Fourth Circuit: Courts, Not Arbitrators, Decide If Arbitration Agreement Authorizes Class-Wide Arbitration

A unanimous panel of the Fourth Circuit has held Del Webb Communities, Inc. v. Carlson that the question whether an arbitration agreement authorizes class-wide arbitration is for the courts, not an arbitrator, to decide—unless the agreement clearly and unmistakably delegates that issue to the arbitrator. In so holding, the Fourth Circuit aligned itself with decisions of the Third and Sixth Circuits. As we discuss below, the decision benefits businesses that seek to enforce individual arbitration when the arbitration agreement does not expressly authorize class arbitration: If the important question of the availability of class-wide arbitration was assigned to an arbitrator, meaningful judicial review of that decision would not be available.

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What does Tyson Foods, Inc. v. Bouaphakeo mean for class actions?

The class action plaintiffs’ bar celebrated yesterday’s Supreme Court’s decision in Tyson Foods, Inc. v. Bouaphakeo (pdf), rejecting Tyson’s challenge to class certification. One lawyer called it “a huge David v. Goliath victory.”

But when plaintiffs’ lawyers wake up this morning and focus on the details of the Court’s opinion, they are in for a serious post-celebration hangover.

The Court’s reasoning for the first time maps a clear route for defendants to use in challenging plaintiffs’ use of statistical evidence in class actions. It also provides important guidance for defendants about preserving the ability to challenge plaintiffs’ reliance on statistics.

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Supreme Court affirms certification of FLSA collective action in Tyson Foods, Inc. v. Bouaphakeo

Under Federal Rule of Civil Procedure 23(b)(3), a court may certify a suit for damages as a class action when “there are questions of law or fact common to the class” that “predominate over any questions affecting only individual members.” Similar certification standards apply when a plaintiff seeks to certify a collective action under the Fair Labor Standards Act (FLSA). Yesterday, in its highly anticipated decision in Tyson Foods, Inc. v. Bouaphakeo (pdf), the Supreme Court affirmed the certification of an FLSA collective action where the evidence tying class members together was a study of a representative sample of similarly situated workers.

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Tenth Circuit holds that environmental contamination case doesn’t require remand under Class Action Fairness Act’s “local controversy” exception

Although the Class Action Fairness Act of 2005 (CAFA) permits most significant class actions to be heard in federal court, the law requires district courts to remand so-called “local controversies” to state court. A “local controversy” is a class action in which “greater than two-thirds of the members of the proposed classes” are “citizens” of the forum state and at least one defendant “from whom significant relief is sought” and whose “alleged conduct forms a significant basis for the claims asserted” is also a “citizen” of that state. 28 U.S.C. §1332(d)(4).

In an effort to come within this exception, plaintiffs’ lawyers sometimes will limit the putative class to citizens of a particular state and will attempt to portray an in-state defendant as a significant player in the alleged wrong.

Defendants have multiple strategies for resisting these attempts to evade federal jurisdiction. For example, sometimes the in-state defendant is merely a bit player rather than a “significant” one. Federal courts have made clear that CAFA’s “local controversy” exception bars the old tactic of defeating diversity jurisdiction by adding a minor local defendant to destroy complete diversity.

The Tenth Circuit’s recent decision in Reece v. AES Corp. makes clear that plaintiffs must also be held to their burden of proving that greater than two-thirds of the class members are actually citizens of the forum state. Reece involves a class action challenging the manner in which fracking waste was disposed. Although the plaintiffs suggested that the putative class consisted primarily of Oklahoma landowners, the Tenth Circuit pointed out that not all landowners are necessarily citizens—particularly because many putative class members would have become citizens of other states during the 20-year class period. The court also criticized the plaintiffs for failing to submit the data underlying their assertions that the landowners actually lived in Oklahoma.

For more details on Reece, please see the report authored by Mayer Brown attorneys Mark Ter Molen, Evan Tager, and Sarah Reynolds.

Second Circuit holds that class action seeking “meaningless” relief shouldn’t be certified

iStock_000027020861_DoubleWe’ve often argued that when the principal rationale for approving a low-value class settlement is that the claims are weak, that is a signal that the case should not have been filed as a class action in the first place. The Second Circuit recently reached that exact conclusion when considering a proposed class settlement in a Fair Debt Collection Practices Act (FDCPA) case, holding that the putative class couldn’t be certified and that the FDCPA claims should be dismissed.

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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.

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