CVS Caremark Corporation et al.
John Lauriello et al. John Lauriello et al.
CVS Caremark Corporation et al.
Appeals from Jefferson Circuit Court (CV-03-6630).
In case no. 1120010, CVS Caremark Corporation ("Caremark"); American International Group, Inc.; National Union Fire Insurance Company of Pittsburgh, PA; AIG Technical Services, Inc.; and American International Specialty Lines Insurance Company (hereinafter sometimes referred to collectively as "Caremark and the insurers") appeal from the trial court's order certifying as a class action the fraud claims asserted by John Lauriello; James O. Finney, Jr.; Sam Johnson; and the City of Birmingham Retirement and Relief System (hereinafter sometimes referred to collectively as "the plaintiffs"). In case no. 1120114, the plaintiffs cross-appeal from the same class-certification order, alleging that, though class treatment was appropriate, the trial court erred in certifying the class as an "opt-out" class pursuant to Rule 23(b)(3), Ala. R. Civ. P., rather than a "mandatory" class pursuant to Rule 23(b)(1), Ala. R. Civ. P. For the reasons discussed below, we affirm in both appeals.
Facts and Procedural History
In connection with a 1998 nationwide, securities-fraud class action initiated against MedPartners, Inc., a physician- practice-management/pharmacy-benefits-management corporation and the predecessor in interest to Caremark ("the 1998 litigation"), the Jefferson Circuit Court certified a class that included the plaintiffs. Based on the alleged financial distress and limited insurance resources of MedPartners, the 1998 litigation was concluded in 1999 by means of a negotiated "global settlement, " pursuant to which the claims of all class members were settled for $56 million –- an amount that, according to the representations of MedPartners, purportedly exhausted its available insurance coverage. Purportedly based on representations of counsel that MedPartners lacked the financial means to pay any judgment in excess of the negotiated settlement and that the settlement amount was thus the best potential recovery for the class, the trial court, after a hearing, approved the settlement and entered a judgment in accordance therewith.
Thereafter, however, MedPartners, now Caremark,  allegedly disclosed, in unrelated litigation, that it had actually obtained –- and thus had available during the 1998 litigation -- an excess-insurance policy providing alleged "unlimited coverage" with regard to its potential-damages exposure in the 1998 litigation -- the existence of which it had purportedly concealed in negotiating the class settlement. As a result, in 2003, Lauriello, seeking to be named as class representative, again sued Caremark and the insurers in the Jefferson Circuit Court, pursuant to a class-action complaint alleging misrepresentation and suppression –- specifically, that Caremark and the insurers had misrepresented the amount of insurance coverage available to settle the 1998 litigation and that they also had suppressed the existence of the purportedly unlimited excess policy -- on behalf of himself and all others similarly situated, i.e., the members of the class certified in the 1998 litigation. Alternatively,
Lauriello sought relief from the judgment pursuant to Rule 60(b), Ala. R. Civ. P. Frank G. McArthur, Bill Greene, and Virginia Greene, also members of the class certified in the 1998 litigation, filed a separate but substantially similar action in the Jefferson Circuit Court; their proposed class-action complaint asserted claims almost identical to Lauriello's but named, as additional defendants, plaintiffs' counsel from the 1998 litigation.
In January 2005, the trial court issued an "Order on Class Certification, " in which it concluded that it was unnecessary to certify a new class because, pursuant to the terms of the settlement agreement in the 1998 litigation, it retained jurisdiction of all matters relating to the settlement, including Lauriello's newly asserted fraud claims. Subsequently, Caremark and the insurers simultaneously appealed the trial court's January 2005 order and filed a petition for a writ of mandamus seeking relief therefrom. See Ex parte Caremark RX, Inc., 956 So.2d 1117 (Ala. 2006).
Also in response to the trial court's order, McArthur, Bill Greene, and Virginia Greene (hereinafter sometimes referred to collectively as "the intervenors") sought to intervene in the Lauriello litigation, challenging the qualifications of both Lauriello and his counsel to represent the class and specifically adding as defendants in the complaint in intervention both Lauriello and plaintiffs' counsel from the 1998 litigation. The trial court denied that request as untimely; the intervenors appealed.
This Court, in considering the consolidated appeals and petition for the writ of mandamus, concluded that the petition for the writ of mandamus was the appropriate avenue by which to challenge the trial court's order. As a result, we dismissed the direct appeal filed by Caremark and the insurers. 956 So.2d at 1119-20. We further granted the mandamus petition and directed the trial court to vacate the challenged order on the ground that any action by Lauriello purportedly filed pursuant to Rule 60(b) was untimely in that it had not been filed within four months after the judgment from which Lauriello sought relief as mandated by Rule 60(b). 956 So.2d at 1124. In addition, we noted that because Lauriello had added new defendants, namely insurers that had not been named in the 1998 litigation, "Lauriello [was] not seeking merely to reopen the settlement agreement [therein] to renegotiate the amount of damages payable to the class ...." 956 So.2d at 1125. Therefore, despite the fact that the class identified by Lauriello was indisputably identical to the class certified by the trial court in the 1998 litigation, we nonetheless concluded that, in order to certify the class in the new action, Rule 23, Ala. R. Civ. P., and § 6-5-641, Ala. Code 1975, required the trial court's performance of a "rigorous analysis" to consider, as to the proposed class members, "their relationship to the particular claims and defenses to be asserted in the [new] class action, " which the trial court had clearly failed to evaluate with regard to the suitability for class treatment. 956 So.2d at 1125. As to the intervenors' appeal, we reversed the trial court's order denying them intervention based on our findings that "none of the parties [would] be prejudiced by the intervention, ... justice [might] not be attained if intervention [was] not allowed, and ... intervention at this stage of the litigation would not prejudice the ... parties." 956 So.2d at 1129.
Following the release of our opinion, proceedings resumed in the trial court in accordance with that opinion, including the trial court's entry of an order deeming the intervenors' "Class Action Complaint in Intervention" filed. Lauriello amended his class-action complaint to add Finney, Johnson, and the City of Birmingham Retirement and Relief System ("the Retirement System") as additional named plaintiffs; the newly added plaintiffs later moved to be named as class representatives.
Following the defendants' answers to the amended complaint, the trial court entered an order dismissing with prejudice "the lawyer defendants" added by the intervenors' complaint in intervention on the ground that the four-year statute of repose applicable under the Alabama Legal Services Liability Act, see § 6-5-574, Ala. Code 1975, barred all claims against them. The trial court certified that judgment as final pursuant to Rule 54(b), Ala. R. Civ. P., and the intervenors again timely appealed. The trial court, thereafter, denied Lauriello's motion seeking to similarly dismiss the remaining claims asserted against him by the intervenors' complaint. This Court subsequently affirmed, without an opinion, the trial court's dismissal of the lawyer defendants. See McArthur v. Yearout & Traylor, P.C. (No. 1070513, Sept. 12, 2008), 34 So.3d 737 (2008) (table).
Following our no-opinion affirmance, proceedings again resumed in the trial court, including the voluntary dismissal of intervenor Bill Greene as a party and the withdrawal by the remaining intervenors, McArthur and Virginia Greene, of their complaint in intervention, including the claims against Lauriello, and their motion seeking to disqualify Lauriello and Lauriello's counsel pursuant to a "Lead Counsel Agreement" reached between the two plaintiff groups and their respective counsel. In addition, Lauriello withdrew his previous request to be appointed a class representative.
Thereafter, discovery as to the class-certification issue commenced. The record reflects numerous discovery-related disputes, which ultimately necessitated the trial court's appointment of a special master to oversee the process. The plaintiffs, thereafter, sought certification pursuant to Rule 23(b)(1) and (b)(3), Ala. R. Civ. P. The plaintiffs' certification request was supported by an accompanying brief and numerous evidentiary exhibits and was opposed on various grounds by Caremark and the insurers.
The trial court, as directed by this Court in Ex parte Caremark, subsequently conducted a lengthy class-certification hearing during which it both heard testimony and received numerous evidentiary submissions. Following the parties' further submission of post-hearing briefs, the trial court issued an order granting class-action certification under Rule 23(b)(3) based upon its purported rigorous analysis, which resulted in the following findings:
"Alabama Rule of Civil Procedure 23(a) --Prerequisites to a Class Action -- states that: "'One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.'
"'The test is whether the number of members in the class is so numerous as to make joinder impracticable. Ala. R. Civ. P. 23(a)(1); State Farm Fire & Cas. Co. v. Evans, 956 So.2d 390 (Ala. 2006).' American Bar Association Survey of State Class Action Law: Alabama § 5 (database updated Dec. 2011). From the administration of this class's Fifty Six Million and No/100 ($56, 000, 000.00) Dollar settlement in 1999, it is clear there are about 80, 000 potential class members, and it is certain that approximately 18, 000 actually filed claims that were verified and approved. Thus, Plaintiffs have carried their burden of proving numerosity. Furthermore, Defendants do not dispute the issue.
"'Commonality requires only that there be common questions of law or fact.... [W]here essentially identical representations are made at different times to different class members but share a common thread and are redressable under the same theory of recovery, the test of commonality may be met.' ABA Survey, supra, at Alabama § 5. As shown by facts presented above and the evidence presented to the Court during the certification hearing, the Court is convinced that there are common questions of law and fact regarding every class member. Furthermore, like numerosity, Defendants do not dispute the issue.
"The typicality element is satisfied only if 'the relationship between the injury to the class representative and the conduct affecting the entire class of plaintiffs [is] sufficient for the Court to properly attribute a collective nature to the challenged conduct.' Warehouse Home Furnishing Distributors, Inc. v. Whitson, 709 So.2d 1144, 1149 (Ala. 1997). To meet the typicality requirement, there must be 'a sufficient nexus ... between the legal claims of the named class representatives and those individual class members to warrant class certification.' Prado-Steiman v. Bush, 221 F.3d 1266, 1278 (11th Cir. 2000).
"The three proposed class representatives, James O. Finney, Jr., Sam Johnson and the City of Birmingham Retirement and Relief System, have claims typical of the proposed class as each was a member of the 1999 Settlement Class.
"Defendants argue that the typicality requirement cannot be met on this record because of the three subclasses -- common stock, TAPS and tender offer -- which existed in the underlying 1999 Settlement Class. It is Defendants' position that each of the proposed class representatives is a member of the common stock subclass and, therefore, they do not have claims which are typical of the TAPS and tender offer subclasses.
"When examining whether these proposed class representatives present claims typical of the entire class, it is critical to understand that the parties are not re-litigating the underlying securities fraud claims. The claim presented in this action is for fraud-in-the-settlement. The alleged fraud did not vary depending on whether one owned common stock, TAPS or a tender offer. Any alleged fraud touched all class members identically.
"It is the Court's determination that any conflicts between the subclasses were resolved in the 1999 class settlement. The three subclasses, with representation, and with joint participation of Defendants, settled all differences in Judge Wynn's court. The subclasses agreed in 1999 on a formula that defined how any class action recovery was to be distributed. All conflicts between the subclasses have been litigated and resolved.
"Given the 1999 class settlement and the nature of the allegations in this action, it is this Court's conclusion that James O. Finney, Jr., Sam Johnson and the City of Birmingham Retirement and Relief System present claims typical of the proposed class."
Applying an identical rationale, the trial court similarly found that Finney, Johnson, and the Retirement System "are adequate to represent this class."
In addition, noting that "[a]lthough all parties agree that proposed class counsel are adequate to prosecute class actions, the parties disagree on whether these attorneys are competent and/or able to adequately represent this proposed class, " the trial court considered and rejected, in turn, each challenge by Caremark and the insurers to proposed class counsel. Ultimately, as to this issue, the trial court concluded:
"In opposition of proposed class counsel, Defendants have raised every possible roadblock and issue to endeavor to influence this Court to find proposed class counsel inadequate, as such is their duty. In their endeavor to have proposed class counsel disqualified, Defendants know full well that if this Court rules with them on this issue Defendants will ...