Castano v. American Tobacco Co. (5th Cir. 1996) involved a class of smokers, their estates, and their survivors arrayed against what was becoming a classic corporate villain: the tobacco companies.
Like in In re Rhone-Poulenc Rorer, the atmospherics favored the plaintiffs. Tobacco companies had already lost credibility in the court of public opinion. And the plaintiffs wisely took advantage of various embarrassing documents by asserting nine fraud-, warranty-, and tort-based causes of action, all based on the tobacco companies’ allegedly inflicting the "injury of nicotine addiction" on a generation of smokers. Faced with a class that probably included friends and family on one side, and what appeared to be mustache-twirling villains on the other, the district court certified the class.
Of course, as lawyers might take for granted today, a nationwide personal-injury class asserting a number of fraud-based claims might be largely sympathetic, but it would not result in a workable trial. Since (like in Rhone-Poulenc Rorer) there was no Rule 23(f) that allowed for interlocutory appeals, the defendants sought appellate review under 28 U.S.C. § 1292(b).
In reversing the certification, the Fifth Circuit provided a number of observations that still carry great weight today:
Variations in state law matter. According to the Fifth Circuit,
The district court erred in its analysis in two distinct ways. First, it failed to consider how variations in state law affect predominance and superiority. Second, its predominance inquiry did not include consideration of how a trial on the merits would be conducted.
The Fifth Circuit provided a claim-by-claim analysis of material differences. It also held that differences in available affirmative defenses were material.
Fraud claims are extremely difficult to certify. The Fifth Circuit also observed:
The court’s treatment of the fraud claim also demonstrates the error inherent in its approach. According to both the advisory committee’s notes to Rule 23(b)(3) and this court’s decision in Simon v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 482 F.2d 880 (5th Cir.1973), a fraud class action cannot be certified when individual reliance will be an issue. The district court avoided the reach of this court’s decision in Simon by an erroneous reading of Eisen; the court refused to consider whether reliance would be an issue in individual trials.
(Footnote omitted.) Defense lawyers continue to rely on that reasoning today when plaintiffs propose massive classes based on individual frauds.
Large-value claims make for poor class actions. The Fifth Circuit also noted that, as had been apparent for some time, there was real money in tobacco cases.
[I]ndividual damage claims are high, and punitive damages are available in most states.The expense of litigation does not necessarily turn this case into a negative value sut, in part because the prevailing party may recover attorneys’ fees under many consumer protection statutes.
As a result, it would be very difficult to prove that the proposed class action was superior to an individual case for a plaintiff who had suffered actual harm.
So what’s the takeaway for Castano? Many defense lawyers consider this one of their "go-to" cases for predominance and superiority analysis. And for a lucid explanation of why a rigorous analysis is necessary before certifying a class, few cases are better.