Oregon Supreme Court denies smoker class action for "medical monitoring"

In a unanimous opinion with one concurrence, the Oregon Supreme Court yesterday upheld the dismissal of a large class action of smokers who sought injunctive relief for "medical monitoring, smoking cessation and education."  Plaintiffs are some 400,000 smokers who have no present symptoms, but sought to have a group of tobacco companies fund a program to cover the cost of CT scans and other diagnostic tests to identify future harm from smoking.  Even though they lack of any present injury, plaintiffs contended they could maintain an action for such relief based on the defendant tobacco companies' negligence.   The Court disagreed, holding that a common law negligence claim requires a present physical injury:  "The complaint does not allege that plaintiff has suffered any present physical harm as a result of defendants' conduct. The complaint alleges only that plaintiff has suffered a 'significantly increased risk of developing lung cancer' in the future."  The Court continued:

"Oregon law has long recognized that the fact that a defendant's negligence poses a threat of future physical harm is not sufficient, standing alone, to constitute an actionable injury. As this court has explained, 'the threat of future harm, by itself, is insufficient as an allegation of damage in the context of a negligence claim.' Zehr, 318 Or at 656; see also Bollam v. Fireman's Fund Ins. Co., 302 Or 343, 347, 730 P2d 542 (1986) (holding that "'[t]he threat of future harm, not yet realized, is not enough'") (quoting W. Page Keeton, Prosser & Keeton on Torts 165 (5th ed 1984)). As Prosser explains,

Since the action for negligence developed chiefly out of the old form of action on the case, it retained the rule of that action, that proof of damage was an essential part of the plaintiff's case. Nominal damages, to vindicate a technical right, cannot be recovered in a negligence action, where no actual loss has occurred. The threat of future harm, not yet realized, is not enough. Negligent conduct in itself is not such an interference with the interests of the world at large that there is any right to complain of it, or to be free from it, except in the case of some individual whose interests have suffered.

Keeton, Prosser & Keeton on Torts at 165 (footnotes omitted). Accordingly, a plaintiff's cause of action does not accrue, and the statute of limitations on that cause of action does not begin to run, until the plaintiff has suffered an "'actual loss.'" Bollam, 302 Or at 347 (quoting Prosser and Keeton on Torts at 165)."

You can find the full opinion here.

Class action by blind users of Target Corp's website is allowed to proceed

In a potential blow to companies doing business on the Internet, a federal judge in California certified a class action on behalf of blind users of the discount retailer Target Corp's website.  The lawsuit alleges that Target's site is inaccessible to the blind, in violation of anti-discrimination laws.  A copy of yesterday's Order can be found here.

Defective notice blocks securities class action settlement

The Ninth Circuit today tossed out a $35 million securities class action settlement involving Veritas Software Corporation over a defective notice to class members.  In Petrone v. Malone, the court addressed a novel issue under the Private Securities Litigation Reform Act:  how must the notice of settlement describe the damages each member of the class will receive? 
Under the PSLRA, the notice must state the amount of settlement funds to be distributed on a per-share basis.  The notice at issue in Petrone calculated the per-share recovery with the unstated assumption that only 43% of the class members would file a claim for damages.  By failing to calculate the recovery based on all of the shares held by the class, the notice overstated the potential per-share recovery and violated the PSLRA. 

See our other coverage of securities fraud and the PSLRA here and here.

Oregon Court of Appeals allows private cause of action for rest break violations

On Wednesday the Oregon Court of Appeals held that employees may sue employers who fail to provide a paid rest period as required by state law.  BOLI regulations mandate a ten-minute paid rest period for each four-hour segment worked.   The court agreed with the class action plaintiffs' argument that employees are entitled to four hours' pay for every three hours and fifty minutes of work, and that for each rest period missed, employers owe employees an additional ten minutes' pay.  See the court's opinion in Gafur v. Legacy Good Samaritan Hospital here.

This result is contrary to a 1999 ruling from Oregon's federal district court -- Talarico v. Hoffman Structures, Inc., 1999 U.S. Dist. LEXIS 20909 -- which held that, while a failure to provide paid breaks may result in administrative sanctions, it does not create a private right of action for lost wages.   

In addition to wages for each missed break, an employee will presumably be entitled to penalty wages for failure to pay all wages due pursuant to ORS 653.055 and, if the employee's employment has ended, an additional final pay penalty under ORS 652.150.  The Court of Appeals decision will undoubtedly result in a significant increase in class actions for missed break periods.

Supreme Court denies remedy to plaintiffs in Fair Credit Reporting Act case from Oregon

The third time was not the charm for local plaintiffs in the U.S. Supreme Court this term.  Today the court dismissed Fair Credit Reporting Act claims in a case that originated in U.S. District Court in Oregon.  This was the third case from Oregon that the court decided this term (the other two are described here), and the third in which the plaintiffs were denied the relief they sought.   

In Safeco v. Burr and GEICO v. Edo, the defendant auto insurers charged plaintiffs higher premiums due to their credit scores.  Plaintiffs claimed that, in violation of FCRA, the insurers failed to give them notice of this "adverse action."  Plaintiffs sought damages for a willful violation of FCRA.  The court held that, in the case of GEICO, plaintiff's premiums were not in fact affected by her credit score and there was no duty to give FCRA notice.  Safeco, in contrast, did increase premiums based on plaintiffs' credit scores.  But its failure to give notice of the adverse action was based on a reasonable interpretation of FCRA and therefore was not a "willful" violation of the law. 

See earlier coverage of this case in the Oregon Business Litigation Blog here.

Dissent highlights weaknesses in Wal-Mart class action

Last week the Ninth Circuit affirmed the creation of the largest class action in history:  1.5 million current and former female Wal-Mart employees claiming discrimination in promotions.  The ruling was hailed as a landmark, but it may be only a temporary one.  A strong dissent by Andrew Kleinfeld, one of the judges on the three-judge panel, raises questions about whether majority's ruling will survive later review, by either an en banc panel of the Ninth Circuit or the Supreme Court.  Judge Kleinfeld dissented on several grounds, including these:

1.  To proceed as a class action, a case must present issues of fact or law common to the class.  Judge Kleinfeld writes that the only issue shared by the huge class is whether Wal-Mart's promotion criteria are "excessively subjective."  He contends that this is too slim a reed on which to hang the case; the existence of subjective criteria is not the same as employment discrimination. 

2.  Plaintiffs claim that injunctive or declaratory relief is an appropriate remedy for the class as a whole, but in fact many class members no longer work for Wal-Mart and cannot benefit from an injunction requiring, for example, the adoption of objective criteria for promotions.

3.  The district court order requires that the jury, if it rules in favor of plaintiffs, may set a lump sum amount of punitive damages.  A special master would then devise a formula to distribute the funds to individual plaintiffs, without any adjudication as to whether each individual plaintiff was in fact injured by discrimination.  Judge Kleinfeld contends that this methodology violates Wal-Mart's due process rights.

Given the trend within the Ninth Circuit of deciding more cases en banc -- which means a rehearing by a 15-judge panel -- last week's decision may not be the final word from the Ninth Circuit.

See coverage of the Dukes v. Wal-Mart ruling here, here, here, and here.

Class action prohibition in arbitration agreements: Be careful what you ask for

For years now, courts have enforced mandatory arbitration provisions in consumer and employment agreements.  The usual mandatory arbitration provision in a consumer or employment contract provides that all disputes of any kind shall be decided not in court, but by an arbitrator.  Early on, it was assumed that mandatory arbitration could only resolve individual suits.  More recently, however, plaintiffs have pursued class actions in arbitration, and many arbitration services today provide for class action arbitrations.  As a result, some companies and employers have responded by including within the arbitration clause a prohibition on class actions. 

According to plaintiffs' lawyers, combining the mandatory arbitral forum for dispute resolution with a prohibition on class actions, effectively eliminates the class action mechanism for mass resolution of, often, small-value claims that individual claimants would not otherwise pursue.  Some courts are beginning to agree, finding that a prohibition on class actions is "unconscionable" and, therefore, not enforceable.  See Riensche v. Cingular Wireless in which a Washington federal district court determined that the prohibition against class actions was "unconscionable" and denied the defendant's motion to compel arbitration.  An Oregon Court of Appeals case decided today similarly held that a prohibition on class actions, in part, rendered the otherwise mandatory arbitration agreement unenforceable.  See Vasquez-Lopez v. Beneficial Oregon, Inc. 

In both of these cases, the courts threw out the entire arbitration agreement, and the plaintiffs were allowed to litigate in court, an outcome the defendant had sought to avoid with the arbitration agreement in the first instance.  In other cases, the courts have struck the specific prohibition on  class actions, but otherwise upheld the arbitration agreement.  This leaves the defendant in the untenable position of facing a class action with a single arbitrator without the many procedural protections afforded to defendants in civil court. 

While it may be tempting to push the limits of mandatory arbitration as a way to rein in costly and protracted litigation, one should proceed with caution and seek competent counsel in defining the parameters of such agreements.

U.S. Supreme Court to consider Fair Credit Reporting Act case from Oregon

On Tuesday the U.S. Supreme Court hears arguments in cases addressing how insurance companies interpret the Fair Credit Reporting Act.  If an insurance company raises a customer's rates based on the customer's credit score, the FCRA requires the insurer to give an "adverse action" notice to the customer.  The insurers claim that, when they issue policies to new customers, the setting of the premium does not constitute an increase triggering the FCRA notice requirement. But the Ninth Circuit held that FCRA requires the insurer to give such notice any time it considers a new customer's credit rating and then sets a premium higher than the company's lowest possible rate. 

Also on review in the Supreme Court is whether the failure to give an adverse action notice amounts to a "willful" violation entitling the customer to a remedy under the FCRA.

For more on Geico v. Edo and Safeco v. Burr, see here , here , and here.  These cases were filed in federal District Court in Oregon, marking the third time this session that the U.S. Supreme Court has considered cases originating in local courts.  See the Oregon Business Litigation coverage of the other two cases here and here.

Class Action Status Denied in Vioxx Cases

Federal Judge Eldon Fallon, who oversees the thousands of federal Vioxx painkiller cases facing drug maker Merck & Co., denied the plaintiffs' request to certify the personal injury and wrongful death cases as class actions.  Plaintiffs allege that Vioxx increases the risk of heart attacks and other ailments, and Merck pulled Vioxx from the market in 2004.  Judge Fallon determined that the individual differences among the many plaintiffs and their specific medical histories made any class adjudication unmanageable.  The ruling deprives the plaintiffs of leverage to negotiate a comprehensive settlement, as the cases must now proceed on an individual, and more costly, basis.  Merck has vowed not to settle, but to try all cases individually.  Judge Fallon's order can be found here:  Order

Tobacco Class Action "Light" Certified

US District Judge Jack Weinstein certified a class action comprised of tens of millions of smokers of "light" cigarettes going back more than thirty years.  Unlike other unsuccessful tobacco class actions in which the plaintiffs seek damages for personal injuries and death, in this suit the plaintiffs seek damages based on the difference in value between the cigarettes they purchased and the allegedly safer cigarettes they thought they purchased.  The suit alleges that the tobacco companies perpetrated a fraud of massive scale on the American public when it marketed "light" cigarettes as a safer alternative, when it knew that "light" cigarettes in fact were no safer than the others.  Presumably, the plaintiffs believe they can prove that they would have paid less for the "light" cigarettes if they had known the health risks were the same, or, put another way, that the "light" cigarettes had more value to them.  They contend that surveys indicate that the vast majority of "light" cigarette smokers chose the products for health reasons.  Defendants contend that individual smokers choose their cigarettes for reasons so numerous that class action status is not appropriate.  While Judge Weinstein expressed skepticism about the plaintiffs' damages theory, he nonetheless concluded that the case should proceed to trial (set for January) as a class action.  Damages are estimated to be about $200 billion, and potentially tripled to $600 billion because the case was filed under the RICO statute.  An appeal of the class certification order is sure to follow.  A copy of the 540 page opinion and order can be found here.

401(k) Plan Fee Lawsuits Begin

Plaintiff's attorneys have begun filing ERISA class action lawsuits against Fortune 500 companies in the midwest.  The plaintiffs are participants in their employers' 401(k) or profit sharing plans that allow participant-directed investing among a menu of investment options.  Defendants are the plan sponsors, their directors, and individuals (usually high-level employees) serving as plan administrator or on a plan administrative or investment committee.  Plaintiffs allege that the defendants breached their duties under ERISA by causing the plans to pay excessive fees or expenses, unnecessarily reducing the participants' account balances. 

Plan fiduciaries are personally liable to plan participants for any improper or excessive fees paid by the plan, so the stakes in large plans such as these can be millions of dollars.  And recent investigations by the U.S. Securities and Exchange Commission and other regulatory agencies suggest that service providers often do not adequately disclose fees.  Plan fiduciaries are often not aware of all the expenses paid by the plan and therefore fail to ensure that those fees are reasonable or proper.  The large number of providers (third party administrators, investment providers or consultants, recordkeepers, trustees or custodians, etc.) makes tracking plan expenses difficult.   

Plan fiduciaries must be extremely diligent in monitoring all plan activities, including who the plan is paying for services and how much those services cost.  Although the first wave of lawsuits involve midwestern companies, it is simply a matter of time before local employers are named in similar actions.  Already, a well-known Seattle law firm is investigating this issue and inviting plan participants to contact them.

Plan fiduciaries are subject to very high standards of care in how they perform their duties and face personal liability for failing to properly do so.  Being ignorant of what those duties are or how much a plan is paying for the services it receives ensures a very painful and expensive learning experience.

Class Action Smokers Denied "Medical Monitoring" and Treatment Costs

The Oregon Court of Appeals dismissed plaintiff's negligence claim in this Oregon state court putative class action on the basis that plaintiff alleged no present injury, but merely the costs of on-going "medical monitoring" and cessation treatment.  The case is:  Lowe v. Philip Morris USA, Inc., et al.

In this case of first impression in Oregon, the plaintiff smoked for several years, and her attempts to quit smoking failed.  Plaintiff did not allege lung cancer or any other physical injury from smoking cigarettes.  The Court noted that plaintiff's complaint rested on allegations of the need for monitoring and treatment "to redress the mere possibility of future harm."  The complaint "fail[ed] to include an allegation of actual, present harm of any sort, much less the physical harm that ordinarily is required to state a claim for negligence."  The only two exceptions to the physical harm requirement under Oregon law--economic loss and infliction of emotional distress--did not apply because, in the case of "economic loss," there was no "heightened duty of care" owed by the defendants, and, in the case of emotional distress, there likewise was no heightened duty, no "intentional conduct," and no physical impact.  Accordingly, plaintiff was unable to state an ordinary negligence claim.  On the other hand, the court left for another day, "whether a negligence claim predicated on different allegations as to the risk of future harm and the certainty of the need for treatment is cognizable under Oregon law," emphasizing that plaintiff alleged only a mere possibility of future harm.

Dreyer vs. PGE

In 1993 PGE decided to close its Trojan nuclear power plant.  Since then, the company has been mired in both litigation and administrative proceedings over whether its customers or its shareholders have to bear the consequences of that decision.

Yesterday, the Oregon Supreme Court issued a decision which at first blush appears to be a victory for PGE's customers and a defeat for its shareholders.  In Dreyer v. PGE the Supreme Court refused to issue an order directing Marion County Circuit Court Judge Lipscomb to dismiss a customer class action for damages against PGE.  The suit had alleged that PGE had illegally charged customers for a return on PGE's investment in Trojan in violation of the decision by the Oregon Court of Appeals in Citizens' Utility Board v. PUC, 154 Or App 702, 962 P2d 744 (1998).  By refusing to dismiss this customer class action, the Supreme Court rejected PGE's argument that ORS 756.518, as interpreted by the Circuit Court, was inconsistent with the "filed rate doctrine."

The Supreme Court did, however, save PGE--at least for now--by not remanding the case to the Circuit Court so that the litigation could be brought to trial.  Rather, the Supreme Court found that the Circuit Court should have abated the case pending completion of the PUC's administrative proceeding on this same controversy.

Thus, the ball is now in the PUC's court to try to determine who has to bear the costs of closing Trojan.  Once the PUC determination has been made, there is no doubt the parties will be back in court on these same issues.