Roebuck sought an injunction halting the new class action in front of Judge Leinenweber, who had presided over and eventually dismissed Thorogood’s original class suit, but he ruled that Sears could obtain adequate relief against being harassed by repetitive litigation by pleading collateral estoppel in Murray’s suit in California. Sears appealed, asking the court to to reverse the district court's denial of  Sears’s motion to enjoin the virtually identical class action suit.

The Seventh Circuit (Judge Posner writing) noted that the class in Murray’s case was smaller than
Thorogood’s because it was limited to California purchasers, but it was still very large. The claims in Murray’s original complaint, when Sears pleaded the defense of collateral estoppel, were identical to Thorogood’s; they challenged the same advertising for the same models of clothes dryer. Murray acknowledged that he was alleging “a similar general set of operative facts as alleged in the Thorogood case.”  That caused the California court to find for Sears on collateral estoppel grounds.  So re judicata saves the day, just like the Illinois district court predicted in denying the requested injunction.

But (wouldn't be a blog-worthy case without the but) Murray then amended his complaint to allege additional facts in an effort to show that he had a different case, perhaps one more amenable to class action treatment. On the basis of the amendment, the district judge in California reversed his earlier ruling, and having thus rejected the defense of collateral estoppel allowed discovery to begin.

Ordinarily the ability to plead res judicata or collateral estoppel gives a litigant adequate protection against being harassed by repetitive litigation by the loser in a previous suit against him. But this case was unusual, said Judge Posner, both because it involved class action litigation and because of the specific tactics employed by class counsel. Class members are interested in relief for the class but the lawyers are primarily interested in their fees, and the class members’ stakes in the litigation are ordinarily too small to motivate them to supervise the lawyers in an effort to align the lawyers’ incentives with their own.  The defendant wants to minimize outflow of expenditures
and the class counsel wants to increase inflow of attorneys’ fees. "Both can achieve their goals if they collude to sacrifice the interests of the class.” Leslie, “The Significance of Silence: Collective Action Problems and Class Action Settlements,” 59 Fla. L. Rev. 71, 79-81 (2007). And when the
central issue in a case is given class treatment and so will be resolved once and for all, a trial becomes a roll of the dice. Depending on the size of the class, a single throw may determine the outcome of an immense number of separate claims (hundreds of thousands, in the dryer
litigation)—there is no averaging of decisions over a number of triers of fact having different abilities, priors, and biases. The risk of error becomes asymmetric when the number of claims aggregated in the class action is so great that an adverse verdict would push the defendant into bankruptcy; in such a case the defendant will be under great pressure to settle even if the merits
of the case are slight.

Moreover, in most class action suits, there is far more evidence that plaintiffs may be able to discover in defendants’ records (including emails, the vast and ever-expanding volume of
which has made the cost of discovery soar) than vice versa. Usually the defendants’ conduct is the focus of the litigation and it is in their records, generally much more extensive than the plaintiffs’ (especially when as in a consumer class action the plaintiffs are individuals
rather than corporations or other institutions), that the plaintiffs will want to go in search of a smoking gun.

There is no way in which Sears could recoup the expense of responding to Murray’s discovery requests and of filing preclusion defenses against even more soon-to-be-filed duplicative class actions in other states. The harm it faces from the denial of the injunction was irreparable and its remedy at law against settlement extortion nonexistent, found the Seventh Circuit.  Sears’s action under the All Writs Act was its only means, other than submitting to plaintiffs' lawyer’s  demands, of avoiding being drowned in the discovery bog.

Here, despite the artful pleading in the amneded complaint in California, there was nothing materially new in Murray’s complaint that should have allowed allow an escape from the bar of collateral estoppel. The critical issue was and is what consumers would understand by representations that the Kenmore dryer has a stainless steel drum. The finding in the first court was that common issues did not predominate in Thorogood’s suit; neither did they in Murray’s; the differences between the suits did not bear on that particulat finding.  Yet, the California court did not agree.

Sears’s motion had been filed under the “All Writs Act,” which authorizes a federal court to issue “all writs necessary or appropriate in aid of [its] jurisdiction and agreeable to the usages and
principles of law,” 28 U.S.C. § 1651(a), and which has been interpreted to empower a federal court “to issue such commands . . . as may be necessary or appropriate to effectuate and prevent the frustration of orders it has previously issued in its exercise of jurisdiction otherwise obtained.” United States v. N.Y. Tel. Co., 434 U.S. 159, 172 (1977). Abuse of litigation is a conventional ground for the issuance of an injunction under the All Writs Act, because without an injunction a defendant might have to plead the defense of res judicata or collateral estoppel in a myriad of jurisdictions in order to ward off a judgment, not without risks, and would be helpless against settlement extortion pressures.

The court of appeals left the details of the injunction to be worked out by the district judge, but noted that it had ordered the class decertified inthe first case because of the absence of issues common to all the class members. That ruling—as the injunction must make clear—does not preclude any of the class members from filing individual suits, should they choose. For it was not a ruling on the merits of any class member’s claim (including Thorogood’s). All that would be precluded is the filing (by members of Thorogood’s class, which includes the members of Murray’s class, or by the lawyers for those classes) of class action suits that are indistinguishable, so far as lack of commonality among class members’ claims is concerned, from Thorogood’s.  The plaintiff lawyers should be included in the injunction, as has been done in other cases. See In re Bridgestone/Firestone, Inc., Tires Products Liability Litigation, 333 F.3d at 769; Newby v. Enron Corp., 302 F.3d 295, 300-03 (5th Cir. 2002).


 

Drywall Litigation Update

The Georgia Superior Court has preliminarily approved a $6.5 million settlement between the Lowe's home improvement stores and a nationwide proposed class of drywall purchasers. Vereen v. Lowe's Home Centers Inc., SU10-CV-2267B (Ga. Super. Ct., Muscogee Cty.).

The proposed resolution of this piece of the drywall litigation would provide Lowe's gift certificates ranging from $50 to $2,000 to any consumer who purchased drywall (not just from China), as well as cash awards of up to $2,500, if the claimant can provide documentation of damages and proof of purchase. That is, plaintiffs who provide proof of purchase of drywall from Lowe's but have no proof of actual damages would receive gift cards valued up to $250. Class members unable to provide a proof of purchase would receive $50 gift cards.

Under the settlement, Lowe's also agreed to pay attorneys' fees and expenses up to 30% of the class fund, as well as $1 million to the plaintiff attorneys for administration of claims. The settlement purports to release Lowe's from all drywall claims.The Georgia court conditionally certified a settlement class and set a final fairness hearing for November 19th.

But the proposed settlement has apparently drawn objections from participants in the federal Chinese drywall multidistrict litigation, who are arguing that the settlement fund is too small and that the settlement would interfere with federal jurisdiction.  The plaintiffs' steering committee for the Chinese drywall multidistrict litigation in the Eastern District of Louisiana went so far as to move to enjoin the state court from moving ahead with the settlement, arguing that the benefit to the class is too small, and the attorneys' fees too large. Ironically, these plaintiff attorneys assert that the form of the class benefit, i.e.,  a gift card, is also improper.

The MDL lawyers assert that the parties involved in the MDL have been negotiating towards a global settlement, and allowing the state court, one-defendant settlement to go forward would simply undermine those efforts.  They called on the federal court, pursuant to the Anti-Injunction Act, to enjoin state court proceedings where, as here, it is allegedly necessary in aid of its jurisdiction or to protect or effectuate its judgments.

Readers will recall that after Hurricanes Katrina and Rita in 2005, drywall was imported from China to address a shortage of drywall required for repairs and new construction. After the drywall was installed, homeowners began to complain of smells, gas emanations, corrosion of appliances and electrical fixtures, and other alleged property damage. The lawsuits typically allege that sulfur compound levels in the drywall are too high, causing issues with air conditioning systems, electrical appliances, internal wiring, and other electrical systems in homes. Plaintiffs also allege the drywall produces a rotten egg-like stench and causes a variety of respiratory and other health problems for those who live in the affected homes.

So far, a few bench or jury bellwether trials have been completed, with mixed results.