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Archive for November, 2009

The Supreme Court heard argument today in the securities class action case, Merck & Co., Inc. v. Reynolds, No. 08-905 (U.S.).  The case involves allegations that the defendant defrauded investors by making false  statements about the health risks associated with the drug Vioxx.  The issue in the case, courtesy of SCOTUS Wiki, is

Whether under the “inquiry notice” standard applicable to federal securities fraud claims, the statute of limitations does not begin to run until an investor receives evidence of scienter.

Tony Mauro of the National Law Journal quotes remarks from Justices Ginsberg, Scalia, and Kennedy in concluding that the Court appeared skeptical of the defendant’s arguments that information available in the public domain in 2001 should have given investors sufficient knowledge to start the statute of limitations running.  Mauro’s article is available at Law.com.

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Science editor Mark Henderson has a story on the Times Online’s blog Eureka about what could be the largest representative action ever filed in the history of the world.  The complaint, filed with the UN Human Rights Committee, seeks to save every inhabitant of the planet (and perhaps the entire solar system) from what could be imminent annihilation if CERN‘s Large Hadron Collider (LHC) in Switzerland creates micro-black holes when it begins to smash subatomic particles together at near light speed this month.  The complaint was filed by a group calling itself ConCERNed International, who seeks to enjoin the project until CERN’s scientists can prove that there is no chance that the collider will pose a danger in the form a “mass production” of “microscopic black holes.”  The UN Human Rights complaint follows an unsuccessful civil lawsuit last year filed in Federal Court in Hawaii attempting to enjoin operation of the collider.

 

For those about the run into the streets screaming in panic, the LHC has been the subject of a comprehensive safety study, and physicists agree that there is little danger of world destruction by black hole, strangelets, magnetic monopoles, or anything else.  Henderson paraphrases Michio Kaku in saying

 

 

there is a chance that the LHC could produce a black hole, but only in the sense that there is a chance that it could produce fire-breathing dragons.

 

The prospects of success in the case are probably worse than the chances of either black holes or fire-breathing dragons.  As far as I can tell, even assuming that creating a risk of global destruction by black hole is considered a violation of the International Covenant on Civil and Political Rights,  the Committee does not appear to have authority to enter or enforce any kind of injunction that would shut down the LHC.

 

For now, the there is no true global forum for claims of global concern, even those of apocalyptic proportions.

 

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Daniel Wise of the New York Law Journal has an interesting article out today on a recent New York state court decision involving a complex dispute over assets of former Philippines dictator, Ferdinand Marcos, being held by Merrill Lynch in New York.  The court ordered that the funds be paid to satisfy part of a $2 billion judgment awarded to class members in a successful class action filed in federal court in Hawaii under the Alien Tort Claims Act, on behalf of individuals injured by human rights abuses committed by the Marcos regime.  The current government of the Philippines claims entitlement of the funds, claiming that it has a sovereign interest. 

The same funds were the subject of a federal interpleader action filed by the brokerage to resolve issues over various competing claims to the funds.  The United States Supreme Court dismissed that action in 2007 after concluding that the Philippine government and a Philippine commission, who had sovereign immunity from having to participate in the interpleader proceeding, were indispensible parties.  The state court faced a similar issue, but interpreting the state joinder rule, it found that the two entities were necessary, but not indispensible parties, which meant that the case could go forward without them.

The cases reflect an intriguing and complicated interplay between a variety of private and governmental interests.  The individual class members claim entitlement to a personal remedy for injuries caused by human rights violations of the former Philippine government.  The current Philippine government has a sovereign interest in being free from having its rights determined by foreign courts, and it wants to use the assets to fund public programs.  The State of New York has an interest in making decisions about disputed funds held within its borders, but one of its courts disagrees with the analysis of the nation’s highest court about the importance of the sovereign interests of a foreign nation over those same funds.  In the middle of it all is a bank who probably just doesn’t want to get sued again for giving the money to the wrong party.

Something tells me that there will be much more to this story…

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In April, the Colorado Supreme Court decided Farmers Ins. Exchange v. Benzing, 206 P.3d 812 (Colo. 2009), in which it rejected the “fraud on the market” theory of reliance in a consumer class action.  Now, Garcia v. Medved Chevrolet, Inc., No. 09CA1465 (Colo. Ct. App., Nov. 12, 2009), the Colorado Court of Appeals has rejected the alternative reliance theory that the Benzing court  declined to address: the presumed reliance theory first recognized in the securities class action context in Affiliated Ute Citizens v. United States, 406 U.S. 128 (1972) could apply to establish common proof of reliance in a consumer class action involving alleged fraud by omission.  A synopsis, along with a copy of the opinion, is available at Law Week: http://www.lawweekonline.com/?p=1914

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In the latest installment of Bulletproof Blog‘s series on class action trends from the plaintiffs’ perspective, Larry Smith interviews Canadian lawyer Won Kim.  Kim discusses a recent Ontario court ruling that allows U.S. plaintiffs’ firms to provide administrative support and legal expertise to their Canadian counterparts for class action litigation in Canada.  For the complete article, click the link below.

http://www.bulletproofblog.com/2009/11/04/whats-next-the-plaintiffs-perspective-new-ruling-allows-massive-u-s-support-for-class-action-litigants-in-canada/

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I was not able to attend the National Institute on Class Actions program in San Fransisco, but class action notice expert Dr. Shannon R. Wheatman (swheatman@gmail.com), was there and she graciously agreed to send me her notes of what sounds like another great conference.  I think that Shannon’s article also marks the first guest post on ClassActionBlawg, and I am very grateful for her contribution.  Shannon’s notes follow below. – PGK

Notes from the 13th Annual National Institute on Class Actions (San Francisco)

Following an introduction from Tydings & Rosenberg partner and National Institute on Class Actions founder, John B. Isbister, Columbia Law Professor John C. Coffee kicked things off with his annual review of developments in federal class action law.  His review covered trends and key decisions over the past five years.  He identified several key areas that he believes are likely to be addressed in the federal courts in the near future. 

Professor Coffee began his discussion on the burden of proof.  He cites a significant shift in the Second, Third, and Fifth Circuits’ adoption of the preponderance of evidence standard for certification.  This has resulted in a front-loading of issues that has typically been consigned to the end of a case.  One example given was on lost causation and damages issues, which may be dispositive, but now need to be addressed at the certification stage in order to prevail.

The First Circuit is resisting the preponderance of evidence standard and this issue will remain at the forefront over the next five years when other circuits decide whether to accept it or not.

The discussion then turned to “hybrid” class actions that seek to combine elements from Rule 23(b)(2) and Rule 23(b)(3) to award injunctive relief and monetary damages.  All circuits have agreed that “incidental” damages can be awarded but their definition of “incidental” differs.   The Ninth Circuit in Dukes v. Wal-Mart, 509 F.3d 1168 (9th Cir. 2007), deemed the damages to be incidental since the primary motive was injunctive relief. 

Since the predominance requirement of Rule 23(b)(3) is a “formidable opponent to class certification” partial certification is gaining acceptance.  Professor Coffee sees this as a possible fix for classes that fail the preponderance of evidence standard.  However, the Second Circuit in McLaughlin v. American Tobacco Company, 522 F.3d 215 (2d Cir. 2008), reversed partial certification because “larger issues such as reliance, injury, and damages” would need to be addressed in individual actions. 

For the past few years Professor Coffee has been discussing class-wide arbitration.  A number of courts have found specific arbitration clauses to be unenforceable and other courts have invalidated class-wide arbitration.  This topic was elaborated on in the first panel discussion.

Highlights of panel discussions

A Funny Thing Happened on the Way to the Courthouse . . . I Had to Litigate an Arbitration Clause!  Crafting, Opposing, and Arguing Clauses and Class-Action Waivers in Three Scenes

Following-up on the 12th Annual’s “I Could Have Sworn it was CAFA, Not Kafka!”  Dan Karon presented a true-to-life example of the evolution of an arbitration clause.   Scene I began with a defense attorney (Todd Fulks) talking with a consultant (Stuart Widman) about the enforceability of his client’s proposed arbitration clause in a mobile phone agreement.  This scenario provided a very entertaining overview of class arbitration challenges.  Scene II involved a discussion between two plaintiffs’ attorneys (Dan Karon and Vincent Esades) who wanted to go forward with a class action for breach of contract but first needed to get a court to rule that the class-action waiver was unconscionable.  Scene III provided a guest appearance from the Honorable Stanwood R. Duval Jr. of the Eastern District of Louisiana.  Judge Duval presided over a mock hearing on the alleged unconscionability of the arbitration clause.  The plaintiff’s attorney commented that the arbitration clause provided a “Willy Wonka effect” with it tiny font.  The most amusing part came when Judge Duval remarked that the arbitration clause “could have been written in invisible ink” in his response to the defense statement that consumers don’t read these agreements anyway so it doesn’t matter. 

Living on the Fault Line: Class Action Issues in California

This panel provided a discussion of the Golden state’s class action landscape.  Hillary Hehman of the California Administration Office of the Courts started the dialogue with an overview of a study on California class actions.  The study found that approximately 22% of class actions filed in California were certified (report is available at www.courtinfo.ca.gov/reference/caclassactlit.htm).  This study dovetails nicely with some research that I was involved in at the Federal Judicial Center that found that approximately 24% of class actions in federal courts were certified (report available at www.fjc.gov).

The remaining panelists (Jocelyn Larkin, Fred Alvarez, Honorable Steven Brick, and Mark Chavez) talked about privacy rights and communication with absent class members prior to certification.  In general, class member contact information is discoverable under California law.  The California Supreme Court in Pioneer Electronics v. Superior Court, 40 Cal.4th 360, 373-374 (2007), ruled that an opt-in procedure is not necessary to allow that communication. 

Hydrogen Peroxide Will Clear it up Right Away: Developments in the Law of Class Certification

This panel (Jessica Miller, John Beisner, Elizabeth Cabraser, Bonny Sweeney, and Shirli Fabbri Weiss) discussed the ramifications of the In Re Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305 (3d Cir. 2008), ruling on class certification standards.   Hydrogen Peroxide shattered the myth that antitrust class actions are a given and laid out several predominance requirements for class certification. Elizabeth Cabraser noted, “merits matter more than they used to.”  The Hydrogen Peroxide ruling did not tell District Courts how far they should go in their merits analysis.  The federal judges have been put into a position where they do not have presumed expertise on deciding the merits so they are reluctant to certify if they are uncertain about the substance of the claims.  The panel suggested that in order to get a class certified you need to move for class certification as early as practicable, get as much discovery as possible, and bring experts in immediately.

A Survival Guide for Today’s Class Action Settlement

The final panel examined the substantive, procedural, and ethical issues that arise in the class settlement process.  Judge DuVal discussed the ethical pitfalls in the distribution and determination of attorneys’ fees.  He discussed the Fifth Circuit’s reversal of the approval of attorneys’ fees in the In re High Sulfur Content Gasoline Products Liability Litigation, 517 F.3d 220 (5th Cir. 2008).  Many lessons can be learned from this case, namely that a judge should not overly rely on the committees’ proposal of attorneys’ fees, ex parte hearings should not be held, supportive data on the distribution plan should be required, and sealing attorneys’ fee documents is a Big No-No.  Judge DuVal said the process must be transparent.  He noted that the court in Turner v. Murphy Oil USA, Inc. used a Special Master to determine fees since the attorneys were in disagreement.  He went on to discuss his work in the Katrina cases (In Re: Katrina Canal Breaches Consolidated Litigation) where plaintiffs’ attorneys waived their fees but were allowed to ask for an enhancement of costs.  Judge DuVal ended his discussion on attorneys’ fees by reminding the audience that “pigs get fed and hogs get slaughtered.”  So it is wise not to become a hog when it comes to attorneys’ fees.

The panel (Judge DuVal, John Hooper, and Mike Ciresi) had a lively discussion on the court’s injunctive powers to protect a settlement.  The All Writs Act and exceptions to the Anti-Injunctive Act aid courts but provide a tremendous opportunity for abuse.  Judge DuVal noted that he issued an injunction in the Katrina litigation against state courts to enjoin any other lawsuits against the agencies involved.

The discussion turned towards objectors.  John Hooper noted that “they are not all professional objectors, there are objectors who are professional.”  At this juncture

Judge DuVal talked about the difficulties with the Katrina cases and the objections that people had about the limited fund settlement.  Effective notice goes a long way to quiet objectors.  Judge DuVal remarked that the “notice in the case was excellent.”  I was the notice expert in the Katrina case and was very moved at the fairness hearing by Judge DuVal’s thoughtful opening remarks, which were meant for the numerous class members who lost so much when the levees failed.  These comments seemed to satisfy some of the objectors.

This provided a good segue into the final presentation on new media options for class action notice.  Katherine Kinsella, a leading expert in the design and dissemination of legal notice, provided an overview of traditional (newspaper, magazines, TV, radio, internet, banner ads, keyword searches) v. new media (mobile, blogs, social).  A tutorial on how new media can be used to reach a class member was demonstrated through text messaging.  Audience members were shown how to use their mobile device to text a short code (listed in a publication notice) in order to get more information about the settlement.  This process of having the class member send a text obviates the Telephone Consumer Protection Act, which bans sending unsolicited advertisements by text to anyone without prior express consent.

The overall take away from this presentation was that new media is “exciting and sexy” but more time is needed for it to evolve to a level where it can reach mass numbers of people.   For example, currently only Facebook and MySpace offer coverage above 10% among adults 18 years of age and over, whereas, numerous magazines (for example, People, National Geographic, Parade, Better Homes & Gardens and Good Housekeeping) individually reach and in some instances greatly exceed 10% coverage.  Moreover, most of our media time is spent on traditional media (47.9% on TV alone).  For now new media can be used to complement the mass audience reach of traditional media.

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The Seventh Circuit Court of Appeals has begun implementation of an electronic discovery pilot program, which will be conducted between October 1, 2009 and May 1, 2010.  The program is the result of recommenations of an e-discovery committee of private practitioners, in-house counsel, judges, and e-discovery consultants, “formed to consider what can be done to reduce the costs of electronic discovery, and the costs of discovery and litigation more generally.”  The pilot program is to be guided by a set of e-discovery Principles, which are intended to “incentivize cooperative exchange of information on evidence preservation and discovery.”  A full report on Phase One of the pilot program is available at the Seventh Circuit’s website

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