Friday, April 04, 2008

Statistical Sampling, "Fluid Recovery," and Hundreds of Thousands of Smokers

In McLaughlin v. American Tobacco Co., 2008 U.S. App. LEXIS 7093 (April 3, 2008), Judge Walker, speaking for the Second Circuit Court of Appeals, reversed District Court Judge Weinstein's certification of a class of "cigarette smokers allegedly deceived into believing that 'light' cigarettes were healthier than 'full-flavored' cigarettes." Plaintiffs sought (and perhaps will still seek) damages of hundreds of billions of dollars. The legal basis for the smokers' action against the cigarette companies was RICO, the so-called federal racketeering act. The federal trial court's opinion explaining its order for class certification is at Schwab v. Philip Morris USA, Inc., 449 F. Supp. 2d 992 (E.D.N.Y. 2006) (Jack B. Weinstein, Judge).

The reversal of Weinstein's class certification, the NYTimes said, was generally expected. However, even putting aside the huge amount of damages sought, the Second Circuit's opinion is of interest for a couple of reasons.

First -- this point is of interest mainly to some law teachers -- it is very rare for a federal court to hold that a Federal Rule of Civil Procedure or an order interpreting such a Rule violates the Rules Enabling Act. But the Second Circuit effectively said that Judge Weinstein had violated this Act. (The Second Circuit also said that Weinstein's method of calculating damages to individuals violates the Due Process guarantee.)

Second, the Second Circuit's opinion appears to make moot Judge Weinstein's provocative thoughts about methods for calculating damages to individual smokers. Judge Weinstein had said or suggested that a sampling procedure would or might be apopropriate. See Dramatic Use of Statistics in $280 Billion - $800 Billion Cigarette Case.

The Second Circuit, relying on the Rules Enabling Act and the Due Process guarantee, rejected Judge Weinstein's proposed method for calculating damages to individual smokers. See the above extract from Schwab and commentary. Judge Walker was most disturbed by the possibility or probability that aggregate judicially-recovered damages might exceed aggregate actual damages. He also effectively concluded that Judge Weinstein's proposed use of statistical sampling to determine damages to individuals amounts to "fluid recovery." Speaking on behalf of the Second Circuit, Judge Walker said that federal precedent condemns fluid recovery as a violation of Due process. He added a "see also" reference to "2 McLaughlin on Class Actions § 8:16, at 8-95 (3d ed. Dec. 2006 update) ('Courts have repeatedly rejected the use of fluid recovery as a substitute for individualized proof when the class pursues claims that require proof of actual damages.')" But Judge Walker hedged his broad condemnation of fluid recovery and non-individualized proof of damages by saying, "To be sure, this does not mean that defendants are 'constitutionally entitled to compel a parade of individual plaintiffs to establish damages.' In re Antibiotic Antitrust Actions, 333 F. Supp. 278, 289 (S.D.N.Y. 1971)."

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