Posted On: October 31, 2008 by Michael J. Hassen Email This Post

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Class Action Defense Cases—In re Lending Tree: Judicial Panel On Multidistrict Litigation (MDL) Grants Plaintiff Motion To Centralize Class Action Litigation In Western District of North Carolina

Judicial Panel Grants Plaintiff Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407, Unopposed by any Responding Parties, and Transfers Actions to Western District of North Carolina

Three class actions – one in California, Illinois and North Carolina – were filed against LendingTree and other defendants alleging that LendingTree failed to “limit access to and/or adequately safeguard private customer information in violation of the Fair Credit Reporting Act.” In re Lending Tree, LLC, Customer Data Security Breach Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. October 7, 2008) [Slip Opn., at 1]. Plaintiff’s lawyer for the North Carolina class action filed a motion with the Judicial Panel for Multidistrict Litigation (MDL) requesting centralization of the class actions pursuant to 28 U.S.C. § 1407 in the Western District of North Carolina; no responding party opposed centralization, but the parties could not agree on the appropriate transferee court. Id. Certain other plaintiffs, and defendants LendingTree and Home Loan Center supported the motion; plaintiffs in the Illinois and California class actions argued for transfer to the Central District of California. Id. The Judicial Panel granted the motion to centralize the class action lawsuits, id., at 1-2. The Panel also agreed that the Western District of North Carolina was the appropriate transferee court “because (1) LendingTree is headquartered in Charlotte, North Carolina, and parties, witnesses and documents may be found there, and (2) this district has the capacity to handle this docket and, in the past, has been underutilized as a transferee district.” Id., at 2.

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Posted On: October 30, 2008 by Michael J. Hassen Email This Post

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Class Action Defense Cases–Fernandez v. Victoria Secrets: California Federal Court Grants Final Approval To Settlement Of Labor Law Class Action And Awards Class Action Plaintiffs’ Counsel 34% Of Total Value Of Class Action Settlement

Labor Law Class Action Settlement Providing Class Members with Gift Cards Worth $67.50 found Fair and Reasonable but California Federal Court Reduces Attorney Fee Award from 39.4% to 34% of Class Action Settlement Value

Plaintiffs filed a class action against Victoria’s Secret alleging labor law violations; specifically, the class action complaint “alleg[ed] that Victoria’s Secret requires job applicants to participate in a ‘sales tryout’ during which they are trained and directed to work in Victoria’s Secret stores without pay.” Fernandez v. Victoria’s Secret Stores, LLC, ___ F.Supp.2d ___ (C.D. Cal. July 21, 2008) [Slip Opn., at 1]. The final version of the amended class action complaint asserted claims for “(1) failure to pay wages, (2) unfair trade practices, (3) unfair competition, and (4) conversion.” Id. The district court certified the litigation as a class action, id., at 1-2, and the parties reached a settlement of the class action, id., at 2. Under the settlement agreement, Victoria’s Secret would pay a maximum of $10 million, with $3.5 million going toward attorney fees. Id., at 4. The class members would receive gift cards valued at $67.50, id. The federal court found that the notice to class members was adequate, id., at 5-7, and that the settlement of $67.50 per class member was fair, id., at 7-14, particularly since out of the 77,000 notices sent to class members only 3 people filed objections to the settlement and only 29 opted out of the settlement, id., at 13. The majority of the district court’s order was devoted to a consideration of whether the attorney fees requested were appropriate.

The district court explained that, in the Ninth Circuit, a court considering attorney fee awards in “common fund” class actions “‘has discretion to use either a percentage or lodestar method.’” Fernandez, at 14 (citation omitted). Further, “The Ninth Circuit has established 25% of the common fund as a benchmark to use in awarding fees under the percentage-of-fund method.” Id., at 15 (citations omitted). But the lodestar method should be used if a 25% award “‘would be either too small or too large in light of the hours devoted to the case or other relevant factors.’” Id., at 15-16 (citation omitted). The fee requested – $3.5 million less $150,000 in costs, or $3.35 million in attorney fees – represented 33½% of the class action settlement’s common fund. Id., at 17. Plaintiffs’ counsel approximated the lodestar at about $1.6 million, so a multiplier in excess of 2.1 would be required to justify the fee award requested, id. And because the class action settlement involved gift cards, the court reduced the actual cash value of the settlement to $8.5 million. Id., at 18-19. The valuation makes the attorney fee request 39.4% of the total settlement value, id., at 20. The district court concluded that this percentage was too high, but awarded almost $2.9 million in attorney fees, representing 34% of the value of the class action settlement. Id., at 27-28.

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Posted On: October 29, 2008 by Michael J. Hassen Email This Post

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WAMU PSLRA Class Action Defense Cases–South Ferry v. Killinger: Ninth Circuit Reverses District Court Order Denying Motion To Dismiss Securities Fraud Class Action Holding Core-Operations Inference Alone Does Not Satisfy PSLRA

“Core-Operations Inference” Insufficient Alone to Support PSLRA’s Heightened Pleading Requirements for Scienter in Securities Fraud Class Action Ninth Circuit Holds

Plaintiffs filed a putative class action against Washington Mutual and individual officer defendants alleging securities law violations; specifically, the class action complaint alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. South Ferry LP, # 2 v. Killinger, 542 F.3d 776, 779 (9th Cir. 2008). The class action “relate[d] to several related aspects of WAMU's mortgage lending business.” Id., at 780. The class action focused on two types of risks: the first involved the mortgage servicing rights (MSR) related risk that WAMU would lose revenue “due to the pre-payment of loans that it services”; the second involves a “pipeline risk” that WAMU will “commit to fund a loan at a certain interest rate only to see market interest rates change by the time the loan is finalized.” Id. According to the class action complaint, “the individual defendants made materially false or misleading statements concerning WAMU's ability to manage MSR-related and pipeline risk during the class period.” Id. Defense attorneys moved to dismiss the class action for failure to meet the heightened pleading requirements under the Private Securities Litigation Reform Act (PSLRA). Id., at 779. The district court granted the motion as to certain defendants, but denied the motion as to others; it found plaintiff met the heightened pleading requirements of the PSLRA “by inferring that the remaining defendants had knowledge of WAMU's difficulties with their information systems ‘because of the nature of the statements they [Defendants] were making and the nature of these specific alleged operational problems,’” id., at 781 (quoting In re Northpoint Communications Group, Inc. Securities Litig., 184 F.Supp.2d 991, 998 (N.D. Cal. 2001)). In short, the district court believed “that it may be inferred that facts critical to a business's ‘core operations’ or important transactions are known to key company officers,” id. Defense attorneys filed an interlocutory appeal, and the Ninth Circuit reversed.

The issue on appeal was “whether a scienter theory that infers that facts critical to a business's ‘core operations’ or an important transaction are known to a company's key officers satisfies the PSLRA's heightened pleading standard.” South Ferry, at 783. After reviewing its prior cases on the subject, see id., at 783-84, the Ninth Circuit explained at page 784 that plaintiffs argued that while not adequate in and of itself to satisfy the scienter requirement of the PSLRA, “the core-operations inference can be one relevant part of a complaint that raises a strong inference of scienter.” The Ninth Circuit concluded, “Where a complaint relies on allegations that management had an important role in the company but does not contain additional detailed allegations about the defendants' actual exposure to information, it will usually fall short of the PSLRA standard.” Id., at 784. Moreover, “a general matter, ‘corporate management's general awareness of the day-to-day workings of the company's business does not establish scienter-at least absent some additional allegation of specific information conveyed to management and related to the fraud’ or other allegations supporting scienter.” Id., at 784-85 (citation omitted).

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Posted On: October 28, 2008 by Michael J. Hassen Email This Post

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FLSA Class Action Defense Cases–Hoffman v. Construction Protective Services: Ninth Circuit Affirms Order Barring Plaintiffs From Introducing Evidence Of Damages At Trial Of Labor Law Class Action Due To Plaintiffs’ Failure To Disclose Damages

FLSA Class Action Plaintiffs Required to Disclose Evidence of Computation of Damages under Rule 26(a) and Failure to do so Justified District Court Order Granting Motion In Limine Barring such Damages Evidence at Trial as Sanction under Rule 37 Ninth Circuit Holds

Plaintiffs filed a class action against Construction Protective Services alleging violations of the federal Fair Labor Standards Act (FLSA) and of the California Labor Code. Hoffman v. Construction Protective Services, Inc., 541 F.3d 1175, 1177 (9th Cir. 2008). The district court certified an opt-in class under the FLSA, and the parties provided with discovery. However, “at no time prior to trial did [named plaintiffs] disclose damage calculations either for each individual Opt-In Plaintiff other than themselves or for the group as a whole.” Id., at 1177-78. Defense attorneys moved in limine to preclude any evidence not produced pursuant to Rule 26; ultimately, the district court severed the named plaintiffs’ claims from the opt-in plaintiffs because of the court’s concern that plaintiffs’ lawyer “did not have a solid understanding of his clients' damages.” Id., at 1178. The court further excluded all evidence of damage not related to the named plaintiffs. Id. A jury returned partial verdicts in favor of the named plaintiffs, and the class appealed “the exclusion of damages evidence and the award of attorney fees.” Id. The Ninth Circuit affirmed.

The issue before the Ninth Circuit was “whether the district court erred in precluding the admission of evidence regarding damages as a sanction under [Rule 37] for failure to disclose damage calculations under Rule 26(a).” Hoffman, at 1177. Reviewing the district court’s ruling for abuse of discretion, and giving “particularly wide latitude to the district court’s discretion to issue sanctions under Rule 37(c)(1), id., at 1178, the Circuit Court first held that plaintiffs’ had not been denied a “meaningful opportunity” to oppose the motion in limine, id., at 1179. Turning to the merits of the district court’s ruling, the Ninth Circuit held plaintiffs’ failure to disclose their damage computations was not substantially justified and, accordingly, the district court had not abused its discretion in precluding plaintiffs from introducing such evidence at trial. Id., at 1179-80. Put simply, “plaintiffs’ disclosure of their damage calculations was required under Rule 26(a), and their failure to do so was not harmless. Id., at 1180. Indeed, the Ninth Circuit held that it was “eminently reasonable for the court to require full disclosure of damages for the entire case.” Id. Accordingly, it affirmed the ruling of the district court.

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Posted On: October 27, 2008 by Michael J. Hassen Email This Post

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UCL Class Action Defense Cases–Hoffman v. Citibank: Ninth Circuit Reverses District Court Order Dismissing Class Action And Compelling Arbitration And Remands For Reanalysis Of Whether Class Action Waiver In Arbitration Agreement Was Enforceable

District Court Order in Unfair Competition Law (UCL) Class Action Dismissing Class Action Complaint and Compelling Arbitration of Plaintiff’s Individual Claims Reversed and Remanded for Further Consideration because District Court’s Analysis of Whether South Dakota Law or California Law Applied was Flawed Ninth Circuit Holds

Plaintiff filed a class action against Citibank in California state court alleging violations of the state’s Unfair Competition Law (UCL); specifically, the class action “alleged that Citibank increased the class members’ interest rates retroactively, without advance notice, resulting in additional lump sum finance charges being improperly imposed.” Hoffman v. Citibank (South Dakota), N.A., 546 F.3d 1078 (9th Cir. 2008) [Slip Opn., at 14492]. Defense attorneys removed the class action to federal court, id. Defense attorneys then moved to dismiss the class action complaint and to compel arbitration of plaintiff’s individual claims. Id., at 14893. The district court concluded that the choice of law provision was enforceable, that South Dakota law governed the agreement, and that under South Dakota law “the class arbitration waiver was not unconscionable and was enforceable.” Id. Accordingly, the district court granted the defense motion, dismissed the class action, and ordered plaintiff to arbitrate her claims “on an individual, non-class basis.” Id. The district court certified its order for immediate appeal, and the Ninth Circuit reversed.

We do not here summarize the history of the plaintiff’s credit card account or the changes to the written credit card agreement, including the addition of a binding arbitration clause. See Hoffman, at 14489-90. We note only that the arbitration agreements including a class-action waiver provision. See id., at 14489-92. In analyzing the district court’s order, the Ninth Circuit noted that it reviews orders compelling arbitration de novo, and that “[a]n arbitration agreement governed by the Federal Arbitration Act is presumed to be valid and enforceable.” Id., at 14493 (citation omitted). It noted further the well-settled rule that “applicable state law controls whether an arbitration agreement is unconscionable and, therefore, unenforceable.” Id. The Ninth Circuit also noted that it “agree[d] with the district court’s conclusion that Citibank’s class arbitration waiver is not procedurally unconscionable under South Dakota law and therefore is enforceable if South Dakota law controls.” Id., at 14495 n.2. However, the Circuit Court held that the trial court erred in determining that South Dakota law applied, because “[f]ederal courts sitting in diversity look to the law of the forum state when making choice of law determinations,” id., at 14494, and the district court failed to examine under California law whether South Dakota or California law applied, id., at 14494-95. Accordingly, it remanded the action to the district court so that it could reexamine the issue. Id., at 14495.

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Posted On: October 25, 2008 by Michael J. Hassen Email This Post

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New Class Action Lawsuits Alleging Labor Law Claims Maintain Top Spot In Weekly Class Action Filings In California State And Federal Courts

As a resource to California class action defense attorneys, we provide weekly, unofficial summaries of the legal categories for new class action lawsuits filed in California state and federal courts in the Los Angeles, San Francisco, San Jose, Sacramento, San Diego, San Mateo, Oakland/Alameda and Orange County areas. We include only those categories that include 10% or more of the class action filings during the preceding week. This report covers October 17 - 23, 2008, during which time 39 new class action lawsuits were filed. Class actions alleging employment-related claims generally top the list of the new class action filings by a wide margin. This past week, 23 of the new class actions alleged labor law claims, representing 59% of the total number of new class actions filed. The only other category that satisfied the 10% threshold involved class action lawsuits alleging unfair business practice claims, which include false advertising claims, with 9 new filings (23%).

Posted On: October 24, 2008 by Michael J. Hassen Email This Post

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Class Action Defense Cases—In re Countrywide Financial: Judicial Panel On Multidistrict Litigation (MDL) Grants Defense Motion To Centralize Class Action Litigation But Transfers Class Actions To Southern District of California

Judicial Panel Grants Defense Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407, Opposed by Some Class Action Plaintiffs and Two Attorneys General, but Transfers Actions to Southern District of California

Seven class actions – three in the Central District of California, two in the Southern District of California, one in Illinois and one in Kentucky – were filed against Countrywide Financial Corp. and affiliated entities; the various class action complaints “aris[e] out of allegations that Countrywide engaged in predatory lending practices by (1) originating and/or servicing residential mortgages in an unlawful, unfair or deceptive fashion, (2) misrepresenting or concealing the terms, risk, or suitability of the loans; and/or (3) placing borrowers in loans that they could not afford.” In re Countrywide Financial Corp. Mortgage Marketing & Sales Practices Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. October 14, 2008) [Slip Opn., at 1-2]. Four related class actions were filed in Connecticut, Florida , Indiana and the West Virginia, and were treated as potential tag-along actions by the Judicial Panel. Id., at 1 n.2 Defense attorneys for Countrywide Bank, Countrywide Home Loans, and Bank of America filed a motion with the Judicial Panel for Multidistrict Litigation (MDL) requesting centralization of the class actions pursuant to 28 U.S.C. § 1407 in the Central District of California; plaintiffs in both class actions supported the motion. Id., at 1. The various class action plaintiffs generally agreed on centralization, but could not agree on an appropriate transferee court. Class action plaintiffs in one of the putative nationwide class actions pending in the Central District of California supported the defense motion, but plaintiffs in another class action pending in the Central District of California, as well as plaintiffs in the Kentucky tag-along class action, argued for centralization in the Western District of Kentucky. Id. Still other plaintiffs – including Attorneys General for California and Illinois – opposed centralization entirely. Id.

The Judicial Panel granted the motion to centralize the class action lawsuits. In re Countrywide Financial, at 2. The Panel explained at page 2, “Centralization under Section 1407 will eliminate duplicative discovery; avoid inconsistent pretrial rulings, including on the issue of class certification in some actions; and conserve the resources of the parties, their counsel and the judiciary. The sufficiency of class allegations is an overarching issue in the putative nationwide class actions in this MDL proceeding.” With respect to the argument of the Attorneys General that federal jurisdiction over their actions is improper and that their actions should be remanded to state court, the Judicial Panel concluded that “these motions can be presented to the transferee judge”; however, the Panel “urge[d] the transferee judge to consider them expeditiously.” Id., at 2. The Judicial Panel transferred the class actions to the Southern District of California, because “(1) two of the seven actions in this docket are pending in this district, (2) Countrywide’s principal place of business is in California, and parties, witnesses and documents may be found there, and (3) the Southern District of California has the capacity to handle this litigation.” Id., at 2-3.

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Posted On: October 23, 2008 by Michael J. Hassen Email This Post

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Class Action Defense Cases–In re Lucent Death Benefits: Third Circuit Affirms Dismissal Of ERISA Class Action Agreeing That Pension Benefit Was Unvested And Terminable By Lucent

District Court Properly Dismissed ERISA Class Action because Employer’s Termination of Pensioner Death Benefits Underlying Class Action Claims were “an Unvested Welfare Benefit” and ERISA did not Prohibit Termination of the Benefit Third Circuit Holds

Plaintiffs, former employees of AT&T and Lucent Technologies, filed a putative class action against various defendants alleging violations of the Employee Retirement Income Security Act (ERISA); specifically, the class action complaint alleged that defendants violated ERISA in terminating a pensioner death benefit. In re Lucent Death Benefits ERISA Litig., 541 F.3d 250, 252 (3d Cir. 2008). The class action asserted “four claims under ERISA and federal common law on behalf of a putative class of pensioners” and centered on the allegation “that Lucent had terminated the pensioner death benefit unlawfully and sought declaratory and injunctive relief reversing that termination.” Id., at 253. Defense attorneys moved to dismiss the class action on the ground that the benefit underlying the putative class action was “an unvested welfare benefit” and, accordingly, “neither [ERISA], nor unilateral contract principles prohibited its termination.” Id., at 252. The district court dismissed the class action complaint, finding that “the plan documents were not ambiguous and therefore extrinsic evidence was not relevant to construing them” and holding, as argued by defense attorneys, that “the pensioner death benefit was an unvested welfare benefit and that neither ERISA nor unilateral contract principles prohibited its elimination.” Id., at 253. The Third Circuit affirmed.

As the Circuit Court’s opinion centers on the substantive law governing ERISA rather than the class action aspects of the lawsuit, we do not further discuss the case. We quote only the Circuit Court’s conclusion: “The pensioner death benefit, a lump-sum payment made in the event of a pensioner's death, was an unvested welfare benefit that Lucent could terminate without violating ERISA or unilateral contract principles. We thus affirm the decision of the District Court dismissing the pensioners' complaint….” In re Lucent Death Benefits, at 257. Interested readers may find the Third Circuit’s entire opinion here.

Posted On: October 22, 2008 by Michael J. Hassen Email This Post

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PSLRA Class Action Defense Cases–In re Ceridian: Eighth Circuit Affirms Dismissal Of Securities Fraud Class Action Holding Allegations Of Class Action Complaint Failed To Establish Scienter Required Under PSLRA

Securities Fraud Class Action Failed to Adequately Allege Scienter under Heightened Pleading Requirements of the Private Securities Litigation Reform Act (PSLRA) so District Court Properly Granted Defense Motion to Dismiss Class Action Complaint Eighth Circuit Holds

After Ceridian Corporation publicly disclosed accounting errors that “necessitated multiple amendments and restatements of its published financial statements,” the SEC opened an investigation into the company’s accounting practices and “numerous class action complaints were filed against Ceridian and three former corporate officers.” In re Ceridian Corp. Securities Litig., 542 F.3d 240, 243 (8th Cir. 2008). The class actions alleged securities fraud in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5. Id. The class actions were consolidated, and defense attorneys moved to dismiss the consolidated class action complaint for failure to “state with particularity facts giving rise to a strong inference that the defendant[s] acted with the required state of mind,” as required by the Private Securities Litigation Reform Act (PSLRA). Id. The district court granted the motion and dismissed the class action. Relying on the Supreme Court’s opinion in Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S.Ct. 2499 (2007), id., at 244, the Eighth Circuit affirmed.

The Eighth Circuit recited the well-settled heightened pleading requirement, including “the required state of mind,” established by the PSLRA. In re Ceridian, at 244. The Circuit Court noted that scienter may be established through “proof of severe recklessness, that is, ‘highly unreasonable omissions or misrepresentations that ... present a danger of misleading buyers or sellers which is either known to the defendant, or is so obvious that the defendant must have been aware of it.’” Id. (citation omitted). The Eighth Circuit observed that under Tellabs, “Not only must a plaintiff state with particularity facts giving rise to an inference of scienter that is strong when viewed in isolation, the inference ‘must be more than merely plausible or reasonable-it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent.’” Id. (citation omitted).

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Posted On: October 21, 2008 by Michael J. Hassen Email This Post

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Class Action Defense Cases–Gene & Gene v. BioPay: Fifth Circuit Reverses Class Action Certification Of TCPA Class Action Holding Plaintiff Failed To Establish Class-Wide Proof Existed As To Issue Of Consent To Receive Fax Advertisements

Class Action Alleging Violation of Telephone Consumer Protection Act (TCPA) Improperly Certified as Class Action because Issue of Consent to Receipt of Fax Advertisements not Susceptible to Class-Wide Proof Fifth Circuit Holds

Plaintiff filed a class action against BioPay alleging violations of the federal Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227; The class action complaint alleged that BioPay, through a third-party contractor, sent more than 4000 fax advertisements over a four-year period to potential clients in Louisiana. Gene & Gene LLC v. BioPay LLC, 541 F.3d 318, 322 (5th Cir. 2008). The allegations underlying the class action were that the Bank decided to “implement[] a plan to consolidate the trust management activities of other banks it had acquired” and led class members to believe that “their assets were being managed on an individualized basis, when in fact the assets were being invested in shares of the Nations Funds mutual fund, managed by an investment company substantially owned by the Bank.” Id. The class action alleged further that “higher-yielding and better-managed mutual funds were available in the marketplace,” but the Bank directed customers to Nations Funds for the Bank’s economic benefit and that the Bank accomplished this by sending “misleading letters” to trustees and beneficiaries that, in part, threatened “adverse tax consequences” if they went elsewhere. Id. Defense attorneys moved to dismiss the federal claims on the merits, and moved to dismiss the state-law claims as preempted by SLUSA (Securities Litigation Uniform Standards Act of 1998). Id. In part, the defense argued that the class action should be dismissed on the grounds of judge shopping because plaintiffs’ counsel “had already filed at least five class actions in various jurisdictions seeking redress for the same alleged injuries.” Id., at 1125. The district court granted the defense motion in its entirety, and denied plaintiffs’ request for leave to file an amended class action complaint. Id., at 1125. Defense attorneys filed an interlocutory appeal under Rule 23(f) arguing (1) the district court lacked subject matter jurisdiction over the class action, and (2) the district court erred in certifying the litigation as a class action. Id., at 321-22. The Fifth Circuit held that the district court had subject matter jurisdiction by virtue of the Class Action Fairness Act of 2005 (CAFA), but reversed the class action certification order.

By way of background, the TCPA prohibits sending “unsolicited advertisements” from one fax machines to another; a fax is deemed to be an “unsolicited advertisement” if it advertises “the commercial availability or quality of any property, goods, or services” and is sent without “prior express invitation or permission.” BioPay , at 322 (citation omitted). In this regard, Federal Communications Commission rules adopted to implement the TCPA provide that advertisements “from persons or entities who have an established business relationship with the recipient can be deemed to be invited or permitted by the recipient.” In re Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, 7 F.C.C.R. 8752, 8779 n.87 (1992). (The TCPA was amended by the Junk Fax Prevention Act of 2005, but this case involves acts that predate those amendments.) The TCPA authorizes private rights of action by recipients of unsolicited fax advertisements “to enjoin future violations of the TCPA and/or to recover the greater of his actual damages or $500 for each such violation,” and “[t]he monetary award may be trebled if the court finds that a violation was willful or knowing.” BioPay, at 322 (citation omitted).

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Posted On: October 20, 2008 by Michael J. Hassen Email This Post

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PSLRA Home Depot Class Action Defense Cases–Mizzaro v. Home Depot:  Eleventh Circuit Affirms Dismissal Of Securities Fraud Class Action Holding Class Action Complaint Failed To Satisfy PSLRA’s Heightened Pleading Requirements

Securities Fraud Class Action Properly Dismissed by District Court because Class Action Complaint Failed to Allege Scienter under Heightened Pleadings Requirements of the PSLRA (Private Securities Litigation Reform Act of 1995) Eleventh Circuit Holds

In May 2006, plaintiff John Mizzaro filed a securities fraud class action against Home Depot and six of its officers and directors; the gravamen of the class action complaint was that “(1) Home Depot obtained excessive rebates from its vendors, and (2) violated the securities laws by not informing investors that the financial results it reported for fiscal years 2001-2004 were inflated by these excessive rebates.”  Mizzaro v. Home Depot, Inc., ___ F.3d ___ (11th Cir. October 8, 2008) [Slip Opn., at 5-6].  According to the class action, the failure to make this disclosure constituted a violation of § 10(b) of the Exchange Act of 1934 and Rule 10b-5. The class action complaint also sought to hold the individual defendants liable based on the allegation that they were “control persons” under § 20(a) of the Exchange Act.  Id., at 6.  Four identical class action lawsuits followed; the class actions were consolidated and plaintiff Bucks County Retirement Board was appointed lead plaintiff.  Id., at 5.  Defense attorneys moved to dismiss each of the class actions; in response, Bucks County filed a 150-page Amended Class Action Complaint, which became the operative class action complaint in all five cases.  Id.  Defense attorneys again moved to dismiss the class action complaint arguing, in part, that the allegations “failed to create a ‘strong inference’ that [defendants] acted with the requisite scienter” under the Private Securities Litigation Reform Act of 1995 (PSLRA).  Id., at 6. The district court dismissed the class action and denied plaintiff’s motion for leave to further amend its class action complaint; the court held that the amended class action complaint “failed to adequately plead scienter, and that granting leave would be futile because the additional facts presented in the motion for leave would not change t hat result.”  Id., at 7.  In a 60-page opinion, the Eleventh Circuit affirmed.

The Circuit Court explained that “[t]o survive a motion to dismiss under the [PSLRA], the factual allegations contained in a private securities fraud class action complaint must raise a ‘strong inference,’ one that is ‘cogent and compelling,’ that the named defendants acted with the requisite scienter.”  Mizzaro, at 4.  This article assumes the reader is familiar with the PSLRA and with the U.S. Supreme Court opinion in Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S.Ct. 2499 (2007); the author’s summary of Tellabs may be found here .  Central to the Eleventh Circuit’s analysis was its determination of an issue not addressed in Tellabsviz., “how courts should go about evaluating allegations based on statements made by unidentified, confidential witnesses.”  Id., at 14.  As a matter of first impression, the Circuit Court held that a securities fraud complaint need not name a confidential source “so long as the complaint unambiguously provides in a cognizable and detailed way the basis of the whistleblower’s knowledge.”  Id., at 16.  However, in light of legitimate reasons to be “skeptical of confidential sources cited in securities fraud complaints,” id., the Eleventh Circuit held that “the weight to be afforded to allegations based on statements proffered by a confidential source depends on the particularity of the allegations made in each case, and confidentiality is one factor that courts may consider,” id., at 16-17.  The Court clarified its holding at page 17 as follows, “Confidentiality… should not eviscerate the weight given if the complaint otherwise fully describes the foundation or basis of the confidential witness’s knowledge, including the position(s) held, the proximity to the offending conduct, and the relevant time frame.”

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Posted On: October 18, 2008 by Michael J. Hassen Email This Post

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Labor Law Class Action Lawsuits Continue To Dominate New Class Action Filings In California State And Federal Courts

To assist class action defense attorneys anticipate the types of cases against which they will have to defend in California, we provide weekly, unofficial summaries of the legal categories for new class action lawsuits filed in California state and federal courts in the Los Angeles, San Francisco, San Jose, Sacramento, San Diego, San Mateo, Oakland/Alameda and Orange County areas. We include only those categories that include 10% or more of the class action filings during the preceding week. This report covers October 10 - 16, 2008, during which time 50 new class action lawsuits were filed. Generally labor law class action complaints top the list of the new class action filings by a wide margin. This past week, 30 of the new class actions alleged employment-related claims, representing 60% of the total number of new class actions filed. The only other category that satisfied the 10% threshold involved class action lawsuits alleging unfair business practice claims, which include false advertising claims, with 8 new filings (16%).

Posted On: October 17, 2008 by Michael J. Hassen Email This Post

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Class Action Defense Cases–Rojas v. Brinderson:  California Federal Court Dismisses Labor Law Class Action For Failure To Allege Facts Necessary To Establish Class Action Claim

Class Action Claim on which Federal Court’s Original Jurisdiction was Based Dismissed for Failure to Plead Necessary Elements, and Supplemental Jurisdiction over Remaining Labor Law Class Action Claims will not be Exercised California Federal Court Holds

Plaintiffs-employees filed a labor law class action against Brinderson Constructors; the class action complaint contained five wage and hour claims, and a claim for alleged violation of California Labor Code section 2810.  Rojas v. Brinderson Constructors Inc., 567 F.Supp.2d 1205, 1207 (C.D. Cal. 2008).  With respect to the wage-and-hour claims, “[a] class action involving these very claims has been pending in California state court since 2004.”  Id.  Defense attorneys moved to dismiss the class action’s Labor Code section 2810 claim, which the district court had previously dismissed with leave to amend.  Id.  The district court granted the defense motion to dismiss the class action’s sixth cause of action, and then declined to exercise supplemental jurisdiction over the class action’s remaining state law claims and, accordingly, dismissed the class action complaint in its entirety.  Id.

Because the district court found Section 2810 to be unambiguous, the court found it unnecessary to consider the statute’s legislative history.  Rojas, at 1208.  The federal court explained at page 1208, “Under Section 2810(a), an entity is liable ‘where the entity knows or should know that the contract or agreement [it entered] does not include funds sufficient to allow the contractor to comply with all applicable local, state, and federal laws.’”  According to the statute, liability is predicated on an entity “entering into a contract with actual or constructive knowledge of the insufficiency of the funds,” thus requiring that the class action allege not only that Brinderson violated labor laws but that the Refinery Defendants “knew or should have known that their contracts with Brinderson did not include sufficient funds for Brinderson to comply with those laws.”  Id., at 1208-09.  The district court found that “Plaintiffs' scattered allegations and incongruous arguments firmly ground this claim in conjecture.”  Id., at 1209.  Based on the court’s analysis, see id., at 1209-10, it held that “Plaintiffs may not proceed with this claim based on such vacuous allegations,” id., at 1210.

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Posted On: October 16, 2008 by Michael J. Hassen Email This Post

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iPhone Class Action Defense Cases–In re Apple & AT&TM: California Federal Court Denies Motions To Dismiss Antitrust Class Action And To Compel Individual Arbitration Of Class Action Claims

Class Action Complaint Adequately Alleged Antitrust and Consumer Protection Law Violations Arising out of Marketing and Sale of iPhones, and Class Action Waiver in AT&T Arbitration Agreement was Unconscionable thereby Requiring Denial of Motion to Dismiss Class Action Claims and Compel Arbitration of Individual Claims, California Federal Court Holds

Plaintiffs filed a class action against Apple and AT&T Mobility (ATTM) alleging violations of federal antitrust laws and other consumer protection statutes arising out of the sale of iPhones; the class action complaint alleged that “consumers were offered iPhones only if they signed a two-year service agreement with AT&T Mobility” and that “unknown to consumers, the companies had agreed to technologically restrict voice and data service in the aftermarket for continued voice and data services, i.e., after the initial two-year service period expired.” In re Apple & AT&TM Antitrust Litig., ___ F.R.D. ___ (N.D. Cal. October 1, 2008) [Slip Opn., at 1]. According to plaintiffs’ class action, ATTM entered into a written agreement with Apple to serve as the exclusive provider of wire and data services to iPhone customers for a period of five years, i.e., through 2012. Id., at 2. Under this agreement, until 2012 “iPhone purchasers who want voice and data services must sign a two-year service contract with ATTM.” Id. The Revised Amended Consolidated Class Action Complaint alleged inter alia violations of Section 2 of the Sherman Antitrust Act and breach of warranty under the Magnuson-Moss Warranty Act, id.; an itemized list of the 10 claims for relief may be found at page 5 of the opinion. ATTM’s defense attorneys filed a motion to dismiss the class action and compel arbitration pursuant to the Federal Arbitration Act (FAA), and Apple’s defense attorneys filed a motion to dismiss the class action complaint. Id., at 5-6. The district court denied the motions.

By way of background, the district court explained at page 1: “In the cellular telephone market, it has become a common practice for an equipment manufacturer and a voice and data supply company to join together to introduce a new cellular telephone to the market. Often, to obtain a particular model of telephone at a given price from a given manufacturer, purchasers must sign a contract with the joined service provider for voice and data services of a stated period of time. This case concerns such an arrangement between Apple, Inc. and AT&T Mobility upon the introduction to the market of the iPhone.” But according to the class action complaint, purchasers were not told that iPhone use would be restricted to the AT&T network even after the two-year service period expired. In re Apple, at 1. The class action further alleged (1) Apple and ATTM share revenue arising from iPhone use, (2) iPhone purchasers must use ATTM as their provider for 5 years “despite initially being required to agree to only a two-year contract,” (3) Apple agreed to enforce ATTM’s exclusivity agreement by “locking” iPhones, (4) Apple controlled all modifications to and software for iPhones, (5) ATTM charges an early termination fee even though it does not subsidize iPhone purchases, (6) Apple and ATTM agreed to take prevent people from unlocking iPhones, and (7) Apple agreed to delay developing a CDMA version of the iPhone. Id., at 3. Finally, the class action alleged that, after it was learned that people had successfully unlocked iPhones, Apple issued an “upgrade” of the iPhone’s operating software that was intended to disable iPhones that had been unlocked or on which users had downloaded software that had not been approved by Apple, and that Apple thereafter denied warranty claims on disabled or damaged iPhones on the ground that customers “had breached their warranty agreements by unlocking their phones or by downloading unapproved TPAs.” Id., at 4. The district court was presented with the question of whether these allegations sufficiently alleged claims for relief for violations of the Sherman Act and Magnuson-Moss Warranty Act. Id. The federal court held that class action allegations survived defendants’ motion to dismiss.

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Posted On: October 15, 2008 by Michael J. Hassen Email This Post

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Arbitration Class Action Defense Cases–Pleasants v. American Express: Eighth Circuit Affirms Order Dismissing Class Action And Compelling Arbitration Of Individual Claim Holding Class Action Waiver In Arbitration Clause Enforceable Under FAA

District Court Properly Dismissed Class Action and Granted Defense Motion to Compel Plaintiff to Arbitrate her Claims on an Individual Basis, Rather than as a Class Action, because Class Action Waiver in Arbitration Clause was not Substantively or Procedurally Unconscionable Eighth Circuit Holds

Plaintiff filed a putative class action against American Express Company and American Express Incentive Services (AEIS) alleging violations of the federal Truth in Lending Act (TILA); specifically, the class action complaint alleged that American Express violated TILA by “issuing pre-loaded, stored-value cards without making the disclosures required under the TILA.” Pleasants v. American Express Co., 541 F.3d 853, 855 (8th Cir. 2008). Defense attorneys moved to dismiss American Express Company on the ground that it was not a “creditor” within the meaning of TILA; plaintiff did not oppose the motion and the district court dismissed American Express Company from the putative class action. Id. Defense attorneys then moved to compel arbitration of plaintiff’s claims pursuant to an arbitration provision governed by the Federal Arbitration Act (FAA) that contained a class action waiver, id. The district court rejected plaintiff’s claim that the class action waiver was unconscionable, dismissed the class action and compelled plaintiff to arbitrate her individual claims against AEIS. Id. The Eighth Circuit affirmed.

Briefly, AEIS sent plaintiff three pre-paid cards, in the amounts of $25, $10, and $5, in return for her participation in online surveys; the cards could be used at any establishment that accepted American Express credit cards. Pleasants, at 855. Along with the cards, AEIS sent plaintiff the “Card Terms and Conditions,” which included a “Participant Agreement” that provided in part that any claims would be resolved by arbitration and that the parties “WILL NOT HAVE THE RIGHT TO PARTICIPATE IN A REPRESENTATIVE CAPACITY OR AS A MEMBER OF ANY CLASS OF CLAIMANTS PERTAINING TO ANY CLAIM SUBJECT TO ARBITRATION,” id. A separate provision reiterated that all claims “shall be arbitrated on an individual basis” and that there “shall be no right” for any claims “to be arbitrated on a class action basis,” id., at 855-56. Plaintiff’s class action complaint alleged that at a time when the cards had a combined remaining balance of $25, she used the cards at a restaurant to pay for a $20 meal “but the restaurant processed one or more of the cards for $45 more than their stored value.” Id., at 856. AEIS demanded that plaintiff pay the $45 difference; when she failed to do so, AEIS sent her another letter requesting not only the $45 difference but, pursuant to the terms and conditions of the card usage agreement, a late fee of $10 and a transaction fee of $25. Id. Plaintiff disputed the charge and filed the class action when AEIS continued with collection efforts, id.

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Posted On: October 14, 2008 by Michael J. Hassen Email This Post

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Class Action Defense Cases–Shirk v. Fifth Third Bancorp: Ohio Federal Court Certifies ERISA Class Action Holding Rule 23’s Class Action Requirements Were Met And That ERISA Breach Of Fiduciary Duty Claims Are Appropriate For Class Action Treat

ERISA Class Action Claims Satisfied Requirements for Class Action Treatment because “Federal Courts have Overwhelmingly Held that ERISA Breach of Fiduciary Duty Claims are Appropriate for Class Action Treatment” Ohio Federal Court Holds

Plaintiffs, former employees of Fifth Third Bancorp and participants in the company’s profit sharing plan, filed a class action against various defendants alleging breach of fiduciary duties under ERISA; specifically, the class action complaint asserted that the company’s stock was an “imprudent investment” during the proposed class period. Shirk v. Fifth Third Bancorp, ___ F.R.D. ___ (S.D. Ohio September 30, 2008) [Slip Opn., at 1-2]. According to the class action, defendants “knew or should have known that the merger of Fifth Third with Old Kent Financial Corp. severely strained Fifth Third’s infrastructure and exposed a widespread breakdown in Fifth Third’s internal controls, … [which] ultimately led Fifth Third to take an $81 million dollar pre-tax charge for its erroneous accounting reconciliation.” Id., at 2. Thus, the district court explained at page 2 that “[t]he quintessential claim is that Fifth Third stock was an imprudent investment for the Plan throughout the class period.” Plaintiff filed a motion with the federal court for certification of the litigation as a class action; the district court granted the motion.

Preliminarily, the federal court stated that “federal courts have overwhelmingly held that ERISA breach of fiduciary duty claims are appropriate for class action treatment.” Shirk, at 3 (footnote omitted). The district court readily found the class action numerosity requirement had been met because the proposed class contained 20,000 people. Id., at 3-4. The court also found that the commonality and typicality requirements for class action treatment had been satisfied, id., at 4-5, and that plaintiff was an adequate class representative, id., at 5-6. Finally, analyzing the class action requirements of Rule 23(b), the federal court concluded that ERISA breach of fiduciary duty class actions are properly certified under Rule 23(b)(1)(B), which states that courts may certify a lawsuit as a class action if “the prosecution of separate actions by or against individual members of the class would create a risk of * * * adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests.” Id., at 7. Accordingly, the district court granted plaintiff’s class action certification motion. Id., at 9.

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Posted On: October 13, 2008 by Michael J. Hassen Email This Post

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UCL Class Action Defense Cases–Hewlett-Packard v. Superior Court: California Court Denies Writ Seeking Reversal Of Class Action Certification Order In Unfair Competition Law (UCL) Class Action

Class Action Complaint Alleging Violations of California’s Unfair Competition Law (UCL) Properly Certified as Class Action because Class Action’s Product Defect Claims were Susceptible of Common Proof and Objection to Class Action Treatment went to Merits of the Lawsuit California Appellate Court Holds

Plaintiff filed a class action complaint against Hewlett-Packard alleging inter alia violations of California’s Unfair Competition Law (UCL); specifically, the class action alleged that HP sold laptop computers knowing that they contained a manufacturing defect that “the computers had defective inverters that could potentially cause dim displays,” but HP failed to disclose this fact to prospective purchasers. . Hewlett-Packard Co. v. Superior Court, ___ Cal.App.4th ___, 83 Cal.Rptr.3d 836 (Cal.App. September 26, 2008) [Slip Opn., at 1-2]. The class action complaint alleged violations of California’s UCL and Consumer Legal Remedies Act, as well as breach of express warranty and unjust enrichment. Id., at 2. Plaintiff first moved the trial court to certify the litigation as a class action in August 2005; defense attorneys opposed class action treatment on the grounds that “plaintiffs had not shown either that common issues of fact and law predominated or that there was an ascertainable class” because “[out] of the approximately 118,514 class model computers sold under the Pavilion brand name, [only] approximately 4,716 were reported to need repairs due to display screen problems.” Id., at 3. The trial court denied the motion, finding that the proposed definition of the class was unworkable but stated that it would consider a new motion for class action certification if plaintiff cured the defect. Id. Plaintiff again sought class action certification, but the trial court expressed concern that the class definition failed to include the specific type of inverter underlying the putative class claims and gave plaintiff an additional opportunity to correct the definition. Id., at 4. Eventually, after several months and additional briefing to address various concerns, the trial court granted the motion and certified the lawsuit as a class action. Id., at 4-5. Defense attorneys filed a petition for a peremptory writ of mandate seeking to vacate the class action certification order on the ground that the required “community of interest” principles enunciated in Daugherty v. American Honda Co., Inc. (2006) 144 Cal.App.4th 824 were not met, thus class action treatment was inappropriate. Id., at 1. In certifying the class, the trial court stated that it was not considering the impact of the Daugherty opinion because the holding in that case went to “whether individual class members are entitled to recover, not whether there is a sufficient class.” Id., at 5. The California Court of Appeal denied the writ.

After the California Supreme Court’s denied a petition for review in Daugherty, defense attorneys filed a motion with the trial court for decertification of the class action. Hewlett-Packard, at 5. The trial court denied the motion on the ground that decertification was “premature,” but the court requested plaintiff to “submit[] a revised proposed class action notice” which it subsequently approved. Id. Defense attorneys filed a petition for writ of mandate, id. After discussing class actions in general and noting that it reviewed the trial court’s order for abuse of discretion, see id., at 5-7, the appellate court explained that “the primary issue in dispute is whether the trial court abused its discretion in concluding that common issues predominate necessitating class treatment,” id., at 7. Defense attorneys argued that Daugherty compelled denial of class action treatment; Daugherty held that claims for breach of express warranty do not extend product defect claims beyond the warranty period, and the defense argued that under the reasoning of Daugherty, the class action claims involve individual issues rather than issues subject to common proof. Id. Defense attorneys argued that the trial court therefore “erred in refusing to apply the principals of Daugherty to the determination of class certification.” Id. The appellate court disagreed.

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Posted On: October 11, 2008 by Michael J. Hassen Email This Post

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Slow Week For Class Actions Dominated By Labor Law Class Action Lawsuits In New Class Action Filings In California State And Federal Courts

As a resource for California class action defense attorneys, we provide weekly, unofficial summaries of the legal categories for new class action lawsuits filed in California state and federal courts in the Los Angeles, San Francisco, San Jose, Sacramento, San Diego, San Mateo, Oakland/Alameda and Orange County areas. We include only those categories that include 10% or more of the class action filings during the preceding week. This report covers October 3 - 9, 2008, during which time only 27 new class action lawsuits were filed. Class action complaints alleging employment-related claims generally head the list of the new class action filings by a wide margin. This again proved to be true. During the past week, 21 of the new labor law class actions, representing an incredible 78% of the total number of new class actions filed. The only other category that satisfied the 10% threshold involved class action lawsuits alleging unfair business practice claims, which include false advertising claims, with 5 new filings (19%).

Posted On: October 10, 2008 by Michael J. Hassen Email This Post

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FLSA Class Action Defense Cases–Roussell v. Brinker International: Texas Federal Court Decertifies FLSA Class Action Holding Central Question Could Not Be Resolved Fairly In Single Collective Proceeding

Class Action Alleging Employer Coerced Restaurant Employees to Share Tips in Violation of Federal Fair Labor Standards Act (FLSA) Decertified as Class Action because “Critical Questions of Fact” in Proposed Class Action “Vary from Plaintiff to Plaintiff and Restaurant to Restaurant” Texas Federal Court Holds

Plaintiff filed a class action against her employer, Brinker International, alleging violations of the federal Fair Labor Standards Act (FLSA); specifically, plaintiff alleged that at its Chili’s restaurants, defendant required that servers share their tips with “Quality Assurance employees (QAs). Roussell v. Brinker International, Inc. ___ F.R.D. ___ (S.D. Tex. September 30, 2008) [Slip Opn., at 1]. The district court certified the lawsuit as a class action on behalf of approximately 3500 servers, id. The 3500 servers who opted into the FLSA class action worked at 775 Chili’s restaurants in 45 states, id., at 3. In July 2008, the federal court reaffirmed that “the question of whether QAs were eligible to participate in a mandatory tip pool could be tried collectively,” but it expressed concern that “the question of manager coercion could not be fairly tried using representative testimony based on Plaintiffs’ original trial plan.” Id. The district court requested that plaintiff submit a revised trial plan, id. Plaintiff proposed a three-phase trial plan, id., at 2; defense attorney objected to the proposal and requested that the district court decertify the class action, id., at 3. The federal court granted defendant’s motion and decertified the lawsuit as a class action.

Plaintiff argued that class action treatment was warranted and proposed the following trial plan. The federal court summarized the proposed class action trial plan at page 2 of its opinion. In Phase 1, the court would decide whether QAs are entitled to share in server tips. It they are found to be ineligible, then in Phase 2 the court “a second jury [would] consider whether a test flight of 20 to 50 of the opt-ins deposed in this case were coerced or required to share tips with QAs”; plaintiff argued that Phase 2 would “clarify the legal and evidentiary issues necessary to fully adjudicate such claims.” Roussell, at 2. In Phase 3, the federal court would hold a case management conference to determine how to resolve the claims of the remaining opt-in class members, id. Defense attorneys argued that the revised trial plan did not solve the deficiencies in the original plan, id., at 3. The district court agreed, explaining at pages 3 and 4: “One of the questions central to liability in this case is whether Plaintiffs were coerced by different managers at the 775 stores to share tips with QAs. Plaintiffs’ Revised Trial Plan does not demonstrate that this question can be fairly tried collectively ….” The federal court explained that class action treatment “is only justified in cases in which plaintiffs are similarly situated and where proceeding collectively will not render trial unfair to defendants.” Id., at 4. Class action treatment was inappropriate in this case because “this lawsuit involves critical questions of fact that vary from plaintiff to plaintiff and restaurant to restaurant, and does not allow resolution of the case in a single collective proceeding.” Id., at 5. Accordingly, it granted the defense motion to decertify the class action, id., at 5-6.

Download PDF file of Roussell v. Brinker International

Posted On: October 9, 2008 by Michael J. Hassen Email This Post

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PSLRA Class Action Defense Cases–Little Gem v. Orphan Medical: Eighth Circuit Affirms Dismissal Of Securities Class Action Holding Class Action Complaint Failed To Meet Heightened Pleading Requirements Under PSLRA

Securities Class Action Properly Dismissed for Failure of Allegations in Class Action Complaint to Meet PSLRA’s Heightened Pleading Standards because Defendants were Under no Legal Duty to “Search out and Disclose” Raw Data of FDA Clinical Trials Prior to FDA Issuing Results of Drug Trial Eighth Circuit Holds

Plaintiff filed a class action against Orphan Medical and two of its officers for violations of federal securities laws; specifically, the class action complaint alleged that defendants “negligently failed to disclose material information to Orphan's stockholders before asking the stockholders to approve Orphan's merger with [Jazz Pharmaceuticals], in violation of §§ 14(a) and 20(a) of the Securities Exchange Act of 1934…, and Securities and Exchange Commission (SEC) Rule 14a-9.” Little Gem Life Sciences LLC v. Orphan Medical, Inc., 537 F.3d 913, 914 (8th Cir. 2008). Defense attorneys moved to dismiss the class action complaint on the grounds that the class action’s allegations “failed to meet the heightened pleading standards required by the Private Securities Litigation Reform Act (PSLRA)”; the district court agreed and dismissed the class action. Id. On appeal, plaintiff argued that the district court should have converted the motion to dismiss into a motion for summary judgment, and that the allegations in the class action complaint satisfied the PSLRA. Id., at 914-15. The Eighth Circuit affirmed.

According to the class action complaint, Orphan, a pharmaceutical company, sought a merger because it was experiencing financial difficulties. At the time, the company’s future profitability was uncertain, largely because it was unclear whether its drug Xyrem, upon which it heavily relied, had broader medical uses. In particular, Orphan was testing whether Xyrem could be used to treat fibromyalgia, and it initiated Phase I of its FDA clinical trials in June 2004, which it passed. Xyrem still had to pass Phase II and Phase III trials before it could obtain FDA approval to treat fibromyalgia. Little Gem, at 915. The gravamen of the class action was that shareholders voted on the merger in June 2005, and in July 2005 it was announced that Xyrem successfully passed Phase II: plaintiff alleges that defendants should have disclosed the successful completion of Phase II before the shareholders voted on the merger with Jazz. Id., at 915-16. In support of its motion to dismiss the class action, defendants “asserted factual allegations that went beyond the face of [the class action] complaint.” Id., at 916. The district court did not consider those factual allegations in holding that the class action “failed to meet the heightened pleading standards mandated by the PSLRA.” Id.

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Posted On: October 8, 2008 by Michael J. Hassen Email This Post

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Class Action Defense Cases–In re Dynamic Random Access Memory: Ninth Circuit Affirms Dismissal Of Antitrust Class Action For Lack Of Subject Matter Jurisdiction Under Foreign Trade Antitrust Improvement Act (FTAIA)

Congressional Amendments in Foreign Trade Antitrust Improvement Act (FTAIA) to Sherman Act’s Jurisdiction Barred Foreign Plaintiff Corporation’s Antitrust Class Action Claims Ninth Circuit Holds

Plaintiff, a British computer manufacturer, filed a class action complaint against “U.S. and foreign manufacturers and sellers of DRAM, a type of high-density memory used in personal computers and other electronic devices” for violations of federal antitrust laws and Section 1 of the Sherman Act; the class action complaint alleged violations of Sections 4(a), 12 and 16 of the Clayton Act, and sought injunctive relief and damages In re Dynamic Random Access Memory (DRAM) Antitrust Litig., 538 F.3d 1107, 1109 (9th Cir. 2008). Plaintiff alleged a “global conspiracy to fix DRAM prices, raising the price of DRAM to customers in both the United States and foreign countries.” Id., at 1109-10. Defense attorneys moved to dismiss the class action for lack of subject matter jurisdiction under the Foreign Trade Antitrust Improvement Act of 1982 (FTAIA), which amended the Sherman Act; plaintiff’s theory was that “defendants could not have raised prices worldwide and maintained their global price-fixing arrangement without fixing the DRAM prices in the United States.” Id., at 1110. The district court granted the motion and denied plaintiff leave to file an amended class action complaint, finding that plaintiff did not meet the jurisdictional prerequisites under the FTAIA “because it had not sufficiently alleged that its foreign injury was directly linked to the domestic effect of higher U.S. prices for DRAM.” Id. The Ninth Circuit affirmed.

The Ninth Circuit explained that Congress amended the jurisdictional language of the Sherman Act in 1982 by enacting the FTAIA: the FTAIA amended the Sherman Act so as to exclude “anti-competitive conduct that causes only foreign injury.” In re DRAM, at 1110 (citation omitted). The FTAIA accomplished this purpose by declaring that the Sherman Act “shall not apply to conduct involving trade or commerce ... with foreign nations.” Id. (citing § 6a). It carves out an exception, known as the “domestic injury exception,” for foreign conduct that “(1) has a ‘direct, substantial, and reasonably foreseeable effect’ on domestic commerce,” id. (citation omitted). Quoting the U.S. Supreme Court, the Ninth Circuit explained at page 1111 that the FTAIA's language as:

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Posted On: October 7, 2008 by Michael J. Hassen Email This Post

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PSLRA Class Action Defense Cases–Silverman v. Motorola: Illinois Federal Court Grants Defense Motion To Dismiss Certain Claims In Securities Class Action Finding Some Class Action Allegations Inadequate Under PSLRA

Defense Motion to Dismiss Securities Class Action Claims Granted in Part, but Class Action Plaintiffs Adequately Alleged Existence of Certain Omissions or Misrepresentations as to Most Defendants as well as Control Person Liability as to All Individual Defendants Illinois Federal Court Holds

Plaintiffs filed a class action against Motorola and some of its officers and directors alleging violations of federal securities law; the class action complaint alleged that defendants artificially inflated the company’s stock price by issuing statements that omitted important facts or contained material misrepresentations in violation of Sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5. Silverman v. Motorola, Inc., ___ F.Supp.2d ___ (N.D.Ill. September 23, 2008) [Slip Opn., at 1-2]. Count I of the class action complaint was premised on the Section 10(b) and Rule 10b-5 violations (material misrepresentations and omissions); Count II of the class action complaint was premised on the Section 20(a) violation (asserting control person liability). Id., 1-2. The allegations in the class action centered on Motorola’s development of its third generation cell phones, or “3G” cell phones. Id., at 3. Defense attorneys moved to dismiss the class action complaint for failure to satisfy the heightened pleading requirements under the PSLRA (Private Securities Litigation Reform Act), id., at 2. The federal court granted defendants’ motion in part, but refused to dismiss the class action in its entirety.

After detailing the statements underlying the class action complaint, see Silverman, at 3-12, the district court noted that plaintiffs’ misrepresentation claims fall into two categories: (1) the drop in price of the company’s RAZR cell phones, and (2) the delayed rollout of the company’s new 3G cell phones, id., at 15. The federal court readily rejected the RAZR category, noting that the company had expressly discussed the price drop in the RAZR line and the reasons for the price reductions. See id. “Therefore, any allegations of fraud based on statements regarding the RAZR price decrease are dismissed.” Id. With respect to the 3G cell phone claims in the class action complaint, the district court agreed that some of the alleged misrepresentations were “mere puffery,” see id., at 15-16, and that company representations concerning projected sales and revenue were protected as “forward-looking statements,” see id., at 18-19. However, the federal court rejected the puffery defense as to other company statements, finding that representations such as whether new products will be “competitive” and “on track” would be material if defendants knew these statements to be untrue, id., at 16-17, and found that the “forward-looking” safe harbor did not apply to statements of present or future facts that could have materially affected an investor’s decisions, id., at 18-19. Similarly, omissions concerning potential delays in the 3G rollout could be actionable, id., at 17-18, particularly as the delay severely impacted sales during the Christmas holiday season, see id., at 27.

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Posted On: October 6, 2008 by Michael J. Hassen Email This Post

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Class Action Defense Cases–Rhodes v. DuPont: West Virginia Federal Court Denies Class Action Certification In Putative Medical Monitoring Class Action Holding Individualized Inquiries Would Predominate

Class Action Seeking Medical Monitoring due to Exposure to Contaminated Drinking Water Denied Class Action Treatment because Plaintiffs Failed to Demonstrate Existence of Common Proof as to Each Class Member’s Injuries West Virginia Federal Court Holds

Plaintiffs filed a putative class action in West Virginia state court against E.I. du Pont de Nemours and Company seeking damages for harm allegedly caused by drinking water contaminated with perfluoroctanoic acid, also known as “C-8,” which is a chemical that does not degrade and is “used in the manufacture of many industrial and consumer products including non-stick cookware coatings and architectural coatings.” Rhodes v. E.I. Du Pont De Nemours & Co., ___ F.Supp.2d ___ (S.D.W.V. September 30, 2008) [Slip Opn., at 1-2]. Specifically, the class action complaint alleged that DuPont’s Washington Works plant in West Virginia released C-8 into the drinking supply of the Parkersburg Water District, and that because C-8 “is not a naturally occurring substance[,] … all C-8 found in human blood is attributable to human activity.” Id., at 2. Defense attorneys removed the class action to federal court, id., at 5. Plaintiffs moved the court to certify the litigation as a class action; defense attorneys opposed class action treatment. Id., at 1. The district court denied plaintiffs’ motion explaining that while plaintiffs “presented compelling evidence that exposure to C-8 may be harmful to human health,” the class action is premised on “some potential harm to the general public” rather than on “specific injuries to each member of the proposed class.” Id. The federal court explained at page 1, “The fact that a public health risk may exist is more than enough to raise concern in the community and call government agencies to action, but it does not show the common individual injuries needed to certify a class action.” Accordingly, the district court denied plaintiffs’ class action certification motion.

We summarize the facts only briefly. DuPont has used C-8 at its plant for more than 50 years, and has released C-8 into the air and into the Ohio River. Rhodes, at 2-3. The class action alleges that C-8 emissions from the DuPont plant contaminated the public water supply and that in 1984 “detectable levels of C-8 were discovered in the tap water of [certain] communities.” Id., at 3. While the precise effect of C-8 exposure “remains uncertain,” several studies have associated such exposure to various health problems, including several types of cancer. Id. There have been calls for “precautionary measures such as removing C-8 from drinking water supplies and using alternative drinking water sources, especially for children and the elderly,” id., and various state and federal agencies have directed attention to the regulation of C-8 emissions and exposure, see id., at 3-4. A prior class action involving C-8 emissions from the Washington Works plant was filed in West Virginia state court against DuPont in 2002 entitled Leach v. E.I. Du Pont Nemours & Co.; the state court certified that lawsuit as a class action and the class action settlement ultimately approved in Leach defined the class as “all individuals who, for a period for at least one year, consumed drinking water containing .05 ppb (parts per billion) or greater of C-8 attributable to releases from the Washington Works plant from any of six specified Public Water Districts or any eligible private sources and who did not opt out of the class or waive their class member rights.” Id., at 4. Parkersburg Water District was not part of that class action because at the time its water contained less than .05 ppb of C-8; at the time the new class action was filed, the C-8 levels exceed that amount. Id., at 5.

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Posted On: October 4, 2008 by Michael J. Hassen Email This Post

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Labor Law Class Action Lawsuits Dominate New Class Action Filings In California State And Federal Courts

To assist class action defense attorneys anticipate the kinds of class actions against which they will have to defend in California, we provide weekly, unofficial summaries of the legal categories for new class action lawsuits filed in California state and federal courts in the Los Angeles, San Francisco, San Jose, Sacramento, San Diego, San Mateo, Oakland/Alameda and Orange County areas. We include only those categories that include 10% or more of the class action filings during the preceding week. This report covers September 26 - October 2, 2008, during which time 34 new class action lawsuits were filed. It is rare that labor law class action complaints do not top the list of the new class action filings, and this past week was no exception. During the past week, 21 of the new labor law class actions, representing 62% of the total number of new class actions filed. The only other category that satisfied the 10% threshold involved class action lawsuits alleging unfair business practice claims, which include false advertising claims, with 8 new filings (24%).

Posted On: October 3, 2008 by Michael J. Hassen Email This Post

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ERISA Class Action Defense Cases–In re Mutual Funds: Maryland Federal Court Grants Motion To Compel In ERISA Class Action Holding Fiduciaries Waived Attorney-Client/Work Product Doctrines By Producing Documents To Regulators

Production of Documents to Regulators Pursuant to Confidentiality Agreement Constituted a Waiver of Attorney-Client/Work Product Doctrines Entitling Class Action Plaintiffs to Documents in ERISA Class Action Maryland Federal Court Holds

Plaintiffs, former employees of Scudder/Deutsche Former who had participated in defined contribution retirement plans, filed a class action against various defendants for violations of ERISA (Employee Retirement Income Security Act); specifically, the class action complaint alleged that defendants breached fiduciary duties owed under ERISA by engaging in market timing and late trading in connection with the plans’ investment in mutual funds. In re Mutual Funds Investment Litig., 251 F.R.D. 185, 186 (D.Md. 2008). The Judicial Panel on Multidistrict Litigation coordinated the class action litigation for pretrial purposes in the District of Maryland. Id. During the course of the MDL litigation, class action plaintiffs sought from defendants the production of certain documents “previously disclosed by the Scudder/Deutsche defendants to regulatory officials, specifically the SEC and the New York Attorney General's Office, in connection with those agencies' investigation of similar allegations against the defendants.” Id. Defendants refused on the grounds that the documents were protected from disclosure by the attorney-client privilege and/or attorney work-product protection, and that the documents had been disclosed to regulators “subject to a confidentiality agreement.” Id. In essence, defense attorneys relied on the doctrine of “selective waiver” in opposing plaintiffs’ document request, id.; the district court rejected the defense arguments and ordered defendants to produce the documents requested.

The documents had been produced to regulators “subject to ‘non-waiver’ and ‘confidentiality’ agreements” that expressly stated that “Deutsche Bank does not intend to waive the protection of the attorney work product doctrine, attorney-client privilege, or any other privilege applicable as to third parties” and required regulators to “maintain the confidentiality of the Confidential Materials pursuant to this agreement and…not disclose them to any third party”; ultimately, defendants settled with the regulatory agencies and paid more than $100 million in civil penalties. In re Mutual Funds, at 186. The class action plaintiffs sought production of all documents given to the SEC or other regulatory agencies with regard to market timing or late trading; defendants withheld 36,000 pages, asserting the attorney-client privilege and/or work product doctrine. Id., at 186-87. In their motion to compel, plaintiffs did not dispute whether the documents generally would fall within the scope of those doctrines; rather, they argued that the privileges had been waived. Id., at 187. The district agreed: “There is no question that the defendants have disclosed otherwise protected material, voluntarily, to an adversary, for their own benefit in negotiating a settlement with the regulators.” Id. After discussing Fourth Circuit and Tenth Circuit authority concerning disclosures that constitute a subject-matter waiver of attorney-client and work product documents and of the validity of “selective waiver” as a defense to such waiver, the district court granted plaintiffs’ motion. The district court concluded at pages 187 and 188, “The defendants' voluntary disclosure of otherwise protected material to the [regulatory agencies], despite the entry of a confidentiality agreement, results in waiver.” However, the district court held that the waiver applied only to those documents “actually disclosed” to regulatory agencies; specifically, the court rejected class action plaintiffs’ claim that defendants’ production constituted a “subject matter waiver as to any attorney-client and non-opinion work product, not simply waiver as to the actual documents disclosed.” Id., at 188.

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Posted On: October 2, 2008 by Michael J. Hassen Email This Post

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Wal-Mart Class Action Defense Cases–Salvas v. Wal-Mart: Massachusetts Reverses Decertification Of Labor Law Class Action (And Grant Of Summary Judgment On Class Action Claims) Holding Predominance Test Had Been Satisfied

Labor Law Class Action Erroneously Decertified because Evidence Submitted by Class Action Plaintiffs Concerning Nationwide Practices was Relevant to Predominance of Class Action Claims of Massachusetts Employees Supreme Judicial Court Holds

Plaintiffs filed a putative class action against their former employer, Wal-Mart, alleging labor law violations; the class action complaint alleged that Wal-Mart “wrongfully withheld compensation for time worked and denied of cut short rest and meal breaks to which they were entitled.” Salvas v. Wal-Mart Stores, Inc., 452 Mass. 337, 338-39 (Mass. September 23, 2008). The trial court certified the litigation as a class action on behalf of roughly 67,500 current and former employees who worked for Wal-Mart in Massachusetts during a ten-year period, id. Wal-Mart subsequently moved for summary judgment on the class action claims; Wal-Mart also moved to exclude as unreliable the testimony of plaintiffs’ main expert witness, and to decertify the class action. Id. The trial court granted summary judgment with respect to the class action’s meal breaks claims, and with respect to some of the wage claims; the trial court also granted Wal-Mart’s motions to exclude the expert testimony and to decertify the class action. Id. The Massachusetts Supreme Judicial Court reversed. We address here only that portion of the Supreme Judicial Court’s opinion concerning class action certification.

The Supreme Judicial Court found that Wal-Mart’s home office established and directed corporate-wide policies, including payroll controls. Salvas, at 339. Under these procedures, each hourly employee “adhere[d] to stringent timekeeping procedures, including clocking in and out at the beginning and end of each shift and at other prescribed times.” Id., at 340. According to Wal-Mart policy, “hourly employees should never be required to work ‘off-the-clock’” and hourly employees were generally prohibited from working overtime. Id., at 340-41. Employees were repeatedly warned that they could be terminated for working off-the-clock or for failing to take breaks, and store managers were required to investigate “every instance” of off-the-clock work. Id., at 341. Individual store managers also worked under a competing pressure: “the responsibility for payroll came with considerable pressure from the home office to boost profits by, among other things, minimizing labor costs, one of the corporation’s largest controllable expenses.” Id., at 342. Further, “Store managers were rewarded for keeping payroll costs low. Conversely, if they exceeded Wal-Mart’s stringent labor cost guidelines, they might lose their bonuses or lost their jobs.” Id. And at least as early as 1989, Wal-Mart knew that “despite the written policy directives to the contrary, store managers were sometimes ‘[a]ltering time cards to decrease reported payroll expenses’ and ‘[i]nstructing associates to work off the clock.’” Id. Wal-Mart knew also that some hourly employees were missing meal and rest breaks, id., at 342-43.

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Posted On: October 1, 2008 by Michael J. Hassen Email This Post

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FDCPA Class Action Defense Cases–Barany-Snyder v. Weiner: Sixth Circuit Affirms Judgment On The Pleadings on FDCPA Class Action Holding Attachment Of Entire Contract To Debt Collection Complaint Was Not An Effort To Enforce Each Term In Contract

Class Action Complaint Failed to Adequately Allege Violations of Fair Debt Collection Practices Act (FDCPA) because Mere Attachment of Entire Contract with Unenforceable Attorney Fee Clause to Debt Collection Complaint Underlying Class Action was not an Attempt to Collect Attorney Fees where Debt Collection Complaint did not Pray for Such Fees Sixth Circuit Holds

Plaintiff filed a class action complaint in Ohio federal court against two debt collection attorneys and the law firm where they worked, Keith D. Weiner & Associates; defendants had filed a lawsuit against plaintiff in Ohio state court seeking to recover $8,146.53, plus interest at the rate of 16% per annum and costs alleged owed a college under a revolving credit agreement that contained the following attorney fees clause: “I/We understand that upon default of any, or all of the terms and conditions of this credit agreement and upon proper service of a NOTICE OF DEFAULT by the College, all signers immediately become, at the option of the college, liable for attorney fees and/or actual or reasonable collection costs which may be added to the Total Amount Due.” Barany-Snyder v. Weiner, 539 F.3d 327, 330 (6th Cir. 2008). The collection action did not seek attorney's fees, and the court entered in favor of the college did not award attorney fees because the college did not seek such an award. Id., at 331. Plaintiff filed for bankruptcy protection, and the college’s debt ultimately was discharged. Id. Plaintiff’s class action complaint alleged that defendants violated the federal Fair Debt Collection Practices Act (FDCPA) and Ohio’s Consumer Sales Practices Act; the class action alleged that Ohio law “prohibits creditors from recovering attorney's fees in connection with the collection of a consumer debt,” and that defendants violated state and federal law by attaching the college’s credit agreement with the attorney fees clause to the state court complaint. Id. Defense attorneys moved for judgment on the pleadings, arguing that the class action failed to state a claim; the district court granted the motion and plaintiff appealed. Id. The Sixth Circuit affirmed.

Plaintiff’s theory of the case was that “all signers immediately become, at the option of the college, liable for attorney fees and/or actual or reasonable collection costs” and that this violated the FDCPA’s prohibition against making false, deceptive, or misleading representations in connection with the collection of a debt. Barany-Snyder, at 332. The Sixth Circuit disagreed, holding that because the credit agreement was attached in its entirety, and because the attorney fee clause was not “drawn to the consumer's attention,” even the “least sophisticated debtor” would not have interpreted the debt collection lawsuit as one seeking attorney fees. Id., at 334-35. The Circuit Court explained at page 335, “Indeed, as the district court noted, adopting [plaintiff’s] position leads to the untenable conclusion that the attachment of a contract to a complaint or dunning letter is equivalent to a present threat to exercise every provision of that contract.” Additionally, “while attachment of an affidavit asserting a possible entitlement to attorney's fees might have been misleading and deceptive to the least sophisticated consumer, this conduct simply did not amount to a false representation in violation of § 1692e(2).” Id., at 335 (citation omitted). Accordingly, defendants’ debt collection action failed to state a claim under § 1692e(2). Id., at 335-36. Finally, the Circuit Court further affirmed that the debt collection action did not attempt to collect a debt in excess of the amount lawfully owed, so defendants did not violate § 1692f(1) as alleged in the class action complaint. Id., at 336. Accordingly, the Sixth Circuit affirmed the district court judgment dismissing the class action complaint, id.

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