Ephedra MDL Class Settlement Rejected

Ephedra distachya

In an attempt to resolve the 300+ ephedra injury claims in the Metabolife Bankruptcy, settlement counsel for Metabolife and non-coordinating counsel for plaintiffs hashed out a global settlement that was dependent on conditional class certification. However, the MDL denied certification, and just released its opinion, the full text of which follows.

In re EPHEDRA PRODUCTS LIABILITY LITIGATION; PERTAINS TO ALL
CASES

04 M.D. 1598 (JSR)

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK

2005 U.S. Dist. LEXIS 19586

September 11, 2005, Decided

OPINION: JED S. RAKOFF, U.S.D.J.

On December 3, 2004, plaintiffs in Kline v. Metabolife International Inc.,
No. 04 Civ. 3351, and Westfall v. Metabolife International Inc., No. 04 Civ.
4255, moved for certification of a settlement-only class consisting of all
persons in the United States who had ingested an ephedra-containing dietary
supplement called “Metabolife 356” and for preliminary approval of a class
settlement. Defendant Metabolife International Inc. (“Metabolife”) joined in
that motion and moved separately for an injunction to stay 130 personal-injury
actions commenced against Metabolife by members of the alleged class in the
courts of many states. Both motions were vigorously opposed by the Plaintiffs’
Coordinating Counsel (“PCC”) and on April 7, 2005, Metabolife withdrew its
motion for an injunction. As to the motion for certification of the
settlement-only class and preliminary approval of the settlement, the Court,
after receiving extensive written submissions and oral arguments, denied the
motion by summary order dated June 2, 2005, with opinion to follow. This is that
Opinion.

At the time of its denial of the motion, the Court had before it for
consolidated pretrial proceedings about 300 ephedra products liability cases
transferred here by the Judicial Panel on Multidistrict Litigation (the “MDL
cases”), including some 170 cases against Metabolife (including Kline and
Westfall). n1 In addition, about 60 personal-injury actions against Twin
Laboratories Inc. (a onetime manufacturer of ephedra products but unrelated to
Metabolife) had been transferred here for trial from state and federal courts
pursuant to 28 U.S.C. § 157(b)(5) and were consolidated for pretrial purposes
with the MDL cases. Additionally, some 130 ephedra personal-injury cases were
pending against Metabolife in various state courts. More than 90 of those were
in California, where they had been consolidated for pretrial purposes under a
state procedure similar to 28 U.S.C. § 1407.

Against this background, Klein and Westfall filed the instant motions for
class certification and preliminary approval of the proposed settlement on
December 3, 2004. At oral argument, Metabolife’s “settlement counsel” explained
the genesis of the motion: Metabolife had retained him to craft a process for
settling all 300 state-court and MDL cases involving Metabolife; he first
approached the PCC with a proposal, but the PCC expressed a preference for
settling cases individually; he then began negotiating with Klein and Westfall’s
attorneys, who are not members of the PCC. n2 See transcript, March 16, 2005, at
97-99, 126; see also id. at 120-22. Counsel for Klein and Westfall explained
that the negotiations were extensive; that they had retained one of the PCC’s
experts, Christine Haller M.D., to evaluate the proposed matrix of injuries and
compensation; and that with her assistance, they had reached settlement terms.
See id. at 76.

As noted, Kline and Westfall’s notice of motion defines the class to be
certified as all users of Metabolife 356 (the ephedra-containing product) in the
United States, as well as all persons having a derivative claim based on such
use. Plaintiffs’ Motion for Preliminary Approval fo Class Settlements P 2. A
class this broad might number millions, as, according to Metabolife, “Millions
of people have consumed Metabolife’s ephedra-containing products since 1995.”
Metabolife’s Memorandum of Law on “Phase I” Briefing Issues Relating to Putative
Class Settlement and All Writ Injunction at 1. Plaintiffs Kline and Westfall
estimate, however, that the settlement class “consists of many thousands of
persons — everyone in the United States who was injured by Metabolife’s ephedra
products or sought treatment from a physician due to concerns about such
injuries.” Plaintiffs’ Memorandum in Support of Motion for Preliminary Approval
of Class Action Settlement at 13 (emphasis added). The difference is that the
proposed settlement notice offers a “$ 250 Cash Medical Benefit” to users who
suffered no injury but have “undergone medical screening by a health care
professional in connection with their use” of Metabolife 356.

In any case, the number of users of Metabolife 356 who suffered significant
personal injury is likely to be no more than a few hundred persons, i.e., those
already in litigation with Metabolife plus a few foreseeable latecomers. This is
because a number of factors peculiar to ephedra make it likely that nearly all
users of Metabolife 356 who suffered significant personal injury — or their
survivors — are already plaintiffs in the cases described above. Such factors
include: (1) any injury from ephedra, as the experts agree, would manifest
itself soon after ingestion (the proposed settlement here at issue set an outer
limit of 21 days); (2) the Food and Drug Administration banned ephedra dietary
supplements from the market in February 2004, so that the last colorable ephedra
injuries occurred more than a year ago; (3) applicable statutes of limitations
tend to be short, as little as one year in some relevant states; and (4) the
risk of injury from ephedra has received broad public notoriety, making it
unlikely that a user who suffered serious personal injury soon after taking
ephedra would be unaware of the possible link and the potential for recourse
to litigation.

Before turning to the merits of the instant motion, it should be noted that
the Court did not review the proposed settlement for fairness because approval
under Rule 23(e)(1)(C), Fed. R. Civ. P., was not sub judice. However, at least
three procedural aspects of the proposed settlement were relevant to
certification. First, the proposed settlement provided a matrix of ten “Injury
Categories,” each having five possible levels of severity, yielding a total of
50 scheduled benefits. A benefit found in the matrix is then subject to
reduction by percentages found in a “Confounding Factor Table,” where such
factors as prior illness and smoking in various amounts are listed and further
defined in 26 footnotes. Second, the proposed settlement provided a multilevel
claims resolution procedure: a class member would submit a claim with
documentation to a Claims Administrator, who would accept or disallow it; if it
were allowed, Metabolife would have the right to demand an audit and interpose
an objection; disputes between class members or Metabolife and the Claims
Administrator would be referred for a hearing to a Special Master appointed
by the Court upon approval of the settlement. Disputes were foreseeable over
product identification, timing of symptoms, diagnosis, severity of injury, and
confounding factors. Third, the proposed settlement gave Metabolife the right to
“walk away” at any time up to twenty days after 50% of all registered claims had
become final by exhaustion of the dispute procedure.

Turning then to the merits, the Court notes first that what the movants here
initially sought was to have the Court in effect invent, purportedly under Rule
23 and the All Writs Act, an alternative to the Bankruptcy Code for granting
Metabolife a stay of litigation and discharge of liability while affording only
one class of potential creditors an equitable share of Metabolife’s limited
assets. But even after the withdrawal of the stay motion, the proposed
certification could not meet the requirements of Rule 23.

It may be true, as the movants have noted, that the somewhat intractable
nature of mass tort disputes has sometimes led some courts to take a relaxed
view of settlement-only class certifications. Nonetheless, in the only two
occasions that settlement-only reached the Supreme Court, the Court held
certification improper. Ortiz v. Fibreboard Corp., 527 U.S. 815, 144 L.
Ed. 2d 715, 119 S. Ct. 2295 (1999); Amchem Prods. v. Windsor, 521 U.S. 591, 138
L. Ed. 2d 689, 117 S. Ct. 2231 (U.S. 1997). Indeed, the Amchem decision was
expressly intended to curb “judicial inventiveness” of the kind requested here,
521 U.S. 591 at 619, and to restrict district judges’ discretion to do equity
under the guise of Rule 23. “The safeguards provided by the Rule 23(a) and (b)
class-qualifying criteria . . . serve to inhibit appraisals of the chancellor’s
foot kind — class certifications dependent upon the court’s gestalt judgment or
overarching impression of the settlement’s fairness.” Id. at 621.

In Amchem, the Court also rejected the argument made by the movants here that
certification requirements are relaxed when litigation is to be obviated by a
settlement. “Proposed settlement classes sometimes warrant more, not less,
caution on the question of certification.” Id. at 620 n.16. Indeed, Amchem
allowed only one exception to the strict application of Rule 23(a) and (b) to
settlement-only classes:

Confronted with a request for settlement-only class
certification, a district court need not inquire whether the case, if
tried, would present intractable management problems, see Fed. Rule
Civ. Proc. 23(b)(3)(D), for the proposal is that there be no trial.
But other specifications of the Rule — those designed to protect
absentees by blocking unwarranted or overbroad class definitions —
demand undiluted, even heightened, attention in the settlement
context.

Id. at 620.

As a fall back to their unpersuasive argument that Rule 23 should be relaxed
in assessing a settlement-only class, movants also argue that the threshold for
certification should be relaxed because they are asking for only preliminary
approval of a settlement — just enough approval to disseminate its terms to
class members — together with an initial certification that is subject to
decertification later. They rely on a number of district court cases that
granted conditional certification along with preliminary approval a settlement.
However, an amendment to Rule 23 in 2003 Amendment deleted the provision that a
class certification “may be conditional.” According to the Advisory Committee
that drafted the change, the change was made because a “court that is not
satisfied that the requirements of Rule 23 have been met should refuse
certification until they have been met.” See Rule 23, Fed. R. Civ. P., Advisory
Committee Notes to 2003 Amendments. Thus, Rule 23 must be rigorously applied
even at this “preliminary” stage.

Application here of Rule 23 standards reveals that the proposed certification
is deficient for, inter alia, some of the same reasons addressed in Amchem. In
particular, with respect to what is called the “predominance test” — that is,
the requirement that “questions of law or fact common to the members of the
class predominate over any questions affecting only individual members,” see
Rule 23(b)(3) — the Supreme Court found that the following facts present in
Amchem served to negate predominance of common questions:

Class members were exposed to different asbestos-containing products,
for different amounts of time, in different ways, and over different
periods. Some class members suffered no physical injury or have only
asymptomatic pleural changes, while others suffer from lung cancer,
disabling asbestosis, or from mesothelioma. Each has a
different history of cigarette smoking, a factor that complicates the
causation inquiry.

Id. at 624. Here, similar disparities among ephedra users are evident in the
proposed settlement. If it were implemented, innumerable questions affecting
individual class members would arise — including whether the product they used
was Metabolife 356, the time between product use and the onset of their
symptoms, their diagnosis, the severity of their injury, the number of
cigarettes they smoked daily, etc. — all of which would have to be resolved in
determining the amount of compensation they would receive. Not only would these
individual questions predominate among members of the proposed settlement class,
they would be the only questions having any weight, since class members’ common
interest in a fair, reasonable and adequate settlement is not a question to be
considered under the predominance test. See id. at 622.

“The Rule 23(b)(3) predominance inquiry tests whether proposed classes are
sufficiently cohesive to warrant adjudication by representation” and “is similar
to the requirement of Rule 23(a)(3) that ‘claims or defenses’ of the
named representatives must be ‘typical of the claims or defenses of the class.'”
Id. at 623 & n.18. Here, the proposed “Settlement Class” ranges from users who
suffered no injury at all to the survivors of those who suffered death. Such a
class in not sufficiently cohesive to warrant adjudication by representation.
Even if the class were redefined to cover only users eligible for a matrix
benefit, individual questions of diagnosis, severity and confounding factors
would still predominate.

Furthermore, in order to certify a class under Rule 23(b)(3), the court must
find

that 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) [not applicable
to settlement-only certification].

The three pertinent matters, applied to the circumstances here, show that
a class action is not superior to individual civil actions:

Matter (A). Members of the PCC have asserted the interest of their clients —
both MDL plaintiffs and plaintiffs in state courts — to control the prosecution
of their claims and negotiate individual settlements. As the Supreme Court
observed in Amchem, quoting the Third Circuit decision it was affirming: “‘Each
plaintiff [in an action involving claims for personal injury and death] has a
significant interest in individually controlling the prosecution of [his case]’;
each ‘has a substantial stake in making individual decisions on whether and when
to settle.'” 521 U.S. at 616 (brackets in original). The same is true here.

Matter (B). As already noted, it is probable that nearly all the real class
members in interest — users of Metabolife 356 who suffered personal injury or
their survivors — are already plaintiffs, and that most are already before this
court. This circumstance shows that joinder of all personal-injury claimants in
individual actions is practical — a reason for denying certification similar to
the numerosity requirement of Rule 23(a)(1). It also means that
certifying the class will not provide remedy that prevents the commencement of
multiple individual lawsuits.

Matter (C). Here, prior to Metabolife’s bankruptcy, the alternative to a
class action (for all but about 30 of the 300 personal-injury cases) was the
existing MDL and its California counterpart. Concentrating dispute resolution in
one forum is desirable for resolving common issues but undesirable for questions
peculiar to individual class members. The MDL procedure accommodates both
interests through pretrial consolidation followed by remand to the transferor
courts for trials that may require the participation of fact witnesses and
treating physicians. A similar bifurcated forum is available under California
procedure for the 90 state cases consolidated there. The proposed class
settlement, with its centralized hearings before a Special Master that may
involve fact witnesses and treating physicians, would not be superior in terms
of forum concentration to resolving such disputes in the transferor courts.

Accordingly, for the foregoing reasons, the Court, on June 2, 2005, denied
the motion of Kline and Westfall for class certification of a
settlement-only class and preliminary approval of the settlement.

JED S. RAKOFF, U.S.D.J.

Dated: New York, New York

September 11, 2005

Footnotes

n1 Metabolife subsequently filed for bankruptcy in the Southern District of
California. See Voluntary Petition of Metabolife International Inc. for Chapter
11 Protection, June 30, 2005, Bankr. S.D. Cal.

n2 In May 2004, Christopher A. Seeger, Esq., then a member of the PCC, joined
the attorneys for Klein and Westfall in an application to serve as counsel for a
proposed Metabolife settlement class. The Court denied the motion as premature
in the absence of class certification. Mr. Seeger’s resignation from the PCC was
approved by the Court on December 9, 2004. He was not among the attorneys
appearing on behalf of Klein and Westfell.

End Footnotes

About 

Joel B. Rothman represents clients in intellectual property infringement litigation involving patents, trademarks, copyrights, trade secrets, defamation, trade libel, unfair competition, unfair and deceptive trade practices, and commercial matters. Joel’s litigation practice also includes significant focus on electronic discovery issues such as e-discovery management and motion practice relating to e-discovery.

Joel B. Rothman represents clients in intellectual property infringement litigation involving patents, trademarks, copyrights, trade secrets, defamation, trade libel, unfair competition, unfair and deceptive trade practices, and commercial matters. Joel’s litigation practice also includes significant focus on electronic discovery issues such as e-discovery management and motion practice relating to e-discovery.

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