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...........ADAMS v. ROBERTSON* ....................Class 13.1: Class Actions |
.....676
So.2d 1265 (Ala.1996), cert. granted by US SCt .....and later dismissed as "improvidently granted" |
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Editor's Notes:
.....The
gist of this legislation is that it will shift many (if not most)
class actions into the federal courts. Diversity-based class
actions, which are of course premised on state law, could be
filed in federal as well as state court. The relaxation of existing
jurisdictional requirements include the ability of the plaintiffs
to "aggregate" their damages, thus avoiding the current
75k+ minimum amount in controversy limitation for diversity-based
class actions. |
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Court's Opinion: This is an appeal by approximately 400
objecting class members (hereinafter "Objectors") from
a judgment based on a class action settlement regarding cancer
insurance policies. .....Liberty National Life Insurance Company began selling cancer insurance policies (hereinafter referred to as "old policies") in the 1960's. The policies provided unlimited coverage for radiation, chemotherapy, and prescription drugs to fight cancer. Specifically, the policies covered the costs of radiation and chemotherapy, whether it was done on an inpatient basis or on an outpatient basis. Also, the policies provided coverage for drugs and medicine administered outside the hospital, including pain and anti-nausea medications. As long as the policyholder paid the premiums, the cancer policies could not be canceled and were guaranteed renewable for the life of the policyholder. .....According to the objectors, in late 1986 Liberty National began a cancer policy exchange program whereby its agents attempted to persuade those with the old policies to switch to the new policies. The new cancer policies contained some benefits not included in the old policies, such as a first-occurrence benefit, hospice care, and dread disease benefits. However, the new policies contained severe limitations on coverage in comparison to the old policies. Radiation and chemotherapy benefits were each limited to $500 a day. Prescription drugs covered under the new policies were limited to certain "cancer fighting" prescription drugs, while pain and anti-nausea drugs were no longer covered. Outpatient chemotherapy benefits were limited to $8,000 a year. .....Liberty National denied the allegations about "switching" policies and contended that the new policies provided substantially greater overall coverage than the old policies and that the new policies have paid substantially greater sums in benefits to those who were diagnosed with cancer. Liberty National had approximately 400,000 customers with the old policies. The objectors contend that those customers who switched from an old policy to a new policy did so based upon a pattern and practice of fraud perpetrated by Liberty National. .....On May 12, 1992, Charlie Frank Robertson sued Liberty National, alleging that it had fraudulently caused loans to be made against his life insurance policy. On October 2, 1992, the complaint was amended to add new allegations concerning a pattern and practice of fraud that caused approximately 200,000 holders of old cancer policies to exchange their policies for new cancer policies. The amended complaint sought equitable and legal relief for all the policyholders by virtue of a class action, with Robertson as a class representative. Following a hearing, a class was certified. Robertson's original life insurance claim was subsequently settled. .....Certain policyholders filed objections to their inclusion in the class. Two different groups of objectors also filed their own class actions involving the cancer policy exchange programs. These class actions were stayed by this Court because where two or more courts have concurrent jurisdiction the one that takes cognizance of the action first retains exclusive jurisdiction until a final determination. .....Liberty National and counsel for the class began settlement negotiations. On June 16, 1993, Liberty National and the class representatives entered into a settlement agreement. The trial court preliminarily approved the settlement, subject to notice to the class and an opportunity for the objectors to present their objections to the settlement at a fairness hearing. .....In August 1993, notice of a class action was mailed to the more than 400,000 policyholders. The notice included a copy of the settlement agreement and advised the class members of their right to object and be heard. Approximately 1,000 of the 400,000 class members filed objections to the settlement. [Q: significant # of objections?] .....A fairness hearing was held on January 20, 1994. The trial court heard oral testimony, and written materials were also submitted. On February 4, 1994, the trial court entered an order conditionally approving the settlement so long as the parties agreed to certain court-imposed modifications to the settlement. The trial court stayed its order pending certain objectors' concerns over releasing Liberty National's parent company, Torchmark Corporation, and allowed the objectors to have additional discovery. On May 19, 1994, the trial court held a final hearing concerning the proposed settlement. On May 26, 1994, the trial court entered its findings of fact and conclusions of law in a 67-page memorandum and made the order final. Approximately 400 objectors appealed. .....The objectors argue that the trial court abused its discretion in denying the objectors the right to a jury trial on their claims against Liberty National. Specifically, the objectors claim that their constitutional right to a trial by jury was violated when the trial court failed to allow them to "opt out" of participating in the class action settlement. An opt-out provision would allow the objectors to pursue their own individual lawsuits against Liberty National based on the same claim. At the outset, we note that Rule 23 of the Alabama Rules of Civil Procedure reads the same as Rule 23 of the Federal Rules, and we consider federal case law on class actions to be persuasive authority for the interpretation of our own Rule 23. [Q: Stare decisis?] .....A class action is a procedural device created solely for the purposes of litigation. The goal of a class action is to provide a simple and efficient way for processing numerous interrelated claims. A class action allows one or more persons, known as class representatives, to sue on behalf of the many persons who have the same, or similar, questions of law or fact as the representatives. .....Under Rule 23(a), [Alabama] R.Civ.P., certain prerequisites must be met in order for one to proceed with a class action: (1) the class must be so numerous that joinder is impracticable; (2) there must be questions of law or fact common to the class; (3) the claims or defenses of the class representatives must be typical of the claims or defenses of the class; and (4) the class representatives must be able to fairly and adequately protect the interests of the class. It is undisputed that the prerequisites have been met in this case. Once the prerequisites are met, the class action must fit within one of the types of classes described in Rule 23(b). .....Rule 23(b)(1) provides that a class action may be maintained if "the prosecution of separate actions by or against individual members of the class would create a risk of "(A) inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class, or "(B) adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests...." .....A class action may be maintained under Rule 23(b)(2) if "the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole." .....A class action under Rule 23 (b)(3) is appropriate when "the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include: (A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action." .....Rule 23(b)(1)(A) class actions involve those classes formed if the prosecution of separate lawsuits would create the risk of inconsistent adjudications. A classic example would be separate lawsuits by individuals against a municipality concerning a bond issue, some individuals wishing to invalidate the issue, others to limit it, and still others to enforce interest payments under the bonds. If one group succeeded in invalidating the bond issue and another succeeded in getting judgments ordering payment of the interest, the municipality would have incompatible standards with regard to the bond issue. Another example of a situation suggesting a Rule 23(b)(1)(A) class action would be where individual lawsuits concerning the rights and duties of riparian landowners could result in inconsistent rulings. Rule 23, F.R.Civ.P. Advisory Committee Notes. There would be a substantial risk of different results if each owner of land along the river were allowed to bring a separate lawsuit regarding water rights. .....Rule 23(b)(1)(B) class actions should be maintained if adjudications with respect to individual members of the class would, as a practical matter, be dispositive of the interests of other members or substantially impair the ability of the other members to protect their interests. An example would be where some shareholders seek to force a corporation to declare a dividend. If the plaintiff shareholders won, then the judgment would be dispositive of the interests of the remaining shareholders. .....A class action under Rule 23(b)(2) is permitted when the party opposed to the class has acted or refused to act on grounds applicable to the entire class. Generally, injunctive relief and declaratory relief are the remedies under this type of class action. An example would be where a person was accused of unlawful discrimination against an entire class of people. .....Rule 23(b)(3) allows class actions when there are common questions of law or fact among the class members and forming a class is superior to other methods of ending the legal dispute in a fair and efficient manner, e.g., when joinder of parties would be impracticable because of the large numbers of parties involved. Typically, the relief demanded is damages, and typical examples of a Rule 23(b)(3) class would be lawsuits involving consumer rights or antitrust violations. Typically, a Rule 23(b)(3) class is less cohesive than the other types of classes. .....We note that in a class action brought under Rule 23(b)(3), the members of the class are entitled to "opt out" of the class action and pursue a separate lawsuit. See Rule 23(c). Class members in a Rule 23(b)(1) or 23(b)(2) lawsuit do not have the choice of opting out of the class action. .....In the instant case, the trial court found that class action certification could be proper under Rule 23(b)(1)(A), Rule 23(b)(1)(B), or Rule 23(b)(2). The objectors argue that the class should have been formed under Rule 23(b)(3) and, accordingly, that they should be allowed to opt out of the class to pursue their own individual lawsuits. .....The first issue then is whether the class was properly certified pursuant to Rule 23(b). With regard to class certification, the trial court made certain findings of fact. The trial court's findings were made on the basis of ore tenus [huh?] evidence and will not be disturbed on appeal unless there is a clear showing that the findings are plainly and palpably wrong, with no evidence to support them. Additionally, class certification is generally left to the sound discretion of the trial court. .....With regard to class certification, the trial court found, in pertinent part, that the class consisted of all persons who now are or in the past had been insured under any cancer policy that was issued by Liberty National on or before August 29, 1986, and that provided benefits for radiation, chemotherapy, prescription chemotherapy drugs, and other out-of-hospital prescription drugs without monetary limits and that was paid and in force (or in the grace period) on or after August 29, 1986, regardless of whether such policy remains in force, had thereafter lapsed, or had been replaced by a different Liberty National cancer policy after that date, except those already parties to a lawsuit based on these same facts unless the lawsuit was voluntarily dismissed prior to the settlement. Specifically excluded from the class was any Liberty National insured whose "old" cancer policy had lapsed before August 29, 1986, unless the insured had paid delinquent premiums and the policy had been reinstated, and any Liberty National insured whose first cancer policy was a new policy issued after August 29, 1986. .....The remedies available to the class under the settlement were: (1) an injunction prohibiting the institution or continuation or any cancer policy "exchange" program and prohibiting any future practice of exchanging or substituting cancer policies with diminished benefits without full disclosure to the policyholder; (2) full restitution of monetary benefits lost as the result of monetary limits or elimination of coverage contained in the replacement policies for those class members who actually contracted cancer and whose benefits were affected; (3) reformation of all "new" policies currently in force to eliminate monetary limitations on radiation, chemotherapy, and prescription chemotherapy drugs and the exclusion of other out-of-hospital prescription drugs used in the treatment of cancer, whether or not the class member has suffered monetary loss; (4) an injunction against denying otherwise valid future claims under the new policies on the basis of the challenged monetary limits or exclusion of benefits; (5) reinstatement of lapsed policies prospectively without evidence of insurability and without payment of back premiums; (6) an injunction against any increase in premiums before January 1, 1996, or one year from the date of the final order of the court; and (7) an injunction requiring common pooling for all rate filing purposes. .....The trial court found that a class could be maintained under Rule 23(b)(2), because it found Liberty National had acted on grounds generally applicable to the class, thereby making equitable and injunctive relief appropriate. The trial court also found that there was a risk of inconsistent results that would impair Liberty National's ability to pursue a uniform course of conduct and that a Rule 23(b)(1)(A) class therefore would be maintainable. The trial court found that a class action could be maintained under Rule 23(b)(1)(B) because, it found, individual adjudications would be dispositive of the interests of other members not parties to the individual actions or would substantially impair the rights of the class members to protect their interests. .....The objectors argue that the class should be certified under Rule 23(b)(3) because, they say, the relief requested is primarily monetary. They contend that the defendants are attempting to couch their damages claims as injunctive relief. Accordingly, the objectors argue that Rule 23(b)(3) is the appropriate type of class action and that under Rule 23(b)(3) they should be allowed to opt out of participating in the settlement, in order to bring individual lawsuits. .....[Argument #1:] First, we note that simply because a Rule 23(b)(1) or (b)(2) class action settlement may ultimately result in an award of money damages does not prevent class certification under those subdivisions. So long as the relief sought is primarily equitable or injunctive, a class action settlement that also includes money damages with a mandatory non- opt-out provision is proper. Nothing in Rule 23 forbids monetary relief when the action is brought under Rule 23(b)(2). .....The relief awarded in the instant case included an order preventing Liberty National from switching new policies for old policies without informing the insureds of the diminished benefits. Also, Liberty National was ordered to reform the "switched" new policies to include the benefits that had been provided in the old policies. Tellingly, the objectors point out in their brief that of the 400,000 class members, of whom 206,000 had policies fraudulently switched, less than 700 class members received actual money damages. "In other words, less than 1/4 of 1% of the class received money damages under the settlement." [Note: "Statistics don't lie...."] .....We note that simply because equitable relief has a "value" based on money or has "worth" does not make it monetary relief. For example, if a person is ordered to execute a conveyance of land based on a contract, the land has a money "value," although the relief granted is equitable, i.e., equity acts on the person, by compelling him to fulfill his contract. In this case, the "reformed" policies have an increased "value" to the insureds, but the relief granted was forcing Liberty National to restore the benefits. More importantly, the benefits of a reformed policy are not enforceable unless the insured contracts cancer. .....[Argument #2:] The objectors also argue that the trial court's certification of the class without an opt-out provision violates their right to trial by jury under sec. 11 of the Alabama Constitution, i.e., that the objectors were deprived of their day in court because the settlement agreement did not provide them a means of opting out of the class in order to pursue their own lawsuits. .....In support of their argument, the objectors cite *** In Moore and Henderson, this Court struck down legislative limits or "caps" on compensatory and punitive damages, respectively, as violating the right to trial by jury. The objectors contend that in this case the violation of the right to trial by jury is more egregious than those violations *** where mere limits were placed on the amount a jury could award, in comparison with this case where the right to a jury trial has been eliminated. .....We disagree with the objectors' contention that a class action that does not have an opt-out provision is a violation of the right to trial by jury. As stated earlier, a class action is a device created solely for the purposes of litigation. The class action was created to enable a lawsuit to proceed where the number of those interested was too great to permit joinder. The modern class action follows the same goal, allowing an action when there are common claims and too many parties for proper joinder. .....Only those chosen as class representatives will actually be in the courtroom; however, all class members are "having their day in court" through the representative. Those class members who are absent from the courtroom are bound by the judgment, so long as the absent members were adequately represented by the class representatives, represented by a qualified attorney, provided with adequate notice of the proposed settlement, and given an opportunity to object to the settlement. The trial judge must then approve the settlement after analyzing the facts and the applicable law and considering any objections to the settlement. So long as these procedures are followed, courts hold that the absent class members have had their day in court. Therefore, we hold that a class action without an opt-out provision does not violate the Alabama Constitution. [Q: Would the US SCt likely agree, based on earlier DP cases we studied in Terr. Jurisd?] Implicitly, this Court has held that class actions without an opt-out provision do not violate the right to trial by jury. In Martin, we held that the fact that a class action may ultimately result in a monetary recovery does not prevent certification under Rule 23(b)(1) or (b)(2). .....According to the objectors, a class action brought under Rule 23(b)(1) or (b)(2) would be unconstitutional because those sections include no opt-out provision. The objectors' argument is that a rule of procedure cannot be applied so as to defeat a state constitutional right. By the objectors' rationale, other procedural mechanisms that prevent a jury trial, such as a motion to dismiss for failure to state a claim, a judgment on the pleadings, a summary judgment, and a directed verdict would also violate § 11. We cannot agree with that rationale. .....Because the objectors' argument concerning proper certification is based on their desire to opt out of the class, we need not address whether the class would be more appropriately certified under Rule 23(b)(1) or 23(b)(2). We leave this to the trial court's discretion. .....[Argument #3:] The next issue we must address is the trial court's approval of the settlement. The objectors contend that the settlement inadequately compensates the class--specifically, they argue that each class member should be able to seek compensatory and punitive damages for fraud. First, the objectors argue that they should be entitled to compensatory relief for having allegedly paid higher premiums on the new policies. However, the new policies contained benefits that were not part of the old policies, and the settlement adequately remedies the problem by requiring Liberty National to reform the new policies to include the benefits that had been provided in the old policies. Also, there is a freeze on premiums for one year after final approval of this settlement and no valid future claims can be denied based on the benefits excluded in the new policies. .....The objectors contend that they should be entitled to funds set up by the settlement to benefit those who contracted cancer, submitted claims, and received less in benefits under the new policies than they would have received under the old policies. The trial court expressly found the assessment of the funds to be punitive in nature. The objectors argue that they should be entitled to share in these funds, because, they argue, Liberty National has not been sufficiently punished for its wrongdoing. However, the objectors failed to argue in their briefs that any of them had contracted cancer, had submitted claims, and had received less in benefits from the new policies [thus extinguishing these rights of the absentee class members who cannot opt out]. .....[Argument #4:] There can be no settlement without the trial court's approval. Rule 23(e). Requiring the trial court's approval of the settlement protects the class from unjust settlements or voluntary dismissals. The burden is on the proponents of the settlement to show that it is fair, adequate, and reasonable. This Court's standard of review is to determine whether the trial court abused its discretion. Great weight is given to the trial court's views, because that court has been "exposed to the litigants, and their strategies, positions, and proofs." .....After thoroughly reviewing the trial court's findings of fact and conclusions of law and the order and final judgment, we cannot say that the trial court abused its discretion in finding that the settlement was fair, adequate, and reasonable. We attach those findings and the final order as an appendix to this opinion. We note that the trial court gave due consideration to the following factors, among others, in approving the settlement: (1) the likelihood of success at trial (including the likelihood of establishing liability on the part of Liberty National); (2) the range of possible recovery; (3) the point on or below the range of possible recovery at which the settlement is fair, adequate, and reasonable; (4) the complexity, expense, and duration of the litigation; (5) the substance and amount of opposition to the settlement; (6) the stage of the proceedings at which the settlement was achieved; and (7) the financial ability of Liberty National to withstand a greater judgment and the potential for a judgment or judgments in an amount or amounts likely to trigger the Due Process considerations ( relating to punitive damages. Another factor considered by the trial court was whether proper notice was given. .....In reviewing the trial court's findings and order, we find particularly interesting the fact that less than 1,000 class members, out of 400,000 (less than 1%) objected to the settlement. Courts have affirmed settlements when substantially larger numbers of the class had objected [citing authorities that] (settlement with no opt-out provision approved over objections by 15% of the class); (settlement approved over objections of a majority of the class representatives); (approving settlement over objections of a majority of the class); (settlement approved with 600 of 1469 class members objecting). .....[Argument #5:] The last issue raised by the objectors is whether the trial court abused its discretion in "denying [the] objectors' motions to conduct discovery as to the propriety of the class action and the fairness of the settlement." .....At the outset of our discussion of this issue, we note that the trial court has broad authority to limit or prohibit discovery by objectors. "There is no requirement that every objector be allowed to have discovery concerning the settlement itself so that he can personally assure its reasonableness. Such a course would mean that few settlements would be approved, since each member of the class would have the right to keep it open until satisfied...." .....When courts allow objectors to obtain limited discovery, it must be carefully balanced against the risk that full-blown discovery could injure the class as a whole by threatening the settlement and running up costs. In this case, the trial court did, in fact, allow limited discovery. Counsel for the objectors had access to discovery conducted by class counsel and to discovery conducted by the Mobile law firm of Armbrecht, Jackson, DeMouy, Crowe, Holmes & Reeves, where the same allegations were made against Liberty National in a separate lawsuit. The objectors were also allowed to depose the actuarial expert for the class and were allowed to participate in depositions concerning Liberty National's parent company, Torchmark Corporation. [Q: How many fee dollars does the plaintiff firm get, after making a visit to the Armbrect firm & several depositions?] .....Specifically, the objectors argue that they should have been allowed to depose class counsel in order to determine if there was evidence of collusion in the settlement. First, we note that if the trial court finds that the settlement is fair and reasonable, then the court may assume that the negotiations were proper. Also, class counsel testified at the fairness hearing and was cross-examined at length by counsel for the objectors. We point out that, in theory, no class action "would ever be settled so long as there was at least a single lawyer around who would like to replace class counsel and start the case anew." .....Based on the foregoing, we affirm the judgment of the trial court. |
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