Amicus Curiae Brief — Free v. Abbott Laboratories, Inc.

In the Supreme Court of the Anited States -

ROBIN FREE and RENEE FREE

Petitioners,

Vv.

ABBOTT LABORATORIES. BRISTOL-MYERS SQUIBB COMPANY

and MEAD-JOHNSON & COMPANY

Respondents.

On Writ of Certiorari to the United States

Court of Appeals for the Fifth Circuit

BRIEF FOR THE CHAMBER OF COMMERCE OF

THE UNITED STATES OF AMERICA AND

THE CHEMICAL MANUFACTURERS ASSOCIATION

AS AMICI CURIAE IN SUPPORT OF RESPONDENTS

ROBIN S. CONRAD EVAN M. TAGER

National Chamber Litigation Counsel of Record

Center, Inc. Mayer, Brown & Platt

1615 H Street, N.W. 1909 K Street, N.W.

Washington, D.C. 20062 Washington, D.C. 20006

(202) 463-5337 (202) 263-3240

DAVID F. ZOLL

DONALD D. EVANS

Chemical Manufacturers

Association

1300 Wilson Boulevard

Arlington, VA 22209

(703) 741-5000

IBEST AVAILABLE COPY

Page

og Os re l

SUMMARY OF THE ARGUMENT ............ 2

TO ee eee eee ee ee er 2

ES Pee eee ee 18

TABLE OF CONTENTS

TABLE OF AUTHORITIES

Page(s)

Cases:

Amchem Prods., Inc. v. Windsor, 521 U.S. 591

ITI SS SN IL a ee 4

Andrews v. American Tel. & Tel. Co.,

95 F.3d 1014 (11th Cir. 1996) ............ 4,5

Arch v. American Tobacco Co., 175 F.R.D. 469

a i

Arnold v. State Farm Mut. Auto. Ins. Co.,

No. 99-L-0896 (St. Clair County, filed

EE a a 17

Bank of the United States v. Deveaux, 9 U.S.

EM, . Cc cee yp ceetececs 3

Blair v. ifax Check Servs., Inc., 181 F.3d 832

te eee 3

Broussard v. Meineke Discount Muffler Shops,

Inc., 155 F.3d 331 (4th Cir. Ne ae a kw 4

Capone v General Motors Corp., No. 99-L-1127

(Madison County, filed Nov. 17, 1999) ....... 17

Carpenter v. BMW of N. Am., Inc., 1999 WL 415390

a 4,5

Casper v. Cunard Line, Ltd., 560 F. Supp. 240

ee tn eg — ee ens o 5, 6

Castano v. American Tobacco Co., 84 F.3d 734

ERE a ie ee a ae 3, 4, 5

Chin v. Chrysler Corp., 182 F.R.D. 448

(D.N.J. 1998) te PPS RIES OE a) 4,5

Cimino v. Raymark Indus., Inc., 151 F.3d 297

ee Bae ok Leis Be 4k 6 6 be ec 5

eS

_——

~~ —

TABLE OF AUTHORITIES — Continued

Page(s)

Coco v. State Farm Mut. Auto. Ins. Co..,

No. 99-L-394A (St. Clair County, filed

EEA EE hohb ebb eesetosescceces 16

Crockett v. Michigan Bulb Co., No. 98-L-1054

(St. Clair County, filed Dec. 11, 1998) ....... 16

Crockett v. Seta Corp., No. 98-L-1055 (St. Clair

County, filed Dec. 11, 1998).............. 16

Crockett v. Time, Inc., No. 98-L-1056B (St. Clair

County, filed Dec. 11, 1998).............. 16

Crockett v. United States Purchasing Exch..,

No. 98-L-1057 (St. Clair County, filed

ME enh. dese 6 660 600066 0 4 16

Elster v. Alexander, 76 F.R.D. 440

i iow dw was die W6 66686 8 6 08 6

Ex parte Ford Motor Credit Co., 697 So. 2d 464

TUL. <seieas pae'ee oes 6 60s 0's 6 10

Ex parte Masonite Corp., 681 So. 2d 1068

2. we iwee been édesece st « 8

Ford Motor Co. v. Sheldon, 965 S.W.2d 65

Tex. App.-Austin), review granted

Pec Lewhbeuak ee eotseocecsc 11

Georgine v. Amchem Prods., Inc., 83 F.3d 610

(3d Cir 1996), aff'd sub nom. Amchem

., Inc. v. Windsor, 521 U.S. 591 (1997) .. 4,5

Hobbs v. State Farm Mut. Auto. Ins. Co.,

No. 99-L-1068 (Madison County, filed

Dts cee ee keene es Oh eee es 17

In re American Med. Sys., Inc., 75 F.3d 1069

Ge re 4,5

In re Fibreboard Corp., 893 F.2d 706 (Sth Cir. 1990) . 5

iv

TABLE OF AUTHORITIES — Continued

Page(s)

In re Ford Motor Co. Vehicle Paint Litig.,

182 F.R.D. 214 (E.D. La. 1998) ...... 4, 5-6, 11

In re Hotel Tel. Charges, 500 F.2d 86

. 2 Sykes ees are 4

In re Jackson Nat'l Life Ins. Co. Premium

Litig., 183 F.R.D. 217 (W.D. Mich. 1998) . 4, 5, 12

In re Masonite op. ane Sidin

Prods. Liab. Litig., 170 F.R.D. 417

ct EOS ernie Se eee 5, 6,9

In re Northern Dist. of Cal., Dalkon Shield

IUD Prods. Liab. Litig., 693 F.2d 847

a an 26 5 66 eh eee oe ee aeate 4

In re Rhone-Poulenc Rorer, Inc., 51 F.3d 1293

Gh «26 dda whan wae ealabeue ee 3,5

In re: The H. Sales Practices ritig.;

1999 U.S. Dist. LEXIS 10402 (D. Minn.

i") SP ee era eer 12

International r Co. v. Naef, No. A-28

Ge Gee ay SO ob e808 dae Oh bh or oes ows 10

Ke v. Mid-America Racing Stables, Inc.,

M959 F.R.D. 405 (W.D. Okla 1990)

Kent v. SunAmerica Life Ins. Co., 2000 WL

fy § FF 8S BSA 12

—_, lter Family Revocable Living Trust v.

irst Life Assurance Co., No. C-6930-96-G

(Hidalgo County Dist. Ct. Mar. 30, 1999) ..... 12

Littleton v. Shelter Ins. Co., 99-L-864

(Madison County, filed Sept. 7, 1999) ........ 16

Page(s)

Lon vag AF 3 Sian teem tos ,

+ S Nation t—-6 yer 16

35 F.2d 1062 (Sd Cir. 1968) ...........2.. 5

Mac 6 FRD- 671 (MD. Mla 1996) ore t

Marascalco v. International |

5 4 | ierphaeeee ee

McHan v. Grandbouche, 99 F.R.D. 260

Se We ED aa ec to hoa e 6 6 660006006 5, 6

Moorhead v. State Farm Mut. Auto. Ins. Co.,

No. 95-AR-0668-5 (N.D. Ala. Sept. 12, 1997)... 13

a v. State Farm Mut. Auto. Ins. Co.,

0. 96-2585-M1/A (W.D. Tenn.

GG SE WN G He Rd abies eS eecacescee 13

Naef v. Masonite Corp., No. CV-94-4033

eT County Cir. Ct. Nov. 15, 1995)

i tLe ones & 6 wale hs oe O66 oe 6c 8,9

Nagel v. Archer Daniels Midland Co., No. 99-L-801

(Madison County, filed Aug. 6, 1999) ........ 16

Parkhill v. Minnesota Mut. Life Ins. Co.,

188 F.R.D. 332 (D. Minn. 1999) ........... 12

Paul v. Country Mut. Ins. Co., No. 99-L-995

(Madison * . | § ee i6

Peoples v. American Fidelity Life Ins. Co.,

176 F.R.D. 637 (N.D. Fla. 1998) .......... 12

vi

TABLE OF AUTHORITIES — Continued

Page(s)

Phillips v. Ford Motor Co., No. 99-L-1041

County, filed Oct. 26, 1999) ........ 17

Poe v. Sears, Roebuck & Co., 1998 WL 113561

es Ge es Oe ED no ei a oo 6 6 6 he ek 5, 6

Reichmann v. Archer Daniels Midland Co. ,

No. 99-L-800 (Madison County, filed

Se, es CE hb a Oe bh owo.o bO 6 a 6 Gh 16

Rios v. Allstate Ins. Co., No. 94 CH 11396

(Cook County Cir. Ct. Jan. 27, 1998) ........ 13

Rios N OO-L 1125 (Madison County filed o

oO -

ee Ee Eb ree ee aks oa oc Okt 17

Ritter, Laber & Assocs. v. Koch Oil, Inc.,

2000 N.D. LEXIS 14 (N.D. Jan. 21, 2000) al he 13

r Deck Co., 183 F.R.D. 672

— D. "cal M1999) PR OS Pe ree 4,5

ee Fy A! of Denver Ins. Co. v. Ferguson

339017 (Tex. App.-

Se TE 6 66 ok el Od le oe 08 12

Shemwell v. The Farmers Ins. so A Co.

No. 99-L-865 nS -

2 & ae pac (he 16

Siler v. State Farm Mut. Ins. Co., No. 99-L-863

(Madison County, filed Nov. 30, 1999) ....... 17

Simon v. Merrill L , Pierce, Fenner & Smith,

Inc., 482 F.2d 880 (Sth Cir. 1973) .......... 4

ue V. sae ae oe. 133 F.3d 388

fe Cir.), cert. denied, 118 $. Ct. 2312

sce tremekiie beh eee ees cdc 4

vii

TABLE OF AUTHORITIES — Continued

Page(s)

State Farm Mut. Auto. Ins. Co. v. roni,

No. 97-2063 (filed June 22, 1998) .......... 14

Stone v. SBU, Inc., No. 99-L-977 (Madison

County, filed Oct. 7, 1999)............. 16-17

Strasen v. Allstate Ins. Co., No. 99-L-1040

(Madison County, filed Oct. 26, 1999) ........ 17

Texas Farmers Insurance Co. v. —_—.

No. 95-08-09165-CV (365th Jud. Dist. Ct.)..... 10

Turner v. Vistakon, Inc., No. 99-L-669

(Madison County, filed June 6, 1999) ........ 16

Velas. v. Crown Life Ins. Co., 1999 U.S. Dist.

LEXIS 13186 (S.D. Tex. Aug. 10, 1999) ...... 12

Vollmer v. Publishers Clearing House,

No. 98-L-100B (St. Clair County, filed

i ee ee et tt a ee 6 16

Western Elec. Co. v. Stern, 544 F.2d 1196

Pe 6a add eh ene he po 48 es 5

Winn v. Associates First Capital Corp. ,

No. 99-L-1227 (Madison County, filed

> BES > era 17

Zandman v. Joseph, 102 F.R.D. 924

GO De, Se rere rae 6

Statutes and Rules

Se er cy het cus veut evewees 1, 2, 17

i i hs bse te et hep hee 6 6 a6 8.8 2, 17

tt CD | +o ¢ 66 os-tw b Wee 0 6 wb es O46 17

Colo. Rev. Stat. Ann. § 42-9-107 ............. 15

viii

TABLE OF AUTHORITIES — Continued

Page(s)

i Ge EE 6 0 > 6 kb be 6 kb eee 15

N.Y. Codes R. & Regs. tit. 11,

§ 216. (b)(5)(ii) pe he OO ee 66 Oe oe ee 15

Se ee, ee a ED 6. a. co 0's 64% O00 Hbkeen 15

Or. Rev. Stat. § 746.292(4)(b) ............... 15

R.I. Gen. Laws 1956 § 27-10.2-2 ............. 15

W. Va. Code § 46A-6B-3 .................. 15

| eo Re eee ee ee 17

Miscellaneous

Auto Insurance: Class-Action Settlement

Was a Ti , DALLAS MORNING NEws,

a, a Ce ~ 66 gee weted a rg Be 11

Class Action Litigation-A Federalist Society Survey,

Be’ fF. RE aera 8

Hearings on Mass Torts and Class Actions Before

the Courts and Intellectual Subcomm.

of the House os! Comm., 1 Cong.

(Mar. 5, 1998), http://www.house.gov/

judiciary/41155. Te +66 6.6 bODS bo eben es 7,17

HENRY J. FRIENDLY, FEDERAL JURISDICTION:

A GENERAL VIEW (1973) ................ 4

Max Boot, Peed? Wnts Texas-Sized Ciass

Action F WALL ST. J., May 22, 1996, s

Review & Outlook: Taken for a Ride, WALL ST. J.,

§ & SF Raa dh So) See 11

Richard Schmitt, Justice RFD: Big Suits Land in

Rural Courts, WALL ST. J., . 10, 1996, at Bl 7

he LT LTE LEME GE I A I a ey TORS . i

ix

TABLE OF AUTHORITIES — Continued

Page(s)

Statement of Dr. John B. Hendricks before the

Property of ti on Courts and Intellectual

Pee Man, 3 1998) available at

Ic av e

be MY 122544) 9 I on a ee gg 7-8

Stateside Associates, Lawsuits in State Courts:

A Case Study in Alabama (1998) ........... 7

eT RT ETE INLETS PIDGIN LITE RC RE se ee

----—

BRIEF FOR THE CHAMBER OF COMMERCE OF

THE UNITED STATES OF AMERICA AND

THE CHEMICAL MANUFACTURERS ASSOCIATION

AS AMICI CURIAE IN SUPPORT OF RESPONDENTS

INTEREST OF THE AMICI CURIAE

The Chamber of Commerce of the United States of

America (“the Chamber”) is the nation’s largest federation of

business companies and associations. The Chamber

represents an underlying membership of more than three

million businesses and professional organizations of every

size, sector and geographic region of the country. The

Chamber serves as the principal voice of the American

business community. An important function of the Chamber

is to represent the interests of its members by filing amicus

curiae briefs in cases involving issues of national concern to

American business.

The Chemical Manufacturers Association (“CMA”) is a

non-profit trade association whose member companies

produce, market, and use industrial chemicals. CMA’s

members comprise more than 90% of the productive capacity

for basic industrial chemicals in the United States.

Amici’s members have been subjected to abusive class

actions in state courts on a regular basis. They accordingly

have a strong interest in supporting Congress’s decision to

confer federal jurisdiction over the claims of absent class

members when the named plaintiffs satisfy the amount in

controversy and diversity requirements of 28 U.S.C. § 1332.'

' Pursuant to Rule 37.6, amici state that no counsel for a party

authored this brief in whole or in part, and no person or entity

other than amici, their members, or their counsel made any

monetary contribution to the preparation or submission of this

brief. The parties have consented to the filing of this brief. Their

letters of consent have been lodged with the Clerk of the Court.

2

SUMMARY OF THE ARGUMENT

Section 1367 unambiguously authorizes the federal courts

to exercise supplemental jurisdiction over the claims of absent

class members, so long as the courts have original jurisdiction

over the claims of the named plaintiffs. The only way for

petitioners to escape from the plain language of the statute is

to claim that Congress could not possibly have meant what it

said. But that claim is hollow. Given the markedly unfair

treatment that out-of-state defendants often suffer at the hands

of state courts, and the dramatic stakes of modern-day class

actions, it was perfectly rational for Congress to broaden

federal jurisdiction over class actions by eliminating the

requirement that absent class members satisfy the amount in

controversy threshold contained in 28 U.S.C. § 1332.

ARGUMENT

As the Fifth and Seventh Circuits have held, and as

respondents persuasively show in their brief, 28 U.S.C. §

1367 unambiguously authorizes federal courts to exercise

supplemental jurisdiction over the claims of absent class

members so long as the courts have original jurisdiction over

the claims of the named plaintiffs. In the diversity context,

this means that, if the named plaintiffs do not hail from the

same state as any of the defendants and if the value of the

claims of the named plaintiffs exceeds the monetary threshold

established in 28 U.S.C. § 1332, the federal courts have

jurisdiction over the claims of the absent class members

without regard to the value of those claims. Because

respondents’ brief demonstrates the statute’s crystal clarity

and clears away the fog created by petitioners’ brief, amici

wiil not here burden the Court with an additional analysis of

the plain language of the statute. Instead, we will demon-

strate that broadening federal jurisdiction over class actions

was a perfectly rational thing for Congress to do and hence

debunk petitioners’ suggestion that Congress could not have

meant to have done it.

3

1. The original purpose of diversity jurisdiction was to

protect out-of-state parties from being treated unfairly by

local courts. See Bank of the United States v. Deveaux, 9

U.S. (5 Cranch) 61, 87 (1809) (Marshall, C.J.). With the

advent of the class action, the need for such protection has

multiplied. As Judge Easterbrook recently explained:

[A] grant of class status can put considerable pres-

sure on the defendant to settle, even when the

plaintiff's probability of success on the merits is

slight. Many corporate executives are unwilling to

bet their company that they are in the right in big-

stakes litigation, and a grant of class status can

propel the stakes of a case into the stratosphere.

Blair v. Equifax Check Servs., Inc., 181 F.3d 832, 834 (7th

Cir. 1999). The Fifth Circuit has similarly noted:

[Certification dramatically affects the stakes for

defendants. Class certification magnifies and

strengthens the number of unmeritorious claims.

Aggregation of claims also makes it more likely that

a defendant will be found liable and results in

significantly higher damage awards.

In addition to skewing trial outcomes, class

certification creates insurmountable pressure on

defendants to settle, whereas individual trials would

not. The risk of facing an all-or-nothing verdict

presents too high a risk, even when the probability

of an adverse judgment is low. These settlements

have been referred to as judicial blackmail.

Castano v. American Tobacco Co., 84 F.3d 734, 746 (5th

Cir. 1996) (citations and footnote omitted). Accord Jn re

Rhone-Poulenc Rorer, Inc., 51 F.3d 1293, 1298 (7th Cir.

1995) (Posner, C.J.) (explaining that, once cases are certified

as class actions, defendants confront “intense pressure to

settle” rather than “roll the[] dice” on a trial and risk

4

bankruptcy). See also HENRY J. FRIENDLY, FEDERAL

JURISDICTION: A GENERAL VIEW 120 (1973) (terming

phenomenon “blackmail settlements”).

2. The federal courts have recognized that, in order to

prevent the class action device from being used as a weapon

of extortion, it is necessary to apply the requirements of Rule

23 rigorously. See, e.g., Broussard v. Meineke Discount

Muffler Shops, Inc., 155 F.3d 331, 345 (4th Cir. 1998);

Castano, 84 F.3d at 740. In particular, the federal appellate

courts have uniformly refused to permit class actions when

the claims of the class members would require individualized

proof and the defendant would have individualized defenses

to those claims. See, e.g., Broussard, 155 F.3d at 340-344;

Sprague v. General Motors Corp., 133 F.3d 388, 397-399

(6th Cir.) (en banc), cert. denied, 118 S. Ct. 2312 (1998);

Andrews v. American Tel. & Tel. Co., 95 F.3d 1014, 1023-

1025 (1lth Cir. 1996); Castano, 84 F.3d at 744-745;

Georgine v. Amchem Prods., Inc., 83 F.3d 610, 626-630 (3d

Cir. 1996), aff'd sub nom. Amchem Prods., Inc. v. Windsor,

521 U.S. 591 (1997); in re American Med. Sys., Inc., 75

F.3d 1069, 1084-1085 (6th Cir. 1996); In re Northern Dist.

of Cal., Dalkon Shield IUD Prods. Liab. Litig., 693 F.2d

847, 854-856 (9th Cir. 1982); In re Hotel Tel. Charges, 500

F.2d 86 (9th Cir. 1974); Simon v. Merrill Lynch, Pierce,

Fenner & Smith, Inc., 482 F.2d 880, 882-883 (5th Cir.

1973).? Indeed, several federal courts have recognized that

> The federal district court decisions refusing to certify classes on

this ground are too numerous to list. A representative sample

includes: Carpenter v. BMW of N. Am., Inc., 1999 WL 415390, at

*3-*4 (E.D. Pa. June 21, 1999); Schwartz v. Upper Deck Co., 183

F.R.D. 672, 676-680 (S.D. Cal. 1999); In re Jackson Nat'l Life

Ins. Co. Premium Litig., 183 F.R.D. 217, 220-222 (W.D. Mich.

1998); Chin v. Chrysler Corp., 182 F.R.D. 448, 455-457 (D.N.J.

1998); In re Ford Motor Co. Vehicle Paint Litig., 182 F.R.D. 214,

220-222 (E.D. La. 1998}; Marascalco v. International Computer-

deg

5

it would violate the defendant’s due process rights to try a

case on the basis of class-wide proof when claims and

defenses are individualized. See, e.g., In re Fibreboard

Corp., 893 F.2d 706 (Sth Cir. 1990); Western Elec. Co. v.

Stern, 544 F.2d 1196, 1199 (3d Cir. 1976); Arch v. American

Tobacco Co., 175 F.R.D. 469, 487-89 & n.21 (E.D. Pa.

1997); In re Masonite Corp. Hardboard Siding Prods. Liab.

Litig., 170 F.R.D. 417, 425 (E.D. La. 1997); Lusardi v.

Xerox Corp., 118 F.R.D. 351, 372 (D.N.J. 1987), mandamus

granted on other issues, 855 F.2d 1062 (3d Cir. 1988). See

also Cimino v. Raymark Indus., Inc., 151 F.3d 297, 311-321

(Sth Cir. 1998) (holding that Seventh Amendment precluded

use of trial plan under which liability and damages for a large

group of plaintiffs were extrapolated from findings for a

sample group of 160 plaintiffs, and suggesting that due

process would require same conclusion).

The federal courts also have refused to paper over

differences in the laws of the various states simply to make

a case manageable as a multi-state class action. See, ¢é.g.,

Andrews, 95 F.3d at 1024, 1025; Castano, 84 F.3d at 749-

750; Georgine, 83 F.3d at 627; American Med. Sys., 75 F.3d

at 1085; Rhone-Poulenc, 51 F.3d at 1300-1302; Carpenter,

1999 WL 415390, at *2-*3; Schwartz, 183 F.R.D. at 677-

678; Jackson Nat’l Life, 183 F.R.D. at 223; Chin, 182

F.R.D. at 457-462; Ford Motor Co. Vehicle Paint, 182

ized Orkeratology Soc’y, Inc., 181 F.R.D. 331, 338-339, 340

(N.D. Miss. 1998); Poe v. Sears, Roebuck & Co., 1998 WL

113561, at *2 (N.D. Ga. Feb. 13, 1998); In re Masonite Corp.

Hardboard Siding Prods. Liab. Litig., 170 F.R.D. 417, 424-425

(E.D. La. 1997); Mack v. General Motors Acceptance Corp., 169

F.R.D. 671, 676-680 (M.D. Ala. 1996); Kelley v. Mid-America

Racing Stables, Inc., 139 F.R.D. 405, 410-411 (W.D. Okla.

1990); Casper v. Cunard Line, Litd., 560 F. Supp. 240, 243 (E.D.

Pa. 1983); McHan v. Grandbouche, 99 F.R.D. 260, 266-267 (D.

Kan. 1983).

6

F.R.D. at 222-224; Marascalco, 181 F.R.D. at 337-340; Poe,

1998 WL 113561, at *2-*4; Masonite Corp. Hardboard

Siding, 170 F.R.D. at 421-424; Mack, 169 F.R.D. at 677-

679; Zandman v. Joseph, 102 F.R.D. 924, 929-930 (N.D.

Ind. 1984); Casper, 560 F. Supp. at 243-244; McHan, 99

F.R.D. at 267; Elster v. Alexander, 76 F.R.D. 440, 442

(N.D. Ga. 1977).

3. Regrettably, the state courts, as a group, have been

far more lax in protecting defendants — particularly out-of-

state defendants — from extortionate class actions.’ As one

Member of Congress recently testified at a House hearing:

By any objective measure, state class action suits

are increasingly the weapon of choice for some in

the plaintiff's bar. * * *

Opportunistic lawyers have identified those

states and particular judges where the class action

device can be exploited. The most significant of

these devices is the certification of the class itself.

For many companies, it is easier and less costly to

settle a class action suit once it has been certified

than to fight it in a foreign jurisdiction before a

potentially unfriendly judge and jury. Some state

courts, however, do not give the defendants a

fighting chance. They routinely certify classes

before the defendant has been served with a com-

plaint and given an opportunity to defend itself. In

one case, a state court judge certified the class

before the case was even filed in the court.

3 We are not suggesting that every state court (or even the

majority) has acquiesced in class action abuse, but simply that such

abuse occurs with sufficient regularity in the state court system to

make it rational for Congress to have expanded federal jurisdiction

over class actions.

7

Hearings on Mass Torts and Class Actions Before the Courts

and Intellectual Property Subcomm. of the House Judiciary

Comm., 105th Cong. (Mar. 5, 1998), http://www.house.gov/

judiciary/41155.htm (statement of Representative James P.

Moran) (hereinafter “Moran Testimony”).

The more sophisticated members of the plaintiffs’ class

action bar have managed to identify specific counties within

particular states in which they can be virtually assured of

finding a judge who will certify a case as a class action

without regard to whether it can fairly be tried as one. As

the Wall Street Journal has reported:

Plaintiffs’ lawyers are going out of their way to sue big

companies these days. All the way to backwaters like

Plaquemine, La., Union City, Tenn., and Eutaw, Ala.

A growing number of big lawsuits are landing in small

towns. * * *

Rural courts offer lawyers a strategic advantage. In

major metropolitan areas, judges are assigned to cases by

lottery, but small communities often have only one or

two judges in town. * * * Unlike federal judges, many

state judges are popularly elected, raising the possibility

of bias.

Richard Schmitt, Justice RFD: Big Suits Land in Rural

Courts, WALL ST. J., Oct. 10, 1996, at B1.

A few states have become particularly notorious for

allowing extortionate class actions and running roughshod

over the constitutional rights of out-of-state defendants and

absent class members alike. For example, one study found

that in 1995-1997 courts in six thinly populated rural Ala-

bama counties certified 43 class actions, at least 28 of which

were brought on behalf of nationwide classes, primarily

Action Lawsuits in State Courts: A Case Study in Alabama

(1998) (attached to Statement of Dr. John B. Hendricks

8

before the Subcommittee on Courts and Intellectual Property

of the House Committee on the Judiciary (Mar. 5, 1998),

available at 1998 WL 122544).* Another study found that the

number of class actions filed in Texas state courts rose by

820% between 1988 and 1998. See Class Action Litigation-A

Federalist Society Survey, 1 CLASS ACTION WATCH, at Figure

1.° That rate of ir-rease is significantly higher than in the

federal courts, where the number of pending class actions

increased during the same ten-year period by 338%. Ibid.

These hand-picked state courts have demonstrated a

propensity to certify classes that federal courts have refused

to certify and to casually dispense with the procedural

safeguards required by the Constitution and faithfully applied

in the federal courts. For example, in 1996 a judge in

Mobile County, Alabama, certified a nationwide class action

alleging state law products liability, breach of warranty,

negligence, and fraud claims on behalf of several million

owners of homes on which the defendants’ siding had been

installed. In an opinion written by class counsel, the court

brushed aside the constitutional choice-of-law problem,

stating, without the slightest legal analysis, that “the Court is

not persuaded that the variations in applicable state laws are

so significant as to create predominant individual issues.”

Order Certifying Plaintiff Class at 8, Naef v. Masonite Corp.,

No. CV-94-4033 (Mobile County Cir. Ct. Nov. 15, 1995)

(reprinted in Ex parte Masonite Corp., 681 So. 2d 1068, 1090

(Ala. 1996)). The court also gave short shrift to the conten-

tion that the claims were fact-specific and that the defendants

were being denied the opportunity to prove defenses specific

to the individual class members. /bid. After the Alabama

* Dr. Hendricks is the founder of an Alabama research and

development company who appeared on behalf of the Chamber.

° A copy of this study has been lodged with the Clerk of the

Court and served on the parties.

9

Supreme Court denied mandamus, the trial court held a “first-

phase” trial limited to the issue of whether the defendants’

products were defective. In that trial, the court purported to

solve the dilemma of having to apply the laws of the 51

jurisdictions by simply making up its own law, amalgamating

bits and pieces of the laws of the 51 jurisdictions into five

different design defect standards that did not accurately

represent the law of any State.

Meanwhile, another set of class action lawyers sought

certification of an identical class in federal court. That court

denied certification, holding that “[dJifferences in state law

and user facts overwhelm the common elements of plaintiffs’

claims. Combined, these differences are so great as to make

national class treatment unwieldy, unfair, and unlawful.”

Masonite Corp. Hardboard Siding, 170 F.R.D. at 425. The

of the Alabama case “supplies ample evidence of legal and

factual variation, and thus counsels against manageability and

superiority.” /d. at 426 n.19. It deemed inadequate the

Alabama court’s attempt to boil down the laws of 51 jurisdic-

tions into five sets of “Esperanto instruction(s],” opining that

“[t}he number of state products liability laws that confront

Masonite and their doctrinal dissonance cannot be glossed

over casually.” Jd. at 422. The court concluded that “Due

Process, the Seventh Amendment, * * * and Rule 23 make it

impossible to accommodate the theoretical benefits of class

treatment.” Jd. at 427. The defendants in Naef brought the

Louisiana district court’s ruling to the attention of the

Alabama courts before what was to be the second phase of

the class action trial, but the trial court refused to decertify

the class, and the Alabama Supreme Court denied

mandamus.°

° For a fuller description of the constitutionally flawed procedures

imposed in Naef, see Application for a Stay of Proceedings Pending

the Filing of a Petition for a Writ of Certiorari to Review a Final

10

Similarly, in 1996 a federal district court in Alabama

refused to certify a class action alleging that a subsidiary of

General Motors fraudulently failed to disclose that it pur-

chases installment contracts at a lower interest rate than the

one charged to the car purchaser by the dealer. Mack v.

General Motors Acceptance Corp., 169 F.R.D. 671 (M.D.

Ala. 1996). Reasoning that the jury would have to examine

the circumstances of each transaction to resolve such issues

as duty to disclose and reliance, the court dubbed the case

“the antithesis of a class action.” /d. at 677-678. Yet an

Alabama trial court certified a class action raising the

identical claims against a Ford subsidiary, and the Alabama

Supreme Court refused to intervene. See Ex parte Ford

Motor Credit Co., 697 So. 2d 464 (Ala. 1997) (Hooper, C.J.,

dissenting).

Texas is another state in whose courts out-of-state

defendants have regularly been subjected to extortionate class

actions. For example, in Texas Farmers Insurance Co. v.

Sendejo, No. 95-08-09165-CV (365th Jud. Dist. Ct.), the

plaintiffs alleged that Allstate and Texas Farmers Insurance

Company improperly engaged in “double-rounding” of the

premiums for their auto insurance. This method of computa-

tion, which had been required by the Texas Department of

Insurance, allegedly resulted in the overcharging of policy-

holders by perhaps a dollar or two per year. The suit arose

when a former general counsel of the Department of Insur-

ance with knowledge of the practice approached a Dallas

lawyer well known for winning huge settlements on question-

able theories of recovery. The lawyers recruited three named

Decision of the Supreme Court of Alabama, /nternational Paper

Co. v. Naef, No. A-28 (filed July 3, 1997). During the pendency

of the stay application, the defendants — in what could hardly be

described as a surprising move in view of the forum and the

amount of compensatory and punitive damages claimed by the class

— settled the case and withdrew the stay application.

11

plaintiffs and filed a putative class action (on behalf of all

Texas holders of Allstate and Farmers’ policies) in rural

Zavala County, a jurisdiction with very few of the putative

class members but a reputation for being solicitous of

plaintiffs’ lawyers. See Max Boot, Rule of Law: A Texas-

Sized Class Action Fraud, WALL ST. J., May 22, 1996, at

A23. They then hired a former high school classmate of the

presiding judge to act as co-counsel, and, after consistently

obtaining favorable rulings from the district court, coerced

the defendants into settling the dispute. The settlement

agreement provided for refunds of some $5.50 per policy-

holder and roughly $10 million in attorneys’ fees, with the

bill footed, ultimately, by defendants’ policyholders. As

commentators uniformly declared, only the lawyers were

winners. See, e.g., Auto Insurance: Class-Action Settlement

Was a Travesty, DALLAS MORNING NEwsS, Dec. 26, 1996, at

28A; Review & Outlook: Taken for a Ride, WALL ST. J., Oct.

23, 1996, at A22.

Equally disturbing is Ford Motor Co. v. Sheldon, 965

S.W.2d 65 (Tex. App.-Austin), review granted Dec. 23,

1998. In Sheldon, the district court certified two classes of

purchasers of Ford automobiles with respect to claims arising

out of Ford’s use of an allegedly defective paint process, and

the Court of Appeals affirmed. See id. at 74. But in an

identical suit, purportedly brought on behalf of a nationwide

class of Ford owners, the United States District Court for the

Eastern District of Louisiana concluded, after a searching

review, that both (1) individual factual issues predominated

over common issues, and (2) the proposed class action would

not be superior to individual trials in the resolution of the

class members’ claims. See Jn re Ford Motor Co. Vehicle

Paint Litig., 182 F.R.D. 214 (E.D. La. 1998). Although

most, if not all, of the federal court’s analysis applied with

equal force to the statewide class claims in Sheldon, the state

court nonetheless certified a class, and the court of appeals

affirmed.

12

The Texas courts also have certified nationwide classes

of plaintiffs alleging fraud in the sale of so-called vanishing

premium life insurance policies, overlooking the constitutional

requirement that they apply the law of the various states in

which the policies were issued and paying no heed to the

individualized nature of the class members’ claims. See,

e.g., Security Life of Denver Ins. Co. v. Ferguson, 1999 WL

339017 (Tex. App.-Dallas May 28, 1999); Order Certifying

Class, Klinefelter Family Revocable Living Trust v. First Life

Assurance Co., No. C-6930-96-G (Hidalgo County Dist. Ct.

Mar. 30, 1999).’ In contrast, the federal courts routinely

have held that the need to apply the laws of multiple states,

individualized issues of reliance, and differences in the

representations made to each policyholder make such cases

impossible to try as class actions. See, e.g., Kent v.

SunAmerica Life Ins. Co., 2000 WL 15015 (D. Mass. Jan. 3,

2000); Parkhill v. Minnesota Mut. Life Ins. Co., 188 F.R.D.

332 (D. Minn. 1999); Velasquez v. Crown Life Ins. Co., 1999

U.S. Dist. LEXIS 13186 (S.D. Tex. Aug. 10, 1999); In re:

The Hartford Sales Practices Litig., 1999 U.S. Dist. LEXIS

10402, at *40-*51 (D. Minn. June 10, 1999); In re Jackson

Nat'l Life Ins. Premium Litig., 183 F.R.D. 217 (W.D. Mich.

1998); Peoples v. American Fidelity Life Ins. Co., 176

F.R.D. 637 (N.D. Fla. 1998).

Similar mistreatment of out-of-state companies has

occurred in North Dakota. A trial court in that state certified

a class of approximately 6,000 owners of royalty interests and

leasehold interests in wells from which the defendant out-of-

state oil company purchased oil over a 19-year period. The

plaintiffs’ claim is that, when measuring the amount of oil

taken from storage tanks by “hand gauging,” the defendant’s

gaugers made adjustments to various readings that had the

effect of understating the amount of oil taken. Despite the

’ A copy of this order has been lodged with the Clerk of the

Court and served on the parties.

13

fact that there were thousands of different tanks involved,

each with its own characteristics, that the defendant utilized

numerous gaugers over the years, and that, many of the

measurements were witnessed and approved by employees of

the oil producers, the trial court certified a non-opt-out class

action. Although concluding that two of the trial court’s

findings justifying a non-opt-out class action were legally

erroneous, the North Dakota Supreme Court affirmed a third

finding justifying non-opt-out treatment as well as the trial

court’s critical findinzs that common issues predominate over

individual issues, that a class action is the most appropriate

means of adjudicating the claims, and that management of the

case as a Class action would not pose unusual difficulties.

Ritter, Laber & Assocs. v. Koch Oil, Inc., 2000 N.D. LEXIS

14 (N.D. Jan. 21, 2000). Yet with individualized issues as

to whether an adjustment was made at all and whether any

adjustment was warranted by the condition of either the

particular tank or the oil or both and with individualized

defenses such as whether the producer consented to an

adjustment, it is manifest that the only way this case can be

tried as a class action is by depriving the defendant of its due

process rights.

And, as a result of one Illinois court’s willingness to

certify and try a 4.7-million member, 48-state class action

against State Farm under Illinois law — despite the refusals

of two federal courts and one state court from northern

Illinois to certify similar (indeed smaller) classes* — southern

® See Moorhead v. State Farm Mut. Auto. Ins. Co., No. 95-AR-

0668-S (N.D. Ala. Sept. 12, 1997); Murray v. State Farm Mut.

Auto. Ins. Co., No. 96-2585-M1/A (W.D. Tenn. Aug. 19, 1997);

Rios v. Allstate Ins. Co., No. 94 CH 11396 (Cook County Cir. Ct.

Jan. 27, 1998).

14

Illinois has recently been added to the list of favorite venues

for class action lawyers.?

A consortium of plaintiffs’ lawyers from around the

country filed the class action in sparsely populated William-

son County, Illinois, on July 28, 1997, alleging that State

Farm breached its contracts with its policyholders (which

generally required State Farm to pay the amount necessary to

restore damaged vehicles to pre-loss condition) and violated

Illinois’ consumer fraud statute by using the price of parts

made by companies other than the automakers or their

licensees (“non-OEM parts”) when determining how much to

pay for repairs to its policyholders’ vehicles. The trial court

certified the class on the same day without waiting for State

Farm to be served, much less file an opposition to class

certification. The court eventually held a hearing and

reconfirmed its ruling, notwithstanding State Farm’s argument

that the need to apply the laws of the 48 states represented in

the class and the individualized factual determinations that

would be required made it impossible to try the case as a

class action consistent with due process."

The 4.7 million class members had myriad makes and

models of automobiles, and over 30,000 different non-OEM

parts were specified in the 4.7 million repair estimates.

Undaunted, the court proceeded to conduct a trial, in which

the plaintiffs were allowed to prove their claim using

anecdotal testimony by owners of body shops and some

® To be sure, State Farm is an Illinois company and hence would

not have been able to remove the suit. Our point in discussing it

is simply to illustrate the kinds of abuses that go on in some state

courts and that make the expansion of federal jurisdiction over class

actions perfectly rational.

‘0 For a more complete description of the class certification phase

of the case, see Petition for Writ of Certiorari, No. 97-2063, State

Farm Mut. Auto. Ins. Co. v. Speroni (filed June 22, 1998).

15

internal State Farm memos criticizing particular non-OEM

parts. They were not required to prove that each class

member actually received one or more non-OEM parts (as

opposed to simply having one specified on a repair

estimate),'' that the particular non-OEM parts used in each

class member’s repair (if any) were inferior to their OEM

counterparts, or that the particular non-OEM parts installed

in class members’ vehicles failed to restore amy (much less

every) class member’s vehicle to its pre-loss condition.

Meanwhile, the trial court precluded State Farm from

attempting to present individualized defenses, such as waiver

and estoppel.'* The court also prohibited State Farm from

adducing testimony from current and former insurance

regulators that the use of non-OEM parts was encouraged

and/or permitted in their states.

Having simply been instructed to determine whether State

Farm breached its “contract with the class” by using non-

OEM parts, the jury found that it did. It awarded the class

$456,636, 180 in compensatory damages, despite the admis-

sions of the plaintiffs’ damages expert that one component of

his damages calculation made no economic sense and that, in

estimating the other component, he had ignored various real-

world factors that could not be determined on a class-wide

1! State Farm adduced evidence at trial that, for a variety of

reasons, class members often received OEM parts at no extra

expense despite the fact that State Farm had specified a non-OEM

part on the repair estimate.

12 Many of the class members resided in states whose laws

expressly require insurers to obtain the consent of the insured as a

condition of using non-OEM parts. See, e.g., Colo. Rev. Stat.

Ann. § 42-9-107; Ind. Code § 27-4-1.5-8; N.Y. Comp. Codes R.

& Regs. tit. 11, § 216.7(b)(5)(ii); Or. Rev. Stat. §§ 746.287(1),

746.292(4)(b); R.I. Gen. Laws 1956 § 27-10.2-2; W. Va. Code §

46A-6B-3.

16

basis. The trial court then piled on an additional

$130,000,000 in so-called “disgorgement” damages and

$600,000,000 in punitive damages under the Illinois Con-

sumer Fraud and Deceptive Business Practices Act.

Unsurprisingly, both the initial class certification and the

eventual enormous judgment have been chum in the water for

class action lawyers. An extraordinary number of class

actions were brought in two southern Illinois counties in the

months following the trial court’s reaffirmation of the class

certification order, many purporting to be on behalf of multi-

state classes and most targeted against out-of-state

defendants.'?> The October 1999 verdict produced an even

more dramatic response. In the last three months of 1999, at

least ten consumer class actions were filed in the same two

counties, most of them against out-of-state businesses and on

behalf of putative nationwide classes.'*

‘3 See, e.g., Vollmer v. Publishers Clearing House, No. 98-L-

100B (St. Clair County, filed Feb. 3, 1998); Longstreet v. State

Farm Mut. Auto. Ins. Co., No. 98-MR77 (Madison County, filed

Feb. 27, 1998); Crockett v. Michigan Bulb Co., No. 98-L-1054

(St. Clair County, filed Dec. 11, 1998); Crockett v. Seta Corp.,

No. 98-L-1055 (St. Clair County, filed Dec. 11, 1998); Crockett

v. Time, Inc., No. 98-L-1056B (St. Clair County, filed Dec. 11,

1998); Crockett v. United States Purchasing Exch., No. 98-L-1057

(St. Clair County, filed Dec. 11, 1998); Coco v. State Farm Mut.

Auto. Ins. Co., No. 99-L-394A (St. Clair County, filed April 28,

1999); Turner v. Vistakon, Inc., No. 99-L-669 (Madison County,

filed June 6, 1999); Reichmann v. Archer Daniels Midland Co.,

No. 99-L-800 (Madison County, filed Aug. 6, 1999); Nagel v.

Archer Daniels Midland Co., No. 99-L-801 (Madison County, filed

Aug. 6, 1999); Littleton v. Shelter Ins. Co., 99-L-864 (Madison

County, filed Sept. 7, 1999); Shemwell v. The Farmers Ins. Group

of Cos., No. 99-L-865 (Madison County, filed Sept. 11, 1999).

'@ See Paul v. Country Mut. Ins. Co., No. 99-L-995 (Madison

County, filed Oct. 13, 1999); Stone v. SBU, Inc., No. 99-L-977

17

4. In short, out-of-state class action defendants have

been subjected to procedural unfairness in state courts that

would not be tolerated by the federal courts. That trend has

been accelerating in recent years. As Congressman Moran

put it, “[iJn essence, we have a situation where out of state

defendants are being haled into the plaintiffs’ state court

where they face complex litigation with large sums of money

at stake. These are the types of cases for which diversity

jurisdiction was created.” Moran Testimony, supra.

The compelling interest in ensuring that the engines of

the American economy are not subjected to class action

extortion in state courts supplies a more than rational reason

for Congress to have excluded Rule 23 from the exceptions

to supplemental jurisdiction set forth in 28 U.S.C. § 1367(b).

Because Section 1367 unambiguously provides for supplemen-

tal jurisdiction over the claims of absent class members when

the claims of the named plaintiffs satisfy the requirements of

28 U.S.C. § 1332, and because there was a manifestly

rational reason for doing so, petitioners’ effort to have the

Court read in an exception for class actions should be

rejected.

(Madison County, filed Oct. 7, 1999); Arnold v. State Farm Mut.

Auto. Ins. Co., No. 99-L-0896 (St. Clair County, filed Oct. 22,

1999); Strasen v. Allstate Ins. Co., No. 99-L-1040 (Madison

County, filed Oct. 26, 1999); Phillips v. Ford Motor Co., No. 99-

L-1041 (Madison County, filed Oct. 26, 1999); Hobbs v. State

Farm Mut. Auto. Ins. Co., No. 99-L-1068 (Madison County, filed

Nov. 2, 1999); Rios v. St. Paul Fire & Marine Ins. Co., No. 99-L-

1125 (Madison County, filed Nov. 16, 1999); Capone v General

Motors Corp., No. 99-L-1127 (Madison County, filed Nov. 17,

1999); Siler v. State Farm Mut. Ins. Co., No. 99-L-863 (Madison

County, filed Nov. 30, 1999); Winn v. Associates First Capital

Corp., No. 99-L-1227 (Madison County, filed Dec. 23, 1999).

18

CONCLUSION

The judgment of the Court of Appeals should be af-

firmed.

Respectfully submitted.

ROBIN S. CONRAD EVAN M. TAGER

National Chamber Litigation Counsel of Record

Center, Inc. Mayer, Brown & Platt

1615 H Street, N.W. 1909 K Street, N.W.

Washington, D.C. 20062 Washington, D.C. 20006

(202) 463-5337 (202) 263-3240

DAVID F. ZOLL

DONALD D. EVANS

Chemical Manufacturers

Association

1300 Wilson Boulevard ,

Arlington, VA 22209 ey

(703) 741-5000 ae

/

FEBRUARY 2000 [ 0,