Posted On: June 30, 2006 by Michael J. Hassen Email This Post

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Certification of Class Actions Under Rule 23 Part II: Class Action Defense Issues

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 On: June 30, 2006 by Michael J. Hassen Email This Post

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Class Action Defense Issues–Alibrandi v. Financial Outsourcing

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.”).

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Posted On: June 29, 2006 by Michael J. Hassen Email This Post

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International Airport Centers v. Citrin: Employment Issues

“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.

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Posted On: June 29, 2006 by Michael J. Hassen Email This Post

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Verizon Implements New Policies In Face Of Defense Of California Class Action Regarding Cancellation Fees

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 On: June 29, 2006 by Michael J. Hassen Email This Post

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Motions to Defeat Diversity Jurisdiction: Class Action Defense Issues

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 On: June 28, 2006 by Michael J. Hassen Email This Post

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Motions to Remand: Class Action Defense Issues

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)).

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Posted On: June 28, 2006 by Michael J. Hassen Email This Post

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Class Action Defense Cases: Knudsen v. Liberty Mutual

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.

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Posted On: June 28, 2006 by Michael J. Hassen Email This Post

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Federal Judge Attacks Thompson Memo Cut-Off Of Defense Lawyer Fees - Indicated Class Action Law Firm Applauds Ruling

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 On: June 28, 2006 by Michael J. Hassen Email This Post

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Experian v. Superior Court: Successful Defense of Class Certification Bars Letter to Potential Class Action Members Informing Them Of Their Possible Legal Rights California Court Holds

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.

Download PDF file of Experian v. Superior Court

Posted On: June 27, 2006 by Michael J. Hassen Email This Post

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New York Times Reports Class Action Law Firm And Lawyer Paid “Serial Plaintiff” $1 Million To Serve As Plaintiff

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 On: June 27, 2006 by Michael J. Hassen Email This Post

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Cingular Fails To Stop Three Class Actions From Proceeding In California State Court

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 arbitration 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 On: June 27, 2006 by Michael J. Hassen Email This Post

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Starbucks Faces California Employment Class Action

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 On: June 27, 2006 by Michael J. Hassen Email This Post

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Class Action Defense Cases–Kristian v. Comcast: Class Action Waiver In Arbitration Clause Unenforceable

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.

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Posted On: June 26, 2006 by Michael J. Hassen Email This Post

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Verizon Pays Record Amount To Settle Pregnancy Discrimination Class Action

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 On: June 26, 2006 by Michael J. Hassen Email This Post

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Violante v. Communities Southwest -- California Class Action Defense Cases

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).

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Posted On: June 26, 2006 by Michael J. Hassen Email This Post

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Melena v. Anheuser-Busch -- Class Action Defense Issues

Employment Arbitration Agreement Under FAA (Federal Arbitration Act) Enforceable By Employer Illinois Supreme Court Holds

As discussed in a separate article, Circuit Courts of Appeal and state courts do not agree on the enforceability of arbitration agreements in employment contracts. This issue may be of critical importance in the defense of class actions, because a class action waiver in an employment arbitration agreement cannot possible be enforceable if the court would refuse to enforce the arbitral forum even without a class action restriction. On March 23, 2006, in an opinion that should have direct and positive impact in the defense of class action waivers in arbitration agreements in the state, the Illinois Supreme Court cast its vote on the issue, holding that under the FAA (Federal Arbitration Act, 9 U.S.C. § 1 et seq. (1994)), employment arbitration agreements are enforceable under “principles of fundamental contract law because we believe that approach is more faithful to the FAA.” Melena v. Anheuser-Busch, Inc., 847 N.E.2d 99, 107 (Ill. 2006).

In Melena, Anheuser-Busch hired plaintiff in February 1999. One year later, it mailed to employees a letter announcing a new “Dispute Resolution Program” that included a requirement for arbitration under the FAA. Employees were informed that “’by continuing or accepting an offer of employment’ with Anheuser-Busch, all employees to whom the policy was applicable ‘agree as a condition of employment to submit all covered claims to the dispute resolution program.’” 847 N.E.2d at 101. Plaintiff was injured in September 2002, and fired in March 2003. She filed suit against Anheuser-Busch in state court in May 2003. ANHEUSER-BUSCH moved to compel arbitration, but the trial court denied the motion without explanation. The appellate court affirmed, concluding that “’even if the plaintiff entered into the agreement knowingly, she did not do so voluntarily,’” and expressing doubt “about whether an agreement to arbitrate, offered as a condition of employment, ‘is ever voluntary.’” Id., at 102 (quoting appellate court opinion).

The Illinois Supreme Court reversed, holding: “In our view, the FAA’s plain language makes clear that arbitration agreements are enforceable except for state-law grounds for ordinary contract revocation.” 847 N.E.2d at 107 (italics added, citations omitted). Importantly, the Illinois Supreme Court did not make any distinction between arbitration agreements in an employment context or in a commercial setting, and did not suggest that a class action waiver provision would be interpreted under different contract principles.

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Posted On: June 25, 2006 by Michael J. Hassen Email This Post

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British Airways and Virgin Atlantic Hit With Class Action In New York Alleging "Price Fixing": Defense of Class Actions

Dominic O’Connell and Dominic Rushe of The Sunday Times reported today that a putative class action has been filed in New York against British Airways and Virgin Atlantic alleging a price-fixing conspiracy. The lawsuit reportedly was filed June 23 by Cohen, Milstein, Hausfeld & Toll, and alleges that "[British Airways and Virgin Atlantic] implemented their agreement by exchanging information in secret . . . communications."

The article states that British Airways revealed last week that the Office of Fair Trading and the American Department of Justice was investigating charges of price-fixing related to fuel surcharges on long-haul flights, and reports that BA placed two senior executives on leave during the investigation. O'Connell's and Rushe's article, "BA and Virgin hit by US class-action suit over ‘price fixing’," may be found in the June 25, 2006, edition of The Sunday Times.

Posted On: June 24, 2006 by Michael J. Hassen Email This Post

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Canadian Court Certifies Class Action Against Condominium Developer: Defense of Class Actions

Condo Buyers Allowed to Pursue Class Action Against Developer for Understating Common Expenses

The Toronto Star reports this morning that an Ontario judge has certified a class action brought by homeowners in a condominium development alleging that the developer "significantly understated" the "total funds required" to cover the project's common expenses for the first year to be $413,000. This amount proved woefully inadequate. In its second year of operation, the project approved a budget reflecting a 62% increase in common expenses, but still fell $48,000 short of meeting expenses. While Canadian law governing class actions differs from that in the United States, for our purposes the important point is that a putative class action was filed against the developer, alleging that the sales materials and disclosure statements were "inaccurate, false, deceptive and misleading."

Bob Aaron, a Toronto real estate lawyer, reports that "the developer was warned in writing by the property manger 'that unless drastic adjustments are made, the second-year budget will likely be doubled.'" Mr. Aaron's article is entitled, "Condo buyers' class-action suit bears watching" and may be found in the June 24, 2006 edition of the Toronto Star.

Note: Coincidentally, the leading condo hotel lawyer in the United States has worked on more than 60 condo hotel projects all over the world. He is Jim Butler of Jeffer, Mangels, Butler & Marmaro. Anyone developing or financing a condo hotel-whether ground up construction or conversion-should contact Jim Butler to discuss the project. The Global Hospitality Group chaired by Jim Butler has assisted clients with more than $40 billion of hotel transactions involving more than 1,000 properties around the globe.

Posted On: June 23, 2006 by Michael J. Hassen Email This Post

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Burlington Northern v. White -- Class Action Defense Issues

Supreme Court Expands Breadth of Potential Employee Claims for Alleged Retaliation

In a prior article on class actions and class action defense, we discussed the rise of employment law class actions. One area that had not yet been widely subject to class actions consists of alleged retaliation claims. Every employment law practioner knows that Title VII of the Civil Rights Act of 1964 prohibits discrimination based on "race, color, religion, sex, or national origin," 42 U.S.C. § 2000e-2(a). To protect employees who seek to establish such employment discrimination, Congress included an "anti-retaliation" provision in Title VII that prohibits discrimination against one who has "made a charge, testified, assisted, or participated" in a Title VII matter, 42 U.S.C. § 2000e-3(a). By their nature, such claims are "class action resistant" because they are based on the case-by-case treatment of the employee and the specific conduct against which the employer alleges seeks to retaliate. That may change.

On June 22, 2006, the United States Supreme Court fundamentally altered the landscape of employment law retaliation claims. See Burlington Northern & Santa Fe Railway Co. v. White, 548 U.S. ___, ___ S.Ct. ___ (2006). Title VII retaliation claims require proof of an "adverse employment action" but courts have disagreed on what satisfies this requirement. The Supreme Court summarized the issues presented and its answers as follows:

The Courts of Appeals have come to different conclusions about the scope of the Act’s anti-retaliation provision, particularly the reach of its phrase “discriminate against.” Does that provision confine actionable retaliation to activity that affects the terms and conditions of employment? And how harmful must the adverse actions be to fall within its scope?

We conclude that the anti-retaliation provision does not confine the actions and harms it forbids to those that are related to employment or occur at the workplace. We also conclude that the provision covers those (and only those)employer actions that would have been materially adverse to a reasonable employee or job applicant. In the present context that means that the employer’s actions must be harmful to the point that they could well dissuade a reasonable worker from making or supporting a charge of discrimination. Slip Opn., at 1-2.

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Posted On: June 23, 2006 by Michael J. Hassen Email This Post

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Class Action Defense Cases--Lindsay v. GEICO: District Court Erred In Refusing To Exercise Supplemental Jurisdiction Over State Law Claimants Who Did Not Opt In to FLSA Class Action

Certification of Class Actions and Supplemental Jurisdiction - District Court Improperly Denied Class Certification of State Law Claimants Who Did Not Opt In to Federal Class Action Under FLSA (Fair Labor Standards Act) D.C. Circuit Holds

The FLSA (Fair Labor Standards Act) requires that potential class members affirmatively opt in to class actions based on the overtime pay provision. See 29 U.S.C. §§ 207, 216(b). Certain class actions under Federal Rules of Civil Procedure Rule 23, however, require that potential class members opt out of class action cases. See Fed.R.Civ.Proc., Rule 23(b)(3), (c)(2)(B). On May 26, 2006, the D.C. Circuit Court of Appeals held as a matter of first impression that the district court erred in refusing to exercise supplemental jurisdiction over the claim of, and in denying class action certification to, those state law class action claimants who did not also opt in to a FLSA overtime class action. Lindsay v. Government Employees Ins. Co., 448 F.3d 416 (D.C. Cir. 2006).

Plaintiffs filed a putative class action alleging that GEICO willfully misclassified certain employees as "administrative" in order to avoid paying them overtime in violation of FLSA, 29 U.S.C. § 207(a), and sought certification to pursue an opt in class action under FLSA. Lindsay, at 418. Plaintiffs also alleged that GEICO's conduct violated New York's Minimum Wage Act, N.Y. Labor Law, §§ 650 et seq., and sought certification to pursue an opt out class action pursuant to Rule 23. Id. As the D.C. Circuit summarized at page 418:

The district court denied certification of the state law class, concluding that the FLSA class certification procedure requiring all class members to affirmatively opt in precluded it from exercising supplemental jurisdiction over those state law claimants who did not affirmatively join the FLSA claim. We disagree and therefore reverse the order denying certification and remand to the district court.

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Posted On: June 22, 2006 by Michael J. Hassen Email This Post

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Motions to Remand - Supplemental Jurisdiction When Federal Claims Are Resolved: Class Action Defense Issues

28 U.S.C. § 1447 - Supplemental Jurisdiction When Federal Claims Are Resolved

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. When removal is based on federal questions jurisdiction, then plaintiffs may seek to secure remand by dismissing their federal question claims.

What happens, then, if an action is removed to federal court based on federal question jurisdiction and the district court exercises supplemental jurisdiction (see 28 U.S.C. §1367) over the remaining state claims, but the federal question claims are later resolved (whether by voluntary dismissal, motion to dismiss or summary judgment) leaving only state law claims before the court?

Remand of cases to state court is governed by 28 U.S.C. §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. § 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.

If an action is removed to federal court based on federal question jurisdiction but the federal question claims are later revolved, leaving only state law claims, then two separate questions are presented. First, how does the 30-day time period for filing a motion to remand apply? A recent district court opinion holds that the absence of a federal question goes to subject matter jurisdiction and therefore is not subject to the 30-day rule:

Clearly, the defect urged by Plaintiffs is one of subject-matter jurisdiction, and not some other defect in the removal procedure. Thus, Plaintiffs' alternative request for discretionary remand to state court is not subject to the thirty-day time limitation in §1447(c), and is, therefore, timely. See e.g., Pierpoint v. Barnes, 94 F.3d 813, 818 (2d Cir. 1996) (stating that the thirty day time period was specifically written “in terms of a defect in ‘removal procedure’ in order to avoid any implication that remand is unavailable after disposition of all federal questions . . . .”).

Hardy v. GMRI, Inc., 2006 WL 752506, *2 (S.D. Iowa 2006).

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Posted On: June 21, 2006 by Michael J. Hassen Email This Post

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Dura Pharmaceuticals v. Broudo -- Class Action Defense Cases

Class Action Securities Fraud Cases Must Plead Economic Loss and Causal Connection Between Alleged Fraud and Loss

Class actions alleging securities fraud are commonplace. Whenever a publicly traded stock declines in value, an investor is ready to file a class action claiming that the stock price had been inflated or that he would not have invested in the company but for misleading representations made by the company. Congress enacted the Private Securities Litigation Reform Act of 1995 (PSLRA) hoping, in part, to stem the “abusive” practice of “the routine filing of lawsuits . . . with only a faint hope that the discovery process might lead eventually to some plausible cause of action.” H.R. Conf. Rep. No. 104-369, p. 31 (1995), U.S. Code Cong. & Admin. News 1995, pp. 679, 730.

Class action defendants had high hopes for the PSLRA: it imposes limits on damages and attorney fees, imposes limits on the way lead plaintiffs are selected and the amounts they can be awarded, imposes sanctions for frivolous litigation, provides companies with a “safe harbor” for certain statements, and allows courts to issue stays of discovery pending motions by a defendant to have the case dismiss. See, 15 U.S.C. § 78u-4. Also, Section 21D(b)(2) of the PSLRA requires that a plaintiff alleging securities fraud “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” SLUSA, discussed in a separate article, represents Congress’s attempt to fill in the loopholes in the PSLRA. Other holes, however, have been left to the judicial branch. The U.S. Supreme Court filled one such hole in Dura Pharmaceuticals v. Broudo, 544 U.S. 336, 125 S.Ct. 1627 (2005).

A class action alleging securities fraud was filed against Dura Pharmaceuticals in a California federal court. The complaint alleged that Dura falsely represented that a new product would secure FDA approval and that its drug sales would be profitable. The Supreme Court opinion sets forth the basic allegations of the complaint, which we do not repeat here. The Court stated at pages 339-40:

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Posted On: June 21, 2006 by Michael J. Hassen Email This Post

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Mirfasihi v. Fleet Mortgage -- Defense of Class Action Cases

Class Action Settlement Approval of Nationwide Class Action Reversed and Remanded for District Court Failure to Analyze Value of Class Claims Under the State Laws of Each Applicable Jurisdiction Seventh Circuit Holds

On June 19, 2006, the Seventh Circuit Court of Appeals considered for the second time a proposed class action settlement of a nationwide class action against Fleet Mortgage brought under the Truth in Lending Act (TILA), the Fair Credit Reporting Act (FCRA) and various state laws. Mirfasihi v. Fleet Mortgage Corp., ___ F.3d ___, 2006 WL 1667802 (7th Cir. 2006) (“Fleet II”). As explained below, the class action involved two classes: a “telemarketing class,” and an “information-sharing class.” The Seventh Circuit previously reversed district court approval of a proposed settlement of the class action claims because “the district court failed to consider adequately the value of the claims of the so-called ‘information-sharing class’ (a class of consumers whose privacy interests were purportedly intruded upon, but who did not suffer any out-of-pocket damages).” Slip Opn., at 1-2 (citing Mirfasihi v. Fleet Mortgage Corp., 356 F.3d 781 (7th Cir. 2004) (“Fleet I”).

The class action involved claims that Fleet sold mortgage information to third-party telemarketers, and that Fleet “was an active collaborator in drafting the script that the telemarketers used and allowed direct billing of the fees for the telemarketers’ products onto the mortgage bill of its customers, without obtaining pre-approval from customers.” Slip Opn., at 2. The “telemarketing class” consisted of 190,000 people who purchased financial products from the telemarketers; the “information-sharing class” consisted of 1.4 million Fleet borrowers whose information had been sent to telemarketers but who had not purchased any services from them. Id., at 2-3.

The class action settlement approved by the district court in Fleet I provided for payments to the telemarketing class, but the information-sharing class “was left out in the cold and received nothing.” Slip Opn., at 3. (The terms of the class action settlement are detailed in Fleet I and Fleet II; we focus here only on the monetary recovery for each class.) Fleet I reversed the district court’s approval of the class action settlement because “the district court failed to consider with adequate specificity the reasonableness of an entire class receiving a ‘big fat zero’ in the settlement.” Slip Opn., at 4 (citing Fleet I, at 785). “Specifically, the district court did not canvass all potential avenues of recovery to determine whether the information-sharing class’s claims were indeed essentially hopeless (and thus worthless) under the pertinent controlling law.” Slip Opn., at 4.

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Posted On: June 21, 2006 by Michael J. Hassen Email This Post

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The Defense of Class Action Cases: California Issues

California’s Fair Debt Collection Practices Act: A Brief Overview

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. Several states, such as California, have enacted consumer protection laws based upon the FDCPA. California’s version of the federal FDCPA is the Rosenthal Fair Debt Collection Practices Act. California Civil Code § 1788 et seq.

California Civil Code section 1812.700 provides:

(a) In addition to the requirements imposed by Article 2 . . ., third-party debt collectors subject to the federal Fair Debt Collection Practices Act . . . shall provide a notice to debtors that shall include the following description of debtor rights:

“The state Rosenthal Fair Debt Collection Practices Act and the federal Fair Debt Collection Practices Act require that, except under unusual circumstances, collectors may not contact you before 8 a.m. or after 9 p.m. They may not harass you by using threats of violence or arrest or by using obscene language. Collectors may not use false or misleading statements or call you at work if they know or have reason to know that you may not receive personal calls at work. For the most part, collectors may not tell another person, other than your attorney or spouse, about your debt. Collectors may contact another person to confirm your location or enforce a judgment. For more information about debt collection activities, you may contact the Federal Trade Commission at 1-877-FTC-HELP or www.ftc.gov.”

(b) The notice shall be included with the first written notice initially addressed to a California address of a debtor in connection with collecting the debt by the third-party debt collector.

(c) If a language other than English is principally used by the third-party debt collector in the initial oral contact with the debtor, a notice shall be provided to the debtor in that language within five working days.

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Posted On: June 20, 2006 by Michael J. Hassen Email This Post

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FDCPA (Fair Debt Collection Practices Act) Class Actions: Class Action Defense Issues

Fair Debt Collection Practices Act: A Brief Overview of Federal Law

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. Congress intended the FDCPA to make certain that 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. It is difficult to argue with the need for such guidelines: t he Federal Trade Commission provides Congress with an annual report covering its FDCPA enforcement activities and with a summary of consumer complaints of alleged violations of the FDCPA by debt collectors. The FTC reports that in 2005 there were more than 66,000 such complaints.

Congress found, “There is abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by many debt collectors. Abusive debt collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy. ” 15 U.S.C. § 1692(a). The FDCPA implements broad reforms to redress such abuse: we will highlight only a few of them in this article.

“The FDCPA broadly prohibits a debt collector from using ‘any false, deceptive, or misleading representation or means in connection with the collection of any debt.’ 15 U.S.C. § 1692e.” Dunlap v. Credit Protection Ass'n, L.P., 419 F.3d 1011, 1012 (9th Cir. 2005). Additionally, it “‘prohibits unfair or unconscionable collection methods, conduct which harasses, oppresses or abuses any debtor, and the making of any false, misleading, or deceptive statements in connection with a debt, and it requires that collectors make certain disclosures.’” Foti v. NCO Financial Systems, Inc., 424 F.Supp.2d 643, 653 (S.D.N.Y. 2006) (citation omitted). For example, third-party debt collectors may not contact debtors before 8:00 a.m. or after 9:00 p.m., they may not threaten debtors with arrest, and they may not threaten legal action unless such action is truly being contemplated. However, the FDCPA does not prohibit third-party debt collectors from contacting debtors on holidays or weekends unless they know, or have reason to know, that it would be “inconvenient” to the debtor to do so. Indeed, the debtor may demand that the third-party debt collector terminate all communications, though the result of such a demand may well be a lawsuit. Specifically, provided the request is in writing, a debtor may demand that all further communication stop.

The FDCPA also “prohibits a debt collector from contacting a debtor where the collection agency ‘knows’ the consumer is represented by an attorney.” Schmitt v. FMA Alliance, 398 F.3d 995, 998 (8th Cir. 2005) (holding that while knowledge of agent is imputed to principal, knowledge of principal is not imputed to agent).

Finally, the FDCPA “requires debt collectors to notify debtors about their ability to challenge the validity of a debt and to provide other basic information. See 15 U.S.C. § 1692g.” Foti, 424 F.Supp.2d at 653. Specifically, the debtor may ask the collection agency to “validate” the debt by requesting proof that the debt is valid. (This provision has proven quite successful against collection agencies that would buy up “junk” debts and then demand payment from unsophisticated consumers.)

The FDCPA provides for private rights of action, and permits debtors to recover actual damages, statutory damages, and attorneys' fees and costs for violations of its terms. Under the statutory penalty provision, a jury may award up to $1000 for each violation of the FDCPA, regardless of whether the debtor can otherwise establish actual damages. One can easily imagine the significant damages potentially at risk in class action lawsuits alleging violations of the FDCPA.

NOTE: It is important to understand that, generally, the FDCPA only applies to third party debt collectors; the statutory scheme was not intended to cover the conduct of the original creditor. Some states, however, such as California, have enacted consumer protection statutes that provide broader coverage. California's Fair Debt Collection Practices Act is discussed in a separate article.

Posted On: June 20, 2006 by Michael J. Hassen Email This Post

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Deveny v. Entropin -- California Class Action Defense Cases

California Holds In Class Actions Case That Inquiry Notice Triggers California Securities Law Claims Limitation Period And Website Posting Is Insufficient To Establish Inquiry Notice

On May 10, 2006, a California court published its opinion in a class action case that addressed two issues of first impression in California: (1) whether inquiry notice or actual notice commences the statute of limitations period for alleged violations of California's securities laws, and (2) whether referring investors to the company website establishes inquiry notice as to all information contained on the website. Deveny v. Entropin, Inc., 139 Cal.App.4th 408 (Cal.App. 2006).

Briefly, from August 1998 through June 2002, Entropin released very reports and press releases touting the progress of its development of "a topical solution intended to treat impaired range of motion associated with shoulder and back injuries." Id., at 810-11. The press releases issued between February and June 2002 stated that the drug "'provided statistically significant improvement for soft tissue afflictions for both the shoulders and the lower back.'" Id., at 811-12 (citation omitted). But in September 2002, the company revealed that the clinical trials had been a failure, that the drug was "ineffective," and that the company was "abandoning the drug." Needless to say, "the market price of Entropin securities collapsed." Id., at 812.

In January 2003, a putative class action alleging securities fraud was filed in California state court. The complaint alleged violations of California's securities laws, as well as a federal law claim for violating Section 11 of the Securities Act of 1933. Id., at 812. The company filed a motion for summary judgment, relying in part of the "undisputed fact" that certain information was available on the company's website. Id., at 813. The trial court granted summary judgment and plaintiffs appealed. Id., at 814.

The California Court of Appeal for the Fourth District, Division 2, first examined whether "inquiry notice rather than actual notice applied to plaintiffs' claims." Id., at 815. After observing that the California securities laws at issue were governed by the statute of limitations period contained in California Corporations Code section 25506, Deveny noted that "no published California case has yet addressed whether Corporations Code section 25506 requires actual notice or inquiry notice to trigger the running of the one-year statute of limitations, and our own research has not revealed any such case." Id. Federal courts that had addressed the issue, however, had held that inquiry notice was sufficient, id. (citations omitted). Deveny ultimately concluded that inquiry notice commenced the running of the limitations period under California Corporations Code section 25506. Id., at 815-17. (By its express terms, inquiry notice triggers the one-year limitations period under federal law, 15 U.S.C. § 77m.)

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Posted On: June 20, 2006 by Michael J. Hassen Email This Post

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Recent Developments In California Class Action Defense

A New Twist On Fair Debt Collection Practices Act Class Actions

California courts have been inundated with class actions alleging violations of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq., and its California equivalent, the Rosenthal Fair Debt Collection Practices Act, California Civil Code § 1788 et seq. While California class action firms originally named the debt collection companies, the lawsuits were soon expanded to include California and out-of-state lawyers and law firms that assisted such debt collection companies in their efforts.

According to a June 20, 2006, press release prepared by the law firm of Brennan, Wiener & Associates of La Crescenta, California, a California putative class action was filed in the Los Angeles Superior Court on behalf of Kenneth Holtzclaw and Shane Satey against Great Seneca Financial Corporation, and against the Maryland law firm of Wolpoff & Abramson. Wolpoff & Abramson, LLP is a national law firm with approximately 850 employees. The firm is noted for its debt collection practice work and its representation of national retail and banking clients. According to the press release, “Wolpoff & Abramson set up Great Seneca just to try to insulate itself from unfair debt collection lawsuits.”

This is not the first time Wolpoff & Abramson has been sued. A computer search and cursory review of those lawsuits suggests that those actions have been less than successful. This does appear to be the first time, however, that an attempt has been made to eradicate the distinction between client and attorney. It will be interesting to see whether discovery turns up any evidence to support the plaintiffs’ bold claim.

Posted On: June 20, 2006 by Michael J. Hassen Email This Post

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General Rules for Appealability of Remand Orders: Class Action Defense Issues

Class action defendants often remove their case to federal court whenever possible. Plaintiffs almost invariably seek to remand the action to state court. Whether a federal district court order remanding an action to state court may be reviewed on appeal thus is important to any defendant. Because the focus of this article is on appellate review of district orders granting motions to remand a lawsuit to state court, removal and remand are not discussed here; discussions of each may be found in separate articles. Also, special rules apply to cases removed to federal court under CAFA (Class Action Fairness Act of 2005), and those are discussed in a separate article.

If an action is remanded to state court, the plaintiff commonly will assert that appellate review is barred by 28 U.S.C. § 1447(d). However, 28 U.S.C. § 1447(d) precludes review of remand orders only when the case is remanded for reasons stated in § 1447(c). Thermtron Products, Inc. v. Hermansdorfer, 423 U.S. 336, 350 (1976). A remand order that is not based on statutory grounds is reviewable because there “is no indication whatsoever that Congress intended to extend the prohibition against review to reach remand orders entered on grounds not provided by the statute.” Id. If, for example, the district court remands the action to state court based on the mistaken belief that state courts have concurrent jurisdiction over the subject matter of the dispute, then the matter is reviewable on appeal because that basis for remand is not among the statutory grounds of 28 U.S.C. § 1447(c).

A plaintiff may seek to insulate the remand order from review by referencing 28 U.S.C. § 1447(c) in the order. While that move may strengthen the plaintiff’s case, it does not serve as a talisman to bar appellate review. In the Ninth Circuit, for example, the appealability of a remand order is subject to de novo review. The Circuit Court is not bound by the lower court’s characterization of its bases for remanding a case to state court. Ferrari, Alvarez, Olsen & Ottoboni, v. Home Ins. Co., 940 F.2d 550, 553 (9th Cir. 1991) (“We determine the basis of authority for remand by examining the substance of the remand order.”).

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Posted On: June 19, 2006 by Michael J. Hassen Email This Post

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Class Action Law Firm Milberg Weiss California Criminal Case Loses Fifth Federal Judge

California Federal Judges Recuse Themselves From Hearing Los Angeles Case

Prior articles have discussed the California criminal case involving the federal indictment leveled against class action law firm Milberg Weiss Bershad & Schulman. Molly Selvin of the Los Angeles Times recently reported that yet another federal judge, U.S. District Court Judge R. Gary Klausner, has recused himself from hearing the case, bringing to five the number of judges who have bowed out.

One immediate impact caused by the successive recusals is the delay in the arraignments of Howard J. Vogel, a retired real estate investor, and Richard Purtich, a California lawyer. Ms. Selvin reports that Howard Vogel will be arraigned on a criminal charge that he received more than $2.4 million in kickbacks from Milberg Weiss, and that Richard Purtich has “agreed to plead guilty to a felony tax charge related to allegations that he funneled money to a Milberg client.”

Ms. Selvin’s article, Milberg Case Hits Delays as Five Judges Withdraw,” may be found in the June 16, 2006, edition of the Los Angeles Times.

Posted On: June 19, 2006 by Michael J. Hassen Email This Post

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Stock Option Awards Scandals: Class Action Defense Issues

California Semiconductor Company In The News

By now, the accounting scandals that have torn apart Wall Street are well known. The litigation fallout has pitted company against accounting firm against law firm, in a never-ending circle of passing the blame. California companies have not been immune; on the contrary, several California companies have been in the throes of such litigation.

Eric Dash of the New York Times reported today on the continuing fight between Micrel Inc., a San Jose, California, company, and its former accounting firm, Deloitte & Touche. According to the article, in 1996 Micrel asked Deloitte & Touche for an opinion on a stock option award plan that would be more fair to new hires – a critical need at a time when high-tech firms were growing by leaps and bounds. Micrel claims that Deloitte approved the program.

Five years later, however, “Deloitte reversed its opinion and urged Micrel to restate its financial reports.” Today, Micrel and Deloitte are still battling in court. Mr. Dash insightfully observes, “The Micrel case and others raise troubling questions about how companies that were pushing the envelope of accounting and tax practice were able to get the blessings of auditors and lawyers. And the widening scandal reveals the extent to which boards of directors, especially the compensation committees that approve option grants, may have failed to do their jobs.”

The legacy of the accounting scandals will consume judicial resources for many years to come. The Micrel program, its well-intended origins and its nascent problems are discussed in Mr. Dash’s article, “Gilded Paychecks: Dating Games Inquiry Into Stock Option Pricing Casts A Wide Net,” printed June 19, 2006, in the New York Times.

Posted On: June 16, 2006 by Michael J. Hassen Email This Post

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Class Action Defense Cases: Kircher v. Putnam Funds Trust : Remand Of SLUSA Class Action To State Court Not Appealable Supreme Court Holds

Remand to State Court of Case Removed Under SLUSA (Securities Litigation Uniform Standards Act of 1998) Not Appealable U.S. Supreme Court Holds

CAFA (Class Action Fairness Act of 2005) and SLUSA (Securities Litigation Uniform Standards Act of 1998) are discussed in various separate articles. Removal and remand issues also are discussed in various articles, which set forth the general rule recently reiterated by the United States Supreme Court: "28 U.S.C. § 1447(d) limits appellate review of a district court order remanding a case from federal to state court." Kircher v. Putnam Funds Trust, 547 U.S. ___, 126 S.Ct. 2145, 2150 (2006). The Supreme Court addressed the scope of appellate review of remand orders in Kircher. As the Supreme Court summarized, "The question here is whether an order remanding a case removed under [SLUSA] is appealable, notwithstanding § 1447(d). We hold it is not." Kircher, at 2150 (italics added).

Kircher involves eight separate putative class actions by investors against mutual funds, investment advisers and an insurance company that alleged state law claims for damages (such as damages for negligence and breach of fiduciary duty) arising out of the practice of "market timing." Kircher, at 2150 and n.4. The actions were removed to federal court on the grounds that they were "removable under and precluded by [SLUSA]." Id., at 2151. The investors moved to remand the lawsuits claiming the district court lacked subject matter jurisdiction; the district court agreed, and remanded the actions on the grounds that it lacked subject matter jurisdiction and that SLUSA did not preclude the claims asserted therein. Id.

The Seventh Circuit reversed, but only after concluding that it had appellate jurisdiction to hear the appeal. Kircher v. Putnam Funds Trust, 373 F.3de 847, 849-50 (7th Cir. 2004). In part, the Court concluded that the district court's orders were not actually founded on lack of jurisdiction but on the substantive issue of whether the state law claims were precluded by SLUSA: accordingly, the Seventh Circuit concluded that appellate review was not barred by § 1447(d). Id., at 849-51. Having concluded that it had appellate jurisdiction, the Seventh Circuit then held further that SLUSA precluded the investors' claims.

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Posted On: June 15, 2006 by Michael J. Hassen Email This Post

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Marrone v. Philip Morris -- Defense of Class Action Cases

Ohio Supreme Court Rejection of Class Action Against Tobacco Company of Limited Value to Class Action Defendants

On June 14, 2006, the Ohio Supreme Court issued an opinion reversing certification of a class action against a tobacco company for the allegedly "unfair, deceptive, and unconscionable practice[]" of labeling certain cigarettes as "light." Marrone v. Philip Morris USA, Inc., ___ N.E.2d ___, 2006 WL 1584163 (Ohio 2006). While this victory has been widely reported in the press, it is of limited value to class action defendants.

Marrone turned entirely upon Ohio's Consumer Sales Practices Act (CSPA), which prohibits unfair, deceptive and unconscionable practices in consumer sales transactions. However, alleged violations of CSPA may be brought as class actions only "if the violation is an act or practice that was declared to be deceptive or unconscionable by a rule adopted by the Attorney General before the consumer transaction on which the action is based, or if the violation is an act or practice that was determined by a court to violate the CSPA and the court’s decision was available for public inspection in accordance with R.C. 1345.05(A)(3) before the consumer transaction," Slip Opn., ¶ 1.

The limited applicability of Marrone is evident from the following excerpt:

We must determine how similar the defendant’s conduct must be to the conduct that was previously determined to be deceptive in order for a consumer to qualify for class-action certification under R.C. 1345.09(B) for a violation of the CSPA. For the reasons that follow, we hold that a consumer may qualify for class-action certification under Ohio’s CSPA only if the defendant’s alleged violation of the Act is substantially similar to an act or practice previously declared to be deceptive by one of the methods identified in R.C. 1345.09(B). Because the plaintiffs’ claims in this case did not meet that standard, we reverse the judgment of the court of appeals.

Slip Opn., ¶ 2. Marrone is thus limited to a determination of what, under Ohio state law, satisfies the "substantially similar" requirement of R.C. 1345.09(B) so as to authorize a class action. In fact, the Court expressly stated that "plaintiffs may be entitled to pursue class-action relief," but that "they failed to identify any prior rule or court decision that would entitle them to pursue CSPA relief under R.C. 1345.09(B)." Slip Opn., ¶ 30 (itaclis added).

The opinion does have an excellent discussion of the history and purpose behind cigarette tar and nicotine tests, Slip Opn., ¶¶ 26 et seq., and that discussion may prove useful to tobacco defendants in state and federal courts outside of Ohio.

Download PDF file of Marrone v. Philip Morris

Posted On: June 15, 2006 by Michael J. Hassen Email This Post

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Class Action Cases and Multidistrict Litigation (MDL)

Multidistrict litigation (MDL) arises when multiple actions, class action or otherwise, involving the same facts are pending in different federal district courts. Under such circumstances, 28 U.S.C. § 1407 sets forth the procedure for the transfer of the actions to a single federal court for coordination or consolidation. This is known as “multi-district litigation” (MDL). The Judicial Panel on Multidistrict Litigation affects the transfer of cases under Section 1407(a).

A request to coordinate or consolidate is made by motion by any party in any of the various federal court actions. “A copy of such motion shall be filed in the district court in which the moving party's action is pending. The panel shall give notice to the parties in all actions in which transfers for coordinated or consolidated pretrial proceedings are contemplated, and such notice shall specify the time and place of any hearing to determine whether such transfer shall be made.” 28 U.S.C. § 1407(c)(ii). The Judicial Panel may also initiate the transfer of the cases on its own motion. 28 U.S.C. §1407(c)(i).

The Judicial Panel on Multidistrict Litigation reviews the request under the guidelines of Section 1407 to determine whether the cases are appropriately coordinated or consolidated for pretrial purposes. See e.g., In re Agent Orange Product Liability Litigation, 818 F.2d 216 (2d Cir. 1987) (use of MDL procedure in connection with Agent Orange class action cases). The Judicial Panel may consider any evidence introduced by any party to any of the various federal court actions in determining whether to coordinate or consolidate the cases. 28 U.S.C. § 1407(c)(ii).

Class actions may be consolidated under the MDL procedure. The Judicial Panel applies the same guidelines in class action cases as in requests made in single plaintiff cases. MDL treatment does not alter the applicability of Rule 23 to class actions, and class certification may follow consolidation under MDL. See e.g., Hilao v. Estate of Marcos, 393 F.3d 987 (9th Cir. 2004).

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Posted On: June 14, 2006 by Michael J. Hassen Email This Post

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Class Action Defense Issues: Settlement Procedure and Class Certification for Settlement – Rule 23(e)

Class action lawsuits are often filed for the purpose of bringing sufficient leverage to bear both through the sheer cost of defending against the lawsuit and the risk, however remote, of substantial liability so as to force the defendant to settle. Thus, plaintiffs’ counsel often use class actions as weapons of extortion, seeking to compel a settlement from defendants. If a defendant elects to but its peace, it does not want to settle only with the named plaintiffs because then there is no guarantee that another lawsuit will soon follow. On the contrary, it is likely that rewarding plaintiffs’ counsel with a settlement will invite another lawsuit. The defendant, therefore, demands the broadest release possible, and plaintiffs’ counsel are generally willing to oblige provided that they have been compensated adequately. In such a situation, the Rule 23 elements of class certification are not meaningfully contested; indeed, the parties often stipulate (as part of the proposed settlement) that the class may be certified.

Rule 23(e) addresses the settlement of class actions. It provides, “A class action shall not be dismissed or compromised without the approval of the court, and notice of the proposed dismissal or compromise shall be given to all members of the class in such manner as the court directs.”

A class action settlement will not bind members of the class unless and until the class is certified. The prerequisites to class certification are set forth in Rule 23 of the Federal Rules of Civil Procedure (discussed in a separate article). It is incumbent on the District Court to analyze the Rule 23 factors carefully. 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). The question arises, however, whether the same rules apply when plaintiff(s) and defendant(s) seek class certification solely for purposes of settlement.

Prior to 1997, federal circuit courts of appeal were divided on whether Rule 23 applied strictly where the purpose of the motion for class certification was to effectuate the purposes of a proposed class settlement. The Fifth Circuit, for example, held that the requirements for class certification under Rule 23 need not be examined strictly if the ultimate purpose of the motion is to settle the dispute. See, In re Asbestos Litigation, 90 F.3d 963, 975-976, and n.8 (5th Cir. 1996). The Third Circuit, by contrast, held that while it was appropriate to certify a class solely for the purpose of class-wide settlement, Rule 23’s requirements still must be satisfied to the same extent as if the case were to be litigated. See, In re General Motors Corp. Pick-Up Truck Fuel Tank Products Liability Litigation, 55 F.3d 768, 799-800, cert. denied, 516 U.S. 824, 116 S.Ct. 88 (1995).

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Posted On: June 13, 2006 by Michael J. Hassen Email This Post

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Class Action Defense Issues: Certification of Class Action Cases Under Rule 23 Part I - A General Overview

Defending Class Actions: Certification Under Rule 23 Part I

General Overview

In defending a class action, the single most important motion facing a defendant is the plaintiff’s motion to certify a class. Federal law requires that the plaintiff demonstrate numerosity, commonality and typicality, and that the class members will be adequately represented. The plaintiff must also show the risk of inconsistent or prejudicial adjudications if separate actions are tried, and that a class action is the superior method for resolving the dispute. This article identifies the statutory requirements for class certification.

In federal court, class actions are governed by Rule 23 of the Federal Rules of Civil Procedure. A prospective class representative must satisfy the prerequisites of Rule 23(a), which 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.

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Posted On: June 12, 2006 by Michael J. Hassen Email This Post

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Class Action Provisions of the Securities Litigation Uniform Standards Act of 1998 (SLUSA) – A Brief Overview: Class Action Defense Issues

SLUSA (Securities Litigation Uniform Standards Act) was enacted by Congress in 1998. SLUSA followed the Private Securities Litigation Reform Act of 1995 (PSLRA), 109 Stat. 737 (codified at 15 U.S.C. §§ 77z-1 and 78u-4). The House Conference Report accompanying the PSLRA enumerated ways in which abusive class actions have hurt the U. S. economy. See, H.R.Rep. No. 104-369, p. 31 (1995). To address these concerns, Congress enacted sweeping changes to federal securities laws class actions, covering pleading, class representation, discovery, liability, attorney fee awards, expenses and more. This article discusses the salient points of class action provisions of SLUSA; SLUSA is discussed in more detail in a separate article.

One powerful change concerned new requirements for pleading fraud. As the Sixth Circuit explained,

Congress heightened the pleading standard for securities fraud. Before 1995, a plaintiff had to allege fraud “with particularity.” Fed.R.Civ.P. 9(b). Under the PSLRA, a plaintiff must now “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” 15 U.S.C. § 78u-4(b)(2) (emphasis added).

Helwig v. Vencor, Inc., 251 F.3d 540, 548 (6th Cir. 2001); see also, Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 345, 125 S.Ct. 1627 (2005).

The PSLRA also imposed limits on damages and attorney fees, imposed limits on the way lead plaintiffs were selected and the amounts they could be awarded, imposed sanctions for frivolous litigation, provided companies with a “safe harbor” for certain statements, and allowed courts to issue stays of discovery pending motions by a defendant to have the case dismiss. See, 15 U.S.C. § 78u-4.

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Posted On: June 9, 2006 by Michael J. Hassen Email This Post

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Class Action Defense Cases-Manbeck v. Katonah-Lewisboro: New York Federal Court Grants Defense Motion To Dismiss Putative Civil Rights Class Action Based Involving Access To Kindergarten

Defense Motion Granted Because Underage Students do not have a Protected Property Interest in Education or in Transportation to Private Kindergarten

We briefly summarize an unremarkable class action case for defense attorneys who may benefit from it. New York law requires a school district to accept children who turn five years old prior to December 1st, and allows individual school districts to decide the admission age for kindergarten for children who turn five after that date. Plaintiff filed a putative class action alleging that she had a right to free public education (kindergarten) even though she turned five after December 1, and/or that the school district was required to provide her with bus transportation to her private school. The federal court rejected plaintiff’s claims and granted the defense motion to dismiss the action. Manbeck v. Katonah-Lewisboro School Dist., 435 F.Supp.2d 273 (S.D.N.Y. 2006).

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Posted On: June 8, 2006 by Michael J. Hassen Email This Post

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Class Action Defense Cases--Miedema v. Maytag: Defense Bears Burden Under Class Action Fairness Act of 2005 (CAFA) To Establish Subject Matter Jurisdiction

CAFA (Class Action Fairness Act of 2005) Requires Defendant Prove Subject Matter Jurisdiction Supporting Removal Eleventh Circuit Holds

Removal under CAFA (Class Action Fairness Act of 2005) continues to raise basic questions. On June 5, 2006, the Court of Appeals for the Eleventh Circuit addressed several of these questions in Miedema v. Maytag Corporation, ___ F.3d ___, 2006 WL 1519630 (11th Cir. 2006). The main issue presented was whether CAFA shifted the burden of proof to the plaintiff to establish that remand was proper. Before addressing that question, however, the Circuit Court joined the growing list of sister circuits to hold that 28 U.S.C. § 1453(c)(1) requires that appellate review be sought not more than 7 days after the district court order granting or denying remand, despite the statutory language of “not less than 7 days,” Slip Opn., at 5-7 (italics added, citations omitted). In the Court’s words,

to read it literally would produce an absurd result: there would be a front-end waiting period (an application filed 6 days after entry of a remand order would be premature), but there would be no back-end limit (an application filed 600 days after entry of a remand order would not be untimely).

Slip Opn., at 6-7. The Court also reaffirmed that CAFA requires that the appeal be resolved within 60 days of the granting of an application to appeal, rather than 60 days from the filing of the petition for review. Id., at 7-8.

Turning to the merits, Miedema joined the Seventh and Ninth Circuits in holding that a class action defendant bears the burden of proving removal jurisdiction: CAFA did not shift that burden to class action plaintiffs. Slip Opn., at 8-14. Miedema held that “the district court did not err by placing the burden of establishing subject matter jurisdiction on Maytag, or by invoking the rule that doubts are to be resolved in favor of remand.” Id., at 14. The Court then analyzed the evidence Maytag provided to the district court and concluded that it was insufficient to establish removal jurisdiction. Class defendants will find the Court’s analysis instructive, and it will assist class defendants in establishing subject matter jurisdiction in any federal court. For this reason, the opinion is well worth reading.

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Posted On: June 6, 2006 by Michael J. Hassen Email This Post

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Labor Law Class Action Claims On The Rise

In an article entitled, "Defending and Preventing Class Actions Alleging Labor Law Violations," I noted that labor law class actions are on the rise. This opinion was founded solely upon personal experience. A recent article by Kris Maher of the Wall Street Journal adds an objection basis supporting my subjective opinion.

Maher observes that "[w]orkers are filing more lawsuits against employers they accuse of violating fair-wage laws that govern overtime and minimum pay." She also notes that these actions "increasingly seek what is called collective action under federal wage laws as well as class action under similar state laws."

Maher investigation revealed that in 2005 more than twice as many lawsuits "alleging some violation of the Fair Labor Standards Act" were resolved than in 2000 - a startling increase over such a short period of time. Maher's article, "Workers Are Filing More Lawsuits Against Employers Over Wages," printed June 5, 2006, in The Wall Street Journal, is well worth reading.

Posted On: June 2, 2006 by Michael J. Hassen Email This Post

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Indictment of Class Action Firm Implicates Special Problems With Governmental Requests for Waiver of Attorney-Client Privilege

Class action plaintiff firm Milberg Weiss Bershad & Schulman LLP was indicted in mid-May 2006 by federal prosecutors in Los Angeles, together with two of the firm’s top partners, David Bershad and Steven Schulman. Leigh Jones of The National law Journal reported yesterday that the government practice of demanding waivers of attorney-client communications in white-collar criminal cases raises “an especially prickly problem” in the Milberg Weiss case.

Even before the class action firm’s indictment, some attorneys – defense and plaintiff – expressed concern about government prosecutors conditioning leniency on a corporate defendant’s willingness to waive the attorney-client privilege. Here, Leigh Jones notes, the corporate defendant is a law firm. The special problems presented by a government prosecutor’s demand for a waiver of the privilege are discussed in Ms. Jones’ article, “Milberg Weiss Case Highlights Waiver Controversy,” printed June 1, 2006, in The National Law Journal.

Posted On: June 2, 2006 by Michael J. Hassen Email This Post

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Class Action Law Firm Losing Lawyers As Well As Clients

Milberg Weiss has been in the news frequently as of late. Following the indictment of the class action law firm and two of its partners, some of the firm's clients elected to retain new counsel to prosecute their class actions. Now, Nathan Koppel and Peter Lattman report that partners are jumping ship as well. According to the article, "eight of the firm's 46 partners have announced their departure, along with some associates."

More surprisingly, the Wall Street Journal reports that the U.S. Attorney's Office has been investigating the law firm since at least 1999, and that it was served subpoenas in 2002. The articles quotes U.S. Attorney Debra Yang as saying that Milberg Weiss's last-minute remedial efforts were "almost a knee-jerk response to the notion that they're about to get indicted." The article by Koppel and Lattman, "Milberg Weiss Partners, Clients Defect as Firm's Woes Multiply," may be found in the June 3, 2006, Wall Street Journal.