Class Action Defense Blog

Class Action Challenging Secret Revenue-Sharing Payments in Purchase of Mutual Funds Fell Within Scope of “Covered Class Actions” under SLUSA (Securities Litigation Uniform Standards Act of 1998) and was Properly Dismissed because State-Actions Exception did not Apply Sixth Circuit Holds

Plaintiff filed a putative class action against various Nationwide Life Insurance entities on behalf of employee-participants in his employer’s “deferred compensation plan” alleging breach of fiduciary duty and unjust enrichment; the class action complaint alleged that Nationwide received “revenue-sharing payments from the mutual funds in which the § 457 plan invested its participants' individual funds” and that “Nationwide implemented a scheme under which it would receive revenue-sharing payments from mutual funds and mutual fund advisors based upon a percentage of assets invested from the § 457 plans into the mutual funds.” Demings v. Nationwide Life Ins. Co., ___ F.3d ___, 2010 WL 364335, *1 (6th Cir. February 3, 2010). According to the allegations underlying the class action complaint, in selecting which mutual funds to use in the § 457 plans, Nationwide would not include a mutual fund in the plan unless it agreed to participate in this revenue-sharing scheme. Id. The thrust of plaintiff’s class action “was that plan participants, not Nationwide, were entitled to any revenue-sharing payments because such profits were directly derived from the assets of plan participants.” Id. Defense attorneys moved to dismiss the class action complaint on the ground that it was barred by the Securities Litigation Uniform Standards Act of 1998 (SLUSA), which prohibits certain “covered class action” lawsuits. Id., at *1-*2. Plaintiff admitted that his lawsuit was a “covered class action” within the meaning of SLUSA, but argued that it did not allege “fraud” or “deception in connection with the purchase or sale of any security,” id., at *2. The district court disagreed, finding that “although [plaintiff] did not specifically use the words ‘untrue statement’ or ‘omission’ in his complaint, the substance of his claim was that Nationwide misrepresented a relationship with mutual fund advisors or, at a minimum, failed to disclose material facts about the relationship.” Id. Accordingly, the district court dismissed the class action, id. The Sixth Circuit affirmed.

The Circuit Court began by observing that plaintiff’s theory on appeal differed from his theory in the district court: “[Plaintiff] Demings does not now dispute that his proposed class-action suit was a covered state-law class action that would generally be precluded under SLUSA's terms. Instead, he argues that his suit fits within the ‘state actions’ exception to SLUSA preclusion.” Demings, at *1 (citation omitted). This is the only argument plaintiff raised on appeal, and it formed the foundation of plaintiff’s claim that the district court therefore erred in denying him leave to amend his class action complaint. Id., at *3. The Sixth Circuit explained SLUSA’s state-actions exception does not “preclude a State or political subdivision thereof or a State pension plan from bringing an action involving a covered security on its own behalf, or as a member of a class comprised solely of other States, political subdivisions, or State pension plans that are named plaintiffs, and that have authorized participation, in such action.” Id., at *4 (citation omitted). The Circuit Court held that this exception did not apply for two reasons. First, even though plaintiff is a sheriff, he is not “a state, political subdivision thereof, or a state pension plan bringing a suit on its own behalf.” See id., at *4-*5. Second, the class action was not “brought on behalf of a class comprised solely of other states, political subdivisions, or state pension plans that were named plaintiffs, and that had authorized participation, in such action.” See id., at *5-*8. In this regard, the Sixth Circuit held that the language of SLUSA requires that the State “authorize” its participation at the time the class action was filed, id., at *8. Accordingly, the state-actions exception did not apply, and the district court properly concluded that the class action was barred by SLUSA. Id. Accordingly, the Circuit Court affirmed the judgment of the district court, id.

Posted In: Class Action Court Decisions, PSLRA/SLUSA Class Actions

To assist class action defense attorneys anticipate the types of lawsuits against which they will have to defend in California courts, we provide weekly, unofficial summaries of the legal categories for new class action lawsuits filed in California state and federal courts in the Los Angeles, San Francisco, San Jose, Sacramento, San Diego, San Mateo, Oakland/Alameda and Orange County areas. We include only those categories that include 10% or more of the class action filings during the relevant timeframe. This report covers the time period from January 29 - February 4, 2010, during which time 37 new class action cases were filed in these California state and federal courts. Readers of this Blog know that labor law class actions generally top this list by a wide margin and often account for more than half of the total number of new class action lawsuits filed during any particular week. During this reporting period, 16 new labor law class actions were filed, representing only 43% of the total number of new class actions filed. The only other category to break the 10% threshold involved class actions alleging violations of California's Unfair Competition Law (UCL), which includes false advertising claims, with 12 new class action lawsuits (32% of the new class actions filed during the reporting period).

Posted In: Class Actions In The News

Putative Class Action Against American Airlines Asserting Claims under Montreal Convention based on Flight Delays caused by Weather Dismissed without Leave to Amend because Two Year Limitations Period Expired Texas Federal Court Holds

On December 17, 2009, plaintiff filed a putative class action against American Airlines for alleged violations of the Convention for the Unification of Certain Rules for International Carriage by Air (“Montreal Convention”), which “provides for compensation to consumers in international air carriage by air for delay of passengers or their baggage or cargo as well as personal injury and death”; specifically, the class action complaint alleged that on December 29, 2006, plaintiff and approximately 2,000 to 33,000 other class members, all airline passengers, “were delayed over 3 hours” and that some of the class members, including plaintiff, were “confined to AA aircraft on the ground for extended periods of time and affected by related actions of AA.” Dickson v. American Airlines, Inc., ___ F.Supp.2d ___ (N.D.Tex. January 28, 2010) [Slip Opn., at 1-2]. According to the allegations underlying the class action, plaintiff, along with his wife and child, “suffered inconveniences and damages at the hands of defendant when they were passengers on an airplane operated by defendant in late December 2006 as part of their trip from San Francisco to the country of Belize when, due to weather conditions, their flight was diverted from Dallas/Fort Worth International Airport to Austin, Texas.” Id., at 2. The class action complaint further alleged that adverse weather conditions caused plaintiff and his family to be “confined in the aircraft for over eight hours,” and that more than 2,000 other AA passengers on 120 other flights were also confined to aircrafts that day, while as many as 33,000 on 1100 other AA flights suffered delays of at least 3 hours.” Id., at 2-3. Because of the 2 year statute of limitations on Montreal Convention claims, the class action alleged that the limitations period was tolled by the filing of other class actions against defendant, id., at 3-4. Defense attorneys moved to dismiss the class action on the grounds, inter alia, that the statute of limitations period had expired and was not tolled, and that the Montreal Convention does not provide for recovery of damages based on "inconvenience, emotional and physical distress and injury, deprivation of liberty" based on flight delays. Id., at 4. The district court granted defendant’s motion and dismissed the putative class action complaint without leave to amend.

The district court first considered the statute of limitations argument, and found that the limitations period had not been tolled. See Dickson, at 6-16. We do not discuss the Montreal Convention in detail; suffice it to say that the federal court concluded that “by the express language of the Convention” a lawsuit must be filed within 2 years; thus, “The time element expressed in the Convention is not a limitation provision but is a part of the definition of the right to recover damages based on the provisions of the Convention.” Id., at 9 (citations omitted). Based on this holding, the federal court found it unnecessary to address defendant’s other arguments. However, the district court did address plaintiff’s request for leave to amend. The court denied leave to amend under Rule 15(a)(2) of the Federal Rules of Civil Procedure, concluding that “[t]he court cannot think of anything worthwhile that would be gained by giving plaintiff an opportunity to file an amended complaint, and declines to do so.” Id., at 18. Accordingly, the district court dismissed the putative class action complaint. Id.

Posted In: Class Action Court Decisions

District Court Properly Dismissed Securities Fraud Class Action because, though Plaintiffs Adequately Alleged Falsity (Contrary to District Court Finding), Class Action Failed to Meet Pleading Requirements of Private Securities Litigation Reform Act (PSLRA) for Scienter Eleventh Circuit Holds

Plaintiffs-shareholders filed a putative class action against Jabil Circuit – “a publicly traded electronics and technology company headquartered in St. Petersburg, Florida” – and certain of its officers and directors alleging violations of securities laws. Edward J. Goodman Life Income Trust v. Jabil Circuit, Inc., ___ F.3d ___, 2010 WL 154519, *1 (11th Cir. January 18, 2010). According to the allegations underlying the class action complaint, Jabil violated its corporate policy of requiring stock options to be exercised at a price “at least equal to fair market value” by backdating options “to a day where the trading price was lower than that on the actual date it is issued, resulting in an instant paper gain to the issuee.” Id. The allegations of backdating in the class action complaint “rely almost exclusively on circumstantial evidence…to show that stock option grants to executives were backdated”; the complaint failed to “identify any particular transaction or scheme of backdating or specific recipients of such a scheme.” Id. The Securities and Exchange Commission had conducted an informal investigation into Jabil’s stock option practices; moreover, Jabil itself reviewed its stock option practices and concluded that an accounting error “resulted in an overstatement of earnings by $54.3 million [from 1996 to 2005], forcing Jabil to restate its earnings for each of those years.” Id., at *2. However, Jabil denied purposely backdating stock options to directors and $49 million of the restated amount was attributable to non-executive employee compensation expenses. Id. Defense attorneys moved to dismiss the class action complaint on the grounds that it failed to meet the heightened pleading requirements established by the Private Securities Litigation Reform Act (PSLRA). Id., at *1. The district court granted the motion and plaintiffs appealed, id. The Eleventh Circuit affirmed.

The Eleventh Circuit began its analysis with the observation that backdating options “is not itself illegal under the securities laws, nor is it improper under accounting principles.” Jabil, at *1. Allegations of improper backdating appeared in the Wall Street Journal, after which Jabil raised its third quarter projections for fiscal year 2006. Id., at *2. The class action complaint alleges that Jabil made this announcement “in order to divert attention from the allegations concerning backdating, and that Jabil knew that the factual bases for its improved forecasts were false even at the time it made the projections.” Id. But these allegations relied on confidential witnesses, and only one confidential source identified anyone as having “specific knowledge” of the allegations asserted therein. Id. The district court dismissed the first amended class action complaint without prejudice, but defense attorneys challenged the second amended class action complaint also for failure to meet the pleading requirements of the PSLRA. Id. “[T]he district court held that the shareholders failed to adequately plead falsity of the allegedly fraudulent statements, failed to raise a sufficient inference of scienter on the part of [plaintiffs], and failed to plead enough facts to show loss causation.” Id., at *3. The Eleventh Circuit began its analysis with the class action’s fraud claim under section 10(b) of the Securities Exchange Act and Rule 10b-5. Id. The Circuit Court did not address loss causation because it concurred with the lower court’s finding that the class action failed to adequately allege scienter. Id.

Continue reading "PSLRA Class Action Defense Cases–Carr v. Gateway: Eleventh Circuit Affirms Dismissal Of Securities Fraud Class Action For Failure To Adequately Allege Scienter Under PSLRA’s Heightened Pleading Requirements" »

Posted In: Class Action Court Decisions, PSLRA/SLUSA Class Actions

In Class Action Against Sprint Challenging Wireless Telephone Roaming Charges, Whether District Court Erred in Granting Defense Motion to Compel Arbitration of Plaintiff’s Individual Claims Pursuant to Mandatory Arbitration Clause with Class Action Waiver Warranted Certification to Florida Supreme Court because of Uncertainty in Intermediate Appellate Court Opinions Eleventh Circuit Holds

Plaintiff filed a putative class action in Florida federal court against Sprint Solutions and Sprint Spectrum for violations of Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA) and for breach of contract and negligent misrepresentation; specifically, the class action complaint alleged that Sprint “charg[ed] improper roaming fees for calls placed within Sprint's coverage areas.” Pendergast v. Sprint Nextel, ___ F.3d ___, 2010 WL 6745, *1, *11 (11th Cir. January 4, 2010). The class action complaint improper prayed for monetary damages, as well as declaratory and injunctive relief, and estimated plaintiff’s individual damages to be $20.00. Id. Defense attorneys moved to compel arbitration of plaintiff’s claims on an individual basis, seeking to enforce a mandatory arbitration clause and class action waiver in the Terms and Conditions of plaintiff’s service agreement. Id. The district court granted Sprint’s motion, concluding that under Florida law the arbitration clause and class action waiver were valid, and ordered plaintiff to pursue arbitration of his individual claim, id. Plaintiff appealed; he did not contest the arbitration clause itself but, rather, challenged the class action waiver as procedurally and substantively unconscionable. Id. Further, “because Plaintiff's contract provides the arbitration and class action waiver clauses are not severable, Plaintiff claims the arbitration clause fails because the class action waiver is unenforceable.” Id. The Eleventh Circuit expressed doubt as to the correct application of state law in this case because of a conflict among decisions in the Florida intermediate appellate courts. Accordingly, the Circuit Court, at page *22, certified the following questions to the Florida Supreme Court:

(1) Must Florida courts evaluate both procedural and substantive unconscionability simultaneously in a balancing or sliding scale approach, or may courts consider either procedural or substantive unconscionability independently and conclude their analysis if either one is lacking?

(2) Is the class action waiver provision in Plaintiff's contract with Sprint procedurally unconscionable under Florida law?

(3) Is the class action waiver provision in Plaintiff's contract with Sprint substantively unconscionable under Florida law?

(4) Is the class action waiver provision in Plaintiff's contract with Sprint void under Florida law for any other reason?

Continue reading "Class Action Defense Cases–Pendergast v. Sprint: Eleventh Circuit Certifies To Florida Supreme Court Questions Concerning Validity And Enforceability Of Class Action Waiver In Cellular Service Provider’s Mandatory Arbitration Clause" »

Posted In: Arbitration, Class Action Court Decisions

Class Action under California’s Unfair Competition Law (UCL) and Consumer Legal Remedies Act (CLRA) Arising out of Merck’s Manufacture and Marketing of Vioxx Properly Denied Class Action Certification because Evidence Supported Trial Court’s Conclusion that Individual Issues Predominate Over Common Issues California Appellate Court Holds

Plaintiffs filed a putative class action in California state court against Merck arising out of its manufacture and marketing of Vioxx, which Merck pulled from the market in September 2004 after a study revealed an increased risk of cardiovascular problems associated with the drug; specifically, the class action complaint alleged causes of action for violations of California’s Unfair Competition Law (UCL) and Consumer Legal Remedies Act (CLRA) and alleging unjust enrichment. In re Vioxx Class Cases, 180 Cal.App.4th 116, 103 Cal.Rptr.3d 83, 87-88 (Cal.App. December 15, 2009). According to the allegations underlying the class action complaint, plaintiffs did not “suffer[] any adverse effects from taking Vioxx” but, they alleged, Merck was liable for false advertising and for marketing a drug that was “less safe than other, less expensive, pain relievers.” Id., at 87; see also id., at 89-90. Plaintiffs moved the trial court to certify the litigation as a class action, id., at 90; defense attorneys opposed class action treatment on the grounds that individual issues would predominate over questions common to the putative class and that the claims of the named representatives were not typical. Id., at 91-92. The trial court agreed with Merck and denied class action certification. Id., at 92-93. In part, the trial court found that the named plaintiffs (who were individuals) “did not possess claims typical of prescription drug benefit providers,” id., at 88. The California Court of Appeal affirmed, rejecting plaintiffs’ claim that reversal was compelled by the Supreme Court’s decision in In re Tobacco II Cases, 46 Cal.4th 298 (Cal. 2009), which issued after the trial court order denying class action treatment.

The appellate court observed that “trial courts are ideally situated to evaluate the efficiencies and practicalities of permitting group action, [and so] they are afforded great discretion in granting or denying certification.” In re Vioxx, at 93 (quoting In re Tobacco II, at 311). In California, “in the absence of other error, a trial court ruling supported by substantial evidence generally will not be disturbed ‘unless (1) improper criteria were used [citation]; or (2) erroneous legal assumptions were made [citation].’” In re Tobacco II, at 311. Particularly here, where the trial court considered thousands of pages of documents in determining the propriety of class action treatment, the appellate court will not substitute its decision for the trial court’s with respect to the inferences to be drawn from the evidence. In re Vioxx, at 94 (citation omitted).

Continue reading "Vioxx Class Action Defense Cases–In re Vioxx: California Appellate Court Affirms Denial Of Class Action Treatment In Putative UCL/CLRA Class Action Involving Vioxx Because Individual Issues Predominate" »

Posted In: Certification of Class Actions, Class Action Court Decisions

Jury Returns Verdict in Favor of Plaintiffs in Securities Class Action Against Vivendi Universal, S.A., Finding that 57 Public Comments Made between October 2000 and June 2002 were False

Attorneys are reporting that a jury has reached a verdict in the securities class action filed against Vivendi, though the court docket does not yet reflect that a verdict has been reached. In re Vivendi Universal, S.A. Securities Litig., United States District Court, Eastern District of New York, Case No. 1:02-cv-05571-RJH-HBP. The class action reportedly covers approximately one million investors, and damages are estimated to be in the billions of dollars. Vivendi promises to appeal the jury verdict.

Posted In: Class Actions In The News

As a resource to California class action defense attorneys, we provide weekly, unofficial summaries of the legal categories for new class action lawsuits filed in California state and federal courts in the Los Angeles, San Francisco, San Jose, Sacramento, San Diego, San Mateo, Oakland/Alameda and Orange County areas. We include only those categories that include 10% or more of the class action filings during the relevant timeframe. This report covers the time period from January 22 - 28, 2010, during which time 47 new class action cases were filed in these California state and federal courts. Labor law class actions frequently top this list by a wide margin as they often account for more than half of the total number of new class action lawsuits filed. During this reporting period, there were only 21 new class actions alleging employment-related claims, representing a comparatively low 45% of the total number of new class actions filed. The only other category to break the 10% threshold involved class actions alleging violations of California's Unfair Competition Law (UCL), which includes false advertising claims, with 15 new class action lawsuits (32% of the new class actions filed during the reporting period).

Posted In: Class Actions In The News

Judicial Panel Grants Defense Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C.§ 1407 and Selects Movant’s Alternative Transferee Forum Over Competing Request of Other Common Class Action Defendant

Twelve (12) class actions – three in Ohio, two in the Central and Northern Districts of California and one in the Southern District of California, and one in Illinois, Louisiana, Minnesota and Missouri – were filed against Apple and AT&T “arising from the advertising and marketing of multimedia message service (MMS) functionality of Apple’s iPhone 3G and 3GS supported by AT&T’s 3G network.” In re Apple iPhone 3G & 3GS “MMS” Marketing & Sales Prac. Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. December 3, 2009) [Slip Opn., at 1, 2]. According to the allegations under the class actions, “Apple and AT&T have engaged in deceptive marketing with respect to the availability of MMS functionality on the iPhone 3G and 3GS.” Id., at 2. Defense attorneys for AT&T filed a motion with the Judicial Panel for Multidistrict Litigation (MDL) requesting centralization of the class actions pursuant to 28 U.S.C. § 1407 in the Northern District of Ohio or the Eastern District of Louisiana. Id., at 1. Plaintiffs in the class actions pending in the Northern and Southern Districts of California supported consolidation but argued for transfer to the Northern District of California. Id. Plaintiffs in the other nine class actions supported centralization in the Eastern District of Louisiana (though at oral argument one of the Ohio class action plaintiffs requested centralization in Ohio). Id. Common defendant Apple also supported centralization in Ohio, id. The Judicial Panel granted the motion to centralize the class action lawsuits, finding that this “will eliminate duplicative discovery; prevent inconsistent pretrial rulings, particularly with respect to class certification issues; and conserve the resources of the parties, their counsel and the judiciary.” Id., at 2. The Panel also determined that the Eastern District of Louisiana was the appropriate transferee court because “[m]ost plaintiffs and the moving defendant, in the alternative, support centralization in this district” and the assignment will be “to an experienced transferee judge who is not currently presiding over another multidistrict litigation docket.” Id. Accordingly, the Panel transferred all class actions pending outside of Pennsylvania to that district.

Posted In: Multidistrict Litigation, Class Action Court Decisions

Class Action Complaint that was Non-Justiciable for Failure of Original Plaintiffs’ Claims was Properly Dismissed Following Addition of New Plaintiffs because Defense Tender of Full Payment Prior to Amendment Adding New Plaintiffs as Class Representatives Mooted their Claims Fifth Circuit Holds

Plaintiffs filed a putative class action against Fidelity National Financial and others “alleging that Ticor Title Insurance Company…had overcharged them to record documents related to their residential real estate closings and that the other Defendants were also liable under theories of vicarious liability.” Murray v. Fidelity Nat’l Financial, Inc., ___ F.3d ___, 2010 WL 143454, *1 (5th Cir. January 15, 2010). However, it turned out plaintiffs had not conducted business with Ticor Title but, rather, “had dealt with a third party that promoted itself as ‘Ticor Title of San Antonio,’ despite having no authority to act for any of the Defendants.” Id. Accordingly, plaintiffs moved the district court to amend their class action complaint to add two additional plaintiffs (the Murrays) as class representatives on the ground that the Murrays had conducted business with Defendant Chicago Title Insurance Group. Id. While that motion was pending, Chicago Title tendered the Murrays a check in full payment of their individual claim; the district court nonetheless granted plaintiffs’ motion and added the Murrays as named representatives for the putative class. Id. The new group of plaintiffs thereafter filed an amended class action complaint, id. Defense attorneys moved to dismiss the class action complaint on the ground that the Murrays’ claims had been rendered moot by Chicago Title’s tender; defendants moved also for summary judgment on the grounds that the original plaintiffs “failed to establish any case or controversy against any Defendant, because none of the Defendants handled Original Plaintiffs’ real estate transactions.” Id. The federal court granted the defense motions, id. The Murrays appealed the dismissal of their claims against Chicago Title, and the Fifth Circuit affirmed.

The Murrays argued that because Rule 15(a)(2) requires plaintiffs to inform defendants of the names of proposed class representatives, this “provides defendants the opportunity to ‘pick off’ would-be class representatives by tendering the amount claimed individually by the plaintiff, thereby effectively preventing the original plaintiffs from amending a complaint to add other plaintiffs who better represent the interests of the putative class.” Murray, at 1. Relying on its decision in Zeidman v. J. Ray McDermott & Co., 651 F.2d 1030 (5th Cir. 1981), the Circuit Court held that “As a general principle, a purported class action becomes moot when the personal claims of all named plaintiffs are satisfied and no class has been certified.” Murray, at 2 (citing Zeidman, at 1045). The Court observed at page *2, “In such a case there is no plaintiff (either named or unnamed) who can assert a justiciable claim against any defendant and consequently there is no longer a ‘case or controversy’ within the meaning of Article III of the Constitution.” Id. (citations omitted). And while the Fifth Circuit has “recognized a limited exception to this general principle” where a plaintiff’s claims have been “prematurely mooted” by the defendant. Id. (citations omitted). More specifically, the Circuit Court explained at page *2:

Foreshadowing the concerns raised by the Murrays, the [Zeidman] court noted “that in those cases in which it is financially feasible to pay off successive named plaintiffs, the defendants would have the option to preclude a viable class action from ever reaching the certification stage.” [Citation.] The court ultimately held “that a suit brought as a class action should not be dismissed for mootness upon tender to the named plaintiffs of their personal claims, at least when ... there is pending before the district court a timely filed and diligently pursued motion for class certification.” [Citation.]

Continue reading "Class Action Defense Cases–Murray v. Fidelity: Fifth Circuit Affirms Dismissal Of Class Action Complaint Holding Defense Tender Mooted New Plaintiffs’ Individual Claims" »

Posted In: Class Action Court Decisions

District Court Abused its Discretion in Denying OSC for Contempt against Absent Class Member who Filed Lawsuit against Party Released under Class Action Settlement because Class Member’s Individual Claims Fell Within Scope of Release in Class Action Settlement Agreement Eleventh Circuit Holds

In May 2003, a group of physicians filed a putative nationwide class action Blue Cross and Blue Shield Association, and its member plans, alleging conspiracy and aiding and abetting under the Racketeer Influenced and Corrupt Organizations Act (RICO); the class action complaint prayed for declaratory and injunctive relief, and sought monetary damages. Thomas v. Blue Cross & Blue Shield Ass'n, ___ F.3d ___, 2010 WL 174765, *1 (11th Cir. January 20, 2010). According to the allegations underlying the class action complaint, defendants had “engaged in a conspiracy to improperly deny, delay, and/or reduce payments to physicians, physician groups, and physician organizations by engaging in several types of allegedly improper conduct.” Id. The parties negotiated a class action settlement on behalf of a nationwide class, which eventually secured the approval of the district court. Id. The class action settlement required members of the class “release the Blue Cross plans from all claims arising out of or related to matters referenced in the class action and settlement agreement,” id., at *1-*2. Thus, as part of the class action settlement, “[t]he district court permanently enjoined the releasing parties from filing or prosecuting ‘any or all Released Claims against one or more Released Parties,’” and “expressly retained jurisdiction as to matters relating to the interpretation, administration, and consummation of the settlement agreement, and the enforcement of extant injunctions.” Id., at *2. In January 2008, plaintiff Dr. Robert Kolbusz, a physician at the Center for Dermatology and Skin Cancer, and the Center filed a lawsuit in Illinois against Health Care Service Corporation (the “Corporation”) for breach of contract, tortious interference with contractual relationships and prospective economic advantage, and defamation; in part, the Kolbusz complaint “alleged that the Corporation had made false statements to his patients regarding its reasons for refusing to pay for medical services that he had rendered.” Id. Under the class action settlement, Kolbusz is a releasing party and the Corporation is a released party; however, while Kolbusz was a member of the class, he failed to timely object to or opt out of the class action settlement. Id. The Corporation filed a motion with the district court alleging that the Kolbusz complaint violated the permanent injunction and sought an OSC for contempt against Kolbusz. Id., at *3. The district court concluded that the tortious interference and defamation claims were not barred by the class action settlement, but found that the breach of contract fell within the scope of the class action release and ordered Kolbusz to drop the claim within 20 days to avoid being held in contempt. Id. Both parties appealed. The Eleventh Circuit dismissed Kolbusz’s appeal for lack of jurisdiction “because the decision to afford Kolbusz 20 days to withdraw his claim of breach of contract is not a final or otherwise appealable order,” and reversed the district court’s determination that Kolbusz’s tort claims were not barred by the class action settlement. Id., at *1.

Continue reading "Class Action Defense Cases–Thomas v. Blue Cross: Eleventh Circuit Reverses Denial Of OSC For Contempt Against Absent Class Member Seeking To Prosecute Individual Claims Released As Part Of Class Action Settlement" »

Posted In: Class Action Court Decisions

District Court Erred in Dismissing Antitrust Class Action because Allegations in Class Action Complaint were Sufficient to “Plausibly Suggest” an Agreement Among Defendants in Violation of Sherman Act Second Circuit Holds

Several class actions were filed in various state and federal courts against numerous defendants, including Sony BMG Music Entertainment, EMI, Universal Music Group Recordings, Warner Music Group and others, alleging violations of Section 1 of the Sherman Act; specifically, the class action complaint alleged “a conspiracy by major record labels to fix the prices and terms under which [Digital Music] would be sold over the Internet.” Starr v. Sony BMG Music Entertainment, ___ F.3d ___ (2d Cir. January 13, 2010) [Slip Opn., at 2-3.] Ultimately, the Judicial Panel on Multidistrict Litigation centralized 28 class actions in the Southern District of New York, and plaintiffs eventually filed a Second Consolidated Amended Complaint that “brought claims under Section 1 of the Sherman Act and state antitrust and unfair and deceptive trade practices statutes. It also brought state common law claims for unjust enrichment.” Id., at 6-7. According to the allegations underlying the class action complaint, “Defendants produce, license and distribute music sold as digital files (‘Digital Music’) online via the Internet (‘Internet Music’) and on compact discs (‘CDs’),” and they together “control over 80% of Digital Music sold to end purchasers in the United States.” Id., at 3. Certain named defendants launched a service called “MusicNet”; others launched a service called “Duet” that was later renamed as “pressplay.” Id. The class action complaint alleged that “defendants signed distribution agreements with MusicNet or pressplay and sold music directly to consumers over the Internet through these ventures (the ‘joint ventures’),” and that “[b]oth the joint ventures and the Recording Industry Association of America (‘RIAA’) provided a forum and means through which defendants could communicate about pricing, terms, and use restrictions.” Id. Moreover, “[t]o obtain Internet Music from all major record labels, a consumer initially would have had to subscribe to both MusicNet and pressplay, at a cost of approximately $240 per year,” and “[b]oth services required consumers to agree to unpopular Digital Rights Management terms (‘DRMs’).” Id. Defense attorneys moved to dismiss the class action complaint for failure to meet the pleading requirements enunciated in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). Starr, at 3, 7. The district court granted the motion, id., at 7. The Second Circuit reversed, concluding that the non-conclusory allegations in the class action complaint were adequate to survive the defense motion to dismiss. Id., at 2.

The Circuit Court summarized the basis of the class action’s claims at page 4 as follows: “For example, pressplay prohibited consumers from copying more than two songs from any particular artist onto a CD each month. Music purchased from MusicNet and pressplay would often ‘expire’ unless repurchased: A MusicNet consumer would need to repurchase music each year and a pressplay consumer who unsubscribed would immediately lose access to all of the music he or she had purchased. MusicNet and pressplay also did not allow consumers to transfer songs from their computers to portable digital music players like the iPod. One industry commentator observed that MusicNet and pressplay did not offer reasonable prices, and one prominent computer industry magazine concluded that ‘nobody in their right mind will want to use’ these services. [Citation.]” The class action complaint also alleged that “dramatic cost reductions” realized by the individual defendants were not passed on to consumers “as would be expected in a competitive market.” Starr, at 4. Moreover, defendants allegedly entered into “Most Favored Nation clauses (‘MFNs’) in their licenses that had the effect of guaranteeing that the licensor who signed the clause received terms no less favorable than the terms offered to other licensors.” Id., at 5. Defendants allegedly hid these agreements “because they knew they would attract antitrust scrutiny.” Id. At bottom, the class action alleged “that defendants engaged in a continuing conspiracy to ‘restrain the availability and distribution of Internet Music, fix and maintain at artificially high and non-competitive levels the prices at which they sold Internet Music and impose unreasonably restrictive terms in the purchase and use of Internet Music’” and that plaintiffs “were injured by paying more for Internet Music and CDs than they would have in the absence of an illegal agreement.” Id., at 6.

Continue reading "Class Action Defense Cases–Starr v. Sony BMG: Second Circuit Reverses Dismissal Of Antitrust Class Action Holding Class Action Complaint’s Allegations Satisfied Twombly" »

Posted In: Class Action Court Decisions