A New York federal judge on Sept. 18 granted preliminary approval to a nearly $ 14.3 million settlement by Roto-Rooter Services Co. to end a class complaint by technicians alleging various wage violations (Anthony Morangelli, et al v. Roto-Rooter Services Company, No. 10-876, E.D. N.Y.).

Anthony Morangelli and Frank Ercole filed a class complaint in February 2010 in the U.S. District Court for the Eastern District of New York against Chemed Corp. and Roto-Rooter. Morangelli and Ercole were technicians employed the defendants. They alleged that they and all other technicians were paid on a commission basis but that the defendants failed to pay wages free and clear, made unlawful deductions and required the technicians to bear business expenses that should have been paid by the defendants.

Settlement Terms

On Sept. 13, 2013, Morangelli moved for preliminary approval of a settlement agreement with Roto-Rooter.

The agreement creates a settlement fund of $ 14,274,585. The fund will cover class members’ settlement awards, service payments, attorney fees and costs and administration fees and costs.

Judge Brian M. Cogan granted preliminary approval and agreed to the expansion of the previously certified federal class. “The Settlement Agreement provides relief for all members of the currently certified federal classes and expands the membership of those classes by including individuals who were hired in the certified States after the date that class notice was issued and before the date on which Defendants implemented new pay practices that impact the practices challenged by plaintiffs in this litigation. The Court has already ruled on the merits of Rule 23 class certification and decertification with respect to the Federal Class Members (see Morangelli v. Chemed Corp., 275 F.R.D. 99 (E.D.N.Y. 2011) and Morangelli v. Chemed Corp., 2013 U.S. Dist. LEXIS 14873 (E.D.N.Y. Feb. 4, 2013)). The expansion of the classes to include individuals hired by Defendants after class noticed issued but subject to the same practices is consistent with the Court’s prior certification decisions and the additional class members will receive notice, the opportunity to opt-out of the class and the opportunity to object to the settlement as part of the settlement. Accordingly, the addition of these class members in the settlement class is approved,” the judge wrote.

Class members are given until Nov. 21 to opt out of the settlement and/or object to the settlement. A fairness hearing is scheduled for Jan. 6.

Counsel

Brent E. Pelton of Pelton & Associates in New York and Lesley A. Tse and Michael J.D. Sweeney of Getman & Sweeney in New Paltz, N.Y., represent the class.

Jared I. Heller, Kerri A. Law and Robert N. Holtzman of Kramer, Levin, Naftalis & Frankel in New York represent Chemed and Roto-Rooter.

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Evidence of a premises owner’s liability allowed for the otherwise untimely naming of a defendant who ended up at trial, and the evidence supports a jury’s award against it on lung cancer claims, but the liability must be split between the two entities, a Louisiana court held Sept. 16 (Alfred Watts and Rosa Lee Watts v. Georgia-Pacific Corp., et al., No. 2012 CA 0620, La. App., 1st Dist.;2013 La. App. LEXIS 1863).

Rose Lee Watts filed suit in 2001 in the Iberville Parish District Court against numerous entities whose conduct allegedly exposed Alfred Watts to asbestos.

Alfred Watts allegedly contracted both laryngeal and lung cancer and died of lung cancer after exposure while employed with Herbert Brothers at a Dow Chemical Co. facility in Plaquemine, La. Rose Lee Watts added Herbert as a defendant in August 2003, dismissed all other defendants and proceeded to trial. Hebert argued that Watts’ claim was prescribed, but the motion was denied with leave to file supervisory writs.

The jury found that Hebert was negligent and that the negligence was a substantial factor in the decedent’s death. The jury did not find the decedent, a cigarette smoker, negligent. The jury awarded $ 3,625,000, including $ 2.75 million on the lung cancer claim.

Prescription Issue

Judge James J. Best granted Hebert’s motion to stay the proceedings while the issue of prescription was under review. The First District Louisiana Court of Appeal granted Hebert’s writ in part and remanded so that Judge Best could consider and rule on the merits.

On remand, Judge Best found that Watts’ claim was not prescribed. Hebert appealed, arguing that the claims were prescribed, that judgment should have limited Hebert’s liability to its virile share and that the award on the survival action was excessive.

A panel of the First District said the evidence regarding the lack of safety measures at the Dow facility allows for a reasonable individual to conclude that Dow is liable under strict custodial liability.

Hebert complained that Watts pointed to Hebert as the sole liable party when she sought directed verdict but then argued that Dow’s liability prevented Hebert’s prescription defense, the panel said.

‘Irony’

“While we do see the irony of the changed positions Watts argued before the trial court, arguments of counsel are not evidence,” the panel said. Notably, Judge Best denied Watts’ motion for directed verdict, finding that sufficient evidence that other parties were at fault, the panel said. Since the evidence allows one to conclude that Dow was liable, a solidary relationship existed between Hebert and Dow and Dow’s timely inclusion in the action stayed the statute of limitations for naming Hebert, the panel said.

However, since the evidence supported Dow’s liability, Judge Best erred in not reducing the damages against Hebert by half, the panel said.

Excessiveness

The panel rejected Hebert’s challenge to the $ 2.75 million award on the lung cancer claim. Nothing in the record suggests that the jury abused its “vast discretion,” the panel said. The evidence shows that the decedent’s lung cancer caused him great pain and rendered him unable to walk, stand, eat or do anything for himself and that he required his daughters to feed him and diaper him, the panel said.

“Although the duration of his suffering from lung cancer was but a short period it is clear from the record that the evidence proved Alfred suffered intense and severe changes in his life after the lung cancer diagnosis,” the panel said.

Judge James E. Kuhn wrote for the court, joined by Judges John T. Pettigrew and J. Michael McDonald.

Denyse F. Clancy and Lindsey Goldstein of Baron & Budd in Dallas represent Watts. H. Alston Johnson III and Daina Bray of Phelps Dunbar in Baton Rouge, La., represent Hebert.

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The United Kingdom Health and Safety Executive (HSE) on Sept. 16 announced that an English crown court fined a dairy and a welding company for exposing employees to asbestos.

The HSE said the Plymouth Crown Court fined Dairy Crest Ltd. and Rochdale Electric Welding Co. Ltd. (REWCO) for exposing employees to asbestos at an industrial site.

Boilers

In May 2010, the HSE said asbestos dust was released during work to remove industrial boilers, pipework and a boiler house at an industrial site owned by Dairy Crest. The asbestos-containing material remained exposed until a cleanup operation began at the site two years later.

Dairy Crest and REWCO were prosecuted after the HSE noticed asbestos violations in the planning of the job and a lack of training for the workers. REWCO was hired to dismantle all of the fixed plant pipework and to assist in demolishing the boiler house. The HSE said REWCO removed the boilers at the site without taking steps to determine whether asbestos was present.

The HSE said Dairy Crest had previously completed a suitable survey for asbestos but failed to provide REWCO with the report. The HSE said three REWCO employees were exposed to asbestos during the boiler and pipework removal. An HSE investigation revealed widespread asbestos contamination.

Fines

The HSE said Dairy Crest pleaded guilty to one breach of the Control of Asbestos Regulations 2006. The Crown Court ordered Dairy Crest to pay 12,000 pounds in fines and 22,214 in costs. REWCO pleaded guilty to breaching two counts of the Control of Asbestos Regulations 2006. The Crown Court ordered REWCO to pay 8,000 pounds in costs and 13,786 pounds in costs.

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With no end in sight to the ongoing sequestration cuts, federal court judges and lawyers are growing increasingly concerned about the impact on our judicial system. Sequestration resulted in $332 million budget reduction for the federal judiciary, or approximately 5 percent of its current $6.97 billion budget.

With Congress set to return from break, the chief judges of nearly every federal district court recently took the unprecedented step of lobbying on their own behalf. In a four-page letter addressed to Vice President Joe Biden, the judges argued that deep funding cuts are interfering with the judiciary’s ability to adequately perform its responsibilities. The letter details the challenges the federal court system faces, from reduced court hours to weakened security to a decimated federal defenders program.

“The work of the Federal Judiciary derives from functions assigned to us by the United States Constitution and the statutes enacted by Congress. We do not have projects or programs to cut; we only have people. We must adjudicate all civil and criminal cases that are filed with the courts, we must protect the community by supervising defendants awaiting trial and criminals on post-conviction release, we must provide qualified defense counsel for defendants who cannot afford representation, we must pay jurors for costs associated with performing their civic duty, and we must ensure the safety and security of judges, court staff, litigants, and the public in federal court facilities.”

In addition, attorneys have voiced their concerns to President Obama and members of Congress. In a June letter, Federal Bar Council President Robert J. Anello wrote, “The importance of federal courts to our democratic system cannot be overstated. In their role of administering justice, the federal courts provide services that are mandated by the Constitution and protect the fundamental rights of Americans of all backgrounds.”

“These roles cannot be unreasonably curtailed in the face of budgetary constraints without doing violence to our system,” he added.

Of course, New Jersey residents are already familiar with what can happen when the courts become pawns in the political process.  In 2011, New Jersey judicial vacancies caused by the political impasse between the Gov. Chris Christie and the Senate Judiciary Committee resulted in the suspension of divorce trials in Essex County for nine months.

In a bit of good news, both houses of Congress seem to recognize that the funding cuts must be remedied for fiscal year 2014, which starts in October. The House Appropriations Committee signed off on an appropriations bill that includes $6.5 billion for the courts, restoring the budget to pre-sequestration levels. Meanwhile, the Senate committee’s appropriations bill calls for $6.7 billion for the courts, an increase of $148 million. Of course, disagreements run rampant on other parts of the budget, which could lead to yet another political impasse that leaves the courts hanging in the balance.

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Bankrupt Residential Capital LLC (ResCap) on Sept. 11 filed a brief arguing that the bankruptcy court should expunge two separate claims valued at total of $ 30 million that it says have been filed by a couple who has a “documented history of vexatious litigation” (In Re: Residential Capital LLC, No. 12-12020, Chapter 11, S.D. N.Y. Bkcy.).

ResCap filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York on May 14, 2012.

$ 30 Million Sought

ResCap contends that two separate claims filed against the bankruptcy estate by Sidney T. Lewis and Yvonne D. Lewis for a total of $ 30 million should be denied because the claims actually amount to sanctions against ResCap and the Official Committee of Unsecured Creditors.

Specifically, the claims are $ 25 million against ResCap’s affiliate GMAC Mortgage LLC (GMACM) brought by the couple and $ 5 million against GMACM brought by Sidney Lewis as the executor of the estate of Bettie Hamilton.

ResCap argues that the Lewises filed an adversary complaint against GMACM in the Bankruptcy Court earlier in the bankruptcy proceeding, which was ultimately dismissed. As part of the dismissal, the Bankruptcy Court denied the Lewises leave to amend their claim.

‘Intelligible Statement’ Missing

However, despite the fact that the couple was denied leave to amend their adversary proceeding, they still filed the $ 30 million claims, ResCap says. The claims fail to provide an intelligible statement of how GMACM, and by extension ResCap, harmed the Lewises, it says.

The claims fail to establish entitlement to relief under applicable law because the Lewises do not have a right to assert damages based on equitable defenses, ResCap adds; therefore, the claims should be expunged in their entirety.

Moreover, ResCap says that the Lewises are seeking monetary damages from foreclosures, and it is “well-established” that violations of federal servicing guidelines do not allow borrowers to recovery monetary damages. It is also too late for the couple to assert any defenses related to the foreclosures, ResCap adds.

ResCap is represented by Norman S. Rosenbaum, Gary S. Lee, Jordan A. Wishnew and Samantha Martin of Morrison Foerster in New York and Colt B. Dodrill of Wolfe & Wyman in Phoenix. The Lewises of Columbus, Ohio, appear pro se.

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The law firm of Morrison & Foerster on Sept. 9 filed a brief in the U.S. Bankruptcy Court for the Southern District of New York contending that it is entitled to more than $ 23.1 million in fees and expenses for its role as bankruptcy counsel for Residential Capital LLC (ResCap) (In Re: Residential Capital LLC, No. 12-12020, Chapter 11, S.D. N.Y. Bkcy.).

ResCap filed for Chapter 11 bankruptcy on May 14, 2012.

Fees, Reduction 

Morrison & Foerster argues that it has already agreed to a reduction in fees and expenses valued at $ 39,526.50. In light of that reduction, the firm says that fees of $ 22,750,816.10 and expenses of $ 350,910.44 are appropriate.

One of the reductions to which Morrison & Foerster have already agreed is for $ 19,735.50 for time entries that the U.S. trustee contended were “impermissibly vague.”

Morrison & Foerster says that no further detail would be needed to understand the time entries in question if they were “reviewed in the context of surrounding time entries.” Nevertheless, the firm says it has agreed to reduce its requested compensation by $ 19,735.50 to resolve the objection.

Fee Objections

Another agreed-upon reduction was for $ 4,791 related to fees the firm charged when it reviewed and responded to the U.S. trustee’s previous objections to second interim fee applications filed by various professionals.

The firm says it provided the U.S. trustee services to assist the trustee and the Bankruptcy Court as it prepared to rule on the fee applications.

However, Morrison & Foerster removed those fees from its current request.

Loan Sale

The U.S. trustee also objected to Morrison & Foerster’s request of $ 174,830.50 for services rendered by Kenneth Kohler, who is of counsel to the firm’s corporate department, on grounds that he billed excessive attorney time.

Morrison & Foerster says that Kohler’s costs should be reimbursed in full because he is one the principal attorneys responsible for documenting and successfully closing ResCap’s whole loan sale with Berkshite Hathaway Inc., as well as the sale of ResCap’s mortgage-servicing and origination business with Ocwen Loan Servicing LLC and Walte Investment Management Corp.

Consequently, with consideration of the reductions to which the firm has already agreed, Morrison & Foerster contend that the Bankruptcy Court should approve interim compensation for $ 22,750,816.10 and interim reimbursement of expenses for $ 350,910.44.

Morrison & Foerster is represented by Lorenzo Marinuzzi, Erica J. Richards, Gary S. Lee and Meryl L. Rothchild of Morrison & Foerster in New York.

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A federal judge in Michigan on Sept. 5 granted preliminary approval of a $ 2 million settlement that would end consolidated class action suits against Citizens Bank and Citizens Republic Bancorp Inc. (collectively, Citizens Bank) alleging that the banks reordered customers’ debit and credit card transactions to maximize overdraft fees (Jane Simpson v. Citizens Bank, No. 12-10267, Shirley D. Liddell v. Citizens Bank, et al., No. 12-11604, E.D. Mich.).

U.S. Judge Denise Page Hood of the Eastern District of Michigan issued the order in the suits Jane Simpson and Shirley D. Liddell filed against Citizens Bank.

Overdraft Fees Complaints

Simpson filed her complaint on Jan. 20, 2012, alleging that Citizen Bank conducted “unfair and unconscionable assessment and collection of excessive overdraft fees.”

“Instead of simply declining debit transactions when there are insufficient funds, or warning its customers that an overdraft fee will be assessed if they proceed with the transaction, Citizens Bank routinely processes such transactions and then charges its customers an overdraft fee of $ 36 – even when the transaction is for only a few dollars,” Simpson said. “This automatic, fee-based overdraft scheme is intentionally designed to maximize overdraft fee revenue for Citizens Bank. Additionally, as part of its inequitable motive to generate obscene profits gained through the imposition of unconscionable overdraft fees, Citizens Bank failed to adequately disclose to its customers that they could elect to opt out of overdraft protection.”

Liddell filed a similar complaint on April 9, 2012, and on July 12, 2012, the District Court consolidated the cases.

Settlement

On July 15, 2013, the plaintiffs filed a motion for preliminary approval of a settlement. The plaintiffs defined the settlement class as: “All Citizens Bank customers in the United States who had one or more Accounts (whether held individually or jointly) and who, during the Class Period, incurred an Overdraft Fee as a result of Citizens Bank’s Debit Re-sequencing. Excluded from the Settlement Class are all current Citizens Bank employees, officers and directors, and the Judge presiding over this Action.”

The settlement calls for a $ 2 million settlement fund to be distributed to identifiable settlement class members who do not opt out of the settlement, as well as a separate payment of $ 200,000 toward the costs of providing notice to the settlement class and administration of the settlement.

Judge Hood found that “the Settlement is the result of informed, good-faith, arm’s-length negotiations between the Parties and their capable and experienced counsel and is not the result of collusion.” She set a Jan. 15, 2014, final approval hearing.

The plaintiffs are represented by Jeffrey M. Ostrow and Jason H. Alperstein of Kopelowitz Ostrow in Fort Lauderdale, Fla.; E. Powell Miller and Ann L. Miller of The Miller Law Firm in Rochester, Mich.; Hassan A. Zavareei and Jeffrey D. Kaliel of Tycko & Zavareei in Washington, D.C.; Robert Gittleman of Robert Gittleman Law Firm in Farmington Hills, Mich.; Patrick E. Cafferty of Cafferty Faucher in Ann Arbor, Mich.; Allen Carney and Randall K. Pulliam of Carney Williams Bates Pulliam & Bowman in Little Rock, Ark.; and Ruben Honik, Richard M. Golomb and Kenneth J. Grunfeld of Golomb & Honik in Philadelphia. Citizens Bank is represented by Matthew Mitchell of Dykema Gossett in Bloomfiled Hills, Mich.

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The Kentucky Supreme Court on Aug. 29 reinstated a $ 42 million judgment against three fen-phen attorneys who allegedly took excessive fees and costs from a $ 200 million diet drug settlement for 431 plaintiffs (Mildred Abbott, et al. v., No. 2011-SC-000291-DG, Ky. Sup.; 2013 Ky. LEXIS 367).

Plaintiff attorneys Shirley A. Cunningham Jr., William J. Gallion, Melbourne Mills Jr.

and Stanley M. Chesley represented 431 Kentucky state court plaintiffs who alleged that they were injured by fen-phen, which was a combination of fenfluramine and phentermine. Although defendant American Home Products Corp. (AHP, later Wyeth, now Pfizer Inc.) agreed to a national master settlement, the Kentucky plaintiffs opted out.

AHP later agreed to settle the Kentucky plaintiffs’ claims through an aggregate payment of $ 200 million for the plaintiff attorneys to distribute.

The plaintiffs later alleged that their attorneys did not inform them about the terms of the settlement, about the amount of the settlement or that the attorneys would determine how much money the plaintiffs would receive. The plaintiffs say they later learned that they were paid $ 73.2 million, that $ 20 million was given to a nonprofit organization and that some $ 106 million was divided among the attorneys.

Fiduciary Duty Breached

The plaintiffs sued their attorneys, alleging that the attorneys breached their fiduciary duties by wrongfully retaining or improperly disbursing a substantial portion of the settlement money that should have gone to them. The case was filed in the Fayette County Circuit Court but was later transferred to the Boone County Circuit Court.

The Boone County court concluded that as a matter of law, Cunningham, Gallion and Mills violated their contingency fee agreements and breached their fiduciary duty to the plaintiffs. The court granted partial summary judgment to the plaintiffs on that issue.

Later, the trial court also granted the plaintiffs summary judgment for compensatory damages for breach of fiduciary duty. Crediting Cunningham, Gallion and Mills $ 1.5 million for undocumented and previously undisclosed expenses claimed by Mills, the court found that the lawyers wrongfully withheld $ 64.2 million.

Trial Court Judgment

Deducting $ 20.5 million given to the nonprofit, the court entered judgment of $ 42 million in favor of the plaintiffs against Cunningham, Gallion and Mills. The court also held that the three were jointly and severally liable to the plaintiffs.

The court also found the plaintiffs were entitled to judgment imposing a constructive trust on funds remaining with the nonprofit.

Left for trial were the issues of the lawyers’ liability for negligent or fraudulent misrepresentation, punitive damages and whether the lawyers should be denied the right to claim any fees.

The trial court denied summary judgment against Chesley, saying the factual issues for him differed from those of the other three attorneys and that there were genuine issues of material fact about his role in the disbursement of the settlement monies.

Appeals Court Reverses

On appeal, the Kentucky Court of Appeals reversed the partial summary judgment against Cunningham, Gallion and Mills and remanded the case for further proceedings. The appeals court also declined to review the denial of summary judgment against Chesley.

The plaintiffs appealed to the Kentucky Supreme Court.

The Supreme Court reversed the Court of Appeals’ reversal of summary judgment against Cunningham, Gallion and Mills on the issue of breach of fiduciary duty and reinstated summary judgment.

On other appeals issues, the state high court said the imposition of joint and several liability against Cunningham, Gallion and Mills was proper and reversed the appeals court on that issue.

Chesley Ruling Not Appealable

In addition, the Supreme Court affirmed that the denial of summary judgment against Chesley was not appealable.

The high court also affirmed the Court of Appeals’ determination that the Boone County court properly refused a motion by the plaintiffs to remand the case to the Fayette County court.

Finally, the Supreme Court said the trial court erred in crediting Cunningham, Gallion and Mills with undocumented expenses claimed by Mills.

Criminal, Disciplinary Actions

Cunningham, Gallion, Mills and Chesley were all disbarred in Kentucky. Chesley retired earlier this year, reportedly as his home state of Ohio was contemplating disciplinary action in connection with the Kentucky case.

Cunningham and Gallion were convicted of federal charges of wire fraud, and Mills was acquitted. Cunningham and Gallion were ordered to repay the settlement amount in restitution and fines.

Justices, Counsel

Justice Daniel J. Venters wrote the opinion. Concurring were Chief Justice John D. Minton and Justices Lisabeth Hughes Abramson, Michelle M. Keller, Mary C. Noble and Will T. Scott.

Justice Bill Cunningham did not participate in the case.

The plaintiffs are represented by Angela Margaret Ford in Lexington, Ky.

Cunningham and Gallion are represented by Andrew F. Regard of Regard Law Group in Lexington. Mills is represented by Calvin R. Fulkerson of Fulkerson, Kindel & Marrs in Lexington, James A. Shuffett in Lexington and John Christian Lewis.

Chesley is represented by Frank V. Benton IV in Newport, Ky., James M. Gary of Webber & Rose in Louisville, Ky., and Sheryl G. Snyder, Griffin T. Sumner and John K. Wells IV of Frost Brown Todd in Louisville.

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A Ninth Circuit U.S. Court of Appeals panel on Sept. 3 affirmed a lower court’s dismissal of a California woman’s antitrust claims against Apple Inc. based on purported monopolization and supracompetitive prices in the digital music market (Stacie Somers v. Apple Inc., No. 11-16896, 9th Cir.; 2013 U.S. App. LEXIS 18246).

Class Claims

California resident Stacie Somers purchased a 20-gigabyte Apple iPod portable digital media player (PDMP) from Target in November 2005. Thereafter, Somers purchased music for her iPod from Apple’s iTunes Music Stores (iTMS).

In December 2007, Stacie Somers sued Apple in the U.S. District Court for the Northern District of California for unlawful tying, monopolization and attempted monopolization under the Sherman Act and unfair business practices under California Business and Professions Code Section 17200. She sought to represent a class of indirect purchasers of Apple iPods.

DRM Encryption

Apple owns and operates iTMS, which is accessed with proprietary Apple software. Apple also designs the hardware and software of its iPod products. When Apple launched iTMS in 2003, all songs were embedded with digital rights management (DRM) encoding to prevent copying and piracy; Apple called its DRM program “FairPlay.” Consequently, any consumer who wanted to play music purchased from iTMS was required to purchase an iPod, and iPod users had to purchase their digital music through iTMS.

In 2009, Apple began offering DRM-free music that could be played on other PDMPs. However, Apple charged iTMS users 30 cents per song to have any previously purchased songs converted to DRM-free files.

Certification Denied

In July 2009, the court denied Somers’ motion to certify a class of indirect purchasers, holding that such was prohibited under federal law by Illinois Brick Co. v. Illinois (431 U.S. 720 [1977]). The court also found that under California law, Somers failed to establish a reliable measure for damages on behalf of indirect purchasers.

Somers filed a first amended complaint (FAC) that did not depend on allegations of tying, and Apple moved to dismiss. In December 2010, the District Court granted Apple’s motion to dismiss.

Somers filed a second amended class action complaint (SAC) in January 2011, asserting damage based on inflated prices for music downloads. She sought to represent a class of a class of individuals that purchased music from iTMS. Somers alleged that Apple achieved a monopoly in the PDMP and audio download markets. Apple maintained its monopoly, Somers asserted, through the use of software updates intended to prevent competitors from selling audio downloads that were compatible with iPods. This permitted Apple to charge supracompetitive prices for digital music, she said. Somers sought injunctive relief in the form of DRM-free music files, as well as damages.

Judge James Ware dismissed the SAC with prejudice in a June 2011 ruling, stating that he had previously rejected these same arguments in the December 2010 ruling. In disposing of the injunctive relief claim, the judge held that an allegation of “‘mere maintenance of DRM’ is insufficient to support [Somers'] antitrust claims.”

Somers appealed to the Ninth Circuit.

Claims Abandoned

Somers appealed the July 2009 certification denial order. Apple argued that this was not properly before the Circuit Court because Somers abandoned her underlying individual claim. The panel, which comprised Judges Dorothy W. Nelson, Stephen Reinhardt and Milan D. Smith Jr., agreed, finding that the certification motion pertained to Somers’ proposed iPod indirect purchaser class. In her FAC, the panel noted, Somers did not renew her individual damage claim based on purported overcharge for iPods. Somers also changed her damage theory in the second amended complaint, the panel said, when she focused on the supposed supracompetative prices for digital music. As such, the panel held that she voluntarily abandoned the iPod overcharge claim.

Somers also appealed the December 2010 ruling that dismissed her monopolization claim in the FAC based on purported diminution of iPod value. The panel stated that this claim was correctly dismissed in light of Illinois Brick. “The indirect purchaser rule bars suits for antitrust damages by customers who do not buy directly from a defendant,” the panel said, also citing Hanover Shoe Inc. v. United States Machinery Corp. (392 U.S. 481 [1968]).

Also, the panel stated that in a related direct purchaser action, plaintiffs are seeking damages against Apple for the same kinds of iPods but on a theory of inflated iPod prices. “[A]llowing Somers to sue as an indirect purchaser would lead to litigation on contradictory, duplicative theories of recovery necessitating ‘evidentiary complexities and uncertainties,’” per Illinois Brick, the panel held. But even if that case did not apply, the panel found that Somers lacks standing to bring her claim under the facts alleged in the FAC because “Apple’s purported anti-competitive conduct . . . began in 2004″ when it rolled out the software updates. Somers purchased her iPod in 2005, the panel said, and thus the software updates “only served to maintain the status quo” at the time of allowing iPod-only play for iTMS music.

Elements Not Pleaded

The July 2011 ruling dismissing Somers’ music overcharge claim was also appealed. She argued that the District Court applied an improper proof requirement and ignored allegations supporting her monopolization claim.

The panel held that the lower court “did not require her to prove, but rather, to plead the elements of a monopolization claim,” as required by the Sherman Act. Somers pleaded insufficient facts to state a plausible antitrust injury, the panel stated, finding that “her own allegations do not square with her overcharge theory.” If her theory was correct, the panel said, then Apple’s purported supracompetative prices would have fallen once Amazon, a key competitor, began issuing less expensive, DRM-free music. But “contradictory market facts” reveal otherwise, the panel said.

And although Somers advances some arguments that Amazon and other competitors offered lower prices when they entered the marketplace, the panel held that “without more, these allegations do not nudge Somers’ claims of antitrust injury ‘across the line from conceivable to plausible.’” Even though Somers suggested that she might eventually be able to establish some undisclosed facts supporting antitrust injury, the panel ruled that this is insufficient to allow Somers’ claims to survive dismissal. As such, the panel affirmed the District Court’s dismissal of the SAC.

Helen I. Zeldes and Alreen Haeggquist of Zeldes & Haeggquist in San Diego and Steven A. Skalet and Craig L. Briskin of Mehri & Skalet in Washington, D.C., represent Somers. Craig E. Stewart, David C. Kiernan, Michael T. Scott and Robert A. Mittelstaedt of Jones Day in San Francisco represent Apple.

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A Texas federal magistrate judge erred in awarding chicken growers $ 25 million following a chicken processor’s decision to close plants in order to raise prices, a two-member Fifth Circuit U.S. Court of Appeals panel ruled Aug. 27 (In the Matter of: Pilgrim’s Pride Corporation, No. 12-40085, 5th Cir.; 2013 U.S. App. LEXIS 17921).

Pilgrim’s Pride Corp. (PPC) is one of the world’s largest suppliers of chicken and processed chicken products.

It does not actually raise the chickens it processes. Instead, PPC relies on the husbandry services of dozens of chicken growers. PPC provides the chicks, feeds and other supplies. The chicken growers provide the facilities and labor necessary to raise the chickens.

Facing economic difficulties in 2008, PPC evaluated its operations and concluded that it was unnecessarily producing a surplus of commodity chicken at great cost to itself. In an effort to reduce costs, PPC closed or idled several processing and distribution facilities, divested assets, restructured supply contracts and laid off a number of employees. Nonetheless, PPC ultimately filed for Chapter 11 bankruptcy relief in December 2008.

After filing for bankruptcy, PPC received approval from both the bankruptcy court and the unsecured creditors committee to idle or sell three of its processing complexes, including its El Dorado, Ark., facility. PPC was unable to solicit an offer that even approached the El Dorado facility’s appraised value, and the facility was officially idled in May 2009. As a result of the facility’s closure, the husbandry services of 163 contract chicken growers were no longer needed.

Manipulating Prices

In response to the termination of their growing agreements, a group of the affected chicken growers filed suit under the Packers and Stockyards Act of 1921 (PSA). Specifically, the growers alleged that PPC had engaged in a course of business for the purpose of “manipulating or controlling prices” in violation of PSA Section 192(e). The growers originally filed suit in the U.S. Bankruptcy Court for the Northern District of Texas. The case was transferred to the U.S. District Court for the Eastern District of Texas, where it was referred by consent to a magistrate judge.

The magistrate judge concluded that PPC’s actions were likely to lead to a competitive injury and, as a result, violated Section 192(e). The magistrate judge awarded more than $ 25 million to the chicken growers. PPC appealed.

Judgment Reversed

The Fifth Circuit panel reversed the District Court’s judgment.

“In the instant case, PPC had overextended itself into the commodity chicken market, was producing more chicken than the market appeared to need, and was thereby driving the market price of chicken down at great cost to itself. Recognizing the damage inflicted by its own excess production, PPC wisely decided to stop flooding the market with unprofitable chicken. Not surprisingly, we have located no case finding such conduct to be unfair, illegal, or injurious to competition; in truth, PPC’s unilateral conduct had nothing to do with competition. Even if PPC hoped that chicken prices would respond to the output reduction by settling at a higher equilibrium price, that would not alter our conclusion. Far from being a nefarious goal, higher prices are the natural consequence of a reduction in supply. If it is lawful for a business to independently control its own output, then it is also lawful for the business to hope for the natural consequences of its actions,” the panel wrote in its per curiam opinion.

Judge W. Eugene Davis and Jerry Edwin Smith comprised the panel.

Mark C. Brodeur of Brodeur Law Firm in Dallas; Eric M. Albritton and Michael A. Benefield of Albritton Law Firm in Longview, Texas; Robert L. Depper Jr. of Depper Law Firm in El Dorado, Ark.; and Johnny E. Dollar of Dollar Law Firm in Monroe, La., represent the chicken growers.

Clayton E. Bailey and Alexander M.D. Brauer of Bailey Brauer in Dallas, Jennifer P. Ainsworth of Wilson, Robertson & Cornelius in Tyler, Texas, and Michael A. Pollard of Baker & McKenzie in Chicago represent PPC.

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