SUMMARY OF ARTICLE 9 CLASS ACTIONS IN 1996
" It is clear...that counsel ` engineered ` the tape recording...[It] was improper and unethical. It was deceptive, most unprofessional and demonstrates a lack of judgment...counsel is unfit to [ represent the class ] ".
The court in Weiser v. Grace3 was also concerned with the adequacy of class counsel's representation. In this derivative action W.R. Grace Board of Directors were charged with breach of fiduciary duty in giving the former CEO a staggering $20 million severance package after he was charged with sexual harassment and resigned. The largest shareholder, CalPERS, sought to intervene as a named representative after it was disclosed that class counsel had proposed a non-cash settlement and " a written policy by Grace to address claims of sexual harassment that the company already had a legal duty to address ". CalPERS claimed that by recommending such an empty settlement the class was not being properly represented. The court, concluded that the " settlement may not provide meaningful relief " and allowed CalPERS to intervene. The court also made CalPERS' attorneys co-lead class counsel, apparently, to keep an eye on existing class counsel4.
The Baby MakersIn Karlin v. IVF America, Inc.5, a class of 4,500 couples charged a fertility clinic with deceptive business practices in failing to
" explain the statistical chances of achieving pregnancy...misrepresenting...the success rates of...various fertility treatment options "and failing to disclose the health risks to mother and child. In denying class certification the court found an absence of commonality and typiClass Action Litigationty of claims. The court found that individual treatment by individual physicians precluded the existence of uniform misrepresentations made to all members of the class6, noting that the " patients came into the subject program by different means and at different times ". The Karlin decision should be compared with the $4 million settlement obtained in Stix v. Mount Sinai Hospital7, a class also alleging misrepresentations of in vitro fertilization success rates.
Baby Food & Cooking WineA common defense tactic is to remove consumer class actions from state court to a, presumably, less sympathetic federal court. However, this tactic proved unsuccessful in two consumer class actions alleging deceptive business practices and false advertising in the marketing of baby food and cooking wine. In Bernard v. Gerber Food Products Co8. and McGowan v. Cadbury Schweppes, PLC9, the federal court remanded the cases to state court because each had failed to meet the $50,000 jurisdictional amount required of each class members' claim10. Efforts to increase damages by including the cost of corrective advertising, punitive damages and attorneys fees were unsuccessful.
No Mass TortsIn Komonczi v. Fields11, a class of more than 600 patients claimed that their doctor
" improperly performed colonoscopies (by) failing to accurately diagnose and treat medical conditions ".The court denied certification finding a predominance of individual fact questions regarding the
"completeness of the procedure, the effect thereof on each patient, and the extent of the damages ".Notwithstanding the general certifiability of mass tort class actions in federal12 and other state courts13 New York Courts are still reluctant to certify physical injury and property damage mass torts14.
Unrestricted Phone CallsIn Forrest v. New York Telephone Corp.15, a class of some 30,000 phone customers claimed that New York Telephone [ NYT ] failed to deliver promised " ` All Call Restrict ` services16 " and published without permission " non-published numbers " through " ` Call ID ` terminals ". The Forrest class charged NYT with breach of contract, violation of privacy rights, unjust enrichment, gross negligence and wilful misconduct. The Court certified the action finding that the breach of contract and privacy claims involved a course of conduct common to the class. The court did not consider one named plaintiff's " brush with the law " and another plaintiff's " employment relationship with " class counsel as having " [any] bearing on [their] qualifications for class representation ". The court also remarked that by denying certification " many individuals in this State having minimal claims would have no day in court ".
Cellular PhonesIn Sirica v. Cellular Telephone Co17., a class of cellular phone subscribers sued for breach of contract arising from alleged defective phone service. The court denied certification finding an absence of commonality. As to individual damages the court rejected a " statistically based assessment of damages absent any certain quantification of actual losses ", an approach used by some federal courts18 when faced with complex damage calculations. The court also denied plaintiffs' motion to amend the complaint to assert a " discriminatory refund policy...absent any proof showing disparate treatment of...customers ".
Ticketmaster's RevengeClass actions against Ticketmaster have been unsuccessful in New York19 or elsewhere. In In re Ticketmaster Corp. Antitrust Litigation20 consumer class actions commenced in several States were consolidated and dismissed21. All of the class actions alleged antitrust violations " causing class members to pay inflated prices for tickets ".
In Ticketmaster v. Lidsky22, Ticketmaster sought its revenge when it sued the attorneys who had commenced many of the consolidated and dismissed class actions. These daring attorneys were charged with defamation, prima facie tort, tortious interference with economic relations and violations of Judiciary Law 487. Essentially, class counsel were charged with harassing Ticketmaster by improperly amending complaints, filing frivolous motions and alleging the violation of statutes which had expired or were inapplicable. In dismissing the Ticketmaster complaint the court noted that " A plenary action [ for sanctions ] will not lie ". The court explained that Ticketmaster should have proceeded by way of Federal Rule 11 or 22(a) NYCRR 130 before the court in which the underlying action was pending.
Desperately Seeking Longer Shelf LifeIn Heller v. Coca-Cola Co23. a class of thirsty consumers sued nine soft drink manufacturers after their soft drinks had become " spoiled, stale and tasteless, due to the limited shelf of Aspartame ". Aspartame is an artificial sweetener used in " Diet " softdrinks. In this classic fluid recovery class action24 the plaintiffs sought to
" compel...disclos[ure of] the ` use by ` or expiration dates on all diet drinks sold by defendant "Apparently, the FDA had examined the stability of Aspartame for over ten years prior to approving of its use in carbonated beverages. In addition, the FDA had approved which did not " include[s] ` use by ` [ date ] ". In dismissing the complaint on the grounds of federal preemption the court referred the unrequited consumers to the FDA for administrative action on the need for shelf life labeling.
Order Flow PaymentsFederal preemption was also the basis for the court of Appeals dismissing two securities class actions challenging the propriety of " order flow payments ". In Guice v. Charles Schwab & Co.25, and Evangelist v. Fidelity Brokerage Services, Inc26, classes of customers, alleging breach of fiduciary duty and conversion, challenged the common practice of brokerage firms being compensated for " routing customers' orders for execution to wholesale dealers or other market makers ". It was asserted that such a practice violated a broker's duty to " obtain the " best execution...of its customers' orders ". In dismissing these claims the Court of Appeals found that the
" remaining common law causes of action, even as limited (to) inadequate... disclosure of receipt of order flow payments, are preempted by the 1975 amendments to the Securities Exchange Act...".
Free Credit BalancesIn Estate of Braunstein v. Merrill Lynch27, a nationwide class of customers sued eleven different brokerage firms alleging breach of fiduciary duty and unjust enrichment in the management of free credit balances. It was alleged that the firms used these unencumbered customer funds to make high interest loans to other customers. Although the SEC authorized such a use28 the Braunstein complaint alleged that the firms (1) had
" adopted methods...to use free credit balances which have been unnecessarily created or left in customers' accounts for longer periods than necessary "and (2) had failed to disclose " the dollar amount of existing free credit balances and that their customers will not receive any of the benefits earned ". The Court denied certification because plaintiffs had failed to
(1) show that a " common ` method and procedure ` was adopted by defendants ", (2) " identify the legal issues under the state laws which may apply " and (3) demonstrate a " common overriding standard or common set of fact ` so that the action will not ` splinter into separate ` mini-trials ` ".
Share Merger ConsiderationIn Altman v. Commodity Exchange, Inc.29, a class of 200 COMEX Options Members sought a pro-rata share of some $70 million in consideration arising from the merger of NYNEX and COMEX, both leading commodities exchanges. Although plaintiffs met their burden of demonstrating commonality, typiClass Action Litigationty and adequacy of representation, the court denied certification because of a lack of superiority. The court held that superiority consists of
(1)" ` therapeutic benefits `, i.e., public benefits resulting from the use of the remedy, and (2) due process...because it gives many individuals access to the courts who would otherwise have no means of redress ".In this case plaintiffs failed to demonstrate that certification would " terminate all future litigation or produce any social benefit " or that class members with claims of $78,000 each would be unable to prosecute individual lawsuits.
Variable Life InsuranceIn Tuchman v. Equitable Companies, Inc.30, a class of variable life insurance purchasers charged an insurance company with fraud, negligent misrepresentation, unjust enrichment and deceptive business practices. The court dismissed the complaint finding no misrepresentations or unjust enrichment regarding" Optional Premiums ", any of the fees charged or the withdrawal and surrender charges. The Court stated that " The policy sets forth the manner in which the surrender charge is calculated ".
MortgagesThree consumer class actions, Brachfeld v. Dale Mortgage Bankers, Corp.31, Reigle v. Sibley Mortgage Corp32. and Ward v. First Federal Savings and Loan Association33, involving claims of mismanagement of escrow funds and improper charges of interest on funds held during a three day statutory rescission period were conditionally certified for settlement purposes.
Union Contract EnforcementIn Volpicello v. County of Nassau34, an unhappy union member charged Nassau County with violating a 1990 CSEA contract
" by placing promised employees in the...Sheriff's Department in the wrong step of the salary plan ".In denying class certification the court found that the named plaintiff had no standing to bring a class action since the underlying union contract had " designated [ the CSEA ] as the exclusive bargaining agent for all its members ". Without standing the named plaintiff could not adequately represent the class. The court stated that
" [c]lass certification was never intended to confer additional substantive rights upon the members of the class which they did not possess as individuals".In addition, the court found that a class action would not provide superior relief since a declaration of rights in favor of the CSEA would benefit all union members in any event.
Revolting TaxpayersIn Schulz v. State of New York35, upstate taxpayers brought an action pursuant to General Municipal Law Section 51 challenging the State's decision to allow high school age students from Vermont to enroll in New York public schools. The taxpayers contended that the enrollment of out of state students " implicates the annual expenditure of...taxpayer dollars in violation of [ the ] NY Constitution ". The court found that plaintiffs had standing to assert a statutory taxpayer's class action36 but denied their request for a preliminary injunction.
In Sand Hill Associates v. Legislature of County of Suffolk37, the court invalidated a Suffolk County statute which
" authorized the County Treasurer to collect a $100 ` application fee ` for each late or delinquent real property tax payment to offset the cost of advertising the sale of land for unpaid taxes ".In a subsequently filed class action, LaCarruba v. Legislature of the County of Suffolk38, the court denied certification on the grounds that the named plaintiffs' claims were not typical of those of the class because they had paid the disputed fee under protest while most class members had not. In addition, " a class action against a governmental body is not considered the superior method [ of litigation ] " since the doctrine of stare decisis would benefit all class members.
Minimum Child Support OrdersIn Valazquez v. State of New York39, a class of non-custodial parents with income levels at or below the Federal poverty level challenged " mandatory minimum child support orders of $25 per month entered ( against them ) pursuant to Family Court Act ". The court found the provision unconstitutional and certified the class " since ( they ) are indigent and may become confused and face serious difficulties in asserting their rights individually ".
Home Relief & Residency RequirementsIn Matter of Brown v. Wing40, a class of 5,000 indigent persons recently arrived from Florida and Puerto Rico challenged a rule that limited New York Home Relief payments for the first six months after establishing residency to those payments which would have been provided by the jurisdictions from whence they came. Since neither Florida nor Puerto Rico provided equivalent benefits the class received no " public assistance whatever for six months ". The court held this rule unconstitutional and granted certification because the class
" consists of indigent individuals with little access to the Court system, all of whom are in immediate need of relief...The court cannot ignore their needs..."
FOOTNOTES* Thomas A. Dickerson is a Westchester County Court Judge and author of Class Actions: The Law of 50 States , Law Journal Press, New York, 1988-2000, and 167 articles on consumer law issues.
Kenneth A. Manning is a partner in the Buffalo lawfirm of Philips, Lytle, Hitchcock, Blaine & Huber.
1 .Meachum v. Outdoor World Corp., New York Law Journal, November 27, 1996, p. 32, col. 2 ( Queens Sup ).
2 . The court approved of fraud class actions based upon oral representations [ " identical training or ` canned ` techniques...create a ` common strand of misrepresentation `" ]
[ see e.g., Compact Electra Corp. v. Paul, 98 Misc. 2d 807, 403 N.Y.S. 2d 611 ( N.Y.A.T. 1977 )], the need to afford class relief to those with " greater than minute claims " and the need to deter further misconduct by defendant [ " a history of having been reprimanded " ].
3 . Weiser v. Grace, New York Law Journal, September 12, 1996, p. 22, col. 4 ( N.Y. Sup. ).
4 . In doing so the court cited Auberbach v. Bennett, 64 A.D. 2d 98, 105, 408 N.Y.S. 2d 83, 86 ( 1978 ), mod. on other grds. 47 N.Y. 2d 619, 419 N.Y.S. 2d 920 ( 1979 )
( " As a reluctant champion of the corporate cause, he should not be allowed to enlarge his lack of enthusiasm into an insurmountable barrier against others of the class readier to take up the cudgels" ).
5 . Karlin v. IVF America, Inc., New York Law Journal, April 29, 1996, at 32, col. 2 ( N.Y. Sup. ). In an earlier decision, Karlin v. IVF America, Inc., Index No. 19993/94 ( December 6, 1995 ), the court dismissed causes of action alleging beach of fiduciary medical obligations, breach of covenant of fair dealing.
6 . Cf. Brown v. Regents of the University of California, 198 Cal. Rptr. 916 ( Cal. Ct. App. 1984 )( holding that class action charging Medical Center with misrepresentations and withholding information concerning coronary care not appropriate for class treatment ).
7 . Stix v. Mount Sinai Hospital, Index No. 103856/93 ( Sup. Ct. N.Y. County )( J. Wilk ).
8 . Bernard v. Gerber Food Products Co., 938 F. Supp. 218
( S.D.N.Y. 1996 ).
9 . McGowan v. Cadbury Schweppes, PLC, 941 F. Supp. 344 ( S.D.N.Y. 1996 ).
10 . See e.g., Snyder v. Harris, 392 U.S. 332, 89 S. Ct. 1053, 22 L. Ed. 2d 319 ( 1969 ); Zahn v. International Paper Co., 414 U.S. 291, 94 S. Ct. 505, 38 L. Ed. 2d 511 ( 1973 ).
11 . Komonczi v. Fields, 648 N.Y.S. 2d 151 ( N.Y. App. Div. 1996 ).
12 . See e.g., Bowling v. Pfizer, Inc., 143 F.R.D. 138 ( S.D. Ohio 1992 )( settlement of mass tort against manufacturer of defective heart valves ).
13 . See e.g., Broin v. Phillip Morris Companies, 642 So. 2d 888
( Fla. App. 1994 )( certification granted to mass tort alleging physical injuries to class of 60,000 flight attendants who inhaled second hand smoke ); Dumas v. Angus Chemical Co., 635 So. 2d 446 ( La. Ct. App. 1994 )( plant explosion; physical injury and property damage mass tort certified ).
14 . See e.g., McBarnett v. Feldman, 153 Misc. 2d 627, 582 N.Y.S. 2d 900 ( 1992 )( denying certification for patients of AIDS infected dentist claiming emotional distress damages, commenting that mass torts not favored ).
15 . Forrest v. New York Telephone Corp., Index No. 1690-95 ( N.Y. Sup., Albany County Dec. 6, 1996 )( J. Kegan ).
16 . The New York State Public Service Commission required that the telephone company provide a blocking service to customers who did not want their numbers revealed when they called a telephone with the " Caller I.D. " capability. The " Called I.D. " mechanism displays the caller's number on the receiving telephone before it is answered. More than 550,000 telephone customers signed up for the blocking service but at least 30,000 were omitted from the list by a computer error. See Gary Spencer, Class Is Certified In " Call I.D. Suit Against Phone Co. ", New York Law Journal,December 12, 1996, p. 1, col. 3.
17 . Sirica v. Cellular Telephone Co., 647 N.Y.S. 2d 219 ( N.Y. App. Div. 1996 ).
18 . See e.g., Windham v. American Brands, Inc., 565 F. 2d 59, 69
( 4th Cir. 1977 ), cert. denied 435 U.S. 969 ( 1978 ).
19 . See e.g., Sands v. Ticketmaster-New York, Inc., 207 A.D. 2d 687, 616 N.Y.S. 2d 362 ( 1994 ).
20 . In re Ticketmaster Corp. Antitrust Litigation,929 F. Supp. 1272 ( E.D. Mo. 1996 ).
21 . Id.
22 . Ticketmaster v. Lidsky, New York Law Journal,August 6, 1996, p. 22, col. 2 ( N.Y. Sup.).
23 . Heller v. Coca-Cola, 636 N.Y.S. 2d 524 ( N.Y. App. Div.
1996 ), aff'g New York Law Journal, April 18, 1995, p. 28, col. 6 ( N.Y. Syp. ).
24 . See e.g., Feldman v. Quick Quality Restaurants, Inc., New York Law Journal, July 22, 1983, p. 12, col. 4 ( N.Y. Sup. )( 16 million consumers purchased fast food products and were overcharged $.01 to $.01; fluid recovery settlement provided for $.50 coupons to be distributed to the next best class of fast food devotees ).
25 . Guice v. Charles Schwab & Co., 214 A.D. 2d 53, 630 N.Y.S. 2d 317 ( 1995 ), rev'd 89 N.Y. 2d 31 ( 1996 ).
26 . Evangelist v. Fidelity Brokerage Services, Inc., 637 N.Y.S. 2d 392 ( N.Y. App. Div. 1996 ), rev'd 1996 WL 625571, 65 USLW 2268
( Ct. App. October 17, 1996 ).
27 . Estate of David J. Braunstein v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., New York Law Journal, October 2, 1996, p. 22, col. 5 ( N.Y. Sup. 1999 ).
28 . In an earlier decision dated June 5, 1995 J. Schackman found that the broker dealers are permitted to use free credit balances for their own purposes under SEC Rules 15c3-2 and 15c3-3 and stated that " [t]o the extent that the balances are thus used they are not being misused, there has been no breach of trust ", New York Law Journal, May 16, 1996, p. 25.
29 . Altman v. Commodity Exchange, Inc., New York Law Journal, July 5, 1996, p. 27, col. 4 ( N.Y. Sup. ).
30 . Tuchman v. Equitable Companies, Inc., New York Law Journal, July 18, 1996, p. 26, col. 5 ( N.Y. Sup. ).
31 . Brachfeld v. Dale Mortgage Bankers Corp., Index No. 131863/94 ( N.Y. Sup., N.Y. County )( Settlement Notice dated October 15, 1996 ).
32 . Reigle v. Sibley Mortgage Corp., Index No. 5897/93 ( N.Y. Sup., Monroe County )( Settlement Notice dated September 25,
33 . Ward v. First Federal Savings and Loan Association of Rochester, Index No. 8136/93 ( N.Y. Sup., Monroe County ) ( Settlement Notice dated September 25, 1996 ).
34 . Volpicello v. County of Nassau, New York Law Journal,December 24, 1996, p. 34, col. 1 ( N.Y. Sup. ).
35 . Schulz v. State of New York, 217 A.D. 2d 393, 634 N.Y.S. 2d 780 ( 1995 ).
36 . Taxpayers have a right under General Municipal Law Section 51 to sue governmental officials for gross negligence, dereliction of duty and illegal conduct. See e.g., Duffy v. Longo, 207 A./D. 2d 860, 616 N.Y.S. 2d 760 ( 1994 ), appeal dismissed 86 N.Y. 2d 779, 631 N.Y.S. 2d 611 ( 1995 ).
37 . Sand Hill Associates v. Legislature of County of Suffolk, 640 N.Y.S. 2d 128 ( N.Y. App. Div. 1996 ), appeal denied 88 N.Y. 2d 809 ( 1996 ).
38 . LaCarruba v. Legislature of the County of Suffolk, 640 N.Y.S. 2d 130 ( N.Y. App. Div. 1996 ).
39 . Velazquez v. State of New York, 640 N.Y.S. 2d 510 ( N.Y. App. Div. 1996 ).
40 . Matter of Brown v. Wing, New York Law Journal,October 25, 1996, p. 32, col. 4 ( N.Y. Sup. ).