Kentucky Commercial Law and Litigation

    For those of you who are Kentucky sports fans, or less likely Antitrust fans, you may be interested in yesterday's decision by the Sixth Circuit in Claude Bassett's antitrust case against the NCAA and the U.K. Athletic Association.  Bassett was, for the few of you who don't follow such things closely, a U.K. assistant football coach who resigned in 2000 in the face of allegations that he violated NCAA recruiting rules.  He claimed that other university employees encouraged him to do so and alleged that he and the others agreed that NCAA rules on the matter should be ignored.

    Following an internal investigation, the NCAA imposed sanctions on Bassett through 2010.  He alleged these sanctions amounted to a group boycott in violation of the Sherman Act.  Judge Hood and the Court of Appeals concluded his Complaint did not allege an effect on a commercial market and was, therefore, not within the scope of the Sherman Act.

    In an interesting aside to the antitrust claims, the Court agreed that even if there was an agreement between Bassett and other university employees to not report NCAA rules infractions, it would be void against public policy.

    Bassett was represented in the trial court and Court of Appeals by our friend and former colleague Bob Furnier and his partner Rasheed Simmonds.  (In the spirit of full disclosure, we were local counsel in the trial court).  Ed Stopher and Scott Davidson of Boehl Stopher represented the NCAA.  Kevin Henry, Steve Barker, Doug McSwain and others of Sturgill Turner represented the U.K. Athletic Association.  The decision is recommended for publication. 

    For those of you who don't subscribe to Francis Pileggi's blog on Delaware corporate law and have anything to do with drafting LLC agreements, you should consider an RSS feed to his work.  His post on Friday can be found here.  It reports on a significant new decision in Delaware about whether LLC members have fiduciary duties to each other.   Because of the regard for Delaware decisions on a variety of corporate law issues, this decision is likely to have an impact here and elsewhere.

    Most law students know the mantra.  A litigant is not bound by the results of a prior case unless he or she was a party or in privity with a party to the prior case.  Some relationships are easy to classify as privity:  a successor in interest to real property (a new owner can't relitigate a prior decision on adverse possession for example). Others are more difficult:  Is one who paid the fees in the prior case bound by those result in his own -- later -- case?  Is one bound where he is represented by the same counsel and uses the same witnesses as the prior litigation, and where the issue is identical (a plaintiff in a subsequent product liability case raising the same issues as a prior case, where the prior plaintiff lost)?

    Thanks to the Baylor procedure profs at the Civil Procedure Profs Blog, we learned the Supreme Court will have an opportunity soon to decide whether "privity" can include some relationships between the first and second party that makes it fair to hold the second party accountable for the results in the first case.   It heard argument a couple of weeks ago in Taylor v. Sturgell (Court of Appeals opinion here), a case in which a plaintiff sought certain documents from the F.A.A. under a freedom of information act request.  They were the same documents sought, and denied, in a prior case brought by a "close associate" and by the same lawyer. 

    The Court of Appeals applied standard rules of preclusion in dismissing the case,  concluding that Taylor was virtually represented by the plaintiff in the prior case.  There is a little local angle here.  Our friend and former partner (at our old firm) Harry Riggs filed an amicus brief in the Court of Appeals on behalf of the Experimental Aircraft Association.  Harry lives in Edgewood, Ky., in Northern Kentucky and is a longtime KBA member. 

    Although civil procedure teachers get excited about the prospect of a significant opinion expanding the definition of privity for claim preclusion, the transcript of the argument in the Supreme Court, and the peculiar facts of this case might leave one with the impression this case will not break significant new ground.  On the facts, it looks like the Court sees this as a case where the plaintiffs in the two cases were either agents of each others or in collusion with each other, or that such a finding is necessary to cause preclusion.

    The only other basis the Court seemed willing to buy, that the subsequent party "controlled" the first litigation, has already been adopted by the Court as a form of privity (Montana v. United States, 450 U.S. 544 (1981).   Justice Ginsburg seemed to cast the case in that light.  Beyond that, no one seemed too anxious to stretch much farther:  Justice Scalia said he was not inclined to seek "an incursion of our traditional rules," and even the lawyer for the government said he wasn't advocating a rule of "widespread preclusion."

    So it's unlikely we will get an opinion that helps with the question many lawyers for defendants in multiple plaintiffs cases think about:  can later plaintiffs be bound by the result in an earlier case where the plaintiff lost, where the experts, lawyers, and evidence are all the same, and even where the later plaintiffs contributed to the cost in the first case, or participated in common discovery, for example, where the cases were consolidated for multi-district discovery and then remanded for separated trials?  One court was persuaded that prelusion should operate in these circumstances, Lynch v. Merrell National Labs,  but that logic was vacated by the Court of Appeals (here) and the theory has not caught hold in the twenty years since.   

    Although the Court might surprise us with something novel on preclusion in its ultimate opinion, I'm betting against that.  Watch for a remand to explore whether they can decide the case on the basis of control by the second plaintiff of the first case, or the reverse of that, or on the basis of collusion between the two plaintiffs. 

    Class actions have always presented the risk of a draconian remedy against a defendant.  That is one of the principal criticisms of the use of that device, but it unfortunately comes with the territory, airisng from the prospect of sizable plaintiff classes.  But just because class actions anticipate large plaintiff classes, and by definition potentially large classwide damages, an argument that a defendant should not have to risk such liability is not irrelevant.  Indeed the risk of such liability, even on weak liability facts, has been considered a factor that counsels against certification. [In re  Rhone-Poulenc Rorer, Inc. 51 F.3d 1293 (7th Cir. 1995)].

    The dilemma of class actions is that the greater the aggregate damages in relation to individual damages, the worse this problem seems.  Yet the smaller the individual damages, the more likely class certification is appropriate because individual actions are unlikely.  In the language of Rule 23, the class device is likely to be "superior" to other methods of adjudication. 

    This tension has been highlighted recently by  cases alleging violations of the Fair and Accurate Credit Transaction Act, which prohibits the disclosure of more information on a credit card receipt that the last five digits of a credit card number.  Violations result in individual statutory damages of from $100 to $1,000 per violation.  A small business that has run afoul of the act for any significant period could face hundreds of thousands of dollars in group damages.  Some have suggested the damages per defendant could reach the billions.

    As a result, defendants have begun to assert an "annihilation" defense to these claims -- that class certification should be denied because it would result in annihilation of the defendant.  A series of pieces have circulated in the last week or so describing this litigation, which seem to raise all of the best arguments both in favor of and against small stakes class action.  You can find some of these here and here. So far, the defendants have not fared very well with this defense, at least in these cases.  Many of these case have relied, apparently, on the Seventh Circuit's decision in Murray v. GMAC Mortgage Corp., 434 F.3d 948, under the Fair Credit Reporting Act.  Law.com this week reprinted a fairly comprehensive review of the current state of this litigation.  

    These cases should provide pretty fertile material for civil procedure teachers over the next few years.  In the meantime, they also seem to be providing fairly fertile grounds for plaintiff class action lawyers.    

    The Third Circuit this week released an opinion that provides an interesting perspective on the intersection between Rule 702 of the Federal Rules of Evidence, which allows an expert to rely on material not otherwise admissible as a foundation for an expert opinion, and Rule 407, which excludes  evidence of a subsequent remedial measure. The decision, Pineda v. Ford Motor,   allowed an expert to describe, as the basis for his decision on the feasibility of an alternative design,  a design  put in use by the defendant after the event giving rise to the claim.  The Court admitted this evidence (through the backdoor of Rule 702) over the objection of the defendant that admission was prohibited by Rule 407.  The court held that the alternative design was relevant to the expert's opinion and that the evil addressed by Rule 407 could be prevented by allowing the expert to refer to the alternative design but to prohibit him from tesitifying that the design was developed by the defendant or used by the defendant following the incident in controversy.

    If this is a correct result, it would allow subsequent remedial maeasures to be used in most cases, as long as they are not directly introduced as evidence of an admission by the defendant that what it did before the incident was culpable.  It seems to ignore another policy of 407, though, beyond providing an admissiion of culpability.  That is the policy that seeks to encourage remedial action.  If a defendant believed its remedial action could be used against it for any purpose, even if not for the direct purpose of an implicit admission of the indadquacy of its earlier conduct, remedial action would likely be discouraged.