Class Action Defense Blog

District Court Erred in Dismissing TILA Class Action because Regulation Z Required Lender to Notify Credit Card Holder of Increase in Interest Rate Based on Late Payments to Other Creditor Ninth Circuit Holds

Plaintiff filed a class action against Chase Manhattan Bank alleging violations of the federal Truth in Lending Act (TILA); the class action complaint asserted that Chase violated TILA by “increase[ing] his interest rates retroactively to the beginning of his payment cycle after his account was closed to new transactions as a result of a late payment to Chase or another creditor,” but failing to give him notice of the increase until after it had already taken effect. McCoy v. Chase Manhattan Bank, USA, ___ F.3d ___ (9th Cir. March 16, 2009) [Slip Opn., at 3325, 3328]. Defense attorneys moved to dismiss the class action on the grounds that Chase was not required to give notice of the rate increase because it had disclosed in its Cardmember Agreement the highest rate that the Bank could apply in the event of a cardmember default. Id., at 3328. The district court agreed and dismissed the class action, id. Plaintiff appealed. The Ninth Circuit explained at page 3328, “This case presents the question of whether the notice requirements of [TILA] and Regulation Z…, as interpreted by the Federal Reserve Board’s Official Staff Commentary, apply to discretionary interest rate increases that occur because of consumer default. We hold that Regulation Z requires a creditor to provide contemporaneous notice of such rate increases.” The Circuit Court therefore affirmed in part and reversed in part.

The Ninth Circuit began its discussion by noting that “Congress enacted TILA to ‘assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices.’” McCoy, at 3329 (quoting 15 U.S.C. § 1601(a)). Toward that end, the Federal Reserve Board adopted Regulation Z, which addresses when and how notice of changes in terms must be given and which provides, in part, that written notice is required “[w]henever any term required to be disclosed under § 226.6 is changed or the required minimum periodic payment is increased,” 12 C.F.R. § 226.9(c)(1). Section 226.6, in turn, requires that creditors to disclose “each periodic rate that may be used to compute the finance charge.” 12 C.F.R. § 226.9(a)(2). The Circuit Court explained that the parties “dispute the meaning of the phrase ‘any term required to be disclosed under § 226.6’”; defense attorneys argued that “the phrase applies only to the contractual terms of Chase’s Cardmember Agreement,” while plaintiff argued that “the phrase also applies to the list of specific ‘items’ § 226.6(a)(2) requires be disclosed, which includes the interest rate that may be used.” McCoy, at 3329. The Ninth Circuit found the language of Regulation Z to be “ambiguous,” and noted that it would defer to the Federal Reserve’s “interpretation of its own ambiguous regulation” so long as that interpretation is not “‘plainly erroneous or inconsistent with the regulation.’” Id., at 3330 (citation omitted).

Continue reading "TILA Class Action Defense Cases–McCoy v. Chase: Ninth Circuit Reverses Dismissal Of TILA Class Action Holding Lender Must Give Notice Of Interest Rate Increase Based On Late Payments To Other Creditor" »

Posted In: Class Action Court Decisions, RESPA/TILA Class Actions

Trial Court Order Denying Defense Motion to Dismiss Labor Law Class Action and Compel Arbitration of Individual Claim based on Class Action Waiver in Unsigned Arbitration Agreement Proper because Class Action Waiver Unenforceable as Contrary to Public Policy California State Court Holds

Plaintiff, a delivery driver for a Domino’s Pizza owned by Western Pizza, filed a putative class action Western Pizza alleging labor law violations; the class action complaint asserted inter alia that defendant failed to reimburse its drivers for business expenses, and failed to pay minimum wage or provide itemized wage statements. Sanchez v. Western Pizza Enterprises, Inc., 172 Cal.App.4th 154 (Cal.App. 2009) [Slip Opn., at 2, 5]. Defense attorneys moved to dismiss the class action and compel arbitration, id., at 6. The parties were subject to an undated arbitration agreement that contained a class action waiver provision, id., at 3-4; the arbitration agreement was “not a mandatory condition of employment,” but it was governed by the Federal Arbitration Act (FAA), id., at 3. Further, though Western Pizza would pay all arbitration fees, “Except as otherwise required by law, each party shall bear its own attorney fees and costs.” Id. The arbitration agreement further provided that the arbitrator “shall be responsible for resolving any disputes over the interpretation or application of this Arbitration Agreement.” Id. With respect to the class action waiver, the agreement provided, “[T]he Arbitrator shall not consolidate or combine the resolution of any claim or dispute between the two Parties to this ADR Agreement with the resolution of any claim by any other party or parties, including but not limited to any employee of the Company. Nor shall the Arbitrator have the authority to certify a class under Federal Rule of Civil Procedure Rule 23, analogous state rules, or Arbitrator’s rules pertaining to class arbitration, and the Arbitrator shall not decide claims on behalf of any other party or parties.” Id., at 4. Plaintiff’s counsel argued that the class action arbitration waiver was unenforceable and that plaintiff would not agree to arbitration unless the class action waiver was stricken. Id., at 5. Defense counsel countered that the enforceability of the arbitration agreement, including the class action waiver, must be determined by the arbitrator. Id., at 6. The trial court denied the motion to compel arbitration, id., at 6-7. The California Court of Appeal affirmed.

After stating that the FAA does not preempt California law because it does not conflict with California law, see Sanchez, at 7-8, the Court of Appeal concluded that the enforceability of the arbitration agreement, including the class action waiver, was properly determined by the trial court rather than the arbitrator, id., at 8-11. The appellate court then turned to the enforceability of the class action arbitration waiver, and held that it was unenforceable as contrary to public policy. See id., at 11-35. We do not discuss the opinion in detail, as it follows the ground set forth in articles summarizing similar opinions that rely on Gentry v. Superior Court, 42 Cal.4th 443 (Cal. 2007) and Discover Bank v. Superior Court, 36 Cal.4th 148 (Cal. 2005). At bottom, the appellate court affirmed the trial court order denying the motion to dismiss the class action and compel arbitration. Id., at 36.

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

As a resource for California attorneys who defend class action lawsuits, we provide weekly, unofficial summaries of the legal categories for new class action lawsuits filed in the state and federal courts located in 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 the period from March 20 - 26, 2009, during which time an usually large number of new class actions, 58, were filed. Generally, class action lawsuits alleging employment-related claims top the list by a wide margin; indeed, labor law class actions often account for more than half of the total number of new class actions filed each week. This past week, only 24 of the 58 new class action filings involved labor law claims (representing 41% of the total number of new class actions filed during the past week). Only two other categories met the 10% threshold: there were 11 new class actions alleging violations of California's Unfair Competition Law (UCL), which includes false advertising claims (19%), and 7 new class actions alleging violations of the Americans with Disabilities Act (ADA) or related failure to provide access claims.

Posted In: Class Actions In The News

Judicial Panel Grants Defense Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407, Over Objection of Class Action Plaintiffs, and Transfers Actions to Central District of California

Eight class actions – three in California and one each in Colorado, Maryland, New Jersey, Washington and Wisconsin – were filed against Jaguar Land Rover North America, LLC alleging that “geometry alignment defect that causes uneven and premature tire wear on model year 2005 and 2006 Land Rover LR3s.” In re Land Rover LR3 Tire Wear Products Liab. Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. February 23, 2009) [Slip Opn., at 1]. A related class action was filed in Connecticut, and the Judicial Panel treated that class action as a potential tag-along case, id., at 1 n.1. Defense attorneys 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; all responding plaintiffs opposed centralization, and alternatively argued that the District of New Jersey was the appropriate transferee court. Id., at 1. The Judicial Panel granted the motion to centralize the class action lawsuits, finding this will “eliminate duplicative discovery; prevent inconsistent pretrial rulings, including those with respect to issues of class certification; and conserve the resources of the parties, their counsel and the judiciary.” Id. The Panel agreed further that the Central District of California was the appropriate transferee court because “the first-filed and most procedurally advanced actions are pending there” and because that district court “has gained familiarity with this litigation by presiding over some of the actions since 2007.” Id., at 2.

NOTE: The Panel recognized, “This is a case in which defendant might perceive the MDL process as a means to advance its litigation interests, just as the recently filed actions may have arisen in part from the anticipated denial of the class motions in California.” In re Land Rover, at 2. However, the Judicial Panel explained at page 2, “Our decision is not based on such considerations.”

Posted In: Multidistrict Litigation, Class Action Court Decisions

Class Action Alleging FDCPA Violations Arising from Collection Practices Utilized to Collect from Check Writers of Bounced Checks Satisfied Rule 23 Requirements for Class Action Treatment California Federal Court Holds

Plaintiffs filed a putative class action against various defendants, including American Corrective Counseling Services (ACCS), alleging that they “engaged in a pattern of behavior in implementing the District Attorney Bad Check Diversion Program” that violated, inter alia, the California Constitution and the federal Fair Debt Collection Practices Act (FDCPA); specifically, the class action complaint alleged that defendants “operated the Diversion Program unlawfully by using the names of local district attorneys, demanding fees, and using the threat of criminal prosecution to force bad check writers to comply with their payment demands.” Del Campo v. American Corrective Counseling Services, Inc., ___ F.Supp.2d ___ (N.D. Cal. December 3, 2008) [Slip Opn., at 1 (footnote omitted)]. According to the allegations underlying the class action, various retail merchants would refer bounced checks to the District Attorney, who in turn would decide whether to refer the check writer to the diversion program. If it is referred, then defendants “instruct the merchants not to communicate” with the check writers and send out letters “purporting to be from the Santa Clara District Attorney’s Bad Check Restitution Program or the Sonoma County District Attorney Bad Check Restitution Program” and explaining that they can “avoid criminal prosecution for allegedly violating California Penal Code 476(a) by enrolling in the optional Bad Check Programs, without any admissions of guilt.” Id., at 2-3. The letter would instruct the bad check writers to make new checks out to the Bad Check Program, and included in the total to be paid the amount of the bounced check, a $35 administration fee, and a diversion program fee. Id., at 3. Many check writers tendered less than the total amount listed in the letter, and never intended on participating in the Bad Checks Program and did not participate in the program, id. Defendants sent subsequent letters demanding payment of the balance of the sums owed. The class action followed, alleging inter alia violations of the FDCPA and California’s Unfair Business Practices Act. Id. Plaintiffs’ attorneys moved the district court to certify the litigation as a class action; defense attorneys argued against class action treatment. Id., at 2. The district court determined that class action treatment was warranted and therefore granted plaintiffs’ class action certification motion.

With respect to Rule 23(a)’s requirements for class certification, the district court noted that defendants did not contest numerosity or commonality, but argued that plaintiffs’ claims were not typical and that they were not adequate representatives of the class. Del Campo, at 6. The federal court agreed that the numerosity and commonality tests had been met, see id., at 7-9. Turning to the typicality test, the court noted at page 9, “Defendants contend that Plaintiffs have not met the typicality requirement because the collection letters sent by Defendants contained ‘significant differences’ on a county-by-county basis.” Plaintiffs countered that the class action allegations assert that each of the letters “contain representations that: (1) the letter is from the local District Attorney, who has reviewed a criminal complaint made by the recipient of a dishonored check; (2) check writers who do not choose ‘diversion’ face a real risk of prosecution; and (3) to avoid prosecution, the check writer must pay the check, plus enumerated fees, and attend a ‘Financial Accountability’ Class.””Id., at 9. The district court agreed with plaintiffs, and found that the typicality test had been met, id., at 10. Defendants also argued that the named plaintiffs were not adequate representatives of the class and that plaintiffs’ counsel had a conflict of interest in representing the class. Id., at 10. The basis for the attack on the plaintiffs was their dishonesty, as evidenced by the fact that they bounced checks; the district court readily concluded that an element of being in the class could not disqualify someone from serving as the class representative. Id., at 11. And the court rejected the idea that the lobbying efforts of plaintiffs’ counsel created a conflict of interest in representing the class. Id., at 12.

Continue reading "FDCPA Class Action Defense Cases–Del Campo v. American Corrective Counseling: California Federal Court Certifies FDCPA Class Action Finding Attack On Practices Used To Collect On Bounced Checks Warranted Class Action Treatment" »

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

Class Action Alleging Breach of Contract Against American Express for Failing to Automatically Refund Various Travel Insurance Premiums Lacked Evidentiary Support because Contract Underlying Class Action Dispute Unambiguously Required Enrollees to Contact American Express as a Condition Precedent to Obtaining such Refunds California Trial Court Holds

Plaintiffs filed a class action against American Express alleging breach of contract arising from the manner in which American Express billed customers for fee-based per-trip travel insurance; the class action complaint challenged the billing practices associated with four such programs – airflight, baggage, travel delay, and hospital cash. Hoffman v. American Express Travel Related Services Co., Inc., Alameda Superior Court Case No. 2001-022881 (Cal.Super.Ct. February 6, 2009) [Slip Opn., at 2]. In broad terms, the allegations underlying the class action asserted that American Express would provide insurance to cardmembers who purchased covered travel with their American Express cards, but failed to automatically refund the insurance premiums “based on airline tickets that were later cancelled, airline tickets for passengers who were not insured under the terms of the policies, and airline charges for services other than tickets.” Id. American Express countered that its billing practices were “expressly authorized and contemplated by the contract, which disclosed the circumstances under which such charges could occur and established a process by which enrollees may obtain refunds of those charges.” Id. The first phase of the class action trial was tried to the court, sitting without a jury, to determine the relevant contract documents and to resolve disputes concerning the terms of the contract documents. Id. The trial court issued a tentative decision in November 2008, and issued its Statement of Decision on February 6, 2009.

We do not here discuss the trial court’s analysis of the documents that constitute the contract or its analyses and conclusions as to whether particular contractual provisions apply to the class action claims or the manner in which certain contract terms should be interpreted. See Hoffman, at 5 et seq. At bottom, the trial court held that the contractual terms governing the programs obligated enrollees to contact American Express for refunds, and that this requirement was a condition precedent to obtain a refund. Id., at 16-17. Moreover, the class representatives testified that they had on occasion requested credits or refunds, “thus demonstrating their understanding that this term was a condition precedent to obtaining a refund.” Id., at 17-18. The trial court also rejected plaintiffs’ invitation to use the doctrine of the implied covenant of good faith and fair dealing to rewrite the terms of the contract, id., at 19-21. Thus, while the court did not enter judgment in favor of American Express, stating that this was not a case where “an interlocutory or separate judgment is proper,” the court declared that its “findings and conclusions with respect to the contract documents and terms will be reflected in the final judgment if and when such a judgment is filed, and in any subsequent findings and conclusions the Court must make in a subsequent phase of this trial.” Id., at 22.

Posted In: Class Action Court Decisions

Marilyn Barrett, California Tax Attorney at Jeffer Mangels, Discusses Select Tax Provisions of President Obama's Economic Stimulus Package

Effective February 17, 2009, President Barack Obama signed into law the American Recovery and Reinvestment Act of 2009 (otherwise known as the "Stimulus Bill"), $787 billion economic stimulus legislation which President Obama said marks a "major milestone on our road to recovery." Tax provisions account for over $288 billion of this amount. One of the author's partners, Marilyn Barrett -- a former chair of the Taxation Section of the State Bar of California and the Los Angeles County Bar Association and who works in the Tax Department of Jeffer Mangels Butler & Marmaro LLP -- assists clients on corporate and partnership tax matters and tax controversy matters, and serves as outside general counsel to mid-market public and privately held companies. Ms. Barrett has written and lectured extensively in the tax area, and has prepared an article addressing select tax provisions of the Stimulus Package. The first section describes business tax incentives, the second section describes energy-related tax incentives, and the third section describes tax provisions affecting individual taxpayers Several non-tax provisions have also been included.

Extension of Bonus Depreciation IRC § 168(k) allows additional depreciation in the first year certain assets are placed in service equal to 50% of the basis of the property (referred to as "bonus depreciation"). Bonus depreciation is allowed for both regular tax and the AMT. Property eligible for bonus depreciation is (i) MACRS property with an applicable recovery period of 20 years or less; (ii) water utility property; (iii) computer software (other than purchased software); or (iv) qualified leasehold improvement property, the original use of which commences with the taxpayer. Bonus depreciation expired at the end of 2008 except for certain transportation property which has an expiration date of December 31, 2009.

The Stimulus Bill extends the expiration date for one year to the end of 2009 and through 2010 for the transportation property.

Continue reading "President Obama's Economic Stimulus Package--The American Recovery and Reinvestment Act of 2009: Summary of Selected Tax Provisions" »

Posted In: Topics of Interest

District Court Properly Dismissed RESPA Class Action Complaint because Title Insurers Provided Service (Title Insurance) for Fee Alleged Overcharged to Plaintiff, and Plaintiff cannot Manufacture RESPA Claim by Alleging “Portion” of Fee (Excess Premium) was “Unearned” Eighth Circuit Holds

Plaintiff filed a class action against her title insurer, Foundation Financial Group, and other title insurers and title insurance agents alleging inter alia violations of the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA); the class action complaint asserted that defendants overcharged for title insurance in violation of Alabama law, and that they charged borrowers for “other than for services actually performed” in violation of RESPA. Hazewood v. Foundation Fin. Group, LLC, 551 F.3d 1223, 1224 (8th Cir. 2008). The theory of the class action is that the title insurer charged a premium in excess of that allowed by state law, and that the amount of the excess constituted a “portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service ... other than for services actually performed” in violation of RESPA. Id., at 1225 (quoting 12 U.S.C. § 2607(b)). Put another way, the class action was premised on the theory that “the overcharge was, as a matter of law, ‘other than for services actually performed.’” Id. The class action also alleged that the title insurance premium “was, or may have been, split” between two defendants, id., at 1224. Defense attorneys moved to dismiss the class action; they argued that RESPA is violated “only when fees are charged in exchange for no services at all, not for mere overcharges or excessive fees.” Id., at 1225. The district court agreed, dismissing the RESPA claim because plaintiff in fact received title insurance, and dismissing the state law claims as barred by Alabama law because a private right of action does not exist for charging an insurance rate in excess of the filed rate. Id. The Eighth Circuit affirmed.

The Eighth Circuit noted that Alabama law “requires title insurers to submit their rates to the Insurance Commissioner, who must then approve the ‘fairness and justness’ of this ‘filed rate.’” Hazewood, at 1224 (citation omitted). Title insurers may not charge a premium in excess of the filed rate, but plaintiff allegedly was charged such a rate which was allegedly split between the settlement agent and the title insurer. Id., at 1224-25. Plaintiff argued on appeal that the class action’s RESPA claim should not have been dismissed because “a portion of her title insurance premium was unearned.” Id., at 1225. The Circuit Court cited well-settled Eighth Circuit authority holding that “RESPA § 8(b) does not provide a cause of action for excessive fees – that is, charges where a service was performed, but the plaintiff feels she was overcharged by the service provider.” Id. (citing Friedman v. Market Street Mortg. Corp., 520 F.3d 1289, 1296 (11th Cir. 2008)). If the fee is charged for a service that is actually rendered, then RESPA is not violated; the RESPA claim must allege that “no services were rendered in exchange for a settlement fee.” Id. (citation omitted). Further, the plaintiff cannot avoid this limitation by arguing, as the present class action does, that a portion of the fee charged – the “excess” portion – was “unearned.” Id., at 1225-26. Accordingly, her RESPA class action claim was properly dismissed, id., at 1226. The Eighth Circuit also rejected plaintiff’s invitation to “overrule, modify, or distinguish” its prior case law so that her class action claim could survive, id., at 1227. Accordingly, the Circuit Court affirmed the judgment of the district court dismissing the class action, id.

Continue reading "RESPA Class Action Defense Cases–Hazewood v. Foundation Financial: Eighth Circuit Affirms Dismissal Of RESPA Class Action Holding Excess Title Premium Charged Not An Unearned Fee Under RESPA" »

Posted In: Class Action Court Decisions, RESPA/TILA Class Actions

In Labor Law Class Action, Trial Court Erred in Granting Defense Petition to Compel Plaintiff to Arbitrate his Claims on an Individual Basis because Class Action Waiver in Arbitration Agreement Signed by Employee was Unconscionable California State Court Holds

Plaintiff, a trash truck driver, filed a putative class action against his former employer, Athens Disposal, alleging labor law violations; the class action complaint asserted that Athens denied its employees meal and rest periods. Franco v. Athens Disposal Co., Inc., 171 Cal.App.4th 1277 (Cal.App. 2009) [Slip Opn., at 2]. According to the allegations underlying the class action, Athens failed to pay its employees overtime, and failed to provide meal periods or to pay employees an additional hour of compensation for each workday that they missed a meal period. Id., at 3. Defense attorneys moved to dismiss the class action complaint and to compel arbitration based on the terms of the employment agreement with plaintiff, id., at 2. The employment agreement contained an arbitration clause as well as a provision waiving class action relief or the right to bring an action in “a private attorney general capacity.” Id. Plaintiff countered that the class action waiver was unconscionable, id. The trial court disagreed and granted Athens’ motion to compel plaintiff to proceed with arbitration on an individual basis. Id. The California Court of Appeal reversed, concluding that the class action arbitration wavier was unconscionable “given ‘the modest size of the potential individual recovery, the potential for retaliation against members of the class, [and] the fact that absent members of the class may be ill informed about their rights.’” Id. (quoting Gentry v. Superior Court, 42 Cal.4th 443, 463 (Cal. 2007)). The appellate court further held that the arbitration clause was unconscionable in that it sought to prevent plaintiff from serving as a private attorney general, it conflict with California’s Private Attorneys General Act of 2004 (PAGA). Id.

In its petition to compel arbitration and to dismiss the class action, Athens argued that the arbitration agreement was governed by the Federal Arbitration Act (FAA). Franco, at 3-4. Indeed, the employment agreement expressly provided that it was governed by the FAA, and that any arbitration would be conducted under the employment arbitration rules of the American Arbitration Association (AAA). Id., at 4. The petition to compel arbitration was simplicity itself: “Under the FAA, arbitration was mandatory.” Id. Plaintiff argued that the class action waiver was invalid under Discover Bank v. Superior Court, 36 Cal.4th 148 (Cal. 2005), which defense counsel sought to distinguish. Id., at 4-5. The trial court agreed that Discover Bank did not cover employment cases and granted the motion to compel. Id., at 5. Plaintiff sought reconsideration based on Gentry, which the trial court denied based in part on its conclusion that plaintiff’s meal and rest period claims were not suitable for class action treatment because of the specific inquiries that would be required of the various claims. See id., at 5-7.

Continue reading "Class Action Defense Cases–Franco v. Athens Disposal: California State Court Reverses Order In Labor Law Class Action Compelling Plaintiff To Arbitrate Individual Claims Holding Class Action Waiver Unconscionable" »

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

In order to assist class action defense attorneys anticipate the types 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 the state and federal courts located in 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 the period from March 13 - 19, 2009, during which time 46 class actions were filed. Labor law class actions generally top this list, and usually account for more than 50% of the total number of new class actions filed each week. While employment-related class actions did not meet this 50% mark, they did continue to hold the top spot among new class actions. In this reporting period, 22 new labor law class action lawsuits were filed, representing 48% of the total number of new class actions filed during the past week. Only one other category met the 10% threshold, as there were 8 new class actions alleging violations of California's Unfair Competition Law (UCL), which includes false advertising claims (17%).

Posted In: Class Actions In The News

Judicial Panel Grants Defense Request for Pretrial Coordination of Individual and Class Action Lawsuits Pursuant to 28 U.S.C. § 1407, Over Opposition of Majority of Plaintiffs, and Transfers Actions to Southern District of New York

Seventeen (17) individual and class actions – nine in New York, five Arkansas, two California and one in Arkansas – were filed against Lehman Brothers and various other defendants alleging that defendants had made materially false and/or misleading statements that negatively impacted the value of Lehman Brothers securities. In re Lehman Brothers Holdings, Inc., Securities & Employee Retirement Income Security Act (ERISA) Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. February 9, 2009) [Slip Opn., at 1]. Some of the class actions were “brought by securities holders seeking relief under the federal securities laws,” while other class actions were brought by “participants in Lehman Brothers’s retirement savings plans suing for violations of the Employee Retirement Income Security Act of 1974 [(ERISA)].” Id., at 2. Additionally, the Judicial Panel was advised that five related class actions had been filed, and it treated these class actions as potential tag-along lawsuits. Id., at 1 n.2. Defense attorneys for 10 of the individual defendants filed a motion with the Judicial Panel for Multidistrict Litigation (MDL) seeking centralization of the class actions pursuant to 28 U.S.C. § 1407 in the Southern District of New York, where 8 of the New York class actions were pending (with the remaining New York class action pending in the Eastern District); this motion was supported by responding defendants. Id., at 1. Plaintiffs in four of the class actions (3 in the Southern District of New York and the one in the Eastern District of New York) supported centralization of the other lawsuits, but requested that their actions “be coordinated, rather than consolidated, with the other actions in this litigation, because these plaintiffs’ actions (1) have distinct legal causes of action with different burdens of pleading and proof or (2) involve different types of securities.” Id. Plaintiffs in eight of the actions opposed centralization, “arguing that (1) their actions do not share sufficient questions of fact with the other actions in this litigation, and/or (2) motions to remand their actions to state court are pending.” Id.

The Judicial Panel granted the motion for centralization, finding that the individual and class actions involve common questions of fact and that “all actions can be expected to focus on a significant number of common events, defendants, and/or witnesses.” In re Lehman Brothers, at 1-2. Accordingly, pretrial centralization “will eliminate duplicative discovery; avoid inconsistent pretrial rulings, including on the issue of class certification; and conserve the resources of the parties, their counsel and the judiciary.” Id., at 2. The Panel rejected concerns the concerns of some plaintiffs that the MDL proceeding would be difficult to manage because some of the actions involve different types of securities or legal claims, finding that centralization will permit the parties to litigate the common issues “in a streamlined manner leading to the just and expeditious resolution of all actions to the overall benefit of the parties” and that the transferee court may permit litigation involving “non-common issues” to proceed on a parallel track. Id. The Judicial Panel also determined that the Southern District of New York was the appropriate transferee court “because (1) eight of the seventeen actions are already pending there, and (2) Lehman Brothers is headquartered in New York City and accordingly parties, witnesses and documents may be found there.” Id. Accordingly, the Panel ordered the lawsuits centralized in the Southern District of New York, id., at 2-3.

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

Allegations in Class Action Complaint were Adequate to Defeat Motion to Dismiss Antitrust Class Action Pennsylvania Federal Court Holds

Plaintiffs filed an antitrust class action against various defendants, consisting of “certain United States manufacturers of high quality flat glass used for construction and architectural applications (‘Construction Flat Glass’)”; the class action complaint asserted that the defendants engaged in price fixing in violation of §1 of the Sherman Act. In re: Flat Glass Antitrust Litig. (II), ___ F.Supp.2d ___ (W.D. Pa February 11, 2009) [Slip Opn., at 1]. The class action was filed on behalf of purchasers of construction flat glass in the United States, and alleged that defendants “agreed to raise and fix prices through a combination of collusive energy surcharges and price increases.” Id., at 2. The Judicial Panel on Multidistrict Litigation consolidated 20 related cases pursuant to 28 U.S.C. §1407 in the Western District of Pennsylvania, id.; the district court appointed co-lead counsel for the class action and a consolidated amended complaint was filed in the class action. Id. Defense attorneys moved to dismiss the class action: they argued that the class action “should be dismissed because the various allegations therein are insufficient under the pleading standard set forth above to infer the existence of an agreement or conspiracy to restrain trade.” Id., at 4. The district court denied the motion, concluding that the allegations in the class action were sufficient to “nudge over the line of sufficiency.” Id.

We do not discuss the court’s reasoning in detail as it is case-specific, see id., at 4-5. Suffice it to say that the district court concluded at page 5 that the class action adequately “alleged agreement/conspiracy that if true would make an antitrust conspiracy plausible.” Accordingly, it denied the motion to dismiss. Id., at 6.

Posted In: Multidistrict Litigation, Class Action Court Decisions

Class Action Complaint Alleging Violations of Federal Truth in Lending Act (TILA) did not Warrant Class Action Treatment because Plaintiff Lacked Standing to Prosecute TILA Claim, Plaintiff was an Inadequate Representative because he could not Establish Traceability, and Plaintiff’s Claims were not Typical of the Putative Class Claims California Federal Court Holds

Plaintiff filed a putative class action against Paul Financial concerning option adjustable rate mortgages (Option ARMs); specifically, the class action complaint alleged that Option ARMs are “deceptively devised” in that they “promise that the loan [will] have a low, fixed interest rate” when in fact the loan carries a much higher interest rate. The class action alleged further that defendant “disguised” the fact that the Option ARM “was designed to cause negative amortization.” Jordan v. Paul Financial, LLC, ___ F.Supp.2d ___ (N.D. Cal. January 27, 2009) [Slip Opn., at 1-2]. The class action alleged, inter alia, violations of the federal Truth in Lending Act (TILA) and California’s Unfair Competition Law (UCL), id., at 2, and amendments to the class action complaint added HSBC and Luminent Capital Mortgage as defendants, id., at 1. Plaintiff sought to represent two classes of borrowers who received Option ARM loans secured by their primary residences: (1) a nationwide class, and (2) a California statewide class, id., at 1-2. Plaintiff’s attorney moved the district court to certify the litigation as a class action; defense attorneys argued against class action treatment. Id., at 1. The district court determined that class action treatment was not warranted and therefore denied plaintiff’s class action certification motion.

Paul Financial originated residential loans, and while it also serviced loans, Paul Financial sold 75% of its loans to third party investors and sold the servicing rights to other investors. Jordan, at 2. Defendant “sold the loans to about ten investors,” but does not have records of subsequent sales by those investors, id., at 2-3. Plaintiff’s loan, for example, was sold to defendant Luminent, and then pooled with other Option ARM loans into a mortgage-backed security pool; defendant HSBC was the trustee of the pool. Id., at 3. Defendant sold the servicing rights for plaintiff’s loan to yet another investor, Greenwich Capital, id. By December 2008, Paul Financial had less than $1000 and planned to cease operations on December 31, 2008. Id., at 2. After discussing the general rules regarding class action certification under Rule 23, see id., at 3-4, the district court turned to whether plaintiff had standing to represent the TILA class or the California class.

Continue reading "TILA Class Action Defense Cases–Jordan v. Paul Financial: California Federal Court Denies Class Action Treatment To TILA Law Class Action Holding Plaintiff Lacks Standing And His Claims Lack Typicality" »

Posted In: Certification of Class Actions, Class Action Court Decisions, RESPA/TILA Class Actions

State “Holiday Statutes” Preempted by National Bank Act and therefore cannot Support Class Action Claims alleging Unfair Business Practices Against Bank of America for Charging Late Fees or Interest for Credit Card Payments Posted on the First Day Following a State Holiday California State Court Holds

Plaintiffs filed a class action against Bank of America, a national bank, now known as FIA Card Services, N.A., which is also a national bank, alleging violations of California’s Unfair Competition Law (UCL); specifically, the class action complaint, brought on behalf of credit card holders, asserted that California and Arizona have “holiday statutes” that “essentially state that whenever a legal or contractual act is required to be performed on a holiday, the act may be performed on the next business day without any adverse consequence,” but that the Bank violated these statutes by “charging late fees or interest for credit card payments ‘posted on the first business day after a Holiday due date, when such fee[s] or interest would not have been due if the payment was posted on the Holiday due date.’” Miller v. Bank of America, N.A. (U.S.A.), 170 Cal.App.4th 980, 88 Cal.Rptr.3d 723, 724-25 and n. 1 (Cal.App. 2009). The third amended class action complaint alleged three separate violations of the UCL, “each of which aligns with one of the three holiday statutes” at issue in the class action. Id., at 725. The class action sought to enjoin the Bank from further violations of the statutes, and sought also restitution for the members of the class. Id. The trial court sustained the Bank’s demurrer to the class action complaint, concluding that the state laws were preempted by the National Bank Act (NBA), id., at 724-25. The question on appeal was “whether these state holiday statutes apply to a national bank’s credit card payment due dates.” Id. The California Court of Appeal held that they do not, and affirmed dismissal of the class action.

The Court of Appeal began its analysis with a detailed discussion of the principles governing preemption. See Miller, at 725 et seq. It concluded that the “critical” issue in this case was whether the legal duty created by the state law claim constitutes a requirement or prohibition of the type the NBA preempts, id., at 726 (citations omitted). Based on its analysis, see id., at 726-28, the appellate court held that the holiday statutes were preempted by the NBA because they would effectively change the payment due date thereby impacting the “schedule for repayment of principal and interest” set by a national bank, id., at 727. As the Court of Appeal explained at page 727, “Such interference is directly contrary to 12 C.F.R. section 7.4008, subdivision (d) which provides that a national bank may set the schedule for repayment on non-real estate loans [and set the payments due] without regard to state law limitations.” In so holding, the Court rejected plaintiffs’ argument that the Bank was “entirely free to set both the schedule for repayment and the payment due” because applying the holiday statutes would simply affect the date on which a payment is credited to the account. Id., at 727-28. The appellate court further rejected plaintiffs’ argument that the holiday statutes fell within the preemption exemption in the NBA for state “contract” laws. See id., at 728-30. Accordingly, it affirmed the trial court’s dismissal of the class action complaint on the grounds of preemption, id., at 730.

Posted In: Class Action Court Decisions

Class Action Premised on Violations of “Best Execution” Duty Fell within Scope of SLUSA (Securities Litigation Uniform Standards Act of 1998) so Properly Removed and then Properly Dismissed because Time-Barred and no Proof of Injury Seventh Circuit Holds

Plaintiffs, former investors in portfolio managed by Fidelity Management & Research and FMR Co. (collectively “Fidelity”), filed a class action in state court against Fidelity alleging violations of state law and breach of contract based on the allegation that “some of [Fidelity’s] employees placed trades through Jeffries & Co.” because “Jeffries bribed the employees to send business its way.” Kurz v. Fidelity Management & Research Co., ___ F.3d ___ (7th Cir. February 23, 2009) [Slip Opn., at 1-2]. The rules of the National Association of Securities Dealers (NASD) prohibit trading through a broker “paid under the table” as violative of the duty of “best execution,” that is, failing to get “the optimal combination of price, speed, and liquidity for a securities trade.” Id., at 2 (citation omitted). The conduct underlying the class action is covered by regulations under the Securities and Exchange Act of 1934, the Investment Advisers Act of 1940 (IAA) and the Investment Company Act of 1940 (ICA). Id. The SEC commenced proceedings against Fidelity under the IAA and the ICA, and Fidelity entered into a consent decree governing “how future trades will be placed and executed.” Id. In response to plaintiffs’ class action, Fidelity argued that the employee misconduct involved securities laws and, accordingly, removed the class action to federal court under the Securities Litigation Uniform Standards Act of 1998 (SLUSA). Id., at 2-3. In essence, defense attorneys argued that, according to the allegations in the class action, Fidelity “had either misrepresented that best execution would be achieved, or failed to disclose that best execution was not being achieved,” and that under either scenario “the wrong took place ‘in connection with the purchase or sale’ of covered securities because it affected trades in those securities (and potentially the net price obtained).” Id., at 3-4. Plaintiffs moved to remand the class action to state court; the district court agreed with Fidelity that the class action fell within the scope of SLUSA and denied the motion. Id., at 4. The district court subsequently entered judgment in favor of Fidelity on the class action complaint on the grounds that plaintiffs “filed suit after the federal statute of limitations had run and also was unable to show injury.” Id. The Seventh Circuit affirmed.

The Seventh Circuit first held that removal was proper. Plaintiffs argued that the class action was based on contract law, and that further the duty of “best execution” is not one “in connection with the purchase or sale” of securities; accordingly, plaintiffs insisted that the class action did not fall within the scope of SLUSA. Kurz, at 4. The Circuit Court concluded “[t]hat argument is frivolous,” id., at 4-5 (citations omitted). The Seventh Circuit recognized that a true contract claim would fall outside of SLUSA, but no contract existed in this case. Id., at 5. The class action complaint did not allege that Fidelity breached any promise to plaintiffs; rather, the class action asserted that plaintiffs were third-party beneficiaries of a contract between Fidelity and Jeffries. Id. Moreover, plaintiffs could not produce that contract, and the Circuit Court observed at page 5 that “for all we know none exists.” On the other hand, a securities law violation would support plaintiffs’ class action claims. Id., at 6. Put simply, “How Fidelity discharges its duties toward investors is a subject requiring disclosure under federal law.” Id. And even though Fidelity’s top managers and board did not know about the misconduct, and therefore could not have acted with the necessary scienter to support a securities liabilities claim, the individual employees did act with scienter and Fidelity may be derivatively liable for their misconduct. Id., at 6-7. In sum, the Seventh Circuit held that the district court correctly determined that plaintiffs had either a federal securities claim or nothing. Id., at 7. Assuming it was the former, plaintiffs’ class action advanced “a bad securities claim, given the expiration of the federal statute of limitations and the class’s inability to show loss causation.” Id. (citation omitted). Accordingly, the Circuit Court affirmed the judgment.

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

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 the state and federal courts located in 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 the period from March 6 - 12, 2009, during which time 39 class actions were filed. Labor law class actions generally top the list by a wide margin, and in this reporting period 18 of the new class actions asserted employment-related claims, representing 46% of the total number of new class actions filed during the past week. Only one other category met the 10% threshold. There were 4 new class actions alleging violations of California's Unfair Competition Law (UCL), which includes false advertising claims (10%).

Posted In: Class Actions In The News

Judicial Panel Grants Defense Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407, Largely Unopposed by Class Action Plaintiffs, and Transfers Actions to Southern District of New York

Nineteen (19) class actions – 15 in New York and one each in the District of Columbia, Florida, New Jersey and Pennsylvania – were filed against the Federal National Mortgage Association (“Fannie Mae”) and numerous other defendants alleging that “Fannie Mae was undercapitalized during the relevant time period, and that defendants concealed this fact from investors in order to raise capital.” In re Fannie Mae Securities & Employee Retirement Income Security Act (ERISA) Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. February 11, 2009) [Slip Opn., at 1-2]. Two additional class actions were filed in the District of Columbia and in Florida, and the Judicial Panel treated these as potential tag-along actions. Id., at 2 n.3. Defense attorneys for Fannie Mae, with the consent of the other class action defendants, 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 Southern District of New York; plaintiffs in both class actions supported the motion. Id., at 1. Plaintiffs in the District of Columbia class action did not oppose the motion; plaintiff in the New Jersey class action asked the Judicial Panel to delay transfer of his class action until a decision had been made on motion to remand the class action to state court. Id. The Judicial Panel granted the motion to centralize the class action lawsuits and agreed that the Southern District of New York was the appropriate transferee court, particularly as 15 class actions were already pending in that court and because “many of the corporate defendants are headquartered in New York.” Id., at 2. The Panel further ruled that the transferee court could hear the motion for remand to state court, id. Accordingly, the Panel transferred the class actions to the Southern District of New York, id.

Posted In: Multidistrict Litigation, Class Action Court Decisions

Defense Motion to Dismiss Class Action’s Claim under Illinois Consumer Fraud and Deceptive Practices Act (ICFA) Granted because Illinois does not Permit Consumer Fraud/Deception Claim to be Founded on Breach of Contract Illinois Federal Court Holds

Plaintiffs filed a class action against Conseco and Conseco Senior Health Insurance Company (Conseco) alleging inter alia breach of contract and violations of the Illinois Consumer Fraud and Deceptive Practices Act (ICFA); specifically, the class action complaint alleged that Conseco formulated a scheme “designed to avoid paying...claims under the pretense of requiring additional documentation of proof of a claim above and beyond a Medicare verification” for the purpose of reducing payments to insureds. Langendorf v. Conseco Senior Health Ins. Co., 590 F.Supp.2d 1020, 1021 (N.D.Ill. 2008). According to the allegations underlying the class action, plaintiffs submitted to Conseco “numerous claims for reimbursement and/or payment of medical expenses” under health insurance policies issued by Conseco, but the company “systematically declined to pay Plaintiffs benefits,”“under the pretense of requiring additional documentation of proof of loss, and/or failing to accept Medicare verifications as documentation of proof of loss.” Id. Defense attorneys removed the class action to federal court under the Class Action Fairness Act of 2005 (CAFA). Id., at 1021-22. Defense attorneys moved to dismiss the class action’s ICFA claim, id., at 1022; the district court granted the motion.

The district court explained that the ICFA “prohibits unfair or deceptive acts or practices, and provides a cause of action for any person who suffers actual damages as a result of a violation.” Langendorf, at 1022 (citing 815 ILCS 505/10a(a)). The class action’s ICFA claim was premised on the theory that Conseco “perpetrated its scheme designed to avoid paying (by denying or delaying) Plaintiffs’ and Class members’ claims under the false pretense of requiring additional documentation of proof of a claim above and beyond a Medicare verification,” id. Defense attorneys argued, however, that an ICFA claim cannot be premised on a breach of contract, id., at 1022-23. In other words, Illinois law requires more than a breach of contract to support a claim for consumer fraud or deception. Id., at 1023. The district court agreed, rejecting plaintiffs’ effort to distinguish the controlling case law, id., at 1023-24. Accordingly, the district court dismissed the class action’s ICFA claim. Id., at 1024.

Posted In: Class Action Court Decisions

District Court Order Dismissing Class Action Affirmed for Failure to Plaintiff to Address Merits of Dismissal and District Court Order Denying Class Action Treatment Affirmed because Plaintiff no Longer Member of Class it Purported to Represent Eighth Circuit Holds

Plaintiff filed a class action against Ameritrade, an Internet-based securities brokerage firm, alleging that defendant caused its customers to suffer damages by delaying trade executions; essentially, the class action complained that defendant’s failure to timely execute trade requests resulted in the failure to obtain the best possible prices. Telco Group, Inc. v. Ameritrade, Inc., 552 F.3d 893 (8th Cir. 2009). Plaintiff filed a motion to have the litigation certified as a class action, but the district court adopted the recommendation of the magistrate to deny class action treatment. Id., at 893. Defense attorneys moved to dismiss the class action for failure to prosecute; the district court granted the motion, id. Plaintiff appealed from the final order dismissing the class action, but the focus of its appellate brief centered on the denial of the motion for class certification. Specifically, plaintiff failed to challenge the merits of the order dismissing the class action, id. The Eighth Circuit therefore affirmed the class action’s dismissal. Id. With respect to the issue plaintiff did brief – the denial of class action treatment – the Circuit Court held at page 893 that “because its claims have been dismissed with prejudice, reversing the denial of class certification would afford [plaintiff] no relief.” Specifically, because the district court dismissed plaintiff’s claims it was no longer a member of the putative class “and therefore cannot represent the putative but uncertified class.” Id., at 893-94. A class action cannot be certified without a class representative, id. (citation omitted), and a live controversy must exist for the appellate court to review, id. (citation omitted). The Eighth Circuit easily held at page 894, “In these circumstances, it is appropriate to ‘affirm the dismissal and ... not reach the class certification issue.’” Accordingly, it affirmed the district court orders. Id., at 894.

Posted In: Class Action Court Decisions

Class Action Challenging Casino-Employer’s Tip-Pooling Policy Properly Thrown Out on Summary Judgment, but Single Claim – alleging Casino Violated Unfair Competition Law (UCL) by Sharing Tips with Employer’s Agents – Reversed because Triable Issue of Fact Existed as to Whether Employer Participated in Tip Pool in Violation of California Law State Court Holds

Plaintiff filed a class action against his employer, Hawaiian Gardens Casino, alleging violations of California’s Labor Code and of the state’s unfair business practices statute; specifically; the class action complaint asserted defendant’s written tip pool policy governing casino dealers, which “requires dealers to segregate 15 or 20 percent of the tips they receive at the close of each shift” but permits the dealers to keep the remaining portion of the tips they receive, violated California law. Lu v. Hawaiian Gardens Casino, Inc., ___ Cal.App.4th ___, 88 Cal.Rptr.3d 345, 350 (Cal.App. 2009). According to the allegations underlying the class action, the money placed into the tip pool was distributed among “designated employees who provide service to customers, such as the chip service people (also known as ‘chip runners’), poker tournament coordinators, poker rotation coordinators, hosts, customer service representatives or ‘floormen,’ and concierges.” Id. However, defendant’s policy expressly prohibited “employers, managers, or supervisors” to participate in the tip pool, id. Defendant moved for summary judgment on the grounds that its tip pooling policy did not violate California law, relying in part on Leighton v. Old Heidelberg, Ltd., 219 Cal.App.3d 1062 (Cal.App. 1990). Id., at 349. The trial court granted defendant’s motion and dismissed the class action, and the appellate court affirmed.

Defendant paid its dealers the minimum hourly wage every two week, without deduction for any tips they received; defendant did not use the tip pool to “offset or pay” the salaries it paid dealers and did not divert any of the money “for its own use.” Lu, at 350. The dealers’ take home pay was “significantly” in excess of the minimum wage, id. Plaintiff alleged that the casino’s tip pooling policy “constituted a conversion of his wages, and violated employee protections contained in Labor Code section 221 (employers may not compel wage kickbacks); section 351 (employers may not take, collect or receive gratuities); section 450 (employers may not compel employees to patronize the employer); section 1197 (employers may not pay less than minimum wage); and section 2802 (employer indemnification for employee's necessary expenses).” Id. The class action alleged further that defendant’s policy constituted an unfair business practice, id. The appellate court noted that Leighton held that California law does not prohibit tip pooling in restaurants, but that no California case had addressed tip pooling in casinos. Id., at 349. Plaintiff argued that Leighton was distinguishable because “unlike restaurants where tips are left on the tables, in casinos, gratuities are handed directly to dealers, with the result that such gratuities belong solely to the dealers.” Id. Like the trial court, the Court of Appeal disagreed, concluding that “nothing in Labor Code section 351 prohibits tip pooling in casinos.” Id. The appellate court held further that while certain labor laws did not provide a private right of action, they could “nonetheless serve as predicates for suits under the UCL” and, accordingly, the trial court’s order was reversed as to that limited issue, id.

Continue reading "Class Action Defense Cases–Lu v. Hawaiian Gardens Casino: California State Court Affirms Summary Judgment For Defense In Labor Law Class Action Except For Class Action Claim Under UCL" »

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

Defense Motion to Dismiss Class Action Claim under Federal Consumer Protection Safety Act (CPSA) Granted but Remaining Claims in Class Action Adequately Pleaded and Survived Motion to Dismiss California Federal Court Holds

Plaintiffs filed a class action against numerous defendants, manufacturers and retailers of children's toys, alleging they “sold certain toys that were defective and unsafe, and made actionable representations about the quality of the products.” In re Mattel, Inc., Toy Lead Paint Products Liab. Litig., 588 F.Supp.2d 1111, 1114 (C.D. Cal. 2008). Specifically, the class action focused on three types of toys: “toys that were produced with allegedly unsafe levels of lead paint, toys that included small, swallowable magnets that allegedly pose a hazard to children, and a specific toy blood pressure cuff that allegedly contains high levels of lead, but is not specifically alleged to contain lead paint.” Id. The class action advanced numerous claims for relief, including violations of the federal Consumer Protection Safety Act (CPSA), and of California’s Consumers Legal Remedies Act (CLRA), unfair competition law (UCL), and Song-Beverly Consumer Warranty Act (CWA). Id. The class action defendants included Mattel and Fisher-Price (the “Manufacturer Defendants”), id. n.2, and Target, Toys “R” Us, Wal-Mart, KB Toys and Kmart (the “Retailer Defendants”), id. n.3. The Consumer Product Safety Commission ordered a recall of the lead paint toys and magnet toys, and the Manufacturer Defendants provided replacement toys to consumers. Id. Wal-Mart moved to dismiss the class action claims against it, and the remaining defendants filed a separate motion to dismiss the class action as to them. Id. The district court granted the motion in part, and denied the motion in part.

Defense attorneys first argued that the “a voluntary product replacement pursuant to a 16 C.F.R. § 1115.20 corrective action plan preempts state law remedies seeking reimbursement for an allegedly hazardous product.” In re Mattel, at 1115. The district court disagreed. The federal court explained that CPSC regulations permit a company to “submit a voluntary ‘corrective action plan’ to correct an alleged violation of the consumer product safety laws.” Id. (citing 16 C.F.R. § 1115.20(a)). However, the same regulations “explicitly state that actions taken in a voluntary corrective action plan have ‘no legally binding effect,’ and that the CPSC ‘reserves the right to seek broader corrective action.’” Id. (quoting 16 C.F.R. § 1115.20(a)). If preemption applied, as defendants argued, then a manufacturer could essentially “choose their own remedy to a CPSA violation with no guarantee for input from harmed parties…and little incentive on the part of the CPSC to ensure that the proposed remedy was completely adequate.” Id. (citation omitted). The district court therefore rejected the preemption argument, id., at 1116.

Continue reading "Lead Toys Class Action Defense Cases–In re Mattel: California Federal Court Denies Motion To Dismiss Class Action Complaint Holding Class Action Allegations Were Adequate Save For Federal CPSA Claim" »

Posted In: Class Action Court Decisions

In order to assist class action defense attorneys anticipate the types 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 the state and federal courts located in 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 the period from February 27 - March 5, 2009, during which time 41 class actions were filed. Class actions asserting employment-related claims generally top this list, and this again proved true. In this reporting period, 23 new labor law class action lawsuits were filed, representing 56% of the total number of new class actions filed during the past week. Only one other category met the 10% threshold, as there were 11 new class actions alleging violations of California's Unfair Competition Law (UCL), which includes false advertising claims (27%).

Posted In: Class Actions In The News

Judicial Panel Grants Plaintiff Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407, Opposed by Common Class Action Defendant, and Transfers Class Actions to District of New Jersey

Five class actions – one each in California, Florida, Illinois, New Jersey, and New York – were filed against Chrysler arising out of an alleged defect in the 2.7 liter engine used in several Chrysler cars; specifically, the class actions alleged that design defects made the 2.7 liter engine “prone to the formation of oil sludge, which causes the engine to malfunction.” In re Chrysler LLC 2.7 Liter V-6 Engine Oil Sludge Products Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. February 10, 2009) [Slip Opn., at 1]. An additional class action was filed in Massachusetts, and treated by the court as a potential tag-along action, id., at 1 n.2. Plaintiffs in the New Jersey 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 District of New Jersey; defense attorneys opposed centralization, and argued alternatively that the class action should be centralized in Illinois. Id. The argued that the class actions do not involve “duplicative discovery” because “the proposed classes do not overlap,” that informal coordination of discovery can adequately address any risk of overlapping discovery, and that common plaintiffs’ counsel in four of the class actions “supports coordination among the parties as a superior method of streamlining discovery.” Id., at 1-2. The Judicial Panel granted the motion to centralize the class action lawsuits and agreed that the District of New Jersey was the appropriate transferee court, id., at 1.

The Judicial Panel recognized that the five class actions seek certification of statewide classes under the laws of five different states, but discovery will still overlap. In re Chrysler, at 2. The Panel found that the class actions “involve common questions of fact,” and that centralization “will eliminate duplicative discovery; prevent inconsistent pretrial rulings; and conserve the resources of the parties, their counsel and the judiciary.” Id., at 1. Put simply, the class actions “are nearly identical in terms of the facts alleged, and discovery undoubtedly will overlap.” Id., at 2. Pretrial coordination “will enable one judge to streamline pretrial proceedings and make consistent rulings on discovery disputes, dispositive motions, and issues relating to experts.” Id. The different issues presented by class certification, then, do not affect the propriety of centralization; rather, “the transferee judge may find that, eventually, the just and efficient conduct of these actions would best be served by suggesting to the Panel that the Panel remand these actions to the transferor courts for class certification considerations.” Id. But at least for purposes of discovery, centralization was warranted and the District of New Jersey is the appropriate transferee court because the New Jersey class action has been pending longer than the other class actions. Id. Accordingly, the Panel ordered the class actions transferred to New Jersey. Id.

Posted In: Multidistrict Litigation, Class Action Court Decisions

District Court Erred in Remanding Securities Class Action to State Court because Evidentiary Hearing Required to Determine Whether Section 22(a) of Securities Act Precluded Removal of Class Action to Federal Court Pursuant to CAFA (Class Action Fairness Act) Complaint Seventh Circuit Holds

Plaintiff filed a putative class action in state court against various defendants purportedly on behalf of “a class of persons who contributed real property (or interests in real property) to the Archstone real estate investment trust, in exchange for interests called ‘A-1 Units’”; the class action complaint asserted that defendants violated federal securities laws. Katz v. Gerardi, 552 F.3d 558, 559 (7th Cir. 2009). According to the allegations underlying the class action, “In 2007 Archstone merged into Tishman-Lehman Partnership. Holders of A-1 Units were offered a choice of cash or Series O Preferred Units in the entity formed by the merger. [Plaintiff] contends that the merger violated the terms of the A-1 Units, because neither cash nor the Series O Preferred Units offered investors the same tax benefits as A-1 Units.” Id. Defense attorneys removed the class action to federal court pursuant to the Class Action Fairness Act of 2005 (CAFA), id. The district court remanded the class action to state court on the grounds that the Securities Act of 1933 prohibited removal, id., at 560. The Seventh Circuit granted defendants’ application for permission to appeal and reversed the district court’s remand order.

The Circuit Court began its analysis by observing, “One might suppose that a statute enacted in 2005 supersedes a statute enacted in 1933, but the district court held that § 22(a) [of the Securities Act of 1933] controls because it is ‘more specific’ than the 2005 Act – for § 22(a) deals only with securities litigation, while the 2005 Act covers class actions in many substantive fields.” Katz, at 560. The Seventh Circuit also noted that “[o]nly purchasers of securities may pursue actions under the 1933 Act,” id. (citation omitted). But the district court found it sufficient that the class action complaint “invokes the Securities Act of 1933,” which, in the district court’s view, was alone sufficient to preclude removal.” Id. The Seventh Circuit disagreed: “It is hard to distinguish between a claim artfully designed to defeat federal jurisdiction and one that is properly pleaded but unsuccessful on the merits, but it cannot be right to say that a pleader's choice of language always defeats removal.” Id. Based on the Circuit Court’s analysis, “Section 22(a) and the 2005 Act are incompatible; one or the other must yield,” id., at 561, and further that § 22(a) did not “insulate” the class action’s alleged claims under the Securities Act from removal under CAFA. See id., at 561-63.

Continue reading "CAFA Class Action Defense Cases–Katz v. Gerardi: Seventh Circuit Reverses Order Remanding Class Action To State Court Holding Class Action Fairness Act May Trump Securities Act Of 1933" »

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

Defense Motion for Summary Judgment Granted as to Class Action’s Express Warranty Claim and Granted as to Other Class Action’s Claims as to Individuals who did not Benefit from Off Label Use of Prescription Drug, and Defense Established Grounds to Decertify Class Action because Individual Questions Predominate Pennsylvania State Trial Court Holds

Plaintiffs filed a class action against Pfizer and Warner-Lambert alleging that their drug, Neurontin, approved by the FDA for epilepsy and for neuralgia, was sold by prescription for “off label” purposes “not approved by the FDA.” Clark v. Pfizer, Inc., Philadelphia Common Pleas Case No. 1819 (February 9, 2009) [Slip Opn., at 1]. The trial court noted that doctors were free to prescribe Neurontin “for any condition that they believe to be appropriate even if not FDA approved,” explaining that this practice “is known as off-label prescribing and although permissible in the medical profession, federal law prohibits a drug manufacturer from promoting off-label uses of an approved medication.” Id. According to the class action, defendants “deliberately and unlawfully promoted Neurontin to physicians for ‘off-label uses’ for which effectiveness had not been scientifically demonstrated.” Id., at 2. Defendants were charged criminally in federal court; they pleaded guilty to two specific violations of off-label marketing, and paid a $240 million fine. Id. The class action asserted claims for misrepresentation, negligence and breach of warranty, and sought reimbursement of all drug costs paid by individuals as opposed to insurers, id., at 1. The trial court certified the lawsuit as a class action; defense attorneys moved to decertify the class action and for summary judgment. Id.

Defendants’ motion stressed that certain physician’s prescribed Neurontin for off-label purposes because they believed it would help – and believed it did help – their patients, not because of defendants’ marketing efforts. Clark, at 2-4. The trial court easily concluded that the class action’s express warranty claim failed because “there is no evidence that plaintiffs saw, heard or in any way received any warranties that Neurontin could be used in circumstances not approved by the FDA.” Id., at 4. Further, “[t]he alleged fraud on the medical profession which is the essence of plaintiffs’ claims does not create any warranty.” Id. Accordingly, the trial court granted summary judgment as to the class action’s express warranty claim, id. As to the misrepresentation and negligence claims, the class action alleged that “through defendants’ concerted activities they incorrectly convinced that entire medical community of the effectiveness of off label uses.” Id. However the evidence presented demonstrated that “some of the class members have suffered no injury” because they “received a medical benefit” from the off-label use of Neurontin, id. The court therefore granted summary judgment “as to those class members who benefited from prescribed off label uses of Neurontin,” but denied the motion as to class members who received no benefit from off label uses. Id., at 4-5.

Continue reading "Pfizer Class Action Defense Cases–Clark v. Pfizer: Pennsylvania State Trial Court Grants Summary Judgment As To Certain Class Action Claims And Decertifies Litigation As Class Action" »

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

Though District Court Initially Granted Class Action Treatment in Class Action Challenging Microsoft’s Marketing of “Vista Capable” PCs, Motion to Decertify Class Action Granted because Plaintiffs could not Establish Causation Element on a Class-Wide Basis Washington Federal Court Holds

Plaintiffs filed a putative nationwide class action against Microsoft alleging inter alia violations of Washington’s Consumer Protection Act or similar state consumer protection statutes and for unjust enrichment; the class action complaint “challenge[d] various aspects of Microsoft’s marketing of its Windows Vista…operating system.” Kelley v. Microsoft Corp., ___ F.Supp.2d ___ (W.D. Wash. February 18, 2009) [Slip Opn., at 2-3]. According to the allegations underlying the class action, nearly a year before releasing Vista, Microsoft authorized PC manufacturers to place stickers on their computers indicating that they were “Windows Vista Capable”; the class action complained that “a large number” of these computers were in fact capable of operating only the “Basic” version of Vista, not the Premium, Business or Ultimate versions of Vista. Id., at 2. The class action additionally alleged that Microsoft’s “Express Upgrade Guarantee Program” permitted customers to upgrade from Windows XP only to Vista Basic, id. The gravamen of the class action complaint is that “Basic cannot fairly be called ‘The Real Vista.’” Id. Defense attorneys countered that “Basic provides customers with a number of benefits over XP and is part of the Vista line.” Id. The district court certified the litigation as a class action, and Microsoft subsequently moved to decertify the class and for summary judgment, id., at 1. The district court granted the motion to decertify the litigation as a class action but denied summary judgment.

The federal court began by noting that “a district court may revisit its decision to certify a class in order to address developments that arise during the course of litigation.” Kelley, at 4 (citations omitted). Indeed, “[a] court’s power to revisit certification is ‘a vital ingredient in the flexibility of courts to realize the full potential benefits from the judicious use of the class action device.’” Id., at 5 (citation omitted). Microsoft’s motion for class decertification centered on Rule 23(b)(3)’s predominance requirement, id. “Courts have recognized that consumer fraud cases may present unique considerations when determining predominance” and “courts have decertified classes when it becomes apparent that the predominance factor can no longer be satisfied.” Id. (citations omitted). Defense attorneys argued that plaintiffs cannot establish on a class-wide basis the “causation” element of the complaint’s consumer fraud claim. Id., at 8. The district court agreed.

Continue reading "Microsoft/Vista Class Action Defense Cases–Kelley v. Microsoft: Washington Federal Court Grants Microsoft Motion To Decertify Class Action Because Rule 23(b)(3)’s Predominance Requirement No Longer Met" »

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

District Court Erred in Dismissing Class Action Based on Arbitration Clause in Credit Card Agreement and Class Action Waiver in Arbitration Clause because New Jersey Law rather than Utah Law Applied and, under Facts Underlying Class Action Complaint, New Jersey would not Enforce Class Action Arbitration Waiver Third Circuit Holds

Plaintiff filed a class action against American Express and American Express Centurion Bank (collectively “Amex”) alleging violations of New Jersey’s Consumer Fraud Act; the class action complaint asserted that Amex misrepresented the terms of its “Blue Cash” credit card reward program, which allegedly promised customers up to 5% cash back on purchases made with the card. Homa v. American Express Co., ___ F.3d ___, 2009 WL 440912, *1 (3d Cir. February 24, 2009). According to the allegations underlying the class action, plaintiff (a New Jersey resident filing the putative class action on behalf of other New Jersey residents) was denied “failed to award him the promised amount of cash back in violation of the New Jersey Consumer Fraud Act.” Id. The credit card underlying the class action claims was subject to a cardholder agreement that required arbitration of any disputes and that included a class action waiver, requiring that any claim “be arbitrated on an individual basis ... [with] no right or authority for any Claims to be arbitrated [as] a class action.” Id. The Agreement included also a choice-of-law provision that stated Utah law governed any disputes, id. Defense attorneys moved to compel arbitration of the putative class action claims on individual basis; the defense argued in part that Utah law expressly permits class action arbitration waivers in consumer credit agreements. Id. Plaintiff opposed the motion on the ground New Jersey law would prohibit enforcement of the class action waiver and that application of Utah law to deny class action relief would violate New Jersey’s public policy. Id. The district court treated the motion as a motion to dismiss under Rule 12(b)(6) and granted the motion, dismissing the class action complaint with prejudice. Id. Plaintiff appealed and the Third Circuit reversed.

According to the Third Circuit, “This appeal raises important issues under state law. Nevertheless, we must first consider whether the Federal Arbitration Act (‘FAA’), 9 U.S.C. §§ 1-16, precludes this Court from applying state law unconscionability principles to void a class-arbitration waiver. We conclude that it does not.” Homa, at *1 (citing Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 687 (1996)). As part of that analysis, the Circuit Court determined whether Utah law or New Jersey law governed the dispute. Id., at *2-*3. The Court concluded that “the Supreme Court of New Jersey might well find that the application of Utah law allowing class-arbitration waivers in the context of a low-value consumer credit suit violates a fundamental policy of New Jersey.” Id., at *3 (footnote omitted). But the Third Circuit found also that it must first address whether “the FAA and this Court's decision in Gay v. CreditInform, 511 F.3d 369 (3d Cir. 2007), preclude us from applying New Jersey unconscionability principles to a class-arbitration waiver.” Id. Based on its analysis of the FAA, id., at *3-*5, the Circuit Court held that its prior decision in Gay does not preclude the Court from relying on New Jersey law to invalidate the class action arbitration waiver, id., at *5. And the Court further concluded that if New Jersey law governed the dispute then the district court erred in granting the motion to dismiss the class action because “the class-arbitration waiver violates fundamental New Jersey public policy as applied to small-sum cases,” id., at *6. So the critical issue was whether Utah law or New Jersey law applied.

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Posted In: Arbitration, Class Action Court Decisions