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MASONITE: GODZILLA OF CLASS ACTIONS IN MOBILE

Dec 28, 1999

Mobile Register

Series Excerpts

Area's biggest class action also only one that actually went to trial

By Eddie Curran

Register Staff Reporter

During a November 1995 hearing before U.S. District Judge Alex Howard, a lawyer for Masonite Corp. begged the federal judge not to send a class action against his client back to Mobile County Circuit Court.

"Judge, these plaintiffs don't want the scrutiny that a federal court will give the issues in this case. They don't want it. They are afraid of it," Birmingham lawyer Warren Lightfoot told the Mobile judge. "We welcome it. We ask for it. We implore this court to give us a level playing field."

Lightfoot and Masonite lost that argument, and a few more, in what most likely is the most expensive and bitterly litigated class action in the local Circuit Court's history.

By the time it concluded in January 1998, the Masonite siding suit had become the first nationwide product liability class action in U.S. history to be tried before a jury, and the only one of more than 75 class actions filed in Mobile County Circuit Court in the 1990s to go to trial.

Fees won by the plaintiffs' lawyers - at least $47.5 million, and possibly more later on - dwarf any known fee in Mobile legal history. The next largest fee in a Mobile class action, involving a case against BancBoston Mortgage Corp., was $8.5 million.

The case involved considerable financial risk on the part of the plaintiffs' team - as a term of the settlement, Masonite agreed to reimburse the plaintiffs' attorneys for $2.5 million they'd spent over three years.

"We had a very hard fight against extremely talented, tenacious defense attorneys with unlimited financial resources," said Richard Dorman, a Mobile plaintiffs' lawyer who worked on the case. "It was vigorously and at times bitterly litigated."

High stakes

From the day the case was filed in December 1994, the stakes were tremendous for Masonite and its parent company, International Paper Co.

Some of the top plaintiffs' firms in the country - including Mobile's Cunningham, Bounds, Yance, Crowder & Brown and class action specialist Elizabeth Cabraser of San Francisco -were seeking permission to represent 4 million homeowners in a case they claimed could cost Masonite billions of dollars.

The pivotal ruling came in November 1995, when Circuit Court Judge Robert Kendall ruled that the case could proceed as a nationwide class action. That same day - and the timing of this would be disputed by both sides - Masonite sought to transfer the case to federal court.

The plaintiffs' perspective on the attempt to move the case: that Masonite had sold hardboard siding that rotted after a few years of exposure to moisture, that it hid these defects from consumers, and that the company was in a panic over the scrutiny it already was receiving in Kendall's court.

Soon after Howard returned the case to state court, the company made a bid to remove Kendall from the case. Kendall had been assigned to the case when it was filed.

Masonite claimed that the judge and plaintiffs' lawyers had engaged in prohibited communications, and appealed to the Alabama Supreme Court to force him from the case. After considering evidence and testimony, the court found the accusations groundless.

"If you're going to shoot the king, kill him," said New Orleans lawyer Phil Wittman of New Orleans, whom Masonite hired to take over the case after the previous lawyers failed to oust Kendall.

"Judge Kendall was not happy over the recusal motion that was filed," Wittman said. "I think he started out being tough on us, but as the trial wore on he began to see that maybe we had some meritorious defenses, and I felt like finally at end of the day he was calling them pretty straight for us."

Business criticism

Business advocates, including the U.S. Chamber of Commerce, continue to criticize Kendall's ruling to allow the case to become a nationwide class action. They contrast Kendall's ruling with a decision by New Orleans-based U.S. District Judge Martin Feldman, who dismissed a similar nationwide class action against Masonite. Feldman wrote that there was no single Masonite product, but a variety of siding types, made in different plants, during different times, and using different products and a wide variety of processes.

"Combined, these differences are so great as to make national class treatment unwieldy, unfair, and unlawful," Feldman wrote.

Dorman said he believes Feldman would have ruled like Kendall did if he'd seen the evidence presented in Mobile.

"We did what I consider to be an absolutely tremendous job and we put forth one heck of a record before Judge Kendall," said Dorman, a partner in the firm of McRight, Jackson, Dorman, Myrick & Moore when the case started, and now a partner in Cunningham, Bounds.

The case originated when Baldwin County builder John Naef approached Cunningham, Bounds partner John Crowder, Dorman said. Naef had built about 80 homes with Masonite siding, and people were complaining that it was crumbling.

The subsequent lawsuit claimed that the wood product didn't last anywhere near its 25-year guarantee, and asserted that Masonite made it hard for homeowners who filed claims to be compensated.

Masonite contended that any defects were the fault of builders who failed to install the product according to detailed specifications. The company pointed out that only a very small percentage of homeowners had filed claims, which it offered as proof that the product was sound.

Two factors made the case unique: that unlike many class action defendants, Masonite had no intention of settling; and that the plaintiffs' lawyers were gung-ho to take their case to trial.

Lack of investigation?

In a study of the case, Cunningham, Bounds partner Robert "Bobo" Cunningham took a dig at many class action lawyers for failing to fully investigate defendants because they're interested only in settling cases.

"One must question how the vast majority of class actions can be settled for full value without, in many cases, substantial pre-trial discovery being accomplished and without the defendant facing the sure prospect of a jury trial," Cunningham wrote in the study, which was presented at a legal seminar.

To prepare for trial, teams of lawyers and paralegals traveled the country, sifting through thousands of documents searching for what Cunningham called "smoking guns." As the trial neared, the plaintiffs hired a jury consultant and conducted three mock trials before a "carefully selected group of individuals," Cunningham wrote.

A sociologist analyzed the results to "help shape the presentation of the case at trial," according to Cunningham's study.

Dorman estimated that the two sides took more than 100 witness depositions, including testimony from experts on wood science, engineering, home-building, and economics.

In August 1996, a Mobile County jury was impaneled to hear the case. The jurors would do their civic duty for almost a month.

Sharon Ryan of Chicago, Masonite's general counsel, said that each morning, company employees would gather in a circle, hold hands, and pray to gird themselves for that day's pounding on the witness stand.

"They made Masonite seem like we were horrible. They made us feel like we were bad people, and we're not," Ms. Ryan said. "They were carrying on about how horrible we are and that we made the product bad, and that was disappointing to me because they knew that wasn't the case."

On Sept. 13, 1996, the jury returned with a verdict: On four of five "product defect tests" it was asked to decide, the jury agreed with the plaintiffs that Masonite's siding was defective. No damages were awarded, since it had been decided that a second trial would be held to assess damages if Masonite lost the first trial.

Both sides faced considerable risk heading into the scheduled July 1997 second trial. For the plaintiffs, the possibility remained that an appeals court would overturn Kendall's ruling that had allowed the class action to proceed.

The risk of a second trial was even greater for Masonite, because this time, a jury would be asked to specify a dollar amount for the damages, Dorman said.

"It would have been a huge number - I feel confident it would have bankrupted Masonite and done significant damage to International Paper," he said.

On the eve of trial, the two sides agreed to settle. The settlement provided for an independently managed claims process for homeowners, Dorman said.

Homeowners who file claims are receiving, on average, about $5,000 apiece, which is about four times more than Masonite was paying claimants prior to the lawsuit, he said. That's a result that presumably would not have occurred without Kendall's ruling to try the case as a class action.

The total value of the settlement won't be known for years, since the claims period will last until 2007. Dorman estimates the total claims could reach $1 billion, while International Paper predicts the final tally to be closer to $150 million to $200 million, which the company claims is about what it would have paid on claims without the lawsuit.

Kendall told the Register that one of the benefits of the settlement is that Masonite agreed to pay the attorneys and not to deduct legal fees from the money paid to homeowners.

Ms. Ryan remains rankled by the case, but said that while she "hated to say anything positive" about her foes, she described Cunningham as a gentleman and an effective trial lawyer. And Dorman, she said, continues to advocate for the class, even though he's been paid. "I think he really cared about the people," Ms. Ryan said of Dorman. "I know he fought long and hard in the settlement for everything."

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