Katie versus Nicky in Madison County: Reflections on a Weird Class Action
May 12, 05
It was just another sunny May day in Illinois, when Madison County Circuit Judge George Moran Jr. entered a default judgment order against diamond giants De Beers Centenary A.G. and DB Investments after the two companies failed to respond to a class action lawsuit filed against them less than three months ago by Emert and Katie Null of Madison County.
I doubt it whether
I sometimes wonder how many court cases have been inspired by a single (not very smart) speech. But that isn’t the issue here. Illinois is probably the worst state in the United States – and maybe in the world – for doing business from a class-action risk perspective. And Madison is among the three worst counties.
This otherwise lovely county, home to only some 250,000 residents, has long been known as the nation’s capital for class action lawsuits, with 217 class actions pending in Madison County (in February). In a rush to the courthouse prior to enactment of the Class Action Fairness Act, an additional 34 class actions were filed in the first seven weeks of 2005 – thirteen on the day the bill was signed by President Bush.
The Nulls class action against De Beers was one of those -- filed on February 16, 2005, the day before the Federal Law, making class actions slightly more difficult, took effect. Surprise, surprise: the suit alleges that De Beers enjoys a monopoly on the diamond market. The diamond giant is accused of restraining trade, increasing prices, controlling inventory, limiting supply, restricting purchase and falsely advertising the scarceness of diamonds.
These are all claims we have heard many times before and Emert and Katie Null of Madison County apparently haven’t heard of Supplier of Choice and are unaware that between 1999 and today, De Beers has dumped its entire stockpile onto the diamond markets. Actually, if the “limiting supply” charge would have been true, the industry’s banking debt would have been much lower and polished prices might have been higher. But that’s wishful thinking.
The Nulls claim that “these actions have caused both the price and demand for diamonds to remain artificially high and thus have caused diamond purchasers actual damages.”
The default judgment may have been predictable, but it seems weird nevertheless. The defendants in the class action include DB Investments of Luxembourg, which owns De Beers S.A., De Beers S.A. of Luxembourg which owns [De Beers] Consolidated Mines; [De Beers] Consolidated Mines of South Africa; De Beers Centenary A.G. of Switzerland; and the Diamond Trading Company, the marketing arm of the De Beers Group of the United Kingdom.”
I am not sure about the distance between Illinois, London, Johannesburg and Zurich, but that doesn’t prevent the suit to claim that “the Court has jurisdiction over the defendants as they either maintain their principal place of business within Illinois, are registered to do business in Illinois, or conduct substantial business within Illinois," the suit claims. I love the term “substantial business” and I can just picture all the mine workers and Sightholders flocking to Illinois, just to pick up their sight boxes or mine their diamonds. Not only that, the suit claims that the “defendants’ liability arose, in part, in this [Madison] county, and they may be found here”.
This isn’t funny, however. These cases are inflicting damage on the very people who seek justice for the injury inflicted on them.
Don’t move to Madison County as you may not find a doctor. The fear for stupid, frivolous, or just nuisance class action is driving professionals and businesses away from the state. A state senator, Kirk Dillard, told a local business paper that “there is only one neurosurgeon in all of Joliet, and there are no neurosurgeons in Illinois south of Springfield which, geographically, is more than half of Illinois. In Carbondale, you have to drive through 20 counties to have a baby delivered and at Good Samaritan Hospital in Downers Grove, there were three neurosurgeon teams; now there is only one. And I know of an obstetrician in Hinsdale who quit his practice and now builds houses for a living.”
To the very anti-trust conscious diamond business, it is interesting to see how the “real” cases and the “fake” cases are getting entangled. Actually, it is almost insulting. The complaint by Emert and Katie state that their “action is not based on federal law and the Nulls do not seek and will not accept recovery in excess of $75,000 exclusive of costs and interest.” I think it is a bad precedent and debasing the value of diamonds and De Beers, that someone wants to take Nicky Oppenheimer and colleagues to the cleaners for not more than $75,000. What are the Nulls thinking – that these are synthetic diamonds or cubic zirconia? Monopolizing the world market in natural diamonds and having a substantial business in Illinois is only good for a maximum $75,000?
Kidding aside, the Illinois court system has a bad reputation. A survey ranking the key elements of state liability systems in America’s 50 states finds Illinois among the five lowest when rated on the Overall Treatment of Contract Litigation (45th), Treatment of Class Action Suits (45th), Punitive Damages (41st), Timeliness of Summary Judgment/Dismissal (45th), Discovery (45th), Scientific and Technical Evidence (45th), Judges’ Impartiality (46th), Judges’ Competence (46th), Juries’ Predictability (45th), and Juries’ Fairness (46th).
And that is bad news for De Beers. The class action is brought “on behalf of diamond purchasers to recover damages for violations of the Illinois Consumer Fraud and Deceptive Business Practice Act and for unjust enrichment.” In the next phase of the trial, the Judge will have to decide whether to certify the case as a class action. This means extensive hearings in which the issue of damages (incurred by the “class”) will be addressed. No date for such hearings has been set. Even though De Beers has an option to file a motion to set aside the default judgment in favor of the Nulls, it is unlikely that it will show up at the case at this point. It will probably rely on proxies (as it does in the New York Leider versus Ralfe case) – and it probably can save expenses by letting the same players read the same texts.
What is interesting – though not comforting to De Beers – is that another survey (Harris Poll) has found that an overwhelming 81% of respondents in the poll report that the litigation environment in a state could affect important business decisions at their company, such as where to locate or do business. That statistic does not bode well for Illinois, a state that has seen the flight of an estimated 78,700 manufacturing jobs - 10 percent of Illinois’ total manufacturing jobs - since November 2001. There are no citizen lobbies and other groups that want to improve the legal environment.
A frivolous legal milieu is not good for business. An abusive legal climate drives good professionals away. Unless something has happened at De Beers that has escaped my attention, none of the defendants have substantial business in Madison County. That may, however, not stop the judge or bother a jury. If in a fair trial, and after a due process, a defendant is found guilty as charged or a case is dismissed, one can only applaud the legal system. But expect no applause to be due in Illinois – whatever the outcome of Emert and Katie Nulls class action against De Beers.
Have a nice weekend.