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You’ve Settled the Class Action—Can the State AG Demand Another Payout?

Posted in Class Action Trends

One of the more alarming recent developments in the class-action arena is the increase in actions by state attorneys general that mirror private class actions. These state AG actions aren’t like the typical enforcement action, in which the government pursues claims for civil penalties that are distinct from the relief sought in the private class action. Instead, these are copycat actions in every sense of the word. The state AG seeks restitution or disgorgement that is equivalent to the remedies requested in the private class action. And increasingly, the state AG is handing over the reins entirely to class-action plaintiffs’ lawyers, who sometimes get to call themselves “special assistant state attorneys general”—and usually get a big chunk of the ultimate recovery.

We’ve written before about this new breed of parens patriae action. But we wanted to focus on a different problem, which several Justices of the Supreme Court asked about during oral argument in Mississippi ex rel. Hood v. AU Optronics Corp. Specifically, the defendants targeted by these suits are being asked to pay damages twice for a single injury:

JUSTICE GINSBURG: But now we have the consumers who were affected, they’ve already been paid [in the settlement of the private class action]. So how does it work for the Attorney General’s suit? What is the impact of the class action that has already gone forward and been completed on the Attorney General’s claim?

* * *

CHIEF JUSTICE ROBERTS: What prevents * * * attorneys general from around the country sitting back and waiting * * * as private class actions proceed, and as soon as one settles or the plaintiffs’ class prevails, taking the same complaint, maybe even hiring the same lawyers, to go and say, well, now we are going to bring our parens patriae action. We know how the trial is going to work out or we know what the settlement is going to look like, and we are going to get the same amount of money for the State?

When asked about the fairness of this one-two punch, the lawyer for the Mississippi AG punted, suggesting that it is a matter of state law whether the judgment in the consumer class action could preclude a double recovery in the parens patriae action.

But that cannot be the whole picture. There are strong arguments that principles of federal due process forbid states from authorizing that kind of double dipping by removing well-established claim preclusion (res judicata) protections.

Those principles may also inform how state law approaches the question. Indeed, such arguments recently were successful in New Mexico ex rel. King v. Capital One Bank (USA) N.A. (pdf).

In that case, the New Mexico AG sought (among other things) restitution for New Mexico consumers who had subscribed to the defendant’s payment-protection plans. Yet the defendant had already reached a nationwide class settlement that resolved privately brought consumer-protection claims seeking restitution for the amounts New Mexico consumers had paid for these plans.

The district court agreed that the New Mexico AG’s claims for restitution were barred by res judicata under state law. The court first pointed out that the prior class settlement expressly discharged the claims of “all those who claim through [the class members] or who assert claims on their behalf (including the government in its capacity as parens patriae).”

The court next concluded that the claims in the current suit undoubtedly arose out of the same transaction or occurrence as the previously settled claims, and that the New Mexico AG was in privity with the class in the earlier private class action because both sought to remedy the same injury to the same group of people. Finally, the court added that “as a policy matter, the class members * * * should not be allowed to receive ‘double recovery.’”

Naturally, we think that the district court got it right. It remains to be seen whether the Tenth Circuit and district courts elsewhere will agree. Given the significance of this issue, we will keep our eyes open for future cases raising it and report on them.