Header graphic for print

Class Defense Blog

Cutting-Edge Issues in Class Action Law and Policy

U.S. Supreme Court Agrees To Hear Spokeo, Inc. v. Robins And Decide Whether Plaintiffs Who Have Suffered No Concrete Harm Nonetheless Have Article III Standing To Sue In Federal Court

Posted in U.S. Supreme Court

Under Article III of the U.S. Constitution, a plaintiff must allege that he or she has suffered an “injury-in-fact” to establish standing to sue in federal court. Today, the Supreme Court granted certiorari in Spokeo, Inc. v. Robins, No. 13-1339, to decide whether Congress may confer Article III standing by authorizing a private right of action based on a bare violation of a federal statute, even though the plaintiff has not suffered any concrete harm.

The Court’s resolution of this question in Spokeo could affect a number of different types of class actions that have been instituted in recent years seeking potentially massive statutory damages based solely on allegations of technical violations of federal statutes—even though the plaintiff has not suffered any of the different types of “injury-in-fact” usually required to establish standing. We represent the petitioner, Spokeo, Inc.

Congress has passed a number of statutes that permit recovery of statutory damages for statutory violations even in the absence of any proof of actual injury. These statutes are particularly common in the privacy and financial-services contexts. The statute at issue in Spokeo—the Fair Credit Reporting Act (FCRA)—stands at the intersection of these two fields. Among other things, it requires “consumer reporting agencies” to “follow reasonable procedures to assure maximum possible accuracy of” consumer reports. 15 U.S.C. § 1681e(b). It also requires the provision of notices to persons who provide information to a consumer reporting agency and to those who use the services of such agencies. Id. § 1681e(d). For a “willful” violation of these sections, a prevailing plaintiff may recover statutory “damages of not less than $100 or not more than $1,000,” id. § 1681n(a)(1), and also may seek punitive damages, id. § 1681n(a)(2).

The plaintiff in Spokeo, Thomas Robins, seeks to recover statutory damages on behalf of a putative class for alleged violations of FCRA. Specifically, Robins alleged that Spokeo, which is a “people search engine,” is a “consumer reporting agency” subject to FCRA and that it had published inaccurate information about him, including that he was married and that he was better situated financially than he actually is. Robins also alleged that Spokeo had failed to provide the notices required under the FCRA. The district court dismissed the case for lack of standing, concluding that Robins had not alleged the injury-in-fact necessary to satisfy Article III.

The Ninth Circuit reversed (pdf). It concluded that the “creation of a private cause of action to enforce a statutory provision implies that Congress intended the enforceable provision to create a statutory right,” and that “the violation of a statutory right is usually”—on its own—“a sufficient injury in fact to confer standing” when “the statutory cause of action does not require a showing of actual harm.”

Spokeo petitioned for certiorari (pdf), explaining that there is a persistent conflict among the courts of appeals over whether the allegation of a statutory violation—a bare “injury-in-law”—is sufficient to establish Article III standing. The petition also pointed to the importance of this question in light of the large number of class actions involving allegations of technical statutory violations that did not cause the plaintiff any concrete harm.

The Supreme Court will hear the case next Term. We look forward to making the case for Spokeo on the merits.

Ninth Circuit Upholds FDA’s Primary Jurisdiction Over “Natural” Labeling On Cosmetics But Orders Stay Rather Than Dismissal

Posted in Class Action Trends, Motions Practice

Plaintiffs’ lawyers love to challenge products labeled as “natural,” with hundreds of false advertising class actions filed in just the last few years. Recently, in Astiana v. Hain Celestial (pdf), the Ninth Circuit reversed the dismissal of one such class action, and in doing so, addressed some key recurring arguments made at the pleading stage in litigation over “natural” labeling.

The Hain Celestial Group makes moisturizing lotion, deodorant, shampoo, conditioner, and other cosmetics products. Hain labels these products “All Natural,” “Pure Natural,” or “Pure, Natural & Organic.” A number of named plaintiffs, including Skye Astiana, filed a putative nationwide class action, alleging that they had been duped into purchasing Hain’s cosmetics. According to plaintiffs, those cosmetics were not natural at all, but allegedly contained “synthetic and artificial ingredients ranging from benzyl alcohol to airplane anti-freeze.” Astiana claimed that she likely would not have purchased Hain’s cosmetics at market prices had she been aware of their synthetic and artificial contents. As is typical in such cases, she sought damages and injunctive relief under a variety of theories: for alleged violations of the federal Magnuson-Moss Warranty Act, California’s unfair competition and false advertising laws, and common law theories of fraud and quasi-contract.

The district court dismissed the entire case in deference to the “primary jurisdiction” of the U.S. Food and Drug Administration over natural labeling of cosmetics. On appeal, the Ninth Circuit made two important rulings to which defendants in “natural” litigation should pay special attention:

Primary Jurisdiction

Federal regulators have (with a few limited exceptions not relevant here) declined either to adopt a formal definition of the term “natural” or to regulate that term’s use on cosmetics or food labels. But both plaintiffs and defendants have pointed to informal FDA statements and letters on the subject to advance particular litigation positions. For example, in this case, Hain invoked the prudential doctrine of primary jurisdiction to argue that a case challenging labeling statements cannot go forward because the FDA, not the courts, must determine in the first instance what the challenged labeling statement means and how it should be used. (Indeed, as we have previously discussed, the primary jurisdiction doctrine has led more than a dozen courts to stay false advertising cases in which plaintiffs allege that the ingredient name “evaporated cane juice” is misleading.)

Critically for other defendants intending to invoke primary jurisdiction in the future, the Ninth Circuit concluded that the district court had not erred in concluding that the doctrine applied. Rather, the district court’s error was only in dismissing the case rather than staying it. As the Ninth Circuit explained, “[w]ithout doubt, defining what is ‘natural’ for cosmetics labeling is both an area within the FDA’s expertise and a question not yet addressed by the agency,” and “[o]btaining expert advice from that agency would help ensure uniformity in administration of the comprehensive regulatory regime established by the [Food Drug and Cosmetics Act.]” Significantly, as the Ninth Circuit noted, the FDA had shown “reticence to define ‘natural’” at the time Hain invoked the doctrine with respect to food labels, in light of competing demands on the agency, and there is no reason to believe the FDA is on the verge of rulemaking on ‘natural’ labeling. But that was not a reason to bar the doctrine’s application.

That said, when, as in Astiana, additional judicial proceedings are contemplated once the FDA completes its work, the Ninth Circuit held that the case should be stayed rather than dismissed. And on that basis, the Ninth Circuit reversed the district court’s dismissal. Whether the Astiana decision supports primary jurisdiction arguments outside the context of “natural” labeling on cosmetics—such as ‘natural’ statements on food labels—remains to be seen. But as we read it, the court’s core holding would seem to have broader application.

Express Preemption

Hain separately argued that the FDCA expressly preempted the plaintiffs’ claims challenging the use of the term “natural.” But because there are no regulations defining ‘natural’ or its use on cosmetics labels, the Ninth Circuit disagreed, concluding that neither plaintiffs’ claims nor their requested remedy would impose requirements different from the (non-existent) federal rules on “natural” labeling. The Court did not find persuasive Hain’s argument that the FDA’s conscious decision not to define or regulate the term “natural” supports express preemption. That said, in other settings, including in “natural” cases, defendants may still find it appropriate to point out that the FDA (or another agency) has made a conscious decision not to regulate, and that such a decision should be entitled to deference and respect, or should be taken into account in assessing whether plaintiff has stated a claim.

Supreme Court Grants Certiorari To Address Interplay of Federal Arbitration Act And State-Law Savings Clause In Arbitration Agreement

Posted in Arbitration, U.S. Supreme Court

As readers of this blog know, prior to the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, the California Supreme Court (and a number of other state courts) had declared that waivers of class-wide arbitration were unenforceable as a matter of state law. But in Concepcion, the Supreme Court held that the Federal Arbitration Act (“FAA”) preempts state-law rules requiring the availability of class-wide arbitration.

How do the FAA and the Supremacy Clause of the U.S. Constitution affect the interpretation of arbitration clauses written prior to Concepcion? The Supreme Court may provide further guidance on that issue in DIRECTV, Inc. v. Imburgia, No. 14-462, in which it granted certiorari today. (We have previously blogged about Imburgia.)

At issue in Imburgia is whether an arbitration provision that specifies that it is inapplicable if its ban on class-wide procedures is unenforceable under “the law of [the customer’s] state” is (a) governed by state law without reference to FAA preemption, or (b) by state law taking into account the preemptive effect of the FAA. Stated another way, did the parties contract out of the FAA’s coverage?

Respondent Imburgia, a customer of petitioner DIRECTV, Inc. (“DTV”), filed a class action in California state court against DTV in 2007, alleging that DTV improperly charged early termination fees to its customers. DTV’s Customer Agreement contained an arbitration clause that specified that it was governed by the FAA and that arbitration would take place on an individual rather than class-wide basis. That arbitration clause also stated that “[i]f … the law of your state would find this agreement to dispense with class action procedures unenforceable, then this entire Section [i.e., the arbitration clause] … is unenforceable.”

In Discover Bank v. Superior Court, the California Supreme Court declared that consumer arbitration agreements are unconscionable under California law unless they allow for class arbitration. In light of Discover Bank, DTV did not invoke the arbitration provision when the lawsuit was filed. Shortly after the Supreme Court decided Concepcion—and held Discover Bank to be preempted by the FAA—DTV moved to compel arbitration. The trial court denied DTV’s motion.

The California Court of Appeal affirmed. The Court of Appeal held that the reference in the arbitration provision to “the law of [the customer’s] state” was ambiguous and could mean either (1) the state’s law without regard to federal law; or (2) the state’s law, as superseded by federal law (such as the FAA). The court adopted the first interpretation—i.e., that the preemptive effect of federal law does not bear on the meaning of “the law of [the customer’s] state.” Under that interpretation, the California Court of Appeal declared, the law of California is that agreements to dispense with class action procedures are unenforceable, and accordingly DTV’s arbitration clause is unenforceable. The California Supreme Court denied review. (We filed an amicus letter (pdf) in the case urging that the California Supreme Court grant review.)

Interpreting the same DTV arbitration provision, the Ninth Circuit in Murphy v. DIRECTV, Inc., 724 F.3d 1218 (9th Cir. 2013), reached the opposite conclusion. In Murphy, the Ninth Circuit held that “Section 2 of the FAA, which under Concepcion requires the enforcement of arbitration agreements that ban class procedures, is the law of California and of every other state. The Customer Agreement’s reference to state law does not signify the inapplicability of federal law,” because under the Supremacy Clause, “the Constitution [and] laws . . . of the United States are as much a part of the law of every State as its own local laws and Constitution.” Id. at 1226 (citation omitted). As a result, the Ninth Circuit concluded that the reasoning later adopted by the California court—that “the parties intended state law to govern the enforceability of the arbitration clause, even if the state law in question contravened federal law”—“is nonsensical.” Id.

The Supreme Court’s decision in Imburgia should help clarify whether a company’s good-faith effort to include in an arbitration provision language designed to comply with existing state law risks can have the unintended effect of jettisoning the protections of the FAA. The case will likely be briefed over the next several months and argued in the fall.

New Oregon class-action law purports to seize unclaimed damages for legal aid and judge-picked charities

Posted in Ascertainability, Class Action Settlements, Class Certification

The first bill signed by Oregon Governor Kate Brown—H.B. 2700 (pdf)—changes the rules for handling payment of damages awards in class actions in Oregon state courts. Effective immediately, including for pending actions, the new law attempts to redirect unclaimed damages under class-action settlements or judgments to the state bar’s legal aid program and to charities picked by the judge presiding over each case. In other words, Oregon has effectively mandated cy pres in every class action. (We’ve repeatedly covered—and criticized—the use of cy pres awards in class actions.)

Among other things, the new law amends Oregon Rule of Civil Procedure 32, which governs class actions in state court, to add a new subsection addressing the payment of damages in accordance with “the settlement or judgment in a class action.” The court is authorized to approve a “process” for making payments that “may include the use of claim forms.” But “any amount awarded as damages” that the court finds either hasn’t been timely claimed by class members or simply “is not practicable” to pay to class members must be distributed in the following fashion:

  • “At least 50 percent of the amount not paid to class members” must be given “to the Oregon State Bar for the funding of legal services provided through the Legal Services Program.”
  • “The remainder of the amount not paid to class members” must be given to “any entity” chosen by the court “for purposes” that are “directly related to the class action or directly beneficial to the interests of class members.”

Before enactment of this law, damages in class actions that could not be paid to class members either reverted to the defendant or—in the context of some class-action settlements—were given to a charity picked by the parties and approved by the court.

Proponents of cy pres awards often contend that class members who can’t be paid their damages are better served by a donation to a charity whose mission is related in some fashion to the goals of the class-action lawsuit. Proponents also contend that forcing defendants to pay the full amount of damages they theoretically would owe if liability were established as to all class members—and then all class members actually claimed payments—would better deter future wrongdoing.

More cynical observers of class actions note that cy pres awards are often used by class counsel to puff up the amount of money purportedly recovered in the case in order to justify a higher fee award. Sometimes the recipient of cy pres largesse is picked simply to curry favor with a judge being asked to approve the settlement—for example, a donation to the law school clinic at the judge’s alma mater. And in every case, the use of cy pres eliminates the incentive for class counsel to ensure that class members—the ostensibly injured parties—get the individualized compensation they have been awarded. And while some federal courts have begun to pay closer attention to whether class members actually recover under class settlements, this law encourages Oregon state court judges to ignore that question.

Even worse, the potential of a cy pres award sometimes is used to justify the certification of particularly dubious class actions. For example, take a putative class whose members can’t be identified. Class certification should be denied because the class isn’t ascertainable. But if cy pres were mandatory, the would-be class counsel can always say “so what—let’s just figure out the defendant’s aggregate liability, pay the handful of class members we can identify, and then give the rest away in cy pres in order to punish the defendant.” And never mind, of course, that this procedure would deprive the defendant of the right to cross-examine absent class members or assert individualized defenses. Indeed, there are strong arguments that the use of cy pres—particularly in a litigated case where the defendant has not agreed to it—is unconstitutional (pdf).

Chief Justice Roberts has said that the U.S. Supreme Court might be interested in hearing a case that presents appropriate questions about the use of cy pres awards in class-action settlements in federal court. Of course, if the case arises in federal court, those questions might be framed in terms of Federal Rule of Civil Procedure 23(e), which tasks federal judges with assessing the fairness of class settlements. If the case arises from the Oregon courts—which may be a possibility thanks to H.B. 2700—more fundamental questions of due process would be raised, with potentially much larger ramifications for class-action litigation.

Third Circuit Hears Oral Argument Over Whether FTC Has Authority To Regulate Data Security

Posted in Class Action Trends

After much anticipation, the Third Circuit heard oral arguments (audio) last Tuesday in the interlocutory appeal in FTC v. Wyndham Worldwide Corp. We have written previously about this case, which likely will be a significant one in the privacy and data-security field. At issue is whether Section 5 of the FTC Act authorizes the FTC to regulate data security at all, as well as what constitutes “unfairness” in the data-security context. The case may have a large impact on future FTC enforcement actions and major implications for class action litigation.

But after all the build up, the panel of the Third Circuit hearing argument might change the script. Questioning by the judges (Thomas Ambro, Jane Roth, and Anthony Scirica) indicated that the panel was seriously considering a ruling that the FTC should have brought any unfairness claim in an FTC administrative action in the first instance (as it did in the LabMD action), not in federal district court. If that happens, we will have to wait even longer to learn whether the federal courts agree with the FTC’s views on the scope and contours of its unfairness authority in the data-security context.

Counsel for the FTC and for Wyndham spent large portions of the oral argument emphasizing the positions they had briefed. Wyndham’s counsel, for example, argued at length that negligence alone cannot satisfy an “unfairness” standard, that businesses had not received adequate notice of what triggers such liability, and that the FTC had not adequately alleged substantial injury. But the panel may not reach those issues. Instead, the court focused on the threshold question of whether the FTC had the authority in the first place to sue in federal court under Section 13(b) of the FTC Act. That section permits “the Commission [to] seek, and after proper proof, the court [to] issue, a permanent injunction,” but limits such relief to “proper cases.”

Is the Wyndham action a “proper case”? According to the FTC—which invoked decisions of the Ninth Circuit and the Seventh Circuit for support—it is “proper” to sue whenever the FTC alleges a violation of a law that the FTC enforces. For its part, Wyndham did not disagree, instead arguing that such a rule would have practical benefits—including that, in its view, the company would get a fairer shake in federal court than in an FTC administrative action. But the Third Circuit panel appeared to be unconvinced on this point, and focused instead on whether a case presenting novel and complex issues should first be brought in an administrative action. In fact, the panel asked the parties to provide supplemental briefing on the point.

It is always perilous to read the tea leaves after an oral argument. But it is an understatement to say that the Third Circuit’s panel was dropping some hints, especially by requesting further briefing on whether the FTC action belongs in federal court. There is therefore a substantial possibility that the court will send the action to the FTC for administrative adjudication in the first instance.

That result would serve to underscore a point we have made before—that post hoc litigation is a poor way to impose data-security standards. Litigation moves forward in fits and starts, and by its nature is unlikely to produce clear rules or standards in complex areas like data security. In short, it is an unpredictable and expensive method of forging broadly applicable standards. All stakeholders—both businesses and their consumers and employees—are likely to suffer from a lack of meaningful direction if data-security standards are generated via litigation. With the cyber threat continuing to grow—from garden-variety hackers to sophisticated operations that may be sponsored by foreign governments—consensus-based standard setting is far more likely to provide practical guidance for American businesses that seek to protect private information, intellectual property, and business-critical systems from the continuing cyber onslaught.

Food Court Grants Summary Judgment In Class Action Targeting “No Sugar Added” Label

Posted in Motions Practice

As readers of this blog are well aware, manufacturers and retailers have faced a tidal wave of consumer class actions alleging false advertising in recent years. In these cases, the plaintiffs bemoan how they were deceived by the labels or advertising of all kinds of products – from yogurt to waffles to dog food to shampoo. But no matter how implausible these claims may be, judges often allow them to survive motions to dismiss (often multiple times), which inevitably ratchets up the pressure to settle. For companies that stick it out and take discovery of the named plaintiff, however, there can be a payoff. Sometimes, the plaintiff’s own testimony can halt an expensive class action in its tracks. That is exactly what happened in Major v. Ocean Spray Cranberries, Inc.

Major was a putative class action filed in the Northern District of California. A California purchaser alleged that Ocean Spray’s 100% Juice products violated California’s consumer protection statutes. Specifically, she alleged that the statement “No Sugar Added” deceived her because (1) the juice labels did not include a disclaimer (one required by federal regulations) explaining that the products were not a low-calorie food, and (2) the products contained “juices from concentrate,” which the plaintiff characterized as a form of added sugar.

The truth of the matter, however, came out at the plaintiff’s deposition. Armed with admissions demonstrating that plaintiff wasn’t even remotely deceived by the term “No Sugar Added,” Ocean Spray moved for partial summary judgment on precisely the same claims that were the subject of the plaintiff’s pending motion for class certification. Judge Davila agreed with Ocean Spray and granted the motion for summary judgment, which in turn rendered the plaintiff’s motion for class certification moot.

First, the plaintiff’s testimony demonstrated that the absence of a disclaimer that the juices were not low calorie had zero effect on her decision to purchase Ocean Spray’s juices. When asked whether she purchased the 100% Juice products because she thought they were “a reduced calorie product,” the plaintiff said no. And when she was asked whether she thought the juices were low calorie products at the time she purchased them, she also said no. In other words, she had not been even remotely deceived by the absence of the disclaimer because (1) she knew the juices were not low in calories and (2) calorie content was not a motivating factor for her purchase. In response, the plaintiff argued that she had understood “No Sugar Added’ to mean “better and healthier.” Judge Davila agreed with Ocean Spray, however, that this argument was just an improper attempt to “amend her Complaint ‘on the fly’” and in any event, the plaintiff hadn’t identified the particular statements on the juice labels that proclaimed the products to be “better.”

The plaintiff’s deposition testimony also disproved her second theory of deception alleged in the complaint (i.e., that including “concentrated fruit juice” as an ingredient belied the “No Sugar Added” labeling statement). She testified that she understood the term “No Sugar Added” to mean that “there’s literally nothing containing sugar that’s added to this other than the natural sugar from the fruit.” Ocean Spray was able to show that its juice (1) was accurately portrayed under the relevant regulations as having “no sugar added” and (2) satisfied the plaintiff’s own understanding of what “no sugar added” means. As a factual matter, the plaintiff’s allegation in the complaint that Ocean Spray’s products contained “concentrated fruit juice” was untrue; Ocean Spray produced undisputed evidence that its juices were “fruit juice from concentrate.” The difference between the two seemingly similar terms is critical: Ocean Spray’s evidence showed that “juices from concentrate, such as Defendant’s products, contain the same ratio of water to sugar solids and other compounds that exist naturally,” which is “is in contrast to products containing fruit juice concentrate, which do contain a higher level of sugar than would exist naturally.” Because “products[] made with juice from concentrate[] contain the same amount of sugar that would have existed naturally,” the court held that “the products cannot be said to contain ‘added sugars.’” And this factual showing also “conform[ed] to plaintiffs’ understanding” that “no sugar added” means no sugar beyond “the natural sugar from the fruit.” As a result, the plaintiff could not meet her burden of showing a factual dispute over whether she was deceived about the sugar content in Ocean Spray juice.

To be sure, not every plaintiff will provide deposition testimony that will so neatly end a case. But the Major decision demonstrates that settlement is far from the only option when a judge denies a motion to dismiss, even in a false advertising case.

Second Circuit Narrows Class Standing Doctrine

Posted in Securities

In NECA-IBEW v. Goldman Sachs, the Second Circuit arguably opened up a new door in class action litigation when it held that investors in one securities offering had standing to represent a putative class of investors in other offerings, as long as the fraud claims on both securities gave rise to “the same set of concerns.” (Our past coverage of that decision is here.) The Second Circuit’s recent decision in Policemen’s Annuity and Benefit Fund v. The Bank of New York Mellon, argued by our colleague Charles Rothfeld, clarifies and narrows that ruling, especially as to claims for breach of contract.

At issue in Policemen’s Fund were a series of residential mortgage-backed securities (RMBS) trusts. These trusts hold pools of mortgages and thus receive the stream of interest and principal payments from mortgage borrowers; beneficial ownership interests in the trusts are then sold to investors. The Policemen’s Fund plaintiffs are investors in 15 residential mortgage securitizations who sued the trustee (the Bank of New York Mellon) for alleged breaches of the trust agreements, state law duties, and the federal Trust Indenture Act. The question in the case was whether the named plaintiffs—who had invested in some RMBS trusts within the class definition but had not invested in many others —nonetheless had standing to sue on behalf of putative class members who had invested in those other trusts. (The case also involved questions about the scope of the Trust Indenture Act; the court ultimately decided that the TIA doesn’t apply to most RMBS; please see our report on the securities-law aspects of the decision for more details.)

The Second Circuit held that the named plaintiffs did not have standing to sue on behalf of the putative class members who had invested in trusts that the named plaintiffs had not. And helpfully for defendants, the court held that the named plaintiffs’ claims did not implicate the “same set of concerns” as those of the other class members by focusing on the proof required for each claim. Specifically, the court observed that “the absent class members’ claims” in NECA “were similar to those of the named plaintiffs in all essential respects,” because the alleged misstatements were in a shelf registration statement, and all of the securities were issued from the same shelf. In other words, the court explained, “the defendants’ alleged Securities Act violations inhered in making the same misstatements across multiple offerings.” By contrast, the court explained, the claims at issue in Policemen’s Fund required that the alleged misconduct “be proved loan-by-loan and trust-by-trust”; the claims depend upon the potentially varying conduct of the trustee and the entities the trustee purportedly should have supervised.

The Second Circuit’s analysis thus represents a rejection of a free-floating and malleable approach, which some commentators have argued that NECA permits, to the question whether the claims involve the “same set of concerns.” Indeed, the court shot down the plaintiffs’ arguments that relied on such a nebulous conception of class standing. First, the plaintiffs had suggested that it was the trustee’s allegedly common “policy of inaction” that was at issue, not its loan-specific conduct. That doesn’t solve the standing problem, the Second Circuit held, because “they would still have to show which [securitization] trusts actually had deficiencies that required BNYM to act in the first place.” Second, the plaintiffs proposed to use statistical sampling to show defects across securitizations. But the court held that such a methodology, (which we have criticized before) would require that plaintiffs “augment” the proof that they would have offered on their own claims; that prospect “does nothing to reassure us that Plaintiffs themselves have any real interest in litigating the absent class members’ claims.”

Policemen’s Fund is an important step toward reining in what—if NECA-IBEW were interpreted the wrong way—could have been an unbounded test for class standing (itself a novel and amorphous doctrine). Now, if the proof that the plaintiff would present on its own claim does not—at a minimum—go a long way toward proving the claims of absent class members, then the tag-along claims may be dismissed at the pleading stage for lack of standing rather than waiting for class certification. That aspect of the Policemen’s Fund ruling significantly limits the ability of plaintiffs’ firms to leverage small investor clients who are not representative of a proposed class to bring overly broad class actions.

Plaintiffs Who Settle Individual Claims Can’t Appeal Class Claims in the Ninth Circuit Unless They Retain a “Financial Interest” in the Case

Posted in Motions Practice

The Ninth Circuit recently clarified the circumstances in which a plaintiff who settles his or her individual claims can appeal the denial of class certification of related claims. In Campion v. Old Republic Protection Company (pdf), the Ninth Circuit dismissed a class certification appeal as moot because the plaintiff had settled his individual claims. The court explained that a settling plaintiff must retain a personal, “financial” stake in litigation in order to appeal the denial of class certification—“the theoretical interest akin to a private attorney general” will not suffice.

The leading Ninth Circuit case on post-settlement class-certification appeals is Narouz v. Charter Communications, LLC (pdf). The plaintiff in Narouz settled his individual claims and attempted to settle on behalf of a class as well. If the settlement class had been certified and the class settlement received final approval, Narouz would have obtained an additional $20,000 incentive payment on top of the amount he had been given to settle his individual claims. The district court, however, refused to certify the class for settlement purposes, and Narouz appealed. The Ninth Circuit found that the individual settlement did not moot the appeal because Narouz retained a “personal stake” in the class litigation—i.e., the $20,000 enhancement award.

As we recently reported, in November 2014, the Ninth Circuit rejected as moot a plaintiff’s attempts to appeal class claims after accepting a Rule 68 offer of judgment covering “any liability” asserted in the action. In an unpublished decision, Sultan v. Medtronic, Inc., the court held that Narouz foreclosed the appeal because the plaintiff did not retain a personal stake in the class claims. Campion, a published decision, follows on the heels of Sultan and clarifies the standard established in Narouz and applied in Sultan. (Our colleague Don Falk represented Medtronic in Sultan.)

In Campion, a customer sued a home warranty provider, alleging breach of contract, breach of the implied covenant of good faith and fair dealing, and violations of the California Consumers Legal Remedies Act (“CLRA”) and California Unfair Competition Law. Campion complained that Old Republic arbitrarily denied class members’ claims and cheated them out of benefits owed under their policies. After extensive motions practice, the district court denied Campion’s motion for class certification, granted Old Republic partial summary judgment on the CLRA claims, and denied Campion leave to amend the complaint. After these rulings, the parties reached a settlement agreement. Campion dismissed his individual claims with prejudice in exchanged for the “full amount of those claims,” but “expressly reserve[d] the right to appeal the … order denying class certification” and “any other order in the case.” Campion then purported to appeal (on behalf of the putative class) the orders denying class certification and granting the defendant partial summary judgment.

A divided panel of the Ninth Circuit dismissed the appeal as moot. Campion argued that he retained an interest in the matter as a private attorney general sufficient to satisfy Narouz. But the panel majority disagreed, explaining that “a more concrete interest” is necessary. Specifically, the panel majority explained that courts of appeals have jurisdiction over appeals of class certification denials brought by settling named plaintiffs “only where the putative class representative maintain[s] a financial interest in class certification.” Because Campion had settled his individual claims for their full value, he lacked the personal financial stake necessary to pursue the class appeal.

Judge Owens dissented. He explained that he would have reached the merits of Campion’s appeal and affirmed the denial of class certification and grant of partial summary judgment. Judge Owens predicted that “the Supreme Court someday will hold that a plaintiff who voluntarily settles his claim must retain a financial stake in the litigation to serve as a class representative.” But he stated that, in his view, current law allowed settling plaintiffs to appeal on a private attorney general theory; he did not read the Narouz decision as imposing a “financial-in-nature” limitation on the type of personal stake needed to have standing to appeal the denial of class certification.

The majority noted, however, that Narouz had retained a $20,000 interest in his class appeal (the potential incentive payment). Although the Narouz court had not used the term “financial” in its formulation of the personal-stake standard, the court had permitted Narouz to proceed with his appeal only because of his $20,000 financial interest in the class claims. Similarly, in another case discussed by the Campion majority (Evon v. Law Offices of Sidney Mickell (pdf)), the settling plaintiff continued to have a personal stake in the class appeal because he had retained the right to seek up to $100,000 in attorneys’ fees if that appeal were successful. Campion, by contrast, stood to gain no compensation if the putative class recovered, thereby mooting his appeal.

Campion thus confirms that, at least in the Ninth Circuit, a plaintiff voluntarily settling individual claims must retain a personal, financial stake in continuing litigation in order to purport to file appeals on behalf of a putative class. Individual cases will “turn[] on the language of [the] settlement agreement,” but merely retaining the right to appeal as a private attorney general will not suffice. The court left open the possibility that a private attorney general interest might suffice when the plaintiff’s individual claims expire “involuntarily,” rather than by voluntary settlement. But where the plaintiff voluntarily extinguishes his entire financial interest, he or she cannot later appeal on behalf of the class.

U.S. Chamber of Commerce Files Amicus Brief on Ascertainability in Key Ninth Circuit Case

Posted in Ascertainability, Class Certification

As readers of our blog know, ascertainability is one of the most contentious issues in class action litigation these days.  Ascertainability is the main issue presented in Jones v. ConAgra Foods, No. 14-16327, a pending Ninth Circuit case in which the plaintiff and his amici have mounted a full-scale attack on whether the ascertainability requirement even exists.  Along with our colleagues Andy Pincus and Dan Jones, we have filed an amicus brief (pdf) on behalf of the Chamber of Commerce of the United States arguing that ascertainability is a critical requirement for class certification, and that due process forbids courts from relaxing that requirement in the name of certifying a class.

As we explain in the brief, the plaintiff in Jones proposed a consumer class whose members will be largely impossible to identify.  The putative class consists of California residents who purchased certain Hunt’s canned tomato products bearing particular labels.  Who are these people?  The answer cannot be found through objective documentation:  Consumers typically do not keep receipts or packaging from food products (or other similar products) that likely were purchased or consumed years ago.  The plaintiff in Jones says that this hurdle can be overcome by allowing absent class members to file affidavits testifying that they purchased a particular product (presumably based on their recollection).  But that testimony and recollection (under the plaintiff’s proposal) would be immune from challenge by the defendant (for example, through cross-examination).

The district court properly held (pdf) that this proposal flunked the ascertainability requirement implicit in Rule 23.  On appeal, Jones and his amici (Public Citizen and the Center for Science in the Public Interest) argue that the approach to ascertainability adopted by the district court is a recent invention of the Third Circuit in Carrera v. Bayer Corp.  (We’ve discussed Carrera extensively.)  They contend that the ascertainability requirement should be either eliminated from the class certification analysis altogether or substantially relaxed in order to clear the runway for consumer class actions.

In our brief, we explain why that view is mistaken.  Here are some of the key points from our brief:

  • The assumption by the plaintiff and his amici that the ability to certify class actions is to be promoted at every turn is deeply misguided.  Class actions are a means of dispute resolution, not an end in themselves.  As the Supreme Court recently reiterated in Wal-Mart Stores, Inc. v. Dukes, class actions are an “exception to the usual rule” that cases are litigated individually, and it is therefore critical that courts apply a “rigorous analysis” to the requirements governing class certification before a lawsuit is approved for class treatment.
  •  Ascertainability is one of those requirements that, like many other class certification requirements, is rooted in well-established principles of due process.  It seems hard to dispute that if the named plaintiff were to sue a company over a particular product on his own, he would have to prove at trial that he purchased the challenged product and that he was injured as a result.  As a matter of due process, the defendant would have to be given the opportunity to challenge the plaintiff’s evidentiary showing, including through cross-examination, and to have a court or jury resolve any factual disputes.
  • The fact that a plaintiff has chosen to bring a class action cannot alter the due process rights of defendants.  A Rule 23 class action is the sum of the individual class members’ claims within it—nothing more.  The Supreme Court made this clear in Dukes when it held that a class can’t be certified “on the premise that [the defendant] will not be entitled to litigate its * * * defenses to individual claims.”  Interpreting Rule 23 otherwise would violate the Rules Enabling Act, which embodies the due process principle that procedural rules cannot “abridge, enlarge or modify any substantive right.”  28 U.S.C. § 2072(b).
  • Ascertainability ensures that due process is honored by preserving defendants’ ability to challenge any would-be class member’s claim of eligibility and right to recovery.  Without a reliable and administratively feasible method for identifying who is in a class, defendants will have no way to bring such challenges, short of extensive individualized fact-finding and an unmanageable series of mini-trials.
  • Virtually all courts to consider the issue have insisted that plaintiffs demonstrate that a proposed class is ascertainable.  And the notion that ascertainability should be relaxed or ignored in order to make consumer class actions easier to bring runs headlong into defendants’ due process rights.
  • The policy argument advanced by the plaintiff and his amici that unascertainable class actions of this sort are beneficial cannot be squared with the evidence.  In a theme we have explored on this blog, the ordinary justification for class actions—that they offer benefits for class members who would not pursue relief on their own—is simply inapplicable to cases involving class members who can’t be identified; when such class actions are certified, only a handful of class members actually receive benefits.

We will be watching Jones v. ConAgra closely to see whether the Ninth Circuit—which oversees the so-called “Food Court”—continues to ensure that ascertainability is satisfied in class actions.  But the Ninth Circuit is not the only circuit that will address the question.  This Friday (February 6), the Eleventh Circuit will hear oral argument in Karhu v. Vital Pharmaceuticals, Inc., No. 14-11648.  (We’ve covered the district court’s decision in Karhu.)  In Karhu, plaintiffs argue that class members can be identified through claimant affidavits and retailer records.  Like the plaintiffs in Jones, the Karhu plaintiffs argue that Carrera was wrongly decided and should not be followed.

Will either circuit create a split with Carrera and other cases?  Stay tuned!

Congratulations to “Litigation Trailblazer and Pioneer” Evan Tager

Posted in Uncategorized

In our first post of 2015, we wanted to congratulate our colleague and mentor, Evan Tager, for his recent recognition as a Litigation Trailblazer and Pioneer by the National Law Journal.

Evan has been at the forefront of major developments in the law—including those affecting class action and mass tort litigation.  As this profile notes, Evan has been a leader on at least two major issues.  First, he helped convince courts of the need for due process limitations on excessive punitive damages awards, ultimately prevailing in BMW of North America v. Gore.  And second—working with us and others at the firm—Evan spearheaded Mayer Brown’s efforts on behalf of AT&T to craft and enforce arbitration agreements that require fair individual arbitration instead of class actions, culminating in the win for the business community in AT&T Mobility LLC v. Concepcion.

Evan’s award is reason enough for us to write this post.  But what the award does not capture is that, in addition to being among the very best appellate lawyers who represent businesses, he is a wonderful teacher, mentor, and friend.  Evan has guided the two of us, as well as many other Mayer Brown lawyers, as our careers have developed.  Indeed, Evan encouraged us to launch this blog.  So we have especially good reason to celebrate Evan’s recent accomplishment.

We’ll be back to our regularly scheduled programming later this week—Archis will have a blog post on the Seventh Circuit’s 2014 cases addressing class settlements.