Free, Robin, et al. v. Abbott Laboratories, et al. (04/03/2000)

By: Carrie Wolfe, Medill News Service

Questions presented

Does the supplemental jurisdiction statute, 28 U.S.C. §1367, overrule Zahn v. International Paper Co., 414 U.S. 291 (1973), and thus expand federal subject matter jurisdiction in a class action to encompass class members whose claims do not satisfy the amount-in-controversy requirement of 28 U.S.C. §1332, as long as diversity jurisdiction exists over the claims of one named plaintiff?

Brief

In October of 1993, Robin and Renee Free, a Louisiana couple with two infants, filed a class action suit in state court alleging a price-fixing conspiracy against three manufacturers of baby formula.

The couple regularly purchased baby formula for both of their children, and they elected to be the named plaintiffs because they were both attorneys and were aware of the alleged price-fixing conspiracy and potential class action suit being organized against the baby formula manufacturers.

The Frees filed on behalf of 250,000 class members who had purchased one or more of the manufacturers' formula between Jan. 1, 1980 and Dec. 31, 1992. Each class member sued for $20,000 damages.

The defendants, Abbott Laboratories, Bristol-Myers Squibb Company, Inc., and Mead Johnson & Co. (collectively Abbott Labs) had the case moved to the U.S. District Court for the Middle District of Louisiana.

In federal court, the Frees fought the removal. The Frees wanted the case back in state court because federal antitrust laws did not seem to apply to consumers who purchase a product from a retailer or a wholesaler. The Frees argued that the case should be remanded because federal jurisdiction only applies to class actions when each plaintiff's individual damages meet or exceed the jurisdictional threshold of $50,000 (currently $75,000).

The Frees appealed, arguing that the federal court's exercise of diversity jurisdiction was improper, citing the 1973 U.S. Supreme Court case of Zahn v. International Paper Co. The Frees claimed that construing a statute to attribute the fees to the named plaintiffs - rather than to distribute them to all plaintiffs individually - rendered the statute unconstitutional.

In May of 1994, the federal judge remanded the matter to state court, ruling that the case lacked ""federal question"" jurisdiction (issues only pertaining to federal court, i.e., bankruptcy) and that it had diversity jurisdiction only over the named plaintiffs' claims and not over claims of the other members in the class. Though the court conceded that it had jurisdiction over the Frees because attorneys' fees would bring the amount over the $50,000 minimum, the court declined to exercise supplemental jurisdiction because the claims raised ""novel issues of state law.""

When Abbott Labs appealed to the 5th Circuit Court of Appeals in April of 1995, the 5th Circuit panel ruled that the case should remain in federal court and said that the supplemental jurisdiction statute, 28 U.S.C. §1367 granted jurisdiction over the claims of the unnamed plaintiffs. The appeals court agreed with the district court that since Louisiana law provided for attorneys' fees to be awarded to the named plaintiffs and not the attorneys, the amount recoverable by the plaintiffs exceeded the $50,000 jurisdictional threshold.

The 5th Circuit then went on to hold that the 1990 supplemental jurisdiction statute overruled the Supreme Court's 1973 decision in Zahn and expanded federal subject matter jurisdiction to class actions in which unnamed class members claims don't satisfy the amount-in-controversy requirement of 28 U.S.C. §1332.

The parties then attempted to settle the case, but in January 1997, U.S. District Judge John V. Parker refused to approve the settlement, finding that a $4.2 million dollar settlement was not enough to compensate the 250,000 plaintiffs.

In November 1997, the same federal judge dismissed the case because he said the Frees lacked standing as indirect purchasers. The court ruled that the claim was interstate, not intrastate, and that Louisiana law does not include indirect purchasers (consumers) as benefactors of the state antitrust laws.

This time the Frees were the ones who appealed to the 5th Circuit. On Jan., 19, 1999, the appeals court sent the case to the Louisiana Supreme Court, certifying two state law questions: 1) whether Louisiana antitrust law grants standing to indirect purchasers of consumer products; and 2) whether Louisiana antitrust law provides a cause of action for interstate conspiracies in restraint of trade, or whether such suits are limited to wholly intrastate conspiracies.

The Louisiana Supreme Court denied certification, leaving the 5th Circuit ""to fathom Louisiana's unsettled antitrust law as Louisiana courts would do it,"" as the 5th Circuit panel wrote.

Now up before a 5th Circuit panel for the third time, the appeals court reinforced its earlier holding that the claims of the class representatives met the minimum $50,000 and that the court had diversity jurisdiction over their claims. The 5th Circuit said that because § 1367 doesn't specifically exclude class actions, Congress intended class action suits to fall under supplemental jurisdiction.

On June 3, 1999, a unanimous 5th Circuit panel also affirmed the district court's dismissal of the plaintiffs' claims, holding that as indirect purchasers of infant formula, they lacked standing to bring the present state antitrust claim.

Patrick W. Pendley, Free's attorney, said §1367 is traditionally not applied to class-action suits. He said if the Supreme Court agrees with the 5th Circuit and rules that Zahn doesn't apply, the case will move back to state court.

Otherwise, the controversy will end, because if Zahn is overruled by §1367, the federal judge's ruling that the plaintiffs have no claim will stand.

""But the question is: 'Did he have the jurisdiction to (rule)?' "" Pendley said.

On Nov. 29, 1999, the U.S. Supreme Court granted certiorari in the case, and on April 3, 2000, affirmed the 5th Circuit's judgment by a split 4-4 vote, issuing no opinion. Justice Sandra Day O'Connor took no part in the decision.