Amicus Curiae Brief — DaimlerChrysler Corp. v. Ysbrand

l, MAY 24 or24

No. 03-1342

Jn the Supreme Court of the Gnited States

DAIMLERCHRYSLER CORPORATION,

Petitioner,

SHERYL YSBRAND AND MARY COONEY,

Respondents.

On Petition for a Writ of Certiorari to the

Supreme Court of Oklahoma

BRIEF OF THE CHAMBER OF COMMERCE

OF THE UNITED STATES OF AMERICA AND

THE ALLIANCE OF AUTOMOBILE MANUFACTURERS

AS AMICI CURIAE IN SUPPORT OF PETITIONER

ROBIN S. CONRAD

ELLEN DUNHAM BRYANT

National Chamber

Litigation Center, Inc.

1615 H Street, NW

Washington, D.C. 20062

(202) 463-5337

JOHN T. WHATLEY

NANCY ELIZABETH BELL

Alliance of Automobile

Manufacturers, Inc.

1401 Eye Street, NW, Suite 900

Washington, D.C. 20005

(202) 326-5500

EVAN M. TAGER

Counsel of Record

ERIKA Z. JONES

Mayer, Brown, Rowe

& Maw LLP

1909 K Street, NW

Washington, D.C. 20006

(202) 263-3240

LINDA T. COBERLY

Mayer, Brown, Rowe

& Maw LLP-

190 South LaSalle Street

Chicago, Illinois 60603

(312) 782-0600

TABLE OF CONTENTS

Page

py CP oe Pty y kj) 5: Be li

BREE EEEE GAP CEU RIE ioe e etek cea eedvesssesene l

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

Be Pe es ee ee rere 3

I. The Last Decade Has Seen An Explosion In

Nationwide Class Action Litigation, Even

With Regard To Highly Individualized

oe ee ere rey eee eee Tee 3

Il. The Distorted Choice-Of-Law Analysis In

This Case Undermines State Sovereignty,

Principles Of Federalism, And Commerce

pe a eer ree re errr 12

Ill. The Coercive Nature Of Class Action

Litigation And The High Likelihood Of

Settlement Make Review At This Stage

COT LAGIOONION EOGOMENL «ow cece eseenes 17

BS ren Pry Pir ere eae Tr ee 20

il

TABLE OF AUTHORITIES

Page

Cases:

Allstate Ins. Co. v. Hague, 449 U.S. 302 (1981) ........ 11

Am. Medical Sys., In re, 75 F.3d 1069 (6th Cir. 1996) .... 6

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

th: Te 4 | Bree or ee 5

Avery v. State Farm Mut. Auto. Ins. Co., 746 N.E.2d

1242 (Ill. App. Ct. 2001), appeal granted,

FOG E20 FOO Ge. SH 0 05 0 cee a hw kisses 8

BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (1996) ..... 13

Bibb v. Navajo Freight Lines, Inc., 359 U.S. 520

CIDSP) . . dss seas enn pee ad 13

Bigelow v. Virginia, 421 U.S. 809 (i975) ............. 13

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

CPG Coe, FD ius sana aee eeneene sews 18

Bohannan v. Allstate Ins. Co., 820 P.2d 787 .

CUR. F509)... «00ceusawk eaceeee eee ean e es 11

Bonaparte v. Tax Court, 104 U.S. 592 (1881) .......... 14

Bridgestone/Firestone, Inc., In re, 288 F.3d 1012

€7a Gir. SOGRD os sé 0s wesv enue eee ene ewess 18

Bridgestone/Firestone, Inc., in re, 333 F.3d 763

GOS eer eee 12

oe

ill

TABLE OF AUTHORITIES — Continued —

Page

Brown-Forman Distillers Corp. v. New York State 7

Liquor Auth., 476 U.S. 573 (1986) ............04. 13

Bunting v. Progressive Corp., 2004 WL 936552

ee A CE AOE FU, BE) nw cece vewsnssvcues 16

Busani v. United Servs. Auto. Ass'n,

No. 99-2-08217-1 (Pierce County Wash.

I Ra EY BE g SUMED 6 ban dws sc ce cess ceseens 10

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

Kk a errr er er rere 5, 18

Clark v. TAP Pharm. Prods., 798 N.E.2d 123

errr Per ee eee Tee Tee 8

Collins Radio Co. v. Bell, 623 P.2d 1039

(Okla. Ct. Civ. App. 1980).............. orreree 11

Cox Broadcasting Corp. v. Cohn, 420 U.S. 469

tLe. ceuhe eso Leet a ea OA) RAGS Ree 17, 20

\

Dailey v. North Coast Life Ins. Co., 919 P.2d 589

CE <ctd iow hacer a sae ee Citas ees oe

Edgar v. MITE Corp., 457 U.S. 624 (1982) ........... 13

Ex parte Green T ree Fin. Co., 723 So. 2d 6

era eee ecu week dw kx vx aN ONS aE we 7

Ex parte Household Retail Servs., Inc., 744 So. 2d 871

RR areas eee er re ere enlaces 7

iV

‘TABLE OF AUTHORITIES — Continued

Ford Moior Co. v. Rice, 726 So. 2d 626 (Ala. 1998) ee

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

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

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

Healy v. Beer Inst., 491 U.S. 324 (1989) ............

Home Insurance Co. v. Dick, 281 U.S. 397 (1930) ....

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

754 P.2d 330 (Ariz. Ct. App. 1988) .............

Mann v. GTE Mobilnet, Inc.,

Fae A A SGD BROS) occ ciscdvevesnnucces

Masonite Corp. Hardboard Siding Prods. Liab. Litig.,

In re, 170 F.R.D. 417 (E.D. La. 1997) ...........

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

(Mobile County Ala. Cir. Ct. Nov. 15, 1995),

reprinted in Ex parte Masonite Corp.,

681 So. 2d 1068 (Ala. 1996) .............0008.

Newton v. Merrill Lynch, 259 F.3d 154

NE Sa pay os eens Susan naa

New York Life Ins. Co. v. Head, 234 U.S. 149 (1914) ....

Parker v. Time Warner Entm’t Co., 331 F.3d 13

NN icy se oe cn dois ehaesea ene

Page

2 ORIOL NNT II TI

TERT cadpteiettev: vee nn

Sh Ae

Vv

TABLE OF AUTHORITIES — Continued

Page

Peterson v. BASF Corp., 618 N.W.2d 821

CORD: SA. FA, TE vos ee cee kere evarsvconnses 9

Peterson v. BASF Corp., 657 N.W.2d 853

(Minn. Ct. App. 2003), aff'd,

675 N.W.20 57 (Mite. 20048)... ccc cece ccess 9,10

Peterson v. BASF Corp., 675 N.W.2d 57

CI 5504s ee 9

Phillips Petroleum Co. v. Shutts, 472 U.S. 797

ti) ee eee er ree ee ree st mth to

Ray v. Farmers Ins. Exch., 200 Cal. App. 3d 1411

fre ere ry Serre rec roe 10

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

tS 2) rere rrr errr er. 6, 18, 19-

Spokane Truck & Dray Co. v. Hoefer, 25 P. 1072

COPOE. TORT) ova wecss dssiansensiasesn eee 15

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

SAE UF, Se bw vb RWS have e ct sarees 3, 13

Wershba v. Apple Computer, Inc., 110 Cal. Rptr. 2d

EO CER. A, BOD cS a sin tN 5 eee see 11

Wilson v. Massachusetts Mut. Life Ins. Co.,

No. D-0101-CV-98-02814 (1st Jud. Dist. Ct.,

Santa Fe County, N.M. Nov. 16, 1999) ............ 11

vi

TABLE OF AUTHORITIES — Continued

Page

Constitution, Statutes, and Rule:

WB. COUNT. ONE, 5, GS ick ness aeerenvetaees 13

ae UA... § SEP 6 chen eeoaneeeeees hie Kener 17

oe UDG. § LGR 46 icecs co0en ee erdatesewese es 19

Fed. R. Civ. P. 23(f) 1998 Adv. Comm. Notes ......... 20

Miscellaneous:

Mark Ballard, Mississippi Becomes a Mecca for

Tort Suits, NAT’LL. J., Apr. 30, 2001, at Al ......... 8

JOHN H. BEISNER & JESSICA DAVIDSON MILLER,

CLASS ACTION MAGNET COURTS: THE ALLURE

INTENSIFIES (Manhattan Inst. July 2002)

(www.manhattan-institute.org/html/cjr_S.htm) .... 6, 16

John H. Beisner & Jessica Davidson Miller,

They're Making a Federal Case Out of It...

In State Court, 25 HARV. J. L. & PUB.

POR. Y BF CH i nso vedo ecde teense ae 8

Robert G. Bone & David S. Evans, Class Certification

and the Substantive Merits, 51 DUKEL.J. 1251

(SIGE) oa cnr acccendcthbweeasee hewn 18

Elizabeth J. Cabraser, Life After Amchem: The Class

Struggle Continues, 31 Loy. L.A. L. REV. 373

(SDR) occ ccsncccccensckuceteh ensure eee 6

Oh SO,

ver

Vii

TABLE OF AUTHORITIES — Continued

Page

Class Action Litigation: A Federalist Society Survey,

1 CLASS ACTION WATCH I (Issue 1 1999) ........ 4,6

Thomas J. Cole, Attorney Backs Out Of Insurance

Settlement, ALBUQUERQUE J., Feb. 23, 2001,

UN a co a ee ee ee 5

Eddie Curran, Welcome to Greene County,

America’s Class Action Capital, MOBILE

REGISTER, Dec. 26, 1999, at 1B... 0... ccc ccc cence 7

Bryant G. Garth, Studying Civil Litigation through :

the Class Action, 62 IND. L.J. 497 (1987) .......... 19

Hearing on Mass Torts and Class Actions

Before the Courts and Intellectual Property

Subcomm. of the House Judiciary Comm.,

a A eee ree 4,5

DEBORAH R. HENSLER, ET AL., CLASS ACTION DILEMMAS

Deborah R. Hensler, Revisiting the Monster: New Myths

and Realities of Class Action and Other Large

Scale Litigation, 11 DUKE J. Comp. & INT’L L. 179

vo) er rrrrer ce rr Tr rer ots: eT ee er Coe 4

Trisha Howard, Lawyers Profit Most in Suit,

Defendant Says, ST. LOUIS POST-DISPATCH,

ag IS 0644655256 Tae irene eee ees’ 5

The Interstate Class Action Jurisdiction Act of 1999:

Hearings Before the House Judiciary Comm.,

oe Pee Tee TTT 6

Vili

TABLE OF AUTHORITIES — Continued

Larry Kramer, Choice of Law in Complex Litigation,

FE Pee E Ads See Ys OOF CRUD 8 kes ceeendencoes

MassMutual Class-Action Settlement Withdrawn,

BEST’S INSURANCE NEWS, Feb. 27, 2001 ........

Tom McCann, Class Actions: The Battle Heats Up,

CHICAGO LAW., Apr. 2004, at8................

George L. Priest, Procedural Versus Substantive

Controls of Mass Tort Class Actions,

26-5. LEGAL STUD. S21 (IGF) 0.0 ccc cesscccvese

REPORT OF THE JUDICIAL CONFERENCE COMMITTEE

ON RULES OF PRACTICE AND PROCEDURE 18

Pees eye ree ee ery Tre ee

RESTATEMENT (SECOND) OF CONFLICT OF LAWS

© PRE IIIED ais ida vc evces Sees enevasviao es

STATESIDE ASSOCIATES, CLASS ACTION LAWSUITS IN

STATE CourRTs: A CASE STUDY IN ALABAMA

I oo oon a eee

THOMAS E. WILLGING ET AL., EMPIRICAL STUDY OF

CLASS ACTIONS IN FOUR FEDERAL DISTRICT

COURTS: FINAL REPORT TO THE ADVISORY

COMMITTEE ON CIVIL RULES (1996), reprinted

in 10 NEWBERG ON CLASS ACTIONS

en Re rerene ar

1 WORKING PAPERS OF THE ADVISORY COMMITTEE

ON CIVIL RULES ON PROPOSED AMENDMENTS

TO CIVIL RULE 23 (May 1, 1997) ........... aa

INTEREST OF THE AMICI'

The Chamber of Commerce of the United States of America

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 Alliance of Automobile Manufacturers, Inc. is a

nonprofit trade organization formed in 1999. Its mission is to

improve the environment and motor vehicle safety through the

development of globai standards and the establishment of

market-based, cost-effective solutions to emerging challenges

associated with the manufacture of new automobiles. Petitioner

DaimlerChrysler is a member of the Alliance, along with eight

other major auto manufacturers operating in North America.

Amici’s members are subjected to abusive class actions in

state courts on a regular basis. They accordingly have a strong

interest in ensuring both that the constitutional limitations on a

court’s choice of law apply with full force in the class action

context and that the class action does not become a means for

undermining state sovereignty in derogation of the Commerce

Clause and traditional principles of federalism.

_! This brief was not authored in whole or in part by counsel for any

party in this case, and no one other than amici, their members, or their

counsel made any monetary contribution to its preparation or

submission. S. Ct. R. 37.6. The parties have consented to the filing

of this brief; their letters of consent are on file with the Clerk.

2

SUMMARY OF ARGUMENT

No legal issue is of greater concein to the U.S. business

community than the abuse of the class action device. Over the

last decade, courts in certain jurisdictions—including Alabama,

Illinois, and now Oklahoma—have developed a reputation for

their willingness to certify nearly any class, even when the class

is asserting claims that elsewhere would require highly

individualized litigation. Courts in these jurisdictions have

arrogated tremendous power over the business activities of

corporations in all 50 Staies.

The decision of the Oklahoma Supreme Court in this case

is part of a disturbing trend in class actions—the distortion of

choice-of-law rules in order to facilitate the certification of the

broadest class possible. Implicitly recognizing that it would be

impracticable to try a class action under the laws of the 50

States and the District of Columbia, the Oklahoma Supreme

Court turned choice-of-law analysis on its head—presupposing

that it would be permissible (and indeed desirable) to subject all

the claims to the law ofa single State. The court then concluded

that of all the States, Michigan had the most significant

relationship to “the parties and this litigation.” Pet. App. 13a.

As the petition persuasively argues, this result-oriented

approach is in direct conflict with several of this Court’s

decisions, including Phillips Petroleum Co. v. Shutts, 472 U.S.

797 (1985), and Home Insurance Co. v. Dick, 281 U.S. 397

(1930), as well as with the decisions of other state courts and

the federal courts of appeal. The Constitution’s due process

guarantee prohibits a court from adjudicating a party’s

substantive rights based upon the law of a State that lacks

sufficient connection to the transaction underlying the claim.

Whether in a class action or in an individual lawsuit, the court

must conduct an individualized analysis with regard to each

claim in order to determine whether due process permits the

application of a particular State’s law.

3

The Oklahoma Supreme Court’s approach to class litigation

also does great violence to the principles of federalism and state

sovereignty. This Court has made clear that a State may not

regulate conduct outside its own territory without the consent

of Congress. E.g., State Farm Mut. Auto. Ins. Co. v. Campbell,

538 U.S. 408, 421-22 (2003); Healy v. Beer Inst., 491 U.S. 324

(1989). The Oklahoma Supreme Court’s ruling entirely

eviscerates that principle. If the law of the defendant’s home

State can be applied in a class action regardless of where the

underlying transaction took place, then States will lose the

ability to regulate the conduct of out-of-state corporations

within their own boundaries.

The petition demonstrates why review is warranted, given

the conflict of authority regarding the propriety of applying the

law of a defendant’s domicile to the claims of a nationwide

class, and the inconsistency between the decision below and

previous decisions of this Court. Accordingly, we will not

burden the Court with additional analysis of the case law.

Instead, this brief addresses the pervasiveness of class action

abuse, the disruptive effect that the Oklahoma Supreme Court’s

approach to class action litigation would have on state

sovereignty and on commerce nationwide, and the importance

of this Court’s intervention without awaiting a final judgment

on the merits that likely will never eventuate.

ARGUMENT

I. The Last Decade Has Seen An Explosion In Nationwide

Class Action Litigation, Even With Regard To Highly

Individualized State-Law Claims.

Class action litigation has exploded over the last fifteen

years. According to one study, from 1994 to 1997, U.S.

- companies experienced a growth rate in the number of putative

class actions filed against them ranging from 300% to 1000%.

1 WORKING PAPERS OF THE ADVISORY COMMITTEE ON CIVIL

RULES ON PROPOSED AMENDMENTS TO CIVIL RULE 23, at ix-x

en ee

4

(May 1, 1997); see also Deborah R. Hensler, Revisiting the

Monster: New Myths and Realities of Class Action and Other

Large Scale Litigation, 11 DUKE J. COMP. & INT’L LL. 179, 184

(2001) (RAND analysts concluded that class action lawsuits

likely surged during the 1990s, with about half of class action

litigation activity taking place in state court).’

ey

Yet the dramatic growth in class litigation should not be

misread as a sign that the rights of more individuals are being

vindicated. The modern class action is often a lawyer-initiated,

lawyer-directed affair designed to generate a substantial fee

award.’ To that end, prospective class counsel regularly scan

2 Another recent survey found that between 1988 and 1998, class

actions in federal court increased by 338%, and state court class

actions were up by 1042%. Class Action Litigation: A Federalist

Society Survey, 1 CLASS ACTION WATCH 1, 3 (Issue 1 1999); see also

Hearing on Mass Torts and Class Actions Before the Courts and

Intellectual Property Subcomm. of the House Judiciary Comm., 105th

Cong. (Mar. 5, 1998) (“1998 Class Action Hearings”’) (statement of

John W. Martin, Jr.). See generally DEBORAH HENSLER, ET AL.,

CLASS ACTION DILEMMAS 62-68 (RAND 2000) (discussing evidence

indicating an increase in number and diversity of class actions in the

late 1990s).

> A Federal Judicial Center study of class actions found that, in three

of the four districts studied, the mean fee award in class actions that

settled after certification and that paid some money to class mernbers

was in excess of $1 million. THOMAS E. WILLGING ET AL., EMPIRICAL

STUDY OF CLASS ACTIONS IN FOUR FEDERAL DISTRICT COURTS:

FINAL REPORT TO THE ADVISORY COMMITTEE ON CIVIL RULES fig. 69

(1996), reprinted in 10 NEWBERG ON CLASS ACTIONS 181, 395 (4th

ed. 2002) (mean in one of those districts was over $2.5 million, and

mean in fourth district was $732,537). And the awards frequently

bear no relationship to the relief garnered by the class. Among the

most extreme examples is the fee award in a recent Madison County,

Illinois case against AT&T and Lucent Technologies, in which the

putative class alleged that the defendants had overcharged for rented

telephones. After settlement, class members claimed $8.4 million

5

news reports for possible bases for class litigation, seek out

individuals to serve as named plaintiffs, and then shop for

friendly courts in which to file suit. They then obtain class

certification—often, as here, without showing that litigation on

a class-wide basis is consistent with the constitutional rights of

the defendant and absent class members—and then use the

threat of a huge verdict to force a settlement that provides a

large fee for class counsel.‘

The most effective way for a class action lawyer to ensure

a lucrative settlement is to allege and certify a nationwide class,

thus maximizing the coercive value of the certification order.

See infra at 17-20. As the federal courts have recognized,

however, nationwide class actions raising claims under state

law generally may not be certified consistent with the

requirements of Rule 23, due process, and federalism because

of complexity resulting from the need to apply the varying laws

of the 50 States. See, e.g., Andrews v. American Tel. & Tel. Co.,

95 F.3d 1014 (11th Cir. 1996); Castano v. American Tobacco

collectively from the settlement fund, whereas class lawyers took

home more than $84.5 million in fees and expenses. See Trisha

Howard, Lawyers Profit Most in Suit, Defendant Says, ST. LOUIS

POST-DISPATCH, Mar. 31, 2004, at Al (settlement agreement also

required defendant AT&T to provide $50 million in free calling cards

to charity). See also, e.g, MassMutual Class-Action Settlement

Withdrawn, BEST’S INSURANCE NEWS, Feb. 27, 2001 (discussing

New Mexico class-action settlement, which would have given almost

$8 million in fees to class counsel and $350,000 to the two named

plaintiffs but no monetary relief to the more than six million absent

class members); Thomas J. Cole, Attorney Backs Out Of Insurance

Settlement, ALBUQUERQUE J., Feb. 23, 2001, at Al (describing

another case in which the same class counsel shared in a $7 million

- fee award, while the two named plaintiffs received $30,000 each and

three million putative class members received no monetary award).

* See 1998 Class Action Hearings (testimony of former Attorney

General Dick Thornburgh, Mar. 5, 1998) (discussing examples).

6

Co., 84 F.3d 734 (Sth Cir. 1996); Georgine v. Amchem Prods.,

Inc., 83 F.3d 610 (3d Cir. 1996), aff'd sub nom. Amchem

Prods., Inc. v. Windsor, 521 U.S. 591 (1997); In re Am. Med.

Sys., 75 F.3d 1069 (6th Cir. 1996); Jn re Rhone-Poulenc Rorer,

Inc., 51 F.3d 1293 (7th Cir. 1995).

Seeking a more hospitable forum, many class action

lawyers have shifted their attention to state court. JOHN H.

BEISNER & JESSICA DAVIDSON MILLER, CLASS ACTION

MAGNET COURTS: THE ALLURE INTENSIFIES 3 (Manhattan Inst.

July 2002) (www.manhattan-institute.org/html/cjr_5.htm); see

also Larry Kramer, Choice of Law in Complex Litigation, 71

N.Y.U. L. REV. 547, 575 (1996) (certification of nationwide

classes by state courts “has been increasing in recent years”);

The Interstate Class Action Jurisdiction Act of 1999: Hearing

Before the House Judiciary Comm., 106th Cong. (July 21,

1999) (statement of former acting Solicitor General Walter E.

Dellinger); cf Elizabeth J. Cabraser, Life After Amchem: The

Class Struggle Continues, 31 Loy. L.A. L. REV. 373, 386

(1998) (“It is no secret that class actions—formerly the

province of federal diversity jurisdiction—are being brought

increasingly in the state courts”); Class Action Litigation: A

Federalist Society Survey, supra, at 1, 3 (between 1988 and

1998, state-court class actions were up by 1042%, compared

with 338% in federal court).

Moreover, class action attorneys are not using just any state

court in their effort to circumvent the constitutional limitations

on class actions. With increasing frequency, they are filing their

cases in state courts that have acquired a reputation for

acquiescing in requests for nationwide certification and running

roughshod over the constitutional rights of defendants and

absent class members.

For example, after a few class-friendly decisions in

Alabama, class action lawyers from across the country flocked

to that State to file class actions. In 1995-1997, courts in six

7

thinly populated Alabama counties certified 43 class actions, at

least 28 of which were brought on behalf of nationwide classes.

STATESIDE ASSOCIATES, CLASS ACTION LAWSUITS IN STATE

CourTS: A CASE STUDY IN ALABAMA (1998) (attached to

statement of Dr. John B. Hendricks, on behalf of Small

Business Council of the U.S. Chamber of Commerce, before

the Subcommittee on Courts and Intellectual Property of the

House Judiciary Committee (Mar. 5, 1998)).° The Alabama

Supreme Court finally intervened, making clear that, under that

State’s procedural rules, trial courts were required to perform

a rigorous analysis of factual issues, choice-of-law issues, and

other requirements for class certification.® As a result, class

action filings in Alabama have slowed dramatically. See Eddie

Curran, Welcome to Greene County, America’s Class Action

Capital, MOBILE REGISTER, Dec. 26, 1999, at 1B.

But the intervention of the Alabama Supreme Court has

served only to cause class action lawyers to take their show on

the road to such class-action/mass-joinder havens as

> Onatleast one occasion, the Alabama courts certified a nationwide

class identical to one that a federal court refused to certify on

constitutional grounds. Compare, e.g., Order Certifying Plaintiff

Class at 8, Naefv. Masonite Corp., No. CV-94-4033 (Mobile County

Cir. Ct. Nov. 15, 1995), reprinted in Ex parte Masonite Corp., 681

So. 2d 1068, 1086 (Ala. 1996) (approving plan to try 50-state

consumer fraud class action), with In re Masonite Corp. Hardboard

Siding Prods. Liab. Litig, 170 F.R.D. 417, 422, 425, 427 (E.D. La.

1997) (denying certification of identical class because, among other

things, the suit would involve applying 50 different legal standards,

and Naef’s effort to synthesize those standards into an “Esperanto”

amalgamation that did not represent the legal standard of any State

inadequately protected defendants’ constitutional rights).

® See, e.g., Ex parte Green Tree Fin. Co., 723 So. 2d 6, 9 (Ala.

1998); Ex parte Household Retail Servs., Inc., 744 So. 2d 871, 878-

79 (Ala. 1999); Mann v. GTE Mobilnet, Inc., 730 So. 2d 150, 152

(Ala. 1999).

8

Mississippi, West Virginia, Washington, New Mexico, and

southern Illinois.’ To date, few state appellate courts have

interceded to ensure that class action litigation within their

jurisdictions is conducted in a manner consistent with the

Constitution.

Indeed, appellate courts in Illinois have affirmed the

certification of multistate class actions based upon the

conclusion that Illinois law governs all claims against an

Illinois corporation, regardless of where those claims arose.

E.g., Clark v. TAP Pharm. Prods., 798 N.E.2d 123, 129 (ill.

App. Ct. 2003) (upholding application of Illinois law to

transactions outside Illinois that involved non-Illinois class

members and medical care providers, based solely on fact that

defendant’s corporate headquarters is in Illinois); Avery v. State

Farm Mut. Auto. Ins. Co., 746 N.E.2d 1242, 1254-55 (Ill. App.

Ct. 2001) (in case involving auto insurance claims, applying

law of defendant’s domicile to claims arising elsewhere),

appeal granted, 786 N.E.2d 180 (Ill. 2002). The class action bar

is well aware of this trend and has responded accordingly.

Madison County, Illinois is now ranked third nationwide in

class action filings each year behind the far more populous

counties containing Los Angeles and Chicago. Beisner &

Miller, 25 HARV. J.L. & PUB. POL’Y at 159. Approximately

81% of the putative class actions filed in Madison County

between February 1998 and March 2001 sought to certify

nationwide classes. Jd. at 169; see also Tom McCann, Class

Actions: The Battle Heats Up, CHICAGO LAW., Apr. 2004, at 8,

9 (106 class actions were filed in Madison County in 2003, as

compared with 11 filings in 1999); Mark Ballard, Mississippi

Becomes a Mecca for Tort Suits, NAT’L L.J., Apr. 30, 2001, at

7” See, e.g., John H. Beisner & Jessica Davidson Miller, They're

Making a Federal Case Out of It . . . In State Court, 25 HARV. J.L. &

PUB. POL’Y 143, 159 (2001) (discussing increase in nationwide class

actions in various states).

9

A1 (describing similar phenomenon for mass-joinder suits in

Mississippi).

The courts of Minnesota have taken the same approach. In

Peterson v. BASF Corp., a nationwide class of farmers asserted

claims under the New Jersey Consumer Fraud Act with regard

to BASF’s marketing of two herbicide products. See 618

N.W.2d 821, 822 (Minn. Ct. App. 2000). Although BASF is

headquartered in New Jersey, neither the products themselves

nor the marketing materials were developed in that State.

Nevertheless, the trial court certified a nationwide class and

allowed it to pursue claims under New Jersey law. The court

of appeals affirmed the certification in an opinion that did not

even consider BASF’s arguments with regard to choice of law.

See id. at 825-26. A $52 million judgment was ultimately

awarded against BASF. See 657 N.W.2d 853 (Minn. Ct. App.

2003). .

In the post-trial appeal, the appellate court and the

Minnesota Supreme Court both invoked ill-founded procedural

theories in order to avoid reaching the question whether the

Constitution would permit the application of New Jersey law to

claims that arose elsewhere.’ Indeed, the only substantive

discussion of the choice-of-law issue by any court in Peterson

is in a concurrence by one appellate court judge, who observed:

[A]t the end of the day, this dispute is the poster child

for national class action reform. We have here a

Minnesota district court, applying a New Jersey

* See 657 N.W.2d at 875 (court of appeals: BASF could not appeal

application of New Jersey law after final judgment because court’s

previous decision affirming class certification, which did not mention

choice of law, nevertheless constituted “law of the case” on that

issue); 675 N.W.2d 57, 67-68 (Minn. 2004) (supreme court: BASF

“waived” supreme court review on choice of law by failing to seek

discretionary review of the issue following the appellate court’s

interlocutory decision affirming class certification).

10

consumer fraud statute to a nationwide class of

plaintiffs, with few of those plaintiffs residing in New

Jersey. And it is probably a fair assumption that the

legislative authors of the New Jersey consumer

protection scheme did not have in mind midwestern

farmers purchasing agricultural chemicals as the

protected class. * * *

This is not a recipe for uniformity or consistency, it

is fair neither to claimants nor defendants and it is long

past time for national policy makers to address class

action procedures.

657 N.W.2d at 875 (Anderson, J., concurring specially).

Unfortunately, these sentiments did not persuade the Minnesota

courts to take action themselves to correct the problem.

Courts in other States also have certified nationwide or

multistate class actions based upon the law of a single State

without paying the slightest attention to the due process and

sovereignty concerns implicated by such an approach. For

example, a Washington court certified a 27-state class action

seeking “inherent diminished value” (“IDV”) damages under |

the putative class members’ automobile insurance policies, on

the theory that the laws of the various States did not materially

differ. Busani v. United Servs. Auto. Ass'n, No. 99-2-08217-1,

Class Certification Order (Pierce County Super. Ct. May 11,

2001). In so holding, the court ignored the fact that many |

jurisdictions had never addressed whether IDV damages were |

cognizable and others had expressly held that they are not. See,

e.g., Johnson v. State Farm Mut. Auto. Ins. Co., 754 P.2d 330,

331 (Ariz. Ct. App. 1988) (denying IDV claim); Ray v.

Farmers Ins. Exch., 200 Cal. App. 3d 1411, 1415-17 (1988) ‘

(same). In a ditferent insurance case, a New Mexico trial court

certified a nationwide class of MassMutual policyholders and

proceeded to apply New Mexico law, with no choice-of-law

eT a.

1]

analysis at all. Wilson v. Massachusetts Mut. Life Ins. Co., No.

D-0101-CV-98-02814 (1st Jud. Dist. Ct. Santa Fe County Nov.

16, 1999) (orders certifying class and awarding partial

summary judgment in favor of lead plaintiff).’

In the instant case, Oklahoma has joined the ranks of States

that are willing to set aside the U.S. Constitution in order to

foster class-based litigation. To avoid the manageability

problems that would inevitably result from litigating this case

under 50 different legal standards, the Oklahoma Supreme

Court analyzed the claims collectively and applied the law of

the only State that all the claims had in common—the

defendant’s home State—regardless of whether Michigan had

any relevant contacts to the underlying transactions. Pet. App.

13a (applying Michigan law because Michigan had a “more

significant” relationship “to the parties and this litigation” than

any other State). This analysis flies in the face of this Court’s

directive to assess—for each individual claim—the

constitutionality of applying a particular State’s law. Shutts,

472 U.S. at 818, 821-22 (the governing State “must have a

‘significant contact or significant aggregation of contacts’ to

the claims asserted by each member of the plaintiff class,

“contacts creating state interests,’ in order to ensure that the

choice of [that State’s] law is not arbitrary or unfair”) (quoting

Allstate Ins. Co. v. Hague, 449 U.S. 302, 312-13 (1981)

(plurality opinion)).'°

* See also Wershba v. Apple Computer, Inc., 110 Cal. Rptr. 2d 145,

159-60 (Ct. App. 2001) (affirming certification and settlement of

nationwide class action under California’s consumer protection laws).

'© There can be no serious doubt that, in an individual breach-of-

warranty suit filed by an Oklahoma resident against the petitioner,

_ Oklahoma courts would apply Oklahoma law, not Michigan law. See

Pet. App. 1la-13a (citing Collins Radio Co. v. Bell, 623 P.2d 1039,

1047 (Okla. Ct. Civ. App. 1980), and Bohannan v. Allstate Ins. Co.,

820 P.2d 787, 795 (Okla. 1991)). It should thus be self-evident that

12

As discussed in more detail below, the disruptive effect of

nationwide class action litigation on U.S. commerce cannot be

overstated. Any State that shows a willingness to set aside

constitutional limitations in order to certify a class will

necessarily attract far more than its share of nationwide class

litigation. Like Illinois, Oklahoma will undoubtedly draw

lawyers from across the nation who are attempting to certify

nationwide classes. Through the nationwide class action, a few

class-friendly state courts can effectively hijack significant

portions of the U.S. economy. As Judge Easterbrook has

explained, even if only 10% of judges would be receptive to a

nationwide class action, one such judge “is bound to turn up if

plaintiffs file enough suits—and, if one nationwide class is

certified, then all the no-certification decisions fade into

insignificance. A single positive trumps all the negatives.” Jn re

Bridgestone/Firestone Inc., 333 F.3d 763, 766-67 (7th Cir.

2003). This Court’s intervention is desperately needed to ensure

that constitutional limitations on choice of law are applied with

equal force in the class action context and thereby prevent the

abuse that is now rampant in the state courts.

II. The Distorted Choice-Of-Law Analysis In This Case

Undermines State Sovereignty, Principles Of

Federalism, And Commerce Across The Nation.

The choice-of-law analysis in this case threatens to work a

radical change in the legal foundation on which U.S. commerce

proceeds. For more than two hundred years, the several States

have regulated the conduct of business within their respective

borders. Only Congress has the power to encroach on a State’s

the Oklahoma Supreme Court used the procedural device of the class

action to alter the substantive law with regard to many class

members’ claims. That alone should be sufficient reason to doubt the

validity of the state courts’ insistence on applying Michigan law

nationwide.

eT cn OS = ca

ee

13

sovereignty by imposing a system of uniform national

regulation on interstate commerce. U.S. CONST. art. I, § 8, cl.

3. In this case, however, the state courts of Oklahoma have

usurped that role, imposing the law of a single State upon the

conduct of the defendant in all States solely for the convenience

of the lawyers who filed the case.

The U.S. Constitution contemplates that each of the 50

States is a sovereign of “equal dignity” with a distinct sphere of

authority. Bibb v. Navajo Freight Lines, Inc., 359 U.S. 520,

529 (1959). Accordingly, this Court consistently has rejected

States’ efforts to apply local law to transactions that occurred

entirely in other States. See, e.g., Campbell, 538 U.S. at 422

(“A basic principle of federalism is that each State may make

its own reasoned judgment about what conduct is permitted or

proscribed within its borders, and each State alone can

determine what measure of punishment, if any, to impose on a

defendant who acts within its jurisdiction”); BMW of N. Am.,

Inc. v. Gore, 517 U.S. 559, 568-73 (1996) (Alabama jury could

not apply Alabama law to punish defendant for transactions

taking place in other States); Healy, 491 U.S. at 336

(Commerce Clause “precludes the application of a state statute.

to commerce that takes place wholly outside of the State’s

borders”); Brown-Forman Distillers Corp. v. New York State

Liquor Auth., 476 U.S. 573, 582-83 (1986) (rejecting New

York’s attempt to “project its legislation” into other States);

Shutts, 472 U.S. at 818-23 (Kansas court could not apply forum

law to claims of class members with no connection to Kansas);

Edgar v. MITE Corp., 457 U.S. 624, 641-43 (1982) (plurality

op.) (Illinois anti-takeover statute impermissibly regulated

transactions occurring entirely outside of Illinois); Bigelow v.

Virginia, 421 U.S. 809, 824 (1975) (“A State does not acquire

| power or supervision over the internal affairs of another State

merely because the welfare and health of its own citizens may

be affected when they travel to that State”); New York Life Ins.

14

Co. v. Head, 234 U.S. 149, 161 (1914) (“it would be impossible

to permit the statutes of Missouri to operate beyond the

jurisdiction of that State * * * without throwing down the

constitutional barriers by which all the States are restricted

within the orbits of their lawful authority and upon the

preservation of which the Government under the Constitution

depends”); Bonaparte v. Tax Court, 104 U.S. 592, 594 (1881)

(“No State can legislate except with reference to its own

jurisdiction”).

The theory adopted by the Oklahoma Supreme Court is

flatly inconsistent with the system of state sovereignty and

federalism contemplated by the Constitution. Through common

law and legislation, each of the 50 States is free to develop its

own standards for regulating business, based upon its own

assessment of the relevant policy interests. But if choice of law

in a nationwide class action may depend upon where the

defendant maintains its headquarters—rather than, for example,

where the product at issue is sold or delivered (see

RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 191 & cmts.

e, f (1971))}then each State necessarily loses the ability to

apply the standard of its choosing to business conduct within its

own borders. Thus, in this case, because of a state court

decision in Oklahoma, the law of Alabama will not govern the

breach of warranty claims of a class member who resides in

Alabama and who purchased a vehicle in Alabama from an

Alabama dealership for use in Alabama."

'! The Alabama Supreme Court, for example, has definitively

rejected causes of action based on the risk of future injury, like the

cause of action at issue here. See Ford Motor Co. v. Rice, 726 So. 2d

626, 631 (Ala. 1998). Under the Oklahoma Supreme Court’s _

approach, an Alabama plaintiff—whose claims would clearly be

barred in an individual lawsuit—may have the opportunity to

persuade the court to accept her claims under a different State’s law,

simply because they are part of a case certified as a class action.

15

The absurdity of this approach is heightened in this case, in

which a State with no real interest in regulating its citizens’

extraterritorial conduct was foisted into doing so by another

State’s courts. Here, it was the state courts of Oklahoma that

decided to apply Michigan law to transactions that occurred

beyond Michigan’s borders—over the objection of the State of

Michigan itself. See Pet. 6-7 (discussing amicus brief filed by

State of Michigan in support of DaimlerChrysler’s petition for

rehearing). In this respect, too, the plaintiffs’ theory

undermines the sovereignty of each State.

This result is potentially harmful, not only to businesses

operating nationwide, but also to absent class members who

may see their substantive rights sacrificed in order to ensure

certification of the broadest class possible. If the defendant

maintains its headquarters in Washington, for example, which

permits punitive damages only when authorized by statute,’

class members from more permissive States may be prejudiced

by the application of Washington law. In such a case, the

burden would be on the absent class member to be aware of the

legal issue and to opt out of the class in order to avail herself of

the legal protections afforded her by her own State’s law.

The practice of applying the law of the defendant’s

domicile in order to facilitate nationwide class litigation also

has the deleterious effect of concentrating tremendous

regulatory power in the courts of a few class-friendly

jurisdictions around the country. In Madison County, Illinois,

for example, plaintiffs’ lawyers often file cookie-cutter lawsuits

against many different defendants in the same industry. Of the

43 class action suits filed in Madison County in 2001, 25

proposed nationwide or multistate classes challenging common

_ Eg, Dailey v. North Coast Life Ins. Co., 919 P.2d 589, 590

(Wash. 1996); Spokane Truck & Dray Co. v. Hoefer, 25 P. 1072

(Wash. 1891).

16

practices allegedly used by many different corporations in the

financial services or insurance industries. BEISNER & MILLER,

supra, at 4-6 (discussing, for example, lawsuits against Allstate,

AIG, Prudential, Country Mutual, Progressive, Farmers, St.

Paul Fire and Marine, CGU, Hartford, Geico, and Shelter

Insurance, all challenging the same practice). Using the

theory adopted by the Oklahoma Supreme Court, the Madison

County courts could certify nationwide or multistate class

actions in each of these cases under the law of the defendant’s

home State. Thus, the Madison County courts would be in a

position to regulate an entire industry nationwide—a power

ordinarily reserved for Congress under the Commerce Clause.

The prohibition on the extraterritorial application of state

law is not just a matter of constitutional law; it is also a

practical necessity. Under the approach adopted by the

Oklahoma courts, two companies that compete directly against

one another for business in a particular region would find

themselves operating under different legal standards if they

maintain their respective headquarters in different States. For

example, the advertising of packaged baked goods in Idaho

might be governed by the law of Illinois (for the Illinois-based

Sara Lee), as well as the law of Connecticut or New Jersey (for

Pepperidge Farm, which is a Connecticut subsidiary of a New

Jersey company). The two companies, meanwhile, would need

to structure their business operations in Idaho based upon both

'3 See also Bunting v. Progressive Corp., 2004 WL 936552 (Ill. App.

Ct. Apr. 30, 2004) (non-Illinois member of multistate class alleging

that insurence company and its valuation vendor systematically

undervalued vehicles declared to be a total loss could state claim

against defendant/vendor under Illinois consumer fraud statute

because Illinois is where defendant/vendor maintained its principal

office and presumably created its allegedly deceptive policy of

undervaluing automobiles).

17

Idaho law and the law of their respective home States, even

though the relevant legal standards may be in conflict.

This is no way to run an economy. The orderly process of

commerce depends upon uniform expectations. States need the

“authority to regulate local markets, and companies need to be

able to predict with reasonable certainty which law will govern

their conduct in a particular State. If, with respect to a particular

industry, Congress determines that nationwide standards are

necessary, then it may choose to take action. Until then,

principles of federalism and state sovereignty require that each

State have the ability to achieve local uniformity through the

application of its own laws. This system cannot tolerate the

application of one State’s law beyond its borders in nationwide

class actions.

III. The Coercive Nature Of Class Action Litigation

And The High Likelihood Of Settlement Make

Review At This Stage Of Litigation Essential.

The procedural posture of this case—after class certification

and before a trial on the merits—is not a bar to this Court’s

consideration of the choice-of-law issue. As the petition

explains, the decision below resolved the important

constitutional question now before the Court and is a final

judgment for purposes of 28 U.S.C. § 1257(a). Pet. 26-30

(discussing Cox Broadcasting Corp. v. Cohn, 420 U.S. 469

(1975)). Indeed, to wait for a case that presents a similar issue

following entry of final judgment on the merits would be

unrealistic, because defendants who face the prospect of

litigating a case certified as a nationwide class action often

have no choice but to settle long before the case goes to trial.

In any nationwide class action, a class certification order

hangs like a Damoclean sword over the defendant, often forcing

it into an unwarranted settlement and a coerced relinquishment

of its right to trial. As the Fifth Circuit has explained:

18

[C]ertification 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.

Castano, 84 F.3d at 746 (citations omitted). Accordingly, the

certification of a large class “can put considerable pressure on

the defendant to settle, even when the plaintiff's probability of

success on the merits is slight.” Blair v. Equifax Check Servs.,

Inc., 181 F.3d 832, 834 (7th Cir. 1999); see also Castano, 84

F.3d at 746 (“certification creates insurmountable pressure on

defendants to settle” because of “[t]he risk of facing an all-or-

nothing verdict * * * even when the probability of an adverse

judgment is low”); Parker v. Time Warner Entm’t Co., 331

F.3d 13, 22 (2d Cir. 2003); In re Bridgestone/Firestone, Inc.,

288 F.3d 1012, 1015-16 (7th Cir. 2002); Newton v. Merrill

Lynch, 259 F.3d 154, 164 (3d Cir. 2001); In re Rhone-Poulenc

Rorer, Inc., 51 F.3d 1293, 1298 (7th Cir. 1995); cf Robert G.

Bone & David S. Evans, Class Certification and the

Substantive Merits, 51 DUKEL.J. 1251, 1254 (2002) (“Loose

certification standards risk high costs by inviting frivolous class

action suits that defendants settle rather than face potentially

crippling, even bankrupting, damage awards”).

As aresult of these pressures, “the vast majority of certified

class actions settle.” Bone & Evans, supra, at 1291. A 1995

study conducted by the Federal Judicial Center found that for

the four federal district courts studied, the percentage of

certified class actions terminated by a class settlement ranged

from 62% to 100%. WILLGING ET AL., supra, tbl. 40, reprinted

in 10 NEWBERG at 437. And this study did not include either

mass tort class actions—which are “one of the most settlement-

prone areas of class action litigation”—or class actions filed

only for settlement purposes under Rule 23(e). Bone & Evans,

19

supra, at 1292 n.148; see also George L. Priest, Procedural

Versus Substantive Controls of Mass Tort Class Actions, 26 J.

LEGAL STUD. 521, 522 (1997) (observing that “virtually every

mass tort class action that has been successfully certified has

settled out of court rather than been litigated to judgment”).

Other studies have produced similar results. E.g., Bryant G.

Garth, Studying Civil Litigation Through the Class Action, 62

IND. L.J. 497, 501 (1987) (reporting settlement rate of more

than 78% for certified and consolidated class actions based

upon sample from the Northern District of California).

Moreover, even if a certified class action is litigated to final

judgment, an improper grant of certification—such as the one

here—will still evade review if the defendant is able to prevail

on the merits.

For obvious reasons, the settlement pressure in a case

involving a nationwide class is even greater, given the stakes.

A nationwide class action can threaten even the largest U.S.

corporations with enormous business disruption, staggering

damages, and even bankruptcy. If, not wanting to “roll the[]

dice,” the defendant decides to settle the suit, “the class

certification—the ruling that will have forced them to

settle—will never be reviewed.” Rhone-Poulenc, 51 F.3d at

1298. By definition, the important choice-of-law issue

presented here will arise only when a nationwide class is

certified by a class-friendly court. In such a case, it is

particularly unlikely that the Court would have an opportunity

to review the issue after final judgment on the merits.

This Court recognized the importance of immediate review

of class certifications when it submitted to Congress the

amendment to Fed. R. Civ. P. 23 that gives the federal courts of

appeals discretion to hear appeals from the grant or denial of

class certifications without applying either the requirements of

28 U.S.C. § 1292(b) or the exacting standards for a writ of

mandamus. The Advisory Committee Note accompanying the

20

new rule specifically recognizes that a discretionary power of

interlocutory review of class certifications is desirable because

“Tajn order granting certification * * * may force a defendant

to settle rather than incur the costs of defending a class action

and run the risk of potentially ruinous liability.” Fed. R. Civ. P.

23(f) 1998 Adv. Comm. Notes. Similarly, the 1997 Report of

the Judicial Conference’s Committee on Rules of Practice and

Procedure recommending approval of Rule 23(f) opined that

“the proposed change to Rule 23(f) could have immediate and

substantial beneficial impact on class action practice” because

“Ta] certification decision is often decisive as a practical

matter.” Whereas the denial of certification can put an end to an

action seeking to vindicate large numbers of small claims,

“certification can exert enormous pressure to settle.”

For the same reasons, this Court can and should grant

certiorari to review important constitutional issues relating to

class litigation at the certification stage, rather than deferring

review until final judgment on the merits—a time that, for the

vast majority of cases, will never come. See Cox Broadcasting,

420 U.S. at 482-83 (review of interlocutory state court decision

resolving an issue of federal law is appropriate when “the

federal issue has been finally decided in the state courts,” the

party seeking review “might prevail on the merits on non-

federal grounds” and render Supreme Court review of the

federal issue unnecessary, and “reversal of the state court on the

federal issue would be preclusive of any further litigation on the

relevant cause of action”).

CONCLUSION

This Court should grant the petition for certiorari.

Respectfully submitted.

ROBIN S. CONRAD

ELLEN DUNHAM BRYANT

National Chamber

Litigation Center, Inc.

1615 H Street, NW

Washington, D.C. 20062

(202) 463-5337

JOHN T. WHATLEY

NANCY ELIZABETH BELL

Alliance of Automobile

Manufacturers, Inc.

EVAN M. TAGER

Counsel of Record

ERIKA Z. JONES

Mayer, Brown, Rowe

& Maw LLP

1909 K Street, NW

Washington, D.C. 20006

(202) 263-3240

LINDA T. COBERLY

Mayer, Brown, Rowe

& Maw LLP

1401 Eye Street, NW, Ste.900 190 South LaSalle Street

Washington, D.C. 20005

(202) 326-5500 -

MAY 2004

Chicago, Illinois 60603

(312) 782-0600