As we have noted before, the tolling rule created by the Supreme Court in the American Pipe case–which tolls the statute of limitations for absent class members when a class action is filed–generates vigorous disputes over when stale or successive claims will be allowed. The Seventh Circuit recently considered one such dispute in Collins v. Village of Palatine, holding that the statute of limitations is not tolled during the pendency of an ultimately successful appeal from the dismissal of a putative class action that had not been certified.
Hundreds of lower courts have interpreted and applied the Supreme Court’s decision in Spokeo, Inc. v. Robins over the past ten months. We will provide a more comprehensive report on the post-Spokeo landscape in the near future, but the overarching takeaway is that the majority of federal courts of appeals have faithfully applied Spokeo’s core holdings that “Article III standing requires a concrete injury even in the context of a statutory violation,” and that a plaintiff does not “automatically satisf[y] the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right.” Nonetheless, a handful of other decisions have been receptive to arguments by the plaintiffs’ bar that Spokeo did not make a difference in the law of standing, and that the bare allegation that a statutory right has been violated, without more, remains enough to open the federal courthouse doors to “no-injury” class actions.
Two recent decisions by the Seventh and Third Circuits illustrate these contrasting approaches.
The recent decision in Cholly v. Uptain Group, No. 15 C 5030, 2017 WL 449176 (N.D. Ill. Feb. 1, 2017), drives home the point—as we’ve discussed on the blog before—that sometimes the pleadings alone reveal that the requirements for class certification cannot possibly be met. In Cholly, the plaintiff alleged the defendant debt collector violated the Telephone Consumer Protection Act (“TCPA”) by calling her mobile phone using an automatic telephone dialing system (“ATDS”) after she had told the defendant to stop calling. The plaintiff sought to represent (i) a class of persons who received calls from the defendant where it did not have consent, and (ii) a subclass of persons who received calls after they revoked consent. But the district court struck all of the plaintiff’s class allegations under Federal Rule of Civil Procedure 12(f)—at the pleading stage and before discovery—and ordered that the case proceed on an individual basis.
At the outset, the court recognized that Rule 23(c)(1)(a) requires that it “determine whether to certify an action as a class action ‘[a]t an early practicable time’” and that a motion to strike class allegations under Rule 12(f) is an appropriate device to determine if the case will proceed as a class action. The court concluded that the plaintiff couldn’t satisfy the “typicality” requirement under Rule 23(a)(3) because she originally consented to the defendant’s calls and, thus, “cannot represent a class of persons who received calls from [the defendant] where [it] did not have express consent.”
The court held the plaintiff couldn’t represent the subclass either because she couldn’t meet the predominance requirement under Rule 23(b)(3). In particular, the court found that individual inquiries as to whether the putative class members revoked consent would predominate over any common questions of fact:
In order to determine whether each potential class member did in fact revoke his or her prior consent at the pertinent time, the [c]ourt would have to conduct class-members specific inquiries for each individual. The class members would not be able to present the same evidence that will suffice for each member to make a prima facie showing at the recipients of defendants’ telemarketing calls had validly revoked his or her prior consents.
The plaintiff has filed a petition for leave to appeal under Rule 23(f), and the Seventh Circuit directed the defendant to respond. We’ll report on any major developments.
As we’ve noted in this space before, one of the most persistent efforts to undermine the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion—which held that the Federal Arbitration Act (FAA) generally requires enforcing arbitration agreements that waive class or collective proceedings—has been spearheaded by the National Labor Relations Board. In 2012, the Board concluded in the D.R. Horton case (pdf) that Section 7 of the National Labor Relations Act (NLRA), which protects the ability of employees to engage in “concerted activities” (for example, union organizing), supersedes the Supreme Court’s interpretation of the FAA in Concepcion and its progeny and requires that employees be allowed to bring class actions (either in court or in arbitration).
Until recently, the D.R. Horton rule had been rejected by every appellate court to consider it—the Second Circuit, Fifth Circuit, and Eighth Circuit as well as the California and Nevada Supreme Courts—not to mention numerous federal district courts. But last year, the Seventh Circuit and Ninth Circuit parted ways with this consensus, agreeing with the Board and concluding that (at least in some circumstances) agreements between employers and employees to arbitrate their disputes on an individual basis are unenforceable.
This circuit split all but guaranteed that the Supreme Court would need to step in, and sure enough, last Friday, the Court granted certiorari in three cases involving the validity of the D.R. Horton rule. (We drafted amicus briefs for the U.S. Chamber of Commerce in each case). One case, NLRB v. Murphy Oil USA, Inc., arises out of a Board decision finding that an employer had engaged in an unfair labor practice by entering into arbitration agreements with its employees, and the other two, Epic Systems Corp. v. Lewis and Ernst & Young LLP v. Morris, are private-party disputes in which employees invoked D.R. Horton to challenge their arbitration agreements.
Can you have a class action if class members can’t reliably be found? That question is at the heart of the debate over ascertainability—one that has divided the federal courts. Earlier this week, the Ninth Circuit weighed in, holding in Briseno v. ConAgra Foods, Inc. (pdf) that plaintiffs need not demonstrate “an administratively feasible way to identify class members [as] a prerequisite to class certification.”
That conclusion is disappointing.
Rule 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.
The Supreme Court will decide before the end of this Term whether to hear any or all of four important cases that raise recurring questions of class action law that have sharply divided the lower courts. These cases address questions that we have blogged about before (e.g., here and here): whether a class full of uninjured members may be certified, and whether plaintiffs may rely on experts and statistics to gloss over individualized differences among class members in order to prove their class claims and damages. These questions strike at the heart of what it means to be a “class,” because class actions generally must be litigated using common evidence to show that each class member has been harmed.
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.
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.
We previously wrote about the Third Circuit’s decision in Carrera v. Bayer Corp., which reversed a district court’s class-certification order because there was no reliable way to ascertain class membership—indeed, no way to identify who was a member of the class aside from a class member’s own say-so. Last week, the full Third Circuit denied (pdf) the plaintiff’s request to rehear the case en banc over the dissent of four judges. The clear message of Carrera is that when plaintiffs file class actions that have no hope of compensating class members for alleged wrongs because the class members can’t be found, courts should refuse to let these actions proceed.
As we discuss below, the denial of rehearing is significant in itself, given the concerted efforts by Carrera and his amici to draw attention to the case. But what might be most significant about this latest set of opinions is what even the dissenting judges did not say.