Supreme Court holds that an unaccepted offer of judgment doesn’t moot a class action

330px-Supreme_Court_Front_Dusk-150x120.jpgArticle III of the Constitution limits the jurisdiction of federal courts to “cases” and “controversies.” As the Supreme Court recently explained in Genesis HealthCare Corp. v. Symczyk, a lawsuit does not present an Article III case or controversy and “must be dismissed as moot” when “an intervening circumstance deprives the plaintiff of a ‘personal stake in the outcome of the lawsuit,’ at any point during the litigation.” Today, in Campbell-Ewald Co. v. Gomez (pdf), the Supreme Court held that a defendant’s unaccepted offer to satisfy the claims of a named plaintiff in a putative class-action lawsuit is not sufficient to render the suit moot. Continue Reading

Supreme Court Holds that Federal Arbitration Act Preempts California Court’s Interpretation of Arbitration Clause

In AT&T Mobility LLC v. Concepcion, the Supreme Court held that the Federal Arbitration Act (“FAA”) preempts state-law rules barring enforcement of an arbitration agreement if the agreement does not permit the parties to utilize class procedures in arbitration or in court. Before Concepcion, the law of California included that limitation on the enforceability of arbitration agreements, but Concepcion declared that rule invalid as a matter of federal law. Yesterday, in DIRECTV, Inc. v. Imburgia (pdf), the Supreme Court held that Section 2 preempts a state-law interpretation of an arbitration agreement based on a legal rule that the state’s courts had applied only in the arbitration context, concluding that the state-law ruling “does not rest ‘upon such grounds as exist . . . for the revocation of any contract.’”

(We filed an amicus brief on behalf of the U.S. Chamber of Commerce in support of DTV.)

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California Supreme Court Holds That Federal Organic Food Labeling Regime Does Not Preempt Claims of “Intentional” Mislabeling

What’s the difference between claiming that a food product is improperly certified as organic and claiming that the producer was properly certified but the product isn’t really organic? A unanimous California Supreme Court held in Quesada v. Herb Thyme Farms, Inc. (pdf) that state courts and juries should figure out the answer.  That ruling opens the door to state-law actions that challenge food producers’ compliance with the federal organic food product certification and labeling scheme, so long as the claims don’t take issue with the original certification decision.  The decision revived a consumer class action alleging that a food producer—though properly certified to use the “organic” label—intentionally misapplied that label to products containing conventionally produced herbs from one of its noncertified facilities.

Drawing an exquisitely fine line, the California Supreme Court held that preemption extends only to “matters related to certifying production as organic” and left “untouched enforcement against abuse of the label ‘organic.’”  The court concluded that state lawsuits alleging intentional misuse of an organic label were not preempted because (in the California court’s view) lawsuits of that kind would help rather than hinder Congress’s objective.

The federal Organic Foods Production Act of 1990 (OFPA) creates a uniform, federal definition of the term “organic” and gives the U.S. Department of Agriculture exclusive authority to elucidate the labeling standard and to certify producers as qualifying to label food as “organic.”  The USDA may approve a state agency to carry out the certification function and impose more stringent state substantive standards. The California Department of Food and Agriculture has been approved for both of these roles. The OFPA and its California counterpart both provide for administrative enforcement of the regulations, including processes for consumer complaints to the relevant agency.

In Quesada, the plaintiff sued Herb Thyme Farms under California’s Unfair Competition Law (UCL) and Consumers Legal Remedies Act (CLRA), alleging that Herb Thyme applied a “Fresh Organic” label to conventionally produced herbs and to a mixture of organic and conventional herbs.  Herb Thyme has an organic farm that has been certified to use the “organic” label, but also operates conventional, nonorganic farms.

The California Supreme Court held that the federal OFPA did not preempt Quesada’s state-law claims.  First, the court held that, because the pertinent provisions of OFPA do not reference enforcement, the statute expressly preempts state law only as to the definition of “organic” and the process for certifying that a grower’s methods of production entitle it to use the “organic” label.  The California court relied on the fact that the mislabeling claims did not address the certification or compliance of Herb Thyme’s organic facility, but only challenged the use of the “organic” label for Herb Thyme products that contained (or consisted solely of) herbs that were not produced at the certified farm.  The federal certification standards also address the procedures to be followed where a producer has both organic and conventional facilities, but the California Supreme Court found that regulation insufficient to bring the case within the OFPA’s preemptive scope.

Second, the California court concluded that Quesada’s claims were not impliedly preempted because they did not pose an obstacle to the uniform federal regulatory scheme, but rather furthered the purpose of that scheme. In the court’s view, once the regulators decide whether a producer or product meets the standards in the first instance, private plaintiffs may enlist state-law theories to enforce the producer’s later compliance with the labeling requirements. According to the court, allowing plaintiffs to use state statutory and common law to enforce the OFPA would “affirmatively further the purposes of the Act”—the more enforcement, the merrier.

By allowing a private plaintiff to pursue a state-law misrepresentation theory to police compliance with OFPA labeling standards, Quesada conflicts with the Eighth Circuit’s decision in  In re Aurora Dairy Corp. Organic Milk Marketing & Sales Practices Litigation.  The Eighth Circuit held in Aurora Dairy that claims alleging that “milk [was sold] as organic when in fact it was not organic are preempted because they conflict with the OFPA.” As the court of appeals put it, “compliance and certification cannot be separate requirements.” While the plaintiffs in Aurora Dairy could not sue over the use of the “organic” label, they could challenge related assertions and omissions about the way the cows were raised and fed, including affirmative claims that the cows were antibiotic- and hormone-free.

The California Supreme Court tried to avoid the conflict by asserting that the plaintiffs in Aurora Dairy were challenging the certification process itself.  But that is not what the Aurora court said; moreover, the claims it allowed were based on representations that did not use the word “organic.”

Although the Quesada decision is limited on its face to claims involving fraudulent or intentional substitution of uncertified products for certified ones, that restriction may provide only modest comfort to defendants. Plaintiffs’ counsel can manipulate the allegations in their complaints with relative ease, particularly under the elastic standards of the UCL and CLRA.  And the California Supreme Court opinion reflects hostility to federal preemption, suggesting that state lawsuits serve the purposes of an otherwise uniform federal regulatory scheme merely by increasing the volume of litigation, and that the so-called presumption against preemption may be dispositive even in an area like food safety, where the  federal government has been heavily involved for more than 100 years. .

Supreme Court Hears Argument in Tyson Foods v. Bouaphakeo—and a Blockbuster Class Certification Ruling Seems Less Likely

The Supreme Court on Tuesday heard oral argument in Tyson Foods, Inc. v. Bouaphakeo, No. 14-1146, a case that has been closely watched for its potential to narrow the circumstances in which a class action may be certified under Federal Rule of Civil Procedure 23 and a collective action for unpaid wages certified under the Fair Labor Standards Act (FLSA). We previously described this case in prior blog posts. One of us attended the argument, and the other closely reviewed the transcript (pdf). Our combined reaction: The anticipated decision in this case may focus on an FLSA issue and, if so, then it seems unlikely to mark a sea change in the rules governing Rule 23 class actions. Continue Reading

Eighth Circuit Decertifies Environmental Nuisance Class Action Alleging “Fear of Contamination” Without More

The Eighth Circuit recently issued a decision reversing class certification for lack of commonality.

In Smith v. ConocoPhillips Pipe Line Co., the Eighth Circuit considered a class action proceeding on a nuisance theory against the owner of a pipeline. The plaintiffs, who owned property near the pipeline and were suing on behalf of a class of landowners, contended that the pipeline was a nuisance because they feared environmental contamination. After the district court certified the class, the Eighth Circuit granted a petition for review and reversed.

The Eighth Circuit explained that without evidence of contamination, “the putative class fear of contamination … is not a sufficient injury to support a claim for common law nuisance….” And the plaintiff landowners could not bridge the gap by pointing to evidence that other landowners allegedly had experienced actual contamination. The putative class, the court explained, had not experienced the requisite common interest.

For additional details, please see the report by my colleagues Mark Ter Molen, Evan Tager, and Sarah Reynolds.

Can an Offer of Judgment to the Named Plaintiff Moot a Class Action? Supreme Court Hears Arguments in Campbell-Ewald Co. v. Gomez

Can a named plaintiff press ahead with a class action if he or she “won’t take ‘yes’ for an answer”? That colorful question, which Chief Justice Roberts asked counsel for the respondent during oral arguments yesterday in Campbell-Ewald Co. v. Gomez, is at the heart of the debate over whether offers of judgment can moot class actions. By the end of the oral argument (pdf), it seemed clear that a number of the Justices were concerned about allowing a plaintiff whose individual claims would be fully satisfied by an offer of judgment to nonetheless invoke the machinery of the federal courts.

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Ten Things Class Action Practitioners Need To Know About Potential Amendments To Federal Rule Of Civil Procedure 23

Concept-Changes_Hughway_Sign_44809020Rule 23 may be in for some major changes. The Advisory Committee has commissioned a Rule 23 subcommittee to investigate possible revisions to the class action rules. That subcommittee issued a report (pdf) discussing its progress, and recently has been conducting a “listening tour” of sorts regarding potential rule changes.

Our initial view is that the business community should have serious concerns about the approach that at least some members of the subcommittee appear to be taking, as several proposals are aimed at rolling back judicial decisions—including Supreme Court decisions—that are critical to ensuring that class actions satisfy the requirements of due process.

Here are ten things you need to know from the subcommittee’s report.

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Man Bites Dog: California Supreme Court unanimously rejects unconscionability challenge to consumer arbitration provision

The California Supreme Court has a reputation for hostility to arbitration, especially in the consumers and employment context. Much of the arbitration docket of the United States Supreme Court over the past 30 years has involved reversals of California Supreme Court decisions refusing to enforce arbitration agreements, most recently (and perhaps most notably) in AT&T Mobility v. Concepcion (in which the authors were counsel). Even when seemingly compelled to enforce an arbitration provision in the face of recent U.S. Supreme Court authority, the California court has often found a way to carve out some exception to arbitration in the particular case or to offer suggestions to plaintiffs seeking to avoid arbitration in a future case. A prime example is the 2014 decision in Iskanian v. CLS Transportation, which exempted from arbitration all wage-and-hour civil-penalty claims under the Private Attorney General Act.

The decision in Sanchez v. Valencia Holding Co. (pdf) represents a welcome break from this pattern, upholding an arbitration agreement against an array of unconscionability challenges without finding it necessary to sever even a single clause to render the agreement enforceable. Although every point decided in Sanchez is consistent with recent U.S. Supreme Court authority applying the Federal Arbitration Act, however, the opinion’s emphasis on the specific factual setting may seed further efforts to evade arbitration agreements . As so often is the case, the devil is often in the details.

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FCC Expands Potential Liability under the Telephone Consumer Protection Act for Business-to-Customer Calls and Text Messages

FCC logo“This Order will make abuse of the TCPA much, much easier. And the primary beneficiaries will be trial lawyers, not the American public.” That’s what FCC Commissioner Ajit Pai had to say in his dissent from the FCC’s recent Declaratory Ruling and Order, issued on July 10, 2015. The FCC’s Order reflected the agency’s response to 21 petitions seeking guidance regarding or exemptions from various requirements under the Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227, and its implementing regulations.

The TCPA prohibits certain fax and automated-dialing practices and authorizes recovery of up to $1,500 per call, text message, or fax sent in willful violation of its restrictions. The TCPA has led to a tidal wave of class-action litigation, and the FCC’s recent Order may hasten that trend.

Most prominently, the FCC’s recent ruling:

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Supreme Court to Revisit Class-Certification Standards in Tyson Foods, Inc. v. Bouaphakeo

court-gavelToday, the Supreme Court granted review in what may be a major decision on the standards for class certification, Tyson Foods, Inc. v. Bouaphakeo, No. 14-1146.

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