Class Action Defense Blog

Defending Class Actions: Certification Under Rule 23 Part II

The Prerequisites of Rule 23(a)

In defending a class action, the single most important motion facing a defendant is the plaintiff’s motion to certify a class. Rule 23(a) requires that the plaintiff demonstrate numerosity, commonality and typicality, and that the class members will be adequately represented, and must additionally demonstrate that the action satisfies Rule23(b).

The requirements of Rule 23 are mandatory. Thus, class certification requires that the prospective class representative satisfy the elements set forth in Rule 23(a), as well as the elements of Rule 23(b) (discussed in a separate article) be met. General Telephone Co. of Southwest v. Falcon, 457 U.S. 152, 102 S.Ct. 2364 (1982) (reversing class certification for failure to analyze Rule 23 requirements).

Rule 23(a) of the Federal Rules of Civil Procedure provides:

One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.

Satisfying Rule 23(a)

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Posted In: Certification of Class Actions

Debt Servicer Automatically Becomes Debt Collector Under FDCPA (Fair Debt Collection Practices Act) If Lender Previously Declared Loan In Default Second Circuit Holds

In 1978, Congress added Title VIII to the Consumer Credit Protection Act entitled the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. §§ 1692 et seq., as a line of defense between consumers and debt collectors. (Some states, such as California, have enacted parallel state laws, but those are outside the scope of this article.) Congress intended the FDCPA to establish certain ethical guidelines for the collection of consumer debts, and to provide debtors with a means for challenging payoff demands and determining the validity and accuracy of asserted debts. FDCPA has become fertile ground for class action lawsuits; in some of these class actions, the plaintiff’s lawyer has been so bold as to name law firms and attorneys as defendants, in addition to debt collectors. The lawyer who represents debt collectors must use care as the FDCPA has resulted in surprising rulings. One such surprising case, at least for the defense team, is Alibrandi v. Financial Outsourcing Serv., Inc., 333 F.3d 82 (2d Cir. 2003), a New York putative class action.

By way of background, the FDCPA mandates that debt collectors include certain warnings in their first correspondence with debtors. 15 U.S.C. § 1692e(11). For example, the debt collector must inform the debtor of the name of the creditor, the amount of the debt, and the debtor’s right to challenge the validity of the debt. See 15 U.S.C. § 1692g(a). It is a general rule, however, that these warnings need be provided only by a “debt collector” – they need not be provided by a “debt servicer.” See Alibrandi, at 83 (“Significantly, if Financial Outsourcing were a debt service provider, its correspondence with debtors would not have to include the statutory warnings.”).

Continue reading "Class Action Defense Issues–Alibrandi v. Financial Outsourcing" »

Posted In: FDCPA Class Actions, Class Action Court Decisions

“Transmission” Under CFAA (Computer Fraud and Abuse Act) Includes Deleting Files From Company Laptop Computer To Hide Improper Conduct

On March 8, 2006, the Seventh Circuit Court of Appeals considered whether an employer could pursue an action under the Computer Fraud and Abuse Act (CFAA), 18 U.S.C. § 1030, against a former employee for securely erasing files from a company laptop computer before quitting and going into competition with his former employer. International Airport Centers, L.L.C. v. Citrin, 440 F.3d 418 (7th Cir. 2006). The provision at issue states that one violates CFAA if one “knowingly causes the transmission of a program, information, code, or command, and as a result of such conduct, intentionally causes damage without authorization, to a protected computer,” which includes company laptop computers. 18 U.S.C. § 1030(a)(5)(A)(i); Citrin, at 419. In his defense, the employee argued that his action of simply deleting computer files did not fall within the class of acts that would constitute a “transmission” within the meaning of CFAA. The district court agreed and dismissed the employer’s lawsuit. Id., at 418-19.

Continue reading "International Airport Centers v. Citrin: Employment Issues" »

Posted In: Employment Law Class Actions, Class Action Court Decisions

Both the Los Angeles Times and Yuki Noguchi of the Washington Post report today on yesterday's announcement by Verizon that it will soon implement a fundamental change in its cancellation fee policy for cellular telephone subscribers. In the face of a California class action that the Times reports seeks "to recover early cancellation fees from Verizon Wireless and Sprint Nextel," the company will calculate the early termination fee based on the proportional amount of time remaining on the subscription agreement.

Verizon's defense against this California class action is not a lone event. Similar class actions are pending in several states, the Washington Post reports. In fact, the Post reports that early termination fees ranks third on the list of complaints against cellular telephone companies, and the Los Angeles Times quotes Verizon CEO Denny Strigl as identifying this issue as "the single largest [complaint] that our customers have." As Mr. Strigl candidly admitted, "It's a legitimate complaint: If they leave in month one or month 23, they pay the same charge."

Verizon also will reportedly begin offering to existing customers the same discount for new handsets that it offers to new subscribers.

Noguchi's article, entitled "Verizon to Reduce Contract Termination Fee," may be found in the June 29, 2006 edition of the Washington Post. The Los Angeles Times article, entitled "Verizon Wireless to Prorate Cancellation Fees," may be found in the business section of the June 29, 2006, edition of the Los Angeles Times.

Posted In: Class Actions In The News

28 U.S.C. § 1447(e)

Once a class action has been removed to federal court based on diversity jurisdiction, a plaintiff may seek to destroy diversity by naming additional defendants. Any such attempt would fall squarely within the ambit of 28 U.S.C. § 1447(e), which provides as follows:

If after removal the plaintiff seeks to join additional defendants whose joinder would destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and remand the action to the State court.

The plain language of the statute addresses the two most obvious questions. First, must the district court allow a plaintiff to join additional party-defendants?The answer is clearly "no" - Section 1447(e) expressly states, "the court may deny joinder" (italics added).

Second, must the district court remand the case to state court if it grants leave to add non-diverse party-defendants? Again, the answer is clear - "yes."As the Third Circuit observed, "Hence, a district court can sometimes, after suit is filed, permit the destruction of subject matter jurisdiction."Kabakjian v. United States, 267 F.3d 208, 212 (3rd Cir. 2001).

The Ninth Circuit addressed a situation where the district court granted joinder of non-diverse parties but did not remand the matter.See Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1068 (9th Cir. 2001). Based on the particular circumstances of that case - viz., the existence of original jurisdiction over the matter had it been filed initially in federal court - the Ninth Circuit affirmed. The language of the opinion is, however, instructive:

Once removal has occurred, the district court has two options in dealing with an attempt to join a non-diverse party. 28 U.S.C. § 1447(e) provides that "[i]f after removal the plaintiff seeks to join additional defendants whose joinder would destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and remand the action to the State court." Newcombe v. Adolf Coors Co., 157 F.3d 686, 691 (9th Cir. 1998). Here, the district court did neither, permitting joinder of the non-diverse parties while retaining jurisdiction over the action. If diversity were the only basis for the court's subject matter jurisdiction, joinder of the non-diverse Insurers would have divested the court of jurisdiction.Desert Empire Bank v. Ins. Co. of N. Am., 623 F.2d 1371, 1374, 1377 (9th Cir. 1980) (permissive joinder of nondiverse defendant following removal to federal court divested court of subject matter jurisdiction).

Morris v. Princess Cruises, at 1068 (italics added).

In sum, Section 1447(e) unambiguously gives the district court only two options when a plaintiff seeks to add a non-diverse party-defendant following removal of the case to federal court:"deny joinder, or permit joinder and remand the action to the State court" (italics added). The court is without discretion to act otherwise.If diversity is destroyed, the case must be remanded unless an independent basis for federal court jurisdiction still exists.

Posted In: Class Actions In The News, Removal & Remand

28 U.S.C. S 1447 - 30 day Time Limit

Defendants in class actions often remove their case to federal court whenever possible. Plaintiffs invariably seek to remand class actions to state court. Thus, once a class action has been removed to federal court, it can be expected that plaintiff's counsel will file a motion to remand the matter to state court. Remand of cases to state court is governed by 28 U.S.C. S 1447(c). "A motion to remand the case on the basis of any defect other than lack of subject matter jurisdiction must be made within 30 days after the filing of the notice of removal," 28 U.S.C. S 1447(c). However, "If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." Id.

Thus, like its removal counterpart (28 U.S.C. S 1446(b), which requires removal within 30 days of receipt of the necessary pleading or other paper), Section 1447(c) requires that any motion to remand - except one based on lack of subject matter jurisdiction - "must be made within 30 days after the filing of the notice of removal." The United States Supreme Court summarized the requirement this way:

Once a defendant has filed a notice of removal in the federal district court, a plaintiff objecting to removal "on the basis of any defect in removal procedure" may, within 30 days, file a motion asking the district court to remand the case to state court. S 1447(c). This 30-day limit does not apply, however, to jurisdictional defects: "If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." Ibid.

Caterpillar Inc. v. Lewis, 519 U.S. 61, 69, 117 S.Ct. 467, 473 (1996).

The exception for subject-matter jurisdiction cases simply reflects the general rule that jurisdictional defects may be asserted at any time and cannot be waived. See, Regents of University of California v. Bakke, 438 U.S. 265, 380 n.1, 98 S.Ct. 2733, 2794 n.1 (1978) ("lack of jurisdiction . . . touching the subject matter of the litigation cannot be waived by the parties") (quoting United States v. Griffin, 303 U.S. 226, 229, 58 S.Ct. 601, 602, 82 L.Ed. 764 (1938)). See also, United States v. Meyer, 439 F.3d 855, 863 (8th Cir. 2006) ("[l]ack of subject matter jurisdiction cannot be waived by the parties or ignored by the court") (quoting In re Wireless Tel. Fed. Cost Recovery Fees Litig., 396 F.3d 922, 928 (8th Cir.2005)).

Continue reading "Motions to Remand: Class Action Defense Issues" »

Posted In: Removal & Remand, Topics of Interest

Changing Class Definition in Class Action Does Not Constitute New Case Permitting Removal Under CAFA (Class Action Fairness Act) Seventh Circuit Holds

Congress enacted CAFA (Class Action Fairness Act of 2005) for the purpose of expanding defense access to federal courts in class action cases. CAFA applies only to class actions filed after its effective date (February 18, 2005), but federal courts have held that certain pleading amendments - such as adding a new party-defendant - constitutes the commencement of a "new case" thus permitting removal by defense attorneys to federal court. Class action defendants often benefit if they can remove the case to federal court, and many have tested the limits of CAFA by removing class action cases on the grounds that different actions by the plaintiffs' lawyer commenced a new suit.

Continue reading "Class Action Defense Cases: Knudsen v. Liberty Mutual" »

Posted In: Class Action Fairness Act (CAFA), Removal & Remand, Class Action Court Decisions

In a prior article, we discussed defense lawyer concerns about federal government efforts to require companies to divulge communications with its attorneys. That effort arises from federal guidelines contained in what is known as the Thompson memorandum, written in 2003. Another guideline suggests that corporate payment of lawyer fees for the criminal defense of employees will constitute a "black mark" against the company and may lead to an indictment. Lynnley Browning of the New York Times reports that yesterday a federal judge issued "the first major criticism from the bench" against tactics used by prosecutors and the Thompson memo. As Browning concisely summarized the issue:

Prosecutors have argued that the Thompson memorandum guidelines are simply factors that prosecutors must consider in evaluating a company's cooperation and are not ironclad requirements. Defense lawyers and corporate lawyers, however, contend that the memorandum is being used as a club to bludgeon companies into disclosing legal secrets, cutting off legal fees and showing other signs of cooperation to avoid being indicted.

In a case concerning the criminal trial of former KPMG employees, a New York federal judge ruled that coercing a company into not paying lawyer fees for the defense of employees violates the employees' constitutional rights. KPMG initially capped attorneys fees at $400,000 and then stopped paying defense costs entirely "to avert an indictment," Browning reports. She adds, "KPMG is regarded as a textbook example of how firms can avoid indictment by cooperating with prosecutors, in part by firing employees suspected of wrongdoing - even before they are found guilty - and by cutting off legal fees." The article quotes indicted class action law firm Milberg Weiss as stating, "We hope that courts will continue to hold the Justice Department accountable for such overreaching use of the Thompson memorandum." Little is known of the class action firm's pre-indictment communications with federal investigators, but in its defense, its attorneys may reveal details of the length investigation that preceding the criminal charges.

The Browning article, entitled "U.S. Tactic On KPMG Questioned," may be found in the June 28, 2006, edition of the New York Times. It is well worth reading.

Posted In: Class Actions In The News

After a California state court denied a motion for class certification in a putative class action brought under the Consumer Credit Reporting Agencies Act (CCRAA), California Civil Code §§ 1785.1 et seq., plaintiff’s lawyer convinced the trial judge to allow communication by letter with potential class members that advised them of their potential legal rights against the defendant in the class action and sought their cooperation in pursuing the plaintiff’s damage claim in her lawsuit. Experian Information Solutions, Inc. v. Superior Court, 138 Cal.App.4th 122, 127-29 (Cal.App. 2006). Defendant thus succeeded in its defense of the class action, but the court order opened the floodgates to potential new lawsuits. A California appellate court granted defendant’s petition for writ of mandate and, in an opinion issued on March 30, 2006, held that it is improper for plaintiffs’ attorneys to advise putative class members in class actions that they may have individual claims against the defendant:

After a class-certification motion is denied, can a court order a plaintiff or a neutral third party to send a letter to former potential class members notifying them of possible claims against the defendant? No. There is no legal basis to permit such a communication.

Experian, at 131 (italics added). In so holding, the California appellate court observed, “In non-class action litigation, it is not the court’s role to order notification to third parties of their possible legal claims. . . . Thus, after class certification has been denied by a trial court, court-ordered notifications to former, potential class members that they might have legal claims against a defendant are impermissible.” Id., at 131-32 (citation omitted).

NOTE: The court did permit limited communication for the purpose of obtaining evidence relevant to plaintiff’s individual claim, but the basis for that communication falls outside the scope of this summary.

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

The news continues to go from bad to worse for class action law firm Milberg Weiss and its lawyers indicted on May 18, 2006, on charges that it paid more than $11 million in kickbacks to clients to serve as plaintiffs. According to Julie Creswell and Jonathan Glater of the New York Times, one such plaintiff, Howard J. Vogel, admits in a plea bargain with federal prosecutors that “he and relatives were linchpins in [a] long-running arrangement” that helped class action law firm Milberg Weiss “reap hundreds of millions of dollars as counsel in securities lawsuits.” Vogel reportedly received $1.1 million from the class action firm to serve as plaintiff in a class action against Oxford Health Plans, and served as plaintiff for Milberg Weiss in many other class actions, often illegally receiving up to 14% of the attorney fees awarded to the law firm.

But the proverbial plot thickens with Mr. Vogel’s purported admission that he actually purchased shares of stock in Oxford Health “on the belief that [the company] was on the verge of collapse.” Because a class action plaintiff must have claims that satisfy the commonality and typicality requirements of Rule 23, “speculative investments” – that is, stock purchased in the hope that the share price will fall so that one can sue the company alleging violations of state and federal securities laws – if discovered by the defense would seriously undermine the plaintiff’s ability to obtain certification of a class action.

The article by Creswell and Glater, “For Law Firm, Plaintiff Had Golden Touch,” may be found in the June 6, 2006, New York Times.

Posted In: Class Actions In The News, Certification of Class Actions

The Los Angeles Times recently reported that the efforts of Cingular Wireless to stop three class actions from proceeding in California state court came to an end on June 5, 2006, when the United States Supreme Court refused to grant certiorari in cases involving California court rulings that rejected class action restrictions in arbitration agreements. The rulings permitted plaintiffs to “bypass” arbitration. According to the Los Angeles Times, “The central questions was how much room the federal law [Federal Arbitration Act] leave for states to apply neutral rules such as California’s prohibition on ‘unconscionable’ contracts. The California Supreme Court invoked that doctrine in 2005 to bar waivers of class-action rights in disputes that ‘predictably involve small amounts of damages’ and large numbers of customers.” See Discover Bank v. Superior Court, 36 Cal.4th 148, 162 (Cal. 2005).

The U.S. Supreme Court's decision in this case is not surprising in light of the history of this class action. Plaintiffs' attorneys argued in the California trial court that the class action ban in the arbitration contracts were unconscionable and invalid. On May 18, 2005, the California Court of Appeal for the First District, Division 5, reversed, concluding "that under the facts in the present case the contractual ban on class-wide arbitration is not unduly one-sided, harsh, or in violation of public policy." Parrish v. Cingular Wireless, LLC, 28 Cal.Rptr.3d 802, 805 (Cal.App. 2005). The California Supreme Court granted review and transferred the matter back to the Court of Appeal for reconsideration in light of its then-recent opinion in Discover Bank. On remand, the California appellate court agreed with plaintiffs' attorneys, concluding "that the arbigration clause at issue here prohibiting class-wide arbitration is unconscionable and unenforceable." Parrish v. Cingular Wireless, LLC, 2005 WL 2420719 (Cal.App. 2005), but the opinion was not published. It is exceptionally difficult to persuade the California Supreme Court or the United States Supreme Court to review an appellate decision that is not published.

Nonetheless, the petition generated understandable interest: Though it denied review, the U.S. Supreme Court permitted the Pacific Legal Foundation, the American Bankers Association, the U.S. Chamber of Commerce, and Amazon.com leave to file amici curiae briefs. The scope of FAA is still the subject of considerable debate; Circuit Courts do not agree on whether the right to pursue class actions may be waived as part of an arbitration agreement and, if so, under what circumstances class action waivers are enforceable. While the U. S. Supreme Court refused to hear Cingular’s case, it is only a matter of time before the High Court will accept a case and address these thorny questions.

The article, “High Court Rebuffs Appeal By Cingular,” may be found in the Business Section of the June 6, 2006, Los Angeles Times.

Posted In: Class Actions In The News

Former California Manager Seeks Class Action Status in Lawsuit Alleging Failure to Pay Overtime and Failure to Provide Meal and Rest Breaks

In prior articles, we have discussed the prevalence of class actions against employers alleging labor law violations. These are among the "favorites" of plaintiff class action attorneys. Henry Lee of the San Francisco Chronicle reports today that a putative class action has been filed against Starbucks in federal court by a former manager who worked in two California Starbucks shops. According to the article, this class action follows the settlement of an earlier class action against Starbucks that had alleged the company had misclassified its managers as exempt from overtime. The plaintiff's lawyer claims that the prior class action led to a change in company policy so that Starbucks' managers are now paid an hourly wage. The current class action seeks damages for allegedly unpaid overtime and unpaid meal and rest periods. Mr. Lee's article, "Starbucks faces suit over OT," may be found in today's business section of the San Francisco Chronicle.

Posted In: Class Actions In The News, Employment Law Class Actions

Arbitration Agreements Retroactive and Enforceable But Class Actions And Attorney Fees Waiver Unenforceable First Circuit Holds

Circuit Courts of Appeal continue to struggle with whether class action waivers in arbitration agreements are enforceable. On April 20, 2006, the First Circuit addressed that issue, and several others, in Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006). Subscribers filed putative class actions against cable TV giant Comcast alleging violations of state and federal antitrust laws. Comcast moved to compel arbitration based on an arbitration clause first added to the subscription service agreements in 2001. This motion was critical to Comcast's defense of the class action for several reasons, chief among them that the arbitration agreements barred class action arbitration and barred recovery of attorney fees and costs. The district court concluded that the arbitration provisions did not apply retroactively and refused to compel arbitration. Id., at 29-30. The First Circuit Court of Appeals reversed, but severed the class action waiver provision, as well as the provision barring recovery of attorney fees and costs, holding that those provisions "prevent the vindication of statutory rights under state and federal law." Id., at 29. Kristian spans 40 pages in the Official Reports and so cannot be explored in detail here. It will be discussed at length in a separate article concerning the enforceability of class action waivers in arbitration agreements. We provide here but a brief overview of the highlights of Kristian.

* Comcast provided adequate notice of the arbitration agreements and the provision waiving class actions, provided as a "billing stuffer" with the subscribers' November 2001 invoices, Kristian, at 30, 36-37. The arbitration provision - including the waiver of class action claims - was set forth in bold face and capital letters, id., at 31-32.

* While none of the plaintiffs' initial service agreements contained arbitration clauses or the class action waivers, the arbitration agreements nonetheless applied retroactively. Id., at 30, 31-36.

Continue reading "Class Action Defense Cases–Kristian v. Comcast: Class Action Waiver In Arbitration Clause Unenforceable" »

Posted In: Arbitration, Class Actions In The News, Class Action Court Decisions

The defense of class actions can span several years, and generally class action complaints allege damages dating back many years. That combination played a part in the record settlement of a pregnancy discrimination class action lawsuit, according to Amy Joyce of the Washington Post. By way of background, Nynex Corporation was formed in 1984 to provide telephone service to the states of Maine, Massachusetts, New Hampshire, New York, Rhode Island and Vermont. The company acquired Bell Atlantic in 1997 and adopted its name. Three years later, in 2000, Bell Atlantic acquired GTE and changed its name to Verizon Communications. Verizon’s predecessors, Nynex and Bell Atlantic, “were accused of violating federal law by denying women pension and other benefit accruals when they spent time on pregnancy or maternity leave,” Ms. Joyce reports. Verizon recently agreed to pay almost $49 million to more than 12,000 former and current female employees to settle the landmark case.

The Washington Post reports that the settlement was consummated in 2002, but that final figures were not available until the EEOC (Equal Employment Opportunity Commission) had “completed its projects of how much would be paid in future benefits.” The article by Amy Joyce, “Record $48.9 Million Set in Maternal Bias Suit Verizon Inherited,” may be found in the June 6, 2006, Washington Post.

Posted In: Class Actions In The News, Employment Law Class Actions

California Holds in Class Actions Case That Liability for Failure to Pay Prevailing Wages on Public Works Projects is Limited to Direct Employer

On April 18, 2006, a California court published its opinion in a class action case that addressed an issue of first impression in California: whether employees on public works projects may sue parties other than their direct employer for alleged violations of the prevailing wage law. Violante v. Communities Southwest Dev. & Constr. Co., 138 Cal.App.4th 972 (Cal.App. 2006). There, construction workers filed a putative class action in California state court for recovery of prevailing wages, alleging that perhaps thousands of workers "were paid less than prevailing wages as required by California Labor Code section 1770 et seq. for public works projects." The class action complaint alleged violations of Labor Code section 1774, breach of contract and unfair business practices against numerous defendants including S. J. Burkhardt, Inc., the contractor that hired Raymond David Paci, doing business as Pacific Structures; Pacific Structures had employed plaintiffs directly. The trial court sustained the demurrers of three other defendants - Chapman Heights (a contractor), Communities Southwest Development and Construction Company (a developer and general partner of Chapman Heights), and Yucaipa Valley Acres (a developer and contractor) - without leave to amend and plaintiffs appealed. 138 Cal.App.4th at 975-76.

After a careful analysis of the statutory scheme, the Court held at page 979, "Plaintiffs have a right of action against the subcontractor, their direct employer [citations]. . . . But the Labor Code nowhere requires the contractor to pay prevailing wages to a subcontractor’s employee or permits a subcontractor’s employee to sue the prime contractor when the subcontractor fails to pay prevailing wages."

Plaintiffs contend defendants violated section 1774 because plaintiffs were not paid prevailing wages by their direct employer, a subcontractor. This is an untenable interpretation. The Labor Code provides a contractor and a subcontractor must pay prevailing wages to their respective employees on a public works project, not that a contractor must pay prevailing wages to a subcontractor’s employees. 138 Cal.App.4th at 978 (italics added).

Continue reading "Violante v. Communi