MEDIA

November 10, 2005

Motion Denied in Class Action Against ‘Light’-Cigarette Makers

Published in: New York Law Journal | volume 234

In the U.S. District Court for the Eastern District of New York, Judge Jack B. Weinstein denied defendants’ motion for summary judgment, based on the Racketeer Influenced and Corrupt Organizations Act (RICO) statute of limitations, in a class action against manufacturers of ‘light’ cigarettes. Judge Frederic Block, in a declaratory judgment action by Boeing involving the crash of an EgyptAir flight near Nantucket, Mass., held that the court had jurisdiction over an Egyptian insurance company under the Federal Sovereign Immunities Act. Judge David G. Trager dismissed a suit over a contract with a forum selection clause conferring jurisdiction in the Philippines. And Judge Arthur D. Spatt disqualified plaintiffs’ expert witness, an attorney/engineer, because he had previously represented defendant in numerous lawsuits.

Smokers’ Class Action

In Schwab v. Philip Morris USA, Inc., 04 CV 1945 (EDNY, Oct. 6, 2005), Judge Weinstein, denying defendants’ motion for summary judgment, found that genuine issues of fact existed as to when plaintiffs in this RICO class action knew or should have known of their alleged economic injuries arising from fraud-induced purchases of light cigarettes.

Plaintiffs filed their complaint on May 11, 2004. The bar of limitations in civil RICO is measured from a date four years earlier, May 11, 2000.

Judge Weinstein rejected defendants’ argument that knowledge by putative class counsel–who filed similar suits in 1998 and 1999–should be imputed to the entire class under agency principles. The class here included tens of millions of unidentified plaintiffs who claim they were defrauded for decades. In Judge Weinstein’s view, ‘Principles of agency applicable in the single-attorney– single-client relationship cannot be transposed’ into this class action. The court added: ‘How can a smoker who was not even aware when he purchased a pack of cigarettes years ago that any of the class attorneys existed be assumed to have known what the attorneys knew?’ Unnamed class members, moreover, have not yet ‘consented’ to be represented by putative class counsel.

The critical issue therefore was not the attorneys’ knowledge, but plaintiffs’. Defendants made a ‘strong case,’ based on materials long available to the public, that plaintiffs knew or should have known of their economic injuries before 2000. In response, plaintiffs chronicled efforts by the tobacco industry to induce misperception about the risks of smoking. The ‘enormous amount of conflicting evidence’ on consumer knowledge meant that a jury would have to decide this issue.

A ‘troubling’ problem for plaintiffs, the court observed, is that some class members almost certainly were aware long before 2000 that ‘light’ cigarettes were not appreciably safer than regular cigarettes. The statute would thus bar their claims. Assuming a jury could find defendants liable, recovery would depend on a ‘statistical analysis to estimate how many smokers knew what and when.’ This estimate, Judge Weinstein stated, would be ‘predicated largely on expert testimony that may require disaggregation of smokers by knowledge, year by year, with reintegration to obtain total damages.’ Such estimates could resolve factual issues not susceptible of direct proof.

The court gave defendants leave to renew their motion upon completion of discovery.

FSIA Jurisdiction

In The Boeing Co. v. EgyptAir (In re Air Crash Near Nantucket Island, Mass., on Oct. 31, 1999), 00 MDL 1344, 02 CV 2540 (EDNY, Sept. 30, 2005), Judge Block found that the court had jurisdiction over defendant MISR Insurance, an Egyptian insurer wholly owed by the Arab Republic of Egypt, under the Foreign Sovereign Immunities Act (FSIA). Boeing sought a declaratory judgment, under the Declaratory Judgment Act (DJA), that EgyptAir, MISR and MISR’s reinsurers were barred by various contracts from recovering damages from Boeing arising from the crash of EgyptAir Flight 990 near Nantucket in 1999 or, alternatively, that EgyptAir was liable to Boeing for subrogation damages.

Purchase and customer service contracts between EgyptAir and Boeing relating to the aircraft in question selected the laws of Washington State to govern and required EgyptAir to waive any tort remedy against Boeing. The contracts also required that: (1) EgyptAir indemnify Boeing from personal or property losses by any third party; (2) EgyptAir name Boeing as an additional insured on EgyptAir’s aviation liability insurance; and (3) EgyptAir have its insurance carrier waive all subrogation rights against Boeing. The insurance policy issued by MISR specifically incorporated the requirements of the Boeing/EgyptAir contracts. MISR also held a Foreign Air Carriers Certificate of Insurance in compliance with U.S. Department of Transportation regulations.

Judge Block found jurisdiction over MISR based on both the commercial-activity and waiver exceptions to the immunity afforded a foreign sovereign under the FSIA. The court pointed specifically to the third clause of the commercial-activity exception. First, there was a significant nexus between Boeing’s cause of action and acts outside the United States. In fact, Boeing’s claims were intertwined with the policy issued to EgyptAir naming Boeing as an additional assured and expressly incorporating the terms of the Boeing/EgyptAir agreements. Second, MISR’s issuance of the policy was a commercial activity, and the incorporation of the terms of the Boeing/EgyptAir agreements was done in connection with this commercial activity. Third, the issuance of the policy had a direct effect in the United States by providing insurance coverage to Boeing for the plane it manufactured and which was flown in the United States.

Judge Block also found waiver of immunity, because MISR, as EgyptAir’s subrogee, was bound by EgyptAir’s express waiver of sovereign immunity in its Foreign Air Carrier Permit.

As the court also noted, the exercise of personal jurisdiction under the FSIA comported with due process. The claim arose from MISR’s contacts with the United States. By adding Boeing, a company domiciled in the United States, as an additional insured, MISR purposely availed itself of the privilege of conducting activities within the United States. Exercising personal jurisdiction also comported with ‘fair play and substantial justice,’ because of the ‘interests’ of the United States in adjudicating this dispute (Boeing is a U.S. corporation; the agreements are governed by U.S. law; and the court had overseen litigation concerning the crash). Slip op. 14-16.

Judge Block found jurisdiction under the DJA as well. MISR’s subrogation rights flowed from the Boeing/EgyptAir contracts governed by U.S. law. As Judge Block noted, a court here is better qualified to interpret U.S. law than an Egyptian court. Moreover, MISR’s efforts to litigate in Egypt clearly showed forum shopping, especially since the agreements called for U.S. law to apply. Slip op. 29-32.

Int’l Forum Selection Clause

In The Hong Kong and Shanghai Banking Corp. Ltd. v. Suveyke, 04 CV 4994 (EDNY, Oct. 14, 2005), Judge Trager granted a motion to dismiss by the guarantor of a loan where the loan agreement contained a forum selection clause conferring jurisdiction on the courts of the Philippines.

Plaintiff bank HSBC extended loans to Karayom Garment Manufacturing Inc. Both corporations are located in the Philippines. Defendant, a New York resident, entered into an agreement with HSBC guaranteeing Karayom’s obligations. Karayom defaulted, and HSBC filed suit in the Eastern District to enforce the guarantee.

Defendant moved to dismiss on the ground that the forum selection clause confers exclusive jurisdiction on the Philippine courts.

Judge Trager found that HSBC, as the party opposing enforcement, could not meet its burden of proving that venue is proper or overcome the presumption that the clause is enforceable.

First, because HSBC drafted the contract, any ambiguous language would be construed against it.

Second, Judge Trager saw no merit to the argument that the parties did not intend the Philippines as the only forum. The contract states, ‘Any lawsuit…. shall be instituted with the competent courts of Makati, Metro Manila, Philippines’ (emphasis added). In short, the contract specifies not just jurisdiction, but also venue, by identifying a particular court. The specification of venue, combined with the word ‘shall,’ indicates the parties’ intent to have mandatory, exclusive jurisdiction in the Philippines.

Additional language in the contract creates a method for service of process in the Philippines and requires the agreement to be interpreted under Philippine law. All of this, Judge Trager stated, solidifies the intention to create mandatory exclusive jurisdiction.

Disqualifying Expert Witness

In Grioli v. Delta International Machinery Corp., No. 03 CV 02845 (EDNY, Oct. 29, 2005), Judge Spatt disqualified plaintiffs’ expert witness who was formerly a trial counsel for the defendant. Plaintiffs sought to recover damages based on negligent design, strict liability and breach of warranty arising from injuries sustained by plaintiff to his hand while using a 10-inch bench saw manufactured by defendant.

Thomas Pilchowski, plaintiffs’ proposed expert, was an attorney, engineer and inventor. Plaintiffs sought to call him as an expert to testify that the bench saw was defective. Mr. Pilchowski had represented defendant for 16 years, defending product liability claims in over 100 lawsuits involving table saws, including saws similar to the one at issue in this case, and other power tools.

While disqualification of expert witnesses is rare, Judge Spatt found it appropriate here where confidences might have been disclosed. First, a confidential relationship existed when Mr. Pilchowski represented the defendant as trial counsel. Second, Mr. Pilchowski had access to confidential information that was particularly relevant to the case before the court. Third, there was no ‘public interest’ against disqualification.

Harvey M. Stone and Richard H. Dolan are partners at Schlam Stone & Dolan. Bennette D. Kramer, a partner of the firm, assisted in the preparation of the article.

[This article is reprinted with permission from the November 10, 2005, issue of the New York Law Journal. Copyright © 2007 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.]