TLPJ - Briefs - Walker v. Liggett Group, Inc.

IN THE UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF WEST VIRGINIA

EARL WILLIAM WALKER, JR.,

individually and as

representative of those

persons similarly situated

PO Box 525

Putnam County, Poca,

West Virginia 25159

Plaintiffs, Civil Action No. 2:97-0102

LIGGETT GROUP, INC., a

Delaware corporation and

LIGGETT & MYERS, INC.,

a Delaware corporation,

Defendants.

REPLY MEMORANDUM IN SUPPORT OF MOTION OF INTERVENOR/

CLASS MEMBER CYDNE ANNE WESTMORELAND TO VACATE

PRELIMINARY APPROVAL OF CLASS ACTION SETTLEMENT AND

PRELIMINARY CERTIFICATION OF MANDATORY SETTLEMENT CLASS

In their opposition briefs, the settling parties argue that the Supreme Court's decision to vacate the massive asbestos settlement in Amchem Products, Inc., et al., v. George Windsor, et al., 1997 WL 345149 (June 25, 1997) ("Amchem"), does not apply here because this class action -- unlike Amchem -- is a so-called "limited fund" case certified under Fed. R. Civ. P. 23(b)(1)(B). Not only is this contention belied by the Supreme Court's post-Amchem decision to vacate the limited-fund class certification in In re Asbestos Litigation, 90 F.3d 963 (5th Cir. 1996), vacated and remanded sub nom. Ortiz v. Fibreboard Corp., 1997 WL 107214 (June 27, 1997), but it is demonstrably wrong in light of the legal analysis used in Amchem itself.

As a threshold matter, we note that Amchem makes even clearer that this class cannot properly be certified as a mandatory "limited fund" class under Rule 23(b)(1)(B), even assuming that Liggett could demonstrate an identifiable res. As explained in our opposition to the settling parties' preliminary injunction motion, the Rules Enabling Act prohibits the use of Rule 23(b)(1)(B) as a substitute for bankruptcy because, outside of the in rem context, equitable allocation of limited assets requires courts to abridge the substantive rights of some class members. See Westmoreland Opposition at 21-25. Amchem repeatedly emphasizes that Rule 23 must be interpreted in light of the constraints posed by the Rules Enabling Act, providing further evidence that Liggett's attempt to avoid bankruptcy via the class action device is unlawful. Thus, Amchem clarifies that this Court cannot use a federal rule of procedure to transform individual, in personam damages claims against Liggett into aggregated in rem claims against a fictitious "limited fund." But, as explained below, even if Rule 23(b)(1)(B) could be used as a surrogate for bankruptcy under appropriate circumstances, Amchem nonetheless reveals that this class could never meet the other requirements of Rule 23 or pass muster under the U.S. Constitution.

1. Amchem's Holding Regarding Predominance Demonstrates that this Class Could Never Meet the Typicality Requirement of Rule 23(a)(3).

Liggett's first claim is that Amchem's holding regarding Rule 23(b)(3)'s "predominance" requirement has no applicability to classes certified under Rule 23(b)(1)(B). See Liggett Opp. at 4. Although Liggett is correct that Rule 23(b)(1)(B) does not contain a predominance requirement, Amchem's holding on this point nonetheless demonstrates why this class could never meet another aspect of Rule 23 that is applicable to (b)(1)(B) classes -- the "typicality" requirement of Rule 23(a)(3).

Amchem held that class members' shared experience of asbestos exposure and common interest in achieving a fair settlement do not constitute "common questions" for purposes of Rule 23(b)(3)'s predominance requirement; instead, the "inquiry trains on the legal or factual questions that qualify each class member's case as a genuine controversy, questions that preexist any settlement." 1997 WL 345149 at *18 (emphasis added). In an accompanying footnote, the Supreme Court added that, "[i]n this respect, the predominance requirement of Rule 23(b)(3) is similar to the requirement of Rule 23(a)(3) that 'claims or defenses' of the named representative must be 'typical of the claims or defenses of the class.' The words 'claims or defenses' in this context . . . 'manifestly refer to the kinds of claims or defenses that can be raised in courts of law as part of an actual or pending lawsuit.'" Id. at *18 n.18 (quoting Diamond v. Charles, 476 U.S. 54, 76-77 (1986)) (emphasis added). Thus, Amchem makes clear that Rule 23(a)(3)'s typicality requirement -- which applies to all class actions under Rule 23, including this one -- cannot be met by class members' allegedly common interest in maximizing their recoveries under a settlement; instead, it must be measured according to the actual claims asserted in the complaint as part of an actual lawsuit.

Under this analysis, this class could never satisfy the typicality requirement of Rule 23. To begin with, the class includes everyone in the country who has ever been exposed to smoke from any cigarette, whether manufactured by Liggett or not -- either by smoking or via second-hand exposure -- and everyone who may be so exposed anytime within the next 25 years. Some of these individuals already suffer from tobacco-related disease; some have not yet manifested any injury from cigarette smoke; and some have not yet even inhaled the smoke that could form the basis of some future claim against Liggett. Not only do these claims vary widely in character, in terms of exposure, smoking history, types of injuries, and differences in state law, but the "future" claims of the exposure-only and pre-exposure class members have not yet even accrued. On top of this, the class includes any entity (except the states) that has (or will have) a tobacco-related economic-loss claim against Liggett. Given this unique and varied mix, the only "typical" interest conceivably shared by the class members is in maximizing their respective recoveries via a settlement. Yet Amchem teaches that typicality must be measured according to the "claims or defenses that can be raised in courts of law as part of an actual or impending lawsuit" (1997 WL 345149 at *18 n.18) -- a test that cannot possibly be met in a case where, as here, many of the claims have not even accrued and, in any event, are riddled by factual and legal differences.

This result is supported by the lower court proceedings in Amchem. In its decision decertifying the class, the Third Circuit held that the class of asbestos victims, which included a "hodgepodge of factually as well as legally different plaintiffs," could not satisfy the typicality requirement of Rule 23(a)(3). Georgine v. Amchem Products, Inc., 83 F.3d 610, 632 (3d Cir. 1996). The Court wrote that, "[e]ven though the named plaintiffs include a fairly representative mix of futures and injured plaintiffs, the underlying lack of commonality necessarily destroys the possibility of typicality." Id. Although the Supreme Court did not ultimately reach the question of typicality when it affirmed the Third Circuit's decision in Amchem, it wholeheartedly endorsed the lower court's approach of restricting the typicality inquiry to the claims and defenses raised in the class complaint. See 1997 WL 345198 at *18 n.18. That approach, applied here, yields the inevitable conclusion that this class could never meet the typicality requirement of Rule 23(a)(3).

2. Amchem's Holding Regarding Adequacy of Representation Defeats Class Certification Here.

As explained in our opening memorandum, Amchem's holding that intra-class conflicts between, among others, present and future victims rendered the named plaintiffs incapable of meeting Rule 23(a)(4)'s adequacy-of-representation requirement also defeats class certification here. Liggett offers three arguments in response: (1) Amchem's holding is inapplicable because this is a limited fund case "which, by necessity, brings before the Court all potential claimants to the limited fund" (Liggett Opp. at 4 (emphasis in original)); (2) even assuming Amchem applies here, the settlement's "existing structures" are sufficiently protective of class members' interests to eradicate any conflict problems (id. at 6); and (3) if the settlement is still deemed inadequate in this regard, the parties "could clearly amend their Settlement Agreement and certification motion and provide for subclasses with separate representation." Id. Each of these arguments is wrong.

a. Amchem's Adequacy-of-Representation Holding Applies to All Class Actions, Including this One.

First, there is no question that Rule 23(a)(4)'s adequacy-of-representation requirement applies with full force to "limited fund" classes certified under Rule 23(b)(1)(B). Like the "typicality" requirement discussed above, adequacy of representation is one of the threshold requirements set forth in Rule 23(a) that must be satisfied in all classes certified under Rule 23. It is, moreover, a minimal requirement of due process under the U.S. Constitution. See Phillips Petroleum v. Shutts, 472 U.S. 797, 812 (1985). See also Matsushita Elec. Indus. Co., Ltd. v. Epstein, 116 S. Ct. 873, 875 (1996) ("adequate representation is among the due process ingredients that must be supplied if the judgment is to bind absent class members.") (Ginsburg, J., concurring).

Amchem itself makes clear that the Supreme Court did not intend to limit its adequacy-of-representation holding to "opt-out" class actions certified under Rule 23(b)(3). Notably, every case cited by Amchem to support its holding on this point involves a mandatory, non-opt-out class certified under one of the other prongs of Rule 23. See 1997 WL 345198 at *20-21 (citing General Tel. Co. of Southwest v. Falcon, 457 U.S. 147 (1982) (mandatory employment discrimination class certified under Rule 23(b)(2)); East Tex. Motor Freight System, Inc. v. Rodriguez, 431 U.S. 395 (1977) (same); General Tel. Co. of the Northwest v. E.E.O.C., 446 U.S. 318 (1980) (same); In re Joint Eastern and Southern Dist. Asbestos Litig., 982 F.2d 721 (2d Cir. 1992) (mandatory asbestos victims class certified under Rule 23(b)(1)(B)), modified on reh'g on other grounds sub nom. In re Findley, 993 F.2d 7 (2d Cir. 1993)).

Amchem's reliance on In re Joint Eastern and Southern Dist. Asbestos Litig. is particularly applicable here. Like this case, that decision involved a mandatory, "limited fund" class action certified under Rule 23(b)(1)(B) that included both present and future personal injury victims. See 982 F.2d at 728, 735. The Second Circuit vacated the class certification order on the ground that conflicts between various segments of the class rendered the named plaintiffs incapable of satisfying Rule 23(a)(4)'s adequacy-of-representation requirement. Id. at 741-43. Amchem quotes from that decision extensively in support of its conclusion that intra-class conflicts rendered the named plaintiffs incapable of representing the class. See 1997 WL 345149 at *21. Thus, Amchem itself defeats Liggett's attempt to restrict its applicability to opt-out classes under Rule 23(b)(3).

Moreover, Liggett's argument that Amchem's adequacy-of-representation holding does not apply in the limited fund context makes no sense. In reality, the conflict-of-interests problems identified in Amchem are even worse in a case where the class members' claims exceed available assets. In Amchem, it was undisputed that the asbestos companies' assets would be sufficient to pay all claims under the settlement. See 1997 WL 345149 at *20 (citing 157 F.R.D. at 291). Yet the Supreme Court still rejected the certification due to impermissible conflicts between present and future victims. In this case, in contrast, the settling parties contend that Liggett's liabilities far outstrip its assets. If true, this means that class members must battle it out for their share of an inadequate pool of assets -- a true zero-sum game. Amchem itself acknowledged that the conflicts between present and future victims in a limited fund context would be at least as serious as those identified in the Amchem settlement. See 1997 WL 345149 at *20 (finding impermissible intra-class conflicts because, "[a]lthough this is not a 'limited fund' case certified under Rule 23(b)(1)(B), the terms of the settlement reflect essential allocation decisions designed to confine compensation and to limit defendants' liability.") (emphasis added). Thus, the Supreme Court recognized -- as logic dictates -- that its analysis would apply with full force in the limited fund context, as well.

b. This Class Lacks Any Structures to Protect Class Members from Intra-Class Conflicts.

Liggett's fallback position is that, in any event, the settlement's "existing structures" are sufficiently protective of class members' interests. This is puzzling, to say the least, since the settlement does not contain any structures at all to prevent the sort of conflicts identified in Amchem. The settlement was negotiated by one set of counsel on behalf of one class representative. There were no subclasses at all, let alone a situation whereby "consents [have been given] by fair and adequate representatives who have undivided loyalties only to members of their subclasses." In re Joint Eastern and Southern Dist. Asbestos Litigation, 982 F.2d at 742-43. In this case, no court has ever found that separately represented subclasses each satisfy the requirements of Rule 23, as Rule 23(c)(4) requires. Most importantly, the terms of the settlement itself reveal the lack of any protections for the diverse interests encompassed within this enormous class. Unlike the Amchem settlement, which at least gave class members some clue as to how the settlement proceeds would be distributed, this settlement provides no details about: (1) how much money the overall fund will contain; (2) how much of the fund will go to the mandatory class (as opposed to the 17 states who entered into a prior settlement with Liggett); (3) how the class' money will be divided among the various claimant groups; and (4) how much any particular injury will be worth. The settling lawyers' statement that they omitted these details in order to avoid "distracting the parties and the Court" (Settlement Agreement ¶ 7.11) would be laughable, if it were not so troubling. In short, not only does this class lack any "structural protections" to guard against intra-class conflicts, but the settlement itself demonstrates the blatantly inadequate representation afforded class members in this case. See Amchem, 1997 WL 345149 at *21 (finding inadequate representation where "[n]either the terms of the settlement [nor] the structure of the negotiations [indicated] that the named plaintiffs operated under a proper understanding of their representational responsibilities.")

Liggett nonetheless claims that the intraclass conflicts are eliminated by class members' "common interest in maximizing the limited fund available from Defendants." Liggett Opp. at 6. This argument, however, was expressly rejected in Amchem. There, the district court held that the adequacy-of-representation requirement was met because of the class members' united interest "in seeking the maximum possible recovery for their asbestos-related claims." Georgine v. Amchem Products, Inc., 157 F.R.D. 246, 317 (E.D. Pa. 1994). The Third Circuit rejected this rationale outright because it overlooked the differing interests that segments of the class had in distribution of that recovery, see 83 F.3d at 630, and the Supreme Court affirmed. Cf. 1997 WL 345149 at *18 ("[i]f a common interest in a fair compromise could satisfy the predominance requirement of Rule 23(b)(3), that vital prescription would be stripped of any meaning in the settlement context.") Thus, the class members' common interests in maximizing the fund cannot be relied upon to overcome the conflicts of interest within the class.

c. The Defects in the Class Cannot Be Cured by Amending the Settlement Agreement and Certification Motion to Provide for Subclasses with Separate Representation.

Finally, Liggett argues that any defects in the class could be cured by post hoc amendment of the settlement and certification motion to provide for subclasses with separate representation. See Liggett Opp. at 6. To borrow plaintiffs' phrase (Plaintiffs' Opp. at 8), this argument is truly a red herring. First, given the enormously varied interests encompassed in this class, no subclassing could overcome the intra-class conflicts deemed fatal in Amchem. If subclassing could cure the defects in a class like this, then Rule 23 could be used to aggregate huge numbers of claims lacking any common nexus whatsoever simply by creating "subclasses" for each diverse group. The drafters of Rule 23 could not have intended this result, nor would the Rules Enabling Act -- which prohibits use of procedural rules to "abridge, enlarge, or modify any substantive right" -- tolerate such an outcome. See n.1, supra.

Second, even assuming that subclassing could salvage this conflicted class, Liggett's unilateral offer is too little, too late. It should go without saying that the "structural protections" discussed in Amchem must be in place before a settlement is negotiated. A critical purpose of requiring subclasses with separate representation is to ensure that any settlement adequately addresses the interests of each subclass -- a goal that cannot be achieved by the back-door approach suggested by Liggett. Thus, creating subclasses after a settlement has already been reached is like closing the barn door after the horses have escaped. Moreover, if post hoc subclassing were a cure-all, then presumably the Supreme Court would have remanded Amchem for further proceedings consistent with its opinion, to give the settling parties an opportunity to reshape their deal. Instead, the Court simply affirmed the Third Circuit's decision, which vacated the district court's order certifying the plaintiff class. See 83 F.3d at 618. Clearly, then, neither the Supreme Court nor the Third Circuit is of the view that a settlement of this sort can be cured by the type of thirteenth-hour subclassing contemplated by Liggett.

3. Amchem's Discussion Regarding Notice is Applicable Here, and Demonstrates the Fatal Due Process Problems Created by this Settlement and Certification.

The settling parties' final argument is that Amchem's discussion regarding the inadequacy of class notice in future victims' class actions are inapplicable here because "[n]otice in Rule 23(b)(1) and (b)(2) classes is discretionary." Plaintiffs' Opp. at 8-9; see also Liggett Opp. at 6-8. This argument ignores the fact that Rule 23(e) imposes a mandatory notice requirement with respect to "the dismissal or compromise" of all class actions, including cases certified under Rule 23(b)(1)(B). See Walsh v. Great Atlantic & Pacific Tea Co., Inc., 726 F.2d 956, 963 (3d Cir. 1983) ("Rule 23(e) makes some form of post-settlement notice in Rule 23(b)(1) and (b)(2) class actions mandatory"); Charles A. Wright, et al., 7B Federal Practice and Procedure, § 1797 at 365 (West, 2d ed. 1986). This mandatory requirement, which is designed to ensure that "absent class members are provided an opportunity to contest any action that they feel will adversely affect their rights," id. at 359-60, is rendered meaningless where, as here, the class encompasses millions of future victims who may have no way of knowing that they are included in this settlement.

In any event, Amchem itself demonstrates that its observations regarding notice are not restricted to opt-out classes certified under Rule 23(b)(3). In discussing the "highly problematic" impediments to adequate notice in future victims' class actions, the decision cites Judge Smith's dissenting opinion in In re Asbestos Litig., 90 F.3d at 999-1000. See 1997 WL 345149 at *21. That decision, which was vacated by the Supreme Court for reconsideration in light of Amchem, see supra at 1, involved a no-opt-out limited fund case similar in many respects to this one. In language markedly applicable here, Judge Smith wrote: "[c]ertification of futures-only class actions creates a massive potential for abuse. Many putative future claimants have manifested no symptoms and do not even know they were exposed. . . . Thus, the due process standbys -- notice and an opportunity to be heard --- are meaningless to countless future claimants." 90 F.3d at 999 (emphasis added). As the underscored language reveals, even in a no-opt-out class, due process requires both notice and an opportunity to be heard -- requirements that could not be satisfied in this case in any meaningful fashion.

Conclusion

For the foregoing reasons, the Court should vacate its May 15 Order preliminarily approving the settlement and certifying the class and deny the pending motion for a preliminary injunction as moot.

Respectfully submitted,

__________________________

Jason Huber, Esq.

Forman & Crane

P.O. Box 2148

Charleston, WV 25328

(304) 346-6300

Leslie Brueckner, Esq.

Arthur Bryant, Esq.

Trial Lawyers for Public Justice

1717 Massachusetts Ave., N.W.

Suite 800

Washington, D.C. 20036

(202) 797-8600

Steve Baughman, Esq.

Baron & Budd, P.C.

3102 Oak Lawn Ave., Ste. 1100

Dallas, TX 75219-4281

(214) 521-3605

Attorneys for Objector Cydne Westmoreland

July 25, 1997