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Cutting-Edge Issues in Class Action Law and Policy

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.

Supreme Court Holds That Defendants Need Not Submit Evidence with a Notice of Removal Under the Class Action Fairness Act

Posted in CAFA, U.S. Supreme Court

To remove a civil action from state court to federal court, the defendant must “file … a notice of removal … containing a short and plain statement of the grounds for removal.” 28 U.S.C. § 1446(a). Under the Class Action Fairness Act of 2005 (CAFA), federal courts have jurisdiction over certain class actions if, among other things, the amount in controversy exceeds $5 million. 28 U.S.C. § 1332(d)(2). Today, the Supreme Court held in Dart Cherokee Basin Operating Co. v. Owens (pdf), that a defendant’s notice of removal need only contain a “plausible allegation” that the amount in controversy exceeds CAFA’s $5 million jurisdictional minimum. The defendant must submit evidence supporting the alleged amount in controversy only “when the plaintiff contests, or the court questions, the defendant’s allegation.”

Owens, the plaintiff in Dart Cherokee, filed a class action in Kansas state court seeking to recover oil and gas royalties but did not specify the amount of damages sought. The defendants responded by filing a notice of removal under CAFA. The notice alleged that the royalties at issue exceeded $8.2 million and thus satisfied CAFA’s $5 million jurisdictional minimum. When Owens moved to remand the suit to state court, the defendants filed a declaration supporting the jurisdictional facts alleged in their notice of removal. The district court held that under Tenth Circuit precedent, the party seeking removal must attach evidence of the amount in controversy to the notice of removal itself, and therefore remanded the case. The district court thus refused to consider the evidence that the defendants filed with their opposition to the motion to remand, concluding that Tenth Circuit precedent barred the use of factual allegations or evidence outside the notice of removal to establish the amount in controversy. The defendant petitioned the Tenth Circuit for leave to appeal the remand order under CAFA (see 28 U.S.C. § 1453(c)(1)), but “[u]pon careful consideration of the parties’ submissions, as well as the applicable law,” a divided panel of the Tenth Circuit denied leave to appeal. Rehearing en banc was denied by an equally divided court, over a published dissent.

By a 5-4 vote, the Supreme Court vacated the judgment of the Tenth Circuit and remanded for further proceedings.

The opinion for the Court, authored by Justice Ginsburg, first addressed the merits issue by describing the relevant procedures for seeking removal. The Court explained that Section 1446(a)’s “short and plain statement” requirement—which CAFA incorporates—was designed to track the general pleading requirements stated in Rule 8(a) of the Federal Rules of Civil Procedure. Congress borrowed Rule 8(a)’s pleading requirements to “simplify” removal and “clarify that courts should ‘apply the same liberal rules [to removal allegations] that are applied to other matters of pleading.” Under this rule, a court should accept the defendant’s plausible allegations regarding the amount in controversy unless the plaintiff contests them or the court itself questions them. If the plaintiff does contest removal, both sides should submit proof of the amount in controversy and the court should decide by a preponderance of the evidence whether the jurisdictional minimum is satisfied.

In so ruling, the Supreme Court has brought courts within the Tenth Circuit into line with the overwhelming majority rule, which requires only that a defendant file a notice of removal alleging that CAFA’s jurisdictional requirements—including the amount in controversy—have been satisfied. Because removals to federal court usually must take place within 30 days after a lawsuit is served, the Court’s decision protects defendants that wish to remove cases to federal court from having to gather evidence to support removal on an abbreviated time frame.

The Court’s opinion also contains additional language that should be helpful for business defendants in future cases. In the course of addressing CAFA procedures and requirements, the Court emphasized that “no anti-removal presumption attends cases invoking CAFA, which Congress enacted to facilitate adjudication of certain class actions in federal court.” That holding should dispatch arguments often made by plaintiffs that a so-called “presumption against removal” applies to CAFA.

Although Dart Cherokee is a 5-4 decision, the Justices did not appear to disagree about the merits. Instead, as the oral arguments in this case foreshadowed, the Court divided over whether it was proper to reach the merits at all. Specifically, under 28 U.S.C. § 1254(1), the Supreme Court has jurisdiction to review by certiorari only “[c]ases in the courts of appeals.” Because the Tenth Circuit did not grant permission to appeal, an amicus curiae (Public Citizen) contended either that there was no case “in” the Tenth Circuit at all, or that all that could be reviewed was the Tenth Circuit’s discretionary decision to deny permission to appeal the district court’s remand order.

The principal dissent—authored by Justice Scalia and joined by Justices Kennedy and Kagan, and by Justice Thomas “as to all but the final sentence”—agreed with the latter point. According to Justice Scalia, the case posed only the question whether the Tenth Circuit abused its discretion under CAFA when it denied permission to appeal the district court’s remand order. Because, in Justice Scalia’s view, the Tenth Circuit’s order did not say why permission was denied, there was no way to determine whether an abuse of discretion had occurred. Justice Thomas filed an additional dissent that accepted Public Citizen’s first argument, concluding that an application for permission to appeal a remand order did not constitute a “case” “in the court of appeals” that the Court could properly review.

In response to these dissents, the majority explained that “[d]iscretion to review a remand order is not rudderless,” and lower courts necessarily abuse their discretion when they rely on an “erroneous view of the law.” The Court noted the presence of “many signals that the Tenth Circuit relied on [a] legally erroneous premise” based on its prior precedent, and therefore concluded that the order denying permission to appeal “was infected by legal error.”

The Court’s holding that it was proper to reach the merits is significant: If the courts of appeals could insulate controversial and important questions under CAFA from Supreme Court review by simply refusing to grant permission to appeal, the Supreme Court’s ability to shape uniform nationwide rules governing federal jurisdiction over class actions could be impeded significantly. By reaching the merits, the Court has signaled that it is prepared to review such questions when appropriate.

Standing Without Injury? Washington Legal Foundation Webinar Addresses “No-Injury” Class Actions

Posted in U.S. Supreme Court

The Supreme Court is currently considering a petition for certiorari in Spokeo Inc. v. Robins (pdf), which raises the question 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. This question of Article III standing potentially impacts a wide variety of lawsuits that we (and others) view as “no-injury” class actions.

In Spokeo (in which we represent the petitioner), the Supreme Court recently called for the views of the Solicitor General concerning whether certiorari should be granted. It is already clear that the business community views Supreme Court review as essential—at least ten amicus briefs representing the views of seventeen amici were filed in support of the petition.

As observers on all sides watch to see what the Supreme Court will do, the Washington Legal Foundation will be conducting a webinar next Tuesday (December 9) discussing the Spokeo case and the issue of “no-injury” class actions. My colleague Andy Pincus, who is counsel of record in Spokeo, will be speaking on the webinar. More information about the webinar is available here (pdf).

Update:  A video of the webinar is available here.

 

Ninth Circuit Holds That State AGs and Prosecutors Can’t Seek Restitution On Behalf Of A Class That Already Settled Its Private Claims, But Can Seek Injunctive Relief and Penalties

Posted in CAFA

A decade ago, California’s unfair competition law (UCL) and its closely related false advertising law (FAL) were the ideal plaintiff’s tools.  Any person—even one with no connection to a particular asserted violation or harm—was able to bring a claim on behalf of the “general public” and recover restitution for thousands of people (and, of course, attorney’s fees) without going through the hassle of class certification. But in 2004, the California voters changed that; private plaintiffs who want to sue on behalf of others must certify a class. The statutes still work the old way for public prosecutors, who can invoke the public’s rights without meeting the requirements for class certification.

Sometimes a plaintiff’s attorney and a prosecutor fasten on the same target. Then what?  What if the private plaintiffs get there first, settling for the class before a prosecutor brings an action on behalf of the general public?

The Ninth Circuit recently addressed this scenario in People v. Intelligender, LLC.  Intelligender makes a test designed to predict a baby’s gender.  The test’s accuracy allegedly disappointed some of its purchasers, who brought a class action under the UCL and FAL.  Intelligender removed the case to federal court under the Class Action Fairness Act of 2005 (CAFA), and eventually settled the class action.  As part of the settlement approval process, the parties notified the California Attorney General, as CAFA requires (see 28 U.S.C. § 1715).  The AG did not seek to challenge the settlement—which involved both monetary and injunctive relief—and the district court approved it.

Enter the San Diego City Attorney, who decided that Intelligender had not paid enough.  The City Attorney brought a new action in state court on behalf of the general public and in the name of the State, seeking not only a broader injunction and civil penalties but also restitution for same class of buyers that had settled the federal case.

But Intelligender did feel that enough was enough.  After removing the case to federal court under CAFA, Intelligender asked the district court to enjoin the entire lawsuit.  The district court declined and remanded the case to state court. Intelligender then asked the district court to enjoin only the State’s pursuit of restitution, but the district court declined again.

The Ninth Circuit affirmed in part and reversed in part. The court of appeals agreed that California could pursue its own injunction and could seek civil penalties because the private settlement did not have res judicata effect over a public entity.  The court reasoned that law enforcement cannot be shut down by a private settlement, and the private plaintiffs could not and did not pursue civil penalties.

But the Ninth Circuit drew the line at the pursuit of duplicative restitution, which failed under “longstanding principles of res judicata.”  Citing the Supreme Court’s admonition in EEOC v. Waffle House, Inc. that “it goes without saying that the courts can and should preclude double recovery by an individual” even when a public agency litigates on the individual’s behalf, the Ninth Circuit turned back the State’s effort to increase the private payout.  Because the certified class of all purchasers had settled all their claims for restitution, the State could not step in and seek greater compensation for the same injury.  This was so even though the settlement only compensated those whose test results were inaccurate, while the State also sought “restitution” of the entire purchase price for buyers who got everything they paid for—persons who were in the settlement class, but received no payment under the settlement.  The time for the State to challenge the lack of payment to uninjured buyers was in the private case after receiving the CAFA-required notice of the settlement.

The Ninth Circuit—joining a long list of district court decisions, including one we blogged about last year—was right to prevent the State from reopening the issue of compensation for class members.  Whatever a State may do in pursuing public law enforcement remedies, it cannot try to extract greater payments to individuals whose own claims have been decided or settled.  So while defendants cannot altogether stop follow-on UCL actions by public prosecutors, any additional pecuniary liability must run to the State, not to the plaintiffs who sued—and settled—first.

En Banc Ninth Circuit Permits Removal Under CAFA of a Subdivided Mass Action

Posted in CAFA

Over the past few years, a number of plaintiffs’ lawyers have attempted—with some success—to circumvent the “mass action” provisions in the Class Action Fairness Act of 2005 (“CAFA”), which allow defendants to remove to federal court certain cases raising “claims of 100 or more persons that are proposed to be tried jointly.” 28 U.S.C. § 1332(d)(11)(B)(i).  Although these lawyers represent 100-plus clients with substantively identical claims, they subdivide their mass actions into multiple parallel cases, often with just under 100 plaintiffs each.  And to avoid the “proposed to be tried jointly” language of CAFA, they remain coy about—or sometimes deny—any intention to try the cases jointly.  Instead, they toe up to the joint trial line by seeking to have the cases treated together for as many purposes as possible short of directly calling for a joint trial.  But an en banc decision by the Ninth Circuit earlier this week represents a welcome step towards limiting such efforts to evade federal jurisdiction.

That en banc decision springs from a pair of cases we discussed last December: Romo v. Teva Phamaceuticals USA, Inc., and its companion case, Corber v. Xanodyne Pharmaceuticals, Inc.—in which a divided panel approved the remand of 40 just-under-100-plaintiff cases as to which plaintiffs had invoked a California state-law procedure that allows for coordination of complex civil actions “for all purposes.”  Although the plaintiffs did not limit their coordination request to pretrial proceedings, the panel majority held that that the plaintiffs’ request was insufficient to trigger removal, effectively requiring that plaintiffs expressly request a single joint trial before defendants may remove a mass action under CAFA.  Judge Gould dissented; in his view, the practical result of plaintiffs’ proposal for coordination was dispositive—rather than whether plaintiffs had used the magic words of asking for a joint trial.

As we noted in a blog post last February, the Ninth Circuit had granted rehearing en banc in both Romo and Corber to resolve the circuit split that the panel had created with the Seventh Circuit’s decision in In re Abbott Laboratories, Inc. and the Eighth Circuit’s decision in Atwell v. Boston Scientific Corp.

This week, the en banc Court (pdf)—adopting a pragmatic approach to what counts as a “joint trial” for purposes of CAFA—held that the defendants had properly removed the cases.  Writing for the Court this time, Judge Gould agreed with the Seventh and Eighth Circuits that a proposal for a joint trial may be made implicitly as well as explicitly.  The Court explained that although a rule requiring the plaintiffs to invoke the magic words “joint trial” “would be easy to administer,” the problem with that rule is that it “would ignore the real substance” of plaintiffs’ proposals and how the mass actions were likely to be litigated in practice.  And the Court observed that, as a practical matter, plaintiffs’ request to coordinate all of the cases “for all purposes”—and their arguments before the state court that coordination was needed to avoid “the danger of inconsistent judgments and conflicting determinations of liability”—was a request for a joint trial.

That holding is good news for defendants facing mass actions in the Ninth Circuit.  That said, we would have liked to see the Ninth Circuit go further to curb the attempts by plaintiffs’ lawyers to circumvent CAFA.  Amici argued in Romo/Corber—as we have also contended—that the Supreme Court’s admonition in Standard Fire Insurance Co. v. Knowles not to “exalt form over substance” in assessing CAFA jurisdiction forecloses plaintiffs’ lawyers from gerrymandering their 100-plus clients into parallel smaller actions.

Equally troubling, the Ninth Circuit left open the possibility that plaintiffs may be able to evade CAFA by asserting that their request for coordination is “intended to be solely for pre-trial purposes.”  In our view, that distinction is likely to prove illusory in practice:  Even if plaintiffs never formally move to coordinate or consolidate parallel cases all the way through trial, the cases would still effectively be tried jointly because the judgment in the first action might well have preclusive effect on the trials in any subsequent actions, which surely would be presided over by the same judge and involve similar witnesses and evidence.  As the Seventh and Eighth Circuits have made clear in Abbott Labs and Atwell, even a single-plaintiff trial may qualify as a joint trial if the intent is to use it as a bellwether trial on liability or for preclusive effect in subsequent trials.

The fight over this issue is far from over:  Plaintiffs’ lawyers will continue to subdivide their mass actions artificially to avoid federal jurisdiction, and defendants will seek to convince federal courts that such slicing-and-dicing is improper under CAFA.  Nonetheless, the Ninth Circuit’s willingness to take—as the court of appeals itself said—a more “realistic” view of mass actions is a step in the right direction.

Yes, you really did settle all your claims when you said you did: Ninth Circuit dismisses appeal of class certification denial by plaintiff who accepted Rule 68 offer

Posted in Employment, Motions Practice

A plaintiff hopes to represent a class to pursue two sets of wage-and-hour claims but runs into headwinds in the district court.  First, one set of claims disappears because his legal theory doesn’t withstand a motion to dismiss.  Then class certification is denied on what was left.  After that, the defendant— invoking Rule 68 of the Federal Rules of Civil Procedure—offers to settle “any liability claimed in this action.”  Under Rule 68, if the case goes to judgment and the plaintiff wins less than the offer, he would be liable for the defendant’s costs for any proceedings after the offer was made.

What is to be done?  The plaintiff in Sultan v. Medtronic, Inc. thought that he could simply accept the offer of judgment and associated payment and then proceed as if he hadn’t done so.  Forging ahead with an appeal of the partial dismissal and the denial of class certification, the plaintiff principally relied on a Ninth Circuit decision that permitted a settling plaintiff to appeal because the accepted offer lacked broad language addressing all claims—and in fact, during negotiations in that case, the parties had deleted an explicit reference to class claims.

Sometimes a settlement really is a settlement, however, and the Ninth Circuit held that this was one of those times.  Rejecting the plaintiff’s arguments that the Rule 68 judgment did not moot the class claims because they were not specifically identified in its terms, the court held (in an unpublished opinion) that a settlement of “any liability claimed in this action” was enough to end the entire case.  Along with my colleagues John Zaimes and Ruth Zadikany, I was counsel for Medtronic on this appeal.

Eleventh Circuit adopts broad view of businesses’ potential liability under TCPA for faxes sent by third parties

Posted in Class Action Trends, Motions Practice

One of the hottest areas in class actions is litigation under the Telephone Consumer Protection Act (TCPA).  And one of the most significant issues in TCPA litigation is the existence and scope of vicarious liability.  The key question is to what extent are businesses liable for the actions of third-party marketers who, without the consent of the recipient, send text messages or place calls using autodialers or prerecorded voices or transmit faxes?

Some plaintiffs had argued that businesses are strictly liable for TCPA violations committed in their name by third-party marketers.  Last year, the FCC rejected that approach in a declaratory ruling.  As we explained in our report, the FCC instead concluded that plaintiffs instead must prove liability under “federal common law principles of agency.”

But that declaratory ruling was decided in the context of telemarketing.  Should the same rule apply to alleged TCPA violations involving unsolicited marketing faxes?  Can plaintiffs revive their old arguments that businesses are strictly liable for faxes advertising their services sent by others?  Or are businesses not liable for TCPA violations that they themselves don’t commit?

The Eleventh Circuit recently considered this issue in Palm Beach Golf Center-Boca, Inc. v. John G. Sarris, D.D.S., P.A.  In that case, a marketer had allegedly sent several thousand unsolicited faxes advertising the services of a dental practice.  When a recipient of a fax sued the dental practice under the TCPA, the district court granted summary judgment in part because the plaintiff had failed to show that the dental practice was vicariously liable for the marketers actions.

The Eleventh Circuit reversed.  The court explained that the FCC’s prior declaratory ruling that the limited scope of vicarious liability for TCPA violations applied only to telemarketing calls.  But rather than decide what the vicarious-liability standard should be for faxes, the court held—based on a letter brief (pdf) submitted by the FCC—that the recipient of the fax didn’t need to prove vicarious liability at all.  Instead, the court held that  the dental practice could be viewed as the sender itself and therefore the recipient could attempt to show that the dental practice had directly violated the TCPA itself.

That result is hard to swallow.  The dental practice, after all, hadn’t actually sent any faxes itself.  And although it had hired the marketer, the evidence presented to the district court apparently showed that the dental practice had no direct role in the fax campaign—it didn’t decide to whom to send faxes or even approve the final language of the fax itself.  And it certainly didn’t press the button to send the faxes.

Nonetheless, the court held—based on the FCC’s letter brief—that the recipient of the fax could proceed to trial on the theory that the dental practice had committed a direct violation of the TCPA.  The TCPA makes it unlawful “to use any telephone facsimile machine, computer, or other device to send, to a telephone facsimile machine, an unsolicited advertisement.”  Under a natural reading of this language, one would think that the dental practice itself neither “use[d]” a fax machine nor “sen[t]” a fax.  But in the FCC’s view, a business is the “send[er]” of a fax transmitted by a third party so long as the fax was either sent on the business’s “behalf” or if the fax “advertise[s] or promote[s]” the business’s “goods or service.”

The FCC’s position conflates direct and vicarious liability for alleged TCPA violations involving faxes.  There are accordingly strong reasons to think that other courts should refuse to defer to the FCC’s interpretation.  That said, businesses whose marketing activities may include third-party fax campaigns should be aware of the potential that courts will, like the Eleventh Circuit in Palm Beach Golf Center, adopt the FCC’s position and authorize claims for direct liability under the TCPA.