Defendant-appellant tobacco companies appeal from the September 19, 2002, order and October 22, 2002, supplemental memorandum and order of the United States District Court for the Eastern District of New York, Jack B. Weinstein, Judge, which certified a nationwide non-opt-out class of smokers seeking only punitive damages under state law for defendants’ alleged fraudulent denial and concealment of the health risks posed by cigarettes. Having granted permission to appeal pursuant to Federal Rule of Civil Procedure 23(f), we must decide whether the district court properly certified this class under Rule 23(b)(1)(B).
Defendant-appellants challenge the propriety of certifying this action as a limited fund class action pursuant to a “limited punishment” theory. The theory postulates that a constitutional limit on the total punitive damages that may be imposed for a course of fraudulent conduct effectively limits the total fund available for punitive awards.
We hold that the order certifying this punitive damages class must be vacated because there is no evidence by which the district court could ascertain the limits of either the fund or the aggregate value of punitive claims against it, such that the postulated fund could be deemed inadequate to pay all legitimate claims, and thus plaintiffs have failed to satisfy one of the presumptively necessary conditions for
While we expressly limit our holding to the conclusion that class certification is incompatible with Ortiz, the circumstances warrant some discussion of whether the order is incompatible with the Supreme Court’s intervening decision in State Farm Mutual Automobile Insurance Co. v. Campbell,
Based on our holding, we vacate the district court’s certification order and remand for further proceedings.
I.
FACTS AND PROCEDURAL HISTORY
The district court certified the class proposed by the Third Amended Consolidated Class Action Complaint and an accompanying motion for class certification, both filed on July 26, 2002. The district court’s September 19, 2002, order and the supplemental memorandum and order of October 22, 2002, are published together at In re Simon II Litigation,
Plaintiffs sought certification to determine defendants’ fraudulent course of conduct and total punitive damages liability to a class consisting of those who suffered from, or had died from, diseases caused by smoking. Plaintiffs did not seek a class-wide determination or allocation of compensatory damages or seek certification of subclasses. The certification followed extensive briefing and argument, not to mention numerous iterations of both the complaint and the proposed class.
An abbreviated history of the course of the litigation is outlined below. Additional procedural history of the cases related to this litigation appears in the district court’s Certification Order. See
A.
The industry conspiracy prompting this litigation is described briefly in the allegations of the Third Amended Complaint and in considerable detail in the Certification Order. See
Plaintiffs allege, and can provide supporting evidence, that, beginning with a clandestine meeting in December 1953 at the Plaza Hotel in New York City among the presidents of Philip Morris, R.J. Reynolds, American Tobacco, Brown & Williamson, Lorillard and U.S. Tobacco, tobacco companies embarked on a systematic, half-century long scheme to ... :(a) stop competing with each other in making or developing less harmful cigarettes; (b) continue knowingly and willfully to engage in misrepresentations and deceptive acts by, among other things, denying knowledge that cigarettes caused disease and death and agreeing not to disseminate harmful information showing the destructive effects of nicotine and tobacco consumption; (c) shut down research efforts and suppress medical information that appeared to be adverse to the Tobacco Companies’ position that tobacco was not harmful; (d) not compete with respect to making any claims relating to*129 the relative health-superiority of specific tobacco products; and (e) to confuse the public about, and otherwise distort, whatever accurate information about the harmful effects of their products became known despite their “[efforts to conceal such information.]”
In 1999, a group of cigarette smokers filed a class action captioned Simon v. Philip Morris Inc., No. 99 CV 1988(JBW) (“Simon I”), on behalf of 20-pack-year smokers. They sought a determination of both compensatory and punitive damages for personal injury or wrongful death caused by lung cancer. Plaintiffs limited the class to 20-pack-year smokers because their medical and scientific experts had determined that, for that class, general and specific causation merged, and both could be proved class-wide without individual trials.
The Simon I class moved for certification in April 2000. Without ruling on the certification motion, the district court issued an order on April 18, 2000, consolidating Simon I and seven other tobacco-related suits pending before it “for purposes of settlement and for no other purpose.” In re Tobacco Litig.,
On September 6, 2000, individual and representative plaintiffs in ten existing actions filed a consolidated class action complaint, In re Simon (II) Litigation, No. 00-CV-5332 (JBW) (E.D.N.Y.) (hereinafter “Simon II ”), on behalf of a proposed comprehensive nationwide class
On December 22, 2000, plaintiffs filed the First Amended Consolidated Class Action Complaint in Simon II
Following an April 30, 2002, status conference, plaintiffs decided to narrow Simon II to include only the three cigarette smoker class actions, Simon I, Decie, and Ebert, see supra n.2, and accordingly filed the Second Amended Consolidated Class Action Complaint on May 28, 2002, and an amended motion for class certification. In the Second Amended Complaint, plaintiffs asserted a total of seven “Class Claims”: four for product liability (design defect, failure to warn, negligent design, and negligent failure to warn), one for fraudulent concealment or conduct, one for conspiracy, and another for unjust enrichment. Balancing the approaches taken in Simon I and initially in Simon II, the amended and renewed motion for class certification of May 28, 2002, sought certification on behalf of two classes: a class of 20-pack-year smokers with lung cancer to be certified for all purposes, including compensatory and punitive damages, and a broader disease-based class solely for purposes of determining .class-wide punitive damages. The first was to be an opt-out class under Rule 23(b)(3) and the latter a non-opt-out punitive damages class under Rule 23(b)(1)(B). Following briefing and oral argument, the district court reserved decision and suggested class counsel revise their class proposal.
During a July 2, 2002, hearing on the certification motion, the district court expressed reservations about plaintiffs’ proposal to limit a smokers’ class to persons with lung cancer only or to persons with a 20-pack-year history of cigarette smoking only. The district court indicated that it was not inclined to certify a portion of the class for compensatory damages purposes, but that the majority of the class could be certified for punitive damages only.
On July 26, 2002, Plaintiffs filed the Third Amended Complaint and an accompanying amended and renewed motion for class certification, which precipitated the Certification Order at issue here. Plaintiffs sought certification of a single class of smokers suffering from various diseases which the medical community attributes to smoking, including 20-pack-year smokers
B.
Upon considering the class proposed by plaintiffs’ Third Amended Complaint and the motion for certification, the district court certified a punitive damages non-opt-out class pursuant to Rule 23(b)(1)(B). See
The district court determined that the class action would proceed in three stages. In the first stage, a jury would make “a class-wide determination of liability and estimated total value of national undifferentiated compensatory harm to all members of the class.” Id. at 100. The sum of compensatory harm would “not be awarded but will serve as a predicate in determining non-opt-out class punitive damages.” Id. The same jury would determine compensatory awards, if any, for individual class representatives, although the class itself did not seek compensatory damages. In the second stage, the same jury would determine whether defendants engaged in conduct that warrants punitive damages. Id. In the third stage, the same jury would determine the amount of punitive damages for the class and decide how to allocate damages on a disease-by-disease basis. The court would then distribute sums to the class on a pro-rata basis by disease to class members who submit appropriate proof. Any portion not distributed to class members would be “allocated by the court on a cy pres basis to treatment and research organizations working in the field of each disease on advice of experts in the fields.” Id. The order specified that the
II.
DISCUSSION
A.Standard of Review
We review the district court’s order granting class certification for abuse of discretion, a deferential standard. See Parker v. Time Warner Entm’t Co.,
We note that this case raises issues of first impression insofar as this Circuit has never squarely passed on the validity of certifying a mandatory, stand-alone punitive damages class on the proposed “limited punishment” theory.
B. Prerequisites for a Class Action under Rule 23(a)
The district court found that the proposed class satisfied the Rule 23(a) requirements of numerosity, commonality, typicality, and adequacy of representation. See
C. Standards for Maintaining a Class Action under Rule 23(b)(1)
In addition to showing that the class action prerequisites set out in Rule 23(a) have been met, a plaintiff must show that a class action is maintainable under either Rule 23(b)(1), (2) or (3). Fed.R.Civ.P. 23.
(b) Class Actions Maintainable. An action may be maintained as a class action if the prerequisites of subdivision (a) are satisfied, and in addition:
(1) the prosecution of separate actions by or against individual members of the class would create a risk of
(A) inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class, or
(B) adjudications with respect to individual members of the class which would as a practical matter be disposi-tive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests[.]
Fed.R.Civ.P. 23(b)(1).
Plaintiffs in this case sought certification under Rule 23(b)(1)(B),
Suits under Rule 23(b)(1) are often referred to as “mandatory” class actions because they are not subject to the Rule 23(c) provision for notice to absent class members or the opportunity for potential class members to opt out of membership as a matter of right. See Ortiz v. Fibreboard Corp.,
Regarding the subset of these cases involving a limited fund, the Committee’s Note remarks:
In various situations an adjudication as to one or more members of the class will necessarily or probably have an adverse practical effect on the interests of other members who should therefore be represented in the lawsuit. This is plainly the case when claims are made by numerous persons against a fund insufficient to satisfy all claims. A class action by or*134 against representative members to settle the validity of the claims as a whole, or in groups, followed by separate proof of the amount of each valid claim and proportionate distribution of the fund, meets the problem.
Id.
D. Limited Fund Class Action Based on the “Limited Punishment” Theory
The district court, in certifying the punitive damages class under Rule 23(b)(1)(B), cited recent scholarship and court decisions that “have concluded that the theory of limited punishment supports a punitive damages class action.”
The premise for this theory is that there is a constitutional due process limitation on the total amount of punitive damages that may be assessed against a defendant for the same offending conduct. Whether the limitation operates to prejudice the respective parties, it seems, turns on two contrary assumptions. For the potential
The notion of a constitutional cap on total allowable aggregate punitive damages awards, or on the number of times punitive awards can be made, has never been squarely articulated by the Supreme Court, but is said to derive from its precedents regarding punitive damages. In the Supreme Court’s most recent punitive damages decision, State Farm Mutual Automobile Insurance Co. v. Campbell,
“Punitive damages have long been a part of traditional state tort law,” and Congress has provided for punitive damages in a number of statutes. Haslip,
Despite the long-recognized possibility that defendants may be subjected to large aggregate sums of punitive damages if large numbers of victims succeed in their individual punitive damages claims, see, e.g., Roginsky v. Richardson-Merrell, Inc.,
E. The Traditional “Limited Fund” Class Action Under Ortiz v. Fibreboard Corp.
This brings us to appellants’ chief argument — that class certification under Rule 23(b)(1)(B) is precluded by the Supreme Court’s decision in Ortiz v. Fibreboard Corp.,
The first characteristic, a fund “with a definitely ascertained limit,” usually entailed a situation where “the totals of the aggregated liquidated claims and the fund available for satisfying them, set definitely at their máximums, demonstrate the inadequacy of the fund to pay all the claims.” Id. at 838,
While neither the Rule itself, nor the Advisory Notes accompanying it, purports to delineate the outer limits of the Rule’s application in the particular subset of “limited fund” cases, the Supreme Court in Ortiz has read the “limited fund” case as being moored to the Rule’s historical antecedents, describing the classic actions as involving, for instance, “claimants to trust assets, a bank account, insurance proceeds, company assets in a liquidation sale, proceeds of a ship sale in a maritime accident suit, and others.” Id. at 834,
The Ortiz Court sounded a number of cautionary notes, expressing its extreme hesitation to apply Rule 23 in ways that would have been beyond the contemplation of the drafters of the Advisory Committee Notes. See id. at 842,
Keeping in mind that the Court has thus counseled “against leniency in recognizing mandatory limited fund actions in circumstances markedly different from the traditional paradigm,” id. at 864,
The proposed fund in this case, the constitutional “cap” on punitive damages for the given class’s claims, is a theoretical one, unlike any of those in the cases cited in Ortiz, where the fund was either an existing res or the total of defendants’ assets available to satisfy claims. The fund here is — in essence — postulated, and for that reason it is not easily susceptible to proof, definition, or even estimation, by any precise figure. It is therefore fundamentally unlike the classic limited funds of the historical antecedents of Rule 23.
Not only is the upper limit of the proposed fund difficult to ascertain, but the record in this case does not evince a likelihood that any given number of punitive awards to individual claimants would be constitutionally excessive, either individually or in the aggregate, and thus overwhelm the available fund.
Without evidence indicating either the upper limit or the insufficiency of the posited fund, class plaintiffs cannot demonstrate that individual plaintiffs would be prejudiced if left to pursue separate actions without having their interests represented in this suit, as Rule 23(b)(1)(B) would require.
Defendant-appellants also argue that there are two ways in which the class certified fails to exhibit the third presumptively necessary characteristic of a limited fund case, namely, that “the claimants identified by a common theory of recovery were treated equitably among themselves.” Ortiz,
F. Punitive Awards After State Farm Mutual Automobile Life Ins. Co. v. Campbell
While our holding in this case rests exclusively on the conclusion that certification is incompatible with Ortiz, we have an additional concern that warrants some discussion. It seems that a punitive award under the circumstances articulated in the Certification Order is likely to run afoul of the Supreme Court’s admonitions in State Farm, a decision handed down several months after the Certification Order issued. See State Farm Mut. Auto. Ins. Co. v. Campbell,
Furthermore, with respect to the evidence to be considered at the punitive damages stage, State Farm indicates that a jury could not consider acts of as broad a scope as the district court in this case anticipated. The Certification Order in this case provides:
This class action is intended to cover all punitive damages nationwide. This could include punitive damages due to outrageous conduct by defendants towards non-class members. The punitive function served by this certified class could be utilized in part for persons outside the class as, for example, passive breathers of the smoke exuded by others, those with diseases other than those represented by this certified class, and future diseased persons.... Allowing the jury to consider evidence of damage to others at this stage in setting the punitive award is appropriate in a nationwide class action where a portion of the harmful behavior may not be corre-latable with class members.
State Farm made clear that conduct relevant to the reprehensibility analysis must have a nexus to the specific harm suffered by the plaintiff, and that it could not be independent of or dissimilar to the conduct that harms the plaintiff.
G. D efendant-Appellants’ Other Arguments
Defendant-appellants also contend the Certification Order runs afoul of the Rules Enabling Act, 28 U.S.C. § 2072(b) (2000), because, on a number of counts, it alters or
Because we have held that certification is incompatible with Ortiz, we need not address whether the district court’s proposed statistical aggregation of proof, or its invocation of a “fraud-on-the-market” theory, would have been appropriate for a class-wide approximation of compensatory liability in this case, or for proof of any given element going toward actual liability in a conventional class action for compensatory and punitive damages. Our holding also disposes of any need to address the controversy surrounding the challenged follow-on actions.
Defendant-appellants also challenge the Certification Order’s determination that “the single law of New York’s compensatory and punitive damages will apply.”
III.
CONCLUSION
The proposed class having failed to satisfy the threshold requirements for certification set forth in Ortiz and Rule 23(b)(1)(B), we must vacate the district court’s certification order and remand for further proceedings.
Notes
. The April 18, 2000, Order consolidated Nat’l Asbestos Workers Med. Fund v. Philip Morris, Inc., No. 98-CV-1492; Blue Cross & Blue Shield of New Jersey, Inc. v. Philip Morris, Inc., No. 98-CV-3287; Raymark Indus., Inc. v. Am. Tobacco Co., No. 98-CV-0675; H.K. Porter Co. v. Am. Tobacco Co., No. 97-CV-7658; Falise v. Am. Tobacco Co., No. 99-CV-7392; Bergeron v. Philip Morris, Inc., No. 99-CV-6142; Liggett Group Inc. v. Latham & Watkins, No. 99-CV-7529; with Simon v. Philip Morris, Inc., No. 99-CV-1988. See
. The actions listed and consolidated in the September 6, 2000, complaint under the caption In re Simon II Litigation included four smokers’ class actions [Simon I; Decie v. Am. Tobacco Co., No. 00-CV-2340 (JBW) (E.D.N.Y.); Ebert v. Philip Morris Inc., No. 00-CV-4632 (JBW) (E.D.N.Y.); and Mason v. Am. Tobacco Co., No. 00-CV-4442 (JBW) (E.D.N.Y.)], two union health fund class actions [Nat'l Asbestos Workers Med. Fund v. Philip Morris, Inc., No. 98-CV-1492 (JBW) (E.D.N.Y.) and Bergeron v. Philip Morris, Inc., No. 99-CV-6142 (JBW) (E.D.N.Y.)], a third-party payor action [Blue Cross & Blue Shield of New Jersey, Inc. v. Philip Morris, Inc., No. 98-CV-3287 (JBW) (E.D.N.Y.)], and three actions by asbestos entities or asbestos entities' trusts [H.K. Porter Co. v. Am. Tobacco Co., No. 97-CV-7658 (JBW) (E.D.N.Y.); Raymark Indus., Inc. v. Am. Tobacco Co., No. 98-CV-0675 (JBW) (E.D.N.Y.); and Falise v. Am. Tobacco Co., No. 99-CV-7392 (JBW) (E.D.N.Y.) ].
. The Simon II First Amended Complaint filed December 22, 2000, dropped two federal RICO claims listed in the original complaint, but retained the remaining four "Class Claims Supporting an Award of Punitive Damages.” The complaint distinguished between a "Fraudulent Conduct Class” and a "Punitive Damages Class.”
. In Engle, a class action by Florida smokers against cigarette manufacturers, a jury determined punitive damages in the aggregate for the entire class. The evidence indicated the class could comprise up to several hundred thousand people; the court found that a punitive damages award of approximately $145 billion bore a reasonable relationship to damages proved and injuries suffered, and that the award was in keeping with the degree of the wrongful conduct without "sending the defendant into bankruptcy.”
. In a brief decision in In re Diamond Shamrock Chemicals Co.,
. Plaintiffs did not move for certification under Rule 23(b)(1)(A), although the Third Amended Complaint invokes Clause (A) and asserts that separate punitive awards "would establish incompatible standards of conduct for Defendants.” Compl. at 20. We express no opinion regarding whether the circumstances here could satisfy Clause (A)’s requirements. "Courts are still struggling to develop guidelines governing the scope of Rule 23(b)(1)(A).” Herbert B. Newberg & Alba Conte, 2 Newberg on Class Actions § 4:4 (4th ed.2005).
. The district court referred to its discussion, earlier in the Certification Order, of BMW v. Gore,
The district court also discussed In re Exxon Valdez, a case in which an Alaska district court successfully certified a limited fund punitive damages class in order to prevent two separate punitive awards in the already-scheduled state and federal class action trials, but where the defendants, who faced a real risk of large punitive damages awards in the already certified compensatory claims, were the proponent of the class, invoking plaintiffs' interests under 23(b)(1)(B) as justification for certification under the limited fund theory. In re Exxon Valdez, No. A89-0095-CV (HRH), Order No. 180 Supplement at 8-9. The unpublished order is part of the record in this appeal, see Joint Appendix at 3207-19. The Alaska district court noted that the Exxon case involved "an unusual convergence of identity of occurrence, law, and fact,” unlike most mass tort class actions, Joint Appendix at 3216, and that it mattered little whether the punitive damages claim was adjudicated in state or federal court; because the case sounded in admiralty, federal maritime law and any applicable Alaska state law applied in both the state and federal court actions. Id. at 3210. The 9th Circuit was later able to review the jury’s punitive award of $5 billion and order that it be reduced. See In re Exxon Valdez,
. Ortiz held that “applicants for contested certification on this rationale must show that the fund is limited by more than the [settlement] agreement of the parties, and has been allocated to claimants belonging within the class by a process addressing any conflicting interests of class members.” Ortiz,
. We are not here presented with what might be a closer question — that is, if a standard class action had resulted in a verdict for compensatory damages for the class in one stage of a trial, and the mandatory class proponent wished to bind absent class members to any determination, of a punitive award in a subsequent stage, because the given number of outstanding individual claims and the anticipated punitive award could demonstrably result in an unconstitutionally large punitive award.