West Virginia Business Litigation Lawyer & Attorney : Law Office of Jeffrey V. Mehalic : Charleston, Huntington, Parkersburg

    Here is the brief filed last week by the plaintiffs in opposition to the amicus brief filed by West Virginia Governor Joe Manchin.  The plaintiffs' brief attaches as exhibits documents received from the Governor's office through a Freedom of Information Act request, which the plaintiffs contend show an inappropriate relationship between the Governor and DuPont:

In conclusion, the "Governor's filing" is, in truth, the product of an orchestrated scheme by DuPont to further argue its position on the issue of punitive damages from a respected and supposed neutral party when in reality the filing is a feigned pleading that parrots the arguments that DuPont has put forth in its petition for appeal.

    As I discussed in my post earlier today, Manchin's brief asks the Supreme Court of Appeals of West Virginia to grant DuPont's petition for appeal in order to address the question of the level of appellate review required by the Due Process Clause of the Fourteenth Amendment for a punitive damages award. 

    In other words, does DuPont receive due process if the Supreme Court of Appeals considers DuPont's petition for appeal from the award (among other issues), but rejects it, thus precluding any further appellate review in West Virginia?   Or does DuPont's appeal have to be considered on its merits, even if such review results in an affirmance?

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    I had intended to write this post a few weeks ago, and because the issues have been back in the news recently, I have another chance to discuss them.

    Last year, a Harrison County, West Virginia jury returned a verdict for $196.2 million in punitive damages against DuPont in a class action with more than 7,000 members who sought damages for medical monitoring and property damage claims, as a result of DuPont's operation of a zinc smelter that released harmful quantities of cadmium, arsenic, and lead.  The jury earlier had awarded $55.5 million for the plaintiffs’ property damage claims and found that that a medical monitoring program was appropriate, which will cost approximately $130 million.  Here is my post dealing with the trial court’s rulings on the parties’ post-trial motions.

    Since then, the parties have prosecuted appeals from the court’s rulings. I’ll discuss those appeals, but the filings that have been getting attention are two amicus briefs filed in the case.

    In June, West Virginia Governor Joe Manchin filed an amicus brief in support of DuPont’s petition for appeal from the jury’s verdict: “Because the disposition of cases involving punitive damages at the petition stage raises significant due process concerns, the Governor respectfully requests that this Court grant the petition to clarify the law regarding the constitutionally mandated appellate review of punitive damages.”  Here is the Governor’s brief, courtesy of his counsel, Carte Goodwin.

    You will note that Manchin is careful not to advocate a particular result, even as he asks the Court to accept DuPont’s appeal.  His purpose in doing so, he maintains, is that because the United States Supreme Court held in State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003), that the Fourteenth Amendment’s Due Process Clause guarantees the right to de novo appellate review of a punitive damages award, DuPont’s right to such review may be compromised, if not violated, by the Supreme Court of Appeals of West Virginia’s “mere” consideration of DuPont’s petition for appeal. 

Consequently, the Governor is interested in one of the central issues highlighted by this case and other petitions seeking review of punitive damages awards: What sort of appellate review is required by the Due Process Clause?

    It is the “this case and other petitions seeking review of punitive damages awards” that provides the context for Manchin's brief.  In May, the Supreme Court of Appeals refused petitions for appeal in two widely-publicized cases where juries had returned substantial verdicts: the natural gas royalty class action against Columbia Natural Resources, LLC and other defendants, where a jury returned a verdict for about $404 million, including $270 million in punitive damages, and a breach of contract case against Massey Energy Company, where a jury returned a verdict of $219 million, including $100 million in punitive damages.  Here is my post about the Court’s action.

    Manchin does not want DuPont’s petition for appeal to become the third one rejected by the Court without what he and DuPont regard as adequate appellate review, which they hope would result in a reversal of the jury's verdict.  The problem from their perspective, however, is Rule 7 of the West Virginia Rules of Appellate Procedure, which provides that the Court may refuse or grant a petition for appeal, and that a refusal precludes any further appellate review in West Virginia. 

    Just as Governor Manchin tries not to advocate a particular outcome – even though the relief he requests benefits DuPont more than the plaintiffs -- he is careful not to criticize the Supreme Court of Appeals too pointedly for its procedure for considering appeals.  But he does makes this observation:

More to the point, it is unclear whether this Court’s periodic practice of determining the validity of a punitive damages award solely through consideration of a petition for appeal could withstand constitutional scrutiny today.  Unfortunately, the United States Supreme Court has not explicitly addressed whether this aspect of our process provides litigants with “meaningful and adequate” appellate review.

(Emphasis in original.)

The Governor expands on the point in footnote 4:

This is understandable – and the concern especially pronounced – given the unique structure of West Virginia courts, where no civil litigant is provided an appeal as a matter of right and – lacking any intermediate appellate courts – this Court is the only appellate tribunal that can provide the level of review mandated by State Farm.  And yet, this Court may grant or refuse a petition for appeal in its sole discretion.  See Rule 7, West Virginia Rules of Appellate Procedure.  By contrast, forty-eight States offer civil litigants at least one appeal as a matter of right, either to an intermediate appellate court or to the State’s highest court….

    Not surprisingly, the plaintiffs are asking the Supreme Court to ignore Manchin's brief, according to this article by Ken Ward, Jr. in last Thursday’s Charleston Gazette.  Ward’s article referred in turn to this article by Ian Urbina in last Wednesday’s New York Times, which detailed contacts between Manchin and officials from DuPont and said that Manchin asked DuPont to provide a draft brief to his office, which would render his assertion that he is not advocating for a particular party less than credible.  Urbina quoted well-known legal ethicist and New York University law professor Stephen Gillers as saying that Manchin’s action was the first he could find where a state’s governor, as opposed to its attorney general, took such action.

    Last week, the plaintiffs filed a brief, also referred to in Ward’s article, in which they asked the Court not to consider Manchin’s brief.  I don’t have the plaintiffs’ brief yet, but as soon as I get it, I’ll upload it. 

    A second amicus brief that has created some controversy, although not as much as Governor Manchin’s, was filed by the West Virginia State Medical Association in support of DuPont’s petition for appeal.  Here is the WVSMA amicus brief.

    The WVSMA’s position is that the medical monitoring plan proposed by the plaintiffs and accepted by the trial court will cause more incidents of cancer than it will detect:

Although WVSMA is also concerned about the arbitrary nature of the large punitive damages award and other issues in this case, this brief is limited to the public health issues raised by the medical monitoring plan ordered by the Circuit Court.  WVSMA is concerned that this plan places the plaintiff class in unnecessary danger by approving biennial computed tomography (“CT”) scans that will likely cause more cancer than they will ever find.  Review is warranted because the trial court failed to appropriately weigh the health risks involved in the medical monitoring program when it considered whether the proposed testing was ‘reasonably necessary.”

Specifically, the WVSMA argues that as many as 70 class members could develop cancer if they fully participate in the screening program for 40 years, while 10 cases of cancer would have been detected by the program. 

    The WVSMA asks that the Court accept DuPont’s petition in order to determine whether all of the tests in the proposed medical monitoring program are “reasonably necessary,” meaning whether a qualified physician would prescribe them.

    Regarding the underlying issues, the plaintiffs are appealing the trial court’s grant of summary judgment in the defendants’ favor, which found that releases and easements executed in the 1920s in favor of an earlier owner of the smelter immunized it against certain plaintiffs’ claims.  Here are the plaintiffs’ petition for appeal, which is scheduled to be considered by the Supreme Court on September 9, and DuPont's response in opposition. 

    DuPont is prosecuting two appeals.  One addresses the size and nature of the jury's verdicts and rulings made by the trial court before, during, and after the trial.  Here is DuPont's petition for appeal.  

    In the other appeal, DuPont appeals the trial court's order that required it to indemnify T. L. Diamond and Company for more than $800,000 for costs and expenses that Diamond incurred in connection with the plaintiffs' medical monitoring and property damage claims, based on a contract between DuPont and Diamond.  Here are DuPont's petition on that issue, and the plaintiffs' response in opposition.   Neither of DuPont's appeals has been scheduled on a motion docket yet.

 

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    Last year, I wrote about the United States District Court’s remand of a class action that alleged that AT&T had improperly enrolled thousands of customers in a roadside assistance program and charged them $2.95 per month, in violation of the West Virginia Consumer Credit and Protection Act.  Strawn v. AT&T Mobility , Inc., 513 F.Supp.2d 599 (S.D.W.Va. 2007).

    The court remanded the case because AT&T could not establish to the court’s satisfaction that the amount in controversy exceeded the Class Action Fairness Act’s threshold of $5 million, exclusive of interest and costs, for federal jurisdiction.  AT&T appealed the remand under 28 U.S.C. § 1453(c), which permits appellate review of remand orders in class actions. 

    In Strawn v. AT&T Mobility LLC, 2008 WL 2575871 (4^th Cir. 2008), which was decided on June 30, 2008, the Fourth Circuit concluded that “the district court either misread or construed too broadly the issues raised by the complaint and the definition of the putative class and therefore reverse[d] its order remanding this case to the state court.”

    AT&T first argued before the Fourth Circuit that CAFA shifted the burden of proof in a removal from the party asserting federal jurisdiction to the party opposing it. The court acknowledged that CAFA’s legislative history contained language supporting that view, but found that the statute itself gave no indication that Congress intended to place the burden of proof on the party opposing removal. 

    The court did hold that “in removing a class action based on diversity jurisdiction under 28 U.S.C. §§ 1453 and 1332(d), the party seeking to invoke federal jurisdiction must allege it in his notice of removal and, when challenged, demonstrate the basis for federal jurisdiction.”  The court noted that it was joining six other circuit courts that have considered the issue – the Second, Third, Sixth, Seventh, Ninth, and Eleventh.

    AT&T challenged the class size on the basis that the plaintiffs claimed that AT&T violated West Virginia law by automatically enrolling all customers in the roadside assistance program for a trial period, then charging them $2.99 per month if they did not opt out. 

    The court agreed with AT&T that the plaintiffs’ complaint defined the class as all of AT&T’s customers who were enrolled in the roadside assistance program, regardless of whether they were in the program willingly or unwillingly: 

“Such subjective inquiries about a customer’s “willingness’ or ‘unwillingness’ in continuing to pay the charge might relate to a limitation of damages by ratification, but it does not diminish the class defined in the complaint: those who were at the outset automatically enrolled in the program without their request-those who ‘were not given an option.’  At that point, none of the customers were ‘willing’ or ‘unwilling’; rather, all were unaware.

(Emphasis in original.)

    The court found that the plaintiffs failed to rebut AT&T’s estimate that 58,500 customers remained enrolled in the roadside assistance program after the initial trial period expired and paid the monthly charge.  Therefore, AT&T established that the amount in controversy, exclusive of interest and costs, exceeded $5 million and satisfied CAFA’s jurisdictional requirement.

    The court noted in a couple of places that the plaintiffs had not appealed the district court's ruling that the plaintiffs could not rely upon stipulations to limit their damages and thereby establish the amount in controversy.  As a result, the only issue before the Fourth Circuit was AT&T's appeal of the remand based on the amount in controversy. 

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    Last month, I wrote about the class action filed by employees of U.S. Sugar, who claim that their shares of company stock have been devalued as a result of mismanagement and self-dealing by the company’s officers.  In 1983, the employees participated in an ESOP (employee stock ownership plan) which traded their participation in a pension plan for ownership of the company’s stock, which is not publicly traded.  Thus, the employees have to depend on what the company is willing to pay to redeem their shares, which, according to allegations in the lawsuit, has been far less than what the shares are actually worth. 

    Then, last week, in an unexpected development, Florida Governor Charlie Crist announced that, as part of the restoration of the Everglades, Florida is willing to pay U.S. Sugar $1.75 billion for its 187,000 acres in four counties in southern Florida.  The company would lease the property back from Florida for six years, then go out of business.  Here are the statements issued by U.S. Sugar and by Governor Crist’s office, and an Associated Press story in today’s New York Times, which reports that the proposed purchase is moving forward.  

    This post by Suzanne Wynn in her Pension Protection Act Blog notes that the ESOP participants (U.S. Sugar's employees), as the owners of the largest block of stock, are the largest group affected by the purchase. 

    Although a lot has been written already about Florida’s proposal (and that’s all it is at this point), I have not seen any discussion of how a purchase price for the employees’ shares of stock would be formulated.  This deal may represent an opportunity for U.S. Sugar’s employees (and remaining shareholders) to obtain some value for their stock, but it does not seem to affect the issues in the litigation.

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    In The New York Times yesterday, Mary Williams Walsh wrote about the situation faced by thousands of employees of U.S. Sugar, who participated in an ESOP (employee stock ownership plan) in 1983, which traded their participation in a pension plan for ownership of the company’s stock.  But as more employees reach retirement, they have discovered that their shares are not as valuable as they expected. 

    U.S. Sugar's shares are not traded publicly, so their value is determined by what the company is willing to pay to redeem them.  Then, once an employee cashes in his or her shares, the shares are retired, which critics of the plan allege makes it easier for insider groups to maintain control, because the pool of shares is getting smaller.

    According to the article, the company’s board turned down two offers by the Lawrence Group, a large agribusiness concern from Sikeston, Missouri,  to buy the shares for $293 each, even though the company was paying employees from $194 to $205 per share at the time.  The employees claim that they were not told about the offers or given the chance to sell their shares at the higher price. 

    To make matters worse, U.S. Sugar hired an outside appraisal firm to evaluate the Lawrence Group’s second offer, which was made in early 2007.  The appraiser determined that U.S. Sugar’s break-up value was $2.5 billion, or $1,273 per share.  Based on that estimate, U.S. Sugar rejected the Lawrence Group’s bid as inadequate, but did not increase the purchase price offered to employees.

    The employees have filed a class action, Johnson v. White, Civil Action No. 08-CV-80101 (M.D. Fla.), which is described on this Website set up by their counsel, Colson Hicks Eidson. The site has most of the court filings from PACER in PDF format. 

    The most recent filing is an amended complaint filed on May 2, 2008, which alleges claims for breach of fiduciary duty against the company’s directors and officers and for violations of ERISA and equitable relief under ERISA Section 502(a)(3).  

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    There is already one casualty from the Supreme Court of Appeals of West Virginia's rejection of Chesapeake Energy Corporation’s petition for appeal from the $404 million verdict in Estate of Garrison G. Tawney v. Columbia Natural Resources, LLC.

    Today, Chesapeake announced that it is canceling plans to build a $35 million regional headquarters in Charleston, and blamed the Supreme Court’s decision not to hear its appeal.   Here is George Hohmann's article about the decision in today's (Charleston) Daily Mail.

   Chesapeake issued this media statement today:

On Thursday May 22nd, the West Virginia State Supreme Court issued a unanimous (5-0) decision against hearing NiSource and Chesapeake's appeal in the Tawney case.  Chesapeake inherited the lawsuit when it purchased Columbia Natural Resources in 2005.

This decision was stunning, as it means we will not have the opportunity to challenge the verdict issued in Roane County in January, 2007.  While we hold a less significant amount of the liability in the verdict, we do believe it sends a profoundly negative message about the business climate in the state.  The reality of this decision is that nobody in West Virginia, similarly situated, has a guaranteed right of appeal in the judicial system.  Chesapeake plans to join NiSource in appealing the case to the U.S. Supreme Court.

As a result, Chesapeake Energy has made the decision to cancel plans to build a new regional headquarters building in Charleston, WV.

We remain committed to our people and our operations in West Virginia and the Appalachian Basin. Chesapeake's Eastern Division will continue to be managed from Charleston, but we will do it from leased space.

--Scott Rotruck, Vice President -Corporate Development

    I have no doubt that Chesapeake is frustrated by the rejection of its appeal, but that was always a possibility.  Unlike federal district court, with its right of appeal, nearly all appeals from West Virginia state courts are discretionary. 

    Chesapeake’s reaction strikes me as a case where its assessment of the success of its appeal may have been based on considerations such as the amount of the verdict, its investment in the local economy, or the prominence of the defendants, and Chesapeake is dismayed that the Supreme Court did not agree with its view.

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    Last week, the Supreme Court of Appeals of West Virginia rejected appeals in two widely-publicized cases.  In Estate of Garrison G. Tawney v. Columbia Natural Resources, LLC, No. 080482, Columbia and NiSource, Inc. appealed the jury’s verdict of $404,335,138, which included punitive damages of $ 270 million.  Here is my post about the verdict.

    In Tawney, which the Court rejected by a vote of 5-0, Justice Robin Davis recused herself because her husband is counsel for the plaintiffs, and Justice Brent Benjamin recused himself because his former firm represents some of the defendants.  Raleigh County Circuit Court Judge H. L. Kirkpatrick and Cabell County Circuit Court Judge Dan O’Hanlon were appointed in their places.

    In Wheeling-Pittsburgh Steel Corporation v. Central West Virginia Energy Company, Nos. 080182 and 080183, Central West Virginia and Massey Energy Company appealed the verdict of $219 million, resulting from the jury’s finding that the defendants breached their contract with Wheeling-Pittsburgh Steel Company and committed fraud.  That verdict included punitive damages of $100 million.  Here is my post about that verdict.

    In Wheeling-Pittsburgh, which the Court also rejected by a vote of 5-0, Chief Justice Elliott E. “Spike” Maynard recused himself because of his relationship with Massey chairman Don L. Blankenship, and retired Greenbrier County Circuit Court Judge Frank Jolliffe was appointed in his place. 

    At this point, the remedy for the defendants in both cases is to petition the Supreme Court of the United States for review.  According to Veronica Nett, writing in yesterday's Sunday Gazette-Mail, the defendants in Tawney intend to appeal on the grounds that the punitive damages were excessive.  But a two-to-one ("single digit") ratio of punitive damages to compensatory damages does not appear to be inherently excessive, according to State Farm Mut. Ins. Co. v. Campbell, 538 U.S. 408 (2003), 

    Massey is considering an appeal to the Supreme Court, according to the Associated Press' Tim Huber, but has not yet made a decision. 

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    You may have seen the print ads or TV commercials for LifeLock, Inc., which feature its president, Todd Davis, disclosing his Social Security number and guaranteeing its security, and offering a $1 million service guarantee if a subscriber’s identity is stolen or compromised.  But according to a lawsuit filed last week in the Circuit Court of Jackson County, West Virginia, not everyone is satisfied with LifeLock’s services.  Here is the complaint, courtesy of the plaintiff's counsel, Davis Paris of Marks & Klein, LLP.

    In Gerhold v. LifeLock, Inc., Civil Action No. 08-C-69 (May 12, 2008), the plaintiff alleges that LifeLock and Davis, who is also named as a defendant, engage in deceptive business practices and fraudulent advertising in having “induced nearly one million individuals, including Plaintiff and the Putative Class in the state of West Virginia, into subscribing to the identity theft protection services the company purportedly provides.”

    The plaintiff seeks to certify a class consisting of “All persons in the state of West Virginia who subscribed to LifeLock, between 2005 and the present, including former residents who resided in West Virginia at the time they subscribed to LifeLock’s services.”  The class is alleged to have more than 1,000 members.

    LifeLock is alleged to misrepresent the scope and effectiveness of its services, and to conceal the potential harm that its services could have on its subscribers' credit profiles by LifeLock's placing and renewing fraud alerts on those profiles.  LifeLock also fails to disclose that the credit reports it obtains for its subscribers are the free annual reports to which they would be entitled ordinarily, and that by LifeLock ordering the credit report, the subscriber is ineligible to order the report for 12 months.

    The complaint also deals with Davis’ disclosure of his own Social Security number, which apparently has not been as secure as Davis has claimed:

9.      While LifeLock has only publicly acknowledged that Davis’s identity was compromised on one (1) occasion, there are more than twenty (20) driver’s licenses that have been fraudulently obtained through the misappropriation of Davis’s personal information.

10.    Furthermore, a simple background check performed using Davis’s social security number reveals that his entire personal profile has been compromised to the extent that the birth date associated with his social security number is November 2, 1940, which would make Davis 67 years old.  This is clearly fraudulent information.

    The complaint alleges causes of action for violations of the West Virginia Consumer Credit and Protection Act for unfair or deceptive acts or practices and by a credit service organization, unconscionability, injunctive relief, and declaratory judgment.

    The lawsuit was the subject of a front-page story by Andrew Clevenger in the Sunday Gazette-Mail, which points out that Gerhold's counsel has filed similar class actions against LifeLock and Davis in New Jersey in March  and in Maryland in April.  For additional information, here are posts from, the Blogger News Network and from News Blaze.

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    Last year, a jury returned a verdict for $196.2 million in punitive damages against DuPont in the final phase of a trial in which 7,000 Harrison County, West Virginia residents claimed that DuPont injured them and contaminated their property by releasing substances including cadmium, arsenic, and lead at its zinc smelting site.  The jury also awarded $55.5 million for the plaintiffs’ property damage claims and approved a medical monitoring program.

    DuPont’s efforts to overturn the jury’s determinations through post-trial motions have not been successful.  Here are the relevant orders entered by the Circuit Court of Harrison County on February 25:

Final Order Regarding the Scope, Duration and Cost of the Medical Monitoring Plan

Order Regarding Plaintiffs’ Counsels’ Fees and Litigation Expenses and Class Representatives Award and Incentive Payments

Order Denying Dupont’s Motion for Judgment as a Matter of Law, or, in the Alternative, to Decertify the Class

Order Denying Motion for New Trial

Order Denying Dupont’s Motion to Vacate or Reduce Punitive Damages Award under Garnes v. Fleming Landfill

    The plaintiffs presented evidence regarding the medical monitoring plan at a hearing in January, and offered the testimony of a specialist in occupational and environmental medicine, a certified life care planner, and a forensic economist.  DuPont offered the testimony of a certified public accountant, who had expertise in projecting future medical costs.  But as the following footnote in the medical monitoring order makes painfully clear, DuPont would have been better off without any expert testimony:

Of the plethera [sic] of witnesses that testified at the scores of hearings and trial in this matter, the Court finds Mr. Meneberg [DuPont’s expert] to be the least credible of all. It is clear that if one has the money, Mr. Meneberg will provide an opinion whether it is within his field of expertise or not and whether there is any factual or professional basis for the opinion or not. In the sixteen years as a sitting trial judge, Mr. Meneberg is the biggest ‘hack’ to have testified before this Court. 

    The order approving the medical monitoring plan provides that the plan will be reviewed every five years, will have a duration of 40 years (during which the circuit court will retain jurisdiction), will cost $129,625,819.00, and will be funded on a “pay as you go” approach, which had been advocated by DuPont, rather than on the fully-funded basis that the plaintiffs had wanted.  Under the “pay as you go” approach, DuPont will make payments, which will be escrowed, then disbursed and replenished, as the plan proceeds, depending upon such factors as participation and cost, rather than pay for the entire cost of the plan at the outset.

    The circuit court also awarded the plaintiffs attorneys’ fees of $127,108,410.64 and expenses of $7,904,646.65 from the common fund of $381,363,341.25 (which consists of the total of the cost of the medical monitoring plan, the punitive damages award, and the property damage award).  Also, in its order, the circuit court denied the class representatives’ motion for incentive payments to each one (there are 10) of $75,000.00 for their “cooperation and assistance,” which would have come from the common fund.  However, the Associated Press reported earlier this month that, at the plaintiffs' counsel's request, the circuit court reconsidered and approved an incentive payment of $50,000 to each class representative, with the funds to be paid from the attorneys’ fees rather than the common fund.

    DuPont is appealing the verdicts and the post-trial rulings, according to this statement from its general counsel, Stacey J. Mobley.  I will confirm the status of DuPont’s petition for appeal, and post the petition and the plaintiffs’ response as soon as they are forwarded to the Supreme Court of Appeals.  The Supreme Court’s Spring Term ends on June 26, which means that the appeal, if granted, will not be argued and decided until the Fall Term.

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    A group of investors has filed a securities class action against International Coal Group, Inc. and several of its officers and directors, including chairman Wilbur L. Ross, Jr. and president Bennett K. Hatfield, alleging that the company and its representatives made “false and misleading statements” about the company’s performance and “made materially incorrect public statements in press releases and shareholder reports that artificially inflated the price of [ICG’s] stock prior to and after ICG’s November 21, 2005 Reorganization and Stock Exchange (the “Reorganization”)."   Saratoga Advantage Trust v. ICG, Inc., et al., Civil Action No. 2:08-CV-00011. 

    The plaintiff is Saratoga Advantage Trust, which, according to its Website, “consists of seven proprietary investment portfolios, each representing a major investment asset class.”  The action is brought on behalf of all persons and entities who purchased securities of ICG between April 28, 2005 and June 8, 2006, inclusive, and was filed in the United States District Court for the Southern District of West Virginia  on January 7, 2008 and has been assigned to Judge John T. Copenhaver, Jr.   

    Here is the complaint, which further alleges that:

Specifically, the defendants failed to disclose material adverse facts and publicly issued false information in public filings and other statements to the investment community by misinterpreting the Company’s woeful safety record and historical environmental non-compliance. As a result, the Company’s operations and financial performance were deteriorating and defendants’ statements to the contrary concerning its current and future business prospects were false, lacking any reasonable basis in fact, and made by defendants in knowing disregard of true facts.

    In April 2007, the City of Ann Arbor Employees' Retirement System and Iron Workers of Western Pennsylvania Pension Plan sued ICG, alleging that ICG falsely claimed to be able to mine coal safely and profitably, which caused its stock to lose value.  I wrote about that lawsuit in this post.

   Last June, Saratoga Advantage Trust filed a motion in that case for appointment as lead plaintiff and approval for its counsel to serve as lead counsel.  Here are its motion and memorandum in support.  The Court denied Saratoga's motion and appointed the City of Ann Arbor Employees' Retirement System and AIP Alternative Strategies Funds - Alpha Hedged Strategies Fund (one of the original plaintiffs, but not mentioned in the complaint) as co-lead plaintiffs.  Here is the Court's order.

    Note that in the new action, Saratoga is the only plaintiff named, which would seem to ensure its position as lead plaintiff.

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    The Supreme Court of Appeals issued its decision on November 15 in State of West Virginia ex rel. Chemtall, Inc. v, Madden, 2007 WL 4098937 (W.Va.), which was argued at the beginning of the term.  Here is my post regarding the argument. This opinion is the third one from the Supreme Court regarding this case, which is significant, given that the case has not gone to trial yet, even though it was filed in 2003.

    The per curiam opinion addressed the petition for a writ of prohibition and/or mandamus filed by the defendant suppliers and/or manufacturers of polyacrylamide against the Circuit Court of Marshall County regarding two of its orders.  The first order permitted water treatment workers to intervene in the action based on their exposure to polyacrylamide, which is the same exposure claimed by the class of former coal preparation plant workers.  The second order permitted the use of a punitive damages multiplier for the plaintiffs’ medical monitoring claims and allowed for the common adjudication of claims that arose under West Virginia and Pennsylvania’s medical monitoring claims.

    In this decision, the Court denied the defendants’ requested relief.  First, the Court held that its prior decision in Stern v. Chemtall, Inc., 617 S.E.2d 876 (W.Va. 2005), was intended to permit the intervention of water treatment workers in the action.  The Court noted that there were facts common to both groups of workers, such as exposure to the same chemical and the risk of contracting the same diseases, which made intervention appropriate.  The Court also noted that the circuit court had not “indicated how it intends to manage any differences with regard to these two groups of plaintiffs[,]” which would make a ruling premature.

    As to the issue of punitive damages, the petitioners challenged the circuit court’s proposed trial plan as violating their due process rights because a jury would not consider a plaintiff’s individualized harm in assessing the damages and would not first find actual liability against any defendant. 

    The Court emphasized that the circuit court’s trial plan did not guarantee a result contrary to Phillip Morris USA v. Williams, 127 S.Ct. 1057, 166 L.Ed.2d 940 (2007), which addressed whether the United States’ Constitution’s Due Process Clause permits a jury to award punitive damages based in part on its desire to punish the defendant for harming persons who are not before the court.  The Court again emphasized that as no trial had taken place, “[n]o evidence has been adduced, none of the petitioners have been found liable for any tortious conduct, and punitive damages have not been assessed. Therefore, a decision on the constitutionality of punitive damages at this point would amount to nothing more than an exercise in speculation.”

    The Court also declined to rule on the petitioners’ claim that punitive damages are not available in cases where the plaintiffs sought only medical monitoring damages, expressing its belief that “appellate review of this issue is better left to the review of a verdict after complete development of all the facts and testimony and after a trial of all the issues."

    Likewise, in addressing the petitioners’ argument about the adjudication of claims arising under West Virginia and Pennsylvania law, the Court reaffirmed the circuit court’s discretion to manage its docket, such that “[w]e believe that the circuit court below is fully capable of formulating procedures that effectively address any differences in West Virginia and Pennsylvania law.”

    In the final paragraph of the opinion, the Court makes clear its exasperation with the parties: “We hope the litigants understand and appreciate the difficulty this Court faces in trying to decide so many issues pre-trial, in the limited context of extraordinary remedies, and in the absence of a meaningful, fully-developed factual record.  Accordingly, we trust the lawyers and parties will now focus vigorously on letting these cases be tried by a trial court.  Having disposed of the issues raised herein, we are confident that the parties can now proceed to trial without further delay and without the necessity of additional guidance from this Court.”

    In other words, don’t come back unless you've tried the case.

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    A federal district judge has ruled that a putative class-action lawsuit against FiberNet LLC, a telecommunications provider, will stay in federal court.  Here is United States District Judge Joseph R. Goodwin’s order entered last month, which denied the plaintiffs’ motion to remand the action, which was filed in the Circuit Court of Wood County, West Virginia.  I wrote about the lawsuit in this post.

    The lawsuit seeks compensation for potentially thousands of FiberNet’s customers who were affected by an interruption in service in July.  The plaintiffs alleged claims of breach of contract, fraud, and negligence, but Goodwin found that the breach of contract claim was pre-empted by the federal tariff under which FiberNet transacts business, which is issued and regulated by the Federal Communications Commission: “The tariff has the force and effect of federal law and is the sole source of the rights and liabilities of the contracting parties.” 

    He recognized that it was less clear whether the fraud and negligence claims presented a federal question, but held that those claims “are part of the same case or controversy because they arise out of the same set of facts as the breach of contract claim[,]” and retained jurisdiction of them as well.

    Also pending before the Court are FiberNet’s motion to dismiss the plaintiffs’ claim for fraud and its motion for partial summary judgment as to the plaintiffs’ damages.  The motion for partial summary judgment asserts that the applicable state and federal tariffs limit the plaintiffs’ damages to a credit for the cost of service lost by each customer.  The plaintiffs maintain that discovery is necessary in order to determine whether FiberNet has deviated from the terms of the tariffs such that the tariffs do not apply and thus do not cap the plaintiffs’ damages. 

    Here are FiberNet’s memorandum in support of its motion for partial summary judgment and the plaintiffs’ response in opposition. 

    If FiberNet prevails on its motion for partial summary judgment, then the bulk of the damage claims disappear, as the plaintiffs would be unable to recover compensatory or punitive damages from FiberNet.  At that point, it seems to me, the need for a class action is questionable, as all of the plaintiffs would be entitled to (and limited to) the same relief from FiberNet, a credit for the lost service. 

    In a separate order, Goodwin has scheduled a hearing on the plaintiffs’ motion for class certification for June 12, 2008. 

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    In a ruling issued last month, the Supreme Court of Appeals of West Virginia ruled that a circuit court should have given the plaintiffs the opportunity to amend their complaint against two local hospitals in accordance with the West Virginia Medical Professional Liability Act (MPLA), rather than suffer the dismissal of their lawsuit for failure to comply with its provisions.  Blankenship v. Ethicon, Inc., 2007 WL 30344262 (W.Va.).

    In 2003, the plaintiffs filed suit against several defendants, including Charleston Area Medical Center and Herbert J. Thomas Memorial Hospital, resulting from the implantation of contaminated sutures.  The plaintiffs asserted several causes of action against the defendants, including product liability claims for negligence, strict liability, and breach of express and implied warranties, violations of the West Virginia Consumer Credit and Protection Act, and the intentional infliction of emotional distress.  The plaintiffs sought compensatory and punitive damages and equitable relief in the form of an investigation by the hospitals to investigate and determine “what patients were implanted with the Vicryl sutures and to then inform the patients so identified of the defective condition of those sutures.”

    The hospitals alleged that any claims against them must be pled according to the MPLA, which required the plaintiffs to obtain a certificate of merit for their claims and to provide the hospitals with pre-suit notice of the action. The hospitals moved for summary judgment on the grounds the plaintiffs’ claims were barred by their failure to comply with the MPLA.

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    Over the summer, I wrote about the legal troubles of Shirley A. Cunningham, Jr., William J. Gallion, and Melbourne Mills, Jr., the three Fen-Phen lawyers who are still in a Kentucky jail, following United States District Judge William Bertelsman’s decision to incarcerate them pending their trial on wire fraud charges in January 2008.

    As I explained in June, Gallion and Cunningham purchased a thoroughbred named Curlin for $57,000 in 2005, then sold 80% of their interest in February for $3.5 million.  Curlin has had a spectacular year as a three year old, winning the Preakness, running second in the Belmont, and third in the Kentucky Derby. Then, last Saturday, Curlin won the $5 million Breeders' Cup Classic, which entitles him to 54% of the purse, or $2.7 million. 

    In my post, I had pointed out that there would likely be litigation about Curlin's ownership, as Angela Ford, the lawyer representing most of the plaintiffs whom Gallion and Cunningham are accused of defrauding, alleged that Gallion and Cunningham bought the horse with money improperly withheld from her clients, which would make her clients the horse's owners and would void the sale of the 80% interest.

    The Daily Racing Form reports that last Thursday, Boone County (Kentucky) Circuit Court Judge William Wehr gave the 418 plaintiffs control over Tandy LLC, a corporation owned by Gallion and Cunningham, which owns Midnight Cry Stable, which in turn owns 20% of Curlin.   According to the article, Angela Ford says her clients want to sell their interest in Curlin, as do his other owners.   Curlin is likely to be named the Horse of the Year, which will increase his value even more.

    What is not clear (at least from the DRF article) is how Judge Wehr could make this determination now, when Cunningham and Gallion (as Curlin's part owners) have not gone to trial yet on the federal fraud charges, and thus have not been found guilty of anything.  Typically, when criminal and civil actions arise from the same conduct, the civil action has to be stayed until the criminal proceeding is resolved.  An acquittal in the criminal case is not necessarily a bar to a successful civil action (ask O.J. Simpson), but the criminal charges, which have a higher standard of proof, etc., take precedence. 

    This ruling also puts Curlin's ownership in limbo, because I don't know who would buy any interest at this point, until the issue of the identity of the true owners has been resolved finally.  Having 418 co-owners of a 20% interest in a race horse is a recipe for disaster.

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    Yesterday the jury has returned a verdict for punitive damages of $196.2 million against DuPont in the fourth and final phase of the class action trial in Harrison County, West Virginia, in which 7,000 area residents claim that DuPont injured them and contaminated their property by releasing substances including, cadmium, arsenic, and lead at its zinc smelting site.  Here is the Associated Press story on the verdict in the Saturday Gazette-Mail, as well as a statement issued by DuPont regarding the verdict.

    The AP story says that the damages awards against DuPont total nearly $400 million, but that number is an estimate, at least according to my calculations.  The punitive damages award and the property damage award of $55.5 million are nearly $252 million.  The cost of the medical monitoring program will be decided by Circuit Court Judge Thomas A. Bedell, but the AP says it’s estimated to cost more than $100 million.  Actually, I think it will cost a lot more than $100 million. 

    If every member of the class is entitled to $500 per year for medical monitoring expenses for 40 years, which is not unreasonable, considering that the jury adopted the plaintiffs’ proposal, the cost of the program is $140 million.  Taking into account anticipated increases in the cost of medical services over 40 years, the program could easily cost twice that amount, which means that DuPont is looking at more than $500 million total.  

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    After deliberating for seven hours, the jury yesterday determined that DuPont must pay $55.5 million to clean up houses, trailers, and businesses that were contaminated by DuPont’s operation of a zinc smelting plant, according to this story from Bloomberg.com. 

    The jury’s verdict concludes the third phase of the trial. The final phase, in which the jury will determine whether the class members are entitled to punitive damages, begins today.

    DuPont had set aside $15 million to resolve the plaintiffs’ claims, which obviously will not be enough, assuming that this verdict is affirmed on appeal.  DuPont will have to come up with even more money to pay for the cost of medical monitoring, which the jury approved last week.  Although the jury found that medical monitoring is necessary, Harrison County Circuit Court Judge Thomas A. Bedell will determine the specifics of the program, including its cost.

    The estimated cost of the remediation program came from the plaintiffs.  DuPont took the position that no remediation was necessary and did not present any alternative estimate to the jury.  DuPont’s strategy is understandable, but still carries considerable risk.  Does DuPont argue, as it did here, that no remediation is necessary, which means that if the jury disagrees, it will have only the plaintiffs’ estimated cost as the basis for its verdict?  Or does DuPont present figures showing a lower cost for remediation, and take the chance that the jury will interpret the lower numbers as a tacit admission that some remediation is necessary?  Not an easy decision.

    In some good news for DuPont, the Department of Justice has decided not to pursue criminal charges against it for the use of perfluorooctanoic acid, also known as C8, used in the manufacture of Teflon at DuPont’s Washington Works plant near Parkersburg, West Virginia.  Ken Ward, Jr. writes about the DOJ's decision in this morning’s Charleston Gazette.

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    Another federal district court decision I have wanted to write about is one that Judge John T. Copenhaver, Jr. entered on September 26, 2007 in Strawn, et al. v. AT&T Mobility, Inc. f/k/a Cingular Wireless LLC, Civil Action No. 2:06-CV-0988.

    The plaintiffs filed a class action in the Circuit Court of Kanawha County (Charleston), West Virginia against Cingular (now AT&T), alleging that its decision to enroll them in its roadside assistance program and charge $2.99 per month without their consent constituted an unfair trade practice under the West Virginia Consumer Credit and Protection Act.

     Cingular removed the action to federal court based on the Class Action Fairness Act’s requirement that a class action with an amount in controversy in excess of $5 million, exclusive of interest and costs, is subject to federal jurisdiction.  CAFA has other jurisdictional requirements, but only the amount in controversy was in dispute.

    The court found that Cingular had the burden of establishing federal jurisdiction, but that the class representatives’ stipulations that the amount in controversy was less than $5 million were not persuasive (because in West Virginia, a jury can return a verdict in excess of the amount in controversy, thereby rendering such a stipulation meaningless).

    The parties argued about the size of the class, which was critical to the court’s jurisdiction.  Under the Consumer Credit and Protection Act, each plaintiff would be entitled to $200 in damages, so a class of 25,001 members, at $200 each, would exceed $5 million.  Cingular initially asserted that the class consisted of 62,000 members, which the plaintiffs disputed.  Cingular reduced the number to 58,800 members (after eliminating its employees and business customers), but that number included individuals who had become enrolled in Cingular’s roadside assistance program and continued to pay the monthly fee.  Because the suit was filed on behalf of those who had been enrolled and charged the amount without their consent, the court found that the putative class “was much narrower.”

    The plaintiffs challenged Cingular’s estimate of 58,800 in their reply, so the court gave Cingular an opportunity to reply and to “narrow its response to the more limited scope of the putative class and  calculate the amount defendant believes to be in dispute.”   Cingular’s reply was to inform the court that its “concerns cannot be resolved at the removal stage.”   Cingular then made three arguments that did not remotely answer the court’s questions.  Consequently, the court concluded there was no record “to support a finding that the amount-in-controversy exceeds $5,000,000.” 

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    According to the Associated Press, the jury yesterday determined that DuPont must pay for medical monitoring for 7,000 class members, as a result of its contamination of a zinc smelting plant in Spelter, West Virginia.  The class members, who are residents of Harrison County, allege that their health and property were damaged by DuPont's releases of cadmium, arsenic, and lead at the site.  I have written about the trial on several occasions, most recently yesterday.

    Although the jury apparently adopted the plaintiffs’ proposed plan, which establishes a 40-year voluntary testing program for various cancers and other conditions related to toxic exposures, the Circuit Court will determine the “scope, cost and duration of any medical monitoring plan,” according to DuPont’s spokesman.

    The trial's third phase, which addresses the plaintiffs' property damage claims, begins today.  The last phase, which should start sometime next week, will determine whether the plaintiffs are entitled to punitive damages.

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    The Associated Press reports that this morning, the jury began deliberating the plaintiffs’ medical monitoring claims in the second phase of the class action against DuPont, which is taking place in Harrison County, West Virginia.

    The jury has to determine whether the plaintiffs are entitled to compensation for medical monitoring, and if so, how much.  The plaintiffs have proposed a 40 year medical monitoring plan that would offer voluntary testing for various cancers, including those of the lung, skin, stomach, bladder and kidney, as well as testing for kidney function, cognitive problems and lead poisoning.  The plaintiffs allege that they are at greater risk for such conditions because of pollution and contamination caused by DuPont’s zinc smelting plant in Spelter, West Virginia.

     Last week, in the first phase of the trial, the jury determined that DuPont was liable for the plaintiffs' injuries.  Regardless of the jury’s verdict on medical monitoring, the trial's next phase will address property damages, and the final phase will determine whether the plaintiffs are entitled to punitive damages.

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    Last week, I wrote that the jury had begun its deliberations in the liability phase of the class action trial against DuPont over its alleged contamination of a zinc smelting plant in Spelter, West Virginia, which the plaintiffs alleged injured their health and damaged their property.   Yesterday, the jury determined that DuPont was negligent in dumping various chemicals, including arsenic, cadmium, and lead, at the site.  Here's the story by Associated Press reported Vicki Smith.  Specifically, the jury determined that the site constituted a public and private nuisance and that the pollution at the site illegally trespassed onto private property.  The jury also determined that DuPont was strictly liable for the plaintiffs' exposures. 

    Because the trial is bifurcated, the parties began to present evidence today on damages, starting with the plaintiffs' claims for medical monitoring.  The Charleston Gazette posted this article about the damages phase on its website earlier today.

    DuPont has set aside $15 million to deal with the lawsuit.  Even if the jury doesn't award damages for medical monitoring, the plaintiffs will present evidence on their property damage claims.  Lastly, the jury will determine whether the plaintiffs are entitled to punitive damages.  The liability phase took about three weeks to conclude, but I haven't seen any estimate of how long the damages phase will take.

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    Closing arguments began yesterday in Harrison County Circuit Court in the trial of the class action against DuPont and other defendants, which seeks compensatory damages for medical monitoring and property damage claims, and punitive damages.  Here are articles on the trial from Business Week's website and the Associated Press.

    The closing arguments represent the conclusion of the first phase of the trial, which addresses the liability of the defendants.  If the jury determines that the defendants are liable, then the jury will determine whether to award damages for medical monitoring, and if so, how much.  In the third phase, the jury will determine whether to award property damages, and in the fourth phase, the jury will determine whether to award punitive damages. 

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    Trial started this week in a class action against DuPont and other defendants in the Circuit Court of Harrison County (Clarksburg), West Virginia.  Perrine, et al. v. E. I. du Pont  de Nemours, Inc., et al., Civil Action No. 04-C-296-2.  There are approximately 7,000 class members, who seek damages for medical monitoring, property damage, and punitive damages.  Here is the class action website.

    The plaintiffs allege that a zinc smelting plan located at Spelter, West Virginia contaminated their property and released hazardous substances, including arsenic, cadmium, and lead, into the atmosphere.  The Circuit Court certified a class on September 14, 2006.  Its order describes the geographic area involved in the litigation. 

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