Supreme Court “Reasonably Likely” to Hear Scott v. American Tobacco Co. Case

A remarkable ruling was handed down several years ago by the Fourth Circuit Court of Appeal of Louisiana. In Scott v. American Tobacco Co., 2004-2095 (La.App. 4 Cir. 02/07/2007); 949 So. 2D 1266, the Court found that plaintiffs in a class action alleging fraud did not need to provide direct evidence that class members relied on defendants’ misrepresentations.

In the context of class action litigation, that ruling was a significant departure from the norm. Courts typically do not permit class cases to proceed if individual issues affecting particular plaintiffs and class members are likely to dominate the issues that can be decided in common for all class member, which would be the case if a judge had to evaluate whether every individual class member actually relied on defendants’ allegedly misleading statements. Easing the requirements to prove individual reliance in fraud cases would allow the courts to hear a broader range of class actions.

The ruling has not done that, because, in part, it so specific to tobacco litigation. The Circuit Court explained that the record showed defendants had engaged in a “five decade long public relations effort to create the impression in the public that there was a legitimate controversy about the health effects of smoking, even though defendants knew that such an impression was false” and that “defendants sought to create doubt about the connection between smoking and disease so that smokers would be able to justify beginning or continuing to smoke.” Scott, 949 So. 2D at 1277. The Circuit Court’s holding was premised on finding “defendants’ lengthy course of prohibited conduct affect[ed] a large number of consumers, like the class of Louisiana smokers, and the defendants use[d] indirect communications designed to distort the entire body of public knowledge.” Scott, 949 So. 2D at 1277-8.

And, until recently, it would have been a fair bet that the ruling would never have any effect outside the world of tobacco litigation. However, a recent and rare order of the Supreme Court issued by only a single Justice suggests that it may have a major impact on class action litigation.

On September 24, 2010, Supreme Court Justice Antonin Scalia found it “reasonably likely” that the Supreme Court would grant the tobacco companies’ petition for writ of certiorari to review the ruling, under which an entry of judgment was recently entered requiring defendants to create a $250 million smoking cessation program. Philip Morris USA Inc. et al. v. Gloria Scott et al., 561 U.S. __ (2010).

Justice Scalia pitched the issue broadly as “[t]he extent to which class treatment may constitutionally reduce the normal requirements of due process.” In finding that plaintiffs were not required to prove reliance, the Circuit Court, according to the tobacco companies, denied defendants their constitutional due-process right to present every possible defense. Plaintiffs’ response, which Justice Scalia noted “may ultimately prove persuasive”, was that defendants have no nonreliance defense. Whether and to what extent class treatment reduces the requirements of due process is, as Justice Scalia wrote, an “important question” with far-reaching implications.

Given that the Supreme Court has shown itself to be increasingly likely to issue rulings that reach far beyond the facts of the cases before it, as it did recently in Morrison, et al., v. National Australia Bank Ltd., 130 S.Ct. 2869 (2010) in tossing aside forty years’ worth of securities fraud jurisprudence, the Scott case presents an opportunity for the Court to reshape yet another area of law.

Justice Scalia found it “significantly possible” that the judgment below would be reversed, but the nature of the issue and attitudes of the current Supreme Court make this case one worth watching.  Philip Morris USA Inc. filed the petition for writ of certiorari with the Supreme Court on behalf of the tobacco companies involved in the suit December 3, 2010 (Docket No. 10-735).  A response from respondents is due January 3, 2011.

In case you are wondering how it is that Justice Scalia is involved at this stage of the action, in such an apparently substantive way, prior to any formal action by the Supreme Court, the answer is 28 U.S.C. § 42, a part of the Judiciary and Judicial Procedure Act. This statute  deals with the organization of the U.S. courts and requires the Supreme Court to assign each of its justices as “circuit justice” for one or more of the nation’s thirteen circuit courts of appeal. Justice Scalia is the one and only circuit justice for the Fifth Circuit Court of Appeals, which covers Texas, Mississippi and Louisiana (where Scott was decided). The circuit justice, by himself or herself,  typically decides issues that might adversely affect the Supreme Court’s jurisdiction pending a likely petition to the full Supreme Court. In Scott, the losing tobacco companies, facing execution of a damages judgment in favor of the plaintiff class for over $240 million, went straight to Justice Scalia seeking a stay of that judgment, as permitted by 28 U.S.C. § 2101(f), pending their cert petition.