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Sprint Class Action Defense Cases–Hesse v. Sprint: Ninth Circuit Court Reverses Summary Judgment Dismissing Class Action Holding That Prior Nationwide Class Action Settlement Did Not Bar Present Class Action Complaint

Broad Release Language in Prior Nationwide Class Action Settlement did not Preclude Instant Class Action Lawsuits because Class Representative in Nationwide Class Action was not Adequate Representative of Instant Class and because Class Actions were not Premised on “Identical Factual Predicate” Ninth Circuit Holds

Plaintiffs filed separate putative class action lawsuits in Washington state court against Sprint alleging violations of the state’s Business & Occupation Tax (“B&O tax”) and Consumer Protection Act (“CPA”), as well as breach of contract and unjust enrichment; specifically, the class action complaints alleged that Sprint unlawfully passed the B&O tax on to consumers. Hesse v. Sprint Spectrum LP, 598 F.3d 581 (9th Cir. 2010) [Slip Opn., at 3845, 3849-50]. According to the allegations underlying the class action complaints, Sprint included “a separate line item labeled ‘Washington State B&O Tax Surcharge’” on customer invoices, id., at 3850; however, “Washington law specifies that the B&O tax must be collected from a business as part of its ‘operating overhead’ rather than imposed as a separate ‘tax[] upon purchasers or customers,” id., at 3849-50 (citation omitted). Defense attorneys removed the class actions to federal court, and the moved to dismiss the class action complaints. Id., at 3850. The district court granted the motion with respect to all class action claims “predicated on the B&O Tax Statute,” finding that the claims were preempted by the Federal Communications Act; however, the court otherwise denied the motion to dismiss. Id. Eventually, the class action complaints were consolidated, and the district court certified the litigation as a class action. Id. Sprint answered the class action complaint and then moved for summary judgment on the grounds that the claims were “barred by a [nationwide class action] settlement between Sprint and its customers approved by a Kansas state court in 2006” known as the Benny Settlement. Id. The district court granted the motion, concluding that the prior class action settlement barred the present lawsuit. Id., at 3849. The Ninth Circuit reversed.

The Circuit Court explained that the Benny Settlement resolved several class actions that had been filed “in various state courts and then dismissed and refilled in Kansas state court in 2005 for the purposes of settlement.” Hesse, at 3850. One of those class actions challenged Sprint’s practice of imposing surcharges to “recoup federal regulatory fees” – defined in the class action settlement agreement “to include only specified fees imposed to recover the cost of compliance with federally mandated programs” – in violation of consumer protection laws, and alleging breach of contract and unjust enrichment. Id., at 3850-51. Plaintiffs in the present class action did not dispute that they were members of the class covered by the Benny Settlement and that they did not opt out of that class, id., at 3851. The question was whether the instant class action claims were barred by the broad release language of the Benny Settlement.

The Ninth Circuit held that the Benny Settlement did not bar the instant class action claims for two reasons. First, it found that the class representative in Benny “was not an adequate representative for the claims asserted by the Washington Plaintiffs.” Hesse, at 3857. Benny was a Missouri resident, and therefore had no interest or incentive in compelling compliance with Washington’s B&O tax. Id. The Circuit Court further recognized a conflict of interest between Benny and the Washington plaintiffs in that Benny’s interest was “in settling his federal Regulatory Fees claims, even at the cost of a broad release of other claims he did not possess,” id., at 3858. The Ninth Circuit also held that the Benny Settlement did not act as a bar to the present class action because the present lawsuit was not “‘based on the identical factual predicate as that underlying the claims in the settled class action.’” Id., at 3860 (citation omitted). In this regard, the Circuit Court observed at page 3862, “It seems to us unlikely that a plaintiff class’s claims would ever be based on the identical factual predicate as the claims of a third party who did not adequately represent the class’s interests.” Accordingly, the Ninth Circuit reversed the district court order granting summary judgment and remanded the class action. Id., at 3862-63.

NOTE: The Ninth Circuit also reversed the district court order dismissing the class action’s B&O tax claims, holding that those claims were not preempted by the Federal Communications Act. See Hesse, at 3853.

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