Posted On: February 27, 2010 by Michael J. Hassen Email This Post

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Labor Law Class Action Filings Go Through The Roof -- Employment-Related Class Action Claims Maintain Hold On Top Spot Among Weekly Class Action Lawsuits Filed In California State And Federal Courts

To assist California class action defense attorneys anticipate the types of class actions against which they will have to defend in California courts, we provide weekly, unofficial summaries of the legal categories for new class action lawsuits filed in California state and federal courts in the Los Angeles, San Francisco, San Jose, Sacramento, San Diego, San Mateo, Oakland/Alameda and Orange County areas. We include only those categories that include 10% or more of the class action filings during the relevant timeframe. This report covers the time period from February 19 - 25, 2010, during which time an unusually high number of new class actions -- 65 -- were filed in these California state and federal courts. Labor law class actions generally top this list by a wide margin and often account for more than half of the total number of new class action lawsuits filed during any particular week, and this proved to be especially true for this past week. During this reporting period, 42 new labor law class actions were filed, representing 65% of the total number of new class actions filed. The only other category to break the 10% threshold involved class actions alleging violations of California's Unfair Competition Law (UCL), which includes false advertising claims, with 10 new class action lawsuits (15% of the new class actions filed during the reporting period).

Posted On: February 25, 2010 by Michael J. Hassen Email This Post

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NCAA Class Action Defense Cases–O’Bannon v. NCAA: California Federal Court Denies Motion To Dismiss Antitrust Class Action Holding Student Athlete Claims Adequately Pleaded Sherman Act Claim

Class Action Challenging NCAA Requirement that Student Athletes Allow NCAA to use Likeness, Without Compensation, Adequately Pleaded Antitrust Violations California Federal Court Holds

Two separate class action lawsuits, one by Edward O’Bannon and one by Craig Newsome, were filed against the National Collegiate Athletic Association (NCAA) and the Collegiate Licensing Company (CLC) alleging violations of the Sherman Act, as well as state law claims for unjust enrichment and accounting. O’Bannon v. National Collegiate Athletic Ass’n, ___ F.Supp.2d ___ (N.D.Cal. February 8, 2010) [Slip Opn., at 1]. The class actions were consolidated with other class actions containing similar claims. Id., at 4. According to the allegations underlying the class action complaints, plaintiffs competed as student athletes at their respective universities, and were at that time governed by the “rules and regulations of NCAA.” Id., at 2. The class actions alleged that the NCAA’s rules and regulations violate the Sherman Act because Form 08-3a, which the NCAA requires student athletes to sign, provides: “You authorize the NCAA [or a third party acting on behalf of the NCAA (e.g., host institution, conference, local organizing committee)] to use your name or picture to generally promote NCAA championships or other NCAA events, activities or programs.” Id., at 2-3. Moreover, NCAA Bylaw Article 12.5.1.1 authorizes the NCAA (and certain others) to “use a student-athlete's name, picture or appearance to support its charitable or educational activities or to support activities considered incidental to the student-athlete's participation in intercollegiate athletics,” id., at 3. This constitutes anticompetitive conduct, the class actions alleged, because the NCAA essentially “requires student athletes to ‘relinquish all rights in perpetuity to the commercial use of their images, including after they graduate and are no longer subject to NCAA regulations.’” Id. Plaintiffs alleged that they “[did not] consent to these agreements and that they [did] not receive compensation for the use of their images.” Id. Defense attorneys moved to dismiss the class actions; the district court found that the Newsome class action allegations were inadequate to state claims, but that the O’Bannon class action adequately alleged violations of the Sherman Act.

The district court began by analyzing the Sherman Act claims in the O’Bannon class action. See O’Bannon, at 5. The court concluded that each of the elements required to state a claim: specifically, the class action complaint adequately alleged an “agreement among Defendants and their purported co-conspirators,” id., at 6, an “unreasonable restraint of trade” under the “rule of reason,” id., at 7-11, and an impact on interstate commerce, id., at 11. Further, the claim was not time barred because the “continuing violation” doctrine tolled the statute of limitations. Id., at 11-12. O’Bannon also had standing to prosecute the class action claim, id., at 12-13, in part because his complaint alleges that “Defendants’ actions have deprived him of compensation for the use of images of himself from his collegiate career” and that his injury is “traceable to Defendants’ conduct, which includes, but is not limited to, NCAA’s rules and regulations,” id., at 13. The Newsome class action complaint, however, failed to state a claim under the Sherman Act because it failed to adequately allege an unreasonable restraint of trade. See id., at 13-14. Newsome’s fault was in filing a “truncated version of the O’Bannon [class action] complaint” that failed to adequately “plead a relevant market.” Id., at 14.

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Posted On: February 17, 2010 by Michael J. Hassen Email This Post

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FLSA Class Action Defense Cases–Robinson-Smith v. GEICO: D.C. Circuit Court Holds GEICO Properly Classified Auto Damage Adjusters As Exempt From Overtime Pay Under FLSA

District Court Erred in Granting Employee’s Motion for Summary Judgment in Class Action Alleging Failure to Pay Overtime under Federal Fair Labor Standards Act (FLSA) because Auto Damage Adjusters Exercise Sufficient Discretion and Independent Judgment to Fall Within FLSA’s Administrative Exemption District of Columbia Circuit Holds

Plaintiffs filed a putative class action against their employer, Government Employees Insurance Corporation (GEICO) alleging violations of the federal Fair Labor Standards Act (FLSA); specifically, the class action complaint alleged that defendant misclassified its automobile insurance policy damage adjusters as “exempt” and therefore failed to pay them overtime wages due under the FLSA. Robinson-Smith v. Government Employees Ins. Co., 590 F.3d 886, 887-88 (D.C. Cir. 2010). According to the allegations underlying the class action complaint, “GEICO employs at least three categories of personnel at varying levels of responsibility who may service a given automobile claim: the liability adjuster, the auto damage adjuster and the auto damage appraiser.” Id., at 888. The liability adjuster is at the “high” end of the responsibility scale, and the damage appraiser is at the “low” end of the responsibility scale. Id. “GEICO considers the former exempt as an administrative employee under the FLSA (and thus not entitled to overtime wages) but not the latter.” Id. The issue in this class action concerned the middle group of employees. The parties filed cross-motions for summary judgment on the issue of whether the damage adjusters were administrative employees exempt from overtime pay under the FLSA; the district court used the Department of Labor’s “short test” and “held that GEICO’s auto damage adjusters do not exercise ‘sufficient’ discretion and independent judgment to qualify for the exemption[.]” Id. Accordingly, the district court ruled in favor of plaintiffs, id. GEICO appealed – “arguing that the undisputed fact that the adjusters exercise ‘some discretion’ means that they are exempt from overtime pay as administrative employees under the FLSA” – and the District of Columbia Circuit reversed. Id.

The Circuit Court explained that a GEICO damage adjuster, on average, “handles more than 1,000 claims per year, totaling over $2.5 million.” Robinson-Smith, at 888. We do not here summarize the detail outlined in the court’s opinion concerning the job responsibilities of damage adjusters. Briefly, we note that while GEICO’s damage adjusters utilize software to assist them in estimating repair costs, they are also responsible for determining when to declare a vehicle a total loss. Id., at 888-89. Additionally, the adjuster “makes decisions that are not dictated by the software…, such as interviewing insureds about pre-existing damage, determining whether damage was caused by a covered event and recommending that payment be withheld on a claim if the damage did not result from a covered loss.” Id., at 889. Further, total loss determinations may account for 20-30% of an adjuster’s workload, and “can involve thousands of dollars in additional liability for GEICO.” Id. In fact, about 30% of the total loss claims involve further negotiation between the adjuster and the insured, and “the adjuster generally has full authority to settle a claim within his limits ($10,000 for a Level I adjuster or $15,000 for a Level II adjuster) if he can justify his decision within GEICO guidelines and based on his experience.” Id.

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Posted On: February 16, 2010 by Michael J. Hassen Email This Post

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Class Action Defense Arbitration Cases–Omstead v. Dell: Ninth Circuit Court Reinstates Class Action Complaint And Reverses District Court Order Compelling Arbitration Of Class Action Claims On Individual Basis

District Court Erred in Compelling Arbitration on Individual Basis of Class Action Claims because Texas Choice of Law Provision was Unenforceable and Class Action Waiver in Mandatory Arbitration Clause was Unenforceable under California law Ninth Circuit Holds

Plaintiffs filed a putative class action against Dell alleging product liability claims involving laptop computers; specifically, the class action complaint asserted various California state law claims “predicated on the allegation that Dell designed, manufactured, and sold defective notebook computers.” Omstead v. Dell, Inc., ___ F.3d ___ (9th Cir. February 5, 2010) [Slip Opn., at 2101, 2104-05]. According to the allegations underlying the class action complaint, plaintiffs had purchased notebook computers through Dell’s website, id., at 2105. As part of those purchases, “plaintiffs were required to accept a written agreement titled ‘U.S. Terms and Conditions of Sale’” (the “Agreement”). Id. In pertinent part, the Agreement stated that Texas law governed any dispute among the parties, and that any dispute between the customer and Dell “shall be resolved exclusively and finally by binding arbitration” and that the parties waived any right “to join or consolidate claims by or against other customers, or arbitrate any claim as a representative or class action,” id., at 2105-06. Defense attorneys moved to stay the class action and to compel arbitration of the plaintiffs’ individual claims based on an arbitration clause (which contained the class action waiver) in the Agreement. Id., at 2105, 2106. The district court granted the defense motion, id., at 2106. Plaintiffs, however, refused to comply with the arbitration order, so the district court dismissed the lawsuit based on plaintiffs’ failure to prosecute. Id., at 2105, 2106. Plaintiffs appealed the dismissal and the district court’s order compelling arbitration. Id., at 2105. The Ninth Circuit reversed.

Reviewing the district court order for an abuse of discretion, the Ninth Circuit first held that plaintiffs’ action should not have been dismissed for failure to prosecute the lawsuit. See Omstead, at 2107 et seq. Plaintiffs did not cause unreasonable delay of the lower court proceedings, id., at 2107-08, and they advised Dell and the district court of their interest in prosecuting the lawsuit as a class action and of their belief that the order compelling arbitration “was fatal to their action” and therefore requested “the district court to enter an order that would permit appellate review of the arbitration issue,” id., at 2108. In essence, the Circuit Court agreed with plaintiffs that the arbitration order placed them in an untenable position – prosecute the claims individually (which plaintiffs insisted that they lacked the financial means to do), or permit the court to dismiss the lawsuit and then pursue an appeal. Id., at 2108-09. The Ninth Circuit therefore exercised its discretion to treat the district court’s order of dismissal under Rule 41(b) as a voluntary dismissal with prejudice under Rule 41(a)(2), and turned to the merits of whether the class action claims should have been ordered to arbitration. Id., at 2109.

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Posted On: February 15, 2010 by Michael J. Hassen Email This Post

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Class Action Defense Cases–Sanchez v. Aerovias De Mexico: Ninth Circuit Court Affirms Dismissal Of Class Action Complaint Holding Class Action Claims Preempted By Airline Deregulation Act

District Court Properly Granted Summary Judgment in Favor of Defense in Class Action Arising from Mexican Airline Collection of Tourism Tax from Exempt Individuals because Airline Deregulation Act Preempted Class Action Claims Ninth Circuit Holds

Plaintiff filed a putative class action in California state court against Mexican airline Aerovias De Mexico alleging state law claims for breach of contract, breach of implied covenant and unjust enrichment claims; specifically, the class action complaint challenged a tourism tax collected by the airline for the Mexican government on the grounds that plaintiff was exempt from the tax. Sanchez v. Aerovias De Mexico, S.A. De C.V., 590 F.3d 1027, 1028 (9th Cir. 2010). According to the allegations underlying the class action, “Mexico levies a tourism tax [of approximately $22 per person]…on airline passengers traveling into Mexico on international flights.” Id. Individuals who are citizens or residents of Mexico are exempt from the tax, as are “diplomats, children under the age of two, and those staying in Mexico for less than twenty-four hours,” id. The class action alleged that plaintiff was exempt from the tax because even though she is “a citizen and resident of California,” she holds dual citizenship and is also a citizen of Mexico. Id. Plaintiff alleged that the airline “breached contractual obligations by improperly collecting the tax, and by failing to disclose that the tourism tax was not due from exempt passengers and that exempt passengers are entitled to a refund”; the class action complaint does not allege that plaintiff advised the airline that she was a Mexican citizen or that she requested a refund of the tax. Id. Defense attorneys removed the class action to federal court under the Class Action Fairness Act (CAFA), and then moved for summary judgment on the grounds that class action’s claims were preempted by the Airline Deregulation Act of 1978 (ADA). Id. The district court agreed, concluding that the allegations underlying the class action “relate[d] to the airline’s ‘price[s], route[s], or service[s],’” within the meaning of the statute, and that “Aeromexico had no contractual obligation to advise passengers about the tax or their right to a refund.” Id. In ruling on the motion, the district did not address plaintiff’s request under Rule 56(f) for a continuance in order to conduct discovery. Id., at 1028-29. Plaintiff appealed, and the Ninth Circuit affirmed.

The Circuit Court explained, [Plaintiff’s] principal argument is that no federal law preempts her state law claims based on breach of contract.” Sanchez, at 1029. Plaintiff’s theory is that “by purchasing a ticket, she and Aeromexico entered into a contract whereby Aeromexico became obliged not to collect a tax that was not due from exempt passengers.” Id. According to plaintiff, the ADA preemption clause does not “prevent the states from enforcing contracts between airlines and their passengers,” and that the tax is not part of the “price, route, or service of an air carrier” within the meaning of the statute because it is “a fee separate and apart from the fare for air transportation that has no economic effect on ‘price.’” Id. The Ninth Circuit disagreed, holding that “a state law or enforcement action is ‘related to’ a ‘price, route, or service’ if it ‘as a connection with or reference to’ a ‘price, route, or service,’” id., at 1030 (citation omitted). Plaintiff’s claim was preempted because “[t]he ticketed price included the tourism tax and other fees and surcharges.” Id. The Ninth Circuit then noted at page 1030, “The real question here is whether Aeromexico made a contractual commitment to advise passengers about the Mexico tourism tax, not to collect it from exempt passengers, and to refund that portion of the price attributable to the tax.” The Court found no evidence that defendant assumed such an obligation, id., at 1030-31. Accordingly, it affirmed the judgment of the district court. Id., at 1031.

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Posted On: February 13, 2010 by Michael J. Hassen Email This Post

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Surge In Bandwagon Product Defect Class Actions Against Toyota Insufficient To Unseat Employment-Related Class Actions From Top Spot Among Weekly Class Action Lawsuits Filed 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 relevant timeframe. This report covers the time period from February 5 - 11, 2010, during which time 50 new class action cases were filed in these California state and federal courts. While labor law class actions generally top this list by a wide margin and often account for more than half of the total number of new class action lawsuits filed during any particular week, this past week saw a flood of product defect class actions against Toyota. But even with the Toyota class actions, employment-related class action lawsuits maintained their grip on the top spot. During this reporting period, 24 new labor law class actions were filed, representing 48% of the total number of new class actions filed. The only other categories to break the 10% threshold involved class actions against Toyota for product defects, with 9 new class actions (16% of the new class actions filed during the reporting period), and class actions alleging violations of California's Unfair Competition Law (UCL), which includes false advertising claims, with 8 new class action lawsuits (16% of the new class actions filed during the reporting period).

Posted On: February 12, 2010 by Michael J. Hassen Email This Post

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Class Action Defense Cases–In re Kentucky Grilled Chicken: Judicial Panel On Multidistrict Litigation (MDL) Grants Defense Motion To Centralize Class Action Litigation In Northern District Of Illinois

Judicial Panel Grants Defendant’s Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. — 1407, Over Objection of Plaintiffs in All Four Affected Class Actions, and Transfers Class Actions to Northern District of Illinois for Pretrial Purposes

Four class actions –one each in the Northern and Central Districts of California, the Northern District of Illinois and the Eastern District of Michigan – were filed against KFC Corp. and Yum! Brands. In re Kentucky Grilled Chicken Coupon Marketing & Sales Prac. Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. December 4, 2009) [Slip Opn., at 1]. According to the allegations under the class actions, “one or both defendants reneged on a promotion for a new product line of grilled chicken at KFC establishments.” Id. 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 Northern District of Illinois. Id. Plaintiffs in each of the class actions opposed centralization but urged, if the Judicial Panel granted the motion, that the class action lawsuits be coordinated in the Central District of California. Id. The Judicial Panel granted the motion to centralize the class action lawsuits, rejecting plaintiffs’ argument that “alternatives to centralization, including informal coordination of discovery, are preferable, given that there are only four constituent actions and the issues are relatively straightforward.” Id. On the contrary, the Judicial Panel found that the class actions involved common fact questions and that centralization “will serve the convenience of the parties and witnesses and promote the just and efficient conduct of the litigation” in that it “will eliminate duplicative discovery, prevent inconsistent pretrial rulings (including with respect to class certification), and conserve the resources of the parties, their counsel and the judiciary.” Id. The Panel also concluded that the Northern District of Illinois was the appropriate transferee court as the first-filed class action was brought there and the Chief Judge presiding over that class action “has the time and experience to steer the litigation on a prudent course.” Id. Accordingly, the Panel transferred all class actions pending outside of Illinois to that district. Id., at 2.

Download PDF file of In re Kentucky Grilled Chicken Coupon Marketing & Sales Practices Litigation Transfer Order

Posted On: February 11, 2010 by Michael J. Hassen Email This Post

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TILA Class Action Defense Cases–Lymburner v. U.S. Financial: California Federal Court Grants Class Action Treatment To TILA/UCL Class Action Complaint Holding Requirements Of Rule 23 Satisfied

Class Action Complaint Alleging TILA Violations for Failing to Disclose “Key Terms” Associated with Negative Amortization/Option ARM Loan Satisfied Rule 23 Requirements for Class Action Certification California Federal Court Holds

Plaintiff filed a class action against U.S. Financial Funds, with whom she had refinanced her home loan, alleging violations of the federal Truth in Lending Act (TILA) and asserting various California statutory and common law claims; specifically, the class action complaint challenged disclosures made by defendant “in connection with the terms of a residential mortgage product that was sold to Plaintiff.” Lymburner v. U.S. Financial Funds, Inc., ___ F.3d ___ (N.D.Cal. January 22, 2010) [Slip Opn., at __]. According to the allegations underlying the class action complaint, plaintiff refinanced her home loan in 2006, obtaining an Option ARM loan. Id., at 1-2. The initial payments due on the loan reflected a “substantially discounted initial interest rate,” and while the interest rate could adjust monthly, the minimum monthly payment was fixed for five years. Id., at 2. U.S. Financial served as plaintiff’s mortgage broker and originated the loan, id. The loan documents disclosed the maximum interest rate that would be charged, as well as the maximum “unpaid principal that might result from negative amortization.” Id. The class action complaint alleged that just before her retirement in October 2006, defendant contacted her and advised that it could reduce her monthly mortgage payment to $700; plaintiff agreed to the loan without realizing that the principal amount owing on the loan could increase. Id. (The loan documents inflated plaintiff’s income; she initialed this page of the loan application and asserted that “the higher numbers did not strike her as being incorrect.” Id.) When plaintiff received her first bill and discovered the 9% interest rate and negative amortization, she tried to refinance the loan and made two mortgage payments before successfully refinancing her loan in April 2007. Id., at 2-3. The class action alleged that the failure to disclose “the key terms of the loan” violated TILA and constituted fraud under California’s Unfair Competition Law (UCL). Id., at 3. Plaintiff’s counsel moved to certify the litigation as a class action. Id., at 1, 3. The district court initially indicated that it planned to grant class action treatment, but ordered the parties to meet and confer concerning the proposed definition of the class because the court believed it to be inadequate. Id., at 1. Based on a joint letter proposing a new definition of the class, the federal court granted the motion for class action certification. Id.

The district court began by analyzing the adequacy of the proposed definition of the class, which focused on whether the loan documents disclosed that the interest rate “may” change (instead of “will” change), and that negative amortization “may” result (instead of “will” result). See Lymburner, at 4-5. The court held that the proposed class is ascertainable, particularly given that defendant used only one set of loan documents. Id., at 5. The federal court concluded at page 5 that “class membership can be ascertained by looking at the documents, particularly in light of the joint revised class definition.” The numerosity test in Rule 23(a)(1) for class action certification was met because the class contained at least 100 members, id., at 5. The district court also rejected defense challenges to the commonalty test in Rule 23(a)(2) because plaintiff’s class action was not premised on any representations made to her orally but, rather, on the disclosures contained in the written loan documents. Id., at 5-6. And the court rejected defendant’s claim that plaintiff’s claims were not “typical” as required by Rule 23(a)(3) because of differences in the remedies available to class members. Id., at 6-7. “Plaintiff’s claims are based on loans issued by Defendant allegedly without proper disclosures.” Id., at 7. Further, there was no evidence that defendant treated plaintiff differently or that her loan documents were materially different from those of other class members. Id. Accordingly, the typicality requirement was satisfied. Id. Finally, the court held that plaintiff satisfied the adequacy of representation test of Rule 23(a)(4). See id., at 7-8.

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Posted On: February 10, 2010 by Michael J. Hassen Email This Post

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CAFA Class Action Defense Cases–Cunningham Charter v. Learjet: Seventh Circuit Court Holds Class Action Removed To Federal Court Under CAFA Remains In Federal Court Following Denial Of Class Action Certification

In Case Removed to Federal Court under Class Action Fairness Act (CAFA), District Court Erred in Remanding Class Action Complaint to State Court Following Denial of Class Action Treatment because Jurisdiction is Generally Determined at Time Complaint is Filed and Class Action Allegations were not Frivolous Seventh Circuit Holds

Plaintiff filed a putative class action in Illinois state court against Learjet alleging breach of warranty and product liability claims; the class action complaint sought to represent all purchasers of Learjets “who had received the same warranty from the manufacturer that [plaintiff] had received.” Cunningham Charter Corp. v. Learjet, Inc., 592 F.3d 805 (7th Cir. 2010) [Slip Opn., at 1]. Defense attorneys removed the class action to federal court under CAFA (the Class Action Fairness Act of 2005), id., at 1-2. Plaintiff then moved the district court to certify two classes, but the court denied class action treatment “on the ground that neither proposed class satisfied the criteria for certification set forth in Rule 23.” Id., at 2. The federal court then ruled that the denial of the class action certification motion removed federal court jurisdiction under CAFA and remanded the complaint to state court. Id. Defendant petitioned the Seventh Circuit for leave to appeal the remand order; the Circuit Court granted the petition “to resolve an issue under the Class Action Fairness Act that this court has not heretofore had to resolve.” Id. The Circuit Court reversed.

The Seventh Circuit explained that CAFA creates federal court diversity jurisdiction in cases of minimal diversity; that is, “over certain class actions in which at least one member of the class is a citizen of a different state from any defendant (that is, in which diversity may not be complete).” Learjet, at 2. CAFA expressly applies “to any class action [within the Act’s scope] before or after the entry of a class certification order.” Id. (quoting § 1332(d)(8)). The Circuit Court explained that CAFA implies an “expectation” of class certification in that a district court should remand a putative class action to state court if “it would have been certain from the outset of the litigation that no class could be certified.” Id., at 3. On the other hand, “jurisdiction attaches when a suit is filed as a class action, and that invariably precedes certification.” Id. The Circuit Court concluded, therefore, “All that section 1332(d)(1)(C) means is that a suit filed as a class action cannot be maintained as one without an order certifying the class. That needn’t imply that unless the class is certified the court loses jurisdiction of the case.” Id.

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Posted On: February 9, 2010 by Michael J. Hassen Email This Post

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HELOC Class Action Defense Cases–Yakas v. Chase: California Federal Court Denies Defense Motion To Dismiss Class Action Holding Class Action Complaint Adequately Alleged Breach Of Contract And Unjust Enrichment

Class Action Claim that Chase Breached Home Equity Line of Credit (HELOC) Agreement by Freezing Account based on Estimated Property Value Established by “Automated Valuation Model” Survived Defense Motion to Dismiss, as did Class Action Claim for Unjust Enrichment based on Chase Charging Customer an Annual Fee for a HELOC that the Customer could no longer Draw Against California Federal Court Holds

Plaintiff filed a putative class action against Chase Manhattan Bank, with whom she had a home equity line of credit (HELOC), alleging breach of contract and unjust enrichment. Yakas v. Chase Manhattan Bank, U.S.A., N.A., ___ F.Supp.2d ___ (N.D.Cal. January 25, 2010) [Slip Opn., at 1]. According to the allegations underlying the class action complaint, plaintiff obtained the HELOC from Chase in April 2004; at that time, plaintiff’s property appraised for $718,000, and she obtained a $71,750 line of credit. Id., at 2. The agreement allowed Chase to reduce or freeze the line of credit if “[t]he value of the Property declines significantly below its original appraised value for purposes of this Credit Account,” the agreement failed to define “significantly” or to describe the manner in which subsequent property valuations would be made. Id. The agreement further required plaintiff to pay a “non-refundable annual fee” during the “Draw Period,” but failed to define the “Draw Period” and the parties disputed the meaning of the term. Id. In any event, plaintiff paid the annual fee each April through 2008, id. Finally, the Agreement provided that Delaware would govern any disputes between the parties, id., at 4. Chase froze plaintiff’s HELOC in December 2008, “stating that the valuation of plaintiff’s property no longer supported her line of credit.” Id., at 3. Chase based this determination on its use of an “Automated Valuation Model” (AVM), which estimated that the value of the Property had dropped to $674,000; in the district court’s words, “How the AVM model worked is a mystery on the present record.” Id. The following April, Chase again charged plaintiff an annual fee. Id. The thrust of plaintiff’s class action was that (1) Chase was required to obtain a valuation from a licensed appraiser in order to reduce or freeze HELOC agreements, rather than using the AVM, and (2) the AVM was unreliable. Id., at 3-4. Defense attorneys moved to dismiss the class action complaint. Id., at 1. The district court denied the motion.

The district court began with the class action’s breach of contract claim. See Yakas, at 5. The class action complaint alleged that Chase violated the terms of the HELOC agreement in three ways. First, by “fail[ing] to obtain an appraisal by a licensed appraiser prior to suspending her line of credit,” as required by the “court of dealing” among the parties. Id. Defense attorneys countered that Chase “was not limited to any specific valuation method and that using an AVM was not a breach of the agreement.” Id., at 5-6. The district court held that the class action claim survived, explaining at page 6: “Though defendant’s arguments are plausible, they do not prove that plaintiff has failed to state a breach-of-contract claim. It may well be that a licensed appraiser was not required (without so holding), but that does not translate to an allowance of an AVM, much less a mystery AVM whose particulars are totally a secret.” Second, plaintiff alleged that the AVM was unreliable. Id., at 6. Again, at the pleading stage, the district court found plaintiff’s allegations sufficient to survive defendant’s motion to dismiss, id., at 6-7. And third, that Chase should have prorated her 2008 annual fee once it suspended her account, and should not have billed another annual fee in April 2009 because she could no longer “draw” on her account. Id., at 7. Defendant countered that plaintiff’s argument was premised on a drafting error in the document, id., at 8. The federal court held that the defense arguments were “better suited for a motion for summary judgment or trial — not a motion to dismiss,” and that for pleading purposes the class action “alleged sufficient facts with regards to the annual fee to make her claim plausible.” Id.

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Posted On: February 8, 2010 by Michael J. Hassen Email This Post

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SLUSA Class Action Defense Cases–Demings v. Nationwide Life Insurance: Sixth Circuit Affirms Dismissal Of Class Action Complaint Holding That State-Actions Exception Did Not Apply

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

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

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

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Posted On: February 6, 2010 by Michael J. Hassen Email This Post

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New Labor Law Class Actions Again Hold Top Spot For Class Action Lawsuits Filed In California State And Federal Courts

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

Posted On: February 5, 2010 by Michael J. Hassen Email This Post

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Class Action Defense Cases–Dickson v. American Airlines: Texas Federal Court Dismisses Class Action Against Airline Finding Limitations Period Expired On Claims Under Montreal Convention

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

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

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

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Posted On: February 3, 2010 by Michael J. Hassen Email This Post

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

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

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

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

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Posted On: February 2, 2010 by Michael J. Hassen Email This Post

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

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

Plaintiff filed a putative class action in Florida federal court against Sprint Solutions and Sprint Spectrum for violations of Florida’s Deceptive and Unfair Trade Practices Act (FDUTPA) and for breach of contract and negligent misrepresentation; specifically, the class action complaint alleged that Sprint “charg[ed] improper roaming fees for calls placed within Sprint's coverage areas.” Pendergast v. Sprint Nextel Corp., 592 F.3d 1119, 2010 WL 6745, *1, *11 (11th Cir. 2010). The class action complaint improper prayed for monetary damages, as well as declaratory and injunctive relief, and estimated plaintiff’s individual damages to be $20.00. Id. Defense attorneys moved to compel arbitration of plaintiff’s claims on an individual basis, seeking to enforce a mandatory arbitration clause and class action waiver in the Terms and Conditions of plaintiff’s service agreement. Id. The district court granted Sprint’s motion, concluding that under Florida law the arbitration clause and class action waiver were valid, and ordered plaintiff to pursue arbitration of his individual claim, id. Plaintiff appealed; he did not contest the arbitration clause itself but, rather, challenged the class action waiver as procedurally and substantively unconscionable. Id. Further, “because Plaintiff's contract provides the arbitration and class action waiver clauses are not severable, Plaintiff claims the arbitration clause fails because the class action waiver is unenforceable.” Id. The Eleventh Circuit expressed doubt as to the correct application of state law in this case because of a conflict among decisions in the Florida intermediate appellate courts. Accordingly, the Circuit Court, at page *22, certified the following questions to the Florida Supreme Court:

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

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

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

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

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Posted On: February 1, 2010 by Michael J. Hassen Email This Post

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

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

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

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

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