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Posts Tagged ‘punitive damages’

Having been focused on several other speaking and writing projects recently (in addition to my day job), it’s taken longer than I had hoped to comment on several recent class-action-related decisions by the federal circuit courts of appeals.  Here’s a brief summary of three recent decisions of note:

Washington State v. Chimei Innolux Corp., No. 11-16862 (9th Cir. Oct. 3, 2011) – joining the Fourth Circuit in holding that a parens patriae action brought by state attorneys general or other state officials for the benefit of the state’s citizens is not a “class action” for the purposes of removal under the Class Action Fairness Act (CAFA).

Klier v. Elf Atochem N. Am., Inc., No. 10-20305 (5th Cir., Sept 27, 2011) – holding in the absence of an express provision in the settlement agreement to the contrary that unclaimed funds should be distributed pro rata to class members who participated in the settlement as opposed to being given to charity as a cy pres distribution.  Take note of the concurrence by Judge Edith H. Jones, which makes a strong argument that in the absence of any agreement to the contrary or express waiver of the right to recover unclaimed funds, the equities favor returning those funds to the defendant rather than paying them to the class or distributing them to charity.

Esurance Ins. Co. v. Keeling, No. 11-8018 (7th Cir., Sept. 26, 2011) – holding that when punitive damages are at issue, the correct standard is whether it would be “legally impossible” for the plaintiff to recover an amount of punitive damages that, when combined with the amount of compensatory damages sought, would exceed the $5 million amount in controversy threshold under CAFA, but concluding that it was not legally impossible under Illinois law, even though it was unlikely, that $4.4 million in punitive damages could be awarded in a case where the compensatory damages were slightly more than $600,000.

A great resource for more timely commentary and analysis on recent class action decision in the federal courts of appeals is Alison Frankel’s blog On the Case.

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The October 2008 issue of the Federalist Society’s Class Action Watch is now available for free download at the organization’s website (see link to the March 2008 issue here).  This installment includes articles on punitive damage limits, medical monitoring, the selection of lead counsel in securities class actions, product-based public nuisance cases, the impact of conflicts of state law on class certification, and more…

Thanks to Ted Frank at Overlawyered for the tip.

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Efforts to expand access to collective redress in the UK have been the subject of several recent entries here at ClassActionBlawg (see these entries dated October 9, September 1, and August 28).  According to an article published today in the Times Online, a British appellate court has dealt a setback to reformers by rejecting theories of damages considered novel in the UK but available under certain circumstances in US courts.  The case involves claims by a feed supplier against chemical companies for price-fixing and other acts of illegal competition in the vitamin market.  Unable to prove compensatory losses, the plaintiff sought other remedies, including disgorgement of profits and punitive damages.  The court rejected these theories, upholding a long-standing principle that civil damages should be limited to those necessary to compensate the plaintiff for losses caused by the illegal competition. 

Lawyers interviewed for the Times Online article predicted that the ruling could negatively impact collective redress reforms that have been proposed by the Civil Justice Council (CJC), because the inability to collect non-compensatory damages and the requirement of proof of individual compensatory damages could reduce the desirability of bringing collective actions for competition violations. 

For better or for worse, I’m not convinced this is true.  The same problem should apply, at least conceptually, in many types of cases brought in the U.S., yet class actions are commonly pursued in the US even where compensatory damages are the stated remedy being sought.  Difficulty in proving individual compensatory damages is not necessarily a disincentive because of the refusal by courts in many jurisdictions to consider individual problems in proof of damages at the class certification stage and the likelihood that the case will result in a settlement before the case gets to the point where the individual damages issues get resolved.  Part of the problem is the perception of the risk that if liability is found, courts will gloss over the lack of proof of individual damages for all or part of a class in an effort to ensure redress for whatever portion of the class was harmed.  However, many cases never get to the point where this issue is actually addressed.  Added to this problem is the fact that the plaintiffs’ bar is constantly thinking up new ways to argue that individual injuries and damages can be proved through “common” evidence.  One illustrative example is the use of the “fraud on the market” theory that has been adopted in securities cases and is now finding its way into consumer fraud cases.  Many of these theories are illogical or subject to proof only through questionable “expert” analysis, but the mere threat that they might succeed is often all the leverage the plaintiff needs to leverage a settlement where all members of the class obtain some relief without ever having to prove to a court that all members of the class were truly damaged.

Of course, the loser pays rulemay be a barrier to same level of entrepreneurial creativity in the UK as we see in the US.  Moreover, the possibility that lawyers in the UK will be able to think up creative ways to get around the proof of compensatory damages requirement may not be the best argument to persuade the government decision makers to accept the CJC proposals.  But, it seems unlikely that yesterday’s damages ruling means that if the CJC’s proposals are adopted, no one will have incentive to use them.

On the other hand, having a collective action procedure that never gets used wouldn’t be a first.

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The Institute for Legal Reform, an organization affiliated with the U.S. Chamber of Commerce, has issued its annual report ranking the lawsuit climates of each of the 50 States.  This report is an interesting resource for anyone who is interested in class action litigation and forum selection issues.  See the following link for the rankings and internal links to the full report:

http://www.instituteforlegalreform.com/states/lawsuitclimate2008/ 

The report is far from scientific and is based on the subjective responses of in-house lawyers in companies with annual gross revenues of at least $100 million.  However, as the executive summary concludes,

perception does become linked with reality. If the states can change the way litigators and others perceive their liability systems, we may find considerable movement in their rankings in the future. Once these perceptions change, the overall business environment may be deemed more hospitable as well.

One very interesting item in the report’s findings is that when respondents were asked to name the single most important issue facing state policymakers in reforming the legal system, speeding up the trial process was the factor most cited, beating out such factors as punitive damages and tort reform issues, eliminating unnecessary lawsuits, fairness and impartiality, and high litigation costs.  So, for anyone who believes that all corporate lawyers are interested more in delaying proceedings rather than letting the legal process run its course, the results of this survey provide some food for thought.

On a more predictable note, the report concluded that 41% of the respondents “view the fairness and reasonableness of state court liability systems in America as excellent or pretty good” while 55% viewed the systems as only fair or poor.”  In addition, 63% of respondents reported that “the litigation environment in a state is likely to impact important business decisions at their company, such as where to locate or do business, up from 57% in 2007.”  Executive Summary (Emphasis in original).

Another key point made by the report is that a state’s overall ranking may be influenced by the existence of one or two plaintiff-friendly magnet jurisdictions within the state.  Madison County, Illinois and Jefferson County, Texas, jurisdictions well-known to class action lawyers, are listed as examples.

Not surprisingly, corporate-friendly Delaware ranks as the best state in the survey, while West Virginia, home of the novel “reverse-bifurcation” procedure (see earlier entries here and here) in mass tort litigation, ranks last.

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