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A novel, nationwide class action lawsuit against the tobacco industry does not meet federal requirements for class certification, a federal appeals court ruled last week. A unanimous panel of the 2nd U.S. Circuit Court of Appeals said that Eastern District Judge Jack B. Weinstein had stretched the boundaries of the law by certifying a non-opt-out class of current and former smokers who had been diagnosed with smoking-related diseases. The class was the first-ever nationwide group of plaintiffs certified against the tobacco industry, including defendants Philip Morris, R.J. Reynolds, Lorillard Tobacco, Brown & Williamson and Liggett Group. It was also the first time plaintiffs in a class action had sought only punitive damages, deciding to seek compensatory damages at a later date. The 2nd Circuit objected to that approach. The intention of the suit was to mete out punishment against the tobacco industry in one blow for claims that it had suppressed and misrepresented information about the dangers of smoking dating back to 1953. Rather than having individual plaintiffs winning and losing disparate verdicts against the industry, the nationwide, non-opt-out suit would, in theory, award punitive damages from a fund based on the severity of a plaintiff’s injuries. Judge Weinstein said he would apply New York state law to the claims and would exclude plaintiffs who had already won or settled claims against the tobacco industry. Also excluded were plaintiffs who should have realized they had smoking-related diseases prior to April 9, 1993. On Friday, though, the 2nd Circuit said in Simon II Litigation, 03-7140, that the class action was unworkable because “there is no evidence by which the district court could ascertain the limits of either the fund or the aggregate value of punitive claims against it, such that the postulated fund could be deemed inadequate to pay all legitimate claims.” Judge James L. Oakes, writing for the court, said the case presented an issue of first impression: the “validity of certifying a mandatory, stand-alone punitive damages class on the proposed ‘limited punishment’ theory” as expressed in the U.S. Supreme Court’s 1999 opinion in Ortiz v. Fibreboard Corp., 527 U.S. 815. “Without evidence indicating either the upper limit or the insufficiency of the posited fund, class plaintiffs cannot demonstrate that individual plaintiffs would be prejudiced if left to pursue separate actions without having their interests represented in this suit, as Rule 23(b)(1)(B) would require,” Judge Oakes wrote. The 2nd Circuit also questioned whether Weinstein’s ruling was compatible with State Farm Mutual Automobile Insurance Co. v. Campbell, 538 U.S. 408 (2003). In that case, the Supreme Court said a potential punitive award must “bear a sufficient nexus” to the harm suffered by the plaintiff class and to the general damages to be recovered. Since the suit did not seek compensatory damages, the panel said, a jury likely could not properly calculate an award of punitive damages. “In certifying a class that seeks an assessment of punitive damages prior to an actual determination and award of compensatory damages, the district court’s Certification Order would fail to ensure that a jury will be able to assess an award that, in the first instance, will bear a sufficient nexus to the actual and potential harm to the plaintiff class, and that will be reasonable and proportionate to those harms,” Oakes wrote. Theodore M. Grossman of Jones Day in Cleveland, which represents R.J. Reynolds, said the ruling was a “thumping reversal” and would have far-reaching implications not only for tobacco litigation, but for other product liability lawsuits. “The ruling says there cannot be a punitive damages, limited-fund class, period,” said Grossman, who acted as lead counsel for the defendants. “This should apply to claims in state court as well as claims in federal court.” As for the plaintiffs before Weinstein, Grossman said, “I would suggest that it is very unlikely that these cases will proceed further.” In one state case in Florida, Engle v. R.J. Reynolds Tobacco Co., R.J. Reynolds and other tobacco manufacturers are awaiting a ruling from State Supreme Court, which had expressed an interest in Weinstein’s class certification. In Engle, a class of plaintiffs won a $145 billion judgment against the tobacco industry, but that ruling was reversed by the Florida District Court of Appeal. The State Supreme Court heard oral arguments on a subsequent appeal in November 2004. Steven E. Fineman of Lieff, Cabraser, Heimann & Bernstein, the lead firm for the plaintiffs, called the 2nd Circuit’s ruling disappointing. He said he and the lead counsel on the case, Elizabeth J. Cabraser, had just received the decision and could not comment further.

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