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In a much anticipated decision, the 2d U.S. Circuit Court of Appeals on April 3 repudiated Judge Jack Weinstein’s class certification of so-called “light” cigarette smokers. McLaughlin v. American Tobacco Co., No. 06-4666-cv, 2008 WL 878627 (2d Cir. April 3, 2008). The McLaughlin decision represents another chapter in the convoluted history of tobacco mass tort litigation. In addition, the McLaughlin decision represents another landmark reversal in Weinstein’s controversial history as the judicial King of Mass Torts. The McLaughlin decision is significant in several respects. In the narrowest reading, the 2d Circuit has curtailed the utility of civil racketeering claims as a basis for classwide mass tort relief. In a conventional application of class action principles, the court held that too many individualized issues defeated the predominance requirement for certification of a civil Racketeer Influenced and Corrupt Organizations Act (RICO) claim. The court concluded that the proposed smokers’ class suffered from “an insurmountable deficit of collective legal or factual questions.” McLaughlin, 2008 WL 878627, at *1. In a broader constitutional dimension, the 2d Circuit dealt a blow to aggregate fluid-damages models for economic harms, often asserted in class litigation. The court held that the fluid recovery Weinstein approved offended the Rules Enabling Act, 28 U.S.C. 2072(b), as well as the due process clause. Significantly, the 2d Circuit issued a sweeping policy statement that “not every wrong can have a legal remedy, at least not without causing damage to the fabric of our laws.” McLaughlin, 2008 WL 878627, at *1. The court also counseled that “Rule 23 is not a one-way ratchet, empowering a judge to conform the law to the proof.” Id. A look at the very long tobacco litigation road The McLaughlin decision joins a set of canonical opinions consistently repudiating the ability of federal courts to resolve collective tobacco litigation pursuant to several repackaged theories. In 1996, the 5th Circuit overturned certification of an estimated class of 50 million nicotine-dependent people. Castano v. The American Tobacco Company, 84 F.3d 734 (5th Cir. 1996). The Castano action asserted an array of fraud, misrepresentation, breach of warranty and restitution claims. The 5th Circuit held that the class action failed to account for variations in state law, and did not satisfy Rule 23(b)(3) predominance or superiority requirements. In the wake of Castano, attorneys attempted to repackage tobacco claims as medical monitoring class actions. The 3d Circuit definitively repudiated this effort, upholding decertification of a Fed. R. Civ. P. 23(b)(2) medical monitoring class in Barnes v. The American Tobacco Co., 161 F.3d 127 (3d Cir. 1998). The court held that a 23(b)(2) class required cohesion among class members, but that the individualized circumstances of cigarette smokers defeated this requirement. In a third wave of tobacco litigation, class counsel attempted to pursue a novel punitive damages-only class action against tobacco defendants. In 2002, Weinstein, who sits in the Eastern District of New York, certified a Fed. R. Civ. P. 23(b)(1)(B) limited-fund, nationwide nonopt-out class of smokers seeking punitive damages under state law for the tobacco defendants’ alleged fraudulent denial and concealment of health risks posed by cigarettes. The 2d Circuit struck down this class action in In re Simon II Litigation, 407 F.3d 125 (2d Cir. 2005). In the fourth wave of repackaged tobacco litigation, counsel pursued classwide relief for smokers of “light” cigarettes, based on fraud theories under the RICO statutes. See Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. 1961-1968. The novel approach was based on economic harm, rather than personal injury damages. The theory underlying the litigation was that defendants’ marketing and branding of light cigarettes caused smokers to be deceived that light cigarettes were healthier than “full-flavored” cigarettes. The complaint alleged that the defendants’ representations caused class members to buy light cigarettes in greater quantities, and at artificially inflated prices, resulting in overpayment. The class sought $800 billion in economic damages (trebled) for a period from 1971 until trial. Weinstein granted class certification of a Rule 23(b)(3) damages class, finding that the proposed RICO class satisfied the requirements for class certification, and approving a fluid-recovery damages model. Schwab v. Phillip Morris USA Inc., 449 F. Supp. 992 (E.D.N.Y. 2006). The 2d Circuit’s McLaughlin decision embraces an array of conventional class action principles. The court examined the elements of a RICO claim and concluded that individualized issues of injury and causation defeated Fed. R. Civ. P. 23(b)(3)’s predominance requirement. McLaughlin, 2008 WL 878627, at *3. In particular, the court held that individualized issues of reliance, damages and statutes of limitations defeated a finding of predominance. Significantly, the court resisted counsel’s attempt to engraft a fraud-on-the-market reliance presumption onto a RICO-based class claim. The RICO statutes provide private citizens with a right of action for any person injured in his business or property “by reason of a violation [of RICO's substantive provisions].” The elements of a claim consist of (1) a RICO violation, (2) injury, and (3) transactions and loss causation. The court held that a plaintiff must show that a defendant’s violation was not only a “but for” cause of his injury, but was the proximate cause as well (citing Holmes v. Sec. Invest. Prot. Corp., 503 U.S. 258, 268 (1992). The court indicated that where mail or wire fraud is the predicate act for a civil RICO claim, the transaction or “but for” causation element requires the plaintiff to demonstrate that the plaintiff relied on the defendant’s misrepresentation. Proof of misrepresentation is not enough, court rules The court concluded that proof of a uniform or widespread misrepresentation by tobacco defendants was not sufficient to satisfy classwide predominance. Instead, the court rejected the plaintiffs’ invocation of the fraud-on-the-market reliance presumption recognized in securities fraud litigation. See Basic Inc. v. Levinson, 485 U.S. 224 (1988). Thus, the court concluded that individual reliance on any alleged misrepresentation could not be the subject of general proof. McLaughlin, 2008 WL 878627 at *4. In addition, the court noted that differences in the class members’ knowledge and levels of awareness of risks of smoking light cigarettes also defeated any presumption of reliance. McLaughlin, 2008 WL 878627, at *6. Similarly, the court held that the issue of loss causation could not be resolved by generalized proof because individual class members may have relied on the defendants’ misrepresentations in varying degrees in deciding whether to purchase light cigarettes. Thus, the plaintiffs could not establish loss causation on a classwide basis because factors other than the defendants’ misrepresentations may have intervened and affected the demand and price of light cigarettes. Consequently, an individualized inquiry would be necessary to determine what portion of a plaintiffs’ injury could be attributed to the defendants’ wrongdoing. Plaintiff harm bound up in the proof of damages Addressing RICO injury, the court held that the requisite injury to “business or property” similarly was not susceptible to classwide proof. In so holding, the court noted that whether the plaintiffs were harmed or not was bound up in the proof of damages. Weinstein’s certification order permitted plaintiffs to prove collective damages on a classwide basis, estimating gross damages to the class. Subsequently, individual plaintiffs would claim a share of the fund. Damages were to be allocated among class members based on the number of light cigarettes each class member purchased within a relevant geographic area and time. The plaintiffs argued two theories to support their claim of injury and an inflated “but for” price of light cigarettes: a loss of value theory and a price impact model. The court rejected both theories, concluding that classwide issues did not predominate: “[N]either of these theories is plausible as matter of law, because both would lead to an impermissible fluid recovery, and because the acceptable measure of injury-out-of-pocket-damages would require individualized proof.” McLaughlin, 2008 WL 878627, at *7. The 2d Circuit definitively rejected Weinstein’s fluid-recovery approach, which the court noted that the 2d Circuit has forbidden since 1973. McLaughlin, 2008 WL 878627, at *11, citing Eisen v. Carlisle & Jacquelin, 479 F.2d 1005, 1008 (2d Cir. 1973). The court held that “such an aggregate determination is likely to result in an astronomical damages figure that does not accurately reflect the number of plaintiffs actually injured by the defendants and that bears little or no relationship to the amount of economic harm actually caused by defendants. “This kind of disconnect offends the Rules Enabling Act, which provides that federal rules of procedure, such as Rule 23, cannot be used to ‘abridge, enlarge, or modify any substantive right.’ ” 28 U.S.C. 2072(b). Id. Linda S. Mullenix holds the Morris and Rita Atlas Chair in Advocacy at the University of Texas School of Law. The second edition of her casebook on mass tort litigation will be published in May 2008 (Thomson-West).

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