The Supreme Court of California ruled last week that the Golden State's antitrust statute, the Cartwright Act, allows an award of overcharge damages to people who don't buy directly from a price-fixer.  Clayworth v. Pfizer, Inc., No. S166435 (Cal. July 12, 2010).

The case involved pharmacies that alleged price-fixing by drug manufacturers.  The drug companies defended on the ground that the Cartwright Act barred claims by people who resold the product and thus passed on some or all of the overcharge to more remote purchasers.  The trial court granted summary judgment against the pharmacies, and the court of appeals affirmed.

The Supreme Court reversed.  It concluded that the Cartwright Act entitles any victim of price-fixing, whether direct or indirect, to recover the entire overcharge it paid.

The Court also held that, in some cases, the plaintiffs must share damages among themselves.  That could happen if both direct and indirect purchasers timely sue and would otherwise recover "duplicative" damages.  The Court noted that the specter of the manufacturers' having to pay more than their full overcharge didn't arise in the case before it.  Neither drug wholesalers, which do buy directly, nor the California Attorney General, who can sue on behalf of all Golden State purchasers, the Court pointed out, had brought suit.

If you'd like to know more about the development of the law on the direct-indirect purchaser dichotomy — including Hanover Shoe, Illinois Brick, and the "Illinois Brick repealers" that many states enacted in reaction – Clayworth will give you a good introduction.

Today, the Texas State Commission on Judicial Conduct issued the Commission's Findings, Conclusions and Order of Public Warning in its Inquiry Concerning Honorable Sharon Keller. 

The Commission concluded that Texas Court of Criminal Appeals Presiding Judge Keller engaged in "willful or presistent conduct that is clearly inconsistent with the proper performance of her duties as a judge of the Court of Criminal Appeals and as the Presiding Judge" and "casts public discredit on the judiciary or the administration of justice" and that "Judge Keller's conduct on September 25, 2007, did not accord [death row inmate Michael] Richard access to open courts or the right to be heard acccording to law".

Texas Parte Blog post here.

A few weeks ago, Blawgletter read an article about the down-side of making a contingent fee deal with a lawyer.  

The item said that the arrangement creates a conflict of interest.  The lawyer, it said, wants to settle fast because he or she may earn a big fee for doing little work while the client might benefit from "eighteen months of battle in the courts."  Plus:  come rain or shine, there may "still be substantial costs the client must pay, such as fees for expert witnesses, first-class plane tickets for expert witnesses, luxury hotel rooms for expert witnesses, etc."

The author's alternative?  "[Y]ou should consider hiring a lawyer on an hourly rate basis."

[The author says in his online profile that he "has emphasized the representation of financial services clients concerning both their lending and deposit account activities."  Ahem.]

Call us doubtful.  A lawyer who works on a contingent fee basis, like her colleagues who toil for hourly rates, cannot settle a case without the client's consent.  And, unlike the lawyer who earns an hourly fee regardless of the outcome, the contingent fee lawyer has an incentive to maximize the recovery for him and the client.  Plus, many contingent fee deals either split out-of-pocket costs between lawyer and client or put the burden solely on the lawyer.  Nor can we recall an instance where a client felt unhappy about a case settling early.

The hourly lawyer, on the other hand, has an incentive to drag things out.  Has no financial stake in holding expenses down.  Suffers no loss if the case craters.

Which arrangement better aligns the interests of client and lawyer?  Leaving to one side the question of affordability — since many people cannot pay hourly rates – we'll vote for the contingent fee thing.  Lawyer and client win or lose together.  And, in the real world, a good firm that will work on a contingent fee basis often will offer to handle a case hourly or on a flat fee.

Your choice.

DeBeers, the diamond behemoth, limited supply of and fixed prices on sparklies for years and years and in all 50 states plus the District of Columbia.  But it sold to only a small group of outfits, none of which dared sue the font of their mercantile wealth.

That didn't stop indirect purchasers from bringing cases against DeBeers.  And, after almost a decade of wrangling, DeBeers declared a truce with them.  It also agreed to fund a $295 million settlement.

The hard-working district court okayed the pact and certified two classes, one under Rule 23(b)(2) — for injunctive relief – and the other under Rule 23(b)(3) — for damages.  Yesterday, the Third Circuit set the orders aside.

The problem?  In two words, Illinois Brick.  That old U.S. Supreme Court case held that people who don't buy straight from a price-fixer cannot recover damages under the Sherman Act.  Illinois Brick meant that the indirect purchasers who went after DeBeers for damages had to do so under state law.

A panel of the Third Circuit ruled that, because some states don't allow indirect purchaser suits under their antitrust laws, the claims of the settlement class members didn't "predominate" within the meaning of Rule 23(b)(3).  The panel also concluded that certification for injunctive relief under Rule 23(b)(2) couldn't stand due to the fact that, in the opinion of two panel members, DeBeers no longer posed a big threat of anticompetitive conduct.  Sullivan v. DB Investments, Inc., No. 08-2784 (3d Cir. July 13, 2010).

Circuit Judge Rendell concurred in the outcome but not in the rationale.  She disagreed with the majority on the grounds that her colleagues paid inadequate heed of the court's decision in In re Warfarin Sodium Antitrust Litig., 391 F.3d 516 (3d Cir. 2004), and went too far in reaching issues that the district court, and not the court of appeals, should decide in the first instance.

Blawgletter notes that neither of the opinions cites the American Law Institute's new Principles of the Law of Aggregate Litigation, section 3.06(b) of which states that, before approving a class settlement, "[t]he court need not conclude that common issues predominate over individual issues."

Both the author of the majority opinion, Circuit Judge Jordan, and the concurrer, Circuit Judge Rendell, belong to ALI.

The Judicial Panel on Multidistrict Litigation has suspended its 20-minute time limit on oral argument for In re Oil Spill by the Oil Rig "Deepwater Horizon" in the Gulf of Mexico, on April 20, 2010, MDL No. 2179.  The order says:

In light of the exceptionally large number of briefs filed in this docket, as well as the breadth of views contained therein, the Panel is suspending Panel Rule 16.1(g) (limiting oral argument to a maximum of twenty minutes), in this docket, for purposes of the July 29, 2010, hearing session.1

At the same time, the Panel takes this opportunity to remind the parties of its guidelines for oral argument (available on the Panel's website:  www.jpml.uscourts.gov).  The Panel views oral argument as a means (1) to update the Panel on any events that have occurred since the conclusion of briefing, and (2) to allow counsel to emphasize the key points of their arguments.  Where numerous parties share a viewpoint (e.g., advocating centralization in a specific district), the Panel ordinarily will require that a single spokesperson present that position at oral argument.

_____________________
1 At this time, the Panel does not anticipate allotting more than a total of one hour to oral argument in this docket.  At the hearing session, the Panel will hear oral argument in this docket first (i.e., prior to oral argument in any of the other twelve dockets), followed by oral argument in MDL No. 2185, In re:  BP p.l.c. Securities Litigation.

The Panel also issued a Media Press Release advising reporters that they'll have to apply for and wear a badge to attend the hearing.

Blawgletter expects to present argument in a different matter and looks forward to one of the most interesting MDL sessions in memory. 

Back in April, Blawgletter read the Court's decision in Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., No. 08-1198 (U.S. Apr. 27, 2010), to mean that arbitrators "will have no choice but to deny almost all class certification requests."

The Stolt-Nielsen majority held, 5-3, that an arbitration panel exceeds its authority under the federal Arbitration Act when it construes an agreement to arbitrate as allowing class treatment of a dispute unless the agreement shows the parties intended to permit such a thing.

Today, the Second Circuit ruled that an arbitration clause barring class arbitration "is unconscionable under California law" but that, "under Stolt-Nielsen, we have no authority to order class-based arbitration".  Fensterstock v. Education Finance Partners, No. 09-1562-cv, slip op. at 31 (2d Cir. July 12, 2010).  The panel thus affirmed the district court's order denying a motion to compel arbitration.

The court noted that the district court may handle the case on a class basis.  Id. at 11 ("[T]here is no longer any contractual challenge to Fensterstock's entitlement to litigate his claims against EFP in the district court — whether asserted against both EFP and ACS or against EFP along — and to litigate them on a class basis.").

We suspect that the court would have reached the same result even if the defendants hadn't withdrawn their challenge to the plaintiff's right to litigate – due to the fact that the arbitration clause didn't bar a class action in court.  It said only that the "Claims subject to Arbitration include, but are not limited to: . . . Claims made as part of a class action or other representative action" and said that "the arbitration of such Claims must proceed on an individual (non-class, non-representative) basis."  Id. at 7.

Some contracts do bar both class actions in court and class arbitrations.  This one didn't.  But we bet that, after Stolt-Nielsen and Fensterstock, you'll see more contracts that do take the belt-and-suspender approach.

The Federal Circuit looked at a verdict for $6.5 million this week and held that the jury meant to award more.

The case involved three patents relating to "transmission of data in telecommunications networks."  Telcordia Technologies, Inc. v. Cisco Systems, Inc., No. 09-1175, slip op. at 3 (Fed. Cir. July 7, 2010).  One patent dealt with "Method and Apparatus for Multiplexing Packet and Circuit Traffic", the second with "Survivable Ring Network", and the third "Synchronous Residual Time Stamp for Timing Recovery in a Broadband Network".  Id.

Telcordia alleged that Cisco infringed the patents by making and selling "Cisco routers and switches that transmit asynchronous transfer mode ('ATM') cells and other types of packets over synchronous optical network [sic] ('SONET')".  Id.

The district court granted Cisco summary judgment of non-infringement as to the first patent.  The other patent claims went to a jury, which found willful infringement and awarded $6.5 million in damages.  The district court entered judgment on the verdict but also concluded that the damages award didn't include any amount for future infringement and directed the parties to negotiate a reasonable royalty going forward.  The Federal Circuit largely affirmed.

But not before things got odd.  Telcordia's expert set the amount of damages from past infringement at $75 million.  Cisco's put the amount at $5 million for past and future infringement.  The damages question asked the jury to "identify the amount of monetary damages that will compensate Telcordia for Cisco's infringement."  Id. at 22-23.

The Federal Circuit held that the district court had discretion to construe the jury's answer as referring to damages only for past infringement.  It said:

District courts have broad discretion to interpret an ambiguous verdict form, because district courts witness and participate directly in the jury trial process.  The district court was in a position to assess whether the verdict figure represented past infringement as well as ongoing infringement.  In the absence of an express statement in the verdict, this court cannot determine whether the jury compensated Telcordia for all of Cisco's infringing activities.  The $6.5 million award is closer to $5 million proposed by Cisco for past and ongoing infringement by Cisco for past and ongoing infringement than $75 million proposed by Telcordia.  However, neither party proposed the exact $6.5 million figure.  In any event, this courts holds that the district court's finding that the jury's verdict compensates Telcordia for past infringement is not clearly erroneous.  In the circumstances of this case, this court finds that the district court did not abuse its discretion in interpreting the verdict form.

Id. at 23-24.  Come again?  The jury question asked for a number "that will compensate Telcordia for Cisco's infringement."  Blawgletter sees no ambiguity there.  "Cisco's infringement" means all of Cisco's infringement.

Nor do we find any ambiguity in the jury's $6.5 million answer.  Didn't the jury simply take Cisco's figure and bump it a bit?  To get to $6.5 million from Telcordia's past-only number would have required the jury to cut Telcordia by $68.5 million.  Raising Cisco's amount by $1.5 million looks more likely to us than cutting Telcordia's by $68.5 million.

And since when do district courts have discretion to interpret an ambiguous verdict form without at least trying to explain why they construe it as they do?

Pediatricians sometimes ask new parents to bring their offspring in for a "well-baby check-up".  Which sounds both positive and useful.

It also works in the practice of law.  

Like recent moms and dads who get a postcard suggesting a well-baby check-up, your clients will feel a brain tickle from the release of endorphins if you ask:

  • How am I doing?  
  • What can I do better?
  • Are we addressing/achieving the right issues/goals? 
  • Do we have the right people on our team?  
  • Should we switch our weekly calls to another day/time?  
  • Does this article of clothing make me look skinny/fat?  

And so on.

Do it.  Your clients will thank you.

(And Blawgletter will now thank Rob.)

Snappy: General Kagan, do you feel odd when people call you general?

Kagan: No.  Should I?

Snappy: Just wondered.  [Aside:  Sheesh.]

Bitey: Because, I think my colleague seems to mean, you don't work in the military.  Never have.  Right?

Kagan: Well, no, I haven't.

Bitey: [To Snappy:  Zing!]

Snappy: How about when people called you dean?  How'd that make you feel?

Kagan: Fine.

Bitey: What does vapid mean?

[Kagan exits, pursued by a bear.]

Blawgletter got some excellent feedback about our last post — on the D.C. Circuit's ruling this week that the lawyer work product doctrine protects a third-party auditor's memo to the extent it reports ideas that a lawyer birthed in anticipation of a lawsuit.

We doubted the court got it right.  At least one of you agreed with us.  But at least another one surely did not.  This elite member of the Blawgletterati wrote:

The circumstances for waiver of work product are and should be different from waiver of the attorney-client privilege.  Because the underlying purpose of the work product doctrine is to protect attorney work product from disclosure to adversaries, waiver of work product results only where the information is disclosed to an adversary or under circumstances that substantially increase the opportunity for an adversary to obtain the information, not just where it is disclosed to any third party.  See, e.g., SEC v. Brady, 238 F.R.D. 429, 444 (N.D. Tex. 2006).  Thus, waiver of the attorney-client privilege in a particular communication does not necessarily mean that the work product protection in the same communication has been waived.  Id. at 441.  In the [D.C. Circuit's] Deloitte case, the attorney’s work product was shared with the client’s auditor, which ordinarily should not be a circumstance that substantially increases the opportunity for the IRS to obtain the information.  If an outside lawyer cannot share his thoughts with the client’s auditors without fear of waiving work product, a client’s defense is hampered.

That sounds mighty persuasive.  Yet we still feel queasy about setting different tests for waiver of lawyer-client privilege and lawyer work product.  Seems to us that the communication of work product ideas to the third-party should at least serve the purpose of the work product doctrine — aiding the prosecution or defense of a lawsuit.  In Deloitte, the disclosure of work product helped the audit but not defense of the tax case.

We bet many of you have Powerful Opinions about this Important Subject.  What do you think?