Articles from August 2011

Federal district judge Richard Stearns has provisionally certified two classes in a case in which the plaintiffs have alleged that subsidiaries of insurance giant Cigna invested employee death benefits for their own profit, and without making required disclosures to beneficiaries.  Otte v. Life Ins. Co. of North Amer., No. 09-CV-11537 (D. Mass. June 10, 2011) (order granting class certification) (available here).

Named plaintiff Brenda Otte alleges that the Cigna subsidiaries are violating the Employee Retirement Income Security Act of 1974 (ERISA) by investing death benefits owed to beneficiaries without making full disclosures or accounting to the beneficiaries.  The division of the class into two sub-classes, one for claims that accrued during the three years before the action’s September 2009 filing date and the second for claims that accrued during the three years before the start of the first class claim period, reflects that an outstanding legal determination remains as to whether the complex ERISA statute of limitations could potentially preclude the latter class’ claims.  Additionally, Judge Stearns recognized that “the claims of the [second] sub-class may be so individualized as to be unmanageable as a class action.”  Order at 19 n.13.  Soon after certification, the court issued a scheduling order specific to determinations bearing only on the class as to which doubts remained.  Explaining why he opted for innovative case management tactics rather than simply denying certification altogether, Judge Stearns noted that “‘[c]ourts traditionally have been reluctant to deny class action status under Rule 23(b)(3) simply because affirmative defenses may be available against individual members.’” Order at 19, citing Smilow v. Bell Mobile Sys., Inc., 323 F.3d 32, 39 (1st Cir. 2003).

Thus, even as to an individual defense with complex underlying factual determinations, such challenges can be localized in specific sub-classes, preserving both the defendant’s due process rights and the efficiencies of class actions, rather than warranting a sweeping denial of class certification.  Moreover, Judge Stearns modifying the class definition on his own initiative underscores the fact that issues with class definitions ought not be a barrier to class certification.

Despite the trial court’s denial of class certification, the threat of a successful appeal and a string of victories by individual plaintiffs have resulted in a comprehensive $750 million settlement in the massive In re Genetically Modified Rice Litigation, No. 06-md-1811 (E.D. Mo., consolidated Dec. 19, 2006).  The plaintiffs principally alleged that Bayer Cropscience (a subsidiary of the aspirin maker) contaminated regular rice crops with genetically modified rice.  The settlement amount excludes potentially substantial administrative costs.

The multidistrict litigation comprised nearly 300 cases filed by rice farmers and arose from the discovery in 2006 of genetically modified rice strains (indisputably linked to Bayer Cropscience) within non-modified rice supplies in Arkansas, Louisiana, Mississippi, Missouri, and Texas.  The contaminated rice supplies were destined for distribution throughout the country and world.  Discovery of the contamination led to a dramatic drop in U.S. rice prices, as the European Union stopped buying U.S. rice altogether.  Even now, rice prices remain substantially below their pre-contamination discovery level.  The plaintiffs sought to recover as damages the market losses and expenses that they experienced as a result of the contamination.

The cases were consolidated by the Judicial Panel on Multidistrict Litigation in December of 2006, but the presiding court denied the plaintiffs’ class certification motion in January of 2009.  However, despite there being no certified class, the court moved forward with what it referred to as “bellwether trials.”  Though formally individual trials, verdicts favorable to plaintiffs from Missouri, Arkansas, Mississippi, and Louisiana seemingly induced the $750 million settlement—one of the largest in the past year—which still must receive judicial approval.

The settlement covers all U.S. long-grain rice producers (essentially the class as to which certification was denied) and includes a complex allocation formula.  Settlement funds will be divided among three settlement “pots” keyed to total rice acreage and the year in which rice was planted to determine market loss damages.  Additionally, the settlement agreement includes a provision requiring that 85% of the settling rice farmers expressly approve of the settlement agreement; otherwise, it will be automatically voided.