Scott v. American Tobacco Co.
195 So. 3d 624
La. Ct. App.2016Background
- Class action filed May 24, 1996 on behalf of Louisiana smokers; class ultimately limited to those who began smoking before Sept. 1, 1988.
- Two-phase jury trial: Phase I found defendants increased risk to class and required cessation assistance; Phase II awarded a multi-component cessation program and substantial damages (later reduced by appeal).
- This Court in Scott I (affirming liability for pre-1988 claimants and limiting recoverable program components) and Scott II (calculating a funding amount based on 210,000 eligible members and $153 median annual cost) remanded and ordered deposit of funds into court registry and transfer to an interest-bearing trust to fund the program.
- Trial court created the Smoking Cessation Trust and trustees; defendants deposited the final judgment plus interest into the court registry and funds were transferred to the Trust.
- Defendants sought information about Trust funds and asserted an interest in any surplus at program end; the Trust Board sought instructions from the court about beneficiaries, reporting obligations, use of funds across years, and use of interest income.
- Trial court ruled defendants are not (now) beneficiaries of the Trust, trustees need not provide financial records to defendants, trustees may move dedicated funds between years for program purposes, and interest income may be used for program needs; defendants appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether defendants are beneficiaries of the Trust | Scott (plaintiffs) argued the Trust beneficiaries are class members who may receive program benefits; Trust instrument and Scott II identify class beneficiaries | Defendants argued they are conditional beneficiaries because surplus funds at program end will "inure" to them and Scott II reserved their right to assert claims | Defendants are not beneficiaries; Scott II and the Trust identify class members as beneficiaries and reserve defendants only a post-termination right to assert claims to surplus |
| Whether defendants are entitled to Trust financial reports | Plaintiffs: only beneficiaries need reporting and trustees must comply with Trust Code to beneficiaries | Defendants: as conditional beneficiaries or parties with reserved rights, they have statutory right to inspection and information under La. R.S. 9:2089 | Defendants are not entitled to routine Trust financial reporting; trustee disclosure obligations apply to beneficiaries, not defendants here |
| Whether trustees may reallocate funds dedicated for a program year to later years | Plaintiffs: trustees may manage funds flexibly to implement the program as required | Defendants: reallocation could frustrate defendants’ reserved surplus interest or violate program limits | Court held trustees may direct program funds from a dedicated year to subsequent years for any purpose reasonably designed to further the program |
| Whether trustees may spend interest income beyond a 5% administrative cap | Plaintiffs: interest income and judicial interest may be used to benefit the program, including administrative costs | Defendants: interest spending may not exceed the stipulated 5% administrative fee cap and cannot subsidize non-allowed components | Trial court allowed use of judicial interest and interest income for the cessation program, including administration; defendants’ challenge deemed moot after beneficiary holding |
Key Cases Cited
- Hecht Co. v. Bowles, 321 U.S. 321 (1944) (federal courts need flexibility in supervising and allocating funds held in trust for public or programmatic purposes)
- Scott v. Am. Tobacco Co., Inc., 949 So.2d 1266 (La. Ct. App. 2007) (Scott I) (affirmed liability for pre-1988 class members and limited recoverable program components)
- Scott v. Am. Tobacco Co., Inc., 36 So.3d 1046 (La. Ct. App. 2010) (Scott II) (calculated program funding, ordered deposit to court registry, and reserved defendants’ right to assert claims to surplus funds at program termination)