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Class Actions & Derivative Suits

Practice Points

May 31, 2016

Ninth Circuit Issues Ruling on Post-Campbell-Ewald Rule 68 Offers

On April 12, 2016, in Chen v. Allstate Insurance Co., No. 13-16816, the Ninth Circuit confronted the issue of whether, in a class action, a defendant’s Rule 68 offer of judgment and deposit of the full settlement value of the named plaintiff’s claims into an escrow account “pending entry of a final District Court order or judgment directing the escrow agent to pay the tendered funds” to the named plaintiff moots the case. The Ninth Circuit held that such an offer would not moot a class action.

The Chen case centers on allegations that Allstate Insurance Company directed unsolicited automated telephone calls to consumers in violation of the Telephone Consumer Protection Act. Before the plaintiffs moved for class certification, Allstate (1) issued a Rule 68 offer of judgment to the named plaintiffs, (2) deposited $20,000 into an escrow account in one of the named plaintiff’s names “in full settlement” of his claims, and (3) instructed the escrow agent to pay him as soon as the court entered judgment. Allstate then moved to dismiss the case as moot.  The district court denied Allstate’s motion, Allstate appealed, and the Ninth Circuit took the issue up on appeal. In an opinion authored by Circuit Judge Raymond C. Fisher, the Ninth Circuit rejected Allstate’s argument and affirmed the lower court’s decision denying Allstate’s motion to dismiss on two grounds: (1) even assuming that Allstate’s offer mooted the named plaintiff’s claims, he would still be permitted to move for class certification under Pitts v. Terrible Herbst Inc., 653 F.3d 1081 (9th Cir. 2011); and (2) ignoring the fact that Pitts is good law, the named plaintiff’s claims were not yet moot because the funds were only placed in an escrow account, and he had not yet accepted the defendant’s offer.

The salient takeaway from Chen is that Pitts remains good law in the Ninth Circuit, and consistent with the Supreme Court’s decision in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016), named plaintiffs who are afforded, but do not actually accept and receive, complete relief via Rule 68 offers on individual claims are still permitted to seek class certification.

Adam E. Polk, Girard Gibbs LLP, San Francisco, CA


May 31, 2016

Spokeo's "Concreteness Versus Particularity" Dichotomy

Federal lawsuits must allege an injury-in-fact. Together with traceability and redressability, this forms the holy trinity of Article III standing. See U.S. Const. Art. III § 2. But what if a statute provides a right to sue in federal court, is actual harm still required for plaintiffs—for instance, consumers or debtors—to receive their statutory remedies? While Spokeo does not clearly answer this question; it only addresses it. Nonetheless, Spokeo likely frames the outer limits of standing, particularly for statutory private rights of action, and one federal circuit court has already applied Spokeo outside of the statutory context.

According to the Supreme Court, when the Ninth Circuit addressed Article III standing, it failed to appreciate the difference between the two injury-in-fact prongs: concreteness and particularity. Though often bundled together, Spokeo made clear that these separate and distinct requirements. The Ninth Circuit erred by focusing only on particularity and ignoring concreteness—a flaw they may correct on remand.

As to concreteness, the injury in fact

  • must actually exist;

  • for statutory actions, must be more than a bare procedural violation;

  • may be intangible—but intangible harm alone may not be enough; and

  • may consist of the “risk of real harm,” even if difficult to prove or measure

If you are scratching your head trying to apply these concreteness parameters, you are not alone. Spokeo commentators have noted the watered-down, middle-ground, and possibly inconsistent statements in the opinion. But the case does teach class action practitioners that the following types of alleged injuries are not sufficiently “concrete”:

  • Bare procedural violations of statutes like the Fair Credit Reporting Act (FCRA)

  • By way of example, the failure of a consumer reporting agency to provide the required notice to a user of the agency’s consumer information, which may be entirely accurate

  • As another FCRA example, the dissemination of an incorrect zip code, without more. (At least, the Court described as “difficult to imagine” how it “could work any concrete harm.”)

On the other side of the injury-in-fact coin is particularity, which the Spokeo Court found to have been sufficiently analyzed by the Ninth Circuit. To be “particular,” the injury must be “individualized,” must “affect the plaintiff in a personal and individual way,” and must be “distinct” and “not undifferentiated.”

While the Supreme Court may have handed the Spokeo defendant a marginal victory, what may prove more interesting is the fallout among lower courts.

Particularity, in Particular
With Spokeo hot off the presses, a circuit panel applied it, using the “concreteness versus particularity” dichotomy as a springboard. See Hochendoner v. Genzyme Corp., No. 15-1445, Slip Op. (1st Cir. May 23, 2016). Hochendoner did not present a statutory right of action. Hochendoner, along with its companion case Adamo, was brought as a putative class action by patients suffering from a rare genetic disorder who sued the producer of an enzyme that effectively treats but does not cure the condition. Following a series of contaminations and other issues, there was a shortage of the drug for several years.

Noting Spokeo’s emphasis on the distinction between concreteness and particularity, the First Circuit analyzed the latter and concluded the plaintiffs failed to meet the particularity requirement. The plaintiffs offered no specific information as to the harm experienced by each individual plaintiff and offered “only scattered descriptions of generalized harms.” Absent from the complaints were allegations linking the alleged injuries “to any specific plaintiff.” The panel even went so far as to hold that the standing doctrine requires a “plaintiff-by-plaintiff and claim-by-claim analysis” that “demands allegations linking each plaintiff to each of these injuries.” (Slip Op. at 16.)

Plaintiffs—at least those in the First Circuit—must take heed to carefully craft their complaints to narrowly link the alleged misconduct to the alleged injury suffered by a specific plaintiff. Defendants could potentially cite Hochendoner as fodder for either a motion to dismiss for lack of subject matter jurisdiction or to oppose class certification, arguing that each and every putative class member have not suffered a particularized injury—and thus lack standing.

Looking Ahead
While Spokeo may not represent a sea change in Article III standing jurisprudence, at the very least, it highlights the need for practitioners to carefully examine allegations at the pleadings stage to determine whether a “concrete” and “particular” injury has been alleged. Meanwhile, Hochendoner’s tightening of the “particularity” requirement based on Spokeo arguably allows the defense bar to claim a broader Spokeo victory—at least for now.

Ashley Bruce Trehan, Buchanan Ingersoll & Rooney, Tampa, FL


May 31, 2016

Supreme Court Rules Certain Securities Cases May Proceed in State Court

On May 16, 2016, the U.S. Supreme Court held pleadings that exclusively allege a violation of state securities laws are allowed to proceed in state court so long as they do not “arise under” the Securities and Exchange Act of 1934, even where the complaint explicitly references federal securities regulations. Merrill Lynch, et al. v. Manning et al., 578 U.S. ____ (2016)

The Merrill Lynch case stems out of allegations by an Escala Group, Inc., stockholder that Merrill Lynch devalued Escala stock by executing “naked short sales”—a type of short sale prohibited under Regulation SHO of the Exchange Act. Plaintiff Greg Manning sued Merrill Lynch, alleging that its naked short sales of Escala stock violated certain New Jersey state laws, and seeking damages for his stock losses. Although Mr. Manning did not allege any federal securities violations, he did make reference to Regulation SHO—and Merrill Lynch’s history of noncompliance with it—in his complaint. Merrill Lynch removed the case to federal court under Section 27 of the Exchange Act, 15 U.S.C. § 78aa(a). Manning moved to remand. The district court denied Manning’s motion, and the Third Circuit reversed.

In granting certiorari, the Supreme Court solely took up the question of the standard for conferring federal jurisdiction under Section 27. Writing for the majority, Justice Kagan noted the Court found that the Section 27 analysis should mirror the analysis applied in all federal question cases under 28 U.S.C. § 1331. The Court therefore held that Section 27 confers exclusive federal jurisdiction where a case “’aris[es] under’ the Exchange Act . . . .” As with Section 1331, federal jurisdiction attaches (1) where federal law creates the cause of action asserted or (2) where the state law claim “’necessarily raise[s] a stated federal issue . . . .” Accordingly, cases that assert state law causes of action that simply seek to enforce a duty created by the Exchange Act will still end up in federal court.

Applying the “arises under” analysis to Section 27, the Court found that the district court lacked jurisdiction over Manning’s claims because he merely made reference to past violations of Regulation SHO, and asserted unique violations of New Jersey state law. The Court affirmed the decision of the Third Circuit remanding the case to state court.

The practical takeaway from the Merrill Lynch decision is that Section 27 is to be construed just like Section 1331. Cases that “arise under” the Exchange Act belong in federal court, while cases alleging unique state law causes of action that do not depend on a predicate violation of an Exchange Act duty will be permitted to proceed in state court.

Adam E. Polk, Girard Gibbs LLP, San Francisco, CA


March 31, 2016

Ninth Circuit: Severance of Unconscionable Provision of Arbitration Clause Preferred When Feasible

In a recent 2–1 decision directing arbitration, the U.S. Court of Appeals for the Ninth Circuit panel provided further guidance regarding state-law unconscionability challenges to arbitration agreements. Merkin, et al. v. Vonage America, Inc., --- F. App'x ---, 2016 WL 775620 (9th Cir. Mar. 24, 2016).   

A judge in the Central District of California had denied defendant Vonage America, Inc.’s motion to compel arbitration in a putative class action challenging certain fees Vonage levied in connection with its voice over Internet protocol (VoIP) telephone service.

In reversing the district court and citing AT&T Mobility, LLC v. Concepcion, 563 U.S. 333, 339, 131 S. Ct. 1740, 179 L. Ed. 2d 742 (2011), the panel majority held that the Federal Arbitration Act (FAA) precluded the plaintiffs from using a California state law defense to argue that “carve out” provisions of Vonage’s 2013 VoIP terms of service agreement (Vonage Customer Agreement) are unconscionable, even if Vonage exempts itself from arbitration of certain claims while requiring customers to arbitrate claims they may be presumed to bring. Further, the panel noted that even if a certain clause in that agreement were found to be unconscionable, under California and Ninth Circuit authority, the clause can be severed if its removal does not affect the remainder of the agreement.

In a sharply worded dissent, Judge Wardlaw argued that the FAA does not preempt a state-law invalidation of an agreement where the one-sided nature of the arbitration clause renders the agreement unconscionable. Judge Wardlaw also found the district court’s decision to not sever the arbitration clause from the Vonage Customer Agreement was justified if the court would find that such severance would be moot if Vonage retains unilateral authority to modify the agreement as it sees fit.

As the split Merkin decision illustrates, the application of unconscionability to arbitration agreements remains a gray area. Although the panel did not reach whether the lack of mutuality in an arbitration clause can rise to unconscionability, Merkin illustrates how judicial application of FAA pre-emption defenses against unconscionability concerning mutuality, and the enforcement of the Concepcion reasoning are evolving.

Manfred Muecke, Bonnett Fairbourn Friedman & Balint, PC, San Diego, CA.  Any opinions expressed herein are the author’s, and not necessarily those of Bonnett Fairbourn Friedman & Balint, PC, or any one or more of its clients.


March 31, 2016

Second Circuit Rules in Gallego v. Northland Group, Inc.

In Gallego v. Northland Group, Inc., Docket No. 15-1666-cv (2d Cir., Feb. 22, 2016), a Second Circuit panel considered the proposed class settlement of a Fair Debt Collection Practices Act (FDCPA) claim that would pay attorney fees of $35,000 and establish a class fund of $17,500 to be shared among approximately 100,000 class members, or whatever subset filing timely claims. The district court denied preliminary approval of the settlement after finding that a class action was not "superior" to individual action and dismissed the FDCPA claim after concluding that the claim was so lacking in merit, it could not support federal question jurisdiction. On appeal, the Second Circuit panel decided that the district court did not abuse its discretion by finding that Rule 23(b)(3)'s superiority requirement was not met by a class that promised only 16.5 cents per class member if 100 percent of the class participated in the settlement. The panel found no solace in the plaintiff's explanation that the expected low 5 percent take rate would result in higher payments—"[a]n expected low participation rate is hardly a selling point for a proposed classwide settlement . . . ." Citing the Supreme Court's decision in Shapiro v. McManus, 136 S. Ct. 450, 455 (2015), the panel reversed the dismissal of the FDCPA claim. Instead, the panel remanded for consideration whether the case should be dismissed on the merits for failure to state an actionable FDCPA claim. 

Gallego reiterates the difficulty in certifying a settlement class that promises de minimis value to class members, especially for statutory claims like FDCPA claims that allow for significant individual penalty recoveries (under the FDCPA, $1,000 per individual claim). Gallego also illustrates the difference between meeting the low federal jurisdiction threshold and surviving a Rule 12(b)(6) merits challenge.

William J. Holley, II, Parker Hudson Rainer & Dobbs, Atlanta, GA


March 29, 2016

Supreme Court Rules in Tyson Foods

In a 6–2 decision released March 22, 2016, the Supreme Court of the United States in Tyson Foods, Inc. v. Bouaphakeo, No. 4–1146, ___ U.S. ___ (2016), affirmed the district and appellate lower court decisions (1) certifying a Rule 23 state law class action that paralleled a Fair Labor Standards Act opt-in class; and (2) upholding a jury verdict finding liability and aggregate damages based upon expert testimony as to the average time it took for workers at a meatpacking plant in Iowa to don and doff protective gear in each of two departments.

A key focus of this case watched by many—the analysis of the appropriateness of using average data—is nuanced and will be the topic of much further discussion and case law development in other areas of substantive law (outside the overtime context). However, an immediate result of this decision is more clear.

In the wake of the Supreme Court’s 5–4 decision in Comcast Corp. v. Behrend, 569 U.S. ___, 133 S. Ct. 1426 (2013), defense counsel have argued in hundreds of cases that plaintiffs fail to satisfy Rule 23(b)(3)’s predominance requirement unless they can establish that damages are susceptible of determination through common proofs. Tyson Foods rejects that argument.

The Comcast Decision
The Court’s 2013 Comcast decision reversed class certification in an antitrust case. The majority opinion contained broad language that many defendants—inside and outside of the antitrust context—have cited to argue a new general rule:

And it is clear that, under the proper standard for evaluating certification, respondents’ model falls far short of establishing that damages are capable of measurement on a classwide basis. Without presenting another methodology, respondents cannot show Rule 23(b)(3) predominance: Questions of individual damage calculations will inevitably overwhelm questions common to the class.

133 S. Ct. at (Scalia, J.)

In dissent, Justices Ginsburg and Breyer opined that this was not a holding applicable to all cases but limited to the case then before the Court. They pointed to a concession made by the plaintiff in that case that did not reflect what they claimed was well-established law:

[T]he opinion breaks no new ground on the standard for certifying a class action under Federal Rule of Civil Procedure 23(b)(3). In particular, the decision should not be read to require, as a prerequisite to certification, that damages attributable to a classwide injury be measurable “‘on a class-wide basis.’”

The oddity of this case, in which the need to prove damages on a classwide basis through a common methodology was never challenged by respondents, is a further reason to dismiss the writ as improvidently granted. The Court’s ruling is good for this day and case only. In the mine run of cases, it remains the “black letter rule” that a class may obtain certification under Rule 23(b)(3) when liability questions common to the class predominate over damages questions unique to class members.

133 S. Ct. at 1437 (citations omitted). (The majority opinion did not address this argument, but did acknowledge that the district court’s holding that damages must be capable of classwide proof was “uncontested here.” 133 S. Ct. at 1430.)

The flames of this dispute were fanned even higher when the Supreme Court, a short time after Comcast was handed down, summarily vacated and remanded for reconsideration in light of its decision two closely-watched class certification appellate rulings, neither of them antitrust cases: Whirlpool Corp. v Glazer, 133 S. Ct. 1722 (Apr. 1, 2013) (moldy washer consumer case); Sears, Roebuck & Co. v. Butler, 133 S. Ct. 2768 (June 3, 2013) (same).

Later that summer, the D.C. Circuit Court of Appeals weighed in. In In re Rail Freight Fuel Surcharge Antitrust Litig., 725 F.3d 244 (D.C. Cir. 2013)—a decision not authored by, but issued by, a panel that included current Supreme Court nominee Chief Judge Merrick Garland—that court succinctly ruled: “No damages model, no predominance, no class certification.” However, virtually every other Court of Appeals has since disagreed. See, e.g., Roach v. T.L. Cannon Corp., 778 F.3d 401, 402 (2d Cir. 2015) (“We hold that [Comcast] does not require the damages be measurable on a classwide basis for certification under Rule 23(b)(3).”); Neale v. Volvo Cars of N. Am., LLC, 794 F.3d 353, 374 (3d Cir. 2015) (rejecting argument based on Comcast that “[p]laintiffs must show that ‘damages are susceptible of measurement across the entire class for purposes of Rule 23(b)(3).’”); In re Nexium Antitrust Litig., 777 F.3d 9, 23 (1st Cir. 2015) (“Comcast did not require that plaintiffs show that all members of the putative class had suffered injury at the class certification stage—simply that at class certification, the damages calculation must reflect the liability theory.”); In re Deepwater Horizon, 739 F.3d 790, 815 (5th Cir. 2014) (rejecting contrary assertion as “a misreading of Comcast”). The Glazer and Butler courts reaffirmed their prior rulings authorizing class certification after reconsideration in light of Comcast as well.

Enter Tyson Foods
As mentioned, Tyson Foods is an employment case in which workers at a meatpacking plant claimed that their employer failed to pay them required overtime in violation of both federal law and a state statute that provides a cause of action for the same conduct. The district court was required to assess the state claim under Rule 23 of the Federal Rules of Civil Procedure. And because Rule 23(b)(3) provides for an “opt out” regime—instead of the “opt in” regime of Section 216 of the FSLA—the state law class was much larger than the FSLA class in Tyson Foods.

The defendant argued below that the classes were not properly certified because common issues did not predominate. In particular, the defendant attacked the plaintiffs’ expert’s use of a study that calculated the average amount of uncompensated time spent donning and doffing protective gear by workers in each of two different job categories.

The Court in Tyson Foods began its analysis with the predominance issue, applying Rule 23. Its discussion resolves the question of whether Comcast had announced a rule requiring that damages be ascertainable by common proofs in order to certify a Rule 23(b)(3) class:

The predominance inquiry “asks whether the common, aggregation-enabling, issues in the case are more prevalent or important than the noncommon, aggregation-defeating, individual issues.” 2 W. Rubenstein, Newberg on Class Actions §4:49, at 195–196 (5th ed. 2012). When “one or more of the central issues in the action are common to the class and can be said to predominate, the action may be considered proper under Rule 23(b)(3) even though other important matters will have to be tried separately, such as damages or some affirmative defenses peculiar to some individual class members.” 7AA C. Wright, A. Miller, & M. Kane, Federal Practice and Procedure §1778, pp. 123–124 (3d ed. 2005) (footnotes omitted).

Tyson Foods, slip op. at 9 (emphasis added). In other words, damages need not be determinable by common proofs.

While the majority opinion in Tyson Foods did not mention Comcast, the significance of the above language did not escape the notice of the dissent. In his dissenting opinion—joined by Justice Alito—Justice Thomas references the above-quoted passage and in response writes:

We recently—and correctly—held the opposite. In Comcast, we deemed the lack of a common methodology for proving damages fatal to predominance because “[q]uestions of individual damage calculations will inevitably overwhelm questions common to the class.”

Tyson Foods, dissenting op. at 8 (quoting Comcast). Evidently the other six Justices did not share this view.

This is not to say that damages questions are irrelevant to class certification. For instance, in the antitrust context, decades of case law holds that where “impact” cannot be determined based on classwide proofs (with at most some indeterminate small margin of error), class certification under Rule 23(b)(3) is inappropriate. And, thorny individualized damages concerns are frequently (though less successfully) argued as a point against a finding of manageability, or even mixed in with ascertainability considerations. But the argument that Comcast created a mandatory requirement that damages be susceptible of proof by common evidence has now been rejected by the Supreme Court.

Andrew J. McGuiness, Ann Arbor, MI


February 15, 2016

MA District Court Discounts Ninth Circuit's Approach to Coupon Settlements

The Class Action Fairness Act of 2005 (CAFA) made sweeping changes to federal class action law, particularly with respect to “coupon settlements.” But just what is a “coupon” that would trigger CAFA’s stringent provisions? The Honorable William G. Young of the United States District Court for the District of Massachusetts recently answered that question (and others), taking his cues from the Seventh Circuit and eschewing competing standards out of the Ninth Circuit. See Tyler v. Michaels Stores, Inc., No. 11-cv-10920, 2015 WL 8484421 (D. Mass. Dec. 9, 2015).

In Tyler, consumers sued Michaels—a national craft-supply store—for unjust enrichment and violations of the Massachusetts Unfair Trade Practices Act. Tyler, 2015 WL 8484421 at *2. The challenged practice was the stores’ collection of customers’ zip codes and addresses during credit card transactions. Id.

In a previous order, the district court held that the case presented an issue of first impression that should be certified to the Massachusetts Supreme Judicial Court. Subsequently, in Tyler v. Michaels Stores, Inc., 464 Mass. 492, 506 (Mass. 2013), the Massachusetts high court answered those questions in the plaintiff’s favor.

Following the state court’s pronouncements, the district court reopened the case, and the parties settled. The settlement created two subclasses, members of which would receive either a $10 or $25 voucher to Michaels. The total nominal face value of the vouchers issued was approximately $418,000, and the total value actually redeemed was $138,620. Tyler, 2015 WL 8484421 at *1.

The Court’s Analysis
The remaining issue was the class counsel’s requested attorneys’ fees and costs in the amount of $425,000. Michaels did not contest class counsel’s request. Nonetheless, under Rule 23, a district court can approve a class settlement only if it is “fair, reasonable, and adequate.” Id. at *4. Thus, the court was required to examine the settlement.

Coupon or not? A pivotal choice-of-law question. Class counsel contended that the vouchers were not coupons and, consequently, that Massachusetts law and not CAFA applied—understandably due to the more onerous restrictions on settlements that award coupons to class members. The court’s first step was to look to CAFA’s text, but CAFA does not define a “coupon settlement.” Id. at *4. Moreover, the First Circuit has not addressed the issue.

Looking to other circuits, then, the court noted a circuit split between the Seventh and Ninth Circuits. The Ninth Circuit generally defines “coupons” as items that do not require consumers to spend their own money—gift cards, for example, are not coupons. Id. at *4–*5 (citing In re Online DVD-Rental Antitrust Litig., 779 F.3d 934, 950 (9th Cir. 2015)).

The Massachusetts court was ultimately persuaded by the Seventh Circuit’s interpretation of “coupon” which is essentially anything to be redeemed even if one does not have to spend his or her own money. Tyler, 2015 WL 8484421 at *5 (citing Redman v. RadioShack Corp., 768 F.3d 622, 635–36 (7th Cir. 2014) (Posner, J.)). “In other words, coupons must be redeemed; conversely, if an award must be redeemed, it is a coupon.” Tyler, 2015 WL 8484421 at *5. Therefore, CAFA applied and preempted Massachusetts law regarding class settlements.

Construing CAFA’s attorney-fee provisions. Having settled the coupon conundrum, the court turned to the amount of attorney fees under CAFA’s 28 U.S.C. § 1712. Again noting a conflict between the Ninth and Seventh Circuits, the Massachusetts district court ultimately adopted the Seventh Circuit’s analysis of attorneys’ fees in coupon settlements:

Subsection (a) prohibits basing a percentage-of-recovery fee on the face value of all coupons made available. Subsection (b) says that lodestar is the only permissible alternative to percentage-of-coupons used. And subsection (c) allows, though does not require, a blend of the two methods when a coupon settlement also provides some equitable or cash relief.

Id. at *10 (citing In re Sw. Airlines Voucher Litig., 799 F.3d 701, 707 (7th Cir. 2015)).

The court was then faced with applying a percentage-of-recovery method, which would result in a substantial reduction of fees from what class counsel requested or a lodestar method of the type requested by class counsel. Because class counsel advanced the policy goals of Massachusetts’s unfair trade practices act, and because class counsel obtained binding precedent from the Massachusetts Supreme Judicial Court that will influence conduct beyond this case, the court applied the lodestar method. However, the court reduced the hourly rate for the partners, resulting in a lodestar of $312,895 in attorney fees.

Looking Forward
The Seventh Circuit and at least one court in the First Circuit have made clear that “coupon” includes more than a mere discount and does not require a consumer to spend his or her own money. But there is undoubtedly a “coupon conflict” firmly entrenched among the circuits, one that in all likelihood could be resolved only by our highest court.

Ashley Trehan, Buchanan Ingersoll & Rooney, Tampa, FL


February 15, 2016

H.R. 1927 Passes House and Heads to Senate

On January 8, 2016, the U.S. House of Representatives passed, by a vote of 211–188 along party lines, H.R. 1927—the Fairness in Class Action Litigation and Furthering Asbestos Claim Transparency Act of 2016. The bill would amend U.S. Code, title 28, to preclude federal courts from certifying “any proposed class seeking monetary relief for personal injury or economic loss unless the party seeking to maintain such a class action affirmatively demonstrates that each proposed class member suffered the same type and scope of injury as the named class representative or representatives.” It would also require that class certification orders “include a determination, based on a rigorous analysis of the evidence presented” that such a demonstration had been made.

The proposed legislation was sponsored by Representative Rob Goodlatte or Virginia, Chair of the House Judiciary Committee. The House Judiciary Committee’s report makes clear that the bill’s purpose is to counteract recent federal court decisions certifying class actions in which putative class members sustained no injury. Among other decisions, the report cites the Sixth Circuit’s decision in In re Whirlpool Corp. Front Loading Washer Products Liability Litigation, 722 F.3d 838, 849 (6th Cir. 2013), in which the court affirmed an order certifying a class of washing machine owners who alleged that their machines produced a moldy smell, notwithstanding that a majority of absent class members did not experience a similar problem with their machines. It also noted the Seventh Circuit’s decision in In re IKO Roofing Shingle Products Liability Litigation, 757 F.3d 599, 603 (7th Cir. 2014), in which it held that the district court had abused its discretion in denying certification on the basis that certain putative class members’ roofing shingles did not manifest the alleged defect. And the House Judiciary Committee Report also cited a recent decision from the Ninth Circuit, Wolin v. Jaguar Land Rover North America, LLC, 617 F.3d 1168, 1173 (9th Cir. 2010), in which the court held that “proof of the manifestation of a defect is not a prerequisite to class certification,” in a case brought on behalf of a putative class alleging that defects in their Jaguar automobiles caused premature tire wear.

The bill would also amend section 524(g) of the Bankruptcy Code to require asbestos trusts to file quarterly reports with the bankruptcy court, detailing claimants’ names, claimants’ exposure history, and the basis for any payments made to claimants.

H.R. 1927 has been read twice in the Senate and referred to the Senate Committee for the Judiciary.

Ben V. Seessel, Carlton Fields, P.A., Hartford, CT


February 10, 2016

Third Circuit Vacates Arbitrators' Decision on Availability of Class Arbitration

On January 5, 2016, a panel for the United States Court of Appeals for the Third Circuit reaffirmed a recent Third Circuit decision holding that the availability of class arbitration is presumed to be a question for the courts, unless the parties’ arbitration agreement “clearly and unmistakably” provides otherwise. Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, et al., No. 15-1275 (3d Cir. Jan. 5, 2016). The parties’ incorporation of the rules of the American Arbitration Association into their arbitration agreement did not overcome that presumption, notwithstanding that some of those rules delegate class arbitrability questions to the arbitrator.

The parties’ dispute arose after Scout Petroleum purchased Chesapeake Appalachia’s rights under several oil and gas leases in Pennsylvania. The leases contained an arbitration provision, which provided that arbitration would be resolved “in accordance with the rules of the American Arbitration Association.” Scout filed a demand for arbitration with the AAA on behalf of itself and similarly situated lessors, alleging that Chesapeake paid insufficient royalties.

Chesapeake objected to class arbitration and filed a declaratory judgment action in federal court, seeking a declaration that the court—not the arbitrators—must decide the question of class arbitrability. After the arbitration panel ruled that they had the authority to decide class arbitrability, Chesapeake moved in the district court to vacate the panel’s order. The district court vacated the order, holding that the availability of class arbitration was an issue for the court.

On appeal, the Third Circuit panel applied its decision in Opalinski v. Robert Half International, Inc., 761 F.3d 326 (3d Cir. 2014), cert. denied, 135 S. Ct. 1530 (2015), which held that the availability of class arbitration is a “question of arbitrability” to be decided by the courts, unless the parties’ arbitration agreement “clearly and unmistakably” provides otherwise. The panel held that this standard poses an “onerous burden,” which the language of the parties’ agreement and incorporation of the AAA rules failed to satisfy.

The parties’ arbitration agreement did not expressly mention class arbitration or who should decide questions of arbitrability. Although no particular language or “incantation” is necessary to rebut the presumption in favor of judicial resolution, the panel held that total silence on the issue “makes it more difficult to meet such burdens.” Further, the panel found it significant that the parties’ agreement contemplated arbitration of disagreements between the “Lessor” and “Lessee” with respect to “this Lease,” language that indicates that the parties intended bilateral arbitration, not class arbitration. Thus the agreement did not “clearly and unmistakably” delegate class arbitrability to the arbitrators.

The panel next addressed the incorporation of the AAA arbitration rules. Scout emphasized the AAA’s supplemental rules governing class arbitration, which specifically authorize the arbitrator to decide class arbitrability. As the panel noted, however, the parties’ agreement did not refer specifically to the supplemental rules governing class arbitration, but simply to the “rules of the American Arbitration Association.” This was critical to the panel because the AAA website lists more than 50 sets of active rules, and the standard commercial arbitration rules contemplate only bilateral arbitration and do not cross-reference the supplemental rules. Even reaching the supplemental rules, the panel reasoned, required a “daisy-chain” of incorporation that rendered the agreement ambiguous: without express language regarding class arbitrability or referencing the AAA’s supplemental rules, the agreement could reasonably be interpreted any number of ways. This ambiguity could not overcome the presumption for judicial resolution of arbitrability.

Finally, the panel gave “little weight” to the substantial circuit level authority holding that, in bilateral arbitrations, incorporation of the AAA arbitration rules delegates arbitrability to the arbitrators. Relying on Supreme Court rulings highlighting the “fundamental differences” between bilateral and class arbitration, the panel reasoned that the concerns unique to class arbitration rendered the authority in the bilateral context inapplicable.

The panel’s conclusion was driven largely by the Third Circuit’s earlier holding in Opalinski that the availability of class arbitration is a “question of arbitrability,” an issue that is unsettled under recent Supreme Court jurisprudence. Compare Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003) (plurality concluding that class arbitrability is not a question of arbitrability); with Stolt–Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662, 680 (2010) (noting that because “only the plurality” in Bazzle decided that an arbitrator should determine class arbitration, Bazzle is not binding on the point); Oxford Health Plans LLC v. Sutter, ––– U.S. ––––, 133 S. Ct. 2064, 2069 n.2 (2013) (the Court “has not yet decided whether the availability of class arbitration” is for a court or for an arbitrator to resolve). Practitioners should keep an eye out for a definitive resolution of this issue by the Supreme Court, which would significantly how various arbitration agreement provisions, including those incorporating the rules of an arbitral provider, affect who decides class arbitrability questions.

Matthew Mall, Parker Poe Adams & Bernstein LLP, Raleigh, NC. Any opinions expressed herein are the author’s, and not necessarily those of Parker Poe Adams & Bernstein LLP, or any one or more of its clients.


February 3, 2016

Data Breach Class Actions: 2015 Year in Review and 2016 Preview

As 2016 begins, questions over standing in data breach class actions remain. In 2015, the Seventh Circuit denied retailer Neiman Marcus’s petition for rehearing en banc of a panel opinion holding that plaintiffs whose credit card information was stolen in a data breach had standing to sue under Article III of the United States Constitution on the basis of alleged fear of future identity theft. See Remijas v. Neiman Marcus Group, LLC, No. 14-3122 (7th Cir. July 20, 2015), reh’g denied, (Sept. 17, 2015). In denying the petition for rehearing, the Seventh Circuit confirmed that the circuit split on standing in data breach class actions survives Clapper v. Amnesty International USA, 133 S. Ct. 1138 (2013), in which the Supreme Court held that, in order to satisfy Article III, any alleged “future harm” must be “certainly impending” and that “allegations of possible future injury are not sufficient.” The due date for the retailer’s petition for writ of certiorari has been extended to Feburary 14, 2016.

In 2015, the Supreme Court heard oral argument on the scope of Article III standing in two cases that may be of interest to those monitoring data breach class actions. In Spokeo, Inc. v. Robins, No, 13-1339,the Court has been asked to address this: “Whether Congress may confer Article III standing upon a plaintiff who suffers no concrete harm, and who therefore could not otherwise invoke the jurisdiction of a federal court, by authorizing a private right of action based on a bare violation of a federal statute.” In Tyson Foods, Inc. v. Bouaphekeo, No. 14-1146, the Court was petitioned to resolve the question of “whether a class action may be certified or maintained under Rule 23(b)(3) … when the class contains hundreds of members who were not injured and have no legal right to any damages.” A ruling narrowly construing the Article III standing requirement in these cases would bode well for the defense bar, as well as be a blow to class counsel—who have sought to distinguish the Court’s precedent in Clapper as factually inapposite to class actions.

Given the current circuit split on standing in data breach class actions, many cases have settled. In early December 2015, retail giant Target received preliminary approval of a class settlement of the remaining financial institution class claims for approximately $39 million—of which $20.25 million will go to directly to the settlement class ($19.75 million to the settlement class escrow account, and $500,000 to cover settlement notice and administration) and of which $19.1 million will cover MasterCard’s final account data card recovery assessment. See In re Target Corp. Customer Data Security Breach Litig., MDL No. 14-2522 (PAM/JJK) (D. Minn. Dec. 2, 2015). This payment followed the court’s order certifying claims of the financial services class and is in addition to a reported $67 million that the retailer had already agreed to pay to settle claims by banks that issued Visa cards compromised in the breach.

In late November, the court granted final approval of Target’s settlement of the consumer class claims; an objector has filed a notice of appeal to the Eighth Circuit. Home Depot, the hardware store chain, has also reportedly reached a tentative settlement with MasterCard and issuers comprising over 80 percent of the MasterCard branded payment cards potentially impacted by the breach; the settlement is said to “provide[] for payment of an amount equal to the full amount these banks could recover as a result of [MasterCard’s] assessment [of payments attributable to the breach] plus a 10% premium, provided that banks accounting for at least 65% of the potentially affected M[aster]C[ard] issued accounts opt into the settlement and release their claims against Home Depot.”

What will happen in 2016? Will we see more cases filed? More settlements? Will anticipated Supreme Court rulings be a boon for the plaintiffs’ bar or for the defense? Stay tuned for more developments.

Kristin A. Shepard, Carlton Fields, P.A., Washington, D.C.


September 21, 2015

Sixth Circuit Approves Certification of Classes to Pursue Plaintiffs' "Snake Oil" Theory of Liability

In Rikos v. The Procter & Gamble Co., No. 14-4088 (6th Cir. Aug. 20, 2015), a divided Sixth Circuit Panel, affirmed an order certifying five single-state classes of purchasers of Align, a nutritional supplement manufactured by the Procter & Gamble Company (P&G) and marketed as promoting digestive health. In so doing, the majority rejected arguments that recently have been successful in preventing or overturning certification of classes seeking to pursue claims regarding small-dollar consumer products.

The named plaintiffs alleged that Align is mere “snake oil,” “because it has not been proven scientifically that Align promotes digestive health for anyone.” Accordingly, the plaintiffs claimed that P&G’s packaging representations violated various state unfair and deceptive practice statutes.

In affirming the district court’s certification of the classes, the majority rejected P&G’s arguments that the plaintiffs failed to present evidence to prove the requisites of commonality and predominance, that plaintiffs failed to show they can prove class-wide impact and damages, that putative class members lack standing, and that the classes could not be ascertained in an administratively feasible manner. Two factors were essential to the majority’s rejection of each of P&G’s arguments: (1) the district’s court’s factual finding that “no individual would purchase Align but-for its digestive health benefits, which P&G promoted through an extensive advertising campaign”; and, (2) plaintiffs’ theory and central claim was that Align does not work as promised for anyone.

The majority recognized that it had “an obligation to assess the theory of liability Plaintiffs present” and concluded that the requirements of rule 23 were satisfied to pursue claims based on that theory. “[W]hether Align is ‘snake oil’ and thus does not yield benefits to anyone,” the majority held, “satisfies [Wal-Mart v.] Dukes’s commonality test in that it will “yield a common answer for the entire class and that, if true, [it] will make P&G liable to the entire class” under the relevant false-advertisings laws, regardless of whether particular putative class members were satisfied with the product. Similarly, as to the predominance requirement the majority concluded that determining the answer to the dispositive question at issue “will not turn on the individual behavior of consumers; if Align is shown to work, even for only certain individuals, then presumably Plaintiffs lose.”

The majority rejected P&G’s argument that the classes were overbroad and, therefore, presented standing issues. It concluded that “[i]f Align does not work as advertised for anyone, then every purchaser was harmed.”

Regarding ascertainability, the majority saw no reason to accept P&G’s invitation to follow Carrera v. Bayer Corp., “particularly given the strong criticism it has attracted from other courts.” The majority held that the certified classes satisfied the ascertainability requirement applied in the Sixth Circuit.

The dissenting judge found that the majority failed to apply the Supreme Court’s recent Halliburton edict that “plaintiffs wishing to proceed through a class action must actually prove—not simply plead—that their proposed class satisfies each requirement of Rule 23.” She concluded that the plaintiffs did not meet this requirement because the they “offer[ed] no proof in support of [their] argument” that Align is “snake oil,” and P&G’s evidence “tends to show the opposite.” The judge concurring with the majority suggested a practical middle ground: upon remand, the district court should bifurcate under Fed. R. Civ. P. 42(b) to address the merits of plaintiffs’ “snake oil” theory, prior to allowing further class proceedings.

Courts have increasingly been reluctant to certify classes seeking to challenge claims manufactures make regarding small-dollar consumer products purchased and used by consumers in different circumstances and for different reasons. As the Rikos decision demonstrates, however, classes can properly be certified when they target one product that is promoted to provide one benefit, where the plaintiff alleges the product does not provide that promoted benefit to anyone.

Indeed, the Rikos plaintiffs survived P&G’s multi-pronged attack because they asserted their claims with regard to only one product and went all-in, alleging that the product was completely ineffective for anyone. Whether the class can survive the merits phase remains to be seen, as, according to the majority, P&G need only demonstrate that Align is effective for any class member, and the entire class loses.

E. Colin Thompson, DLA Piper LLP (US), Tampa and Miami, Florida. Any opinions expressed herein are the author’s, and not necessarily those of DLA Piper LLP (US), or any one or more of its clients.


September 15, 2015

Southwest Airlines In-Flight Alcohol Suit Causes Circuit Split

On August 20, 2015, the Seventh Circuit held that the “coupon settlement” provision of the Class Action Fairness Act (CAFA), 28 USC § 1712, allowed the district court to award class counsel an attorney fee based on the lodestar method. In re Southwest Airlines Voucher Litigation, Nos. 13-3264, 13-3462, 14-2591, 14-2602, 14-2495, 2015 WL 4939676 (7th Cir. Aug. 20, 2015). The Seventh Circuit’s decision represents a split from the Ninth Circuit’s decision in In re HP Inkjet Printer Litigation, 716 F.3d 1173 (9th Cir. 2013).

The underlying suit involved certain in-flight drink vouchers that Southwest Airlines stopped honoring. The parties reached a settlement to provide replacement drink vouchers to all class members, as well as certain injunctive relief. The Seventh Circuit repeatedly stated that unlike many “coupon settlements,” the settlement here was extremely favorable to the class members, in that it provided them with nearly all the relief that they could hope for if the case were to proceed through a successful trial. Objectors, however, appealed approval of the settlement, arguing that the district court erred in using the lodestar method to calculate attorney fees. Specifically, the objectors argued that the proper basis for a fee award under CAFA would be based on a percentage of the value of coupons actually redeemed by class members. This is the view that a divided panel of the Ninth Circuit previously adopted in HP Inkjet. The Seventh Circuit, however, found that CAFA does not prohibit the use of the lodestar method to calculate attorney fees in coupon settlements, though it does prohibit the calculation of fees based on the face value of all coupons available to the class.

The objectors also complained that the settlement included a “clear-sailing” clause in that Southwest agreed not to contest a fee request exceeding $3 million and a “kicker” clause in that any reduction from the requested fee benefitted the defendant rather than the class. The Seventh Circuit stated that these clauses weigh against fairness and call for intense scrutiny in evaluating a proposed class settlement, but also stated that they are not per se bars to approval. Observing that the settlement was quite favorable to the class, the court stated that counsel should be compensated accordingly.

The Seventh’s Circuit decision, representing a split from the Ninth Circuit’s decision in HP Inkjet, allows for the use of the lodestar method in certain coupon settlements in courts within that circuit. The Seventh Circuit warned, however, that counsel should be cautious and consider the value of the settlement to class members when entering into such agreements.

Erin Wilson, Lane Powell, Seattle, WA. Any opinions expressed herein are hers, and not necessarily those of Lane Powell PC or any one or more of its clients.


September 15, 2015

Ninth Circuit Rules in Bridewell-Sledge v. Blue Cross of California

In a published opinion issued on August 3, 2015, a panel for the United States Court of Appeals for the Ninth Circuit held that a California state court’s pre-removal consolidation of two separately filed class actions resulted in a single consolidated action for purposes of applying the local controversy exception to removal jurisdiction under the Class Action Fairness Act (CAFA). Bridewell-Sledge v. Blue Cross of California, et al., No. 15-56038, 15-56039 (9th Cir. Aug. 3, 2015). Because the panel viewed the two actions as a single lawsuit, it determined that the plaintiffs satisfied the fourth prong of the local controversy exception to removal—which requires that that no other similar class action has been filed against any defendant in the preceding three years—and remanded the entire case to state court.

The plaintiffs in Bridewell-Sledge filed two lawsuits in San Francisco Superior Court within approximately 14 minutes. Both suits were filed by the same attorney, named the same defendants, asserted similar claims, and sought to represent identical classes. On the plaintiffs’ motion, the state court consolidated the two actions “for all purposes.” After the plaintiffs amended to add a non-California citizen, the defendants removed the consolidated cases under CAFA. The district court remanded the first-filed action but retained jurisdiction over the second-filed action, concluding that, notwithstanding the state court’s consolidation, the second action was another similar class action.

The sole issue on appeal was whether plaintiffs had satisfied their burden to demonstrate that “during the 3-year period preceding the filing of that class action, no other class action has been filed asserting the same or similar factual allegations against any of the defendants on behalf of the same or other persons.” 28 U.S.C. § 1332(d)(4)(A)(ii). The Ninth Circuit panel agreed with the plaintiffs’ contention that consolidation rendered the two actions one. The panel concluded that “state-ordered consolidation may affect jurisdiction and removability,” and looked to California law to find that a consolidation of two cases “for all purposes” renders the cases “a single consolidated class action that was united originally, rather than … two separate class actions filed at different times.” Because the two actions were deemed to be a single consolidated case, the panel held that no similar “other class action” had been filed against the defendants during the preceding three years, such that the plaintiffs had satisfied the fourth prong of CAFA’s local controversy exception.

The panel was not persuaded by the defendants’ reliance on CAFA’s legislative history. Because the defendants did not dispute the first three local controversy elements, remanding the cases was “entirely in accordance” with the underlying aim of the local controversy exception to ensure state court jurisdiction over “truly local controversies.” Moreover, as the cases were already consolidated, remanding the cases would not thwart the legislative aim of avoiding separate overlapping state court class actions.

The future impact of the Bridewell-Sledge opinion is uncertain. On the one hand, the panel’s analysis applies only if a plaintiff meets the first three prongs of the local controversy exception, and the panel’s heavy reliance on California-specific precedent may limit its application outside California. On the other hand, when those qualifications are met, Bridewell-Sledge may allow plaintiffs to file and consolidate multiple state court class actions, while still relying on the local controversy exception to prevent removal under CAFA.

Matthew Mall, Parker Poe Adams & Bernstein LLP, Raleigh, NC. Any opinions expressed herein are the author’s, and not necessarily those of Parker Poe Adams & Bernstein LLP, or any one or more of its clients.


September 10, 2015

Third Circuit Upholds Certification in Mortgage Loan Case

On July 29, 2015, the Court of Appeals for the Third Circuit upheld on appeal the district court's order certifying a nationwide litigation class of individuals who received mortgage loans from a financial institution whose interests were acquired by PNC Bank National Association. In re Community Bank of Northern Virginia Mortgage Lending Practices Litigation, No. 13-4273, 2015 WL 4547042 (July 29, 2015). On appeal, PNC made several arguments against certification, including (1) that there was a conflict undermining the adequacy of representation by class counsel; (2) that the district court erred in conditionally certifying the class; and (3) that the putative class did not meet the requirements of rule 23. The district court had previously certified a general class and five sub-classes.

PNC argued, among other things, that the class was not ascertainable because some class members may have declared bankruptcy, rendering the bankruptcy estate rather than the borrower the real party in interest. The Third Circuit, however, found this contention too “mired in speculation” to raise an ascertainability problem, notwithstanding the Third Circuit’s decision in Carrera v. Bayer Corp., 727 F.3d 300 (3d Cir. 2013). The court distinguished Carrera, which involved claims regarding advertising practices in connection with weight-loss pills wherein the defendant did not have a list of purchasers. The court stated that PNC, on the contrary, possessed all the relevant bank records needed to identify the putative class members. PNC also raised issues regarding commonality and manageability, citing purportedly individualized issues among the class. The court rejected these arguments, stating that the trial court has “substantial discretion” to manage the case through “imaginative solutions.”

In addition, PNC claimed there was a fundamental intra-class conflict, rendering class counsel inadequate, because the district court failed to appoint separate counsel to represent the subclasses it created. However, the court of appeals stated that class counsel may not represent an entire class if subgroups within the class have interests that are significantly antagonistic to one another. In this case though, the court stated that all class members could theoretically assert all of their available claims and recover all of their damages without impacting the recovery of any other class members. Therefore, the court found that there was no fundamental intra-class conflict to prevent class certification.

PNC also argued that the district court improperly “conditionally certified” the class in stating that it expected discovery to vindicate its certification decision.The Third Circuit has previously stated that a class may not be certified where the plaintiff promises the class will be able to fulfill rule 23’s requirements, with the caveat the class can always be decertified later. However, the Third Circuit here found that the district court had not said anything indicating that it was impermissibly conditionally certifying the class.

The court’s decision highlights the substantial discretion that trial courts within the Third Circuit have in managing even very large class actions. The decision also highlights potential challenges involved in an ascertainability defense to certification, notwithstanding the court’s prior decision in Carrera v. Bayer Corp.

Erin Wilson, Lane Powell, Seattle, WA. Any opinions expressed herein are hers, and not necessarily those of Lane Powell PC or any one or more of its clients.


August 18, 2015

Ninth Circuit: PAGA Cause of Action Is Not a Class Claim under CAFA

On July 30, 2015, the United States Court of Appeals for the Ninth Circuit reversed a district court decision and remanded the case back to state court after ruling the dollar amount from a non-class claim cannot be considered in determining the amount in controversy under the Class Action Fairness Act (CAFA).  Yocupicio, et al. v. PAE Group, LLC; Arch Resources Group, LLC, --- F.3d ---, 2015 WL 4568722 (9th Cir. 2015).

In Yocupicio, the plaintiff initially filed a California state action againstd PAE Group, LLC, and Arch Resources, LLC, alleging several violations of California’s Labor Code.  Nine of the ten causes of action alleged in the complaint were class claims on behalf of current and former employees of the defendants. The tenth claim, however, was not pled as a class-based cause of action, but was brought by the plaintiff as a representative claim under California’s Private Attorneys General Act (PAGA), Cal. Lab. Code § 2698-2699.5.  On the basis of court records and evidence, the Ninth Circuit found the cumulative total of Yocupicio’s nine class claims amounted to $1,654,875, exclusive of any applicable attorney fees. The PAGA claim was found to amount to $3,247,950 by itself. The district court had considered all ten claims plus attorney’s fees in finding that the amount in controversy exceeded CAFA’s $5,000,000 threshold.  Yocupicio v. PAE Group, LLC, 2014 WL 7405445, *3-4 (C.D. Cal. 2014).

In reversing the district court, the Ninth Circuit held that a PAGA claim is a representative claim and not considered a “class action” claim. Under 28 U.S.C. § 1332(d)(1)(b), the Ninth Circuit noted that congressional intent focused on claims filed as “class actions” with no evidence that Congress desired to expand the reaches of CAFA beyond class action claims. Yocupicio at *3.  Citing Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 558 (2005), the Ninth Circuit noted that a district court can certainly exercise supplemental jurisdiction over non-class claims if one or more class claims within the same pleading meet CAFA’s diversity and amount in controversy requirements. Id. at *4.

Under this ruling, California-based plaintiffs seeking to avoid removal may now look to strategically plead wage and hour complaints that seek greater amounts of damages under a PAGA claim with lesser amounts claimed under class-based causes of action to avoid reaching the amount-in-controversy threshold under CAFA.

Manfred Muecke, Bonnett Fairbourn Friedman & Balint, PC, San Diego, CA.  Any opinions expressed herein are the author’s, and not necessarily those of Bonnett Fairbourn Friedman & Balint, PC, or any one or more of its clients.


August 18, 2015

Seventh Circuit Rejects Third Circuit's "Heightened" Ascertainability Analysis

In its July 28, 2015, decision in Mullins v. Direct Digital, LLC, Case No. 15-1776, the Seventh Circuit Court of Appeals rejected the Third Circuit’s strict application of class certification’s implicit ascertainability requirement, as detailed in Carrera v. Bayer Corp., 727 F. 3d 300 (3d Cir. 2013). The Mullins court concluded that the ascertainability requirement imposed by the Third Circuit is a “new” and “heightened” requirement with “absolute priority” that has the “effect of barring class actions where class treatment is often most needed: in cases involving relatively low-cost goods or services.”

In Mullins, the court affirmed an order certifying a class of purchasers of a supplement that plaintiffs alleged the defendant fraudulently represented as relieving joint discomfort. The Seventh Circuit agreed to hear the interlocutory appeal “to address whether Rule 23(b) imposes a heightened ‘ascertainability’ requirement as the Third Circuit and some district courts have held recently.” It went on to reject each of the “policy concerns motivating the heightened ascertainability requirement” that were laid out by the Third Circuit in Carrera.

“Ascertainability,” the Mullins court affirmed, means that classes must “be defined clearly and based on objective criteria.” Until recently, courts were not focused on whether, “it would be difficult to identify particular members of the class.” The court warned that the “well-settled” ascertainability requirement is “susceptible to misinterpretation,” which “may explain some of the doctrinal drift.”

Beginning with Marcus v. BMW of N. Am., LLC, 687 F. 3d 583 (3d Cir. 2012), the Third Circuit began to adopt a more stringent version of ascertainability. As the Mullins court explained, the Third Circuit’s test for ascertainability now has two prongs: (1) the class must be ‘defined with reference to objective criteria’ and (2) there must be ‘a reliable and administratively feasible mechanism for determining whether putative class members fall within the class definition.’” Although the second requirement “sounds sensible at first glance,” the Mullins court stated, “[i]n practice . . . some courts have used this requirement to erect a nearly insurmountable hurdle at the class certification stage in situations where class action is the only viable way to pursue valid but small individual claims.”

Carrera and other courts discussed four policy reasons for the heightened ascertainability requirement and why self-identification through affidavits from putative class members is insufficient to satisfy the requirement. As explained in Mullins, courts applying the heightened ascertainability requirement say that it (1) “eliminates serious administrative burdens that are incongruous with the efficiencies expected in a class action by insisting on the easy identification of class members;” (2) protects absent class members by affording them the best notice practicable so that they can opt-out or be bound by the judicial proceedings; (3) reduces the risk that fraudulent or mistaken claims will dilute the recovery of bona fide class members; and (4) protects defendants’ due process rights.

The Mullins court rejected each of these policy reasons as justifications for a “heightened” ascertainability requirement. Rule 23’s existing requirements, the court held, “already address the balance of interests that Rule 23 is designed to protect” and a “heightened” ascertainability requirement “skew[s] the balance” and “does not further any interest of Rule 23 that is not already adequately protected by the Rule’s explicit requirements.”

Instead, the court said, district courts should continue to insist that a class be defined clearly and with objective criteria so as to meet the “established meaning of ascertainability.” They should not, however, refuse certification just because the plaintiff proposes self-identification through affidavits. Rather, if a proposed class appears to present “unusually difficult manageability problems, district courts have discretion to press the plaintiff for details about the plaintiff’s plan to identify class members.”

Defendants opposing class certification in the Seventh Circuit still will have the opportunity to challenge proposed class definitions as failing to satisfy the traditional superiority and manageability requirements of Rule 23. The Seventh Circuit has, however, made clear that, unlike in the Third Circuit, its district courts cannot refuse to certify a class merely because the plaintiff does not present “a reliable and administratively feasible mechanism for determining whether putative class members fall within the class definition” or because the only method proposed to identify class members is through affidavits from the class members.

E. Colin Thompson, DLA Piper LLP (US), Tampa and Miami, Florida. Any opinions expressed herein are the author’s, and not necessarily those of DLA Piper LLP (US), or any one or more of its clients.


August 14, 2015

CA Supreme Court: Arbitration Agreement Challenge Allowed under Unconscionability Rule

The Supreme Court of California’s August 3 decision in Sanchez v. Valencia Holding Company, LLC clarifies the extent to which the United States Supreme Court’s Concepcion decision pre-empts California’s unconscionability rule in the context of agreements to arbitrate. In doing so, the California Supreme Court (1) clarified that Concepcion permits the unconscionability rule to be applied to challenge the enforceability of an arbitration clause even though the class action waiver provision in California’s Consumer Legal Remedies Act has been preempted in the context of arbitration agreements; (2) stated that the various formulations for unconscionability in California are merely one standard; and (3) provided a detailed view of the court’s opinion on specific arbitration provisions. The decision is notable because, although parties and the lower courts have been applying the Concepcion preemption decision to enforce arbitration clauses and class waivers since 2011, the Sanchez case illustrates the extent to which an arbitration agreement may still be held unenforceable as unconscionable in California, and provides concrete examples for practitioners.  

The Sanchez decision arose out of a class action in which the trial court held that a class waiver in an automobile sales contract was unenforceable under the express language of the California Consumer Legal Remedies Act and denied the defendant seller’s motion to compel arbitration. Following the trial court’s decision, but before the court of appeal’s decision was filed, the United States Supreme Court issued its landmark decision in AT&T Mobility LLC v. Concepcion (2011) 131 S. Ct. 1740, holding that the Federal Arbitration Act (FAA) preempts California state law prohibiting class waivers in consumer arbitration agreements.  The Court of Appeal declined to decide whether the class waiver was enforceable and instead held the arbitration clause unenforceable because it was unconscionable.  The Supreme Court of California granted review and reversed. 

Concepcion. The Supreme Court of California’s decision in Sanchez clarifies the extent to which Concepcion does not preempt California state law. In particular, Concepcion confirms that the FAA does not preempt generally applicable California contract defenses, such as fraud, duress or unconscionability. In fact, so long as these defenses do not treat arbitration agreements differently than other contracts, they remain grounds for invalidating arbitration agreements. Concepcion, therefore, does not provide immunity for arbitration agreements from state law unconscionability principles. 

Unconscionability. The California Supreme Court analyzed the automobile sales contract’s arbitration provision under the state standard for unconscionability looking for both procedural and substantive unconscionability. The court clarified that, although previous opinions have described the test as invalidating terms that are “overly harsh,” “unduly oppressive,” or “unfairly one-sided,” these formulations all mean the same thing and every case will ultimately be analyzed according to all of the relevant circumstances.

Sanchez Clause. Next, the court reviewed each aspect of the arbitration clause at issue. First, the court recognized that the seller’s use of a form contract and the buyer’s failure to read it, did not equate to procedural unconcscionability. Second, under the prong of substantive unconscionability, the Supreme Court analyzed each of the challenged provisions of the arbitration clause and ultimately determined that in view of the relevant circumstances the provisions were not so one-sided as to make them unconscionable. Specifically, the Supreme Court recognized that while many of the provisions facially seemed to favor one party, in application the provisions were substantively balanced and fair.

In light of Sanchez, individuals and companies utilizing arbitration agreements in consumer transactions in California should scrutinize the terms of their contracts to assess whether the provisions unreasonably favor the drafter.  While a single term favoring the drafter or the use of form or adhesive contracts are alone unlikely to tip the balance toward unenforceability, consumers may still raise the unconscionability rule with respect to the arbitration agreement as a whole. Consequently, parties should not presume that Concepcion provides immunity for clauses that favor arbitration but are unfairly one-sided.

Teresa H. Michaud, Baker & McKenzie LLP, San Francisco, California. Any opinions expressed herein are the author’s, and not necessarily those of Baker & McKenzie LLP, or any one or more of its clients.


August 11, 2015

Eleventh Circuit Rules in Ewing Indus. Corp. v. Bob Wines Nursery, Inc.

In Ewing Indus. Corp. v. Bob Wines Nursery, Inc., a decision issued on August 3, 2015, an Eleventh Circuit panel held that a purported class action does not toll the statute of limitations for a later class action seeking to represent the same class when the original purported class action was dismissed due to the inadequacy of a class representative, regardless of whether the determination of inadequacy occurs before or as part of a decision on class certification.  The panel rejected the plaintiff’s attempt to distinguish its decision in Griffin v. Singletary, 17 F.3d 356 (11th Cir. 1994) (Griffin II), and held that Griffin II controlled the instant case.

Ewing arose after Aero Financial, Inc. filed a class action in Florida state court against defendants Bob Wines Nursery, Inc. and Robert L. Wines, Jr. asserting that the defendants violated the Telephone Consumer Protection Act by sending unsolicited facsimile advertisements to the putative class.  The claims were governed by a four-year statute of limitations, and Aero brought suit in 2010, just over three years after the alleged conduct.  In 2013, the Florida state court granted summary judgment in favor of the defendants, holding that Aero lacked standing to bring the claim and that the attempted assignment of the claims to Aero was invalid.  The court did not rule on the issue of class certification.

One week later, Ewing Industries Corporation filed a similar class complaint against the defendants in federal court. Ewing’s complaint alleged that the statute of limitations was tolled during the pendency of Aero’s purported class action. The defendants moved to strike the class allegations as being barred by the statute of limitations. The district court, relying on Griffin II, granted the defendants’ motion and concluded that Aero’s purported class action did not toll the statute of limitations.

On appeal, Ewing argued that Griffin II was distinguishable, because in that case, the original purported class reached the class certification stage and was decertified on appeal based on the inadequacy of the class representatives. Ewing admitted that a purported class action that reaches the class certification stage, and class certification is denied, does not toll the statute of limitations for a subsequent class action. Ewing argued, however, that where the class action does not reach the class certification stage and fails due to inadequacy of a class representative, rather than a defect in the class itself, the statute of limitations should be tolled.

The defendants argued, and the Eleventh Circuit panel agreed, that Griffin II addressed an identical issue: “the potential for multiple rounds of litigation as the class seeks an adequate class representative.” The Ewing court noted that the reason for decertification of the original purported class in Griffin II was the inadequacy of the class representatives, not a defect in the class itself. Therefore, the court found Griffin II was indistinguishable and, thus, controlled the instant case.

The Ewing court acknowledged that several other circuits have distinguished, criticized, or declined to follow Griffin II. In re Vertrue Inc. Mktg. & Sales Practices Litig., 719 F.3d 474 (6th Cir. 2013); Sawyer v. Atlas Hearing & Sheet Metal Works, Inc., 642 F.3d 560 (7th Cir. 2011); Great Plains Trust Co. v. Union Pac. Ry. Co., 492 F.3d 986 (8th Cir. 2007); Yang v. Odom, 392 F.3d 97 (3d Cir. 2004); Catholic Soc. Servs., Inc. v. I.N.S., 232 F.3d 1139 (9th Cir. 2000) (en banc). The Ewing court disagreed with the courts that distinguished Griffin II from facts such as those in the present case. The court, however, noted that the merits of the Griffin II holding were not before it because, under the prior precedent rule, a panel may not overrule a prior panel decision.

Though the Ewing court did not rule on the merits of the Griffin II decision, it did highlight the rigidity of the Eleventh Circuit’s rule on tolling for purported class actions that fail based on the inadequacy of a class representative and identify an important circuit court split that practitioners on both sides should take into account when developing their case strategy. 

Meghan Hausler, Baker & McKenzie LLP, Dallas, TX.  Any opinions expressed herein are the author’s, and not necessarily those of Baker & McKenzie LLP, or any one or more of its clients.


July 24, 2015

Seventh Circuit Favors Data Breach Victims

In Remijas v. Neiman Marcus Group, LLC, a decision issued on July 20, 2015, a Seventh Circuit panel concluded that customers who have been the victims of data breaches have standing to sue even before fraudulent charges appear on their cards when they allege an increased risk of future harm or harm-mitigation expenses. In so holding, the panel disagreed with an overwhelming majority of courts that have dismissed data breach consumer class actions at the outset due to a lack of cognizable injury-in-fact, and, therefore standing.

Remijas arose out of a 2013 hack of Neiman Marcus’s computer systems, which resulted in the unauthorized acquisition of credit card numbers. The three-judge panel, led by Chief Judge Diane Wood, held that both an increased risk of future harm resulting from a data breach and “mitigation expenses” satisfy the injury-in-fact requirement for standing. Such “mitigation expenses” include lost time and money incurred in resolving fraudulent charges and protecting against future identity theft, including money spent to purchase credit monitoring.

In reaching its decision, the Remijas court distinguished the Supreme Court’s decision in Clapper v. Amnesty Int’l USA, 133 S. Ct. 1138 (2013), on the basis that the risk at issue in that case—risk that communications between detainees and their lawyers were being monitored—was speculative, whereas the fact of the data breach in this case was real. The court concluded that at the pleading stage of the litigation, it was “plausible to infer that plaintiffs had made a showing of a substantial risk of harm,” thereby meeting the requisite threshold for injury-in-fact set forth in Clapper,because there was “an objectively reasonable likelihood that [identity theft or fraud] will occur.” The court explained, “Why else would hackers break into a store’s database and steal consumers’ private information? Presumably, the purpose of the hack is, sooner or later, to make fraudulent charges or assume those consumers’ identities.”

The court further noted that while harm-mitigation measures do not always qualify as an injury for purposes of standing, the purchase of credit monitoring in the context of a data breach “easily qualifies as a concrete injury” because the threatened harm of a data breach is “imminent.” The court found it “telling in this connection” that in response to the breach, Neiman Marcus had offered one year of free credit monitoring.

Having found that the plaintiffs had alleged injury-in-fact in the form of increased risk of future harm and mitigation expenses, the court declined to decide whether the over-payment for Neiman Marcus products or the right to one’s personally identifiable information—a right that plaintiffs argued was granted to them by state data breach notice statutes—are “injuries” sufficient to establish Article III standing. The court, however, indicated that it was “dubious” whether those allegations, standing alone, would be sufficient.

Since the Supreme Court issued its 2013 decision in Clapper, defendants of data breach class action lawsuits have been successful in citing the case to support their arguments that victims lack Article III standing because their injuries are too speculative. Remijas marks the first time that a circuit court has addressed the issue following the Supreme Court’s Clapper decision and is contrary to decisions of other circuits on the issue. See, e.g., Reilly v. Ceridian Corp., 664 F. 3d 38 (3d Cir. 2011) (holding that data breach victims whose data has not been misused lack standing under Article III). While it remains to be seen whether other circuits will follow the lead of the Seventh Circuit on this issue, it is clear that for now, the Seventh Circuit is the most favorable venue for plaintiffs’ lawyers to file data breach class actions, and that the data breach docket of district courts in the Seventh Circuit is likely to grow.  

Jim Halpert, DLA Piper, Washington, D.C., Amanda Fitzsimmons and Chelsea Mutual, DLA Piper, San Diego, CA. Any opinions expressed herein are the authors’, and not necessarily those of DLA Piper US (LLP), or any one or more of its clients.


July 17, 2015

Eleventh Circuit Rules in Karhu v. Vital Pharmaceuticals

On June 9, 2015, in Karhu v. Vital Pharmaceuticals, Inc., Case No. 14-11648, the Eleventh Circuit issued an unpublished opinion in accord with Third Circuit’s decision in Carrera v. Bayer Corp., 727 F. 3d 300, 310 (3d Cir. 2013), in regard to what plaintiffs must demonstrate to satisfy the implicit ascertainability requirement necessary to certify a class.

In Karhu, the plaintiff-appellant appealed a decision of the District Court for the Southern District of Florida refusing to certify classes of purchasers of a weight loss supplement called VPX Meltdown Fat Incinerator (Meltdown), which was marketed by defendant-appellee Vital Pharmaceuticals, Inc. Karhu alleged that he and the members of the putative classes purchased Meltdown in reliance on Vital’s advertising that Meltdown aids in fat loss, which Karhu alleged it does not. The district court held that Karhu failed to demonstrate the ascertainability requirement was satisfied. The Eleventh Circuit panel unanimously concluded the district court was correct in this holding.

The Karhu majority held that a plaintiff cannot establish that class members are ascertainable “simply by asserting that class members can be identified using the defendant’s records” or simply “by proposing that class members self-identify (such as through affidavits) . . . .” Instead, proponents of class certification must “establish that the [defendant’s] records are in fact useful for identification purposes, and that identification will be administratively feasible,” or that “self-identification is administratively feasible and not otherwise problematic.” Karhu’s proposal to identify class members using Vital’s sales data, the court concluded, “was incomplete, insofar as Karhu did not explain how the data would aid class-member identification.”

Self-identification, the majority found, suffers from two intertwined problems:

On the one hand, allowing class members to self-identify without affording defendants the opportunity to challenge class membership ‘provide[s] inadequate procedural protection to . . . [d]efendants’ and ‘implicate[s their] due process rights.’ . . . On the other hand, protecting defendants’ due process rights by allowing them to challenge each claimant’s class membership is administratively infeasible, because it requires a ‘series of mini-trials just to evaluate the threshold issue of which [persons] are class members.’

Because Karhu did not propose a method of self-identification, the majority held, he had not established how the potential problems with such a method would be avoided in this case.

Although the three-judge panel unanimously concluded that Karhu failed to demonstrate that the ascertainability requirement was satisfied in the case before it, Judge Martin wrote a concurring opinion to address what she saw as problems with a more general holding announced by some courts that “a prospective class of consumers of a small-dollar product is not ascertainable if the only way they can be identified is through self-identification.” She stated that “[w]hen timely presented, I would hold that affidavits are a sufficient means of identification for purchasers of a cheap, unique product like Meltdown” and advocated for a two-factor test to determine whether, in a particular case, affidavits from putative class members could be used. Those factors are: “(1) the value of each class member’s claim, and (2) the likelihood that potential class members could accurately identify themselves.” Courts applying the first factor, Judge Martin explained, certify “classes of purchasers of low-value items, such as supplements or bottled beverages, based solely on consumer self-identification,” but “have been more reluctant to certify classes when the per-class-member claim is large.” Courts applying the second factor have reasoned that where a product at issue is similar to other products on the market, “consumers may find it hard to know whether they purchased” the product that is the subject of the action, or one of the similar products.

Although the unpublished opinion is not binding precedent, it may be cited as persuasive authority and will likely make it more difficult in district courts within the Eleventh Circuit for putative class representatives to obtain certification of classes to pursue claims regarding small-dollar products, for which sellers do not maintain records of the end purchasers and for which purchasers are unlikely to maintain proofs of purchase. The majority and concurring opinions, however, provide examples of methods to identify class members, including self-identification, that may satisfy the ascertainability requirement. 

E. Colin Thompson, DLA Piper LLP, Miami and Tampa, FL


July 14, 2015

Ninth Circuit Adheres to Narrow Interpretation of "Local Single Event" Exception

In a recent decision, the Ninth Circuit Court of Appeals held that a suit brought against Boeing and its environmental remediation contractor over alleged groundwater contamination that occurred over the course of 40 years does not fall under the “local single event” exception to federal jurisdiction under the Class Action Fairness Act (CAFA). In a 2–1 decision, the Ninth Circuit narrowly construed the exception to apply only where all claims arise from a single event or happening rather than from a continuing set of circumstances. Allen v. The Boeing Co., No. 2:14-cv-00596 (9th Cir. Apr. 27, 2015).

More than 100 Washington residents filed suit in state court, alleging that for 40 years Boeing’s Auburn Plant discharged hazardous chemicals into their groundwater and that Boeing and Boeing’s environmental remediation contractor, Landau Associates, failed to properly investigate, remediate, clean up, or warn of the contamination.

Boeing removed the case to the U.S. District Court for the Western District of Washington, invoking diversity jurisdiction and arguing that the case was a “mass action” under CAFA—which generally gives federal courts jurisdiction over class actions involving more than 100 class members or “mass actions” involving more than 100 plaintiffs.

The district court remanded the case back to state court, holding that CAFA’s local single event exception—which provides that the term “mass action” does not include a case where “all of the claims in the action arise from an event or occurrence in the State in which the action was filed, and that allegedly resulted in injuries in that State or in States contiguous to that State”—applied.

The Ninth Circuit vacated the district court’s remand order. Adhering to its previous interpretation of CAFA’s local single event exception in Nevada v. Bank of America Corp., 672 F.3d 661 (9th Cir. 2012), the court strictly construed the exception to apply only where all claims arise from a single happening that gives rise to the claims of all plaintiffs. In reaching its decision, the court observed that a broad interpretation of the local single event exception would render portions of CAFA redundant and is not supported by legislative history. The court further noted that even if the local single event exception could be interpreted to cover one continuing activity or tort, it would still not apply to this case because plaintiffs sought relief from at least two separate activities by two distinct defendants: Boeing’s 40-year groundwater contamination and Landau’s negligent failure to remediate that contamination.

The court recognized that the Third Circuit Court of Appeals took a contrary position with respect to the local single event exception. In Abraham v. St. Croix Renaissance Group L.L.L.P., the court found that a refinery’s release of hazardous materials over the course of more than a decade constituted an “event or occurrence” under CAFA, stating that the ordinary meaning of those words “do not commonly or necessarily refer in every instance to what transpired at an isolated moment in time.” 719 F.3d 270 (3d Cir. 2013).

The Ninth Circuit’s narrow interpretation of the local single event exception may have broad implications for environmental “mass actions” because they typically do not occur as a result of a single happening but instead from numerous releases spanning a period of time. Of course, with the circuit court split, the Supreme Court may yet weigh in.

Ruben F. Reyna, Sedgwick LLC, Washington, D.C. Any opinions expressed herein are the author’s, and not necessarily those of Sedgwick LLP or any one or more of its clients.


July 2, 2015

Ninth Circuit Rules in Benko v. Quality Loan Service Corp.

In a published opinion issued on June 18, 2015, the United States Court of Appeals for the Ninth Circuit held that class action plaintiffs should be permitted to amend a complaint after removal to “clarify” or “elaborate on” issues pertaining to federal jurisdiction under the Class Action Fairness Act (CAFA). Benko v. Quality Loan Service Corp., No. 13-15185 (9th Cir. June 18, 2015). Because the plaintiffs’ post-removal amended complaint contained allegations satisfying CAFA’s “local controversy” exception, the Ninth Circuit vacated the district court’s Rule 12(b)(6) dismissal and remanded the case to Nevada state court. 

The plaintiffs in Benko filed a Nevada state class action against Meridian Foreclosure Services and five other defendants, asserting claims arising from the defendants’ roles as trustees in private foreclosures of real property securing the class members’ loans. Meridian, the only defendant domiciled in Nevada, removed the complaint pursuant to CAFA and moved to dismiss for failure to state a claim. In response, the plaintiffs moved to remand under CAFA’s local controversy exception, 28 U.S.C. § 1132(d)(4)(A), and subsequently sought leave to amend the complaint to allege additional facts supporting the application of that exception. The district court denied the plaintiffs’ motions to remand and amend and granted the defendants’ Rule 12(b)(6) motion to dismiss.

On appeal, the Ninth Circuit focused on whether the district court should have considered the plaintiffs’ amended jurisdictional allegations to evaluate the local controversy exception. Relying on Sparta Surgical Corporation v. NASD, 159 F.3d 1209 (9th Cir. 1998), the defendants argued that courts must analyze jurisdiction based only on the pleadings filed “at the time of removal,” and cannot consider allegations in post-removal amendments. The Ninth Circuit distinguished Sparta Surgical on the basis that the Benko plaintiffs did not seek an amendment to “avoid federal jurisdiction” but rather to “elaborate” on information “directly related to CAFA’s local controversy exception.” And because a class action complaint “originally drafted for state court … may not address CAFA-specific issues,” the Ninth Circuit concluded that “plaintiffs should be permitted to amend a complaint after removal to clarify issues pertaining to federal jurisdiction under CAFA.” The court did not define the scope of this rule but held that the district court abused its discretion by denying the plaintiffs leave to amend the complaint.

The court then reviewed the plaintiffs’ amended allegations and determined that they satisfied the local controversy exception. The key issues were whether, for purposes of 28 U.S.C. § 1132(d)(4)(A)(i)(II), defendant Meridian’s conduct constituted a “significant basis” for the plaintiffs’ claims and whether the plaintiffs sought “significant relief” from Meridian. The Ninth Circuit interpreted the statutory term “significant” to mean “important” or “fairly large in amount or quantity,” and then applied that definition by comparing the allegations against Meridian to the allegations against the other defendants. Relying on the plaintiffs’ amended allegations that Meridian conducted “15–20%” of the total debt collection activities at issue and faced potential damages of $5 to 8 million, the Ninth Circuit concluded that Meridian was a “significant” local defendant, thus satisfying CAFA’s local controversy exception.

In dissent, Judge J. Clifford Wallace opined that the majority erred by departing from the “bright-line” rule that jurisdiction must be analyzed on the basis of the pleadings “filed at the time of removal without reference to subsequent amendments.” Judge Wallace forecast that the majority’s rule would frustrate Congress’s intent that the local controversy exception be a “narrow one … drafted to ensure that it does not become a jurisdictional loophole.”

The majority’s opinion in Benko arguably establishes a circuit split on whether post-removal amendments may be considered to contest CAFA removal jurisdiction. See, e.g., In re Burlington N. Santa Fe Ry. Co., 606 F.3d 379 (7th Cir. 2010) (holding that plaintiffs cannot defeat CAFA jurisdiction by a post-removal amendment to remove class allegations and noting that “allowing plaintiffs to amend away CAFA jurisdiction after removal would present a significant risk of forum manipulation”); Cedar Lodge Plantation, LLC v. CSHV Fairway View I, LLC, 768 F.3d 425 (5th Cir. 2014) (“hold[ing] that the application of the local controversy exception depends on the pleadings at the time the class action is removed, not on an amended complaint filed after removal”). Unless the Supreme Court resolves this conflict, counsel on both sides should be aware that CAFA-related jurisdictional facts may not be settled at the time of removal.

Matthew Mall, Parker Poe Adams & Bernstein LLP, Raleigh, NC. Any opinions expressed herein are the author’s, and not necessarily those of Parker Poe Adams & Bernstein LLP, or any one or more of its clients.


April 15, 2015

Ninth Circuit Dismisses Appeal in Eminence Investors v. Bank of New York Mellon

On April 2, 2015, the United States Court of Appeals for the Ninth Circuit dismissed an appeal seeking to overturn a district court’s order remanding a class action back to state court.  In Eminence Investors, L.L.L.P., v. Bank of New York Mellon, 2015 WL 1475055 (April, 2, 2015), the Ninth Circuit held that the court lacked federal appellate jurisdiction under the Class Action Fairness Act (CAFA) due to the applicability of CAFA’s securities exception to the case before it.

In 2011, plaintiff-appellant Eminence Investors, L.L.L.P. filed a California state action against the Bank of New York Mellon for breach of fiduciary duty and gross negligence relating to the issuance of public financing bonds. Almost two years later, the Eminence Investors filed an amended complaint asserting claims on behalf of more than 100 putative class members that sought damages of more than $10 million. Within 30 days of the amended complaint’s filing, the bank removed the case to federal court under CAFA, and Eminence responded by moving to remand the case back to California state court. The investors argued that removal was improper because (a) removal was untimely and (b) CAFA’s security exception applied. Agreeing that the bank’s removal was untimely, the federal district court granted the motion to remand without discussing whether CAFA’s securities exception applied.

On appeal, the Ninth Circuit explained that it would only have jurisdiction to hear the bank’s appeal of the district court’s remand order if, as the bank argued, the case was not subject to a CAFA exception. While CAFA exempts three categories of cases from CAFA removal under 28 U.S.C § 1453(d), only the securities exception found in subsection (d)(3) was at issue in this case. The Ninth Circuit explained that the securities exception would only apply if (1) all the class action claims had a particular relationship with a security; and (2) each claim related to rights, duties, or obligations related, created by, or pursuant to a security that meets the definition of a security as set forth in 15 U.S.C. § 77b (a)(1).

The bank argued that the securities exception did not apply to the investors’ claims because the bonds’ terms expressly foreclosed some of the Investors’ allegations. Because this was a matter of first impression for the Ninth Circuit and to avoid unnecessary inter-circuit conflict, the court looked to jurisprudence concerning CAFA’s securities exception from its sister circuits. In ultimately holding that it lacked subject-matter jurisdiction, the Ninth Circuit relied on three cases from the Second Circuit. First, it relied on Estate of Pew v. Cardarelli, 527 F.3d 25, 32 (2d Cir. 2008), in finding that the investors’ status as holders (as distinguished from solely purchasers) of the bonds conferred them standing under CAFA’s security exception. Next, the panel relied on Greenwich Financial Services Distressed Mortgage Fund 3 LLC v. Countrywide Financial Corp., 603 F.3d 23, 29 (2d Cir. 2010), in explaining that collateral issues and common law duties raised by California state law securities claims and defenses do not nullify the applicability of CAFA’s securities exception. Lastly, the panel leaned on BlackRock Financial Management Inc. v. Segregated Account of Ambac Assurance Corp., 673 F.3d 169 (2d Cir. 2012), to reaffirm the application of CAFA’s securities exception for causes of action based on the bank’s state-imposed duties to administer the bonds.

Notably, the Ninth Circuit did not discuss the timeliness of removal under CAFA, which had been the focal point of Jordan v. Nationstar Mortgage LLC, Nos. 14-35943, 15-35113, 2015 WL 1447217 (9th Cir. Apr. 1, 2015), as summarized by William Holley in an earlier report. Had the securities exception not applied, the Ninth Circuit may very well have found the bank’s removal to be timely as it was within 30 days of the filing of the amended complaint, which appeared to provide the initial notice of the bank’s basis for CAFA removal. As such, the probable result would have been the Ninth Circuit reversing the district court’s remand order.

Manfred Muecke, Bonnett Fairbourn Friedman & Balint, PC, San Diego, CA.  Any opinions expressed herein are the author’s, and not necessarily those of Bonnett Fairbourn Friedman & Balint, PC, or any one or more of its clients.


April 10, 2015

Ninth Circuit Rules in Jordan v. Nationstar Mortgage

On April 1, 2015, a Ninth Circuit panel addressed the question whether the term "removable" in 28 U.S.C. § 1446(b)(3) refers to the first date on which any basis for removal is disclosed or the date a basis for CAFA removal is disclosed. In Jordan v. Nationstar Mortgage LLC, Nos. 14-35943, 15-35113, 2015 WL 1447217 (9th Cir. Apr. 1, 2015), the panel, relying on the recent Supreme Court decision Dart Cherokee Basin Operating Co., LLC v. Owens, 135 S. Ct. 547 (2014), adopted the latter, much broader interpretation. Reversing the district court, the panel found that Nationstar's removal, which was filed within 30 days after receiving interrogatory responses identifying more than $5 million in damages, was timely for CAFA removal, despite that such removal occurred more than two years after the case was removable on federal question grounds. Citing Dart Cherokee, the panel explained: "Even though Dart Cherokee focused on how specifically the 'amount in controversy' requirement must be asserted in a defendant's removal notice under CAFA, the Supreme Court left no doubt, 'that no antiremoval presumption attends cases involving CAFA.' 135 S. Ct. at 554." Nationstar, 2015 WL 1447217 at *5. The panel found its interpretation consistent with the Ninth Circuit's broader reading of the term "removable" for federal officer removal as set out in its decision in Durham v. Lockheed Martin Corp., 445 F. 3d 1247 (9th Cir. 2006). Nationstar, 2015 WL 1447217 at *3–4.

William J. Holley, II, Parker Hudson Rainer & Dobbs, Atlanta, GA


February 20, 2015

Eleventh Circuit Limits Courts' Jurisdiction over Unnamed Class Members Prior to Class Certification

On February 10, 2015, a panel of the Eleventh Circuit issued a published decision, authored by Judge Gerald Tjoflat, limiting a district court's jurisdiction over, and a class representative's standing with respect to, unnamed class members prior to class certification. In Spears-Haymond v. Wells Fargo Bank, N.A., No. 13-12082 (11th Cir. Feb. 10, 2015), the Eleventh Circuit again visited questions arising from defendant banks' assertion of arbitration clause defenses in the In re Checking Account Overdraft multidistrict litigation. In this appeal, the panel reviewed the district court's denial of Wells Fargo Bank's conditional motion to dismiss the claims of the unnamed class members in favor of arbitration. Wells Fargo Bank's motion was filed and ruled on prior to class certification, and was conditioned on the district court certifying the class. The panel rejected the district court's jurisdiction to even consider the conditional, pre-certification motion, holding that "because a class including the unnamed putative class members had not been certified, Article III's jurisdictional limitations precluded the District Court from entertaining [the defendant's] conditional motions to dismiss those members' claims as subject to arbitration." Id. at 9. Only class certification "renders [unnamed class members] subject to the court's power." Id. at 10. In addition, the panel held that the class representatives did not have standing to assert arbitration waiver arguments on behalf of the unnamed class members prior to class certification Id. at 14.  While the procedural posture of this particular appeal is rather unique, the broad jurisdictional principle set by the decision is significant. And the panel's reasoning may support the argument that while Wells Fargo Bank waived the assertion of an arbitration defense as to the named plaintiffs, that waiver will not preclude it from asserting the same defense as to a later certified class.

William J. Holley, II, Parker Hudson Rainer & Dobbs, Atlanta, GA


January 30, 2015

SCOTUS: Dismissal of a Single Case in an MDL Is Immediately Appealable

On January 21, 2015, the United States Supreme Court reversed and remanded a Second Circuit ruling that denied plaintiffs the right to immediately appeal the district court’s dismissal of their class action, which was included in the In re Libor-Based Financial Instruments Anti-Trust Litigation multidistrict litigation (LIBOR MDL). Gelboim v. Bank of America Corp., Case. No. 13-1174, 574 U.S. ___ (2015).  Authoring a unanimous Court opinion, Justice Ginsburg reasoned that the dismissal of a sole claim effects a release from the MDL proceedings and enables the dismissed plaintiffs the right to an immediate appeal under 28 U.S.C. §1291. Slip Op. at *6–10.

Plaintiffs Gelboim and Zacher had filed a class action complaint (the “Gelboim-Zacher action”) against several banks alleging an antitrust claim under §1 of the Sherman Act, 15 U.S.C. §1. The Gelboim-Zacher action was one of 60 complaints lodged against the banks alleging that they had manipulated the London Interchange Bank Official Rate (LIBOR) through the systematic understatement of borrowing costs. Whereas other actions alleged numerous causes of action, the Gelboim-Zacher action was distinct in that it alleged a single antitrust claim. Under 20 U.S.C. §1407, the Joint Panel of Multidistrict Litigation (JPML) transferred all the actions to the United States District Court for the Southern District of New York for coordination and consolidation. In re Libor-Based Financial Instruments Anti-Trust Litigation, 802 F. Supp. 2d 1380.

In June 2012, the district court granted the banks’ motion to dismiss all of the plaintiffs’ antitrust claims on the basis that no plaintiff could state an antitrust injury. The ruling had the effect of disposing of the single antitrust claim in the Gelboim-Zacher action. The district court recognized the Gelboim-Zacher plaintiffs’ immediate right to appeal under 28 U.S.C §1291 and granted certification under Fed. R. Civ. P. 54(b) to effect the right to appeal the decision. On its own initiative, the Second Circuit dismissed the Gelboim-Zacher appeal, reasoning that other claims in the LIBOR MDL had not been adjudicated. In response to Second Circuit’s dismissal of the appeal, the district court withdrew its Rule 54(b) certification.

In her opinion for the Court, Justice Ruth Bader Ginsburg ruled that the dispositive effect of the order granting the banks’ motion to dismiss triggered the Gelboim-Zacher plaintiffs’ right to immediately appeal under §1291. Slip Op. at *6. Regardless of whether other claims in other actions in the MDL were still being litigated, the Gelboim-Zacher action’s participation in the MDL had ceased as a result of the dismissal of their sole cause of action. Slip Op. at *7–8. Justice Ginsburg emphasized that the purpose of coordination and consolidation under 28 U.S.C. § 1407 was to create judicial and litigation efficiencies but not to needlessly handcuff all the coordinated and consolidated individual actions to the extent where said efficiencies are eradicated. Id at *8.

While inapplicable to the Gelboim-Zacher plaintiffs, who only pled a single claim, Justice Ginsburg noted, in dicta,that plaintiffs in an MDL who have certain claims dismissed but other claims pending maintain their right to appeal the dismissals under Rule 54(b). Slip Op. at *9.  Rule 54(b) allows parties to appeal dispositive rulings on the causes of actions affected by such rulings while other non-affected causes of actions in the same complaint can continue to be actively litigated. Fed. R. Civ. P. 54(b). Justice Ginsburg also addressed that such plaintiffs may be able to utilize an interlocutory appeal via 28 U.S.C. §1292(b), which may be accepted or rejected at the discretion of the appellate court. Slip. Op. at *10.

While it is rare for a complex class action complaint to state a single cause of action, this opinion serves as a practical reminder that a §1291 right of appeal does exist in such a scenario to compliment the more ubiquitous Rule 54(b) avenue of appeals commonly observed in federal  class action litigation.

Manfred Muecke, Bonnett Fairbourn Friedman & Balint, PC, San Diego, CA.  Any opinions expressed herein are the author’s, and not necessarily those of Bonnett Fairbourn Friedman & Balint, PC, or any one or more of its clients.


January 25, 2015

Ninth Circuit Clarifies Evidentiary Requirements When CAFA Removal Is Challenged

A month after the Supreme Court’s decision in Dart Basin Operating Co. v. Owens, 135 S. Ct. 547 (2014), the Ninth Circuit has provided further guidance as to the evidentiary requirements that apply when removal pursuant to the Class Action Fairness Act (CAFA) is challenged on a motion to remand.  In Ibarra v. Manheim Investments, Inc., No. 14-56779, 2014 WL 74995131 (Dec. 8, 2014), the Ninth Circuit reiterated that where CAFA’s $5 million amount-in-controversy threshold is disputed, both parties must tender evidence in support of their calculations and rely on reasonable assumptions supported by record evidence.  Although the parties in Ibarra each submitted some evidence in support of their positions, the evidence was insufficient for the court to determine whether CAFA’s amount-in-controversy requirement was satisfied.

The plaintiff in that case had filed a complaint in state court alleging labor law violations and that the amount in controversy did not exceed $5 million. The defendant’s calculation of the amount in controversy differed, and it removed the case to federal court. The district court considered whether removal pursuant to CAFA was appropriate on three occasions—after the plaintiff moved to remand, after the defendant removed for a second time following the Supreme Court’s decision in Standard Fire Insurance Co. v. Knowles, 133 S. Ct. 1345 (2013), and again after the Ninth Circuit vacated the second remand in light of its decision in Rodriguez v. AT&T Mobility Services LLC, 728 F.3d 975 (9th Cir. 2013). On each occasion, the district court determined that the amount-in-controversy requirement was unsatisfied.  After the third remand, the Ninth Circuit granted permission to appeal.

Although the Supreme Court’s decision in Dart primarily addressed the standard applicable to a defendant’s notice of removal, which the Court held is satisfied by “a plausible allegation that the amount in controversy exceeds the jurisdictional threshold,” the Court further clarified that a more robust evidentiary proceeding must follow “only when the plaintiff contests, or the court questions, the defendant’s allegation.” 135 S. Ct. at 554. Applying that framework, the Ninth Circuit determined that both sides were entitled to submit proof of the amount in controversy, and that the court must “decide[], by a preponderance of the evidence, whether the amount-in-controversy requirement has been satisfied.” Id. at 554.  The Ninth Circuit further held that after a dispute over the amount in controversy arises, “CAFA’s requirements are to be tested by consideration of real evidence and the reality of what is at stake in the litigation, using reasonable assumptions underlying the defendant’s theory of damages exposure.” Ibarra, 2014 WL 7495131 at *3.

The Ninth Circuit declined to make a substantive ruling with respect to the amount in controversy in Ibarra, however, because of the insufficiency of the parties’ evidence.  Instead, the court remanded the case to allow further submissions based on assumptions with “some reasonable ground underlying them.” Id. at *4.

The Ninth Circuit’s decision is informative for counsel on both sides of the aisle.  After Knowles, plaintiffs’ counsel should be wary of relying on stipulations and complaint allegations in an effort to avoid removal, and after Dart, defendants’ counsel may feel more confident in relying on allegations in a notice of removal. Yet, when the amount in controversy is contested on a motion to remand, Ibarra anticipates an evidentiary submission by both sides that will allow the district court to peek beyond the pleadings and ascertain “the reality of what is at stake” in the case. This heightened scrutiny of a litigation’s potential exposure may be an uncomfortable development for defendants seeking a federal venue, but the Supreme Court has undoubtedly charted a course in this direction in an effort to ensure that CAFA is fairly applied.

Aaron T. Morris, Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates, Boston, MA.  Any opinions expressed herein are the author’s, and not necessarily those of Skadden Arps or any one or more of its clients.


January 25, 2015

Third Circuit Holds That Rule 23(B)(2) Classes Do Not Have To Be Ascertainable

In a case of first impression in the Third Circuit, the court in Shelton v. Bledsoe, No. 12-4226 (3rd Cir. January 7, 2015), held that ascertainability is not a requirement for certification of a Rule 23(b)(2) class seeking only injunctive and declaratory relief.

The ruling arises from a suit by Norman Shelton, an inmate within the Special Management Unit (SMU) of the United States Penitentiary at Lewisburg, Pennsylvania. Shelton sued prison officials for alleged Eighth Amendment violations arising from defendants’ alleged practice of placing inmates in cells with other inmates known to be hostile to them and failing to protect such inmates from inmate-on-inmate violence. 

Shelton sought injunctive and declaratory relief on behalf of a class of “[a]ll persons who are currently or will be imprisoned in the SMU program at USP Lewisburg” so long as the prison officials persist in the allegedly unconstitutional practices.

The trial court denied Shelton’s motion for class certification, concluding that the proposed class was not “objectively, reasonably ascertainable.”  Shelton appealed.

In vacating the trial court’s certification denial, the Third Circuit noted that while “[t]he ascertainability requirement ensures that the procedural safeguards necessary for litigation as a (b)(3) class are met . . . it need not (and should not) perform the same function in (b)(2) litigation.” 

In contrast to (b)(3) classes, where ready identification of class members “serves several important objectives”—including facilitating the required notice/opportunity to opt out and protecting defendants by ensuring that those bound by the judgment are identifiable—Rule 23(b)(2) is a “remarkably different litigation device[],” in which such objectives “either do not exist or are not compelling.” Rather, the enforcement of an injunctive or declaratory remedy “usually does not require individual identification of class members.”

Further bolstering its conclusion, the court pointed to an Advisory Committee’s note to Rule 23, in which actions in the civil-rights field are cited as illustrative examples of appropriate (b)(2) classes, and noting that such classes are “usually one[s] whose members are incapable for specific enumeration.”

Finally, the court pointed to consistent rulings from the First and Tenth Circuits, both of which have previously addressed this issue directly and likewise explicitly rejected an ascertainability requirement for 23(b)(2) classes.

David D. Garner, Lewis Roca Rothgerber LLP, Phoenix, AZ. Any opinions expressed herein are the author’s, and not necessarily those of Lewis Roca Rothgerber LLP or any one or more of its clients.


December 9, 2014

Seventh Circuit Rejects Glucosamine Settlement as Insufficient for Class Members

The Seventh Circuit Court of Appeals reversed an approved class action settlement from the Northern District of Illinois, finding that class counsel failed to attain meaningful relief for class members while the settlement’s terms favored class counsel and Defendants. Pearson v. NBTY, Inc., No. 14-1195-1227-1245-1389, 2014 WL 6466128 (7th Cir. Nov. 19, 2014). In the underlying district court action, the judge reduced counsel’s fees to $1.93 million—less than 10 percent of the settlement’s perceived value of $20.2 million.  Judge Posner found class counsel’s proposed fee award unacceptable given the fact that the class’ actual relief was only $865,254 along with proposed short-term injunctive relief.  Judge Posner found the district judge erred by calculating the attorney fee award as a percentage of the potential settlement.  He found that a calculation based on the settlement’s potential value failed to incentivize class counsel to protect the interests of the class.  Instead, Judge Posner held that class counsel’s fee award needed to bear a reasonable relationship to the actual monetary relief received by the class members.  Doing so, he noted, gives class counsel an incentive to design the claims process in such a way as will maximize the settlement benefits actually received by the class and to push back against the defendants’ creating a “burdensome claim process” in order to minimize the number of claims filed by class members. 

Manfred Muecke, Bonnett Fairbourne Friedman & Balint, Phoenix, AZ


December 8, 2014

Eleventh Circuit: Rule 68 Offers of Full Relief to Named Plaintiffs Do Not Moot a Class Action

On December 1, 2014, the United States Courts of Appeals for the Eleventh Circuit reversed an order granting dismissal of a putative class action and held that a defendant may not moot a class action through an unaccepted Federal Rule of Civil Procedure 68 offer of complete relief to the named plaintiffs, but not the class members, before the named plaintiffs move to certify the class. The case is significant because it addresses a split in authority between the circuits and is a case of first impression for the Eleventh Circuit.  In the Stein opinion, the Eleventh Circuit joined four other circuits in concluding that a Rule 68 offer that moots a named plaintiff’s individual claim does not moot a class action, even if the proffer comes before the named plaintiff has moved to certify a class.  The Seventh Circuit is the only circuit that has considered the issue and taken a different interpretation.

On August 1, 2013, six named plaintiffs filed a putative class action against the defendant in state court in California.  The plaintiffs’ claims of violation of the Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227(b)(1)(C) arose from the defendant allegedly transmitting unsolicited faxes to the named plaintiffs and more than 100,000 other putative class members as advertisement for its sales of tickets to professional football games. The complaint demanded statutory damages of $500 per violation trebled to $1,500 based on the defendant’s willfulness, as well as an injunction against further violations.

The defendant removed the action to federal court then three days later served each named plaintiff with an offer of judgment under Rule 68. Each separate offer to the six named plaintiffs provided for payment of $1,500 per alleged violation based on the number of faxes received, reasonable costs incurred to date and a stipulated injunction enjoining the defendant from any future violation of the TCPA. Two days later, the defendant moved to dismiss for lack of jurisdiction on the ground that the unaccepted Rule 68 offers rendered the case moot. On the very next day, the plaintiffs filed a motion to certify the class. The district court denied the motion as premature just days later. Ultimately, on October 24, 2013, the district court entered an order concluding that the action was moot and granted the defendant’s motion to dismiss. The named plaintiffs received no money, no injunction and no judgment. The named plaintiffs appealed the order and dismissal by the district court.

In its December 1, 2014 opinion, the Stein court analyzed two issues of first impression for the Eleventh Circuit: (1) whether an individual plaintiff’s claim becomes moot when the plaintiff does not accept a Rule 68 offer of judgment that, if accepted, would provide all the relief the plaintiff seeks and (2) if the answer is yes and such offers are made to all the named plaintiffs in a proposed class action before a motion for class certification is filed, whether the named plaintiffs may nonetheless go forward as class representatives.

Relying on the dissenting opinion in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013) and the Ninth Circuit’s explicit adoption of Symczyk dissent’s position in Diaz v. First Am. Home Buyers Prot. Corp., 732 F.3d 948, 954–55 (9th Cir. 2013), the Stein court held that an unaccepted offer of judgment cannot moot a case.  An unaccepted settlement offer has no operative effect and “‘. . .assuming the case was live before—because the plaintiff had a stake and the court could grant relief—the litigation carries on, unmooted.’” 2014 U.S. App. LEXIS 22603, at *10, quoting Symczyk, 133 S. Ct. 1523 at 1534.  Noting that the district court did not enter a judgment for the named plaintiffs and did not issue and injunction, the Stein court found that the relationship between the parties was precisely the same as before the Rule 68 offers were made and, as such, the individual claims were not moot. The Stein court reversed the district court’s order dismissing the action.

Identifying an alternative basis for the reversal, the Stein court held that even if the individual claims were somehow deemed moot, the class claims remain alive and the named plaintiffs retain the ability to pursue the claims. The Stein court recognized that as early as Sosna v. Iowa, 419 U.S. 393, 95 S. Ct. 553 (1975), the Supreme Court squarely rejected any assertion that a class action is always moot just because the named plaintiff’s claim is moot and recognized that the legal status of class members does not change when a motion to certify is filed but rather when a certification order is entered. Sosna, 419 U.S. at 399.  The Stein court highlighted the diligence of the named plaintiffs’ counsel and found that their receipt of offers of judgment did not—without more—disqualify the named plaintiffs from proceeding with their claims. On this basis, the court also reversed the district court’s order dismissing the action.

In reversing the district court’s order, the Stein court relied on alternative holdings.  The Eleventh Circuit is now aligned with the Third, Fifth, Ninth and Tenth Circuits in holding that a Rule 68 offer of full relief to a named plaintiff does not moot a class action, even if the offer precedes a class certification motion, as long as the named plaintiff has not failed to diligently pursue class certification. 2014 U.S. App. LEXIS 22603, at *22, citing Weiss v. Regal Collections, 385 F.3d 337 (3d. Cir. 2004); Sandoz v. Cingular Wireless LLC, 553 F.3d 913 (5th Cir. 2008); Pitts v. Terrible Herbst, Inc., 653 F.3d 1081 (9th Cir. 2011); Lucero v. Bureau of Collection Recovery, Inc., 639 F.3d 1239 (10th Cir. 2011); but see Damasco v. Clearwire Corp., 662 F.3d 891 (7th Cir. 2011) (recognized that an offer of full relief to a named plaintiff before a class is certified does not always moot the case but held that if the offer to the named plaintiff is made before the plaintiff moves to certify a class, the named plaintiff cannot go forward).

Kimberly F. Rich, Baker & McKenzie LLP, Dallas, TX


November 24, 2014

Tenth Circuit Examines CAFA's State Action and Local Controversy Exceptions to Federal Jurisdiction

In Woods v. Standard Insurance Co., Case No. 13-2160 (10th Cir., Nov. 10, 2014), a Tenth Circuit panel reversed a magistrate judge’s decision from the District Court for the District of New Mexico finding that the Class Action Fairness Act's (CAFA) local controversy exception required the case to be remanded back to state court. The panel identified three issues for review. First, the panel agreed with the magistrate judge that the state action exception to CAFA removal (which excludes from federal jurisdiction cases in which the primary defendants are states) was inapplicable because one of the primary defendants, Standard Insurance Co., was not a state. (Slip. Op. at *11–12.)  Second, the panel examined the local controversy exception (which excludes from federal jurisdiction class actions with a local focus) by analyzing the three statutory prongs of 28 U.S.C. § 1332(d)(4)(A) under the specific facts presented to decide whether the individual defendant's conduct formed "a significant basis for the claims asserted by Plaintiffs, and whether Plaintiffs seek significant relief from her." (Id. at *13.) Concluding that the plaintiffs failed to carry their burden, the panel disagreed with the magistrate judge and found the local controversy exception inapplicable.  Third, the panel reviewed whether CAFA's amount in controversy requirement had been met, but found that it could not make such a determination absent further proceedings in the district court as the magistrate judge had not reached the question. (Id. at *22–23.)  The panel therefore reversed the magistrate judge's remand order and directed the district court to determine, in the first instance, whether CAFA's amount in controversy requirements had been met. (Id. at 23.)

William J. Holley, II, Parker Hudson Rainer & Dobbs, Atlanta, GA


November 17, 2014

Court Sets 28 Percent Fee Award for Pfizer Neurontin Megafund Settlement

In a November 10, 2014 crder in the In re Neurontin MDL, pending in the District of Massachusetts (Civil Action No. 04-10981-PBS, docket # 4303), Judge Patti Saris declined class counsel's request for a fee award of 33.3 percent of the $325 million settlement fund and, instead, ordered a fee award representing 28 percent of the fund (approximately $91 million). Class counsel's "petition for attorneys' fees [arose] out of the settlement of a nationwide, decade-long, multi-district litigation against Pfizer, Inc. and Warner-Lambert Company for a fraudulent scheme to promote and sell the drug Neurontin for 'off-label' conditions." Order, *2*3. Judge Saris analyzed class counsel's request under the seven factors set forth in Goldberger v. Integrated Res., Inc., 209 F.3d 43, 50 (2d Cir. 2000), but recognized that courts addressing "megafund" cases (those yielding settlement funds in excess of $100 million) often require a lowering of the fee award percentage. Order, *3–*6. Judge Saris was not willing to engage in a lodestar analysis of class counsel's $27.4 million "bottom line lodestar figure" because class counsel had not provided detailed information regarding hours worked, hourly rates charged or expenses charged. Id., *8*9.  Nonetheless, Judge Saris noted that certain of the hourly rates requested were over $900 per hour and likely would require downward adjustment to reflect the prevailing rates in the Boston market. Id., *9. In setting class counsel's fee at 28 percent of the common fund, Judge Saris specifically commented that the reduction from the requested 33.3 percent "does not diminish [the Court's] view of the excellent lawyering here." Id.

William J. Holley, II, Parker Hudson Rainer & Dobbs, Atlanta, GA


September 30, 2014

Judge Posner Takes a Critical Look at Coupon Settlements in Redman v. RadioShack

In a September 19, 2014, opinion issued in Redman v. RadioShack Corporation, Nos. 14-1470, -1471, -1658 (7th Cir.), released just 11 days after oral argument, Judge Richard Posner performed an in-depth analysis of an approved coupon settlement before rejecting it. Sued for a willful violation of the Fair and Accurate Credit Transactions Act (FACTA), RadioShack agreed to a settlement, the critical terms of which allowed each class member who responded positively to the notice of proposed settlement to receive a $10 coupon redeemable at any RadioShack store and paid class counsel a $1 million fee. Only 83,000 potential class members, from a class assumed to contain 16 million members, submitted claims for coupons. 

In setting the stage for his factually specific analysis, Judge Posner noted that a "trial judge's instinct" is to approve settlements "[b]ut the law quite rightly requires more than a judicial rubber stamp when the lawsuit that the parties have agreed to settle is a class action." (Slip. Op. at *8.)  Judge Posner criticized the extremely low take rate for the coupons and concluded that this fact, in part, indicated that the class had such a small stake in the outcome of the class action that they had no incentive to monitor settlement negotiations and object to an excessive fee request. (Slip. Op. at *9.)  In assessing the reasonableness of the agreed-on attorney fees, Judge Posner found error in considering the $2.2 million in administrative costs to be as a class benefit as no part of these expenses flowed to class members. (Slip. Op. at *10.) Finding that the actual ratio of the attorney fee to the fee plus what the class members received equated to a contingency fee of 55 percent, he found the fee award excessive. 

Judge Posner then explored coupon settlements and their potential benefit to defendants, but found that because of RadioShack's precarious financial situation ("teetering on the brink of insolvency"), "[a] modest settlement is the prudent course." (Slip. Op. at *14–15.) Nonetheless, he found that the $1 million fee rendered the settlement unreasonable.  Judge Posner also took the opportunity to criticize "clear-sailing clauses" (in which the defendant agrees not to contest class counsels' fee requests), potential conflicts in having class counsels' former firm employee act as named plaintiff, and class counsels' failure to file the attorney fee motion until after the settlement objections deadline. In sum, the Redman opinion is a long exposition by a renowned judge on what a Seventh Circuit panel found to be a highly flawed coupon settlement.

William J. Holley, II, Parker Hudson Rainer & Dobbs, Atlanta, GA


September 12, 2014

Seventh Circuit Finds Plaintiffs Fail to Sufficiently Demonstrate Citizenship in Support of Remand

On August 19, 2014, the Seventh Circuit of the United States Court of Appeals affirmed an order from the Southern District of Illinois denying a motion to remand finding plaintiffs had failed to demonstrate that members of the proposed class satisfied the diversity requirements of 28 U.S.C. §1332 (d)(4). The plaintiffs’ contentions centered on Wellpoint’s alleged violation of Illinois law stemming from Wellpoint’s cancellation of a series of insurance policies following Wellpoint’s acquisition of RightChoice Managed Care, Inc. and its RightChoice subsidiaries’ lines of insurance. Slip Op. at 2.

Class counsel in the instant case had previously litigated virtually identical issues in Cima v. WellPoint Health Networks, 250 F.R.D. 374 (S.D. Ill. 2008), where the district court denied certification of a proposed class of former RightChoice policyholders and then subsequently found for defendants on the merits. Slip Op. at 2. Instead of appealing these decisions, class counsel filed the instant case in Illinois state court with new class representatives. Wellpoint removed the case under CAFA 28 U.S.C. §1453 via the encompassed requirements of 28 U.S.C. §1332(d) as the proposed class had at least 100 members, the amount at issue exceeds $5 million, and at least one class member has citizenship different from one of the defendants. Slip Op. at 2. After the district court had denied remand and class certification as well as finding for defendants on the merits, the plaintiffs appealed to the Seventh Circuit arguing remand applies under §1332(d)(2) if the proposed class is comprised of at least two-thirds Illinois state citizens where the suit is filed and one of the defendants is an Illinois state citizen targeted for “significant relief.” Slip Op. at 3.  

In writing for the Seventh Circuit, Judge Frank Easterbrook ruled plaintiffs’ reliance upon RightChoice policy language restricting coverage to Illinois residents was insufficient to meet the plaintiffs’ burden of evidence required to demonstrate that a sufficient number of class members constitute the two-thirds state citizenship threshold. Slip Op. at 4. Although plaintiffs argue that determining the citizenship of each policyholder would be costly, the court noted plaintiffs’ counsel must be prepared to absorb necessary expenses to be deemed adequate representatives. Slip Op. at 5. The court emphasized a statistically reliable sampling could suffice to meet plaintiffs’ evidentiary burden for removal and need not be cost prohibitive. If an initial random sample showed a sufficiently “lopsided result (say, 90% Illinois citizens or only 50% Illinois citizens) then the outcome is clear without the need for more evidence.” Slip Op. at 5–6. “If the result is close to the statutory two-thirds line, then do more sampling and hire a statistician to ensure that the larger sample produces a reliable result.” Slip Op. at 6.

Manfred Muecke, Bonnett Fairbourne Friedman & Balint, Phoenix, AZ


September 10, 2014

Fourth Circuit Vacates CBM Royalty Class Certifications and Remands for Reassessment of Rule 23 Factors

In a published 55-page opinion issued on August 19, 2014, a panel of the Fourth Circuit Court of Appeals vacated certifications in five related class action suits as "premature" and remanded for the United States District Court for the Western District of Virginia to further consider various Rule 23 requirements, including class ascertainability, commonality, predominance and superiority. The putative class claims generally allege that EQT Production Company and CNX Gas Company, LLC have unlawfully deprived the class members of royalty payments from the production of coalbed methane gas (CBM) in Virginia. Following the district court's certification of five related class actions, the defendants sought Rule 23(f) discretionary review.  The panel initially deferred ruling on the 23(f) petitions, consolidated the several appeals and ordered formal briefing (the style of the first consolidated appeal is EQT Production Company v. Adair, et al., No. 13-414, United States Court of Appeals for the Fourth Circuit; the consolidated opinion also resolves appeals numbered 13-415, 13-418, 13-419, 13-421, 13-422, 13-2376, 13-2378, 13-2381, 13-2382, 13-2383 and 13-2384).

After discussing the appropriateness of granting a Rule 23 petition (Slip Op. at 18–19) and certification requirements under Rules 23(a), 23(b)(2) and 23(b)(3) (Slip Op. at 19–21), the panel analyzed whether class members of the certified classes could be readily identified in reference to objective criteria (Slip Op. at 22–26) and determined that "complications [from fact-intensive required review of land records] pose a significant administrative barrier to ascertaining the ownership classes." (Slip Op. at 25). The panel then proceeded to analyze Rule 23(a)'s commonality and predominance requirements (Slip Op. at 27–35) and determined that significant variations in deed language applicable to each potential plaintiff's claim had not been adequately analyzed by the district court. Next, the panel analyzed Rule 23(b)(3)'s predominance and superiority requirements (Slip Op. at 38–52) and found that the plaintiffs had not demonstrated common questions of law or fact given the problems presented by significant lease language variations  and statute of limitations defense differences among the putative class members. Finally, the panel addressed Rule 23(b)(3)'s superiority requirement (Slip Op. at 52–54), recognized the district court's analysis of this factor, but found that the district court should also ". . . consider how the dominance of state-law issues may affect the suitability of this litigation in a federal forum . . . ." (Slip Op. at 54).

In its conclusion, the panel held ". . . that the district court's analysis lacked the requisite rigor to ensure the requirements of Rule 23 were satisfied by any of the certified classes." (Slip Op. at 55). Nonetheless, the panel noted that "[a]t this point, we only conclude that certification was premature.".   

William J. Holley, II, Parker Hudson Rainer & Dobbs, Atlanta, GA


September 9, 2014

TX Supreme Court: Uncashed Settlement Checks That Go to Charity under Class Settlement Cannot Be Escheated

Can the states escheat “unclaimed” class-action settlement checks? States are paying more attention to this question, and so are class-action lawyers and the courts.

In May, a group representing State treasurers and comptrollers proposed changes to the Uniform Unclaimed Property Act that would greatly expand the States’ power to escheat property distributable under a litigation settlement after one year.  See the National Association of Unclaimed Property Administrators comments.

Now the Texas Supreme Court has weighed in, holding in a 5–4 decision that there is nothing for Texas to escheat under its unclaimed property statute when a class-action settlement provides that uncashed checks go to charity. There is no abandoned property, the court ruled, because the named plaintiffs continue to claim the property as representatives of absent class members.  Highland Homes Ltd. v. The State of Texas, No. 12-0604 (August 29, 2014). 

In Highland Homes, the named plaintiffs had alleged that the defendant withheld money that it should have paid to construction subcontractors. The parties ultimately reached a court-approved settlement benefiting the subcontractor class. If a class member’s settlement check was not cashed within 90 days, the money instead went to the nonprofit The Nature Conservancy, in a charitable distribution called a cy pres award. The State of Texas argued that the undistributed residue should instead be delivered to the state comptroller under the state's escheat powers, to hold for any owners who eventually surfaced.

The Texas Supreme Court disagreed. Rejecting as erroneous Texas’s assumption “that absent class members have neither asserted claims nor exercised acts of ownership in the litigation,” the court held that the class representatives’ actions “are those of class members,” so long as the requirements of due process are met. Because the property “was claimed by the owners—all settlement class members—through their representatives,” the settlement payments were not abandoned. The Texas court expressly disapproved a conflicting Fifth Circuit decision, which had applied the Texas unclaimed-property statute to uncashed class-settlement checks. See All Plaintiffs v. All Defendants, 645 F.3d 329, 331–332 (5th Cir. 2011).

The four dissenting justices in Highland Homes would have allowed Texas to escheat the uncashed settlement checks. In the dissent's view, the Texas unclaimed-property statute prohibited the parties to the class settlement from agreeing on what would happen to the uncashed checks, which should have been turned over to the state as abandoned property.

The propriety of the charitable distribution itself was not challenged in Highland Homes. The majority opinion acknowledged, however, Chief Justice Roberts’ concerns about cy pres awards, citing his statement last year when the United States Supreme Court denied certiorari in the Facebook case Marek v. Lane, 134 S. Ct. 8, 9 (2013) (Roberts, C.J., statement respecting denial of certiorari). While some states, such California and Washington, provide for cy pres awards by statute or rule, the federal circuits have differed on their use in class-action settlements. The Ninth Circuit approves them, so long as they account for the nature of the lawsuit, the objectives of any underlying statutes, and the interests of absent class members. The Third Circuit has cautioned that they should generally represent only a small percentage of total settlement funds and are most appropriate when further individual distributions are economically infeasible. And the Fifth Circuit has reversed a cy presdistribution, instead requiring reallocation of funds to other class members in accordance with a settlement agreement—while a concurrence admonished that the return of unclaimed funds to the defendant is ordinarily the preferable approach.

Margaret I. Lyle, Jones Day, Dallas, Texas


June 24, 2014

Supreme Court Takes Middle Road in Halliburton Decision

On June 23, 2014, the Supreme Court of the United States released its long-awaited decision in Halliburton v. Erica P. John Fund, Inc., __ U.S. __. 2014 WL 2807181 (Jun. 23, 2014), a Rule 10b-5 putative securities class action. Instead of abrogating or fully embracing the fraud-on-the market presumption established in the 1988 Basic v. Levinson decision, Chief Justice John Roberts, in an opinion joined by Justices Anthony Kennedy, Ruth Ginsburg, Stephen Breyer, Sonia Sotomayor, and Elena Kagan took a decidedly middle course. (Justice Clarence Thomas authored a concurrence opinion adopting the result but not the rationale, in which Justices Antonin Scalia and Samuel Alito joined.)

Finding no "special justification," the majority in concurrence declined to overrule Basic's presumption of reliance and further declined to modify the prerequisites for invoking the presumption by requiring plaintiffs to prove "price impact" at the class certification stage. Nonetheless, the Court agreed with Halliburton that defendants must be afforded an opportunity to rebut the presumption of reliance before class certification with evidence of a lack of price impact. Consequently, the decision below affirming class certification was vacated and the case remanded. The separate concurrence authored by Justice Thomas concluded that "our subsequent jurisprudence have undermined the foundations of the Basic presumption" such that the case should be overruled and the presumption abolished.

William J. Holley, II, Parker Hudson Rainer & Dobbs, Atlanta, GA


June 23, 2014

Eleventh Circuit: Jurisdictional "Amount in Controversy" May Be Based on Claims That May Lack Merit

In McDaniel v. Fifth Third Bank, No, 14-11615 (11th Cir. June 5, 2014), the Eleventh Circuit reiterated that district courts—except in rare circumstances—should not evaluate a plaintiff's likelihood of success in calculating the amount in controversy required for removal under CAFA.

In that case, the plaintiff claimed, inter alia, that Fifth Third Bank violated the Florida Consumer Collection Practices Act and committed common law fraud by charging non-account holders a $4 check cashing fee. The plaintiff filed a putative class action in state court seeking both compensatory and punitive damages. The bank removed the case to federal court under CAFA, arguing that CAFA's $5 million “amount in controversy” requirement was satisfied based on the compensatory and punitive damages sought. The district court disagreed and granted the plaintiff’s motion to remand the case back to state court. The district court reasoned that the case did not satisfy CAFA’s $5 million amount-in-controversy threshold, because the plaintiff’s common law fraud claim was deficient on its face, which precluded it from including potential punitive damages from that claim in its calculation.

On appeal, the Eleventh Circuit reversed and clarified that district courts are required to calculate the amount in controversy based on the amount of damages a plaintiff, in good faith, puts in controversy, not what a plaintiff is likely to or might recover. The court found that the district court committed an error by considering the merits of the plaintiff’s fraud claim in holding that the amount in controversy for CAFA jurisdiction was not satisfied. Including the potential punitive damages from the plaintiff’s fraud claim in its de novo review, the amount in controversy exceeded $5 million. The Eleventh Circuit panel, therefore, found that the bank had met its jurisdictional burden, vacated the district court’s order remanding the case to state court, and remanded the case back to the district court for adjudication on the merits. 

William J. Holley, II, Parker Hudson Rainer & Dobbs, Atlanta, GA


June 23, 2014

Ninth Circuit: Prison System's Health Care Policies Violate Civil Rights

On June 5, 2014, in Parsons v. Ryan, No. 13-16396 (9th Cir. June 5, 2014), the Ninth Circuit reconfirmed that Rule 23’s commonality requirement does not demand that a plaintiff and class members share identical claims or harm. 

Prisoners alleged that the Arizona Department of Corrections’ (ADC) statewide policies regarding medical care, dental care, mental health care, and solitary confinement exposed them and other current and future prisoners to risks of harm rising to Eighth Amendment violations. After considering the voluminous evidentiary record, the District Court certified a class of ADC inmates challenging the constitutionality of the ADC’s health care policies and procedures.  The District Court also certified a subclass of inmates challenging the constitutionality of the ADC’s isolation unit’s policies and procedures. Both classes of plaintiffs sought declaratory and injunctive relief.  After the District Court denied a motion for reconsideration, ADC filed a 23(f) petition for interlocutory review of the class certification order arguing that the District Court abused its discretion by certifying a class where Plaintiffs did not adequately demonstrate commonality and typicality.  ADC also argued that the plaintiffs didn’t meet the requirements of Rule 23(b)(2) because they failed to show how injunctive relief would be appropriate for the class and subclass.

The Ninth Circuit addressed Defendants’ argument of lack of commonality among class plaintiffs by noting that a plaintiff only needs to demonstrate a set of facts or legal issues that is common to the entire class.  The Court found that it was irrelevant whether the harm suffered could differ from inmate to inmate or whether any class member actually incurred harm.  Instead, what the class had in common was their alleged exposure to a risk of future harm resulting from a uniform set of ADC policies and procedures in place that govern health care services and solitary confinement.  The Ninth Circuit pointedly stated, “[E]very inmate suffers exactly the same constitutional injury when he is exposed to a single statewide ADC policy or practice that creates a substantial risk of serious harm.”

Recognizing that commonality and typicality can merge during class certification analysis, the Ninth Circuit found the named plaintiffs’ suffered injury was also typical of the harm resulting from a common course of conduct that was also directed at the class members; there was no need for the class representatives to show that their claims are identical to the other class members. The text of the rule only requires that a plaintiff demonstrate that “the party opposing the class has acted or refused to act on grounds that apply generally to the class.”  The Ninth Circuit found that the plaintiffs had met this requirement by satisfactorily alleging that the ADC had established policies and procedures that put its inmates at risk of harm, and by doing so with indifference to the risk of harm, the Defendants’ actions apply generally to the class and subclass. Lastly, the ruling reminded that the primary role of Rule 23(b)(2) “has always been” to certify classes alleging civil rights violations.

Manfred Muecke, Bonnett Fairbourne Friedman & Balint, Phoenix, AZ


May 16, 2014

Numbers Game Update: Are Class Actions on the Decline?

After the U.S. Supreme Court’s decisions in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) and AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), many predicted that class action filings would decline, as certification becomes more difficult and more cases are sent to arbitration.  Some even warned that these decisions could mean the end of the class action.

In fall 2012, we took an initial look at the numbers, concluding there had been no precipitous decline in the volume of class action filings and that it was too early to tell whether Dukes and Concepcion were having any real impact in terms of driving down the number of class actions. Now, almost two years later, we decided to take another look at the data and see what it tells us. 

First a note about methodology: We again looked at various sources and concluded that Courthouse News Service (CNS) is the most comprehensive and easiest database to search.  We again searched for filings identified as class actions in California state court and all federal courts in each year since 2010. Notably, the number of class actions reported by CNS differed from the last time we ran this query, showing an increased number of federal and California filings. It is unclear whether this increase is the result of CNS refining its data, collecting additional cases or simply operator error.  We also provide an estimate of the number of class actions for 2014. Keep in mind that the estimate is based on class action filings through April 25, 2014, and is simply the average number of monthly class action filings through that date multiplied by twelve. 

Let’s first take a look at the federal landscape:

Class Action Filings: Federal Court (2010–April 2014)


Class Action Filings

Percentage Increase or (Decrease)














7,191 (est.)


The numbers show that, in 2012, when one might have expected class actions to decline given the Dukes and Concepcion decisions in 2011, filings actually increased, by more than 3 percent. Then, in 2013, class action filings in federal court were down almost 5 percent, perhaps because of Dukes and Concepcion, but that is by no means clear. During the first few months of 2014, class actions are being filed at a record pace. If the trend continues through the end of 2014, we could see an almost 10 percent increase in the number of class actions filed in federal court. 

In California state court, these recent class action decisions may have had a more pronounced effect, although the impact may be waning:

Class Action Filings: California State Court (2010–April 2014)


Class Action Filings

Percentage Increase or (Decrease)














2,145 (est.)


In 2012, the year after Dukes and Concepcion, class action filings in California state court were down nearly 12 percent. But in 2013, they were up more than 9 percent, and, in 2014, filings are on pace to exceed 2011 levels.

So what are we to conclude from these numbers? First, the dire warnings about the demise of the class action appear greatly exaggerated at best. Thousands of class actions are still being filed, and although there appears to have been a dip in filings in 2012 (California state court) and 2013 (federal court), it is by no means apparent that the dip was due to the Supreme Court’s recent class action decisions. In 2014, class actions are being filed at an unprecedented record pace. 

That said, the lawyers who identify, file and prosecute class actions are smart people. It is difficult to believe that Dukes and Concepcion decisions have not had some impact on the cases they are choosing to pursue. What that impact is, however, is not yet clear, at least not from looking at the number of class actions being filed. 

Robert J. Herrington, Greenberg Traurig, Los Angeles, CA


May 16, 2014

Supreme Court Accepts Certiorari in CAFA Removal Case

On April 7, 2014, the Supreme Court accepted certiorari review in Dart Cherokee Basin Operating Co., LLC v. Owens, No. 13-719, to resolve a circuit split regarding whether the Class Action Fairness Act (CAFA) requires a removing defendant to submit evidence in support of removal at the time of the notice of removal or whether evidence can be submitted later in response to a motion to remand. The United States District Court for the District of Kansas had remanded a putative class action removed under CAFA because the defendant did not submit evidence supporting its calculation of the amount in controversy at the time of or with its notice of removal, even though the notice of removal included detailed allegations regarding the defendant’s damages calculation, and even though the defendant submitted sufficient supporting evidence in its subsequent response to the plaintiff’s motion to remand. Owens v. Dart Cherokee Basin Operating Co. LLC, 2013 WL 2237740 (May 21, 2013). A divided panel of the Tenth Circuit denied the defendant’s request to appeal and subsequent petition for rehearing en banc. 

The First, Fourth, Fifth, Seventh, Eighth, Ninth, and Eleventh Circuits have held that 28 U.S.C. § 1446(a) does not require submission of evidence with the notice of removal but instead requires a short and plain statement of the jurisdictional allegations supporting removal—essentially a pleading requirement. See Amoche v. Guarantee Trust Life Ins. Co., 556 F.3d 41 (1st Cir. 2009); Ellenburg v. Spartan Motors Chassis, Inc., 519 F.3d 192 (4th Cir. 2008); Gebbia v. Wal-Mart Stores, Inc., 233 F.3d 880 (5th Cir. 2000); Spivey v. Vertrue, Inc., 528 F.3d 982 (7th Cir. 2008); Hartis v. Chicago Title Ins. Co., 694 F.3d 935 (8th Cir. 2012); Janis v. Health Net, Inc., 472 F. Appx. 533 (9th Cir. 2012); Sierminski v. Transouth Financial Corp., 216 F.3d 945 (11th Cir. 2000).

In dissenting from the Tenth Circuit’s denial of the Dart defendant’s petition for rehearing en banc, Judge Harris Hartz opined that 28 U.S.C. § 1446(a) “parrots Rule 8” and requires that a notice of removal only contain a “short and plain statement” of the grounds for removal, and, furthermore, that “nothing in the removal statutes or Supreme Court decisions, or any holdings of this court, require[s] submission of such evidence before the jurisdictional allegations are challenged.”

Jaret Fuente and Matt Allen, Carlton Fields Jorden Burt, Tampa, FL


April 21, 2014

Northern District of California Rules in CAFA Notices Case

On March 31, 2014, the United States District Court for the Northern District of California held that a defendant need not provide additional Class Action Fairness Act (CAFA) notices to state officials of revisions or amendments to class action settlements once CAFA notices of the original settlement have already been provided. Steinfeld v. Discover Fin. Servs., No. C 12-01118, 2014 U.S. Dist. LEXIS 44855 (N.D. Cal. Mar. 31, 2014). The case is significant because prior to the opinion, a dearth of authority existed on the issue of whether additional CAFA notices must be issued when parties to a class action settlement agree to revisions or amendments to their agreement after CAFA notices have already been issued to the appropriate federal and state authorities.

Teresa H. Michaud, Baker & McKenzie, San Francisco, CA


April 5, 2014

PAGA Actions Not Removable Under CAFA

In Baumann v. Chase Investment Services Corp, et al., __ F.3d __ (9th Cir. Mar. 13, 2014), the Ninth Circuit held that the California Labor Code Private Attorneys General Act of 2004 (PAGA) actions are not sufficiently similar to Rule 23 class actions to establish original jurisdiction of a federal court under the Class Action Fairness Act (CAFA). 

In Baumann, the plaintiff sued his employer, Chase Investment Services Corporation, individually and on behalf of other members of the general public similarly situated, under PAGA in California superior court.  The plaintiff alleged that the defendant had misclassified him and other Chase financial advisors as salaried and exempt employees and sought statutory civil penalties for each alleged violation.  The plaintiff asserted that his potential share of any penalties recovered, plus attorney fees, would be less than $75,000. The defendant removed the action from state court on a diversity jurisdiction argument that penalties attributable to all non-party aggrieved employees could be aggregated to meet the $75,000 CAFA threshold. The plaintiff sought remand, arguing (1) that PAGA penalties could not be aggregated and (2) that a PAGA action is not a “class action” under CAFA. 

William J. Holley, II, Parker Hudson Rainer & Dobbs, Atlanta, GA


March 25, 2014

Ninth Circuit Further Strengthen Defendants' Ability to Seek Removal of State Class Actions

On the heels of its decision in Roth v. CHA Hollywood Med. Ctr., L.P., 720 F.3d 1121 (9th Cir. 2013), the Ninth Circuit Court of Appeals strengthened the ability of a defendant to seek removal of a case to federal court under the Class Action Fairness Act (CAFA), long after the expiration of the 30-day deadlines otherwise provided by federal removal provisions. Rea v. Michaels Stores Inc., No. 14-55008, 2014 WL 607322 (9th Cir. Feb. 18, 2014).  Although certain provisions in 28 U.S.C. §§ 1441 and 1446(b) limit removal to within 30 days after service of the complaint or within 30 days after receipt of a document evidencing that the case had become removable, the Roth and Rea decisions confirm that these provisions are merely limitations on the right of removal, not a bar to removal under CAFA should circumstances later change.

Ryan Tosi and Lindsay Sampson Bishop, K&L Gates LLP, Boston, MA


March 11, 2014

Eleventh Circuit Finds Insurance Declaratory Judgment Satisfies CAFA Damages

On February 14, in an opinion written by Chief Judge Charles Carnes in the case South Florida Wellness, Inc. et al v. Allstate Insurance Company, a panel of the Eleventh Circuit found that a putative class complaint seeking only declaratory relief satisfied the Class Action Fairness Act's $5 million aggregate amount in controversy requirement, because “the monetary value that would flow to the plaintiff[s]” if the declaration were to be granted was well in  excess of $5 million. Challenging removal, Wellness argued that Allstate’s damages calculation was overly speculative—even if Wellness succeeded, patients still would face numerous hurdles before they could recover money from Allstate. “Wellness’s speculation argument is itself too speculative,” Judge Carnes wrote, “[a]lthough the putative class members might have to take an extra step or two after obtaining declaratory relief to get money from Allstate, that does not mean that determining that the amount in controversy exceeds $5 million is too speculative of a task.”  The court noted that “[w]hat counts is the amount in controversy at the time of removal” and ultimately concluded that “the pertinent question [at the jurisdictional stage] is what is in controversy in the case, not how much the plaintiffs are ultimately likely to recover.”  (Citing Pretka v. Kolter City Plaza II, Inc., 608 F.3d 744, 751 (11th Cir. 2010)).  

William J. Holley, II, Parker Hudson Rainer & Dobbs, Atlanta, GA


January 16, 2014

Attorney General Parens Patriae Suits Are Not Removable under CAFA as Mass Actions

In Mississippi ex rel Hood v. AU Optronics Corp. (12-1036), a unanimous Supreme Court held that a suit brought by the State of Mississippi against liquid-crystal display (LCD) manufacturers was not a “mass action” subject to removal under CAFA. In the suit, Mississippi claimed that the LCD manufacturers violated state antitrust and consumer protection statutes by forming a cartel to restrict competition and raise prices. In addition to its requests for injunctive relief, civil penalties, and various other remedies, Mississippi sought monetary restitution for purchases made by its citizens. Defendants removed the case, arguing that it was either a class action or a mass action under CAFA. The district court found that it was not a class action because it was “not brought pursuant to Federal Rule of Civil Procedure 23 or a ‘similar State statute or judicial procedure.’” But the district court found that Mississippi’s action did constitute a mass action under CAFA because it was a civil action “in which monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiffs’ claims involve common questions of law or fact.” The Fifth Circuit agreed that the suit was a mass action, but held that it did not fall within the general public exception because it sought relief for specific individuals.

The Supreme Court reversed. The Court reasoned that the word “persons” in the definition of a mass action must refer to persons who are “plaintiffs” and it simply did not make sense, in the Court’s view, to conclude that “plaintiffs” included unnamed persons with an interest in the lawsuit. Indeed, elsewhere CAFA explicitly refers to named and unnamed plaintiffs, underscoring that Congress knew how to include such individuals when it intended to do so. Further, the structure of the mass action provisions of CAFA would be unworkable if this interpretation was adopted. While CAFA provides for removal of a mass action where the claims of 100 or more persons are to be tried jointly, jurisdiction in the federal courts exists only over those plaintiffs whose claims are in excess of $75,000. If “plaintiffs” included unnamed persons who were the “real parties in interest,” the analysis of which claims and persons over which the court has jurisdiction would be nearly impossible. Similarly, transfers of mass actions are permissible only with the consent of a majority of the plaintiffs. Again, such a provision would be unworkable if the plaintiffs included unidentified “real parties in interest.” Notably, the Court’s decision is clearly limited to CAFA’s mass action provisions. 

Kim E. Rinehart and John Doroghazi, Wiggin and Dana, New Haven, CT


January 3, 2014

Fifth Circuit Reverses District Court Order in CAFA Case

On December 2, 2013, the U.S. Court of Appeals for the Fifth Circuit reversed a district court order denying remand to the State of Mississippi on the grounds, among others, that the defendants failed to meet their CAFA burden of establishing that at least one credit card customer satisfied the 28 U.S.C. § 1332(a) individual amount in controversy requirements.  Hood v. JP Morgan Chase & Co., No. 13-60686 c/w 13-60687, (5th Cir. Dec. 2, 2013).  In June 2012, the State of Mississippi filed six parens patriae complaints in the Mississippi Chancery Court alleging the defendant credit card companies were committing unfair and deceptive business practices in violation of the Mississippi Consumer Protection Act by charging Mississippi credit card customers fees for which they had no knowledge and did not give their consent. The complaints estimated that the annual charges for these optional services ranged between approximately $68.40 and $162.00 per customer.

—Teresa H. Michaud


December 30, 2013

Appeals Court Vacates Lower Court Orders to Remand Three Cases

On November 18, 2013, the U.S. Court of Appeals for the Eighth Circuit vacated district court orders remanding three separate products liability class actions to state court, holding that the three actions were properly removed under CAFA as one “mass action.” Atwell v. Boston Sci. Corp., No. 13-8031; Evans v. Boston Sci. Corp., No. 13-8032; Taylor v. Boston Sci. Corp., No. 13-8033, (8th Cir. Nov. 18, 2013). Four groups of plaintiffs, each amounting to less than 100 plaintiffs, filed product liability actions in Missouri state court against four manufacturers of transvaginal mesh medical devices.  Three of the groups included claims against Boston Scientific Corporation. These three groups individually moved the state court for special assignment to a single judge under the local rules governing related personal injury actions arising out of exposure to a product. Boston Scientific then removed all three cases to the U.S. District Court for the Eastern District of Missouri, asserting that court had jurisdiction under CAFA because plaintiffs proposed to join their cases into a mass action with more than 100 plaintiffs. The district courts disagreed and remanded the cases on the grounds that the plaintiffs had not agreed to be tried jointly.

Paul G. Karlsgodt, Baker & Hostetler, Denver, CO


December 11, 2013

The Class Action Fairness Act: Law and Strategy—An Indispensable Resource

If you’re a CADS member, you probably either prosecute or defend class actions, serve as a judge or mediator in class action cases, study or teach class actions, or are just an all-around class action geek like me.  Whichever category you fit into, you’ll want to know about a great new ABA publication on the Class Action Fairness Act of 2005 (CAFA). The Class Action Fairness Act: Law and Strategy, is a book of collected works written by an all-star collection of plaintiffs’, defense, and public interest attorneys, deftly edited by former ABA Section of Litigation Class Actions & Derivative Suits Committee Chair Gregory C. Cook.  Class Actions & Derivative Suits committee members will recognize the names of many of the knowledgeable contributors. Here is a summary of the useful features of the book.

Comprehensive Overview

Many practitioners are familiar with the jurisdictional aspects of CAFA codified in 28 U.S.C. § 1332(d) but are less familiar with its other important requirements scattered elsewhere throughout the U.S. Code. The Class Action Fairness Act: Law and Strategy covers nearly every CAFA-related topic conceivable, from the history of CAFA to the provisions expanding federal diversity jurisdiction in class actions, appellate procedures, the requirements of official notification, and the limitations on coupon settlements.

Balanced Perspectives

Many resources on CAFA are useful in offering perspectives from one side of the bar or the other, but this book offers perspectives from top plaintiffs' and defense lawyers, as well as nonprofit and public interest lawyers who offer yet a third perspective on the consumer impacts policy issues raised by class actions.

Charts and Graphs

For those who are visual learners, Class Actions & Derivative Suits cochair Kathyrn Honecker has contributed a section called "CAFA at a Glance," which is a series of flowcharts that take you through the requirements of CAFA jurisdiction as well as the various exceptions and exclusions.

One Part Reference Guide, One Part Practice Manual, and One Part Treatise

The book can be used as a general reference guide for the basic requirements of CAFA, but it also provides practical strategy tips for both plaintiffs and defendants in dealing with common and not-so-common CAFA issues, as well as even more in-depth analysis of the history and policy behind the statute. Here is a summary of the table of contents:

  • Chapter 1—Introduction and Overview

  • Chapter 2—CAFA in Congress: The Eight-Year Struggle

  • Chapter 3—Hey CAFA, Is that a Class Action?

  • Chapter 4—The Amount in Controversy under CAFA: Have You Got What It Takes for Federal Court?

  • Chapter 5—CAFA's Numerosity Requirement, or How to Count from 1 to 100

  • Chapter 6—Basics of Minimal Diversity in CAFA

  • Chapter 7—Welcome to the Jungle: CAFA Exceptions

  • Chapter 8—How CAFA Expands Federal Jurisdiction to Include Certain Mass Actions

  • Chapter 9—Advanced Procedural and Strategic Considerations on Removal under CAFA

  • Chapter 10—CAFA-Related Appeals

  • Chapter 11—CAFA Settlement Provisions

To get your copy, visit the ABA's online store. If you don't have it, chances are your opponent will!

Paul G. Karlsgodt, Baker & Hostetler, Denver, CO


December 11, 2013

Justice Roberts Issues Statement Regarding Cy Pres

The Supreme Court denied objector Megan Marek’s petition for certiorari review of the fairness and adequacy of a settlement between Facebook and a class of plaintiffs claiming that Facebook’s “Beacon” program violated state and federal privacy laws. Chief Justice Roberts issued a statement in connection with the denial in which he signaled his, and perhaps the Court’s, concerns regarding the use of cy pres remedies in class action litigation. The Facebook settlement, as noted by the Chief Justice, did not award damages or an injunction as requested in the complaint. The settlement, however, earmarked as cy pres relief $6.5 million to start a charitable foundation dedicated to Internet privacy that would include one Facebook representative on its three-member board.  In agreeing to deny certiorari, Roberts indicated that Marek’s challenge was focused only on the specific cy pres settlement at issue and would not give the Court the opportunity to address “more fundamental concerns” regarding its use in class actions, including

when, if ever, such relief should be considered; how to assess its fairness as a general matter; whether new entities may be established as part of such relief; if not, how existing entities should be selected; what the respective roles of the judge and parties are in shaping a cy pres remedy; how closely the goals of any enlisted organization must correspond to the interests of the class; and so on.

The Chief Justice also cited a law review article discussing the growing use of cy pres remedies in class action litigation. 

Ben V. Seessel, Jorden Burt LLP, Hartford, CT


December 6, 2013

Parties Seeking Application of CAFA Exceptions Must Present Evidence in Support

On November 27, 2013, the U.S. Court of Appeals for the Ninth Circuit vacated a district court order remanding a putative class action to California state court based on CAFA's local controversy exception. Mondragon v. Capital One Auto Finance, No. 13-56699 (9th Cir. Nov. 27, 2013). The plaintiff alleged, on behalf of a putative class, that the defendants had violated California law related to automobile finance contract disclosures. After the case was removed to federal court based on CAFA, the plaintiff moved to remand it based on CAFA's local controversy exception, which requires federal courts to "decline to exercise jurisdiction" if at least two-thirds of the putative class are citizens of the state the case was originally filed in.  (The other requirements of the local controversy exception were not at issue on the appeal.)  The plaintiff argued that the proposed class definitions—essentially, people who purchased automobiles in California for personal use to be registered in California—were sufficient to establish that CAFA's local controversy exception applies.  The district court agreed.

Keywords: litigation, class actions, derivative suits, CAFA, CAFA exceptions

Matthew M.K. Stein, Skadden, Arps, Slate, Meagher & Flom LLP, Boston, MA


October 17, 2013

Third Circuit Construes American Pipe Tolling Broadly To Revive Dated TCPA Claim

In a non-precedential rehearing opinion, a panel of the Third Circuit applied American Pipe tolling to revive a third class action addressing an alleged 2005 Telephone Consumer Protection Act (TCPA) violation, filed after the first class action was administratively dismissed and the second action was dismissed for lack of standing.  In Leyse v. Bank of America, No. 12-3249 (3d Cir. Oct. 3, 2013), the Third Circuit disagreed with the district court's reasoning that for American Pipe tolling to apply, the class must be presented for certification. Instead, "the fact that the [first] action's status as a would-be class action was terminated by administrative closure rather than denial of class certification is irrelevant to the issue of tolling under American Pipe."

Keywords: litigation, class actions, derivative suits, American Pipe tolling, Telephone Consumer Protection Act, TCPA

William J. Holley, II, Parker, Hudson, Rainer & Dobbs LLP, Atlanta, GA


October 15, 2013

Court Expressly Rejects the Application of Morrison v. National Australia Bank

On October 9, 2013, the Ontario Superior Court of Justice expressly rejected a foreign defendant's motion requesting the court to declare that it lacked jurisdiction over the plaintiff's Securities Act stock manipulation claim and, on that basis, dismissing the action. The defendant is incorporated in the United Kingdom and registered itself with the New York and Toronto Stock Exchanges. The plaintiff alleged that the defendant published investor documents containing material misrepresentations resulting in the defendant's share price being inflated prior to the corrective disclosure. The plaintiff and the class he seeks to represent include purchases of the defendant's stock on the London, New York, and Toronto Stock Exchanges. The defendant argued that granting its motion would be consistent with Morrison v. National Australia Bank and that Canada should adopt a bright-line "exchanged-based" test as in the United States. The plaintiff argued the court should focus the analysis on the statutory regime of the Ontario Securities Act to provide investor protection and the affirmative acts the defendant engaged to access the Canadian capital markets and Canada-based investors. The court dismissed the defendant's motion. The action will proceed to class certification.

The action is entitled Kaynes v. BP PLC, 12-cv-00467836-00CP and the opinion can be found at Kaynes v BP, 2013 ONSC 5802.  BP PLC is represented by Oslers, Hoskin & Harcourt LLP.  The plaintiffs are represented by Morganti Legal, P.C.

Keywords: litigation, class actions, derivative suits, Canada, Securities Act, stock manipulation, investing

Andrew Morganti, Morganti Legal, P.C., Detroit, MI, and Toronto, Ontario, Canada


August 19, 2013

Ninth Circuit Enlarges Defendants' Ability to Seek Removal of State Class Actions to Federal Court

On an issue of first impression, the Ninth Circuit Court of Appeals recently held that a defendant may remove a case to federal court under the Class Action Fairness Act (CAFA) long after the 30-day deadlines otherwise provided by federal removal provisions, if the defendant later discovers, based on its own investigation, that the case is removable.  Roth v. CHA Hollywood Med. Ctr., L.P., —F.3d—, No. 13-55771, 2013 WL 3214941, at *1 (9th Cir. June 27, 2013). Certain provisions in 28 U.S.C. §§ 1441 and 1446(b) limit removal to within 30 days after service of the complaint or within 30 days after receipt of a document evidencing that the case had become removable, and the Roth decision confirms that these provisions are merely limitations on the right of removal, not a bar to removal under CAFA should circumstances later change.

Keywords: litigation, class actions, derivative suits, removal

Ryan M. Tosi and Lindsay Sampson Bishop, K&L Gates LLP, Boston, MA


July 24, 2013

Sixth Circuit Upholds Class Certification for Ohio Whirlpool Customers

The Sixth Circuit issued a decision in In re Whirlpool Corp. Front-Loading Washer Products Liability Litigation, No. 10-4188 (6th Cir. July 18, 2013), upholding class certification for Ohio consumers in the Whirlpool “moldy washer” MDL.  Judge Stranch authored the opinion.  This is one of the cases—the other two are Ross v. RBS Citizens, N.A. and Butler v. Sears, Roebuck & Co.—that the Supreme Court vacated in light of Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013).

Keywords: litigation, class actions, derivative suits, Whirlpool

Robert Schug, Impact Fund, Berkeley, CA


June 6, 2013

Third Circuit Decides in Airborne Toxic Substances Case

In Abraham v. St. Croix Renaissance Group, LLLP, the U.S. Court of Appeals for the Third Circuit addressed one of the exclusions from the Class Action Fairness Act’s (CAFA) grant of subject-matter jurisdiction for “mass actions.” The defendant had purchased a refinery site that, over time, allegedly caused airborne emissions of loose bauxite and red mud that harmed more than 500 plaintiffs. The defendant removed under the CAFA’s mass action provision for cases where at least 100 persons’ claims for monetary relief are proposed to be tried jointly because the claims involve common questions of law or fact. The District Court of the Virgin Islands granted the plaintiffs’ motion to remand based upon the exclusion in 28 U.S.C. § 1332(d)(11)(B)(ii)(I) for claims arising from “an event or occurrence” that caused injuries in a single state or in contiguous states.

On appeal, the Third Circuit read the “event or occurrence” exclusion broadly and explained that it can apply to an isolated moment in time (as the defendant argued) or a continuing set of circumstances that share some commonality and persist over a period of time (as the plaintiffs argued and the district court held). In addition, the court explained that the scope of the CAFA’s local-controversy and home-state exceptions, which focus on discrete events, does not control the scope of the mass action exclusion. Ultimately, the Third Circuit affirmed the district court’s order remanding the action, finding that the airborne release of toxic substances from a single facility in the Virgin Islands, which occurred over a period of time and allegedly resulted in injuries only in the Virgin Islands, constitutes an “event or occurrence” for purposes of the exclusion from the CAFA’s mass action provision.

Keywords: litigation, class actions, derivative suits, CAFA, mass actions, toxic substances

Matthew M.K. Stein, Skadden, Arps, Slate, Meagher & Flom LLP, Boston, MA


May 13, 2013

Ninth Circuit Rules on Payment of Incentive Awards Issue

In Radcliffe v. Experian Information Solutions, Inc., No. 11-56376 (9th Cir. April 22, 2013), the Ninth Circuit held that a class settlement under which payment of incentive awards to class representatives is conditioned on their support for the settlement rendered both the class representatives and class counsel inadequate to protect the interests of the class under Rule 23(a)(4).

Keywords: litigation, class actions, derivative suits, payment of incentives

David D. Garner and Tanner Warnick, Lewis and Rocca LLP, Phoenix, AZ


April 23, 2013

Quick and Complete Offer of Judgment May Foreclose FLSA Collective Actions

In Genesis Healthcare Corp. v. Symczyk, a 5-4 decision authored by Justice Clarence Thomas and delivered on April 16, 2013, the U.S. Supreme Court held that if the lone lead plaintiff’s individual claim under the Fair Labor Standards Act (FLSA) becomes moot, then the collective action must be dismissed because the lead plaintiff lacks a personal interest in representing putative, unnamed claimants.

In her collective action, Symczyk claimed that Genesis violated the FLSA by automatically deducting thirty (30) minutes from its employees’ shifts for meal breaks regardless of whether those employees performed compensable work while on their breaks. Prior to the plaintiff’s moving for conditional certification of the putative FLSA class, Genesis answered and contemporaneously made an offer of judgment to the plaintiff that included all of her allegedly unpaid wages plus reasonable attorney fees, costs, and expenses determined by the court. If accepted, the offer would have fully satisfied all of Symczyk’s individual FLSA claims. Although the plaintiff did not accept the offer, she conceded in the courts below that the offer satisfied her FLSA claims in their entirety. While the district court dismissed both Symczyk’s individual claim and the collective action for mootness, the Third Circuit Court of Appeals reversed and ruled that permitting employers to “pick off” a lead plaintiff would generally frustrate the purpose of collective actions.

The Supreme Court assumed, without deciding, that Genesis’s offer of judgment mooted the plaintiff’s individual FLSA claims because she conceded as much and failed to properly raise any challenge to it below. The Supreme Court then reversed the Third Circuit and held that, because Symczyk’s individual claim was moot, the case, including the collective action allegations in it, had to be dismissed since there were no other plaintiffs left in the lawsuit. Further, the Court held that, unlike certifications under Federal Rule of Civil Procedure 23 where the putative class acquires its own legal status, the only consequence of conditional certification under the FLSA is that court-approved written notices are sent to potential plaintiffs who may later join the action. The majority, however, declined to answer the question that most practitioners were hoping the decision would provide—whether an employer can entirely foreclose an FLSA collective action lawsuit by making a full offer of judgment to the lead plaintiff(s).

Adam Dougherty and Zach Allie, Winstead PC, Dallas and Houston, TX


March 20, 2013

Supreme Court Issues New CAFA Opinion

In a unanimous opinion, the U.S. Supreme Court concluded in Standard Fire Insurance Co. v. Knowles that a plaintiff seeking to represent a putative class cannot avoid federal subject-matter jurisdiction under CAFA diversity jurisdiction by filing a stipulation that he and the class he seeks to represent will not seek damages that exceed $5 million (the matter in controversy threshold for CAFA diversity jurisdiction). In so doing, the Court vacated the district court's decision remanding the action to Arkansas state court. (Standard Fire had appealed the remand order to the Eighth Circuit, which denied the appeal in a one-sentence order.)

Keywords: litigation, class actions, derivative suits, stipulations, class certification, CAFA, recovery of damages, matter in controversy

Matthew M.K. Stein, Skadden, Arps, Slate, Meagher & Flom LLP, Boston, MA


March 18, 2013

The Death Knell of the Class Certification Minitrial

Securities class-action plaintiffs no longer need to establish the materiality of an alleged misstatement at the class-certification stage to invoke the “fraud-on-the-market” theory, the U.S. Supreme Court held in Amgen, Inc. v. Connecticut Retirement Plans and Trust Funds, No. 11-1085 (Feb. 27, 2013). Moreover, before certifying a plaintiff class, district courts are not required to allow defendants to present evidence that the fraud-on-the-market theory does not apply on the basis of materiality. Significantly, if the fraud-on-the-market theory applies, the class-wide reliance necessary for certification in a Section 10(b) securities fraud case is presumed.  In Amgen, the Supreme Court recognized that materiality is an indispensable element of the fraud-on-the-market theory, but found that Rule 23(b)(3)’s commonality requirement does not necessitate proof of materiality at the class-certification stage because neither conclusive evidence of materiality nor evidence rebutting materiality would affect the certification of the class under Rule 23. As a result, putative securities class-action plaintiffs need not prepare for full “minitrials” on the merits of their cases before class certification can be granted.

Keywords: litigation, class actions, derivative suits, proof of materiality, class certification, fraud-on-the-market theory, securities fraud, Rule 23(b)(3), commonality requirement

Michelle A. Reed and John B. Capehart, Akin Gump Strauss Hauer & Feld LLP, Dallas, TX


March 18, 2013

Ninth Circuit Clarifies when Clock for Removing Cases Begins

In Kuxhausen v. BMW Financial Services NA LLC, No. 12-57330 (9th Cir. Feb. 25, 2013), the Ninth Circuit explained that there are two different 30-day periods during which a case can be removed from state court: within 30 days of receiving the original complaint, and if the case is not removable then, within 30 days of receiving the first subsequent paper that demonstrates the existence of federal jurisdiction.

The district court in Kuxhausen remanded a putative class action to California state court on the basis that BMW Financial’s removal of the case under CAFA jurisdiction was untimely, as BMW Financial removed more than 30 days after plaintiff alleged the case was first removable. The Ninth Circuit found, however, that as to the first 30-day removal period, the original complaint did not facially demonstrate that CAFA’s $5 million matter-in-controversy was satisfied. As to the second 30-day removal period, the amended complaint was the first paper that established removability, and therefore BMW Financial’s removal of the case 30 days after the filing of the amended complaint was timely. Accordingly, the Ninth Circuit reversed the district court’s erroneous remand.

Keywords: litigation, class actions, removal period, matter in controversy, first amended complaint, BMW Financial

Matthew M.K. Stein, Skadden, Arps, Slate, Meagher & Flom LLP, Boston, MA


February 19, 2013

Court Denies Certification on Commonality Grounds

In In re Countrywide Financial Corp. Mortgage Lending Practices Litigation, No. 12-5250 (6th Cir. Jan. 15, 2013), the Sixth Circuit affirmed the denial of certification of a class of minority borrowers who had Countrywide-originated mortgages. Countrywide-originated mortgages through its employees, mortgage brokers, and correspondent lenders; all three types of agents were allegedly permitted to add additional fees and increase or decrease the mortgage interest rate within a permitted range, which the plaintiffs alleged disparately impacted minority borrowers. Further, Countrywide would allegedly pay these agents more money if they added fees or increased the interest rate on a mortgage that Countrywide ultimately originated. The district court, applying Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), denied certification on commonality grounds.

Keywords: litigation, class actions, derivative suits, Countrywide, mortgages, interest rates, certification class denial, minority borrowers, discretion, Wal-Mart Stores, Inc. v. Duke, McReynolds v. Merrill Lynch

Matthew M.K. Stein, Skadden, Arps, Slate, Meagher & Flom LLP, Boston, MA


February 19, 2013

Seventh Circuit Asserts "Serious Doubt" Standard

In Reliable Money Order, Inc. v. McKnight Sales Co., Inc. No. 12-2599 (7th Cir. Jan. 13, 2013), the U.S. Court of Appeals for the Seventh Circuit recently ruled that under the so-called "serious doubt" standard, misconduct on the part of plaintiff's counsel in a class-action lawsuit requires denial of class certification only where the alleged misconduct unfairly prejudices the putative class, creates a conflict of interest between the putative class and plaintiff's counsel, or undermines the court's ability to resolve the case, such as where counsel attempts to bribe witnesses or fails to correct false testimony.

Under the “serious doubt” standard, the Seventh Circuit concluded that putative class counsel's alleged breach of a promise of confidentiality, failure to register a solicitation letter as required by Wisconsin's rules of ethics, and attempted payment of money to a third party's attorney, did not require denial of class certification.

Keywords: litigation, class actions, derivative suits, serious "doubt" standard, class certification, misconduct, plaintiff's counsel, breach, promise of confidentiality, solicitation letters

Ralph T. Wutscher, McGinnis Wutscher LLP, Chicago, IL


February 19, 2013

Study Analyzes Effectiveness of SEC Investigations

A recent study by Professors Stephen J. Choi and Adam C. Pritchard, SEC Investigations and Securities Class Actions: An Empirical Comparison, NEW YORK U. SCHOOL OF LAW, LAW & ECONOMICS RESEARCH PAPER SERIES WORKING PAPER NO. 12-28 (December 2012), rigorously analyzes the effectiveness of Securities Exchange Commission (SEC) investigations and securities fraud class actions and reaches some surprising conclusions.

In their article, Choi and Pritchard use multiple methods to measure the success of SEC investigations against plaintiff's securities class action from the perspective of deterring securities fraud and compensating investors. The article concludes that market participants react significantly more to an announcement of a stand-alone securities fraud class action opposed to a stand-alone SEC investigation because stand-alone class actions are more likely to produce a larger settlement compared to stand-alone SEC investigations and stand-alone class actions are more likely result in the wrongdoer executives from leaving their employment. Accordingly, critics of private enforcement should not hastily assume the SEC is superior in targeting fraud and imposing sanctions. Importantly, the article concludes that the best outcome for investors occurs where there are parallel SEC enforcement actions and private actions.

Keywords: litigation, class actions, derivative suits, SEC investigations, securities fraud, settlement

Andrew Morganti, Morganti Legal, P.C, Detroit, Michigan, and Lynda Grant, The Grant Law Firm, New York, NY


February 6, 2013

NERA Report Dissects 2012 Market Trends

NERA Economic Consulting recently released its Recent Trends in Securities Class Action Litigation: 2012 Full-Year Review. NERA reported that approximately 152 securities class- action cases were dismissed or settled in 2012 compared to 244 such cases in 2011. The number of securities class actions that settled represented a record low since 1996. The NERA study further indicated that settlement values remained near their recent average, but that plaintiffs’ attorneys’ fees decreased. Click here to read the full report.

Keywords: litigation, class actions, derivative suits, NERA Economic Consulting, settlements, trends, attorneys' fees

Jeffrey D. Gardner, Sacks Tierney P.A., Phoenix, AZ


January 23, 2013

Court Upholds Collective-Action Waiver in Arbitration Agreement

The U.S. Supreme Court’s 2011 decision in AT&T Mobility LLC v. Concepcion, upholding the enforceability of a class-action waiver in a consumer arbitration agreement, was applauded by employers, who initially (reasonably) assumed that Concepcion paved the way for class action waivers in employment agreements.  The National Labor Relations Board, however, soon made this area of law murky, holding that Concepcion did not apply in the employment context.  In In re D.R. Horton, the NLRB concluded that class action waivers inherently infringe on employees’ right under Section 7 of the National Labor Relations Act (NLRA) to engage in protected concerted activity.  Earlier this month, in Owen v. Bristol Care, the first appellate decision discussing the issue since In re D.R. Horton, the United States Court of Appeals for the Eighth Circuit rejected the NLRB’s reasoning and upheld the enforceability of a class or collective action waiver contained in an employment arbitration agreement.

Keywords: litigation, class actions, derivative suits, class-action waivers, collective-action waivers, arbitration, employment agreements, employee rights, National Labor Relations Act, Federal Arbitration Act

Katharine I. Rand, Pierce Atwood LLP


January 23, 2013

Supreme Court Hears Oral Argument

On January 7, 2013, the United States Supreme Court heard oral argument in Standard Fire Insurance Co. v. Knowles, which raised the question of whether a putative class representative can avoid federal jurisdiction under the Class Action Fairness Act (“CAFA”) by limiting damages via stipulation to less than CAFA’s jurisdictional amount in controversy minimum of $5 million. Of the various arguments made in the briefing, this lively oral argument focused on: 1) Standard Fire’s argument that Knowles cannot bind absent class members; 2) the limitations of Knowles’ contention that a plaintiff, as the master of his complaint, can make strategic decisions and limit damages as he sees fit, 3) the sufficiency of the class-certification procedure itself to address any prejudice potentially suffered by absent class members (i.e, the assessment of adequacy as well as the opt-out procedure); and 4) the fact that CAFA’s elimination of the one-year limitation on removal in diversity cases may permit Standard Fire to remove the case again later should the stipulation be withdrawn or otherwise fail to limit damages in the future.

Keywords: litigation, class actions, derivative suits, CAFA, controversy requirements, absent class members, putative actions, damages

Tarifa B. Laddon, Fulbright & Jaworski, Los Angeles, CA


December 12, 2012

Seventh Circuit Explains "Incidental Monetary Relief" that May be Certified Under Rule 23(b)(2)

Judge Posner's opinion in Johnson v. Meriter Health Services Employee Retirement Plan, No. 12-2216 (7th Cir. Dec. 4, 2012), focuses on one question arguably left open by Wal-Mart Stores v. Dukes —what kind of incidental monetary relief may be certified in a Rule 23(b)(2) case? The Court affirmed the class certification order in this ERISA class action, concluding that the variations and the complexity of the claims did not destroy commonality because the claims of each sub-class were homogeneous.  The court also noted that the Supreme Court's holding that damages could not be sought in a Rule 23(b)(2) action was limited to “monetary relief [which] is not incidental to the injunctive or declaratory relief."  Here, the plan participants were permitted to seek monetary relief incidental to the declaration of their rights under the subject pension plan. The court also provided detailed guidance as to calculating this incidental monetary relief where the plaintiffs' claims might require an evidentiary hearing, including certification of a Rule 23(b)(2) class with notice and opt out, bifurcated certification, or damage calculations via a computer program.

Keywords: litigation, class actions, derivative suits, Wal-Mart Stores v. Dukes, Rule 23(b)(2), incidental monetary relief

Jocelyn Larkin is the executive director of the Impact Fund


October 22, 2012

Section 220 a Must for Stockholders Filing Suit

The Delaware Court of Chancery applied a mandatory and rebuttable presumption that a plaintiff who files a Caremark claim hastily and without using a Section 220 books and records request, or otherwise conducting a meaningful investigation, serves as an inadequate representative of the company’s interests in derivative litigation. This decision follows and builds upon another recent decision in the Delaware Court of Chancery—Louisiana Mun. Police Employees' Ret. Sys. v. Pyott, C.A. No. 5795–VCL, 2012 WL 2087205 (Del. Ch. June 11, 2012)—which contained a similar ruling and is currently pending on appeal before the Supreme Court of Delaware.

Keywords: litigation, class actions, derivative suits, Caremark claim, Section 220, Delaware Court of Chancery, Delaware Supreme Court

Nicholas Gregory and Pamela Palmer of Latham & Watkins LLP


October 4, 2012

Delaware Supreme Court Affirms $2 Billion Judgment

The Delaware Supreme Court recently affirmed a $2 billion judgment by the Court of Chancery in the Grupo Mexico/Southern Copper shareholder derivative litigation. The court also affirmed Chancellor Leo Strine Jr.’s award of more than $300 million in attorney fees in a case that is sure to attract attention from lawyers on both sides of mergers and acquisitions litigation. The court unanimously denied reargument of the fee award on September 21, 2012.

The litigation rose from Southern Copper’s (then Southern Peru) acquisition of Minera Mexico. Southern Copper, a mining company listed on the New York Stock Exchange, received a proposal from its majority stockholder, Grupo Mexico, S.A.B. de C.V., under which Southern Copper would acquire Grupo Mexico’s 99.15 percent interest in Minera—a non-publicly traded Mexican mining company—for $3.1 billion in Southern Copper stock. Because of Grupo Mexico’s self-interest in the transaction, Southern Copper formed a special committee of disinterested directors who retained their own financial and legal advisors. According to the Delaware high court, “The Special Committee spent eight months in an awkward back and forth with Grupo Mexico over the terms of the deal before approving Southern [Copper’s] acquisition of 99.15% of Minera’s stock in exchange for 67.2 newly issued shares of Southern [Copper] stock.”

By the time the merger closed, the value of the 67.2 million shares of Southern Copper had grown to $3.75 billion. Grupo Mexico assumed that Minera’s equity was worth $3.05 billion, but the Delaware courts ruled that since Minera was almost wholly owned by Grupo Mexico, its shares had no market-tested value.

The lawsuit was then brought against the Grupo Mexico subsidiary that owned Minera, the Grupo Mexico-affiliated directors of Southern Peru, and the members of the special committee, claiming that the merger was “entirely unfair to Southern Peru and its minority shareholders.” Chancellor Strine ultimately ruled that the transaction failed to meet Delaware’s “entire fairness” standard for assessing transactions with controlling shareholders. The court criticized the financial advisor’s “non-real world set of analyses that obscured the actual value of what Southern Peru was getting,” and found that the special committee failed to consider strategic alternatives and failed to obtain a bring-down fairness opinion. The court dismissed the independent directors at summary judgment because of the exculpatory charter provision that imposes liability for bad faith only, but assessed judgment against the Group Mexico-affiliated directors who “made no effort to show that they acted in good faith and were entitled to exculpation despite their lack of independence.” The court awarded $1.35 billion in damages, which award grew to $2.03 billion with pre- and post-judgment interest.

The Delaware Supreme Court’s ruling highlights four key issues in derivative litigation. First, the presence of an independent special committee alone does not meet the entire fairness requirement, and even a well-qualified committee will be subject to a critical review. The special committee in the Grupo Mexico transaction was well structured; committee members were “competent, well-qualified individuals with business experience”; the committee had been
“given the resources to hire outside advisors”; and the committee had hired “top tier of the market financial and legal counsel.” But the Delaware Supreme Court held that the committee members had a “controlled mindset” such that the committee was not well functioning.

Second, exculpatory provisions will shield independent directors, but liability of interested directors who have not shown “good faith” will “rise or fall with the issue of fairness.” The Delaware Supreme Court affirmed the court’s dismissal of the claims against the independent special committee members, agreeing that the exculpatory charter provision shielded them from liability where there was no breach of the duty of loyalty. Judgment against the non-independent directors was affirmed.

Third, the court has substantial discretion in awarding damages and attorney fees. Despite the jaw-dropping size of the judgment, the Delaware Supreme Court found no error in Chancellor Strine’s “transparent” analysis of damages. Moreover, it found no error in an award of attorney fees that amounted to 15 percent of the $2 billion judgment—an award of more than $35,000 per hour worked. In affirming its 32-year-old decision in Sugarland Industries, Inc. v. Thomas, 420 A.2d 142 (Del. 1980), the court rejected the Third Circuit’s “lodestar” method and noted that the vast majority of courts of appeals now permit the use of the percentage of the fund method in common fund cases.

The Delaware Supreme Court reaffirmed that, under this method, state courts should consider and weigh five factors: (1) the results achieved; (2) the time and effort of counsel; (3) the complexity of the issues; (4) any contingent fee basis; and (5) counsel’s standing and ability. Chancellor Strine properly applied these factors, reducing the original fee request from 22.5 percent to 15 percent in light of the extremely slow pace of prosecution, the opinion said.

Fourth, at least in the state of Delaware, courts will look to the entire judgment awarded to a corporation in a derivative suit when assessing the “benefit achieved” upon which to base a fee award. The Grupo Mexico/Southern Copper defendants asserted that the Delaware Supreme Court had not considered the impact of the judgment on minority shareholders, arguing that Grupo Mexico will essentially pay itself, since it owns 81 percent of Southern Copper, and accordingly, the “benefit achieved” should be based only on the other 19 percent of the fees that will inure to Southern Copper. The high court denied the motion for reargument on waiver grounds and summarily rejected defendants’ “look through” approach to attorney fees, reminding defendants that a derivative suit is brought nominally on behalf of a corporation, and any recovery must therefore go to that corporation. No stockholders—even a majority stockholder— have a claim to particular assets of the corporation.

The Delaware Supreme Court’s affirmation of the record damages and fee award could have lingering implications for derivative litigation. The decision serves as a continued warning to special committees evaluating related party transactions: The litigation risks of such transactions can be monumental.

The cases are Americas Mining Corp. v. Theriault, Southern Copper Corp. v. Theriault, Nos. 29, 30, 2012 (Del. S. Ct. Sept. 21, 2012).

Mary L. O’Connor, Michelle A. Reed and Jenny M. Walters, Akin Gump Strauss Hauer & Feld LLP, Dallas, Texas. Reed is a cochair of the Derivative Suits Subcommittee of the Class Actions and Derivative Suits Committee.


September 5, 2012

Can CAFA Prevent Case Removal for Less Than $5 Million?

The U.S. Supreme Court granted in Standard Fire Insurance Co. v. Knowles, No. 11-8030 (U.S. Aug. 31, 2012) a writ of certiorari to decide if a "stipulation" that a plaintiff was seeking less than $5 million on behalf of a putative class prevents removal of a case premised on Class Action Fairness Act (CAFA) diversity jurisdiction.

In that case, the plaintiff sued Standard Fire in Arkansas state court on behalf of a putative class,  and, as Exhibit A to his complaint, the plaintiff attached a "Sworn and Binding Stipulation" stating that he was not seeking damages in excess of $5 million on behalf of that putative class. Standard Fire removed the lawsuit to District Court and submitted evidence that the matter in controversy on behalf of the class was more than $5 million.

The District Court remanded to Arkansas state court. Relying upon Bell v. Hershey Co., 557 F.3d 953 (8th Cir. 2009) and Arkansas law, the court concluded that the stipulation was valid and binding, and therefore the plaintiff had shown to a legal certainty that the putative class's claim did not meet CAFA's jurisdictional threshold. In addition, the District Court rejected Standard Fire's due process concerns about a class representative—putative or otherwise—limiting the class's recovery without court approval because class members could opt out of the class if they felt that the plaintiff's limitations on recovery were "too restrictive."

(In a one-sentence order, the Eighth Circuit denied Standard Fire's appeal of the remand order under CAFA's appellate-review provision.)

Keywords: litigation, class actions, derivative suits, Class Action Fairness Act, CAFA, Eighth Circuit

—Matthew M.K. Stein is an associate at Skadden, Arps, Slate, Meagher & Flom LLP in Boston, Massachusetts, and cochair of the Class Actions & Derivative Suits Committee's Emerging Issues subcommittee.


September 5, 2012

Putative Class Plaintiffs to Share Discovery Costs

Invoking the court’s power to protect parties from undue burden or expense in discovery under Rule 26(c), Judge Michael M. Baylson of the Eastern District of Pennsylvania recently ordered the putative class plaintiffs in Boeynaems v. LA Fitness International LLC, No. 10-2326 (E.D. Penn. Aug. 16, 2012) to share in the defendant’s substantial costs of responding to plaintiffs’ pre-certification discovery requests.

Keywords: litigation, class actions, derivatives, Eastern District, pre-certification, discovery

David D. Garner, Lewis and Roca LLP


September 5, 2012

Eleventh Circuit Rules on Class Action Waivers

In Pendergast v. Sprint Nextel Corporation, No. 09-10612 (11th Cir., Aug. 20, 2012), the Eleventh Circuit confirmed that state laws purporting to invalidate class action waivers are preempted by the Federal Arbitration Act (FAA) in contracts requiring arbitration.  In a slight twist on the Supreme Court’s decision last year in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), the Eleventh Circuit confirmed that the outcome is the same even when the agreement also contains a “non-severability” clause that would invalidate the arbitration clause if the class waiver is deemed unenforceable (and would thus protect the parties from the specter of non-consensual class arbitration).

Keywords: litigation, class actions, derivative suits, Eleventh Circuit, Federal Arbitration Act

David D. Garner, Lewis and Roca LLP


July 30, 2012

Court Requires Strong Proof a CAFA Exception Applies

In In re Checking Account Overdraft Litigation [PDF], No. 09-MD-2036-JLK (S.D. Fla. July 25, 2012), Judge James Lawrence King of the U.S. District Court for the Southern District of Florida concluded that the court had subject-matter jurisdiction under the Class Action Fairness Act (CAFA) over putative class claims against a West Virginia bank, United Bank, over the bank’s account debit and overdraft practices. In so doing, the court rejected the bank’s argument that the three exceptions to CAFA jurisdiction applied. Because the action was initially filed in federal court, the bank—as the party arguing for the application of an exception to subject-matter jurisdiction—bore the burden of persuasion.

The court explained that Congress intended the exceptions—for local controversies and largely local class actions—to be construed narrowly and for CAFA jurisdiction to be construed broadly. Therefore, even though the bank submitted a declaration stating that 92 percent of putative class members had West Virginia addresses and census data showing that most West Virginians intended to remain in West Virginia, the court concluded that the defendants had not met their burden of establishing the citizenship of putative class actions.

The court, however, recognized that “the time that the Court will know with complete clarity and definition the makeup of the putative class will be when the Court deals with class certification.” As such, it indicated that the issue could be revisited at class certification or summary judgment once additional information was developed.

Keywords: litigation, class actions, derivative suits, Class Action Fairness Act, subject-matter jurisdiction, Florida

—Matthew M.K. Stein, Skadden, Arps, Slate, Meagher & Flom LLP


July 24, 2012

Ninth Circuit Issues Decision on Cy Pres Beneficiaries

In Dennis v. Kellogg Co., No. 11-55706, 2012 WL 2870128 (9th Cir. July 13, 2012), the Ninth Circuit held that the district court abused its discretion in approving a class-action settlement because the cy pres award was not sufficiently related to the consumer-protection laws underlying the case and the attorney fees were excessive. The court reversed the settlement approval, vacated, and remanded. Like the appeals court’s decision last year in Nachsin v. AOL, LLC, 663 F.3d 1034, 1038 (9th Cir. 2011), this case is an important reminder to practitioners that cy pres is a useful tool in class-action settlements, provided that the work of the charitable recipients is closely related to the purpose of the litigation.

Keywords: litigation, class actions, derivative suits, Ninth Circuit, cy pres, consumer-protection laws, attorney fees

—Kathryn Robinette, the Impact Fund


July 24, 2012

Collateral Attack on Limited-Fund Settlement Rejected

In an 89-page opinion by Judge Anderson, Judges Tjoflat, Carnes, and Anderson rejected a collateral attack on a limited-fund class settlement by a member of the certified settlement class. Juris v. Inamed Corp., No. 10-12665 (11th Cir. July 6, 2012). In 1999, a judge in the Northern District of Alabama had certified a Rule 23(b)(1)(B) settlement class of women who had received allegedly defective silicone breast implants, regardless of whether the class members had already suffered injuries from the implants. The plaintiff launching the collateral attack first suffered injuries in 2002, and, when she sued in 2006, the implant manufacturer claimed that her claims were barred by res judicata because of the class settlement. The district court and the Eleventh Circuit both agreed.

Keywords: litigation, class actions, derivative suits, Eleventh Circuit, limited-fund class settlements

—Matthew M.K. Stein, Skadden, Arps, Slate, Meagher & Flom LLP.


July 5, 2012

Supreme Court to Review Comcast Class-Certification Appeal

The Supreme Court has announced that it will review the Third Circuit U.S. Court of Appeals Comcast v. Behrend decision. The Court will limit its review to the question of “[w]hether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis.” Comcast sought this review, arguing that the plaintiff class does not have the required commonality of interest for class certification.

Keywords: litigation, class actions, derivative suits, Supreme Court, class certification

—Joseph M. Hanna Esq., partner, Goldberg Segalla LLP, Buffalo, New York


May 17, 2012

CFPB to Investigate Consumer Impact of Arbitration

The Consumer Financial Protection Bureau (CFPB), a government agency looking “to make markets for consumer financial products and services work for Americans,” recently announced the launch of a public inquiry into how consumers and financial-services companies are affected by arbitration and arbitration clauses. Through the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Congress requires the CFPB to study this topic and gives the CFPB the power to issue regulations for the protection of consumers.

Through The Request for Information on Arbitration [PDF], the CFPB will ask the public about the prevalence of arbitration clauses in consumer financial products and services, what claims consumers bring in arbitration against financial-services companies, whether claims are brought by financial-services companies against consumers in arbitration, how consumers and companies are affected by conducting arbitrations, and how consumers and companies are affected by arbitration clauses outside of actual arbitrations. The CFPB is also seeking suggestions and comments relating to the scope of the study itself.

The CFPB intends to use the results of the inquiry to assess whether rules relating to arbitration and arbitration clauses are needed to protect consumers.

Keywords: litigation, class actions, derivative suits, Consumer Financial Protection Bureau, Dodd-Frank Wall Street Reform and Consumer Protection Act

—Tarifa B. Laddon, Fulbright & Jaworski LLP


May 17, 2012

Judge Dismisses Schwab Suit to Halt FINRA Action

U.S. District Judge Elizabeth Laporte in San Francisco, California, rejected as premature Charles Schwab & Co.’s challenge to the Financial Industry Regulatory Authority’s (FINRA) ban on mandatory arbitration agreements. Charles Schwab & Co., Inc. v. Financial Industry Regulatory Authority, No. 3:12-CV-00518 (N.D. Cal., Hon Elizabeth D. LaPorte). Judge Laporte dismissed Schwab’s federal-court action with prejudice [PDF] on jurisdictional grounds, finding Schwab had failed to exhaust its administrative remedies before filing suit against FINRA. The federal action followed a disciplinary action filed by FINRA against Schwab on February 1, 2012. alleging that Schwab had violated FINRA rules by seeking to impose mandatory arbitration on Schwab brokerage customers. Schwab countered that such mandatory arbitration clauses were lawful and enforceable in light of the Supreme Court’s decision in AT&T Mobility v. Concepcion.

Keywords: litigation, class actions, derivative suits, Financial Industry Regulatory Authority, arbitration agreements

—Steve Kaufhold, Kaufhold Gaskin LLP


May 8, 2012

Distribution of Unclaimed Funds Was Not Abuse of Discretion

In In re Lupron Marketing & Sales Practices Litig., Nos. 102494; 11-1329 (1st Cir. Apr. 24, 2012), the First Circuit affirmed that the district court in a long-running consumer pharmaceutical class action did not abuse its discretion when it distributed residual settlement funds as cy pres to a cancer research center over the objections of dissident class members. The panel cautioned, however, that selection of cy pres recipients should ordinarily be made by the parties in the first instance.

Keywords: litigation, class actions, derivative suits, residual settlement funds, cy pres

—Michael Caesar, Impact Fund


April 17, 2012

Sixth Circuit Upholds Private Securities Fraud Jury Verdict

In Nolfi v. Ohio Kentucky Oil Corp., Docket Nos., 09-4315, 09-4316, 09-4323, 2012 WL 1109634 (6th Cir. Apr. 4, 2012), the Sixth Circuit rejected the argument that a plaintiff’s “duty to investigate” suspicious circumstances triggers the two-year statute of limitations for a claim brought under Section 10(b) of the Securities and Exchange Act of 1934. Following the Supreme Court’s analysis in Merck & Co., Inc. v. Reynolds, 130 S. Ct. 1784 (2010), the Sixth Circuit held that the two-year statute begins to run when a “reasonably diligent plaintiff would have discovered facts constituting the violation”—including a defendant’s “intent to deceive”—and not earlier, when a reasonable plaintiff merely would have “begun” to investigate.

Keywords: litigation, class actions, Sixth Circuit, securities fraud, statute of limitations

—Caitlin Dahl, Justin Levy, and Pamela Palmer of Latham & Watkins LLP


March 5, 2012

Second Circuit Considers Class-Action Waivers in Amex Case

This is the third time the Second Circuit has considered arbitration issues in In re American Express Merchants Litigation, No. 06-1871 (2d Cir. Feb. 1, 2012). The court’s second opinion came after the Supreme Court vacated the original decision in this case for reevaluation in light of Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010). Most recently, the court decided to reevaluate in light of AT&T Mobility, LLC v. Concepcion, 131 S. Ct. 1740 (2011), and reaffirmed its holding that class-action waivers are unenforceable when plaintiffs can demonstrate “that the practical effect of enforcement would be to preclude their ability to vindicate their federal statutory rights.”

Keywords: litigation, class actions, derivative suits, Second Circuit, class-action waivers

—Lennon B. Haas, research assistant, University of Georgia School of Law


February 10, 2012

Ninth Circuit Weighs in on Securities Class Actions

The Litigation News article "Circuits Split on Materiality in Securities Class Actions" looks at the Ninth Circuit's decision in Connecticut Retirement Plans & Trust Funds v Amgen, Inc., which weighs in on whether securities class-action plaintiffs must prove—or merely plausibly allege—the materiality of misrepresentations at the class-certification stage.

Keywords: litigation, class actions, derivative suits, Ninth Circuit, materiality, securities

Mark D. Taylor, Baker & McKenzie LLP, Dallas


February 6, 2012

Seventh Circuit Affirms Classes in Ross v. RBS Citizens

The Seventh Circuit affirmed the Rule 23(b)(3) certification of two classes of bank employees alleging state overtime violations. Ross v. RBS Citizens, dba Charter One and Citizens Financial Group. No. 10-3848 (Jan. 27, 2012). The district court had certified a class of nonexempt tellers subject to an unofficial policy of denying them overtime pay and a class of branch managers misclassified as exempt because the majority of their time was spent on nonexempt work. The opinion addressed two questions: whether the class-certification order “define[d] the class and the class claims, issues, or defenses” as required by Rule 23(c)(1)(B) and whether the classes satisfied Rule 23(a) commonality after Dukes.

The panel held that the “exact contours of Rule 23(c)(1)(B)” was an issue of first impression in the circuit. It identified three purposes the subsection serves: facilitating interlocutory review of the order, ensuring that class members have notice of the effect of the order, and permitting the parties and the court to prepare a trial plan. Following an earlier decision by the Third Circuit, it held that the proper inquiry was “whether the precise parameters defining the class and a complete list of the claims, issues, or defenses to be treated on a class basis are readily discernable from the text either of the certification order itself or of an incorporated memorandum opinion.” Slip op. at 9. Reviewing for abuse of discretion, the court held that the district court’s order satisfied this standard and that seven questions identified by the defendant as omitted were “merely issues of trial strategy or proof.”

The panel also concluded that the classes met the Dukes requirement for commonality. It noted that the classes were far smaller (the nonexempt class was 1,100) and that no proof of subjective intent was required. It further held that the plaintiffs’ declarations (96 hourly and 24 manager) demonstrated unofficial policies of denying overtime. It concluded that no individualized assessment of job duties was required for the manager class.

Finally, in an interesting footnote, the court rejected the defendant’s argument that it had “a statutory right to present its affirmative exemption defenses on an individualized basis.” Slip op. at 17 n.7. It limited Dukes to equitable damages subject to Wal-Mart’s “statutory right” under 42 U.S.C. § 2000e-5(g)(2)(A) to show that the adverse action was taken for a reason other than discrimination.

Keywords: litigation, class actions, derivative suits, Seventh Circuit, class certification, commonality

Jocelyn Larkin, Impact Fund, Berkeley, California


February 6, 2012

Denial of Certification Reversed in Messner v. Northshore

In Messner v. Northshore Univ. HealthSystem, No. 10-2514 (7th Cir. Jan 13, 2012), the Seventh Circuit reversed the denial of class certification in an antitrust class action.

Messner v. Northshore Univ. HealthSystem was heard before a Seventh Circuit panel on the plaintiffs’ Rule 23(f) appeal from a denial of class certification. Alleging violations of the Clayton Act and the Sherman Act, the plaintiffs sought to certify a class of individual patients and third-party payors who allegedly paid higher prices for hospital care resulting from a merger between Northshore University HealthSystem and Highland Park Hospital. Id.at 2. The district court denied certification under Rule 23(b)(3), holding that the plaintiffs’ expert did not demonstrate that his methodology could address the issue of antitrust impact on a class-wide basis. The Seventh Circuit disagreed, vacated the district court’s order, and remanded for further proceedings consistent with its opinion.

Keywords: litigation, class actions, derivative suits, class certification, antitrust, Seventh Circuit

Michael Caesar, Impact Fund, Berkeley, California


January 27, 2012

Court Finally Issues Ruling in Mazza v. American Honda

In a setback for consumers seeking to bring false-advertising class actions under California law, the Ninth Circuit has issued its long-awaited ruling in Mazza v. American Honda, No. 09-55376 (Jan. 12, 2012). The 2–1 decision, authored by Judge Ronald M. Gould, vacated a district court’s order that had certified a nationwide class of consumers suing Honda for false advertising under California’s Unfair Competition Law, False Advertising Law, and Consumers Legal Remedies Act. Although the appeal was argued on June 9, 2010, the Ninth Circuit stayed its decision pending the U.S. Supreme Court’s ruling in Wal-Mart Stores, Inc. v. Dukes, ___ U.S. ___ (2011). The Mazza opinion comes nearly seven months after the Supreme Court rejected certification of a class of 1.5 million employees in its June 2011 Wal-Mart decision.

Mazza concerns Honda’s alleged failure to disclose serious and material limitations of its Collision Mitigation Braking System (CMBS), an optional feature offered on certain Honda Acura models. In 2006, Honda ran television commercials and magazine advertisements featuring the CMBS, which it marketed as a defense against rear-end collisions. But in 2007 and 2008—two-thirds of the three-year class period—Honda limited its CMBS campaign to product brochures, a single consumer magazine, video kiosks at Acura dealerships, and a website designed for Acura owners.

Keywords: litigation, class actions, derivative suits, false advertising, Ninth Circuit, California

—Carlos M. Lazatin Esq. and Eric Chan Esq., O’Melveny & Meyers, LLP


January 18, 2012

Supreme Court: No Right to Court Proceedings under the CROA

In an 8–1 vote, the U.S. Supreme Court concluded in CompuCredit Corp. v. Greenwood, No. 10-948 (U.S. Jan. 10, 2012), that an agreement providing for the arbitration of claims under the Credit Repair Organizations Act (CROA), 15 U.S.C. § 1679 et seq., was enforceable. In so doing, the Court reversed the U.S. Court of Appeals for the Ninth Circuit, which had held that including “You have the right to sue” in the CROA’s mandatory pre-contract disclosures set out in section 1679c(a) evidenced a “clear[]” right to bring CROA claims in court and could not be waived under the CROA’s nonwaiver provision in section 1679f(a).

Keywords: litigation, class actions, derivative suits, Credit Repair Organizations Act, nonwaiver provision

—Matthew M.K. Stein, Skadden, Arps, Slate, Meagher & Flom, LLP


January 10, 2012

Settlement Class Can Include Those Barred by State Law

In a lengthy en banc opinion that largely reaffirms existing circuit case law on Rule 23(b)(3)’s predominance requirement—but emphatically rejects the analysis of a divided panel decision last summer—the Third Circuit has held it permissible under Rule 23 to certify a nationwide settlement class that includes some members whose individual claims would likely be barred by the governing state law. Sullivan v. DB Investments, Inc. [PDF], (3d Cir. Dec. 20, 2011). To hold otherwise, the 7–2 decision said, “would effectively rule out the ability of defendants to achieve ‘global peace’ by obtaining releases from all who might wish to assert claims, meritorious or not.” Slip op. at 66.

Keywords: litigation, class actions, derivative suits, predominance, settlement classes

—Patrick T. Ryan, Montgomery, McCracken, Walker & Rhoads, LLP, Philadelphia, Pennsylvania


December 7, 2011

Seventh Circuit Breaks Ranks on Class-Action Mootness

In the Seventh Circuit, file your motion for class certification at the same time you file your complaint. Otherwise, you risk the defendant picking off your class representative with a settlement offer, thereby mooting the claim. This is the lesson of Damasco v. Clearwire Corp., ___ F.3d ___, No. 10-3934, 2011 WL 5829773 (7th Cir. Nov. 18, 2011).

For practitioners in other circuits, this approach might be unnecessary. The court admitted, for example, that the Third, Fifth, Ninth, and Tenth Circuits appeared to disagree with its holding and that plaintiffs there may move to certify a class after being offered complete relief. But in the Seventh Circuit, complaints coupled with class-certification motions should now be routine.

Keywords: litigation, class actions, derivative suits, Seventh Circuit, settlement, moot claims

Jocelyn Larkin, Impact Fund; Greg Cook, Balch & Bingham, LLP; and the Hon. Michael B. Hyman, chairs of the Class Actions & Derivative Suits Committee


November 29, 2011

Ninth Circuit: Tie Cy Pres Recipients to Purpose of Case

The Ninth Circuit issued a decision in Nachshin v. AOL, LLC, No. 10-55129 (9th Cir. Nov. 21, 2011), that highlights the importance of a nexus between the underlying purpose of the case and the cy pres recipients.

This case involves the settlement of a putative class action brought by AOL subscribers who alleged that AOL wrongfully inserted footers containing promotional messages into emails sent by AOL subscribers. Because of the difficulty of determining damages, the mediator, a former federal judge, suggested that the limited monetary recovery be distributed cy pres among charities selected by the named plaintiffs and the parties. The district court preliminarily approved the settlement, but two class members objected to the settlement, arguing primarily that the charitable award did not meet the standard for cy pres because the selected charities did not relate to the issues in the case and were not geographically diverse.

The Ninth Circuit agreed with one of the objectors, represented by Ted Frank of the Center for Class Action Fairness, an attorney who regularly files class action objections. First, the court noted that the purpose of the cy pres doctrine was to put unclaimed funds to their next-best use—the aggregate, indirect, prospective benefit of the class. The court highlighted the importance of a nexus between the plaintiff class and the cy pres beneficiaries. When beneficiaries are unrelated to the class and/or claims, “the selection process may answer to the whims and self interests of the parties, their counsel, or the court.” Citing the Ninth Circuit’s previous opinion in Six (6) Mexican Workers v. Ariz. Citrus Growers, 904 F.2d 1301 (9th Cir. 1990), the court articulated some guiding principles for evaluating proposed cy pres distributions. The proposed award should address the objectives of the underlying statutes, target the plaintiff class, and provide reasonable certainty that members of the class will benefit.

The prospective donations in this case—to the Legal Aid Foundation of Los Angeles, the Boys and Girls Clubs of Santa Monica and Los Angeles, and the Federal Judicial Center Foundation—failed because the recipients were not related to the objectives of the underlying statutes, because the proposed distribution did not account for the nationwide distribution of the class with two-thirds of the donations going to Los Angeles-based charities, and because the panel found no indication that any plaintiffs, even those in Los Angeles, would benefit from the donations. The court noted that there is no shortage of nonprofit organizations that protect Internet users from fraud, predation, and other forms of online malfeasance actually at issue in this case.

Keywords: litigation, class actions, derivative suits, cy pres recipients, Ninth Circuit

—Jocelyn Larkin of The Impact Fund


October 7, 2011

Answer Not Due Before Motion to Compel Arbitration

In Lamkin v. Morinda Properties Weight Parcel, LLC [PDF], No. 11-4022 (10th Cir. Sept. 19, 2011), an appeal of a breach-of-contract suit, the U.S. Court of Appeals for the Tenth Circuit concluded that a defendant seeking to compel arbitration is not required to file its answer before it can move to compel arbitration and that the contract’s exclusive remedy for contract rescission and the return of the plaintiffs’ earnest money did not nullify the contract’s separate arbitration provision. In doing so, the court rejected the federal district court’s “novel” contrary conclusion on both points.

First, the court concluded that requiring a defendant to file its answer before moving to compel arbitration is a “non-sequitur”; a defendant should not be required to “formally and substantively “engage in the merits of the litigation” before it can “enforce its right not to litigate.” Further, no authority was cited to the court (or by the district court) supporting the proposition that an arbitrable dispute does not exist until the defendant’s answer is filed.

Second, the court determined that the contract’s exclusive remedy did not nullify the contract’s arbitration provision. Although arbitration is a remedy, the court explained it is a remedy in the sense of providing a remedial mechanism, not in the sense of remedying the alleged legal violation. Even though the exclusive remedy (contract rescission and the return of the plaintiffs’ earnest money) resolved the issue of damages, an arbitrator could still determine the separate issue of liability, and “it is no answer to this to say that the court can make that determination,” when that determination is for the arbitrator to make. In addition, here, too, no authority was cited to the court supporting the proposition that an exclusive remedy provision nullified an arbitration provision in the same contract, nor could the court “discern any persuasive reason” for that proposition.

Keywords: litigation, class actions, derivative suits, motion to compel arbitration, breach of contract

—Matthew M.K. Stein, Skadden, Arps, Slate, Meagher & Flom, LLP


September 1, 2011

Third Circuit Affirms Class Certification in Behrend

In 2008, the Third Circuit, in In re Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305, 317 (3d Cir. 2008), followed the recent nationwide consensus and, vacating class certification, held that “rigorous analysis” of class-certification motions requires “a thorough examination of the factual and legal allegations” and “may include a preliminary inquiry into the merits” of the plaintiffs’ substantive claims. Now, in Behrend v. Comcast Corp., No. 10-2865, 2011 WL 3678805 (3d Cir. Aug. 23, 2011), the Third Circuit has shown that even with heightened scrutiny under Hydrogen Peroxide, antitrust claims may still be certified if the plaintiffs present sufficient evidence that the key questions of antitrust impact and damages are susceptible of common, not individualized, proof.

As a major class-certification opinion after Hydrogen Peroxide, Behrend is instructive for the continuing debate over establishing the line between “merits” and “class certification” questions. The more a question is viewed as a “merits” determination unnecessary to answering a Rule 23 inquiry, the greater the latitude the district judge will have to certify a class. In Behrend, the panel was persuaded that the plaintiffs’ experts had shown that common proof would be used at trial of their substantive claims. No more was required to answer the Rule 23 inquiries, and class certification was therefore affirmed.

Keywords: litigation, class actions, derivative suits, class certification, antitrust, Third Circuit

—Peter Breslauer, Montgomery, McCracken, Walker & Rhoads, LLP


August 11, 2011

Class-Action Waivers Still Questioned in Arbitration

On July 12, 2011, the California Court of Appeal for the Second Appellate District issued a ruling applying the Supreme Court’s recent ruling in AT&T Mobility, LLC v. Concepcion, ___ U.S. ___, 131 S.Ct. 1740 (2011), in the context of an employment suit.

In Concepcion, the Supreme Court held that the Federal Arbitration Act (FAA) preempted a California judicial ruling under which most class-action waivers in arbitration agreements were unconscionable. In Brown v. Ralphs Grocery Co. [PDF], the court of appeal confronted the continued viability of the California Supreme Court’s decision in Gentry v. Superior Court, 42 Cal. 4th 443 (2007), which sharply limited the use of class-action waivers in employment contracts, and whether California judicial rulings precluding waivers of plaintiff’s rights to bring representative actions for civil penalties under California’s Private Attorney General Action of 2004 (PAGA) were preempted by the FAA.

The Brown court sidestepped the question of the continued viability of Gentry, concluding that the plaintiff had failed to meet the necessary evidentiary burden under that case to demonstrate that the class-action waiver was unconscionable. Accordingly, it remains unclear whether California courts will resist the application of Concepcion to employment cases.

With respect to PAGA, the Brown court concluded that the waiver of the plaintiff’s statutory right to bring a representative action was unenforceable. The court held, over a dissent, that Concepcion was inapplicable where the state had specifically granted the plaintiff the right to enforce California’s labor laws on behalf of other employees. The court of appeal’s decision may reflect an attempt by California’s courts to apply Concepcion as narrowly as possible.

The Brown decision will likely be further appealed to the California Supreme Court.

Keywords: litigation, class actions, derivative suits, California, class-action waivers

—Ethan J. Brown, Spillane Weingarten, LLP


July 7, 2011

A Class Must Be Ascertainable to Be Certified

Some courts are increasingly relying on the requirement that a class must be ascertainable before it is capable of being certified. The court in Grimes v. Rave Motion Pictures Birmingham, LLC, 264 F.R. D. 659 (N.D. Ala. 2010), illustrated this concept when it stated that “[a]lthough not explicit in Rule 23(a) or (b), courts have universally recognized that the first essential ingredient to class treatment is the ascertainability of the class.” Id. at 263.

Keywords: litigation, class actions, derivative suits, ascertainability, class certification

—G. Calvin Hayes, Fowler White Boggs, P.A.


June 27, 2011

Federal Courts Can't Enjoin State Courts from Certifying Class

When a federal court denies class certification in a case, can it also enjoin a state court from considering the certification of identical claims? In Smith v. Bayer Corp., No. 09-1205 (U.S. June 16, 2011), the Supreme Court held that unless the same named plaintiff is at issue in both cases and the state and federal class-certification standards are identical, it cannot.

The Supreme Court reversed for two reasons. First, it held that West Virginia’s class-certification rule was not identical to Rule 23. The West Virginia Supreme Court had stated a different approach to predominance inquiries than federal courts allow, and this predominance inquiry is exactly what the MDL court used to knock out the federal class certifications. So, despite the nearly identical texts of the two rules, the “same issue” was not being relitigated—a requirement under the act.

Second, the plaintiff here was not a party to the federal suit and could therefore not be bound by it. The Court explicitly rejected Bayer’s argument that members of uncertified classes qualify as parties in proposed class-action litigation. In other words, before a class is certified, only named plaintiffs may be bound by a court’s ruling. Unnamed, absent class members in proposed or rejected class actions are not bound by the outcome of the litigation.

Keywords: litigation, class actions, derivative suits, class certification, multidistrict litigation

—Matthew T. Heffner, Susman, Heffner & Hurst, LLP


June 21, 2011

Supreme Court Rules for Wal-Mart in Dukes Case

In a 5–4 majority opinion, the Supreme Court reversed the certification of the largest gender-discrimination class action under Title VII of the 1964 Civil Rights Act. Wal-Mart Stores, Inc. v. Dukes No. 10-277, 563 U.S. ___ (2011). In doing so, the Court strengthened the commonality requirements of Rule 23(a) and clarified that Rule 23(b)(2) does not apply to cases where there would be any individualized determinations of money damages.

Rule 23(a)(2) requires a party seeking class certification to prove that the class has common “questions of law or fact.” According to the Court, the common questions must be of central importance to the underlying claims, such that the determination of the truth or falsity of the common contention will resolve an issue that is central to the validity of each one of the claims in one stroke.

Keywords: litigation, class actions, derivative suits, class certification

—Adam Dougherty, partner, and Matthew McCrary, associate, with Baker & McKenzie, Dallas, Texas


June 9, 2011

Proof of Loss Causation Not Needed for Class Certification

In a unanimous decision issued earlier this week in Erica P. John Fund, Inc., v. Halliburton, Co., et al., No. 09-1403, 2011 U.S. LEXIS 4181 (June 6, 2011), the U.S. Supreme Court reversed a Fifth Circuit decision holding that plaintiffs must prove loss causation to certify a class action in securities fraud cases.

The Halliburton decision is notable to the general class-action bar more for what it lacks than what it contains. The Solicitor General, as amicus for the plaintiff, argued that loss causation is a merits issue that stands or falls on a class-wide basis; the Fifth Circuit erred, then, by conducting a merits inquiry that was not tethered to Rule 23 requirements. According to the Solicitor General, the appellate court improperly required the plaintiff to prove its whole case at the class-certification stage. The Supreme Court’s very brief decision barely mentions Rule 23, but instead resolves the question presented on far narrower grounds. Whether this is a relief or a disappointment will, of course, depend on who you talk to.

Keywords: litigation, class actions, Supreme Court, loss causation

—Dawn Goulet, Wexler Wallace, LLP


May 3, 2011

Supreme Court Rejects Discover Bank

On April 27, 2011, in a 5-4 majority opinion by Justice Antonin Scalia, the U.S. Supreme Court held that California’s Discover Bank decision—which essentially said that class-action waivers in arbitration agreements of adhesion were unconscionable—is preempted by section 2 of the Federal Arbitration Act (FAA). AT&T Mobility, LLC v. Concepcion [PDF], No. 09-893, 563 U.S. ___ (2011). Under Discover Bank, California courts had refused to enforce class-action waivers in adhesion consumer contracts.

To the Court, class arbitration is slower than regular arbitration, it requires more formal procedures to bind absent class members, and it increases the risk (in terms of damages after judgment) to defendants faced with class arbitration, which lacks an effective means of review for errors by the arbitrators. Consequently, the Court concludes that the Discover Bank rule interferes with and is inconsistent with section 2 of the FAA by requiring the availability of class-wide arbitration regardless of the parties’ agreement. (The Court acknowledges that the parties could agree to class arbitration as a matter of contract but explains that does not mean it can be required by state law.)

Keywords: litigation, class actions, Discover Bank rule, Supreme Court

—Matthew M.K. Stein, Skadden, Arps, Slate, Meagher & Flom, LLP


February 15, 2011

Derivative Suit Doesn't Prevent Stockholder from Inspecting Records

In King v. VeriFone Holdings, Inc., brought under 8 Del.C.§ 220 for the inspection of books and records, the Delaware Supreme Court considered whether a stockholder who files a derivative suit is precluded from having a “proper purpose” for the inspection of books and records. Reversing the Court of Chancery, the Delaware Supreme Court held that a stockholder can still have a proper purpose to inspect books and records after filing a derivative suit.

The Delaware Supreme Court held that failure to seek books and records before filing a derivative suit may be “ill-advised,” “imprudent,” and “cost-ineffective,” but it is not fatal to a shareholder’s right to seek books and records to investigate corporate mismanagement. The court looked to earlier decisions in Disney, McKesson/HBOC, and CNET as support for the proposition that plaintiffs who had brought derivative suits could still inspect the corporation’s books and records. The court further noted that any restrictions on Section 220’s broad grant of a stockholder’s ability to inspect books and records should be made by the legislature instead of the courts.

Keywords: litigation, class actions, Delaware Supreme Court, Court of Chancery, derivative suit, inspection of books and records

—Andrew M. Farthing, Latham & Watkins, LLP


February 11, 2011

Withdrawal of Class Settlement Approval Is Not Appealable

In McClendon v. City of Albuquerque, the Tenth Circuit held that an order withdrawing the approval of a class settlement does not constitute an appealable order under 28 U.S.C. § 1291.

The plaintiffs alleged that the conditions at an Albuquerque jail were constitutionally deficient because of overcrowding. Subsequent to certification, the parties negotiated settlement agreements in 1997. In 2005, after the prisoners were transferred to a new facility, the parties reached new settlement agreements, superseding the 1997 agreements. The plaintiffs later alleged that the county made a misrepresentation upon which they relied in agreeing to the terms of the 2005 settlement agreements. As a result, the district court withdrew its Rule 23(e) approval of those agreements.

Keywords: litigation, class actions, class settlement approval, Tenth Circuit

—Tarifa B. Laddon, Fulbright & Jaworski, LLP.


January 31, 2011

Opposition to Forum Non Conveniens Motion Not a Proposal for a Joint Trial

In Koral et al. v. Boeing Co., 117 plaintiffs sued Boeing Co. in 29 separate actions in Illinois state court as a result of the 2009 crash of a Turkish airliner built by Boeing in the Netherlands. Boeing removed the cases to federal district court on the basis that the cases constitute a mass action under the Class Action Fairness Act (CAFA).

In affirming the district courts’ decisions to remand, the Seventh Circuit held that removal was premature and that Boeing’s own desire for a joint trial could not support removal under CAFA. Most significantly, the Seventh Circuit held that the plaintiffs’ statement in opposing the forum non conveniens motion fell “just short of a proposal, as it is rather a prediction of what might happen if the judge decided to hold a mass trial.” In so holding, the Seventh Circuit noted the absurdity of a plaintiff’s opposition to a forum non conveniens motion acting as a forfeiture of the chosen forum.

Keywords: litigation, class actions, forum non conveniens, mass action, Seventh Circuit

—Tarifa Laddon of Fulbright & Jaworski, LLP


January 26, 2011

Opt-In FLSA Collective Actions and Opt-Out Class Actions May Coexist

In Ervin vs. OS Restaurant Services Inc., the Seventh Circuit considered for the first time whether employees who institute a collective action under the Fair Labor Standards Act (FLSA), 29 U.S.C. § 201 et seq., may at the same time bring supplemental state law claims as a class action under Federal Rule of Civil Procedure 23. Noting that it was apparently the first court of appeals to address a question that has divided trial courts in the Seventh Circuit and elsewhere, the court held that the two types of aggregate litigation could coexist.

The Seventh Circuit held that “there is no categorical rule against certifying a Rule 23(b)(3) state-law class action in a proceeding that also includes a collective action brought under the FLSA,” and that “[n]othing in the text of the FLSA or the procedures established by the statute suggests either that the FLSA was intended generally to oust other ordinary procedures used in federal court or that class actions in particular could not be combined with an FLSA proceeding.”

—Dawn Goulet of Wexler Wallace, LLP


January 26, 2011

Fifth Circuit Denies Katrina and Rita Settlement Class Certification

In re: Katrina Canal Breaches Litigation, 2010 WL 5128640 (C.A. 5 (La.)), is an appeal by objectors of the district court’s certification of a settlement class of numerous consolidated lawsuits brought on behalf of residents of New Orleans, Louisiana, who suffered harm during the levee breaches during hurricanes Katrina and Rita. The defendants at issue in these settlements were various levee districts and their boards of commissioners. The insurer for the levee districts tendered the limits of insurance for the settlement fund, $21 million. The parties sought to certify a limited-fund mandatory settlement class under Federal Rule of Civil Procedure 23(b)(1)(B). The district court approved the settlement and certified the class. A group of class members objected and appealed to the Fifth Circuit; the court of appeals reversed the district court and denied certification.

The Fifth Circuit, relying heavily on Ortiz v. Fibreboard Corp., 527 U.S. 815, 119 S.Ct. 2295, 144 L. Ed.2d 715 (1999), slammed the settlement for its failure to comply with the procedural safeguards mandated by Ortiz. The court held that one of the essential elements of a limited-fund settlement is that the “claimants [be] identified by a common theory of recovery [and be] treated equitably among themselves.” Id. at 839, 119 S.Ct. 2295. In this case, the settlement did not provide for an apportionment of the proceeds of the settlement between class members who suffered wide-ranging types of injuries and damages. Instead, the settlement passed the buck to a “special master” who would determine how to divide the proceeds between the class members, provided that there were proceeds to divide.

The court also disapproved of the settlement’s failure to disclose that the class members might not receive any direct benefit from the settlement. The 5th Circuit declared the settlement to be unfair and unreasonable because the settlement fund might be completely depleted by the cost of administering the settlement and the notice failed to disclose this possibility. The court also took issue with other portions of the notice that it labeled misleading or borderline misleading: The notice failed to adequately convey that enhanced recovery of costs equals attorneys fees; that instead of money, the class might get the “benefit” of a cy pres distribution; and that the levee districts could contribute more money to the limited fund, but they chose not to do so and relied just on their insurance coverage.

—Alan G. Crone, Kramer + Crone, PLC


January 13, 2011

FJC Issues Class-Action Notice Checklist and Guide

The Federal Judicial Center (FJC) has released two new tools to help judges ensure adequate class-action notice and settlement claims procedures.

The 2010 Judges’ Class Action Notice and Claims Process Checklist and Plain Language Guide will assist judges and practitioners in ensuring that best practices are utilized from precertification notice issues through settlement approval. It covers not only notice content, but also notice planning and methods of dissemination. It also alerts judges to claims process pitfalls. Notably, the need to reach a high percentage of class members is clearly articulated, along with the recommendation that judges receive evidence on the adequacy of notice as planned and actually achieved. A graphical plain language guide demonstrates the different aspects of the “illustrative” notices that the FJC posted several years ago after the 2003 amendment to Rule 23(c)(2).

The FJC also released an updated 2010 Pocket Guide on Class Actions, which contains enhancements to the notice sections and other substantive updates and improvements.

FJC Director Hon. Barbara J. Rothstein led a joint FJC Education and Research Division effort, with now-retired FJC Senior Research Associate Thomas E. Willging and Todd B. Hilsee, a notice expert and principal with The Hilsee Group, LLC, contributing.

—Todd B. Hilsee, The Hilsee Group, LLC


December 15, 2010

Ninth Circuit Holds in Favor of California Newspaper Workers

In Wang v. Chinese Daily News, California-based employees of Chinese Daily News, Inc., a Chinese-language newspaper, sued the company for wage and hour violations under the Fair Labor Standards Act (FLSA) and California law. The district court certified the case as a collective action under the FLSA, certified the state law claims as a class action under Rule 23(b)(2) and alternatively 23(b)(3), and later invalidated state class-action opt-outs. The newspaper appealed after the district court granted judgment to the employees following partial summary judgment, jury, and bench trials. The Ninth Circuit affirmed the judgment.

The court held, among other things, that in a hybrid FLSA collective action/state law class action, a district court can exercise supplemental jurisdiction over state-law claims when there are concurrent FLSA claims, even though there are far fewer class members in the FLSA claim. The court also affirmed the district court’s treatment of opt-outs, holding that the district court could invalidate opt-outs and restrict the employer’s ability to communicate with class members and acted within its discretion when it deferred holding the second opt-out process until after trial on the merits. The Ninth Circuit also affirmed the certification of a wage and hour class action under 23(b)(2) when significant injunctive relief applies to the class as a whole. Finally, the Ninth Circuit also held a claim under California’s unfair business practices law can be predicated on an FLSA violation, and the FLSA does not preempt such a claim.

—Danielle E. Leonard and Altshuler Berzon, chairs of the CADS Employment Subcommittee


December 15, 2010

Seventh Circuit Issues All Writs Act Opinion in Thorogood

The Seventh Circuit issued an opinion concerning the All Writs Act in Thorogood v. Sears, Roebuck, and Co. (No. 10-2407). Suit 1 involved the plaintiff, Thorogood, who sued in Illinois. Sears, the defendant, removed to federal court, and the federal district’s Judge Leinenweber certified the class action.

Thorogood alleged that Sears engaged in deceptive advertising because its Kenmore brand clothes dryer was not made entirely of stainless steel—the front of the drum is made of ceramic-coated mild steel instead. Sears appealed Judge Leinenweber’s decision to certify the class, and, on appeal, the Seventh Circuit decertified, calling the case “a notably weak candidate for class treatment.” (Thorogood at 5.) In particular, the Seventh Circuit held that common issues didn’t predominate because it was inconceivable that class members had a shared understanding of the advertisements. After decertification, Sears made a Rule 68 offer of judgment for $20,000 (even though the maximum damages Thorogood could recover under Tennessee law were $3,000). When the plaintiff refused, Judge Leinenweber dismissed the case because the offer exceeded the amount in controversy and mooted the case. Thorogood appealed, and the Seventh Circuit affirmed the district court’s denial of attorney fees and the dismissal of the suit.

Thorogood’s counsel (Clinton Krislov) found another plaintiff (Murray) and filed another, similar putative class-action suit against Sears in California state court, which Sears promptly removed and argued was barred by issue preclusion. In particular, Sears argued that the issue of whether the class could be certified had already been litigated and determined in the Illinois action. The district court judge in California, Judge Claudia Wilken, initially agreed. The plaintiffs’ counsel then amended the complaint and, according to Judge Wilken, sufficiently differentiated it from the complaint in Thorogood “to avoid the application of collateral estoppel.” (Murray v. Sears, Roebuck, and Co., 2010 WL 3490214, at *4 (N.D. Cal. Sept. 3, 2010)).

Sears returned to the court in the Northern District of Illinois and asked Judge Leinenweber to enjoin the federal court in California from proceeding under the All Writs Act, 28 U.S.C. 1651(a). Judge Leinenweber, however, ruled that Sears could obtain adequate relief by pleading collateral estoppel in the California action. In a harshly worded opinion by Judge Posner, the Seventh Circuit reversed and enjoined class members and class counsel from further pursuing similar class-action suits. Because the issue that was precluded was whether the action could be maintained as a class action, the ruling did not prevent class members from pursuing an individual suit.

The result in this case isn’t surprising, given Judge Easterbrook’s statement in In re Bridgestone/Firestone:

[W]hen federal litigation is followed by many duplicative state suits, it is sensible to handle the preclusive issue once and for all in the original case, rather than put the parties and state judges through an unproductive exercise. That these suits are multiplying suggests that some lawyers have adopted a strategy of filing in as many courts as necessary until a nationwide class comes into being and persists. (333 F.3d at 766).

Easterbrook’s statements here and Posner’s statements in Thorogood suggest that collateral estoppel doesn’t always do the trick. Even though issue preclusion should be determined by looking to the law that governed the issue in the first lawsuit (it’s federal law here because the issue in question is whether to certify a class under FRCP 23), courts can come to different conclusions as to whether the issue in question is in fact the “same issue” (as did Judge Wilken in Murray).

These tactics were used somewhat more successfully before CAFA, when state court cases couldn’t be removed to federal courts, and the states could apply their own versions of Rule 23, which were often more forgiving than the federal version. When federal courts are faced with enjoining state courts, they’re restricted by the Anti-Injunction statute, which prohibits injunctions against state proceedings “except as expressly authorized by an Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.” Historically, these exceptions have been narrowly construed.

Smith v. Bayer Corp., which is pending before the U.S. Supreme Court, might affect the scope of the Thorogood injunction, although it wouldn’t change the result that Murray’s case cannot proceed. Smith v. Bayer Corp. deals with the classic injunction scenario of whether Baycol plaintiffs can bring a class action in West Virginia state court after the federal judge in the MDL action denied class certification on similar issues. In other words, Smith v. Bayer Corp. addresses whether a federal court can enjoin a state court, not whether a federal court can enjoin another federal court (the primary question in Thorogood). As Posner indicates, Smith may change the scope of the Thorogood injunction, which currently prevents copycat suits in state and federal courts.

—Elizabeth Chamblee Burch, assistant professor of law, Florida State University, College of Law, CADS Mass Torts Subcommittee


December 15, 2010

Eleventh Circuit Reverses Course, Restores Intent of CAFA

In Cappuccitti, et al. v. DirecTV, Inc., No. 09-14107 (11th Cir. 2010), the Eleventh Circuit withdrew the intensely controversial opinion on Class Action Fairness Act (CAFA) jurisdiction that it issued in July. In the original opinion, the court held that the named class representative must meet the $75,000 requirement of diversity jurisdiction—even if the case was filed under the CAFA. This generated immense criticism and petitions for en banc review from both the plaintiff and the defendant. The original opinion also brought into question many actions originally filed under CAFA jurisdiction, including actions consolidated by the MDL panel in the Eleventh Circuit, as well as those removed under CAFA jurisdiction.

The new opinion clearly states that there is no requirement in CAFA that any single plaintiff’s claim exceed $75,000. The court stated that its original “interpretation was incorrect” and that “CAFA’s text does not require at least one plaintiff in a class action to meet the amount in controversy requirement of 28 U.S.C. § 1332(a).” Instead, the court identified three jurisdictional requirements. The amount of controversy must exceed $5 million in the aggregate, the class must contain at least 100 members, and there must be minimal diversity. The court found all three of these requirements met, noting that the case was originally filed in federal court and that the allegation of a demand in the complaint must be accepted if made in good faith and not disproven by a legal certainty. Notably, the court had to compute the number of class members by working backward from the amounts at issue. The court noted in a footnote the possibility that discovery could uncover facts that might “destroy” diversity and “require the district court to dismiss the case.”

Having found jurisdiction, the court moved to the question that generated the appeal—the motion to compel arbitration. Arguably retreating from earlier precedent, the court reversed the denial of DirecTV’s motion to compel arbitration. As an initial matter, the court stated that arbitration agreements are generally enforceable under the Federal Arbitration Act (FAA). Thus, unless compelling arbitration would be unconscionable under controlling state law of contracts, federal courts are to enforce arbitration agreements. Also, to find the arbitration agreement unenforceable under Georgia law, Cappuccitti must show that compelling arbitration would have been unconscionable under the circumstances existing at the time he and DirecTV entered into their contractual agreement. Cappuccitti argued that arbitration would be unconscionable because he would be unable to recover attorney fees and costs in an arbitration proceeding, thereby making his claims virtually worthless. However, DirecTV argued that such attorney fees would be available under Georgia’s Fair Business Practices Act and that Cappuccitti’s decision to omit those claims was irrelevant to the unconscionability analysis. The Eleventh Circuit agreed, vacated the district court’s order denying arbitration, and remanded the case for further proceedings.

—Gregory C. Cook and Thomas R. DeBray, Jr., of Balch & Bingham, LLP


September 20, 2010

Seventh Circuit Takes Aim at Oscar Private Equity Investments

In its August 20, 2010, opinion in Schleicher v. Wendt, No. 09-2154, the Seventh Circuit affirmed the district court’s certification of a securities fraud class action and, in so doing, provided a withering critique of the Fifth Circuit’s approach to certification in securities cases.

Judge Easterbrook began by observing that the defendants’ arguments against class certification (including that a company as large and widely followed as corporate defendant Conseco does not qualify for the fraud-on-the market treatment under Basic v. Levinson) would “end the use of class actions in securities cases.” The panel opinion went on to reject the contentions that, before a class can be certified, the district court must determine that the contested statements actually caused material changes in the stock price and that the plaintiff must prove each element (other than falsity) required to win on the merits.

The defendants had based their argument on the Fifth Circuit’s decision in Oscar Private Equity Investments v. Allegiance Telecom, Inc., 487 F. 3d 261 (5th Cir. 2007). Dismissing the Fifth Circuit’s “go-it–alone” strategy, Schleicher expressly disagreed that proof of loss causation is essential to class certification. Thus, said Schleicher, Oscar’s requirement of proof of loss causation—which, in the case of simultaneously made false and truthful statements, means plaintiffs must establish how much of the price movement can be attributed to the false statements—is wrong. While Oscar held that Basic permits each circuit to “tighten” the class-certification requirements, the Schleicher court opined that the Oscar approach was at odds with the Federal Rules Committee’s 1966 decision to separate class certification from a decision on the merits.

—Jill Abrams, Abbey Gardy, LLP


Plaintiffs Must Satisfy CAFA and Traditional Diversity Amount-in-Controversy Requirements

In a novel decision concerning diversity jurisdiction over class actions originating in federal court, the Eleventh Circuit recently held that class-action plaintiffs must satisfy not only the elements of the Class Action Fairness Act (CAFA), 28 U.S.C. § 1332(d), but also the traditional diversity amount-in-controversy requirement, 28 U.S.C. § 1332(a), with respect to at least one named plaintiff. See Cappuccitti v. DirecTV, Inc., ___ F.3d ___, Slip op. at 9, No. 09-14107 (11th Cir. July 19, 2010). Although the court recognized that CAFA substantially expanded federal jurisdiction over class actions, it determined that nothing in CAFA obviated the traditional diversity amount-in-controversy requirement with respect to the named plaintiff. Id. at 4, 10. To the contrary, the Eleventh Circuit found that the traditional amount-in-controversy principle was an “essential requirement of CAFA actions filed originally in federal court.” Id. at 12-13.

Read the case note here.

—Andrew C. Glass, partner, and Ryan M. Tosi, associate K&L Gates LLP


Supreme Court to Review Whether FAA Preempts Unconscionability Analysis of Class Waiver

On May 24, 2010, the U.S. Supreme Court granted certiorari in a case likely to determine the fate of countless consumer, employment, and antitrust class actions for years to come. The Court agreed to review the decision by the Ninth Circuit Court of Appeals in Laster v. AT&T Mobility, LLC, 584 F.3d 849 (9th Cir. 2009), which held unconscionable and unenforceable under California law a class-action waiver provision that was part of a cell phone provider’s service agreement arbitration clause. As stated by the petitioner, AT&T Mobility, the Court will consider “[w]hether the Federal Arbitration Act [FAA] preempts states from conditioning the enforcement of an arbitration agreement on the availability of particular procedures—here, classwide arbitration—when those procedures are not necessary to ensure that the parties to the arbitration agreement are able to vindicate their claims.” AT&T Mobility v. Concepcion, No. 09-893 (U.S. cert. granted May 24, 2010).

The claims in the case arise out of consolidated cases pending against AT&T Mobility (formerly Cingular) and T-Mobile. The plaintiffs allege, among other things, that the cell phone providers violated California consumer protection laws and otherwise engaged in unfair and deceptive practices by charging and collecting sales taxes on cell phones they advertised as “free.” The cell providers moved to stay the cases and to compel arbitration based on the provisions in the cell service agreements entered into by the consumers. The district court and the court of appeals held that the class-action waiver provision of the arbitration clause was unconscionable and unenforceable based on the unconscionability principles set forth in Shroyer v. New Cingular Wireless Services, Inc., 498 F.3d 976 (9th Cir. 2007) and Discover Bank v. Sup. Ct., 36 Cal. 4th 148, 30 Cal. Rptr. 3d 76 (2005). In essence, both of those cases held that where a class waiver is in effect an exculpatory clause because it would preclude consumer claimants from pursuing their small value claims, it is unconscionable under California law.

Interestingly, the Supreme Court previously had denied certiorari in a case arising out of the same litigation: T-Mobile USA, Inc. v. Laster, 128 S. Ct. 2500 (2008), No. 07-756. In that case, AT&T Mobility took the unusual step of filing an amicus brief opposing a grant of certiorari for its codefendant, arguing that review would be premature and unnecessary given the absence of any conflict among the circuits. The difference in the case just granted review is that AT&T had amended its service agreement with a bill stuffer to provide for a premium payment to a consumer claimant and the payment of attorney fees by AT&T for consumer claims. AT&T argued to the Ninth Circuit and in its petition that these amendments eliminated the disincentives to consumers in filing individual arbitration claims, thus removing that basis for unconscionability under California law. Because the Ninth Circuit rejected this argument, AT&T argued in its petition that a conflict had arisen and that the FAA allegedly preempts California’s unconscionability law.

It is the author’s position that if the Supreme Court decides that the FAA preempts California’s unconscionability law with respect to class waivers, consumer, employment, antitrust, and perhaps even securities class actions will be eliminated, begging the question, “Why have Rule 23?”

—Michael D. Donovan of Donovan Searles, LLC


Court Affirms Largest Gender Discrimination Class Action

In a 6-5 majority decision, the Ninth Circuit affirmed the certification of the largest gender discrimination class-action case ever under Title VII of the 1964 Civil Rights Act. Dukes v. Wal-Mart Stores, Inc., 2010 U.S. App. LEXIS 8576 (9th Cir. 2010). The six female plaintiffs allege that women employed in Wal-Mart stores are paid less than men in comparable positions, despite having higher performance ratings and greater seniority, and receive fewer promotions to in-store management positions while waiting longer for them. Id. at 4-5. The plaintiffs worked at 13 of Wal-Mart’s 3,400 stores and represent a class of more than 1.5 million women employed during the past 10 years. Id. at 163-64. The class encompasses all of the plaintiffs’ claims for injunctive relief, declaratory relief, and back pay, while creating a separate opt-out class encompassing the same employees for punitive damages. Id. at 3.

Initially, the majority ruled, based on the U.S. Supreme Court’s guidance, that district courts are not only at liberty to, but must, perform a rigorous analysis to ensure that the prerequisites of Rule 23(a) have been satisfied. Id. at 16-17 citing Gen. Te. Co. of Sw. v. Falcon, 457 U.S. 147, 160 (1982). While this “does not mean that a district court must conduct a full-blown trial on the merits prior to certification,” it’s clear that “Falcon’s central command requires district courts to ensure that Rule 23 requirements are actually met, not simply presumed from the pleadings.” Id. Continuing 25 years of case law from the Ninth Circuit, the majority concluded that district courts “must sometimes resolve factual issues related to the merits to properly satisfy itself that Rule 23’s requirements are met, but the purpose of the district court’s inquiry at this stage remains focused on” whether Rule 23 requirements are satisfied. Id. at 29-44. In other words, at the class certification stage, district courts are prohibited “from making determinations on the merits that do not overlap with the Rule 23 inquiry, district courts must make determinations that each requirement of Rule 23 is actually met.” Id. at 44-45, 55-57.

Based on this standard, the majority ruled that the plaintiffs satisfied Rule 23(a) and Rule 23(b)(2). Because the district court had significantly analyzed the class certification issues in a lengthy opinion, the majority concluded that the district court “rigorously analyzed” the plaintiff’s four categories of commonality evidence. Id. at 72-75. That evidence included facts concerning company-wide policies of discrimination, expert opinions supporting the existence of that discrimination, expert statistical evidence of class-wide gender disparities, and anecdotal evidence of gender discrimination from 120 class members throughout the country. Id. at 75-76.

Importantly, the plaintiffs presented an expert sociologist who opined that Wal-Mart has and promotes a strong culture based on gender stereotyping. Id. at 76-84. The majority ruled that admitting the sociologist’s opinion wasn’t an abuse of discretion on the part of the district court because it was enough that the expert presented scientifically reliable evidence tending to show common questions of fact concerning a company-wide policy of gender discrimination. Id. at 81-84. While specifically noting that it was “not resolv[ing] this issue here,” the majority further declared that it wasn’t convinced that Daubert has the same application at the class certification stage as it does to expert testimony at trial. Id. at 82-84.

The majority also ruled that the district court’s treatment of the competing statistical evidence demonstrated that the district court followed the correct standard as explained in Falcon and the Ninth Circuit’s earlier cases. Id. at 87. Such evidence included regression analyses for each of Wal-Mart’s 41 regions (each containing about 80 stores) that showed significant disparities between men and women with respect to compensation and promotions. Id. Wal-Mart, in part, challenged these regression analyses because they didn’t concern individual stores, only regions. Id. at 90. The majority, however, ruled that the district court properly rejected a full-blown merits determination. Id. at 90-92. It further ruled that the district court correctly performed a limited examination, only “to the extent necessary,” to conclude that the plaintiffs’ expert opinion was in fact probative of a company-wide policy of discrimination. Id.

Regarding the 120 anecdotal allegations, the majority found no cases suggesting that a plaintiff must submit a certain number of them in support of its class allegation claims. Id. at 106-114. Additionally, it concluded that the district court didn’t rely solely on such anecdotal claims, but properly ruled that they supported class certification along with the other expert and factual evidence presented by the plaintiffs.

The majority certified the class pursuant to Rule 23(b)(2). Rule 23(b)(2) isn’t appropriate for all classes and “does not extend to cases in which the appropriate final relief relates exclusively or predominantly to money damages.” Id. at 122-123 (citing Fed. R. Civ. P. 23(b)(2) advisory committee’s note to 1966 amends). Criticizing and distinguishing the Second Circuit’s “subjective” approach in Molski v. Gleich, 318 F.3d 937, 955 (2nd Cir. 2003) and the Fifth Circuit’s “objective” approach in Allison v. Citgo Petroleum Corp., 151 F.3d 402, 415-16 (5th Cir. 1998), the majority adopted the predominance standard that it concluded the Rule 23(b)(2)’s drafters straightforwardly indicated, saying “Rule 23(b)(2) certification is not appropriate where monetary relief is ‘predominant’ over injunctive relief or declaratory relief.” Id. at 122-128. The court subsequently ruled that Wal-Mart’s evidence didn’t undermine the plaintiffs’ claims that injunctive and declaratory relief predominate because, in part, the plaintiffs’ request for back pay is an uncomplicated, make-whole determination. Id. at 128-137. Unsure whether the plaintiffs’ claims for punitive damages are appropriate under Rule 23(b)(2) or 23(b)(3), the majority remanded the issue back to the district court for further determination. Id. at 137-149. Likewise, it remanded the claims of putative class members who no longer worked for Wal-Mart when the complaint was filed so that the district court could consider whether to certify an additional class or classes under Rule 23(b)(3). Id. at 4.

The majority wasn’t concerned with Wal-Mart’s claims that the district court’s outline of a trial plan will be unmanageable and thereby infringe upon its due process rights. Id. at 149-161. It expressed no opinion regarding Wal-Mart’s objections to the district court’s tentative trial plan (or that trial plan itself) at this stage. Id. at 154. Instead, it noted “there are a range of possibilities—which may or may not include the district court’s proposed course of action—that would allow this class action to proceed in a manner that is both manageable and in accordance with due process, manageability concerns present no bar to class certification here.” Id.

Five judges dissented from the majority’s opinion. They focused their analysis on the absence of “significant proof” that Wal-Mart operated under a general policy of discrimination. Id. at 174-175 citing Falcon at 159 n. 15. In disagreeing with the majority, the dissent opined that Falcon’s “significant proof” standard isn’t dicta, isn’t distinguishable from the Dukes facts even though the Falcon facts involved both current employees and applicants, and doesn’t require the plaintiffs to prove the merits of their claims. Id. at 171-179.

Regarding Rule 23(a), the dissent concluded that the “evidence does not come close to meeting the Falcon requirements for demonstrating commonality and typicality.” Id. at 179-180. It analyzed the plaintiffs’ 120 anecdotes from female employees, statistical evidence, and expert testimony. Id. On its face, the “one anecdote for every 12,500 class members” didn’t support a claim for a company-wide policy. Id. at 180-181. And, according to the dissent, the statistical evidence was no better, in part, because the plaintiff’s statistician focused on regional numbers instead of numbers at Wal-Mart’s individual stores. Id. at 187-193. The dissent further concluded that the district court’s superficial examination of the professor’s statistics was “legal error” because it failed to rigorously analyze the statistics and instead made it Wal-Mart’s burden to prove the statistics were incorrect. Id. at 187-189.

Finally, and importantly, the dissent proclaimed that the district court committed further legal error by failing to test the reliability of the expert opinion provided by Wal-Mart’s sociological expert, who opined that Wal-Mart’s subjective decision-making is “susceptible to unconscious discriminatory impulses.” Id. at 193. The district court denied Wal-Mart’s motion to strike, while noting that district courts shouldn’t apply the full Daubert gatekeeping standard at the class certification stage. Id. at 195. The dissent asserted that that district should have explicitly considered whether such evidence was scientifically reliable instead of only considering whether the evidence was so flawed as to lack sufficient probative value to assess whether class certification was appropriate. Id. at 198-199. Ultimately, the dissent concluded that the plaintiffs’ evidence inadequately bridged the gap between the six plaintiffs’ claims of individual discrimination and a class-wide claim of company-wide discrimination. Id. at 199-200.

Regarding the majority’s certification of the class under Rule 23(b)(2), the dissent complained of two key errors made by the district. Id. at 201-202. First, it failed to consider whether it could protect Wal-Mart’s substantive rights, such as its rights to raise affirmative defenses to the plaintiffs’ individual claims and claims for damages, in the class action context. Id. at 201-214. Second, it failed to properly analyze whether the proposed class should even be certified under Rule 23(b)(2)—where “final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.” Id. at 215-217. The dissent accused the majority of making both errors. The dissent determined that Wal-Mart’s rights couldn’t be protected and that the class shouldn’t have been certified under Rule 23(b)(2) because the class members presented too many individualized questions and their request for monetary damages raised too many due process concerns for Wal-Mart. Id. at 220-224.

The Dukes decision is significant because it explicitly articulates the proper standard of review that district courts in the Ninth Circuit must apply—specifically, that they must conduct a rigorous analysis of the class certification elements and go beyond the pleadings. The decision also permits those district courts to make determinations on the merits so long as they overlap with the Rule 23 inquiry, but prohibits them from making determinations on the merits that don’t overlap with the Rule 23 inquiry.

The decision is also significant because it explicitly critiques the Second and Fifth Circuits’ predominance tests and adopts its own. Namely, it holds that Rule 23(b)(2) certification isn’t appropriate where monetary relief is “predominant” over injunctive relief or declaratory relief.

Finally, the Dukes decision is significant because it falls short of the Seventh Circuit’s recent and important decision in Am. Honda Motor Co. v. Allen, 600 F.3d 813 (7th Cir. Ill. 2010), which requires district courts to perform full Daubert analyses of proposed experts at the class certification stage.

With the apparent split in circuits on the predominance and Daubert standards, and the historic scope of the certified class in Dukes, it should come as no surprise that Wal-Mart recently announced it will appeal the Ninth Circuit’s decision to the U.S. Supreme Court.

—Adam T. Dougherty, a partner, and Teresa H. Michaud, an associate, in Baker & McKenzie, LLP’s Dispute Resolution Section.


Statute of Limitations for Securities Claims Clarified: Vioxx Class Action Not Barred

The Supreme Court's decision in Merck & Co. Inc. v. Reynolds resolved three important issues concerning the application of the statute of limitations for securities-fraud actions.


How Much Evidence Is Enough for Class Certification?

The 2010 Section of Litigation Annual Conference in New York, April 21-23, 2010, is fast approaching, and the Class Actions and Derivative Suits Committee will be presenting three exceptional programs: “Global Class Actions: Lasting Peace or Ticking Time Bombs?”; “Twombly v. Conley—The Fight of the Century”; and “How Much Evidence Is Enough for Class Certification?”

“How Much Evidence Is Enough for Class Certification?” will cover the “dueling” experts who are playing an increasingly important role in class certification, as courts now scrutinize expert testimony—and even make credibility determinations—as part of the class decision.

Professor Linda Mullenix of the University of Texas will moderate a panel that includes Third Circuit Chief Judge Anthony Scirica, Lloyd Constantine of Constantine Cannon LLP, and Cari Dawson of Alston & Bird LLP and will show how the new evidentiary standards play out at class-certification hearings. Margaret Lyle of Jones Day will serve as program chair.

Because of its guidance on the application of the Rule 23 standard for class certification, the Third Circuit’s In re Hydrogen Peroxide Antitrust Litigation opinion, authored by Chief Judge Scirica, may be the most influential decision relating to class actions since the Supreme Court’s 1997 decision in Amchem Prods., Inc. v. Windsor. The Hydrogen Peroxide decision, which extends the rigorous analysis required under Rule 23 to expert opinion, is also recognized as the leading case on the use of experts at the class-certification stage. It holds that courts may, and should, weigh conflicting expert testimony as part of their class-certification analysis.

Daubert standards for experts offered at the class-certification stage continue to evolve in courts across the country. Only rarely do courts now refuse to consider any challenges to expert testimony offered in support of class certification. Some courts test expert opinion only to ensure that it’s not fatally flawed, while others apply a full-blown Daubert analysis to the expert testimony offered by both sides.

The program will explore how trial lawyers are confronting the challenges and opportunities presented by the new standards for evidence, when making the case for or against class certification.

For registration information, click here. Register by April 2, 2010, to receive a discounted registration rate.

—Greg Cook and Lynda Grant are the chairs of the Class Actions and Derivative Suits Committee.


Is Email Notice Enough?

The class-action bar has debated the question of email notice for some time. A recent decision by the Ohio Court of Appeals appears to indicate that email notice, at least where mail is available, may not be sufficient.

In West v. Carfax, Inc., No.2008-T-0045 (Ohio App. 11 Dist. Dec. 24, 2009), certain class members appealed the trial court's approval of settlement of the underlying class action, which related to alleged violations by Carfax of the Ohio Consumer Sales Practices Act. The objecting class members argued that the settlement did not take reasonable steps to provide individual notice to all class members. Here, the notice comprised three parts: 1) individual email notice to purchasers in the Carfax database; 2) publication in Investor's Business Daily and USA Today; and 3) publication of notice on Carfax and class counsel's websites. Evidence was presented that the settlement administrator could have provided Carfax with mailing addresses for class members. The court determined that notice was defective, stating that "Courts have required notice by mail in class actions when the names and last known addresses of customers were available from a defendant's own business records." Id. at *3 (internal citation omitted). In this case, Carfax had vehicle identification numbers (VINs) for each car upon which it created its signature reports, and a notice expert testified that Carfax could have provided addresses from this "VIN" information.

—Amy Steindorff, Balch & Bingham LLP, Birmingham, AL


The Seventh Circuit Holds That Federal Courts Retain Jurisdiction under CAFA after Class Certification Is Denied

The Seventh Circuit (Posner, J.) became the second federal circuit to hold that jurisdiction under the Class Action Fairness Act (CAFA) continues if class certification is denied, in Cunningham Charter Corp. v. Learjet, Inc., No. 09-8042. The Eleventh Circuit reached the same conclusion last year in Vega v. T-Mobile USA, Inc., 564 F.3d 1256 (11th Cir. 2009). District courts had been split on the issue.

CAFA generally creates federal diversity jurisdiction over certain class actions where there is diversity between one member of the class and any defendant. The question presented in Cunningham was whether jurisdiction under CAFA continued if it later turned out that the case could not be maintained as a class action. Relying on the language of the statute, the Seventh Circuit answered in the affirmative. The Seventh Circuit did caution that even cases filed as class actions would not be subject to CAFA jurisdiction if their basis for being filed as a class action or for pleading CAFA's other requirements were frivolous.

—Ethan J. Brown, Latham & Watkins LLP, Los Angeles, CA


Ninth Circuit Reverses Denial of Class Certification in Two Recent Decisions

In Rodriguez v. Hayes et al., No.08-56156, the Ninth Circuit reversed a district court's denial of class certification, concluded that none of the alleged bars to class relief raised by the respondents prevented certification, and held that the class met the requirements of Rule 23. The petitioner sought a writ of habeas corpus on behalf of himself and a class of aliens detained in the Central District of California for an extended time without a bond hearing while engaged in immigration proceedings. The Ninth Circuit acknowledged that members of the proposed class were detained under different statutes and were at different points in the removal process and, thus, did not raise identical claims. However, in finding that the Rule 23(a) elements were satisfied, the court noted that the class members raised similar constitutionally based arguments and were alleged victims of the same practice. The petitioner sought certification under Rule 23(b)(2), which requires that the primary relief sought is declaratory or injunctive. The Ninth Circuit indicated Rule 23(b)(2) does not require courts to examine the viability of class members' claims, "but only to look at whether class members seek uniform relief from a practice applicable to all of them." It is sufficient to meet the requirements of Rule 23(b)(2), that class members complain of a pattern or practice that is generally applicable to the class as a whole.

Similarly, in United Steel v. ConocoPhillips Co., No. 09-56578, the Ninth Circuit reversed and held that the district court abused its discretion when it assumed, for the purposes of Federal Rule 23 certification analysis and without any separate inquiry into the merits, that the plaintiffs' legal theory would fail. The district court concluded there could be no assurances that the plaintiffs would prevail on their theory, and if the plaintiffs did not prevail the court would be faced with the possibility of numerous future mini-trials. As such, the district court determined there was "an insurmountable barrier to class certification," and that Rule 23(b)(3)'s predominance requirement could not be satisfied. The Ninth Circuit noted that in determining the propriety of a class action the question is whether the requirements of Rule 23 have been met. Rule 23 does not give a court authority to conduct a preliminary inquiry into the merits of a suit to determine whether it may be maintained as a class certification. The Ninth Circuit then indicated the district court not only judged the validity of the plaintiffs' claims, but did so using a nearly insurmountable standard—concluding that merely because it was not assured the plaintiffs would prevail on their primary legal theory, the theory was not an appropriate basis for the predominance inquiry. In remanding the case, the Ninth Circuit noted that while the district court may not put the plaintiffs to preliminary proof of their claims, it does require sufficient information to form a reasonable judgment and may request the parties to supplement the pleadings with sufficient material to allow an informed judgment on each of the Rule 23 requirements.

—Jeffrey D. Gardner, Roshka DeWulf & Patten PLC, Phoenix, AZ


Securities Class Actions Settlements: 2008 Review and Analysis

Cornerstone Research issues report showing that the value and number of federal securities class settlements declined in 2008.


Stay Under Federal Arbitration Act Held Inapplicable Where Agreement Containing the Arbitration Clause and Prohibition on Class Acts Was Unconscionable

On March 24, 2009, Judge Thomas P. Griesa of the Southern District of New York denied the defendants’ motion to stay a class action and to compel the plaintiff to arbitrate his claims in Fensterstock v. Education Finance Partners, 08 Civ. 3622(TPG).

The plaintiff alleged  that the defendant’s improper determination of the portion of a loan payment should be applied to principal versus interest results in a hidden penalty on the loan because it causes the principal to be repaid more slowly than it should be.

The subject promissory note requires arbitration if claims brought under any theory of law and includes a prohibition against class actions. Finding that the stay requirement of the Federal Arbitration Act (relating to cases brought in federal court) is inapplicable where an agreement is deemed unconscionable, the court applied California law (as provided in the promissory note) and determined that the promissory note was unconscionable under the three elements set forth in Discover Bank v. Superior Court, 36 Cal. 4th 128, 162-63 (2005), namely (1) if the waiver is found in a consumer contract of adhesion;(2) in a setting in which disputes between the parties predictably involve small damage amounts; and (3)it is alleged that the party with superior bargaining power has carried out a scheme to purposely cheat large numbers of consumers out of small amounts of money.


New York Court holds that Relationship Between Absent Class Members and Class Counsel Different than Typical Attorney Client Relationship

A recent New York Supreme Court case held that an absent class member is not entitled to the files of co-lead counsel accumulated during the course of two consolidated federal class actions, nor was the absent class member entitled to attorney work product. Wyly v. Milberg Weiss Bershad and Schulman, LLP, 2007 WL 4533380 (NY Supr., App. Div., Dec. 27, 2007). After a federal court approved a settlement and an award of attorneys' fees and dismissed the case, a class member filed a collateral attack on the settlement by filing a special proceeding in state court seeking a judgment directing class counsel to turn over its files. The hearing court granted the petition and directed class counsel to turn over the files finding that generally a client has full access to those files at the conclusion of the attorney/client relationship.

The appellate court reversed the lower court and rejected the argument that an absent class member was entitled to the same range of rights and privileges that a traditional client was entitled to-especially after the case was closed. The Wyly court stated that it has been observed by courts and commentators alike, that the relationship between appointed counsel and an absent class member in a class action differs substantially from that found in a traditional attorney/client relationship.

Although the court acknowledged that an absent class member is entitled to some of the benefits of an attorney/client relationship, such as the right to privileged communications with class counsel and the prohibition against attempts by defendants' counsel to communication with him, he has no right to direct the course of the litigation, testify at trial, participate in discovery or dismiss class counsel. The court noted that if a more traditional attorney/client relationship was sought, the absent class member was free to hire his own individual counsel or opt out of the class action altogether if he was unsatisfied with his limited role.

In order to avoid the unduly burdensome potential, even after the end of litigation, that would result from a multitude of requests from absent class members for counsel's entire file, the court adopted a requirement that absent class members establish their entitlement to class counsel's file on a case-by-case basis.


Two Recent Class Certification Appeals Were Decided with Opinions that Are Likely to Echo Beyond the Particular Cases

In In re New Motor Vehicles Canadian Export Antitrust Litig., __ F.3d __, 2008 WL 820822 (1st Cir. Mar. 28, 2008), a divided First Circuit panel vacated the order certifying a class of indirect purchasers and remanded the case back to the district court. As noted by Judge Torruella in his dissenting opinion, the majority’s opinion blurs the boundaries between class certification and summary judgment, __ F.3d __, 2008 WL 820822, at *23, and is likely to encourage district courts to defer decisions on class certification until discovery is complete.

The First Circuit characterized the plaintiffs’ theory of injury (and damages) as “novel and complex,” __ F.3d __, 2008 WL 820822, at *18, which therefore required a more “searching injury” to test whether the plaintiffs could use common proof to establish its viability. __ F.3d __, 2008 WL 820822, at *17. Although discovery had not been completed at the time of the initial class certification decision, discovery has now been completed, and the First Circuit therefore remanded the case back to the district court for further findings. The district court is to consider how the plaintiffs’ theory of injury and damages is likely to play out at trial – to give the court a better sense of whether common proof could establish injury and damages. __ F.3d __, 2008 WL 820822, at *20. This decision questions the value of bifurcating class- and merits-related discovery, a practice that is likely to be curtailed, at least in subsequent antitrust cases brought in the First Circuit.

In McLaughlin v. American Tobacco Co., ___ F.3d ___, 2008 WL 878627 (2d Cir. Apr. 3, 2008), the Second Circuit reversed a decision certifying a class of smokers who brought a RICO-based fraud case alleging that cigarette manufacturers had deceptively marketed “light” cigarettes as being healthier (or less dangerous) as “full flavored” cigarettes.  The Second Circuit’s opinion sheds light on the applicability of securities fraud cases to consumer fraud actions, and on the use of fluid recovery to aggregate plaintiffs’ claims.

Contrasting plaintiffs in securities fraud cases to those bringing consumer fraud cases, the Second Circuit noted that plaintiffs in a consumer case cannot necessarily rely on the presumption that the market operates efficiently. Here, the court noted, the class members may have chosen to purchase light cigarettes for any number of reasons, not necessarily due to the defendants’ marketing campaign. ___ F.3d ___, 2008 WL 878627, at *5. The court also noted that the plaintiffs’ individual levels of awareness and knowledge would also preclude a presumption of reliance that would enable the plaintiffs to prove causation through common evidence. ___ F.3d ___, 2008 WL 878627, at *5-*6.

The court also rejected the plaintiffs’ proposal to prove collective damages on a classwide basis, which would generate an aggregate pool from which individual plaintiffs would claim their share. The court noted that such a system of “fluid recovery” has been prohibited in the Second Circuit since Eisen v. Carlisle & Jacquelin, 479 F.2d 1005, 1008 (2d Cir. 1973).  ___ F.3d ___, 2008 WL 878627, at *11. The court reaffirmed that the type of aggregate determination proposed would violate both the Rules Enabling Act and the Due Process Clause, as bearing “little or no relationship to the amount of economic harm actually caused by defendants.” Id.


Subprime Mortgage Litigation Study

Navigant Consulting, Inc., released a study on February 14, 2008, that shows the number of subprime-related cases filed in federal courts are dramatically outpacing the savings-and-loan (S&L) litigation of the early 1990s.

According to the Navigant study, the number of subprime-related cases filed in 2007 already equals half of the total 559 S&L cases handled by the Resolution Trust Corporation (RTC) over a multiple-year period. The subprime numbers represent only federal court filings.