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CHARLESTON, W.Va.-Liggett Group Inc., in a failed bid to shield itself from future claims by smokers, is the first defendant to feel the fallout from a recent Supreme Court decision denying a class-action settlement of asbestos claims.

A ruling earlier this month by Chief Judge Charles H. Haden II in U.S. District Court in Charleston, W.Va., is the first to rely on the high court's ruling in Amchem Products Inc. et al. vs. Windsor et al. His decision vacated preliminary approval of a class-action settlement that would have shielded Liggett Group from future smokers' claims.

Liggett said the ruling will have no effect on the agreement it reached earlier this year to settle claims with 25 state attorneys general (BI, March 24). That agreement is to reimburse the states for the cost of treating smoking-related illnesses. Liggett's settlement is separate from the proposed $360 billion settlement reached by other cigarette makers with state attorneys general.

The West Virginia case is Liggett's second attempt to reach a nationwide settlement of smokers' personal injury claims and protect itself from future litigation. An Alabama state court earlier this year granted preliminary approval to such a deal, but the court later put the proposal on hold when objectors succeeded in obtaining a stay until Liggett could prove it had only a limited fund to pay claims.

When the state court deal stalled, Liggett turned to federal court in West Virginia. Approval from either court would give Liggett the protection from litigation the company seeks.

Although the Alabama case is on hold, a Liggett spokesman said the company still plans to try to win approval in that court.

The tobacco company also plans to continue its efforts to settle the West Virginia litigation, filed in February by plaintiff Earl William Walker Jr. The suit proposed a class consisting of all users of Liggett tobacco products and those who suffer current or future injuries from those products or from secondhand smoke from a Liggett cigarette.

Bennett S. LeBow, chief executive officer of Liggett parent Brooke Group Ltd., said in a statement, "We believe that we will be able to address and resolve the technical issues the court has raised and that Liggett's limited fund settlement will ultimately be upheld by the courts."

Leslie Brueckner, an attorney with the Washington-based Trial Lawyers for Public Justice, said, "It's a very significant decision, not only because it puts an end to this proposed settlement, which is one of the worst examples of class-action abuse I've ever seen" but also because it reinforces the message delivered by the Amchem ruling that defendants can't use such settlements to "buy global peace" and deprive individual plaintiffs of the right to pursue their claims.

In the Amchem decision, the Supreme Court rejected a $1.3 billion class-action settlement of asbestos claims. The judges in a 6-to-2 decision determined that the diverse class of claimants did not meet the requirements of certification under Rule 23 of the Federal Rules of Civil Procedure, which governs civil cases.

Liggett argues that the Amchem decision should not apply in its case because Amchem did not involve a limited fund settlement as the tobacco company has proposed. In such a settlement, the plaintiff stipulates that the defendant's assets are insufficient to pay all claims and therefore proceeds must be limited.

In Liggett's case, the tobacco company proposed, among other things, paying 25% of pretax profits for the next 25 years into a fund for distribution to claimants. In exchange, all present and future claims would be ended and, together with the settlement with state attorneys general, all litigation against Liggett would be resolved.

Judge Haden had granted preliminary approval of the federal court settlement in May prior to a motion asking for reconsideration based on the Amchem ruling. In vacating that preliminary approval, Judge Haden focused little of his 18-page opinion on Liggett's argument regarding a limited fund settlement.

The judge determined that while plaintiffs have a common interest in "maximizing the limited fund available from defendants," there remained "substantial conflicts among class members relating to distribution of the fund and other key concerns" that made class certification inappropriate.

Judge Haden wrote that the proposed settlement class in the Walker case "dwarfs that considered by the Supreme Court" in the Amchem case and, therefore, created similar concerns regarding a settlement for such a diverse class.

The judge wrote that "The class is so uniquely expansive as to hold within its confines persons ranging in age from infants in utero to individuals such as Ali Mohammed Hussein (reported to be more than 100 years old), who smokes 60 cigarettes every day. The various combinations of subclasses within this gargantuan assembly of plaintiffs would appear to defy definition, much less division."

A key concept in the Amchem case, also referred to as Georgine from its lower court cases, "is adequacy of representation," said John Coffee, a professor at Columbia University Law School in New York. That case also is clear on the notion that no single law firm can adequately represent so many plaintiffs with different claims and legal rights, he noted.

The Amchem decision also focused on the problem of different interests regarding payouts within the single class. That ruling noted that while those currently suffering injuries want an immediate payment, it would be in the best interest of future claimants to establish a fund structured to keep pace with inflation. "That same problem exists in Liggett," Mr. Coffee said.

The West Virginia case underlines the trend of courts to frown on mass tort settlements.

"It's only a district court decision, but it's another nail" in the coffin of attempts to end mass tort litigation with class-action settlements," Mr. Coffee said.

"Large mass tort cases have always been difficult to settle, even when you could define the present population," said Stanley Levy, a plaintiffs lawyer and partner with the New York law firm Levy, Phillips & Konigsberg.

"When claimants started to include (future claimants), it created a whole new type of settlement that made it difficult to deal with legally and morally. How do you settle with people who don't yet know they are sick?" he asked.

The Amchem opinion "raises serious questions about whether you can use a class action at all for really large settlements," Mr. Levy said.

Earl William Walker Jr. et al. vs. Liggett Group Inc. et al., U.S. District Court, Southern District of West Virginia, Charleston Division; No. 2:97-0102, Aug. 5, 1997.