Objector Cydne Ann Westmoreland files this opposition to the settling parties' joint motion for a preliminary injunction prohibiting litigation against Liggett by members of the Settlement Class. Ms. Westmoreland is the personal representative of the estate of her mother, Jayme Westmoreland. Jayme Westmoreland was 43 years old when she died of lung cancer in November 1994, leaving two children -- Cydne, who was then 17, and Aaron, who was then 12. Jayme was a long-time smoker of Lark cigarettes, which are manufactured by Liggett. Cydne, as representative of Jayme's estate, is the plaintiff in a pending lawsuit against Liggett Group, Inc. filed in state court in Hillsborough County, Florida. Westmoreland v. Liggett Group, Inc., No. 95-8136 (Hillsborough Cty., 13th Jud. Cir., Fla.). A copy of the first amended Complaint in that action is appended to this opposition as Exh. A. Because Cydne Westmoreland wishes to pursue her late mother's claims against Liggett, and because she believes the preliminary injunction contemplated here is far beyond the authority of this Court, she files this opposition.
On March 20, 1997, Liggett Group, Inc. ("Liggett") announced the filing of a class action settlement in state court in Mobile, Alabama. The settlement in that case, styled Fletcher v. Liggett Group, Inc., CV 97-913 (Ala. Cir. Ct., Mobile Cty.), purported to resolve all tobacco-related claims against Liggett that presently exist, as well as any future claims that accrue over the course of the next 25 years. When the Fletcher settlement was filed, Liggett contended that its assets constituted a "limited fund" requiring certification of a mandatory, no-opt-out class action. However, neither Liggett nor Fletcher class counsel ever suggested to the Alabama court, or to the press, that any stay of litigation against Liggett was necessary to preserve that allegedly "limited fund." In Fletcher, the parties to the class settlement never filed a motion for any restraining order, stay, or preliminary injunction to halt ongoing and future tobacco litigation against Liggett.
Eight days after the filing of the Fletcher settlement, the Alabama Supreme Court issued its opinion in Ex parte Holland, 1997 WL 139479, No. 1951631 (Ala., March 28, 1997). In Holland, the Court issued a writ of mandamus directing a trial court to vacate an order certifying a mandatory punitive damages class in a group of cases involving fraud in the sales and financing of automobiles. The Holland court held that the trial court did not have sufficient evidence from which to conclude that the defendant's assets would be exhausted by punitive damages claims against it. 1997 WL 139479 at *9. More significantly, however, the Holland court added that any inquiry into whether contingent tort liabilities will ever deplete a defendant's resources is "cumbersome" and involves "inherent speculation." Thus, the Court concluded that Rule 23(b)(1)(B) is "inappropriate as a basis on which to certify a mandatory class action" due to the possibility that tort liabilities will render a defendant insolvent. Id. at *11. On April 23, certain members of the Fletcher class moved to stay dissemination of the class notice and to set aside the proposed settlement, on the basis that Holland established that the proposed class certification in Fletcher was not proper. See Exhibit B.
On April 30, 1997, the Alabama attorney general, Bill Pryor, filed a notice of dismissal and motion to alter or amend provisional class certification and preliminary settlement approval order in the Fletcher case. Mr. Pryor claimed that the parties to the settlement had misrepresented to the trial court that the University of South Alabama was authorized to serve as a representative plaintiff for a sub-class in the Fletcher action. The attorney general said that no such authority existed absent his consent, and he moved the Fletcher court to voluntarily dismiss the University of South Alabama and its Board of Trustees from the action. See Exhibit C.
Now, less than two months after the filing of the Fletcher settlement, Liggett has engaged in a blatant display of forum shopping by filing an identical class settlement in this Court. Although Liggett alleges no changed circumstances to justify the request, it now seeks this Court to enjoin all tobacco-related litigation against it, allegedly in order to preserve its limited assets. Such a request is unnecessary, and the need for such an injunction is belied by the nature and timing of the request itself. If a stay of litigation were truly necessary to preserve Liggett's assets, it would have sought such a stay in the Fletcher case two months ago. Moreover, in order for such an injunction to accomplish its expressed purpose of preserving the company's assets, it would have to halt not only all tobacco-related litigation against Liggett, but also all claims by trade creditors and other tort victims. But the stay sought here does not even affect all tobacco claims against Liggett, much less claims by commercial creditors or other tort victims. And, beyond the lack of necessity for the stay and the harm it causes the class, this Court lacks any viable legal basis to enter the injunction the parties have proposed.
The settling parties ask this Court to go where no court has gone before. Entry of the preliminary injunction proposed here would constitute the most expansive -- and illegitimate -- use of federal judicial power ever exercised. Such injunction would encompass virtually every person who lives in the United States, and every medical insurer, 28 states, and all of the nation's counties and cities. It would enjoin millions of people, corporations, and political subdivisions for whom no claim has been alleged in this Court, and over whom there is no basis for assertion of jurisdiction.
The sole basis for the settling parties' proposed injunction is a class settlement that provides a Defendant with complete immunity from suit in return for essentially nothing. That settlement provides class members almost no monetary or injunctive relief to which they were not already entitled, but it benefits Liggett extensively. Under the settlement, Liggett is given an unprecedented release from claims for past and future personal injuries arising from both past and future misconduct. And, with the exception of the 28 class member states, none of the class members here are entitled to exclude themselves from this privately negotiated, quasi-legislative effort to eliminate their substantive rights.
The settling parties attempt to justify the unprecedented scope of the class, the failure to provide class members the right to opt out, and the insignificance of the settlement's relief by asserting that Liggett may not have enough money to pay for the defense and payment of claims that the members of this class could bring against it. Assuming this assertion is true, it nonetheless fails to provide this Court any authority to use a rule of procedure to alter the present and future substantive rights of virtually every American. Congress has provided a means to address insolvency in the Bankruptcy Code, which includes significant procedural and substantive protections for present and future tort creditors and provides a substantive basis for adjusting creditors' entitlements under state laws. By contrast, Rule 23(b)(1)(B) does not give federal courts similar authority to alter state law rights and obligations, particularly when most of those rights have not even yet accrued.
The legal infirmities plaguing the proposed injunction and the class settlement upon which it is premised are legion and insurmountable:
This Court has no subject matter jurisdiction with respect to the vast majority of the class. The class complaint asserts claims only on behalf of past and present smokers of Liggett cigarettes who have already suffered personal injuries. Complaint at 13. But the class defined in the proposed settlement includes hundreds of millions of additional people, insurers, and political subdivisions, including those who will only suffer injuries in the future. There is no basis for this Court to assert subject matter jurisdiction over those additional persons and entities. Moreover, even if the claims of those additional "settlement class" members were alleged in a complaint, claims for future losses and personal injuries are not justiciable under Article III, nor can they meet the amount-in-controversy test for diversity jurisdiction under 28 U.S.C. Sec. 1332.
Due process and the Rules Enabling Act prohibit use of Rule 23(b)(1)(B) in this situation. The "limited fund" provision of Rule 23 was never intended to encompass claims for in personam damages based on the potential insolvency of a tort defendant. For better or worse, substantive tort law establishes a "first-come, first-served" system for reaching a tort defendant's assets, and this Court cannot use a rule of procedure to alter that substantive regime. But even if 23(b)(1)(B) could permissibly be used as a substitute for bankruptcy, it would not be applicable to the Settlement Class defined here. While this class is massively over-inclusive for purposes of assessing the criteria of 23(a), it is under-inclusive for purposes of equitably distributing Liggett's limited funds. The 28 state class members are entitled to exclude themselves from the class and pursue separate claims, and none of Liggett's commercial creditors are encompassed. Thus, it is only the present and future personal injury victims (and the non-state entities who have subrogation claims related to those victim's injuries) who are confined to the results of this proceeding, while Liggett's assets remain open for depletion by opt-out states and trade creditors. Finally, due process requires that all class members with claims for in personam damages be entitled to exclude themselves from the class.
This class cannot meet the certification criteria of Rule 23(a). The "Settlement Class" here encompasses such a large and diverse group of claims that the class could not possibly satisfy the requirements of Rule 23(a) if the case were litigated to judgment. Thus, the sole conceivable basis for meeting the commonality, typicality, and adequacy criteria of 23(a) is the settlement itself. Whatever the proper role of accounting for a settlement in assessing class certification criteria, a settlement cannot, in and of itself, be sufficient to establish a class. Additionally, gross conflicts of interest among groups within the class preclude any finding of adequate representation. Similarly, this Court cannot find that class counsel have adequately represented the class by giving up rights for essentially no relief.
Neither due process nor Rule 23 permit resolution of future claims for damages. This settlement purports to extinguish not only class members' claims for existing injuries based on Liggett's past misconduct, but also any claims for future injuries related to smoking Liggett cigarettes or second-hand exposure to Liggett tobacco smoke, including injuries caused by future Liggett conduct. A release of such future claims cannot satisfy either due process or the adequacy of representation requirement of Rule 23.
A class settlement that releases claims for virtually no consideration cannot be fair. The supposed injunctive and monetary "relief" provided under the class settlement here requires Liggett to give up virtually nothing that it had not already given up under its separate settlement with 17 state attorneys general. Thus, this settlement serves solely to benefit Liggett (and class counsel) while providing basically no relief to the plaintiff class -- it is therefore blatantly unfair and cannot survive this Court's scrutiny under Rule 23(e).
The Anti-Injunction Act prohibits this Court from enjoining pending litigation against Liggett by class members in state courts. That statute, 28 U.S.C. Sec. 2283, prohibits federal courts from enjoining pending state court litigation, except under circumstances that are not present here.
For all these reasons, which are discussed in detail below, class member Cydne Ann Westmoreland, on her own behalf and as representative of the estate of Jayme A. Westmoreland, opposes the settling parties' motion for entry of a preliminary injunction.
This case is the latest of a series of efforts by Liggett to cap its liability for damages based on personal injuries and economic loss related to its marketing of tobacco products. First, in March 1996, Liggett made headlines by settling a number of Medicaid reimbursement lawsuits brought on behalf of five states. Then, on March 20, 1997, Liggett announced that it had reached a settlement with 17 additional states (the "Attorneys General Settlement Agreement" or "AGSA"). On the same day, Liggett announced that it had entered into a class action settlement agreement (the "Fletcher settlement") in an Alabama state court action entitled Fletcher v. Liggett Group, Inc., CV 97-913 (Ala. Cir. Ct., Mobile Cty.). That settlement class included both Liggett's present and future personal injury victims and all entities, including 28 states, who had pending or potential economic injury claims against Liggett. The Fletcher settlement received preliminary approval from the Alabama judge, and a final fairness hearing was set for July 1997. In Fletcher, the settling parties never sought or claimed any need for a stay of litigation against Liggett.
Meanwhile, class counsel filed the complaint in this action on February 7, 1997. That complaint asserts claims on behalf of a comparatively narrow class of people who have already suffered personal injuries as a result of smoking Liggett cigarettes. Complaint at 13. Then, on May 15, Liggett and class counsel (the "settling parties") filed their proposed class settlement in this case, which they characterize as a "renegotiation" of the Fletcher class settlement. In fact, the settlement agreement ("Class Settlement Agreement" or "CSA") here tracks the Fletcher settlement almost word-for-word and provides identical "relief" to the class.
The class definition set forth in the CSA is far broader than the class described in the class complaint. In addition to the presently injured Liggett smokers who have asserted claims in the complaint, the "Settlement Class" includes the following groups who have made no claim in this case:
a) past, present, and future smokers of Liggett cigarettes (Class Settlement Agreement ("CSA") at 15, 18 -- defining "Settlement Class" part (a) and "Smokers");
b) people who have been or will be exposed to second-hand smoke from Liggett cigarettes (CSA at 15, "Settlement Class" part (d));
c) past, present, and future users of tobacco products manufactured by other tobacco companies and people who have been or will be exposed to second-hand smoke from such products (CSA at 16, "Settlement Class" part (f)); and
d) all persons or entities, including all states, counties, cities and insurance companies, which have incurred or will incur losses by reason of paying for or providing treatment for medical conditions caused by cigarettes manufactured by any tobacco company (CSA at 16, "Settlement Class" part (e)).
Given that probably every American (and every non-American resident of the United States) has been exposed to second-hand smoke, this Settlement Class encompasses more than 250 million people, including every lawyer to participate in this proceeding and every judge who will ever consider the propriety of this settlement.
The CSA releases all class members' claims for personal injury and economic loss against Liggett relating to smoking or cigarettes. This release not only encompasses claims that have already arisen, but also extinguishes claims for any future injuries that occur during the 25-year period of the settlement. Unlike prior "future claims, settlement-only" class actions involving asbestos, the CSA not only extinguishes future claims for latent injuries based on Liggett's past misconduct, but also immunizes Liggett from liability for any future, tobacco-related misconduct that causes injury while the settlement is in effect.
In exchange for the mandatory release of present and future claims, the CSA purports to provide two basic types of relief: monetary and injunctive. First, the CSA requires Liggett to contribute an initial payment of $25 million plus 25% of its annual pretax income for 25 years to a fund that will supposedly benefit class members. Second, the CSA ostensibly obligates Liggett to do a number of things that allegedly benefit the class, including to: (1) inform the public of "the past concerted activities of the tobacco industry to deny health warnings regarding smoking"; (2) submit to FDA jurisdiction and regulations; (3) stop marketing its cigarettes to children and adolescents; (4) add additional warnings to cigarette packs; and (5) actively assist class counsel in the prosecution of fraud, conspiracy, and other claims against other tobacco manufacturers.
But when one scrutinizes the CSA alongside the companion Attorneys General Settlement Agreement, it becomes clear that the CSA actually guarantees no money for the class and provides no injunctive relief that was not already promised in the AGSA. Under the March 20 AGSA -- which will remain in effect with or without the CSA -- the Settlement Fund, comprised of 25% of Liggett's pre-tax income, will be split between the class members and the states in some yet-to-be-determined allocation. However, the AGSA provides that, if the CSA is not ultimately approved, the states will still receive up to 20% of Liggett's pre-tax income. AGSA Sec. 6.11 at 32. Thus, although there is no guarantee that the class will receive any portion of the settlement fund created under the AGSA and CSA, the agreements give the states strong leverage to argue that the class should be entitled to no more than 20% of that fund, or 5% of Liggett's pre-tax income. If Liggett's $2.3 million pre-tax income in 1995 is any indicator of the company's future performance, the class will likely receive approximately $115,000 per year (5% of $2.3 million), in the aggregate, to compensate them under this settlement.
As for the supposed injunctive relief in this settlement, the conduct required of Liggett under the CSA was already independently mandated by the AGSA. The injunctive language of the CSA (Section Five) tracks the injunctive language of the AGSA (Section 4) almost verbatim. The only arguable difference is that, under the CSA, Liggett's cooperation (and documents) are expressly promised to be shared with class counsel and non-objecting class members' attorneys as opposed to being shared with the settling states. However, even though the AGSA provides that Liggett will cooperate only with the settling states in suits against other tobacco defendants, there is no doubt that, even without the CSA, such cooperation with the states would have trickled down to benefit each individual class member who also sued those other defendants. The private attorneys working with the state attorneys general on the Medicaid lawsuits comprise a significant -- and highly influential -- portion of the plaintiffs' tobacco litigation bar. Through their involvement with the attorneys general, those private attorneys would have access to all the information and cooperation provided by Liggett under the AGSA, and they would be able to share that information with other private attorneys pursuing individual lawsuits. Once the cat of cooperation sprang forth from Liggett's bag under the AGSA, it would by no means have been contained to the Medicaid litigation -- and thus the cooperation provisions of the CSA add little or nothing for the benefit of the class.
In exchange for nominal monetary relief (at best) and no injunctive relief at all, the Settlement Class not only gives up the right to sue Liggett for tobacco-related injuries or losses, but it also potentially gives up valuable rights against other tobacco defendants. This comes from Liggett's efforts to make itself an attractive takeover target for larger tobacco companies in Section 10 of the CSA. Basically, Section 10 provides that, if a member of this class obtains a judgment against another tobacco defendant, and that tobacco defendant has become affiliated or later becomes affiliated with Liggett by purchase or merger, then the class member will not be able to enforce that judgment against any affiliate of the tobacco defendant that is not "engaged in Domestic Tobacco Operations." CSA Sec. 10.2(b). This provision invites other tobacco companies to spin-off their non-tobacco holdings, purchase Liggett, and thereby immunize their non-tobacco assets from liability.
On May 15, 1997, this Court entered an Order granting preliminary approval to the CSA, certifying a mandatory settlement class under Fed. R.Civ. P. 23(b)(1)(B) and (b)(2), and issued a temporary restraining order against further prosecution of tobacco-related claims against Liggett by members of the Settlement Class. Such restraining order was entered
[t]o protect the Defendants' potentially "limited fund" from further depletion or exhaustion by competing judgments of class members or defense costs, to enhance the ability of the Defendants to meet their obligations under the proposed settlement, and to preserve the status quo pending this Court's determination on whether to approve the proposed settlement.
May 15 Order at 7. This Court then scheduled a hearing on the settling parties' motion for a preliminary injunction for May 30.
This Court should not enter a preliminary injunction against the entire population of this country, most of its governmental bodies, and nearly all of its insurers in order to preserve a proposed settlement that benefits only the defendant and class counsel. In determining whether to enter a preliminary injunction, this Court must consider four factors: 1) the likelihood of irreparable harm if the injunction is not granted; 2) the likelihood of harm to the non-movant if the injunction is granted; 3) the likelihood that plaintiff will succeed on the merits; and 4) the public interest. Blackwelder Furniture Co. v. Selig Manufacturing Co., 550 F.2d 189, 192-93 (4th Cir. 1977). Here, this four-part balance is overwhelmingly skewed against the proposed injunction.
The supposed "irreparable harm" to Liggett if the injunction is not granted is the depletion of its assets by payment of defense costs and judgments against it in other litigation. Liggett's "sky-is-falling" cry rings hollow, however, in light of two facts: first, the same settlement that allegedly needs protection in this case required no such stay when it was filed in the Alabama state court; and second, the settlement and proposed injunction do not encompass trade creditors or states that elect to opt out. If the "limited fund" here is truly in need of protection, the parties would have sought such protection in the Fletcher court. More significantly, any order truly designed to preserve Liggett's assets, rather than designed merely to cut-off class members' rights, would enjoin not just the class, but any other parties that threaten to exhaust Liggett's assets. Thus, if this were genuinely a class action which had the purpose of equitably allocating Liggett's "limited fund," the class would include Liggett's commercial creditors, and there would be no opportunity for the states to opt out.
Liggett's further claim that a stay is warranted because its bankruptcy would "undeniably harm all parties" (Jt. Mem. at 33 n.21) is wrong. Whatever Liggett's "liquidation value," a bankruptcy would not require that the company be liquidated, and it would ensure that tort creditors such as the class members here are adequately represented and that their interests are not improperly subordinated to the interests of Liggett's trade creditors, non-tobacco tort claimants, shareholders, and any states that opt out of the class. By contrast, the proposed settlement and injunction here ensure just such subordination, by extinguishing the class members' rights against Liggett for virtually nothing, while allowing Liggett's shareholders and trade creditors to rid themselves of the shadow of liability cast by this class without sacrificing any of their own interests.
Both the public interest and the interests of this class would be harmed by the injunction precluding claims against Liggett. Although most of this class is not yet injured, a significant portion of the class, including Objector Cydne Westmoreland, has already suffered some tobacco-related injury or economic loss as a result of Liggett's alleged tortious misconduct. Ms. Westmoreland and others should be entitled to seek compensation for such injuries under relevant state tort laws, unless and until Liggett is in bankruptcy. But perhaps more importantly, class members such as Ms. Westmoreland would be irreparably harmed by the proposed injunction because it would freeze their claims against Liggett while allowing other creditors to go after the company and potentially leave nothing for the class.
Contrary to the settling parties' rhetoric, the proposed injunction will not preserve the status quo. Under the proposed injunction, states that opt out of the class are still able to pursue tobacco cases for Medicaid reimbursement, trade creditors could pursue whatever claims they have against the company, and non-tobacco tort victims could pursue other tort lawsuits (e.g., if a Liggett-owned truck were to run over a pedestrian, that pedestrian would have a claim against the company unrelated to its tobacco products). If Liggett's assets could be depleted through the defense of tobacco-related lawsuits by the class, they could certainly also be exhausted through the claims of these other groups that are not subject to the proposed injunction.
But the most significant barrier against entry of the proposed preliminary injunction is the illegality and unfairness of the settlement itself, which prevent this Court from concluding that there is any probability that the settling parties will succeed on the merits of their request for final approval. The arguments that follow elaborate on the three independent problems that prevent this Court from entering the proposed injunction:
1) This Court lacks subject matter jurisdiction with respect to the claims of the majority of the class, and it therefore lacks jurisdiction to enjoin those class members. This argument is expressed in Part I.
2) The proposed settlement and class certification, which form the sole underlying basis for entry of the injunction, cannot meet the criteria of Rule 23, and therefore there is no probability that the settling parties will succeed on the merits:
There is no legal basis for certification of a mandatory, no-opt-out class under these circumstances. This argument is expressed in Part II.
This class cannot satisfy the certification criteria of Rule 23(a). This is Part III.
This settlement cannot satisfy the fairness criteria for approval under Rule 23(e). This is Part IV.
3) Any injunction against litigation of pending state court claims violates the Anti-Injunction Act, and the "limited fund" allegations here are not sufficient to invoke the "necessary in aid of jurisdiction" exception in that statute. This argument is set forth in Part V.
Most of this class has never asserted a claim against Liggett in this Court or anywhere else, and this Court lacks subject matter jurisdiction to extinguish those non-existent claims -- or to issue an injunction staying all related litigation pending a decision approving the settlement. A comparison of the class complaint and the class settlement reveals that Liggett is attempting a "bait and switch" ploy to stretch its blanket of immunity over currently nonexistent, potential claims by hundreds of millions of non-parties. The complaint alleges claims only on behalf of those who have already suffered a personal injury from smoking cigarettes manufactured by Liggett. Complaint at 13. No one else has asserted a claim for relief in this proceeding. No Article III case or controversy has even been alleged with respect to the theoretical claims of all other Settlement Class members, some of which may have already accrued, but most of which will exist, if at all, only at some unknown future time. The absence of any alleged claim by most of the members of the Settlement Class places two jurisdictional obstacles in the path of the settling parties' proposed injunction: first, this Court cannot enjoin non-parties who are not in "active concert or participation" with named parties, Fed. R. Civ. P. 65(d); and second, the injunction would be premised on protection of an unapprovable settlement that purports to release the claims of persons who are not parties to the action.
Federal Rule of Civil Procedure 65(d) delineates the permissible scope of federal court injunctions, and it provides that "[e]very order granting an injunction . . . is binding only upon the parties to the action, their officers, agents, servants, employees, and attorneys, and upon those persons in active concert or participation with them who receive actual notice of the order by personal service or otherwise." Here, the only party plaintiffs in this case are those who have asserted a claim in the Complaint, and this Court therefore has no authority to enjoin the remainder of the Settlement Class. As Judge Learned Hand once wrote:
no court can make a decree which will bind any one but a party; a court of equity is as much so limited as a court of law; it cannot lawfully enjoin the world at large, no matter how broadly it words its decree. If it assumes to do so, the decree is pro tanto brutum fulmen, and the persons enjoined are free to ignore it.
Alemite Mfg. Corp. v. Staff, 42 F.2d 832, 832-33 (2d Cir. 1930). The non-party portion of the Settlement Class includes all those who have claims arising from second-hand exposure to Liggett smoke, those who have future claims, those who have claims arising from smoking or other exposure to tobacco products manufactured by other companies, and those who have claims for economic losses resulting from paying medical expenses for tobacco-related injuries.
More significantly, this Court has no jurisdiction to extinguish the potential claims of the non-party class members by approving this settlement purporting to release those claims. The plaintiff class representative has made no effort to assert claims on behalf of most of the Settlement Class. Not only have those people failed to receive adequate representation, they are not even before this Court. This Court has no jurisdiction to approve an injunction or class settlement that purports to bind non-parties to the action.
Presumably, class counsel could amend the class complaint to assert the potential, unaccrued future claims of the Settlement Class Members who have not already suffered a tobacco-related injury, but those claims would still not create a justiciable controversy over which this Court could assert Article III jurisdiction. Federal courts only have jurisdiction over "cases" and "controversies." U.S. Const. art. III, Sec. 2. The case and controversy requirement "limit[s] the business of the federal courts to questions presented in an adversary context and in a form historically viewed as capable of resolution through the judicial process." Flast v. Cohen, 392 U.S. 83, 95 (1968). It also "define[s] the role assigned to the judiciary in a tripartite allocation of power to assure that the federal courts will not intrude into areas committed to the other branches of government." Id. Thus, the Constitution does not permit an unelected federal judiciary to make general policy decisions intended to affect society as a whole -- determinations reserved to Congress and state lawmaking authorities -- but instead allows the federal courts to decide only concrete, bona fide disputes between antagonistic litigants having a current, ripened, palpable stake in the outcome.
Here, the vast majority of the Settlement Class members have no current, ripened, palpable stake in the outcome of this supposed "dispute." They do not have lung cancer today, although they may get it sometime during the next 25 years. They do not have standing to file a lawsuit today for such contingent, future injuries. Claims for those injuries are not yet ripe and are not justiciable under Article III. In short, what the settling parties propose here is a legislative solution that prospectively alters the rights of future victims of Liggett's conduct. But our Constitution does not grant federal courts the power to legislate solutions, even in response to the most pressing of problems: "It is not for [the federal judiciary] to employ untethered notions of what might be good public policy to expand our jurisdiction in an appealing case." Whitmore v. Arkansas, 495 U.S. 149, 161 (1990). The legislative result compelled by this mandatory class settlement might be implemented by a legislature or an Article I bankruptcy court, but it cannot be implemented here. And, because this Court lacks jurisdiction over the non-existent "future claims" released by the settlement, it has no authority to issue the requested injunction.
Because the settling parties' proposed injunction would be premised on the certification of an illegal mandatory class certification order, there is no legal basis to enter the stay. The Constitution guarantees the right to opt out of any class action, such as this one, that seeks to bind the members of the class with respect to their in personam claims for money damages. Moreover, neither Rule 23(b)(1)(B) nor (b)(2) were intended to encompass such in personam damages claims -- the "limited fund" provision of Rule 23(b)(1)(B) was intended to resolve groups of claims against a naturally limited fund, or res, while subdivision (b)(2) was meant solely for claims predominately seeking injunctive or declaratory relief. Application of Rule 23(b)(1)(B) here, as a substitute for the provisions of the Bankruptcy Code, would violate the Rules Enabling Act by altering the substantive rights of the class.
Ignoring the allegations of the complaint, the settling parties defend the no-opt-out class action certified here with the same excuse allegedly justifying each of this action's other irregularities the supposed need for equitable distribution of the Liggett's limited assets. But class members here do not assert claims against any type of specific property or common fund. Class members' claims are not against a bond, a ship involved in a maritime accident, a trust fund, an insurance policy, or any other specific piece of property. Nor are class members' claims alleged against a defendant in receivership or bankruptcy. In this case, class members' claims are in personam claims against a solvent defendant that merely faces a risk of insolvency. If class members individually prosecuted the claims alleged in the complaint against Liggett and secured individual judgments, state law provides that those judgments would be enforceable in full immediately upon becoming final, unless and until Liggett declares bankruptcy or a receiver is appointed to distribute its assets. In these circumstances, due process demands that class members be given the opportunity to litigate those individual claims on an individual basis. The Rules Enabling Act demands that their claims, if taken to judgment in a federal court following trial, be paid in full. And both Rule 23 and its historical common law antecedents demand that if these in personam claims for individual damages are to be certified for class treatment at all, they could only be certified under Rule 23(b)(3).
In Phillips Petroleum Co. vs. Shutts, 472 U.S. 797 (1985), the Supreme Court confirmed that the Constitution requires exactly what Rule 23(b)(3) provides: that class members with substantial, individualized claims for money damages must have the opportunity to opt out. In Shutts, the Supreme Court held that due process requires "at a minimum" that, in order for a court to exercise jurisdiction over absent class members in a case seeking predominately money damages, those class members must be afforded the opportunity to exclude themselves from the class. 472 U.S. at 812.
Confirming that Shutts requires an opt-out option for tort claimants of individualized monetary damages, the Ninth Circuit recently reversed a district court's judgment against absent class members not allowed to opt out. Brown v. Ticor Title Ins. Co., 982 F.2d 386, 392 (9th Cir. 1992), cert. dismissed as improvidently granted, 114 S. Ct. 1359 (1994). In Ticor, the district court had certified the class under Fed. R. Civ. P. 23(b)(1)(A) and 23(b)(2), neither of which provide for a right of exclusion. The Ninth Circuit concluded that "[b]ecause Brown had no opportunity to opt out of the MDL 633 litigation, we hold there would be a violation of minimal due process if Brown's damage claims were held barred by res judicata." Id.
Because tort claims for personal injury or property damages are inherently particularized and will differ for each member of the class, the requirement of adequacy of representation in Federal Rule of Civil Procedure 23 is insufficient to protect the due process rights of absent class members with respect to such claims. See Shutts, 472 U.S. at 812. Group representation is not a substitute for due process rights because certification of monetary damages claims on a no-opt-out basis deprives plaintiffs of their right to present the unique circumstances of their individual injuries. Unliquidated claims for tort damages cannot be calculated by applying a strict mathematical formula to each class member. The risk that absent class members will be deprived of all or part of their claims is extremely high because individual interests are necessarily different from those of the class representatives. While there are types of non-tort damages claims, such as back pay in employment discrimination suits, that may require no more than mechanical application of a classwide formula to determine each plaintiff's recovery, tort damages are unique to each plaintiff even when the underlying cause is the same. Without the right to opt out, class members have no opportunity to present the unique circumstances of their individual injuries, as required by the underlying substantive law:
Commonality among class members on issues of causation and damages can be achieved only by lifting the description of their claims to a level of generality that tears them from their substantively required moorings to actual causation and discrete injury. Procedures can be devised to implement such generalizations, but not without alteration of substantive principle.
In re Fibreboard Corp., 893 F.2d 708, 712 (5th Cir. 1990). A court can guarantee claimants a fair and full opportunity to be heard only by providing each individual the choice of hiring her own lawyer, opting out of a class action, and presenting her own claim in a forum of her own choosing. The proposed certification and settlement here deny that right to class members such as Cydne Westmoreland by resolving their claims in the aggregate through a settlement negotiated without her knowledge or input by lawyers they did not choose and have never met. Such a result is not consistent with due process.
In addition to violating due process rights of absent class members, certification of this class under Rule 23(b)(1)(B) also runs afoul of the Rules Enabling Act by contemplating a modification of class members' substantive rights. Pursuant to that statute, 28 U.S.C. Sec. 2072, the Federal Rules of Civil Procedure cannot "abridge, enlarge or modify any substantive right."
If Objector Cydne Westmoreland was to obtain a final judgment against Liggett for damages from her mother's death, Florida law would entitle her to execute that judgment against Liggett's assets, and no other member of the Walker class could interfere with her collection of that judgment. "The first and most obvious consequence of a judgment is that it establishes an indisputable obligation and confers upon the successful party the right to issue execution or other process of the court for its enforcement." Clarke v. Brown, 244 A.2d 514, 518 (N.J. Super. 1968). Although Liggett's bankruptcy or creation of an equitable receivership could transform Ms. Westmoreland's in personam damages claims into equitable claims for allocation of limited assets, by its terms the Rules Enabling Act prohibits federal courts from using Rule 23(b)(1)(B) to enact a similar transformation. As one scholar recently wrote:
the equitable allocation of a limited fund requires a policy decision about the way in which the substantive rights of litigants will be altered. This policy decision cannot properly be made by the class action rule. This principle applies with even greater force in the context of settlement. . . . Rather, as the Second Circuit has suggested, the proper approach to the equitable allocation of insufficient assets is a resort to bankruptcy proceedings.
Patrick Woolley, Rethinking the Adequacy of Adequate Representation, 75 Tex. L. Rev. 571, 624-25 (1997).
The existence of the Bankruptcy Code further illustrates the impermissibility of using Rule 23(b)(1)(B) to adjust the rights of tort creditors with claims against a potentially insolvent defendant. When Congress has articulated the law governing the resolution of a particular question, a court must apply the federal statute that controls the issue and may not fashion some other law to resolve the controversy. Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22, 27 (1988); Northwest Airlines, Inc. v. Transport Workers Union of Am., 451 U.S. 77, 95-96 n.34 (1981). If a party's debts exceed its assets, then creditors' substantive rights may be altered under the provisions of the Bankruptcy Code. Article III courts have no authority to undertake the same alteration of substantive rights absent statutory authorization. "[A] 23(b)(1)(B) class should not serve as a substitute for bankruptcy proceedings." Alba Conte, 3 Newberg on Class Actions 17.15A at 3S-16 (3d ed. Supp. 1994).
In a recent decision reversing a similar limited fund class certification based on the potential insolvency of an asbestos defendant, the Second Circuit emphasized that making pro rata adjustments of creditors' rights is not the appropriate role of the judiciary, whether or not the class action procedure might be "more efficient" than bankruptcy: "the function of the federal courts is not to conduct trials over whether a statutory scheme should be ignored because a more efficient mechanism can be fashioned by judges." In re Keene Corp., 14 F.3d 726, 733 (2d Cir. 1993). The Keene court explained why the attempted "evasion of the Bankruptcy Code" is impermissible:
[C]lass members in cases such as this would have no say in the conduct of the court-appointed class representatives, and unlike creditors in bankruptcy, are not able to vote on a settlement. See 11 U.S.C. Sec. 1126. For them, it would be "cram-down" from start to finish. Finally, unlike a lawyer for a creditors' committee, the class representatives in matters like the present one may not be compensated unless a settlement is reached, a situation fraught with danger to the rights of plaintiffs.
Keene, 14 F.3d at 732; see also In re Joint Eastern & Southern District Asbestos Litig., 982 F.2d 721, 736 (2d Cir. 1992) (the differences between protections afforded under Rule 23 and the Bankruptcy Code "raise a substantial question whether a class action may be used to adjust claims against an insolvent entity"), modified on other grounds, 993 F.2d 7 (2d Cir. 1993).
A recent commentator has further explained the Keene court's legal conclusion that class action settlements cannot be used as a substitute for bankruptcy. Professor Coffee points out that "[b]oth substantively and procedurally, bankruptcy reorganization has comparative advantages over a mass tort class action as a means of achieving an equitable resolution of mass tort liabilities that is fair to tort creditors." Coffee, Class Wars: The Dilemma of the Mass Tort Class Action, 95 Colum. L. Rev. 1343,1458 (1995). Substantively this is so because, in bankruptcy, tort claimants would have to receive full payment of their provable claims before stockholders could share in the firm's value. But in class action settlements such as this one, "tort creditors are either scaled back or forced to rely on thinly funded or unspecified settlement funds. Although both class actions and Chapter 11 are costly, the bottom line difference between them is that a corporation filing for a Chapter 11 reorganization can anticipate having to surrender the majority of its equity to a settlement trust...." Id. at 1459.
Coffee concludes that bankruptcy courts provide greater procedural protection to tort claimants than mandatory class settlements because bankruptcies "are governed by well-known and largely settled legal rules that give creditors specific voting rights and that recognize distinct subclasses. In contrast, a principal attraction of the mass tort class action is that it permits an end run around this known legal regime. Instead, the settling parties can ask the court to serve as a mediation forum where virtually anything goes and formal legal constraints are lacking." Id. at 1459-60. He thus concludes that, as a matter of policy, "the rationale that the corporation's funds are limited should not justify the certification of a non-opt out class action because such a class action appears at present to be an inferior substitute for a bankruptcy reorganization." Id. at 1461.
The fact that the settlement here places only 25% of Liggett's income in the Settlement Fund underscores the inappropriateness of using Rule 23(b)(1)(B) as a surrogate for bankruptcy. A bankruptcy court would establish an orderly procedure to ensure that all Liggett's creditors are given a fair chance to recover against Liggett's available assets. In this settlement, by contrast, every class member (except the 28 states) will be forced to share in a fund that represents, at most, a mere 25% of Liggett's assets. The remaining 75% will be available to satisfy the claims of all other Liggett creditors who are not locked into the mandatory class -- and, of course, to permit Liggett to continue to pursue its business of selling cigarettes. Here, too, the settling parties have offered no justification for why the settlement fund is limited to a mere 25% of Liggett's assets. This is not surprising, since no conceivable justification exists for this arbitrary limitation of the settlement fund. See Report of Susan Koniak, attached as Exh. D, at 16 ("Liggett may have limited funds, but that does not make 25% of its pretax income a limited fund. The 25% figure is a figure of agreement, not a fact of nature.").
Permitting certification of a mandatory class here on the basis of Liggett's potential insolvency would violate the Rules Enabling Act by stripping class members -- like Cydne Westmoreland -- of their substantive rights to pursue tort remedies under state law. Because such certification is not legally permissible, this Court has no authority to enter an injunction premised on the viability of that class certification.
For purposes of protecting Liggett's assets, the Settlement Class is underinclusive for two obvious reasons. First, although the settling parties have sought certification under the no-opt-out provisions of Rule 23, the settlement permits the 28 states included in the class the opportunity to opt out and pursue separate tobacco-related claims against Liggett. This alone betrays the absence of any justification for the settling parties' claims that a mandatory class is necessary to protect Liggett's limited assets. The theory behind a "limited fund" class is that, given the limited pool of assets, all creditors should be included in the class to ensure equitable distribution of the fund. This settlement, however, virtually ensures inequitable distribution of the "fund" insofar as any state in the class can opt out and pursue its own claims against Liggett outside the class. Not surprisingly, the settling parties have not even attempted to justify this bizarre arrangement, which flies in the face of the articulated justification for their mandatory class and renders the class uncertifiable on its face.
The class is also underinclusive in another, broader respect. If Rule 23(b)(1)(B) could be used as an alternative to bankruptcy, the class would have to include all relevant creditors that might deplete the defendant's assets, including trade creditors and other tort creditors who have non-tobacco claims. In order for the Rule to serve the purpose of ensuring equitable distribution of the limited fund, the class must include all persons whose separate actions create the risk of "substantial impairment" to other class members. Otherwise, certification fails to protect the class members from the risk Rule 23(b)(1)(B) was intended to address. It leaves those outside the class free to pursue their claims, but limits the ability of class members to proceed in the meantime. Here, that essential requirement of limited fund certification has not been met.
In short, despite the settling parties' rhetoric that "one or a few judgments could -- with substantial probability' -- force a bankruptcy filing and impair other claimants against Liggett," Jt. Mem. at 32, the CSA permits trade creditors, other tort creditors, and class member states to pursue judgments against Liggett that could just as easily "impair" the rights of the class. Given the under-inclusive nature of the class when assessed for this purpose, mandatory class certification is not justified.
The settling parties' alternative request for mandatory certification of the Settlement Class under Rule 23(b)(2) is even less colorable than their request for "limited fund" certification. Rule 23's drafters intended to limit certification under subdivision (b)(2) to those cases in which the relief sought by the plaintiff class was predominantly injunctive, such as civil rights and employment discrimination suits. Here, however, neither the tort claims for damages alleged in the class complaint nor the relief provided under the settlement support certification under Rule 23(b)(2).
As an initial matter, certification under (b)(2) is facially absurd given that the alleged injunctive relief provided under the CSA obligates Liggett to do nothing it was not already required to do under the AGSA. The class here does not get any injunctive relief, and denying them the right to opt out of the class on the basis of injunctive relief that they do not receive would reflect the height of absurdity.
But even if the CSA provided the class extensive injunctive relief, certification under subdivision (b)(2) would nonetheless be inappropriate because the claims alleged in the class complaint are inherently individualized claims for damages. The extremely heterogenous interests of class members in this case with respect to their claims for damages precludes certification of a no-opt-out class under 23(b)(2), despite the presence of injunctive relief in the proposed settlement. Because class members' claims for personal injury damages and economic losses vindicate the unique interests of each plaintiff and necessarily require individualized assessment of damages and causation issues, such claims are not among the limited types of monetary relief that may be properly included within a class certified under Rule 23(b)(2).
When a class seeks both injunctive relief and damages, (b)(2) certification is permissible only to the extent that the claims for injunctive relief "predominate." See Rules Advisory Committee's Notes to 1966 Amendments to Rule 23, 39 F.R.D. 69, 102 (1966) (subdivision (b)(2) "does not extend to cases in which the appropriate final relief relates exclusively or predominantly to money damages");Arnold v. United Artists Theatre Circuit, Inc., 158 F.R.D. 439, 461 (N.D.Cal. 1991) ("money damage claims may be certified under (b)(2) so long as the monetary claims do not `predominate' over the claims for declaratory or injunctive relief"). In determining whether injunctive relief "predominates," courts have returned to the principles underlying the creation of (b)(2), and looked to whether the damages claims involved seek essentially unitary or non-unitary relief. See Arnold, 158 F.R.D. at 451-52. Thus, where the class pursues "damage claims in which the quantum of damages suffered involve[s] a complicated, individual-specific calculus," (b)(2) certification is impermissible. Id. at 452; Buycks-Roberson v. Citibank Federal Savings Bank, 162 F.R.D. 322, 335 (N.D. Ill.,1995) (refusing (b)(2) certification because monetary damages were not "subject to ready calculation on a basis uniformly applicable to the class"); Fischer v. Dallas Federal Savings and Loan Ass'n, 106 F.R.D. 465, 471 (N.D. Tex. 1985) (certifying a (b)(2) class for injunctive relief, but refusing to include claims for damages because "the calculation of the amount of damages depend[ed] upon the individual facts of each claimant's case"); Rice v. City of Philadelphia, 66 F.R.D. 17, 20-21 (E.D. Pa. 1974) (refusing to certify (b)(2) class which included claims for damages that required individual assessment).
In this case, the tort damages claims for personal injury and economic loss reflect the extremely heterogenous nature of the proposed class and the lack of the cohesiveness of interests among class members who are competing for limited settlement dollars. Although claims for back pay, a medical monitoring fund, or damages reducible to a mathematical formula all at least arguably involve "unitary" remedies that can be applied on a classwide basis, the tort personal injury and subrogation claims at issue here are inherently individual. The presence of these inherently individual claims precludes mandatory class certification under Rule 23(b)(2).
Rule 23 permits the vicarious representation of absent class members only where the claims and interests of all class members are so closely aligned that the representative plaintiffs can litigate the class claims, or at least limited common class issues, on behalf of absent class members. Here, however, the class representatives had no intention of litigating the class claims, and individual issues would preclude a class trial. The boundaries of Rule 23 cannot be stretched to allow class representatives to impose a "settlement" of untriable class claims upon unconsenting, absent class members. Because this action could never be certified for purposes of trial, it cannot be settled as a class. The failure of this class to satisfy the requirements of Rule 23(a) provides an independent reason for this Court to deny the settling parties' request for a preliminary injunction that is premised on the viability of their proposed certification and settlement.
Federal Rule of Civil Procedure 23(a) provides that the following prerequisites must be met for any action to be certified for class treatment:
(1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.
Fed. R. Civ. P. 23(a). These threshold criteria "constitute a multipart attempt to safeguard the due process rights of absentees." In re General Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768,796 (3d Cir.), cert. denied, 116 S.Ct. 88 (1995)(hereinafter "GM Trucks"). In order to satisfy the commonality and typicality requirements of Rule 23(a), class member's claims must raise common legal or factual issues, and the legal and remedial theories behind those claims must be similar. Courts must "referenc[e] the original class complaints" to determine if the issues raised by the class claims satisfy the commonality and typicality requirements. GM Trucks, 55 F.3d at 795.
If the case would "never have been triable in class form," it cannot qualify as a class action merely because the putative class representatives and the defendants have reached a proposed agreement to release the class members' claims. Id. at 799. "[T]here is no lower standard for the certification of settlement classes than there is for litigation classes." GM Trucks, 55 F.3d at 778. Strict application of the certification criteria is mandated, even when the parties have reached a proposed settlement, because "Rule 23 is designed to assure that courts will identify the common interests of class members and evaluate the named plaintiff's and counsel's ability to fairly and adequately protect class interests. . . . To allow lower standards for the requisites of the rule in the face of the hydraulic pressures confronted by courts adjudicating very large and complex actions would erode the protection afforded by the rule almost entirely." Id.; see also Coffee, Class Wars, supra at 1456 (discussing reasons that "the same certification standards should apply to both settlement class actions and litigation' class actions"). Accordingly, "a finding that the settlement was fair and reasonable does not serve as a surrogate for class findings," GM Trucks, 55 F.3d at 778, because "a court cannot infer that the rights of the entire class were vindicated without having assured that commonality and typicality were satisfied." Id. at 796.
Under the structure of Rule 23, the requirements of subdivisions (a) and (b) are threshold barriers which must be overcome in order to establish a class, quite independently of the additional barrier created by Rule 23(e), which requires court approval of any settlement. Although district courts may certify "temporary settlement classes" in order to encourage settlement, see In re Beef Indus. Antitrust Litig., 607 F.2d 167, 177 (5th Cir. 1979), indulging such a "tentative assumption" regarding the propriety of class certification does not eliminate the need to determine, after settlement negotiations have been completed, whether Rule 23's requirements are met. "The actual class ruling is deferred in these circumstances until after hearing on the settlement approval . . . . At that time, the court in fact applies the class action requirements to determine whether the action should be maintained as a class action. . . ." 2 Newberg on Class Actions 11.27 at 11-50. The court's review of the fairness of a proposed settlement thus comes into play only if the requirements for class certification are met. To identify the adequacy of the settlement's terms as satisfying the class certification criteria is "bootstrapping, because it trivializes the requirements of Rule 23(a) by reading the commonality and typicality requirements out of the Rule." Coffee, Class Wars, supra, at 511.
Independent assessment of class viability and settlement fairness is necessary because adequate judicial oversight of settlement negotiations cannot be duplicated by post hoc judicial review of settlement terms. Rule 23(e) is by itself inadequate to protect class members from collusive or improper negotiations:
Unfortunately, judicial approval appears to be highly imperfect as a protection for the plaintiffs' interests, for several reasons. First, and most important, the judge herself has a powerful interest in approving the settlement. Judges' calendars are crowded with cases, and despite various reform efforts, the workload only seems to increase . . . . Second, trial courts may simply lack information to make an informed evaluation of the fairness of the settlement. . . . Third, settlement hearings are typically pep rallies jointly orchestrated by plaintiffs' counsel and defense counsel. Because both parties desire that the settlement be approved, they have every incentive to present it as entirely fair. Objectors to the settlement, on the other hand, are uncommon; those who do object are often either disgruntled plaintiffs' attorneys who have fallen out with others in the plaintiffs' consortium, or naive class members who demonstrate their ignorance of the issues in dispute. The deck is heavily stacked toward approval of the settlement.
Jonathan R. Macey & Geoffrey P. Miller, The Plaintiffs' Attorney's Role in Class Action and Derivative Litigation: Economic Analysis and Recommendations for Reform, 58 U. Chi. L. Rev. 1, 45-47 (1991); see also Sylvia Lazos, Note, Abuse in Plaintiff Class Action Settlements: The Need For a Guardian During Pretrial Settlement Negotiations, 84 Mich. L. Rev. 308, 326-27 n.105 (1985) ("if the class is misrepresented during the negotiation process, the fairness' standard of the settlement hearing does not insure that the court will detect an inadequate settlement").
In addition to depriving class members of the critical due process protections provided by Rule 23(a), relaxed standards for certification of settlement classes will encourage mass tort defendants to hire purported plaintiffs' counsel for settlement "negotiations." If a case never triable in class form nonetheless can be settled in class form, then any defendant facing mass tort liabilities would be well-advised to approach plaintiffs' attorneys to negotiate a class action "settlement" that will cap the defendant's overall liability. Defendants could "sell" the rights to be class counsel to the lowest bidding attorney: "because the court does not appoint a class counsel until the case is certified, attorneys jockeying for position might attempt to cut a deal with the defendants by underselling the plaintiffs' claims relative to other attorneys." GM Trucks, 55 F.3d at 788. Such a procedure would have disastrous results for the injured parties: "[n]othing better facilitates collusion than the ability on the part of the defendants to choose the counsel who will represent the plaintiff class." Coffee, Class Wars, supra at 435.
Further, if the case cannot conceivably go to trial, the plaintiffs' counsel negotiating any class settlement is robbed of their key leverage, and must therefore negotiate with one hand behind their back. "Such a plaintiffs' attorney has little more than a right of first refusal on the terms offered by the defendants. As this attorney must be painfully aware, a failure to exercise that option implies only that the option may pass to whomever is next in line. Thus, the bottom line is that the availability of the settlement class action tends to reduce the plaintiffs' attorneys' negotiating leverage." Id. at 436. Thus, "[e]ven in the absence of bad faith, suspect settlements result in large measure because of the defendants' ability to shop for favorable settlement terms." Id. at 411.
In asserting that Rule 23(a)'s criteria are satisfied in this case because the class members share a common interest in securing the relief provided under the proposed class settlement, the settling parties rely heavily on the Fourth Circuit's decision in In re A.H. Robins Co., Inc., 880 F.2d 709, 740 (4th Cir.) (stating that settlement should be "an important factor to be considered when determining certification"), cert. denied, 493 U.S. 959 (1989). See Jt. Mem. at 25-29. Even if Robins was correctly decided, however, and Ms. Westmoreland contends that it was not, taking settlement into account as a factor to be considered in certification does not justify using settlement as a sufficient basis in and of itself to justify certifying any class. Under the settling parties suggested interpretation of Rule 23, literally anyone can be a common, typical, and adequate representative of any random group of people, so long as that person negotiates a class settlement on behalf of that group. Once the negotiation is completed, the class certification inquiry is satisfied by the settlement itself: even though the group may not have held legal "claims or defenses," Rule 23(a)(3) -- or anything else -- in common before the negotiation, once a settlement is achieved, they all have common interests in benefitting from the settlement. Assuming that the settlement then survives the court's fairness inquiry under Rule 23(e), the Rule has been satisfied and the settlement is binding. This is not and cannot be the law.
Within a month, the Supreme Court will likely establish the appropriate standards for assessing class certification in the context of settlement, in the case of Amchem Products, Inc. v. Windsor, No. 96-270 (argued Feb. 18, 1997) (oral argument transcript attached as Exh. E). Although that case is not yet decided, during oral argument the Court made clear that the fairness inquiry of Rule 23(e) should not be substituted for the class certification requirements of Rule 23(a):
Isn't the vice that the Third Circuit was getting at, that your fairness inquiry after the fact of settlement is displacing all of the criteria that normally have to be applied in order to satisfy the judicial standards before you even get to looking at fairness?
* * *
So you're really saying you can't make an intelligent fairness determination after the fact without knowing the process by which the determination was made, and . . . that no determination about the result will quite do.
[T]he proof of the pudding is in the eating. Well, in this case proof is unavailable. There is no QED. There's no objective test, and you know, what might please me might poison someone else ....
Exh. E at 14; 54 (Questions by Souter, J.).
Because of the geographical diversity within the class, the individualized nature of tobacco-related injury claims, and the immense size and broad scope of the class, no class trial of the claims alleged in the complaint could ever be possible, and the class therefore cannot satisfy the commonality and typicality requirements of Rule 23(a).
Because mass tort claims for personal injuries invariably involve individual proof of causation and damages, federal courts have almost uniformly been unwilling to certify such claims for class treatment pursuant to Rule 23. Just last year, the Fifth Circuit reversed certification of a similar class in Castano v. American Tobacco Co., 84 F.3d 734 (5th Cir. 1996). If the district court were to apply more than 50 different sets of substantive law to the claims of these class members, as the Erie doctrine requires, the class litigation would be unmanageable. For this reason, the Seventh Circuit recently held that even limited classwide determinations related to strict liability or the defendant's breach of an applicable standard of care are impermissible in a nationwide mass tort action, because federal courts may not generalize the differing applicable standards of liability provided by state law. See In the Matter of Rhone-Poulenc Rorer, Inc., 51 F.3d 1293, 1300 (7th Cir. 1995).
In addition to these problems created by individual issues, the class certification problems here are immensely exacerbated by the proposed settlement's release of absent class members' unaccrued claims for future personal injury and wrongful death. That further difficulty is addressed infra at Part III(D).
A further problem precluding certification of this class is the fundamental conflict within the class between class members with claims for personal injuries, and the insurers and governmental entities who are suing for recoupment of economic losses. The interests of those two groups are completely adverse, and that conflict precludes any finding of adequate representation as required under Rule 23(a)(4) -- and thus undercuts any basis for the settling parties' proposed injunction.
The recoupment/subrogation class members have a strong interest in downplaying the damages of the personal injury class members. If tobacco-sick people have health insurance that covers their illness, the insurance companies who have been paying the medical bills for these people have a right of subrogation against Liggett, if Liggett negligently or intentionally caused the illness. That means the insurance companies might have some right to have Liggett reimburse them for the costs they incurred by paying the medical bills related to Liggett-caused-illnesses.
In most states, however, the law provides that insurance companies (or others) with subrogation claims may not collect anything from the tortfeasor until the injured party, the insured, has been fully compensated by the tortfeasor. Thus, if an insured incurs $2,000 in medical bills as the result of wrongdoing by another and the insurance company pays every penny of that amount, the insurance company may not be entitled to any money collected by the injured party from the tortfeasor in a settlement or lawsuit verdict. If the tortfeasor pays the insured $2,000 in damages, the insured can kee all $2,000 if the insured can show that in addition to her medical bills she suffered $2,000 or more dollars of damages due to pain and suffering, lost wages, or any other damages not covered by the insurer. In most personal injury cases, making such a showing is not difficult.
Given that the insurer has no right to money in most states until the insured gets every penny of her total damages paid by the tortfeasor, the insurers (or any other entity with a right of subrogation -- such as a city or state) have an interest in showing that the insured's total damages are not much above the medical bills, which the insurance company paid. If the insurance company can show, for example, that someone with medical bills of $2,000 had actual damages of only $2,200, the insured keeps only the $200 and the insurer gets the rest. Thus, the personal injury victim's interest is in showing that damages not covered by insurance are great, while the insurer has an opposing interest in showing that the victim's damages are limited to the medical expenses that were covered. These interests are directly adverse -- the two parties are interested in establishing diametrically opposed propositions.
The same lawyer or group of lawyers should never represent diametrically opposed interests, but that is exactly what class counsel here have proposed to do. Cydne Westmoreland and her mother's medical insurer are both members of this class, and they both have the same lawyers purporting to represent their opposed interests concurrently. This action is the first mass tort action to make insureds and insurers members of the same class, represented by the same lawyers.
The class is also uncertifiable due tothe irreconcileable conflicts between the class members with strong claims against Liggett and those with weak or non-existent claims. This class includes one group of people who have become ill or will become ill from smoking Liggett cigarettes (or who are related to such a person), but it also includes groups of people who have never smoked a Liggett cigarette, will never smoke one, and have never known or lived with a Liggett smoker. The first group, which includes Objector Cydne Westmoreland, have strong claims relating to smoking Liggett cigarettes, while the rest of the class has much weaker claims, to the extent they have viable claims at all.
Both the strong-claim class members and the weak-claim class members are harmed by the inclusion of weak-claim class members in the class. The harm to the strong-claim class members is obvious. Just as the recoupment/subrogation class members have an interest in minimizing the damages of the injured victims, the weak claim class members have a similar interest. More importantly, however, the weak-claim people have an interest in securing non-monetary relief such as stronger labels on cigarette packaging or increased cooperation in lawsuits against other tobacco manufacturers. But if one is dead or dying from having smoked Liggett cigarettes and no others, as in the case of Jayme Westmoreland, Liggett's cooperation with other lawyers in other lawsuits against other tobacco manufacturers is of no use. Nor is Cydne Westmoreland particularly interested in Liggett succumbing to FDA regulations or stiffening the wording of its package warnings (relief that will, in any event, be provided under the AGSA). Ms. Westmoreland and other strong-claim class members most want compensation for their losses, and that interest conflicts with the interests of the weak-claim class members.
But weak-claim class members are also harmed by inclusion in this settlement. This is so because they may be trading valuable rights against other tobacco companies for nothing, by virtue of the Future Affiliate provisions in Section 10 of the CSA. If Phillip Morris buys Liggett after having spun off all of its non-tobacco assets, then the weak claim class members will have lost a chance to reach those Phillip Morris assets as a result of their inclusion in this deal. In addition, the weak claim class members may suffer if all the money in the fund is ultimately allocated to the strong claim members. In any event, these two segments of the class have irreconcileable interests that render a finding of adequate representation impossible. Because the settlement could not possibly be certified under Rule 23, there is no justification for issuing an injunction of other litigation against Liggett.
The conflicts within the class that render it uncertifiable (and the injunction unissueable) are exacerbated by the inclusion of both present and future victims in this class. These two groups are in an unavoidable conflict over allocation of Liggett's limited funds, and they may not permissibly be represented by the same counsel or set of counsel. See Kuper v. Quantum Chem. Corp., 145 F.R.D. 80, 83 (S.D. Ohio 1992); Jackshaw Pontiac v. Cleveland Press Publishing Co., 102 F.R.D. 183 (N.D. Ohio 1984); Sullivan v. Chase Inv. Serv. of Boston, 79 F.R.D. 246 (N.D. Cal. 1978) (each holding that counsel cannot adequately represent two groups of claimants when it is not inconceivable that the amount sought by the two groups will exceed the defendant's available assets).
In In re Bendectin Prod. Liab. Litig., 749 F.2d 300 (6th Cir. 1984), the Sixth Circuit recognized that present and future claimants may not be represented by the same counsel if the claims of both groups potentially could go unmet. The Bendectin court vacated certification of a "settlement class" composed of individuals who had been exposed in utero to the drug Bendectin. The district court had divided the class into two subclasses distinguished by whether they had filed an individual lawsuit at the time of class certification. 749 F.2d at 302. The Sixth Circuit found that the B Subclass, which had not yet filed lawsuits, would be prejudiced because those claimants could not hire the experienced counsel representing Subclass A. "Counsel whose clients fall in both Subclass A and Subclass B cannot possibly represent both classes as the classes are inherently in conflict with each other for their share of the settlement." 749 F.2d at 304. This conflict would arise because "members of Subclass A have the incentive to try to minimize the size of Subclass B in order to increase Subclass A's share of the settlement." Id. at 304 n.8.
Class members here with and without extent injuries have disparate interests in allocating any assets available from Liggett. The interests of class members who have already suffered injury would be best served by securing settlement terms which would not limit their access to either compensatory or punitive damages, joint and several liability, or interest on judgments. Such class members would also have an interest in opposing spendthrift provisions which limit the amount of money that trustees may pay to class members in any particular year. Additionally, such class members would want any settlement to provide for immediate, lump-sum payment of their claims once liquidated. In contrast, class members who have not yet suffered any injury have a conflicting interest in securing settlement provisions which, while potentially limiting the amount any one injured individual may recover, would serve to increase the probability that some money will be available to class members who do not get sick until some time in the future. This conflict, too, renders the class incapable of meeting the adequacy of representation requirement of Rule 23(a)(4). Since the class cannot be certified, the injunction may not issue.
The final defect in the class that renders it uncertifiable -- destroying any basis for enjoining other litigation against Liggett -- is the settlement's release of future claims. The complaint does not and cannot plead the unaccrued future personal injury claims of class members who currently have no tobacco-related disease, yet these future claims are released in the settlement. The class representatives cannot adequately represent absent class members with respect to the release of claims that those unknown people may possibly accrue in the future. Moreover, uninjured, absent class members cannot be properly noticed of the settlement's abridgement of their future rights. Under these circumstances, this settlement is unapprovable on its face, and there is no justification for issuing any stay under the All Writs Act.
The district court erred in approving a settlement that released future claims of absent class members without adequate representation. Class representatives cannot adequately represent absent, unknown, and unknowable class members with respect to future claims that those individuals do not now possess.
The release of absent class members' future claims violates the "most fundamental principles underlying class actions, [which] limit the powers of the class representatives to the claims they possess in common with other members of the class." Howard M. Downs, Federal Class Actions: Diminished Protection for the Class and the Case for Reform, 73 Neb. L. Rev. 646, 694 (1994). The class representatives do not possess actionable "future" claims for personal injury or wrongful death, and cannot settle claims that they do not possess on behalf of this enormous class:
Anytime a mass tort gives rise to injuries that occur over a period of time, in contrast to those arising from a mass accident or other disaster, inevitably there will be claims that arise in the future after an action for this mass tort has been permitted to be maintained and adjudicated as a class action. Those future claims will not and cannot be bound by the class action litigation. Toxic torts giving rise to latent illnesses and defective products with latent risks are two examples.
Alba Conte, Newberg on Class Actions Sec. 17.39 at 17-119 (3d ed. 1992) (emphasis added).
A class action settlement, moreover, cannot release claims that did not arise out of the facts pled. See National Super Spuds v. New York Mercantile Exchange, 660 F.2d 9 (2d Cir. 1981). In Super Spuds, the district court had certified a class of potato futures contract purchasers who liquidated the contracts between April 13, 1976 and May 7, 1976. The district court approved a settlement that released both the claims alleged in the complaint and any claims regarding futures contracts that were liquidated after May 7, 1976. 660 F.2d at 15. The Second Circuit, per Judge Friendly, reversed, holding that the representative plaintiffs were empowered to represent the class "solely with respect to the contracts in which all members of the class had a common interest: contracts liquidated between April 13 and May 7." 660 F.2d at 17. Judge Friendly added that, "if a judgment after trial cannot extinguish claims not asserted in the class action complaint, a judgment approving a settlement in such an action ordinarily should not be able to do so either." Id. at 18. The authority of the representative plaintiffs under Rule 23 to release claims on behalf of the class is limited by the scope of the class complaint, which describes the claims all class members have in common. Id. at 18-19.
As in Super Spuds, the proposed settlement in this case impermissibly releases claims that arise from facts not alleged in the underlying lawsuit. Super Spuds acknowledged that a settlement could release unpled claims "depending upon the very same set of facts," but clarified that no release of claims depending on proof of "further facts" is permissible. 660 F.2d at 18 n.7. There, although the underlying facts regarding the defendant's conduct were identical with respect to both the alleged and unalleged claims released by the settlement, the unalleged claims required proof of additional facts that were unnecessary to the claims alleged in the complaint. Id. The future personal injury actions released here also require proof of "further facts" that were not, and could not have been, pled in the Walker complaint -- that is, the development of a future physical injury proximately caused by a particular plaintiff's exposure to Liggett tobacco smoke. A plaintiff's prima facie case in a personal injury action requires that: 1) the defendant owed some duty to the plaintiff; 2) the defendant breached that duty; 3) the plaintiff has suffered damages; and 4) the defendant's breach was a proximate cause of those damages. W. Page Keeton, et al., Prosser and Keeton on Torts, Sec. 30, at 164-65 (5th ed. 1984). Unless and until class members develop an injury, they cannot plead the requisite third and fourth elements. Moreover, the release in this case extends to future injuries caused by future misconduct of Liggett and/or Liggett's Future Affiliates. Obviously, the due process and Rule 23 problems posed with respect to future claims caused by Liggett's past misconduct are tremendously exacerbated with respect to claims for injuries caused by conduct that has not even yet occurred. Indeed, no prior class action has ever purported to release a defendant from liability for future tortious conduct. Any release of future claims is beyond the scope of Mr. Walker's authority as class representative.
No form of notice directed at absent class members regarding a settlement of their unaccrued claims for future injury can satisfy the dictates of due process or Rule 23. First, the breadth of the class definition here is such that many people who are encompassed by it may not be aware that they are class members or may not even be born yet. Second, even if notice is actually received and understood by future claimants, no such notice can meaningfully inform them of their rights and options regarding potentially fatal injuries with which they are not yet stricken.
Due process requires that, even in class actions maintained under the mandatory, no-opt-out subdivisions of Rule 23, class members must receive adequate notice before their claims for money damages can be resolved. See Johnson v. General Motors Corp., 598 F.2d 432, 437 (5th Cir. 1979) (applying notice requirement in a case certified under Rule 23(b)(2)). Such notice serves to inform each class member of the effect of the class action on their rights, and thus serves to protect the central due process concern of absent plaintiffs: that they have a "full and meaningful" opportunity to be heard regarding their claims being subject to class disposition. See 7B Charles A. Wright, Arthur Miller & Mary Kay Kane, Federal Practice and Procedure Sec. 1787, at 197 (1986).
This due process interest of absent plaintiffs was not, and could not be, adequately protected by the notice provided here. Only after class members have developed tobacco-related injuries will they be able to analyze the facts that give value to legal claims arising from those injuries. Without knowing the facts, class members have no basis of comparison by which to judge the class settlement's benefits. Further, because this settlement does not allocate the monetary relief between the class and the states or among the class members, until class members actually suffer from an tobacco disease and receive an offer under the settlement, they cannot predict what the class settlement would provide to them, much less compare that benefit to the value of a tort lawsuit.
The Manual for Complex Litigation acknowledges the due process difficulties associated with attempts to issue notice to future claimants. In describing the numerous issues raised by settlement class actions, the authors of the Manual advised courts to look warily on settlements which purport to include future claimants:
Protection of future claimants. The court should consider the impact of the settlement on persons who may not currently be aware that they have a claim or whose claim may not yet have come into existence. Since they cannot be given meaningful notice, they may be particularly prejudiced by the settlement.
Federal Judicial Center, Manual for Complex Litigation 3d, Sec. 30.45 at 244 (1995) (bold in original, italics added); cf. Ivy, 996 F.2d at 1435 ("providing individual notice . . . to persons who are unaware of an injury would probably do little good").
The class settlement upon which the proposed injunction is premised cannot meet any meaningful standard for fairness or adequate representation by counsel. This settlement gives Liggett what it desperately wants -- complete protection from present and future tobacco-related lawsuits -- and in return Liggett is required to do almost nothing that it did not have to do anyway under the terms of its settlement with 17 state attorneys general.
The only possible benefit to the class under the CSA is the unguaranteed possibility that some portion of the Settlement Fund will be allocated to the class rather than to the states. But this possibility promises nothing and portends very little. The Settlement Fund, comprised of something approaching 25% of Liggett's pre-tax income over the next 25 years, will be allocated between the settling states and the class pursuant to negotiations that will occur after the CSA is approved. CSA 12.2 (after a final determination of fairness of the settlement, this Court will retain jurisdiction over "the allocation and distribution of the Settlement Fund"). By that time, class counsel, who will presumably be negotiating with the states for the class's portion of the Fund, will probably have already received a fee from this Court, and their incentives to negotiate will have been removed. Moreover, the states will undoubtedly demand that at least 80% of the Fund go to them, since that is the amount they are guaranteed to receive under the AGSA if the CSA is not approved. AGSA Sec. 6.11.
As discussed above, the the injunctive mandates of the CSA do not require Liggett to make any efforts that it was not already committed to by the AGSA. In the final analysis, the class gets nothing, Liggett gets everything it wants, and the lawyers for the class get paid for giving away class members' rights. This Court cannot approve such a settlement, nor can it enter an injunction that is premised on the viability of that settlement.
Because neither Liggett's assets nor this settlement can constitute a "res" that has been tendered to this Court's jurisdictional control, the Anti-Injunction Act precludes this Court from enjoining pending state lawsuits against Liggett, such as the claim of Objector Cydne Westmoreland. The Anti-Injunction Act, 28 U.S.C. Sec. 2283, states:
A court of the United States may not grant an injunction to stay proceedings in a state court except as expressly authorized by Act of Congress, or when necessary to aid its jurisdiction, or to protect or effectuate its judgments.
Of the three exceptions embedded in the statute, the only one which would even arguably justify the injunction proposed here is the "necessary in aid of jurisdiction" exception, which mirrors the provision of the All Writs Act, 28 U.S.C. Sec. 1651. However, the Supreme Court has narrowly construed that exception to be limited to protection of an actual res that has been placed in the enjoining court's jurisdictional control. See Atlantic Coast Line Railroad Co. v. Locomotive Engineers, 398 U.S. 281, 297 (1970). In order to extend comity to state courts, any doubts as to the propriety of the injunction under the Act must be resolved in favor of allowing state courts to proceed. Id. Several federal courts of appeal have refused to approve anti-suit injunctions in class actions based on the allegation that the defendant's assets constituted a "limited fund." See In re Temple, 851 F.2d 1269, 1272 (11th Cir. 1988); In re Federal Skywalk Cases, 680 F.2d 1175, 1182-83 (8th Cir.), cert. denied, 459 U.S. 988 (1982); In re Glenn W. Turner Enter., 521 F.2d 775, 780-81 (3d Cir. 1975). That allegation also fails to support the proposed injunction in this case.
For all the foregoing reasons, Objector Cydne Westmoreland respectfully prays this Court deny the settling parties' motion for entry of a preliminary injunction.