Class Action Defense Blog

Class Action Complaint Alleging Homebuilder Inflated Purchase Price of New Homes and Loaned Money to High Foreclosure Risk Purchasers Failed to Adequately Allege Damages so Plaintiff Lacked Standing to Prosecute Class Action Claims California Federal Court Holds

Plaintiff filed a putative class action against various Pulte Home entities arising out of her purchase from Pulte of a newly-constructed single-family residence; the class action complaint alleged that Pulte – which both manufactures homes and provides financing for their purchase – induced plaintiff to obtaining financing through Pulte by “provid[ing] significant financial incentives” to her and others, without disclosing that they would not otherwise qualify for a home loan and were at high risk of foreclosure. Kaing v. Pulte Homes, Inc., ___ F.3d ___ (N.D.Cal. February 18, 2010) [Slip Opn., at 1-3]. According to the allegations underlying the class action complaint, plaintiff was told she would receive a $75,000 reduction from the home’s $575,000 sales price if she financed through Pulte, and that she would not receive this discount if she went to a different lender, id., at 3. The class action alleges that “Pulte knew from appraisals on other homes in the subdivision, that the house was worth less than $500,000” but that the Pulte-selected appraiser “inflated” the value to $518,000 – proving it was not worth $575,000 and that the $575,000 sales price plus $75,000 discount were “phony numbers from the start.” Id. Plaintiff ultimately paid $518,000 for the home, and financed the purchase with Pulte, but that “she ‘would not have and could not have qualified for her loan’ if she had been working with a ‘lender acting in good faith in an arms-length transaction.’” Id. The class action complaint alleged violations of California’s Unfair Competition Law (UCL) and Consumers Legal Remedies Act (CLRA), as well as negligent misrepresentation and breach of an implied covenant of good faith and fair dealing. Id., at 5. Defense attorneys moved to dismiss the class action complaint for lack of standing, id., at 1. The district court granted the motion.

In ruling on the motion to dismiss, the district court observed that while plaintiff had alleged monthly income of “less than $3500,” she “has not indicated that she has been unable to make her regular payments on the mortgage, nor does she allege that she has been harmed by any of the terms in the loan documents to which she is a party.” Kaing, at 3-4. Rather, the thrust of her class action complaint was that Pulte had failed to “provide Plaintiff with any disclosure that Defendants had sold houses, and would sell houses in the future, to unqualified and high foreclosure-risk buyers” or that “they had sold houses, and planned to sell houses in the future, to investors who would not occupy the houses or to owners who were not financially qualified.” Id., at 4. In essence, the complaint alleged that Pulte’s “questionable loan practices” increased the risk of foreclosure which, in turn, “had a ‘devastating’ impact on the value and desirability of the neighborhoods.” Id. Plaintiff alleges “her home decreased in value by over 50%.” Id., at 5.

Continue reading "UCL Class Action Defense Cases–Kaing v. Pulte Homes: California Federal Court Dismisses UCL/CLRA Class Action Holding Plaintiff Lacked Standing For Failing To Adequately Allege Damages" »

Posted In: Class Action Court Decisions

Class Action Complaint Against Halliburton Alleging Violations of Securities Laws did not Apply Wrong Legal Standard in Ruling on Class Action Certification Motion and Properly Denied Class Action Treatment because Plaintiff Failed to Establish Causation Seventh Circuit Holds

Plaintiff filed a putative class action against Halliburton and David Lesar (its COO and then CEO during the class period alleging violations of various federal securities laws; specifically, the class action complaint alleged that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as well as Rule 10(b)-5. The Archdiocese of Milwaukee Supporting Fund, Inc. v. Halliburton Co., ___ F.3d ___, 2010 WL 481407, *1 (5th Cir. February 12, 2010). According to the allegations underlying the class action complaint, defendant was liable for securities fraud violations under a “fraud-on-the-market” theory, alleging that false statements had been made concerning “(1) Halliburton's potential liability in asbestos litigation, (2) Halliburton's accounting of revenue in its engineering and construction business, and (3) the benefits to Halliburton of a merger with Dresser Industries.” Id. Plaintiff moved the district court to certify the litigation as a class action; defense attorneys opposed class action treatment. Id. The district court denied the motion, holding that the Rule 23’s requirements for certification of a class action had not been met. Id. Specifically, in order to obtain class certification “Plaintiff was required to prove loss causation, i.e., that the corrected truth of the former falsehoods actually caused the stock price to fall and resulted in the losses.” Id. The district court denied certification because it found that plaintiff had failed to establish the necessary “causal relationship,” id. The Fifth Circuit affirmed.

Plaintiff argued on appeal “that the district court applied an erroneous standard for loss causation and required it to prove more than is required under law.” Halliburton, at *1. The Circuit Court disagreed. The Court explained,

In the case of a putative class, a plaintiff may create a rebuttable presumption of reliance under the fraud-on-the-market theory by showing “that (1) the defendant made public material misrepresentations, (2) the defendant's shares were traded in an efficient market, and (3) the plaintiffs traded shares between the time the misrepresentations were made and the time the truth was revealed.”… A defendant may rebut the presumption “by ‘[a]ny showing that severs the link between the alleged misrepresentation and either the price received (or paid) by the plaintiff, or his decision to trade at fair market price[.]’”

Continue reading "Class Action Defense Cases–Archdiocese v. Halliburton: Fifth Circuit Affirms Denial Of Class Action Certification In Securities Fraud Class Action Complaint Against Halliburton" »

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

District Court Erred in Denying Class Action Certification Motion in Class Action Alleging Violations of Hawaii’s Deceptive Practice Act because Hawaii Case Law Establishes that Individualized Reliance need not be Shown so Common Questions Predominated over Individual Questions Ninth Circuit Holds

Plaintiff filed a putative class action against Midland National Life Insurance Company alleging violations of Hawaii’s Deceptive Practices Act; specifically, the class action complaint alleged that the brochures prepared by Midland to market annuities to senior citizens violated Hawaii law. Yokoyama v. Midland National Life Ins. Co., ___ F.3d ___ (9th Cir. February 8, 2010) [Slip Opn., at 2127, 2130]. (Similar class actions had been filed against Midland, but this class action was exempted by the order of the Judicial Panel on Multidistrict Litigation which centralized the other class actions in the Central District of California “, because this action has been narrowly tailored to rely only on Hawaii law.” Id., at 2130-31.) Plaintiff moved the district court to certify the litigation as a class action; defense attorneys opposed class action treatment on the ground, inter alia, that plaintiff failed to establish the predominance and superiority requirements for a Rule 23(b)(3) class. Id., at 2131. “The district court denied class certification, holding that in order to succeed under the Hawaii Act, each plaintiff would have to show subjective, individualized reliance on deceptive practices within the circumstances of each plaintiff’s purchase of the annuity.” Id. (citing Yokoyama v. Midland Nat’l Life Ins. Co., 243 F.R.D. 400 (D. Haw. 2007)). Plaintiffs appealed the denial of class action certification, id. The Ninth Circuit reversed.

The Ninth Circuit began its analysis with the following observation: “The dispositive issue is…whether Hawaii’s Deceptive Practices Act requires a showing of individualized reliance.” Yokoyama, at 2131. The district court concluded that common issues did not predominate because of the individual inquiries inherent in determining reliance: “The district court refused to certify a class in this case because it determined that Hawaii’s consumer protection laws require individualized reliance showings. Believing that the plaintiffs’ claims would ‘require inspection of whether the class members individually relied on Midland’s misstatements,’ the district court concluded that class issues do not predominate over issues affecting individual members.” See id., at 2138. In so ruling, the district court misinterpreted Hawaii law. The Ninth Circuit explained that, under Hawaii law, individual proof of reliance was unnecessary. “The Hawaii Supreme Court has considered the issue of whether the statute requires actual, i.e., subjective reliance. It has said that the dispositive issue is whether the allegedly deceptive practice is “likely to mislead consumers acting reasonably under the circumstances.” [Citation.] “[A]ctual deception need not be shown, the capacity to deceive is sufficient.” [Citation.] This is an objective test, and therefore actual reliance need not be established. Accordingly, there is no reason to look at the circumstances of each individual purchase in this case, because the allegations of the complaint are narrowly focused on allegedly deceptive provisions of Midland’s own marketing brochures, and the fact-finder need only determine whether those brochures were capable of misleading a reasonable consumer.” Id., at 2131. See also, id., at 2136-38. More specifically, the Circuit Court explained, “These plaintiffs base their lawsuit only on what Midland did not disclose to them in its forms. The jury will not have to determine whether each plaintiff subjectively relied on the omissions, but will instead have to determine only whether those omissions were likely to deceive a reasonable person. This does not involve an individualized inquiry.” Id., at 2138-39. The Ninth Circuit held, therefore, that the district court abused its discretion in denying class action treatment because its decision was premised on a legal error. Id.

Continue reading "Class Action Defense Cases–Yokoyama v. Midland National Life: Ninth Circuit Reverses Denial Of Class Action Certification Holding Individualized Reliance Not Required Under Hawaii Deceptive Practices Act" »

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

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 In: Class Action Court Decisions

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 In: Employment Law Class Actions, Class Action Court Decisions

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 In: Arbitration, Class Action Court Decisions

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 In: Class Action Court Decisions

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.

Posted In: Multidistrict Litigation, Class Action Court Decisions

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.

Continue reading "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" »

Posted In: Class Action Fairness Act (CAFA), Class Action Court Decisions, RESPA/TILA Class Actions

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.

Continue reading "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" »

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

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.

Continue reading "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" »

Posted In: Class Action Court Decisions

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.

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

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.

Posted In: Class Action Court Decisions

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.

Continue reading "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" »

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

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?

Continue reading "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" »

Posted In: Arbitration, Class Action Court Decisions

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).

Continue reading "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" »

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

Judicial Panel Grants Defense Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C.§ 1407 and Selects Movant’s Alternative Transferee Forum Over Competing Request of Other Common Class Action Defendant

Twelve (12) class actions – three in Ohio, two in the Central and Northern Districts of California and one in the Southern District of California, and one in Illinois, Louisiana, Minnesota and Missouri – were filed against Apple and AT&T “arising from the advertising and marketing of multimedia message service (MMS) functionality of Apple’s iPhone 3G and 3GS supported by AT&T’s 3G network.” In re Apple iPhone 3G & 3GS “MMS” Marketing & Sales Prac. Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. December 3, 2009) [Slip Opn., at 1, 2]. According to the allegations under the class actions, “Apple and AT&T have engaged in deceptive marketing with respect to the availability of MMS functionality on the iPhone 3G and 3GS.” Id., at 2. Defense attorneys for AT&T 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 Ohio or the Eastern District of Louisiana. Id., at 1. Plaintiffs in the class actions pending in the Northern and Southern Districts of California supported consolidation but argued for transfer to the Northern District of California. Id. Plaintiffs in the other nine class actions supported centralization in the Eastern District of Louisiana (though at oral argument one of the Ohio class action plaintiffs requested centralization in Ohio). Id. Common defendant Apple also supported centralization in Ohio, id. The Judicial Panel granted the motion to centralize the class action lawsuits, finding that this “will eliminate duplicative discovery; prevent inconsistent pretrial rulings, particularly with respect to class certification issues; and conserve the resources of the parties, their counsel and the judiciary.” Id., at 2. The Panel also determined that the Eastern District of Louisiana was the appropriate transferee court because “[m]ost plaintiffs and the moving defendant, in the alternative, support centralization in this district” and the assignment will be “to an experienced transferee judge who is not currently presiding over another multidistrict litigation docket.” Id. Accordingly, the Panel transferred all class actions pending outside of Pennsylvania to that district.

Posted In: Multidistrict Litigation, Class Action Court Decisions

Class Action Complaint that was Non-Justiciable for Failure of Original Plaintiffs’ Claims was Properly Dismissed Following Addition of New Plaintiffs because Defense Tender of Full Payment Prior to Amendment Adding New Plaintiffs as Class Representatives Mooted their Claims Fifth Circuit Holds

Plaintiffs filed a putative class action against Fidelity National Financial and others “alleging that Ticor Title Insurance Company…had overcharged them to record documents related to their residential real estate closings and that the other Defendants were also liable under theories of vicarious liability.” Murray v. Fidelity Nat’l Financial, Inc., ___ F.3d ___, 2010 WL 143454, *1 (5th Cir. January 15, 2010). However, it turned out plaintiffs had not conducted business with Ticor Title but, rather, “had dealt with a third party that promoted itself as ‘Ticor Title of San Antonio,’ despite having no authority to act for any of the Defendants.” Id. Accordingly, plaintiffs moved the district court to amend their class action complaint to add two additional plaintiffs (the Murrays) as class representatives on the ground that the Murrays had conducted business with Defendant Chicago Title Insurance Group. Id. While that motion was pending, Chicago Title tendered the Murrays a check in full payment of their individual claim; the district court nonetheless granted plaintiffs’ motion and added the Murrays as named representatives for the putative class. Id. The new group of plaintiffs thereafter filed an amended class action complaint, id. Defense attorneys moved to dismiss the class action complaint on the ground that the Murrays’ claims had been rendered moot by Chicago Title’s tender; defendants moved also for summary judgment on the grounds that the original plaintiffs “failed to establish any case or controversy against any Defendant, because none of the Defendants handled Original Plaintiffs’ real estate transactions.” Id. The federal court granted the defense motions, id. The Murrays appealed the dismissal of their claims against Chicago Title, and the Fifth Circuit affirmed.

The Murrays argued that because Rule 15(a)(2) requires plaintiffs to inform defendants of the names of proposed class representatives, this “provides defendants the opportunity to ‘pick off’ would-be class representatives by tendering the amount claimed individually by the plaintiff, thereby effectively preventing the original plaintiffs from amending a complaint to add other plaintiffs who better represent the interests of the putative class.” Murray, at 1. Relying on its decision in Zeidman v. J. Ray McDermott & Co., 651 F.2d 1030 (5th Cir. 1981), the Circuit Court held that “As a general principle, a purported class action becomes moot when the personal claims of all named plaintiffs are satisfied and no class has been certified.” Murray, at 2 (citing Zeidman, at 1045). The Court observed at page *2, “In such a case there is no plaintiff (either named or unnamed) who can assert a justiciable claim against any defendant and consequently there is no longer a ‘case or controversy’ within the meaning of Article III of the Constitution.” Id. (citations omitted). And while the Fifth Circuit has “recognized a limited exception to this general principle” where a plaintiff’s claims have been “prematurely mooted” by the defendant. Id. (citations omitted). More specifically, the Circuit Court explained at page *2:

Foreshadowing the concerns raised by the Murrays, the [Zeidman] court noted “that in those cases in which it is financially feasible to pay off successive named plaintiffs, the defendants would have the option to preclude a viable class action from ever reaching the certification stage.” [Citation.] The court ultimately held “that a suit brought as a class action should not be dismissed for mootness upon tender to the named plaintiffs of their personal claims, at least when ... there is pending before the district court a timely filed and diligently pursued motion for class certification.” [Citation.]

Continue reading "Class Action Defense Cases–Murray v. Fidelity: Fifth Circuit Affirms Dismissal Of Class Action Complaint Holding Defense Tender Mooted New Plaintiffs’ Individual Claims" »

Posted In: Class Action Court Decisions

District Court Abused its Discretion in Denying OSC for Contempt against Absent Class Member who Filed Lawsuit against Party Released under Class Action Settlement because Class Member’s Individual Claims Fell Within Scope of Release in Class Action Settlement Agreement Eleventh Circuit Holds

In May 2003, a group of physicians filed a putative nationwide class action Blue Cross and Blue Shield Association, and its member plans, alleging conspiracy and aiding and abetting under the Racketeer Influenced and Corrupt Organizations Act (RICO); the class action complaint prayed for declaratory and injunctive relief, and sought monetary damages. Thomas v. Blue Cross & Blue Shield Ass'n, ___ F.3d ___, 2010 WL 174765, *1 (11th Cir. January 20, 2010). According to the allegations underlying the class action complaint, defendants had “engaged in a conspiracy to improperly deny, delay, and/or reduce payments to physicians, physician groups, and physician organizations by engaging in several types of allegedly improper conduct.” Id. The parties negotiated a class action settlement on behalf of a nationwide class, which eventually secured the approval of the district court. Id. The class action settlement required members of the class “release the Blue Cross plans from all claims arising out of or related to matters referenced in the class action and settlement agreement,” id., at *1-*2. Thus, as part of the class action settlement, “[t]he district court permanently enjoined the releasing parties from filing or prosecuting ‘any or all Released Claims against one or more Released Parties,’” and “expressly retained jurisdiction as to matters relating to the interpretation, administration, and consummation of the settlement agreement, and the enforcement of extant injunctions.” Id., at *2. In January 2008, plaintiff Dr. Robert Kolbusz, a physician at the Center for Dermatology and Skin Cancer, and the Center filed a lawsuit in Illinois against Health Care Service Corporation (the “Corporation”) for breach of contract, tortious interference with contractual relationships and prospective economic advantage, and defamation; in part, the Kolbusz complaint “alleged that the Corporation had made false statements to his patients regarding its reasons for refusing to pay for medical services that he had rendered.” Id. Under the class action settlement, Kolbusz is a releasing party and the Corporation is a released party; however, while Kolbusz was a member of the class, he failed to timely object to or opt out of the class action settlement. Id. The Corporation filed a motion with the district court alleging that the Kolbusz complaint violated the permanent injunction and sought an OSC for contempt against Kolbusz. Id., at *3. The district court concluded that the tortious interference and defamation claims were not barred by the class action settlement, but found that the breach of contract fell within the scope of the class action release and ordered Kolbusz to drop the claim within 20 days to avoid being held in contempt. Id. Both parties appealed. The Eleventh Circuit dismissed Kolbusz’s appeal for lack of jurisdiction “because the decision to afford Kolbusz 20 days to withdraw his claim of breach of contract is not a final or otherwise appealable order,” and reversed the district court’s determination that Kolbusz’s tort claims were not barred by the class action settlement. Id., at *1.

Continue reading "Class Action Defense Cases–Thomas v. Blue Cross: Eleventh Circuit Reverses Denial Of OSC For Contempt Against Absent Class Member Seeking To Prosecute Individual Claims Released As Part Of Class Action Settlement" »

Posted In: Class Action Court Decisions

District Court Erred in Dismissing Antitrust Class Action because Allegations in Class Action Complaint were Sufficient to “Plausibly Suggest” an Agreement Among Defendants in Violation of Sherman Act Second Circuit Holds

Several class actions were filed in various state and federal courts against numerous defendants, including Sony BMG Music Entertainment, EMI, Universal Music Group Recordings, Warner Music Group and others, alleging violations of Section 1 of the Sherman Act; specifically, the class action complaint alleged “a conspiracy by major record labels to fix the prices and terms under which [Digital Music] would be sold over the Internet.” Starr v. Sony BMG Music Entertainment, ___ F.3d ___ (2d Cir. January 13, 2010) [Slip Opn., at 2-3.] Ultimately, the Judicial Panel on Multidistrict Litigation centralized 28 class actions in the Southern District of New York, and plaintiffs eventually filed a Second Consolidated Amended Complaint that “brought claims under Section 1 of the Sherman Act and state antitrust and unfair and deceptive trade practices statutes. It also brought state common law claims for unjust enrichment.” Id., at 6-7. According to the allegations underlying the class action complaint, “Defendants produce, license and distribute music sold as digital files (‘Digital Music’) online via the Internet (‘Internet Music’) and on compact discs (‘CDs’),” and they together “control over 80% of Digital Music sold to end purchasers in the United States.” Id., at 3. Certain named defendants launched a service called “MusicNet”; others launched a service called “Duet” that was later renamed as “pressplay.” Id. The class action complaint alleged that “defendants signed distribution agreements with MusicNet or pressplay and sold music directly to consumers over the Internet through these ventures (the ‘joint ventures’),” and that “[b]oth the joint ventures and the Recording Industry Association of America (‘RIAA’) provided a forum and means through which defendants could communicate about pricing, terms, and use restrictions.” Id. Moreover, “[t]o obtain Internet Music from all major record labels, a consumer initially would have had to subscribe to both MusicNet and pressplay, at a cost of approximately $240 per year,” and “[b]oth services required consumers to agree to unpopular Digital Rights Management terms (‘DRMs’).” Id. Defense attorneys moved to dismiss the class action complaint for failure to meet the pleading requirements enunciated in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). Starr, at 3, 7. The district court granted the motion, id., at 7. The Second Circuit reversed, concluding that the non-conclusory allegations in the class action complaint were adequate to survive the defense motion to dismiss. Id., at 2.

The Circuit Court summarized the basis of the class action’s claims at page 4 as follows: “For example, pressplay prohibited consumers from copying more than two songs from any particular artist onto a CD each month. Music purchased from MusicNet and pressplay would often ‘expire’ unless repurchased: A MusicNet consumer would need to repurchase music each year and a pressplay consumer who unsubscribed would immediately lose access to all of the music he or she had purchased. MusicNet and pressplay also did not allow consumers to transfer songs from their computers to portable digital music players like the iPod. One industry commentator observed that MusicNet and pressplay did not offer reasonable prices, and one prominent computer industry magazine concluded that ‘nobody in their right mind will want to use’ these services. [Citation.]” The class action complaint also alleged that “dramatic cost reductions” realized by the individual defendants were not passed on to consumers “as would be expected in a competitive market.” Starr, at 4. Moreover, defendants allegedly entered into “Most Favored Nation clauses (‘MFNs’) in their licenses that had the effect of guaranteeing that the licensor who signed the clause received terms no less favorable than the terms offered to other licensors.” Id., at 5. Defendants allegedly hid these agreements “because they knew they would attract antitrust scrutiny.” Id. At bottom, the class action alleged “that defendants engaged in a continuing conspiracy to ‘restrain the availability and distribution of Internet Music, fix and maintain at artificially high and non-competitive levels the prices at which they sold Internet Music and impose unreasonably restrictive terms in the purchase and use of Internet Music’” and that plaintiffs “were injured by paying more for Internet Music and CDs than they would have in the absence of an illegal agreement.” Id., at 6.

Continue reading "Class Action Defense Cases–Starr v. Sony BMG: Second Circuit Reverses Dismissal Of Antitrust Class Action Holding Class Action Complaint’s Allegations Satisfied Twombly" »

Posted In: Class Action Court Decisions

Class Action Complaint Challenging Microsoft’s “Windows Genuine Advantage” Software could be Amended to Withdraw Class Action Allegations Provided Plaintiffs Dismiss All Class Claims and Provided Plaintiffs Reimburse Microsoft the Attorney Fees Reasonably Incurred in Opposing Plaintiffs’ Class Action Certification Motion before Plaintiffs Voluntarily Withdrew that Motion Washington Federal Court Holds

In April 2009, plaintiffs filed a putative class action against Microsoft in Washington federal court alleging, in the second amended class action complaint, “claims for unjust enrichment, breach of End User License Agreement (‘EULA’) contracts, violation of Washington’s Consumer Protection Act, and trespass to chattels, nuisance and interference with property” arising out of “Microsoft’s distribution of Windows Genuine Advantage (‘WGA’) software.” Johnson v. Microsoft Corp., ___ F.Supp. 2d ___ (W.D.Wash. January 15, 2010) [Slip Opn., at 1-2.] In September 2008, plaintiffs filed a motion requesting that the district court certify the litigation as a class action; however, in November 2009, plaintiffs withdrew their class action certification motion and “indicated an intent to withdraw class allegations.” Id., at 2. Plaintiffs thereafter moved to file a third amended class action complaint “that would eliminate most (but not all) class allegations, add a new cause of action and related allegations, and specify injunctive relief sought.” Id. Defense attorneys opposed the motion with one exception: Microsoft did not oppose the motion to the extent it sought to withdraw class action claims, provided that plaintiffs did not seek to “re-inject them at a later point in the proceeding.” Id. In addition, defense attorneys requested permission “to file a fee petition for the expenses incurred as a result of defending against Plaintiffs’ class-certification motion,” id. The district court granted the motion in part and denied the motion in part.

The district court began by noting the well-settled rule that leave to amend is “generally allowed absent bad faith, undue delay, futility, or prejudice to the opposing party.” Johnson, at 2 (citing Eminence Capital, L.L.C. v. Aspeon, Inc., 316 F.3d 1048, 1051-52 (9th Cir. 2003)). Nonetheless, the federal court denied plaintiffs’ request to add claims (and allegations in support of claims) for fraudulent misrepresentation, negligent misrepresentation and fraudulent concealment because defense attorneys opposed these amendments and plaintiffs agreed to withdraw them. Id., at 2-3. Similarly, Microsoft opposed plaintiffs’ request to seek additional forms of injunctive relief, and plaintiffs agreed to withdraw those proposed amendments. Id., at 3. Accordingly, the district court denied that portion of plaintiffs’ motion, id. For our purposes, the most important aspect of the district court’s order concerns the class action allegations, to which we now turn.

Continue reading "Microsoft WGA Class Action Defense Cases–Johnson v. Microsoft: Washington Federal Court Dismisses All Class Action Allegations In Class Action Complaint And Requires Plaintiffs Pay Defense Fees Incurred Opposing Withdrawn Class Certification Motion" »

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

Class Action Alleging Violations of California’s Unfair Competition Law (UCL) Properly Dismissed because Plaintiff Lacked Standing to Prosecute Class Action Claim California Appellate Court Holds

Plaintiff, the owner and operator of an auto body repair shop, filed a putative class action on behalf of California auto body repair shops against automobile insurers Allstate Insurance and Progressive Casualty Insurance California auto body repair shops for violations of California’s Unfair Competition Law (UCL) and the Cartwright Act, and for unjust enrichment, on the ground that the insurers paid class members “based on rates that were allegedly below their ‘actual repair rate.’” Webster v. Allstate Ins. Co., Case No. B211390 (Cal.App. January 11, 2010) [Slip Opn., at 1-2.] According to the allegations underlying the class action complaint, the insurers “unlawfully and unfairly steer customers away from plaintiff's business and towards direct repair providers (DRPs) who have a contractual relationship with defendants.” Id., at 2. The class action further alleged that defendants paid class members “‘artificially low’ rates for auto body work,” based on “unlawful and unfair surveys of body shop rates that include rates charged by DRPs who provide volume discounts to defendants.” Id. Defense attorneys moved to dismiss the class action complaint; the trial court granted the motion, holding that plaintiff lacked standing to pursue the class action’s UCL claim for injunctive relief. Id. Plaintiff appealed. The Court of Appeal, in an unpublished opinion, affirmed that plaintiff lacked standing to prosecute the UCL claim and held that “plaintiff failed to allege unlawful or unfair conduct within the meaning of the statute.” Id. It further affirmed the dismissal of the class action’s unjust enrichment and Cartwright Act claims and, accordingly, affirmed.

The Court of Appeal explained that the class action sought “an injunction prohibiting defendants from using negotiated rates in their surveys to determine the prevailing auto body rate in a geographic area, treble damages for violations of the Cartwright Act, attorney fees, interest and costs,” and prayed additionally for “disgorgement of all benefits wrongfully taken from plaintiff and the class in an amount that defendants have been unjustly enriched.” Webster, at 4. Plaintiff conceded, however, that he could recover restitution under the class action’s UCL claim, id. “The purpose of the UCL is to protect consumers and competitors from unfair competition in commercial markets for goods and services.” Id., at 4-5 (citation omitted). Plaintiff is neither a consumer nor a competitor of defendants, but argued “he has standing to pursue a UCL cause of action even though he is not eligible for restitution,” and that defendants “engaged in both unlawful and unfair business practices.” Id., at 5. The appellate court rejected both claims.

Continue reading "UCL Class Action Defense Cases–Webster v. Allstate: California Appellate Court Affirms Dismissal Of UCL Class Action Complaint Holding Plaintiff Lacked Standing And Conduct Not Violative Of UCL" »

Posted In: Class Action Court Decisions

Repeated Failure of Mass Action Plaintiffs to Respond to Discovery Questionnaires from Defense Attorneys Warranted Dismissal of those Plaintiffs with Prejudice District of Columbia Federal Court Holds

Plaintiffs, “citizens and domiciliaries of Ecuador,” filed a mass action complaint against various defendants “alleging physical harm and property damage stemming from the defendants’ contract with the United States government to spray pesticides in order to eradicate Colombian cocaine and heroin farms.” Arias v. DynCorp Aerospace Operations, LLC, ___ F.Supp.2d ___ (D.D.C. January 12, 2010) [Slip Opn., at 1.] Defense attorneys served questionnaires on the class members, seeking specific information related to the claims; some individuals failed to respond at all. Other plaintiffs, however, provided incomplete responses and repeatedly failed to do so. The parties jointly moved to dismiss from the litigation 425 plaintiffs who fell within two categories: “(1) plaintiffs who have provided sufficient information about the alleged date(s) of their exposure to the defendants’ spray but who did not disclose sufficient information about their location at the time of their exposure; and (2) plaintiffs who did not provide sufficient information about their alleged damages.” Id., at 1-2. Plaintiffs’ counsel argued that the dismissal should be without prejudice; defense attorneys urged the district court to dismiss the plaintiffs’ claims with prejudice. Id., at 1, 2. The district court granted the motion and dismissed the plaintiffs with prejudice.

Defense attorneys argued that the plaintiffs falling within the two groups at issue should be dismissed with prejudice because they “have been ‘given several chances to provide the information ordered by the Court but [have] failed to do so.’” Arias, at 2. Plaintiffs’ counsel disagreed, arguing that the plaintiffs “provided sufficient information regarding either exposure location or damages.” Id., at 2-3. After summarizing the rules governing dismissals under Federal Rules of Civil Procedure 37 and 41, see id., at 3-4, the district court summarized the history of the discovery requests and the various court orders violated by plaintiffs, see id., at 4-5. The federal court explained at page 5, “It has been over two years since the plaintiffs were first directed to complete the defendants’ questionnaires. Multiple orders have directed the plaintiffs to respond in full to the questionnaires, and the plaintiffs received three extensions of time in which to do so.” Plaintiffs’ counsel argued that the information provided, while incomplete, was adequate to allow defendants to “draw their own conclusions” as to the plaintiffs’ claims. Id., at 6. The district court disagreed: “The plaintiffs essentially are asking the defendants to draw conclusions based on incomplete information. If a plaintiff meant “my farm” rather than “the farm,” that plaintiff simply should have stated so in his questionnaire. Despite the plaintiffs’ ample opportunity to fill in the information gaps, they now turn to the defendants to do this work for them. This, however, is not the defendants’ duty.” Id.

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Posted In: Class Action Court Decisions

Class Action Settlement Approved by Trial Court Warranted Reversal because Notice to Absent Class Members was not Best Practicable under the Circumstances Ohio Appellate Court Holds

In August 2004, plaintiff filed a putative class action in Ohio state court against Carfax and Center for Auto Safety alleging violations of Ohio’s Consumer Sales Practices Act (as well as common law claims) based on the central allegation that Carfax failed to advise consumers that its reports “did not contain all information regarding vehicles’ histories.” West v. Carfax, Inc., 2009-Ohio-6857, 2, ¶2 (Ohio App. December 24, 2009). (Around the same time, nine other class actions were filed against Carfax in seven other states. Id.) Two years later, in September 2006, plaintiff and Carfax entered into a proposed class action settlement; the trial court gave preliminary approval to the class action settlement the following month. Id., at 2, ¶3. The court order “gave preliminary approval to the proposed settlement, certified a class, appointed [plaintiff] the class representative, and ordered that class members be notified of the proposed settlement in the manner specified therein.” Id. Several objections were filed to the proposed class action settlement, including objections by a group of class members who sought received leave to intervene, and objections by co-defendant Center for Auto Safety. Id., at 3, ¶4. The fairness hearing concluded with the trial court ordering further settlement negotiations, id. A revised class action settlement was reached, which the trial court approved after rejecting objections to the settlement and denying a request to compel discovery. Id., at ¶¶5-6. A group of objectors appealed the trial court’s order, supported by an amicus brief filed by the State of Ohio. Id., at ¶6. The Ohio Court of Appeals reversed.

Appellants advanced three challenges to the class action settlement: (1) that the notice procedure failed to “take reasonable steps to provide individual notice to all class members”; (2) that the trial court failed to require disclosure of “the likely redemption rate, and, in particular, information about the number of claims made”; and (3) that the trial court erred in denying their motion to compel discovery as to claims information. West, at 3-4, ¶¶ 8-10. The appellate court first addressed whether the trial court abused its discretion in approving the notice procedures at issue, see id., at 4, ¶ 11. The Court explained that due process requires only that “individual notice be given all class members ‘who are identifiable through reasonable effort’” and that it be the “‘best notice practicable.’” Id., at 5, ¶13 (citations omitted). “In this case, the class consisted of all persons purchasing a Carfax Vehicle History Report directly from Carfax in the United States prior to the date the trial court gave its preliminary approval to the settlement agreement: i.e., October 27, 2006. This class may include people extending as far back as 1996.” Id., at ¶15. The settlement approved by the court required “(1) individual email notice to email addresses of purchasers in the Carfax database extending back to October 27, 2003; and, (2) publication, one time each, in Investor’s Business Daily and USA Today.” Id. According to defense attorneys, Carfax sent more than 1.77 million emails, 92% of which were not rejected, and the two publications had a combined circulation of 2.7 million readers per day. Id.

Continue reading "Carfax Class Action Defense Cases–West v. Carfax: Ohio Appellate Court Reverses Trial Court Approval Of Class Action Settlement Holding Notice To Class Members Was Inadequate" »

Posted In: Class Action Court Decisions

Class Action Alleging Illegal Fee Splitting of Title Insurance Premiums in Violation of RESPA (Real Estate Settlement Procedure Act) did not Warrant Class Action Treatment because Individual Inquiries Predominate as to Whether Section 8(b) Violation Occurred Fifth Circuit Holds

Plaintiffs filed a putative class action against their title insurer, Stewart Title Guaranty, alleging inter alia violations of the federal Real Estate Settlement Procedure Act (RESPA); the class action complaint alleged that Stewart Title failed to provide certain discounts to class members and split with its agents “the illegal, unearned charges on the policies.” Mims v. Stewart Title Guaranty Co., 590 F.3d 298, 2009 WL 4642631, *1 (5th Cir. 2009). According to the allegations underlying the class action complaint, “consumers who refinanced their home mortgages…[were entitled ] to receive a mandatory discount on their premiums for new title insurance policies acquired from Stewart” provided that the new title insurance policy “is issued within seven years of the closing of the prior mortgage.” Id. The class action alleged that Stewart Title “consistently failed to provide the reissue insurance discount” but, instead, split the savings with its agents, and that this conduct constituted illegal splitting of unearned fees in violation of § 8(b) of RESPA. Id., at *1-*2. Plaintiffs filed a motion to certify the litigation as a class action, id., at *2; defense attorneys opposed class action treatment, but the district court granted the motion, see id., at *1. Stewart Title sought permission to appeal the class action certification order. Id., at *2. The Fifth Circuit reversed, holding that “individual factual issues predominate the RESPA claim.” Id.

The Circuit Court first addressed Stewart Title’s claim that plaintiffs lacked standing to prosecute the class action’s RESPA claim, and explained that the challenge was more accurately denominated an attack on the merits of the claim rather than an issue of standing. See Mims, at *2. The Fifth Circuit stated at page *2, “There is no serious question that the plaintiffs have standing to bring this claim.” The defense argument went to the merits of the RESPA claim which – in light of the limited scope of review under Rule 23(f) – “may only be considered in this case if relevant to the class certification question.” Id., at *3. After summarizing Section 8(b) of RESPA, see id., at *4, the Circuit Court explained that the question is whether Stewart Title’s alleged failure to give consumers discounts represented the retention of a fee for services that were not performed, id. In sum, “plaintiffs' argument thus rests on the theory that the title insurance premium can be split between the amount allowed under Rule R-8 after the appropriate discount is applied and the amount in excess of that amount; they argue that this excess amount represents a charge for which no services were actually performed.” Id. In the Fifth Circuit’s view, the class action alleged: “Stewart charged excessive premiums. Stewart gave, and title agents accepted, a portion of the excessive premiums. The portion accepted by the title agents was excessive and not ‘for services actually performed,’ but instead were in the nature of kickbacks or referral fees.” Id., at *5. The district court had denied Stewart Title’s previous motion to dismiss the RESPA claim because it would that the splitting of such fees “may” violate Section 8(b), depending on the circumstances. Id. The Circuit Court held that class action treatment of the RESPA claim was therefore inappropriate, “because the district court's liability model for violations of RESPA § 8(b) requires an inquiry into the facts of each individual class member's title insurance transaction.” Id. In other words, “The only way the overall practice may be proven to violate RESPA, consistently with the HUD liability standard, is to examine the reasonableness of payments for goods and services. This inquiry must be performed on a transaction-by-transaction basis, because a single finding of liability on an unreasonable relationship between goods and services does not necessitate the conclusion that such unreasonableness exists on a class-wide basis.” Id., at *6. Accordingly, the district court abused its discretion in granting class action treatment to the RESPA claim, id., at *8.

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

Following Denial of Class Action Treatment, Federal Court did not Abuse Discretion in Granting Defense Motion to Enjoin State Court from Ruling on Class Action Certification Motion of Identical Claims brought by Different Plaintiffs Eighth Circuit Court Holds

Plaintiff George McCollins filed a putative class action against Bayer and other defendants, “who manufactured and produced Baycol, a prescription cholesterol lowering medication,” seeking damages for breach of warranties and violation of the West Virginia Consumer Credit and Protection Act (WVCCPA); Baycol was sold from 1997 to 2001, but was taken off the market following the deaths of 31 people. In re Baycol Products Litig., ___ F.3d ___ (8th Cir. January 5, 2010) [Slip Opn., at 2, 3.] McCollins’ class action complaint sought to represent residents of West Virginia, id., at 2. McCollins filed his complaint in West Virginia state court in 2001, but defense attorneys removed the class action to federal court on diversity grounds. Id., at 3. (The Circuit Court noted that had the class action been filed “a few years later,” it would have been removable under the Class Action Fairness Act (CAFA). Id.) Also in 2001, two other individuals (Keith Smith and Shirley Sperlazza) filed a similar class action in West Virginia state court, but it was not removed to federal court. Id., at 4. The Judicial Panel on Multidistrict Litigation (MDL) consolidated the McCollins class action with thousands of other individual and class action lawsuits involving Baycol, id., at 2, 3. As the sole putative class representative of West Virginia residents, plaintiff “had not experienced the side effect that led to Baycol's withdrawal from the market[ and the] undisputed record evidence showed that he had physically benefitted from the drug.” Id., at 3. After extensive litigation, including the issuance of more than 160 pretrial orders, the district court rejected the motion by the Plaintiffs’ Steering Committee to certify the Master Class Action Complaint as a nationwide class action, “concluding that since such plaintiffs ‘would have to demonstrate that they were either injured by Baycol, or that Baycol did not provide them any health benefits[,]’ common issues did not predominate,” id., at 3. The district court later issued an order denying class action treatment to McCollins’ complaint on behalf of West Virginia residents, id., at 3, 4. Thereafter, Smith and Sperlazza sought class action certification in West Virginia state court of their Baycol class action; defense attorneys moved the federal court “to enjoin Smith and Sperlazza from relitigating in state court the certification of a West Virginia class.” Id., at 2. The district court granted the motion, and the Eighth Circuit affirmed. Id.

The Eighth Circuit explained that “the Anti-Injunction Act generally prohibits federal courts from interfering in state proceedings, [but] it permits injunctions necessary to ‘protect or effectuate its judgments.’” In re Baycol, at 5 (quoting 28 U.S.C. § 2283). The Circuit Court “review[ed] de novo the district court's determination that the Act's ‘relitigation exception’ applies…, and that it had personal jurisdiction over [Smith and Sperlazza],” id. (citations omitted). This, in turn, required an analysis of collateral estoppel requirements under West Virginia law. Id., at 6. The Circuit Court held that the issue presented by Smith and Sperlazza in their state court motion for class action treatment had been previously decided by the district court in connection with the McCollins action, and that they sought class action certification “on the same legal basis of the same class already denied in this case.” Id. The fact that West Virginia’s Rules of Civil Procedure Rule 23 would be applied in Smith and Sperlazza’s action rather than Fed.R.Civ.P. Rule 23 was of no moment, id. Put simply, “[T]he district court concluded that Baycol plaintiffs cannot state a claim under the WVCCPA without proof of harm or injury. Economic loss alone is insufficient. Certification under the state rule would undermine this conclusion of substantive state law properly made by the district court.” Id. (citation omitted).

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

UCL Class Action Alleging Apple iPod Created Unreasonable Risk of Hearing Loss Properly Dismissed for Failure to State a Claim because while iPod was Capable of Causing Hearing Loss it was Consumer Behavior that Proximately Caused Injury rather than iPod’s Design Ninth Circuit Holds

Plaintiffs filed a putative class action against Apple alleging inter alia violations of California’s Unfair Competition Law (UCL); specifically, the class action complaint alleged that Apple’s iPod “is defective because it poses an unreasonable risk of noise-induced hearing loss to its users.” Birdsong v. Apple, Inc., 590 F.3d 955 (9th Cir. 2009) [Slip Opn., at 16867, 16870.] Federal court jurisdiction was premised on the Class Action Fairness Act (CAFA). Id., at 16872 n.1. The class action originated in Louisiana, but it was transferred to California and a California resident was added as a putative class representative in the third amended class action complaint. Id., at 16871. According to the allegations underlying the class action complaint, the iPods were sold with “detachable ‘earbud’ headphones” (but other headphones and audio devices could be used for playback), and were capable of “producing sounds as loud as 115 decibels.” Id., at 16870. Each iPod can with a warning concerning the risk of hearing damage, id., at 16870-71. The class action alleged that iPod’s ability to produce 115 decibels was a “defect” that constituted a “breach of the implied warranty of merchantability and fitness for a particular purpose,” id., at 16870. Defense attorneys moved to dismiss the third amended class action complaint for failure to state a claim and on the ground that plaintiffs lacked standing to prosecute the class action’s UCL claim. Id. The district court granted the motion and dismissed the class action. Id., at 16871-72. The Ninth Circuit affirmed.

The Circuit Court first summarized California law concerning the implied warranty of merchantability. See Birdsong, at 16872-73. The district court dismissed that class action claim based on its determination that it was the manner in which a consumer used the iPod, not its design, that created the risk of hearing loss. Id., at 16873. The Ninth Circuit agreed, explaining at page 16873 that “the iPod has an ‘ordinary purpose of listening to music,’ and nothing [plaintiffs] allege suggests iPods are unsafe for that use or defective.” While iPods are capable of playing music at loud volumes, and capable of playing music for 12-14 hours before the batteries need to be recharged or replaced, the bottom line is that “users have the option of using an iPod in a risky manner, not that the product lacks any minimum level of quality.” Id.

Continue reading "Apple iPod Class Action Defense Cases–Birdsong v. Apple: Ninth Circuit Affirms Dismissal Of UCL Class Action Holding Risky Consumer Behavior Caused Any Damage Rather Than Apple’s iPod Design" »

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

Class Action Alleging Violations of Federal Securities Laws based on Oil Company’s “Proved Reserves” Estimates in Public Offering Documents Warranted Dismissal because Cautionary Language Warned Reasonable Investor of Risk of Lower Reserves Texas Federal Court Holds

Plaintiff filed a putative class action against Cano Petroleum (an independent oil and natural gas company) and individual officers and directors of Cano, as well as defendants involved in the underwriting of Cano’s secondary public offering, alleging violations of federal securities laws; specifically, the class action complaint alleged that the documents issued in connection with the secondary public offering contained material misrepresentations in violation of Sections 11, 12 and 15 of the Securities Act of 1933. Truk Int’l Fund LP v. Wehlmann, ___ F.Supp.2d ___ (N.D.Tex. December 3, 2009) [Slip Opn., at 2-3.] According to the allegations underlying the class action complaint, defendants’ disclosures concerning Cano’s “proved reserves” were significantly overstated. Id., at 3-4. The class action further alleged that only one month after the secondary public offering, Cano’s CEO announced that the company’s proved reserves had declined by roughly 20%. Id., at 4-5. Following that announcement, Cano’s stock price fell “sharply and immediately.” Id., at 5. Defense attorneys moved to dismiss the class action on various grounds, see id., at 5-6. The district court granted the motions.

The district court began by summarizing public information relevant to the motion, see Truk, at 7-13, as well as the applicable standards governing the defendants’ motions, see id., at 13-15, and the relevant provisions of the Securities Act, see id., at 15-20. Focusing on the central allegations underlying the class action claims, see id., at 20-23, the district court first held that “[t]he cautionary statements in the Offering Documents made clear that the proved reserve numbers stated in the documents were estimates as of June 30, 2007, and that a large number of factors could cause the estimates to be lower if recalculated as of the date of the offering,” id., at 23. The new estimates had been based on a new estimate provided June 30, 2008, and were the result of circumstances that the Offering Documents warned could lead to a reduction in the proved reserves estimate. Id., at 24. In the federal court’s view, “a reasonable investor would know from reading the cautionary language in the Offering Documents that an investment in Cano was risky and that a part of that risk was in the uncertainty as to the quantity of proved reserves.” Id., at 28. Accordingly, the court granted the motions to dismiss the class action claims. Id., at 28, 30-31. The court also denied leave to amend, noting that “the nature of the pleading deficiencies suggest that repleading would be futile” and that “defendants should not be subjected to further costs of litigation.” Id., at 30.

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

Class Action Complaint Alleging Securities Fraud Failed to Adequately Plead Misrepresentation or Scienter under Heightened Pleading Requirements Established by Private Securities Litigation Reform Act (PSLRA) New Jersey Federal Court Holds

Plaintiffs filed a putative class action against Heartland Payment Systems and others alleging violations of federal securities laws; specifically, the class action complaint alleged that defendants concealed information and/or made affirmative misrepresentations that were material to the value of the company’s stock and that plaintiffs suffered damage because the company’s stock value declined almost 80%. In re Heartland Payment Systems, Inc. Securities Litig., U.S.D.C. Case No. 09-1043 (D.N.J. December 7, 2009) [Slip Opn., at 1, 3.] According to the allegations underlying the class action complaint, Heartland “provides bank card payment processing services to merchants” and “maintains millions of credit and debit card numbers on its computer network.” Id., at 1. In 2008, Hackers managed to steal 130 million credit and debit card numbers from Heartland. Id., at 2. At the time of the theft, the company believed hackers had targeted solely the “payroll manager application” which “does not contain data on cardholders’ credit and debit card accounts” but rather “internal corporate information such as employees’ names, addresses, social security numbers, and other confidential information.” Id. Heartland did not discover the full extent of the breach until January 2009, at which time it “immediately notified the U.S. Department of Justice, the U.S. Secret Service, and the credit card companies who account numbers had been stolen,” and soon thereafter “publicly disclosed the theft.” Id. Following the public disclosure, Heartland’s stock price dropped dramatically, id. Plaintiffs filed their class action complaint on the theory that company statements concerning the adequacy of its security systems were fraudulent because the company was “aware that Heartland had poor data security and had not remedied the problem.” Id., at 3. Defense attorneys moved to dismiss the class action on the grounds that it failed to satisfy the heightened pleading requirements of the Private Securities Litigation Reform Act (PSLRA), id. The district court granted the motion.

The district court explained that the PSLRA requires a plaintiff “to plead the ‘who, what, when, where, and how’ of the allegedly fraudulent statements.” In re Heartland, at 3-4 (citing Institutional Investors Group v. Avaya Inc., 564 F.3d 242, 252 (3d Cir. 2009). Moreover, the PSLERA “requires that the complaint ‘state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.’” Id., at 4 (citation omitted). The federal court agreed with defense attorneys that the class action complaint failed to adequately allege a material misrepresentation, see id., at 5-11. The court agreed further that the class action failed to adequately plead the requisite scienter to support the class action claims. See id., at 11-13. The district court therefore found it unnecessary to address defendant’s loss causation argument. See id., at 5, 13-14. The court dismissed the class action complaint without leave to amend, concluding that “further specificity would not cure the Complaint’s deficiencies,” id., at 14.

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

Judicial Panel Grants Plaintiff Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. — 1407, Over Objection of One Group of Class Action Plaintiffs, but Transfers Class Actions to Central District of California

Seven class actions were filed in seven different district courts – the Central and Northern Districts of California, the Southern District of Florida, the Northern District of Georgia, the District of New Jersey, the Eastern District of Pennsylvania, and the Western District of Washington – against various DirecTV challenging its early cancellation fee policies. In re DirecTV, Inc., Early Cancellation Fee Marketing & Sales Prac. Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. October 9, 2009) [Slip Opn., at 1]. According to the allegations under the class actions, “defendants commit their customers to minimum programming terms without their knowledge or consent and unlawfully charge an early termination fee if the customer cancels service prior to the expiration of that programming term.” Id. Attorneys for plaintiffs in three of the class actions (Florida, Georgia and Washington) filed a motion with the Judicial Panel for Multidistrict Litigation (MDL) requesting centralization of the class actions pursuant to 28 U.S.C. § 1407 in the Western District of Washington; plaintiffs in the Pennsylvania class action and the New Jersey class action supported the motion. Id. Plaintiffs in the Central District of California class action supported the motion but proposed their district as the appropriate transferee court; plaintiffs in the Northern District of California class action opposed centralization. Id. Defense attorneys opposed centralization but alternatively argued for transfer of the class actions to the Central District of California, id. The Judicial Panel granted the motion to centralize the class action lawsuits, rejecting the arguments of the plaintiffs in the Northern District of California. Id., at 1-2. The Judicial Panel decided that the Central District of California was the appropriate transferee court, where DirecTV was headquartered. Id., at 2. Accordingly, the Panel transferred all class actions pending outside of the Central District of California to that district. Id.

Posted In: Multidistrict Litigation, Class Action Court Decisions

Class Action Settlement Properly Approved by District Court but Ambiguity in Scope of Release Required Remand for Clarification Second Circuit Holds

Plaintiffs filed a class action in New York federal court against the City of New York and various other defendants that “challenged policies adopted by the New York City Administration for Children's Services (‘ACS’) relating to the removal of children from their homes in cases of abuse and neglect.” People United For Children, Inc. v. The City of New York, ___ F.3d ___, 2009 WL 4576113, *1 (2d Cir. December 8, 2009). According to the allegations underlying the class action complaint, defendants’ conduct constituted “violations of due process, equal protection, and parental, privacy, cultural, and religious rights,” and constituted discrimination “under the New York State and United States Constitutions.” Id. The class action complaint prayed for declaratory and injunctive relief, and for monetary damages. Id., at *2. Ultimately, the district court granted plaintiffs’ motion to certify the litigation as a class action. Id. Following two years of negotiations, the parties agreed upon a proposed class action settlement that won the preliminary approval of the district court. Id., at *3. At the fairness hearing, the district court gave final approval to the class action settlement over the objection of one of the named plaintiffs (Jones) and the objections of a member of the putative class. Id., at *1, *3. In part, the district court concluded that Jones had effectively “opted out” of the class, removed her as a class representative, and concluded that it need not consider her objections to the proposed settlement. Id., at *1. The objectors appealed the order approving the class action settlement, id. The Second Circuit agreed that the district court should not have concluded Jones had “opted out” of the class, but it found the error to be harmless and therefore affirmed.

We do not here summarize the notice provided to the class or the objections leveled against the class action settlement. See McReynolds, at *4-*6. The central issues on appeal were (1) whether Jones had “opted out” of the class and (2) whether the district court should have ignored her objections to the proposed settlement. Id., at *6. With respect to the first issue, the Second Circuit held that the district court erred because Jones had simply objected to the proposed settlement, and stated as much at the fairness hearing. Id., at *7. The Circuit Court explained at page *7, “Despite Jones' clear indication that she did not intend to opt out of the class action and her invocation of her right to object under the ‘rules,’ the District Court nevertheless found that Jones had opted out of the class because she ‘can't have it both ways.’ In so finding, the District Court erred in two ways: first, the finding that Jones elected to opt out of the class action was a clearly erroneous finding of fact; and, second, the court's conclusion that Jones opted out of the class by reason of her objection to the class settlement was an error of law.” The error was harmless, however, because Jones’ objections had been raised by other members of the putative class and so had been considered (and rejected) by the district court. See id., at *8-*9.

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Posted In: Class Action Court Decisions

District Court Order Compelling Production of Discovery Protected by Attorney-Client Privilege on Grounds Privilege had been Waived not Appealable because Collateral Order Doctrine does not Extend to such Orders Supreme Court Holds

Plaintiff Carpenter filed a lawsuit against his employer, Mohawk Industries, in a Georgia federal court alleging violations of various labor laws; specifically, plaintiff alleged that he was wrongfully terminated for informing the company’s human resources department that Mohawk was employing illegal aliens. Mohawk Industries, Inc. v. Carpenter, ___ U.S. ___, 130 S.Ct. 599, 2009 WL 4573276, *3 (December 8, 2009). At the time, plaintiff did not know that a putative class action lawsuit (“Williams”) had been filed against Mohawk that accused it of “conspiring to drive down the wages of its legal employees by knowingly hiring undocumented workers in violation of federal and state racketeering laws.” Id. According to the allegations underlying plaintiff’s individual lawsuit, Mohawk fired him after he refused to be pressured into retracting his accusation. Id. Plaintiffs in the Williams class action learned of the Carpenter lawsuit, and “sought an evidentiary hearing to explore Carpenter's allegations.” Id. The company opposed the motion, characterizing Carpenter’s accusations as “pure fantasy” and by attacking Carpenter in its explanation of his termination. Id. At the same time, Carpenter was seeking discovery of company documents concerning the meeting with company employees and counsel that preceded his termination; Mohawk opposed the discovery request in Carpenter on the grounds that it sought information protected by the attorney-client privilege. Id., at *4. The district court in Carpenter concluded that the attorney-client privileged had been waived based on the disclosures made in the Williams action concerning the grounds for Carpenter’s termination. Id. Defense attorneys appealed the court’s order or, in the alternative, sought mandamus relief; the Eleventh Circuit dismissed the appeal for lack of jurisdiction as the order was not appealable, and denied the petition for writ of mandate. Id. The Supreme Court granted certiorari “to resolve a conflict among the Circuits concerning the availability of collateral appeals in the attorney-client privilege context.” Id.

We do not discuss the Supreme Court’s analysis in detail, as we are concerned here only with its holding. (Interested readers may find the entire text of the Supreme Court opinion below.) In brief, the High Court summarized the “final decision” jurisdiction of Courts of Appeal, and the “‘small class’ of collateral rulings that, although they do not end the litigation, are appropriately deemed ‘final.’” Mohawk Industries, at *5 (citation omitted). The Supreme Court explained, “That small category includes only decisions that are conclusive, that resolve important questions separate from the merits, and that are effectively unreviewable on appeal from the final judgment in the underlying action.” Id. (citation omitted). But the Court expressed concern that the “small class” of cases fitting within this exception be interpreted so as to swallow the general rule. Id. And the High Court concluded that “collateral order appeals are not necessary to ensure effective review of orders adverse to the attorney-client privilege,” id., at *6. The Court explained that its holding turned not on the importance of the interest sought to be protected “in the abstract,” but rather “whether deferring review until final judgment so imperils the interest as to justify the cost of allowing immediate appeal of the entire class of relevant orders.” Id. In this regard, the Court noted that it “routinely require[s] litigants to wait until after final judgment to vindicate valuable rights, including rights central to our adversarial system.” Id. (citations omitted). Here, too, the Supreme Court held that “post-judgment appeals generally suffice to protect the rights of litigants and assure the vitality of the attorney-client privilege.” Id.

Continue reading "Class Action Defense Cases–Mohawk Industries v. Carpenter: Supreme Court Holds Collateral Order Doctrine For Appellate Jurisdiction Does Not Extend To Disclosure Orders Adverse To Attorney-Client Privilege" »

Posted In: Class Action Court Decisions

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

Seven class actions – five in the Southern District of New York, and one each in the Eastern District of New York and Eastern District of Texas – were filed against various Sony entities “arising from the performance of the ‘optical block’ of second generation Sony WEGA SXRD rear projection HDTV televisions.” In re Sony Corp. SXRD Rear Projection Television Marketing, Sales Practices & Products Liab. Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. October 9, 2009) [Slip Opn., at 1]. According to the allegations under the class actions, “this major component of the subject televisions is inherently defective, causing yellow stains, green haze and other color anomalies that interfere with the television’s display.” Id. Defense attorneys for Sony Corp. of America, Sony Electronics Inc., and Sony Corp. 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 Eastern District of New York or, alternatively, in the Southern District of California. Id. None of the class action plaintiffs opposed Sony’s motion or opposed transfer of the class actions to the Eastern District of New York. Id. The Judicial Panel granted Sony’s motion and agreed that the Eastern District of New York was the appropriate transferee court, id., at 1-2. Accordingly, the Panel transferred all class actions pending outside of the Eastern District of New York to that district. Id., at 2.

Posted In: Multidistrict Litigation, Class Action Court Decisions

Illinois Appellate Court Holds Motion to Compel Arbitration of Individual Claims in Class Action Complaint Alleging Violations of Various Consumer Protection Laws, based on Arbitration Clause Containing Class Action Waiver, Properly Denied because Agreement Required Disputes be Heard by National Arbitration Forum which no Longer Conducted Consumer Arbitrations

Plaintiffs filed a putative class action in Illinois state court against Gateway, Intel, Hewlett-Packard and others alleging inter alia violations of various California and Illinois consumer protection statutes; specifically, the class action complaint challenged defendants’ marketing of computers equipped with Intel’s Pentium 4 processor. Carr v. Gateway, Inc., ___ Cal.App.4th ___ (Ill.App. November 24, 2009) [Slip Opn., at 1.] According to the allegations underlying the class action complaint, defendants “have engaged in conduct which is likely to mislead, and has misled, the public through the suppression and concealment from the public of the material fact that there is no benefit to consumers in choosing the Pentium 4 over the Pentium III and that the Pentium 4 is less powerful and slower than the Pentium III and/or the AMD Athlon processors.” Id., at 1-2. The class action also alleged that defendants “made or disseminated misleading statements regarding the power and speed of the Pentium 4.” Id., at 2. Counts IV, V and VI of the class action complaint alleged violations of California’s Consumers Legal Remedies Act (CLRA) and Unfair Competition Law (UCL), and of Illinois’ Consumer Fraud and Deceptive Business Practices Act (the Act); these claims were ultimately severed from the class action complaint and they are the claims at issue in this opinion. Id. Defense attorneys moved the circuit court to dismiss the class action complaint, or to stay the class action and compel plaintiff to arbitrate his individual claim based on an arbitration clause that contained a class action waiver. Id., at 1, 2-3. After holding an evidentiary hearing, id., at 3-4, the court denied the motion on the grounds that arbitration clause “was not a part of the sales contract that was entered into by the parties” and, in any event, would be unenforceable as unconscionable, id., at 4. The Illinois Supreme Court then issued its opinion in Barbara's Sales, Inc. v. Intel Corp., 227 Ill.2d 45 (2007), see id., at 4-5. (This Blog’s article discussing that opinion may be found here.) The circuit court reaffirmed its order, and Gateway appealed. The appellate court affirmed.

The appellate court began its analysis by observing that the lower court denied Gateway’s motion to compel “primarily on its finding that the Agreement was not a part of the contract for the purchase of the Gateway computer.” Carr, at 6. If the arbitration clause was part of the contract, it called for any disputes to be “resolved exclusively and finally by arbitration administered by the National Arbitration Forum (NAF) and conducted under its rules,” id. However, during the pendency of the appeal, “the NAF has ceased administering consumer arbitrations.” Id. Noting that it could “affirm the circuit court's order on any basis in the record,” the appellate court analyzed” the impact the unavailability of the NAF has upon the validity of the arbitration provision.” Id. Gateway argued that section 5 of the Federal Arbitration Act (FAA) provides a “method” exists for selecting “an alternative arbitration forum” under its contract with consumers, id., at 6-7. The appellate court rejected this claim, finding that “the specific designation of the NAF as the exclusive arbitration forum is an integral part of the arbitration clause in the Agreement.” Id., at 7. Because NAF was no longer available to resolve consumer disputes under the Agreement, and because the FAA “cannot be used to reform the arbitration provision,” the appellate court affirmed the circuit court’s order denying Gateway’s motion to compel arbitration. Id., at 8.

Posted In: Arbitration, Class Action Court Decisions

Class Action Alleging Employer Misclassified Managers as Exempt and Failed to Pay them Overtime Wages Properly Decertified as Class Action because Amount of Time Spent on Managerial Duties Required Individual Inquiry and because “Individualized Issues of Liability and Damages will Predominate” California Appellate Court Holds

Plaintiffs filed a putative class action against their employer, Tuesday Morning, alleging violations of California labor laws; specifically, the class action complaint alleged that defendant misclassified its managers as exempt employees and failed to pay them overtime wages. Keller v. Tuesday Morning, Inc., ___ Cal.App.4th ___ (Cal.App. November 4, 2009) [Slip Opn., at 1-2.] Plaintiffs’ motion for class action certification was granted. Id., at 1. Two years later, defense attorneys moved the trial court to decertify the class. Id. Defendant filed the motion after the parties had conducted “extensive discovery” and supported the motion with 10 declarations and references to the deposition testimony of 49 managers. Id., at 2. “A different trial judge granted the motion on the ground that individual issues predominated over common issues, thus a class action was not the appropriate mechanism by which to litigate the managers’ claims.” Id., at 1. The new trial judge issued his ruling after conducting a three-day evidentiary hearing on the motion. Id., at 6. Based on the evidence, the court concluded that even though there were some common issues, “the amount of time a manager spent performing [various] acts and his or her exercise of discretion are matters of individual inquiry.” Id. Specifically, “the time spent in a managerial duty is an individual inquiry,” and “[e]ach manager’s background and management style varied from store to store.” Id., at 7. Plaintiffs appealed the class action decertification order, and the Court of Appeal affirmed.

The appellate court summarized the evidence presented by defense attorneys in support of the decertification motion. See Keller, at 2-5. The Court of Appeal also discussed two appellate court decisions that similarly concerned “unpaid overtime in retail chain operations” – Walsh v. IKON Office Solutions, Inc., 148 Cal.App.4th 1440 (Cal.App. 2007), and Dunbar v. Albertson’s Inc., 141 Cal.App.4th 1422 (Cal.App. 2006) – each of which affirmed trial court orders denying or decertifying class action treatment. See Keller, at 9-10. Based on Walsh and Dunbar, and the evidence presented in support of the motion to decertify the class, the Court of Appeal held that “[s]ubstantial evidence supports the trial court’s conclusion that individualized issues of liability and damages will predominate over issues common to the class if the overtime claims are tried as a class action.” Id., at 11. Accordingly, the appellate court affirmed the trial court order decertifying the litigation as a class action. Id.

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

Class Action Seeking Monetary and Injunctive Relief Arising from Theft of Personal Information, Allegedly Creating “Increased Risk” of Identity Theft Requiring Monitoring of Credit, Dismissed for Lack of Standing because Putative Class Representative did not Allege his Information was Stolen or had been used or Disclosed so Plaintiff Failed to Establish Injury-in-Fact Missouri Federal Court Holds

Plaintiff filed a putative class action against Express Scripts for negligence, breach of contract, violations of various “data breach notification laws” and violations of Missouri’s Merchandising Practices Act, arising out of the theft of its customers’ personal identification information; the class action complaint alleged that “inadequate security measures in relation to its computerized database system allowed unauthorized persons to gain access to confidential information of Express Scripts members contained in the database, with such information including names, dates of birth, Social Security numbers, and prescription information.” Amburgy v. Express Scripts, Inc., ___ F.Supp.2d ___ (E.D.Mo. November 23, 2009) [Slip Opn., at 1, 3.] Plaintiff filed the class action in federal court, asserting jurisdiction under the Class Action Fairness Act of 2005 (CAFA), id., at 3. According to the allegations underlying the class action complaint, the criminals who stole the information advised Express Scripts “that they would make public the confidential information obtained through the breach if Express Scripts did not pay a certain amount of money to them.” Id., at 2. Express Scripts advised its customers of the security breach, id. The class action alleged that the theft placed class members “at an increased risk of becoming victims of identity theft crimes, fraud, abuse, and extortion,” and that class members would be required to spend “considerable time and money to protect themselves” from injury. Id. Defense attorneys moved to dismiss the class action complaint on the grounds that plaintiff lacked standing and that the class action failed to state a claim for relief. Id., at 3. The district court granted the motion.

The federal court noted, “Database breaches appear to provide the basis for a new breed of lawsuits, and especially class action lawsuits, in which plaintiffs allege, as here, that the database handlers’ negligence in developing and maintaining security measures have resulted in otherwise personal and confidential information being compromised, thereby increasing the risk of identity theft for those individuals whose information was so compromised. The remedies sought in these actions vary, but generally include costs for credit monitoring, costs for closing and opening financial accounts, and damages for emotional distress.” Amburgy, at 5. The district court observed that federal courts have reached different conclusions as to whether individuals have Article III standing to prosecute such lawsuits, though the “recent trend” has been to find that standing exists based on a Seventh Circuit decision in Pisciotta v. Old Nat’l Bancorp., 499 F.3d 629 (7th Cir. 2007). See id., at 5-7. But the court explained at page 7, “because the requirement of standing is firmly rooted in the Constitution and is not subject to whim, the undersigned is reluctant to look to a ‘recent trend’ when analyzing whether or not a party has standing to sue in federal court.” Accordingly, it examined the standing issue with fresh eyes.

Continue reading "Class Action Defense Cases–Amburgy v. Express Scripts: Missouri Federal Court Dismisses Theft Of Personal Information Class Action Complaint For Lack Of Standing Because Plaintiff’s Information And Identity Not Stolen" »

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

District Court did not Err in Dismissing Class Action Complaint Against Dredging Contractors seeking Monetary and Injunctive Relief for Damages Caused by Hurricane Katrina because Defendants Acted Pursuant to Government Contracts under Act of Congress and were Entitled to Government-Contractor Immunity Fifth Circuit Holds

Plaintiffs filed a putative class action against the federal government and thirty-two others (the Contractor Defendants) “who dredged the Mississippi River Gulf Outlet to recover damages sustained during Hurricane Katrina.” Ackerson v. Bean Dredging LLC, 589 F.3d 196, 2009 WL 4066679, *1 (5th Cir. 2009). According to the allegations underlying the class action complaint, “[The] Contractor Defendants’ dredging activities caused environmental damage to protective wetlands in the Mississippi River Gulf Outlet (MRGO). The Plaintiffs also alleged that the MRGO project caused an amplification of the storm surge in the New Orleans region during Hurricane Katrina, undermining the levees and flood walls along the MRGO and the Industrial Canal that breached and flooded St. Bernard Parish and Orleans Parish. The Plaintiffs asserted claims against the Contractor Defendants for negligence, breach of implied warranty, concealment, and violation of environmental-protection laws and sought a myriad of damages and an injunction to prevent future dredging activities.” Id., at *2. The federal government moved to dismiss the class action claims against it for failure to exhaust administrative remedies; the district court granted the motion and plaintiffs did not appeal that ruling. Id. Defense attorneys for the dredging companies moved to dismiss the class action claims against the Contractor Defendants on the grounds that they had government-contractor immunity. Id. “The district court dismissed the claims against the dredgers because it determined that the defendants acted pursuant to contracts with the United States government under authority granted by an act of Congress.” Id., at *1. Further, the district court denied plaintiffs’ request to conduct discovery “calling the request a ‘fishing expedition,’” and denied plaintiffs’ request to file an amended class action complaint as “futile.” Id., at *2. The Fifth Circuit affirmed.

The Fifth Circuit reviewed the district court’s order de novo. Ackerson, at *3. It held that “the Contractor Defendants are entitled to government-contractor immunity under Yearsley.” Id. We do not discuss the Fifth Circuit’s opinion in detail as the author finds its holding to be compelled by well-settled case law, as detailed in the Court’s opinion. See id., at *3-*5. The Circuit Court also held that the district court did not err in dismissing the class action complaint with prejudice, see id., at *5, and that the lower court did not err in denying plaintiffs’ request to file an amended class action complaint because “Plaintiffs' proffered amendment does not go beyond the conclusory allegation that the Contractor Defendants activities somehow violated various laws and regulations at some unspecified time and place,” id., at *6. Finally, the Fifth Circuit held that the district court did not err in denying plaintiffs’ request to conduct discovery, id., at *7. Accordingly, the Circuit Court affirmed the district court order dismissing the class action complaint. Id.

Posted In: Class Action Court Decisions

Judicial Panel Grants Plaintiffs’ Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. — 1407, Supported by All Responding Parties Despite Disagreement over Appropriate Transferee Court, but Transfers Class Actions to District of New Jersey

Five class actions – two in the Central and one in the Eastern Districts of California and one each in the District of New Jersey and the Eastern District of New York – were filed against General Mills alleging false advertising claims arising out of its “labeling of its Cheerios cereals, and, specifically, claims that eating Cheerios can lower a person’s cholesterol.” In re Cheerios Marketing & Sales Prac. Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. October 9, 2009) [Slip Opn., at 1]. Plaintiffs in the Eastern and one of the Central District of California class actions 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 Eastern District of California. Id. All responding parties supported pretrial coordination, but plaintiffs in the New York class action urged for transfer of the class actions to that district, and common defendant General Mills argued for transfer of the class actions to the District of New Jersey. Id. The Judicial Panel granted the motion to centralize the class action lawsuits, but agreed with defense attorneys that the District of New Jersey was the appropriate transferee court, id. The Panel explained that one of the class action lawsuits already was pending in that district and that “[the judge] presiding over that action[] has the time and experience to steer this litigation on a prudent course.” Id., at 1-2. Accordingly, the Panel transferred all class actions pending outside of Pennsylvania to that district. Id., at 2.

Posted In: Multidistrict Litigation, Class Action Court Decisions

FACTA Class Action Alleging Defendant Printed more than Last Five Numbers of Credit Card on Customer Receipt not Entitled to Class Action Treatment because Plaintiff Utilized Business Card for Business Purposes and Corporations do not have Private Rights of Action under FCRA Illinois Federal Court Holds

Plaintiff filed a putative class action in Illinois state court against Amore Mio alleging violations of the federal Fair and Accurate Credit Transactions Act (FACTA), which is part of the Fair Credit Reporting Act (FCRA); specifically, the class action complaint alleged that plaintiff used his business credit card at an Amore Mio Restaurant and received a credit card receipt that contained more than the last five digits of his credit card number in violation of FACTA. Pezl v. Amore Mio, Inc., 259 F.R.D. 344, 345 (N.D.Ill. 2009). The original class action complaint was filed by plaintiff’s business, CE Design, but an amended class action complaint substituted in plaintiff as an individual in place of his business. Id., at 345-46. Defense attorneys removed the class action to federal court, id., at 345. Plaintiff moved the district court to certify the litigation as a class action; defense attorneys opposed class action treatment and moved for summary judgment. Id., at 346. The district court denied plaintiff’s motion for class certification and granted defendant’s motion for summary judgment. In ruling on the motions, the district court noted that class action certification generally should be determined prior to addressing the merits, see id., at 346 n.4, so the court began by analyzing plaintiff’s request for class action treatment.

The federal court readily concluded that the numerosity test of Rule 23(a)(1) had been met because the putative class contained thousands of members. See Pezl, at 346. The district court also easily found that the commonality requirement of Rule 23(a)(2) had been satisfied because the “common nucleus of operative fact” involved defendant’s “standardized conduct” of allegedly “printing of receipts in violation of FACTA.” See id., at 346-47. But the court found that plaintiff failed to satisfy the typicality test of Rule 23(a)(3) because of the existence of “defenses particular to the named plaintiff” – specifically, that plaintiff’s claim was “based on a credit card number belonging to a corporation,” id., at 347. As previously noted, plaintiff used a business credit card to pay for a transaction that “was for business purposes,” id. The FCRA, however, excludes business transactions; the FCRA provides for liability to a “consumer,” which is defined as “an individual.” Id. (citations omitted). Plaintiff’s business therefore did not have a private right of action under the FCRA, id. The district court rejected plaintiff’s argument that FACTA claims may be treated differently, holding that “only consumer cardholders have a private right of action under FACTA.” Id., at 347-48 (citation omitted). Accordingly, plaintiff’s claims were not “typical” of the putative class and so the complaint did not warrant class action certification. Id., at 348. (For the same reasons, the federal court additionally found that plaintiff failed to satisfy the adequate representation test of Rule 23(a)(4). See id., at 348 n.8.)

Continue reading "FACTA Class Action Defense Cases–Pezl v. Amore Mio: Illinois Federal Court Denies Class Action Certification/Grants Defense Summary Judgment In FACTA Class Action Because FCRA Does Not Cover Corporations" »

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

Class Action Challenging Advertisement of “Free” Phones may Proceed as Putative Class Action Despite Arbitration Clause Containing Class Action Waiver because under California Law Class Action Waiver Rendered Arbitration Clause Unconscionable Ninth Circuit Holds

Plaintiffs filed a putative class action against AT&T Mobility challenging its “offer of a ‘free’ phone to anyone who signs up for its service” because AT&T “charges the new subscriber sales tax on the retail value of each ‘free’ phone.” Laster v. AT&T Mobility LLC, 584 F.3d 849 (9th Cir. 2009) [Slip Opn., at 14387, 14390.] Defense attorneys moved to compel plaintiffs to arbitrate their claims individually, rather than as part of a class action, pursuant to an arbitration clause that requires arbitration of disputes and prohibits class actions. Id., at 14390. Plaintiffs argued that because federal jurisdiction was predicated on diversity, California law governed the district court’s interpretation of the arbitration clause and, under California law, “both the arbitration clause and the class action waiver [were] unconscionable, hence, unenforceable.” Id. The district court denied AT&T’s motion based on the Ninth Circuit opinion in Shroyer v. New Cingular Wireless Services, Inc., 498 F.3d 976 (9th Cir. 2007). Id., at 14390-91. On appeal, defense attorneys argued that the arbitration clause was distinguishable from the one at issue in Shroyer because “this arbitration clause provides for a ‘premium’ payment of $7,500…if the arbitrator awards the customer an amount greater than [AT&T’s] last written settlement offer,” id., at 14391. Defense attorneys also argued that “the Federal Arbitration Act (FAA) preempts California’s unconscionability law.” Id. The Ninth Circuit found the provision for a premium payment did not sufficiently distinguish the case from Shroyer and that the FAA does not preempt California law; accordingly, the Circuit Court affirmed the district court order.

Plaintiffs executed a Wireless Service Agreement with AT&T and received free cell phones by agreeing to a 2-year contract. Laster, at 14391. However, AT&T charged plaintiffs $30 in sales tax for the phones, calculated by using the full retail value of the phones. Id., at 14391-92. As noted above, the Agreement contained an arbitration clause that required arbitration of disputes and barred class actions. Id., at 14392. Plaintiffs filed suit in California federal court alleging that AT&T’s advertisement for a free phone was fraudulent; AT&T thereafter amended the Agreement to include the “premium payment clause” and, later still, moved to compel plaintiffs to arbitrate their claims on an individual basis, not as a class action, based on the revised arbitration clause. Id. The district court denied the motion, holding that the class action waiver in the arbitration clause rendered it unconscionable under California law and that the FAA did not preempt California law regarding unconscionability. Id.

Continue reading "AT&T Class Action Defense Cases–Laster v. AT&T Mobility: Ninth Circuit Affirms District Court Order Denying Motion To Compel Arbitration Of Class Action Claims On Individual Basis Holding Class Action Waiver Unconscionable" »

Posted In: Arbitration, Class Action Court Decisions

Class Action Alleging Violations of California’s Unfair Competition Law and Breach of Contract for “Pay-Per-Click” Charges based on Click Fraud/Doubleclicks Warranted Nationwide Class Action Treatment California Federal Court Holds

Plaintiff filed a putative class action in California state court against IAC/Interactive Corp., Ticketmaster dba Citysearch.com, and Citysearch.com alleging violations of California’s Unfair Competition Law (UCL), as well as breach of contract and negligence; defense attorneys removed the class action to federal court. Menagerie Productions v. Citysearch, ___ F.Supp.2d ___ (C.D.Cal. November 9, 2009) [Slip Opn., at 1.] According to the allegations underlying the class action complaint, class members “entered into a contract with Citysearch to place ‘pay-per-click’ advertisements on the Citysearch website, and that Citysearch failed to detect and prevent ‘click fraud.’” Id., at 2. Following extensive law and motion practice and amendments to the class action complaint that added new party plaintiffs, see id., plaintiffs moved the district court to certify the litigation as a class action, id., at 3. The class action sought certification of a nationwide class defined as, “All persons or entities in the United States who paid money for pay-per-click advertising through Citysearch.com.” Id., at 7. Defense attorneys opposed class action treatment. The district court concluded that the complaint warranted class action treatment as to certain claims but denied class action certification as to other claims.

The federal court explained that the class action complaint was premised on two theories. First, that class members’ contracts with defendants for pay-per-click advertising “contained an implied covenant of good faith and fair dealing” which Citysearch violated “by collecting fees from plaintiffs and the Class for click fraud even though Citysearch knew, or should have reasonably known, that the clicks were not ‘actual clicks’ but rather purposeful clicks made for an improper purpose” and “by failing to implement effective oversight, investigating oversight and prevention of click fraud.” Menagerie Productions, at 6-7. Second, that Citysearch engaged in “unfair business practices” within the meaning of California’s UCL “because Citysearch ‘(a) fails to employ any method to track fraudulent clicks, including clicks originating from its own employees and/or agent and clicks originating from Citysearch’s “partner sites”; (b) fails to inform its customers that it does not employ a method to track fraudulent clicks, including clicks originating from its own; and (c) charges customers for invalid clicks.’” Id., at 7. The class action alleged that this conduct violated the UCL because Citysearch led customers to believe “that they will not be charged for ‘invalid’ clicks, when in fact, Citysearch routinely charges its customers for clicks that it knows, or by the exercise of reasonable care, should know are not clicks that originate from potential customers who actively and legitimately chose the advertiser’s link.” Id.

Continue reading "Class Action Defense Cases–Menagerie Productions v. Citysearch: California Federal Court Grants Class Action Certification Of Nationwide Class Action Challenging Charges For Pay-Per-Click Advertising" »

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

Trial Court did not Err in Holding that Class Counsel owed Duty to Absent Class Members to Represent them in Collection of Judgment, not merely through Obtaining Judgment, Particularly in Light of Defendant-Employer’s Lack of Assets and Possible Bankruptcy Filing California Appellate Court Holds

Plaintiffs filed a putative class action in California state court against their employer, West Coast Digital GSM, alleging labor law violations; specifically, the class action complaint alleged that West Coast violated California’s Labor Code by “unlawful deductions from wages, failure to pay overtime, and failure to provide meal and rest breaks.” Barbaroza v. West Coast Digital GSM, Inc., 179 Cal.App.4th 540 (Cal.App. 2009) [Slip Opn., at 1-3.] Plaintiffs sought class action certification, but the motion was denied. Id., at 3. While the appeal on the denial of class action treatment was pending, the lawsuit went to trial on plaintiffs’ individual claims. Id. Plaintiffs generally prevailed, losing on only one of their causes of action. Id. The trial court disallowed some of the attorney fees sought by plaintiffs as the prevailing party, and that order was appealed. Id. The California Court of Appeal thereafter issued its opinion concerning class action certification and reversed the trial court’s order, directing the court to certify the litigation as a class action. Id. However, because the named plaintiffs already had litigated their individual claims, the appellate court also directed the trial court to determine whether could adequately represent the class and, if not, to allow plaintiffs’ counsel to find new representatives for the class action. Id. Almost a year later, the same plaintiffs filed a motion for class action certification, which was granted. Id., at 3-4. West Coast sold its assets and ceased operations. Id., at 4. West Coast then permitted plaintiffs to obtain its default, and secured a default judgment in excess of $5.7 million. Id. Plaintiffs’ counsel filed a motion for attorney fees but proposed to give notice to the class that West Coast “had sold its assets and ceased operations, and that it claimed to have no assets and would eventually declare bankruptcy.” Id. The proposed notice also advised the class that counsel had obtained a default judgment but once counsel obtained an award of attorney fees “class counsel no longer had any obligation to pursue the matter on behalf of the class because its obligation was only to pursue the matter on behalf of the class because its obligation was only to represent the class until judgment was obtained.” Id., at 4-5. The trial court denied the proposed notice on the ground that “class counsel had a duty to pursue the class claims ‘until the end (i.e., enforcement of the judgment) and not just until judgment.’” Id., at 5. Plaintiffs and class counsel appealed, id. The appellate court affirmed.

Despite the general rule regarding the duties of an attorney and class counsel’s claim that “enforcement of judgments requires specialized knowledge on the part of the attorney,” the Court of Appeal explained that “there are in fact important reasons to treat class counsel differently[.]” Barbaroza, at 6. Notably, the class action device puts in place “certain safeguards” to protect the interests of absent class members, id., at 7. One such safeguard is the requirement that class counsel demonstrate an ability to “adequately represent the interests of the class as a whole,” id. (citations omitted). Another safeguard is the requirement that the class representatives and their counsel “owe absent class members a fiduciary duty to protect the absentees’ interests throughout the litigation.” Id. (citation omitted). And finally, the trial court itself must safeguard the rights of absent class members, id. (citation omitted). This last protection was implicated by the trial court’s ruling when it concluded that “class counsel’s job did not end with entry of judgment.” Id., at 8. The class claims were too small to be pursued individually for purposes of securing a judgment, and they remained too small to be pursued individually for purposes of collection. Id. The Court of Appeal explained further that “more importantly, since it seems unlikely…that there are sufficient assets to pay each class member what is owed, plus attorney fees, there remains an important class issue – i.e., how the recoverable assets (if any) are to be distributed.” Id. At this stage of the proceedings, and based on this showing, the trial court did not err in requiring class counsel to continue representation of the class. Id., at 8-9. Accordingly, the appellate court affirmed the trial court order, id., at 9.

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

Class Action Arising out of Home Loan Transaction and Alleging Violations of Various State and Federal Laws Dismissed, without Opposition from Plaintiffs, because Class Action Complaint Failed to Satisfy Pleading Requirements California Federal Court Holds

Plaintiffs filed a putative class action in California state court against Homecomings Financial and American Mortgage Network (which apparently was never served) arising out of a home loan they obtained that was secured by real property in Chula Vista, California. Tasaranta v. Homecomings Financial LLC, ___ F.Supp.2d___ (S.D. Cal. September 9, 2009) [Slip Opn., at 1-2.] Specifically, the class action complaint alleged that defendants violated the federal Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA), Home Ownership and Equity Protection Act (HOEPA) and Fair Debt Collection Practices Act (FDCPA), as well various California-state laws. Id., at 2. The class action prayed for compensatory and punitive damages, and sought “rescission of the contract and loan.” Id. Defense attorneys for Homecomings Financial removed the class action to federal court on the basis of federal question jurisdiction, id., at 1., and then filed a motion to dismiss the class action which plaintiffs did not oppose, id., at 1-2. Id. The district court granted the motion and dismissed the class action complaint without prejudice.

Even though the motion to dismiss the class action was unopposed, the district court reviewed each claim for relief on the merits. With respect to the class action’s TILA claim, the federal court found that the statute of limitations had run on the claim, Tasaranta, at 4-5, and that, separately, the complaint failed to adequately plead a “plausibly suggestive” claim “entitling the plaintiff to relief,” Tasaranta, at 4 (citation omitted). With respect to RESPA, the district court ruled that the class action failed to adequately plead the alleged transfer of the servicing contract in order to support a claim against “Servicers” under RESPA, id., at 5, and that the “yield spread premium” (YSP) claim under RESPA failed because YSPs are not per se illegal under RESPA, id., at 5-6. With respect to HOEPA, the class action complaint failed to allege sufficient details about the loan to support a claim that the interest rate fell within the scope of the statute. See id., at 6-7. And with respect to the FDCPA claim, the federal court observed that the class action did not “include sufficient factual allegations to support the conclusion that Defendants violated the FDCPA, such as how, when and to whom Plaintiffs ‘requested validation,’ and how and when each Defendant responded.” Id., at 7. Accordingly, the district court dismissed the class action complaint against Homecomings Financial without prejudice. Id., at 9.

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

Class Action Alleging Defective Shower Pans did not Warrant Class Action Certification because Individual Issues Predominate Over Sole Common Issue (Defective Design) and Plaintiffs Willingness to Sacrifice Substantial Damages Possibly Suffered by Putative Class Members Rendered them Inadequate Representatives of the Class California Appellate Court Holds

Plaintiffs filed a putative class action in California state court against Lasco Bathware alleging that the Lasco shower pans installed in the homes owned by members of the putative class were defective; specifically, the class action complaint alleged that the shower pans “suffered from design defects that resulted in water leakage, and the leakage caused damage to adjacent building components.” Evans v. Lasco Bathware, Inc., ___ Cal.App.4th ___ (Cal.App. November 6, 2009) [Slip Opn., at 1.] The class action complaint alleged strict products liability and negligence, id., at 2. The class action “sought to recover only the costs of removing and replacing the shower pans and expressly excluded any consequential damages to adjacent shower components caused by the water leakage.” Id., at 5. Plaintiffs filed a motion with the trial court to certify the litigation as a class action, id., at 2. Defense attorneys opposed class action treatment on the grounds that the putative class was not readily ascertainable because “(1) the absence of a ready method for determining which consumers presently had Lasco shower pans installed in their bathrooms; (2) the absence of a ready method for determining whether the shower had been used the requisite number of times; and (3) the absence of a ready method for determining whether a specific consumer would be excluded from the class.” Id., at 7. Defense counsel also argued that “common issues did not predominate over individual issues because the only common issue (whether the design was defective) was outweighed by the non-common issues.” Id. Specifically, whether any particular member of the putative class actually suffered water damage would require destructive testing of each individual’s residence. Id., at 7-8. In sum, class action certification was not warranted because a class action trial would devolve into “mini-trials” with respect to each individual class member. Id., at 9. The trial court agreed with defense counsel that class action treatment was not warranted because individual issues predominate over common issues. Id., at 11. The Court of Appeal affirmed.

The California appellate court summarized its holding as follows: “There is substantial evidence from which the court could have concluded the sole common issue (whether the shower pan was defectively or negligently designed) did not predominate over individualized questions of damages, and there is substantial evidence from which the court could have concluded the proposed plaintiffs did not adequately represent the interests of the class.” Evans, at 11. Specifically, the actual costs of replacing defective shower pans “were not amenable to estimation because the costs associated with removing and replacing each individual shower pan could vary widely from one class member to the next.” Id., at 13. Plaintiffs argued that class action treatment should not be denied simply because of differences in the actual damages suffered by putative class members. Id., at 14. The appellate court concluded, however, that “although a trial court has discretion to permit a class action where the damages recoverable by the class must necessarily be based on estimations, the trial court equally has discretion to deny certification when it concludes the fact and extent of each member’s injury requires individualized inquiries that defeat predominance.” Id., at 17-18.

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

Propriety of Dismissal of Class Action Challenging Notary Fees Charged by Lender in Connection with Refinance of Home Loan that were in Excess of Maximum Allowed by Georgia State Law Turned on Issues not yet Clearly Resolved by Georgia Courts Eleventh Circuit Holds, thereby Warranting Certification of Questions to Georgia Supreme Court

Plaintiff filed a putative class action against American General Financial Services, with whom they had refinanced their home loan, alleging violations of various Georgia-state laws; each of the claims in the class action complaint were premised on a charge for notarial fees allegedly “in excess of the statutory maximum established by OCGA § 45-17-11(b).” Anthony v. American General Financial Services, Inc., 583 F.3d 1302, 1304 (11th Cir. 2009). According to the allegations underlying the class action complaint, plaintiffs “executed a standard loan agreement specifying certain fees that they must pay as part of the transaction, including a $350.00 ‘notary fee,’” which the loan documents stated were “reasonable and necessary.” Id. American General did not disclose that under OCGA § 45-17-11, the maximum permissible notarial fee is $4.00. Id. Plaintiffs paid the $350 notary fee, and their class action complaint followed. Id. Defense attorneys moved to dismiss the class action complaint, id. The district court granted the motion finding (1) a private right of action does not exist under OCGA § 45-17-11, (2) Georgia’s “voluntary payment statute,” see OCGA § 13-1-13 (2002), barred the contract claims, and (3) the four-year statute of limitations barred other claims. Id. On appeal, the Eleventh Circuit expressed “doubt [as to] the correct application of state law in this case,” id.; accordingly, the Circuit Court certified those questions to the Georgia Supreme Court.

The Eleventh Circuit explained that “[t]he Supreme Court of Georgia may review a question of law certified by this Court when it is ‘determinative of the case’ and there are ‘no clear controlling precedents in the decisions of the Supreme Court.’” Anthony, at 1305 (citing OCGA § 15-2-9(a)). Because the Circuit Court found “no clear controlling precedent” as to several issues dispositive of the appeal, the Court certified the following questions to the Georgia Supreme Court:

Continue reading "Class Action Defense Cases–Anthony v. AIG: Eleventh Circuit Certifies Questions To Georgia Supreme Court Following Dismissal Of Class Action Complaint Challenging Excessive Notary Fees Charged In Connection With Refinance" »

Posted In: Class Action Court Decisions

Trial Court Properly Granted Summary Judgment in Favor of Employer in Class Action Alleging Failure to Pay Wages under Labor Code because Prospective, Bilateral Agreement between Employer and Employee to Pay a Portion of Compensation in Restricted Stock Shares that were Forfeited upon Resignation or Termination for Cause Prior to Expiration of Two-Year Vesting Period did not Violate Labor Code California Supreme Court Holds

Plaintiff, a former stockbroker at Smith Barney (a subsidiary of Citigroup), filed a putative class action in California state court against Citigroup and others alleging violations of California’s labor laws; specifically, the class action complaint alleged that Citigroup’s voluntary employee incentive compensation plan, which permitted employees to obtain “shares of restricted company stock at a reduced price in lieu of a portion of that employee’s annual cash compensation,” violated California law because the plan provided that if the employee resigns or is fired then he forfeits any shares of stock that had not yet vested. Schachter v. Citigroup, Inc., 47 Cal.4th 610 (Cal. 2009) [Slip Opn., at 1-2]. According to the allegations underlying the class action complaint, plaintiff, “along with officers and other key individuals in the company’s employ,” participated in the plan – receiving restricted stock in lieu of a portion of their salary. Id., at 3. The stock would not vest for two years, and if an employee was fired without cause prior to that time then “the employee forfeited his or her restricted stock, but received in return, without interest ‘a cash payment equal to the portion of his or her annual compensation that had been paid in the form of such forfeited [r]estricted [s]tock.’” Id. However, if the employee voluntarily resigned or was terminated for cause prior to that time, then “the employee forfeited his or her restricted stock as well as the percentage of annual income designated by the employee to be paid as shares of restricted stock.” Id. Plaintiff resigned before all of his stock vested, and therefore fell within this latter group, forfeiting his stock and that portion of his income that he directed to be paid as stock. Id., at 4. His class action complaint followed, id. Defense attorneys moved for summary judgment but the motion was denied, id. After several years of litigation, and after the trial court certified the litigation as a class action, the trial court reconsidered its summary judgment ruling sua sponte and concluded that the plan’s forfeiture provision did not violate California law; accordingly, it granted defendants’ motion for summary judgment. Id., at 5. The California Court of Appeal affirmed, see id., at 5-6, and the California Supreme Court granted review, id., at 7. The Supreme Court affirmed, concluding that “the forfeiture provision does not run afoul of the Labor Code because no earned, unpaid wages remain outstanding upon termination according to the terms of the incentive plan.” Id., at 1.

The issue before the Supreme Court was whether employees “would be owed – and therefore would be required to forfeit – any ‘earned and unpaid’ wages upon resigning or being terminated for cause.” Schachter, at 8. Plaintiff argued “the percentage of his annual compensation he directed be paid to him in the form of shares of restricted stock constitutes a wage that remained earned but unpaid following his resignation.” Id., at 9. The Supreme Court disagreed, holding that the shares of restricted stock constituted wages. Id. The controlling factor was that the employer and employees had entered into a bilateral agreement after the employees had been hired: “It cannot be questioned that employers and employees are free to prospectively and bilaterally alter the terms of employment.” Id., at 11. Here, plaintiff specifically requested that he be paid in part in restricted stock shares, and contractually agreed that “his resignation or termination for cause before the end of the two-year vesting period would result in forfeiture of the restricted stock and the percentage of his compensation that he ‘authorized to be paid in the form of such restricted stock.’” Id. The Supreme Court summarized its holding at page 13:

Continue reading "Class Action Defense Cases–Schachter v. Citigroup: California Supreme Court Affirms Defense Judgment In Labor Law Class Action Holding Forfeiture Of Restricted Stock Shares Upon Termination Did Not Violate California Labor Code" »

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

Class Action Alleging Denial of Loan Modifications under HAMP (Home Affordable Modification Program) Violate Constitutional Right to Procedural Due Process Unlikely to Succeed on the Merits because Federal Regulations did not Create Property Right in Loan Modifications so Plaintiffs’ Request for Preliminary Injunction Denied Minnesota Federal Court Holds

Plaintiffs filed a putative class action against various defendants – including various banks and federal government agencies – seeking a preliminary injunction. Williams v. Geithner, ___F.Supp.2d ___ (D. Minn. November 9, 2009) [Slip Opn., at 1-2]. The allegations underlying the class action complaint concern the federal Home Affordable Modification Program (HAMP), which “is aimed to financially assist three to four million homeowners who have defaulted on their mortgages or who are in imminent risk of default by reducing monthly payments to sustainable levels.” Id., at 4. The federal government “defin[ed] the class of borrowers who are eligible for a loan modification” and, through HAMP, provides “financial incentives to participating mortgage servicers to modify the terms of eligible loans.” Id. (footnote omitted). (The district court opinion summarizes HAMP in detail. See id., at 4-7.) The gravamen of the class action is that plaintiffs became delinquent on their home loans and sought loan modifications under HAMP, but their requests were denied. They then filed this class action complaint, which alleges that denial of the loan modifications constitutes “a violation of their constitutional right to procedural due process.” Id., at 9. The class action purports to represent (1) “people who are delinquent on their mortgage payments, have applied for and been denied a loan modification, but whose loan servicers have not yet taken foreclosure action,” and “people who are delinquent on their mortgage payments, have applied for and been denied a loan modification, and whose homes have been sold at a foreclosure sale and whose statutory right of redemption period has not yet expired.” Id., at 8-9. Under plaintiffs’ theory, “Congress intended to provide a particular benefit to homeowners facing foreclosure, and, therefore, Defendants are required to provide that benefit in accordance with Plaintiffs’ constitutional rights. Specifically, Plaintiffs contend that Defendants’ failure to provide written notification of an adverse decision and an opportunity for appeal deprives them of due process of law in violation of the United States Constitution. Plaintiffs seek an injunction of all foreclosures by Defendants in Minnesota until the HAMP’s constitutional infirmities are resolved.” Id., at 9. Plaintiffs sought a preliminary injunction in furtherance of their claims, but the district court denied such relief.

In the Eighth Circuit, issuance of a preliminary injunction requires that the district court “balance four factors: (1) the likelihood of the movant’s success on the merits; (2) the threat of irreparable harm to the movant in the absence of relief; (3) the balance between the harm to the movant and the harm that the relief would cause to the other litigants; and (4) the public interest.” Williams, at 9 (citing Dataphase Systems, Inc. v. C L Systems, Inc., 640 F.2d 109, 114 (8th Cir. 1981)). The district court focused on the first test – the likelihood of success on the merits – and concluded that “the regulations at issue here did not intend to create a property interest in loan modifications for mortgages in default.” Id., at 11. We do not summarize the numerous grounds relied upon by the federal court in reaching this conclusion; they are set forth at pages 10 through 14. Central to the court’s reasoning, however, was its determination that loan modifications were not a “right” or an “entitlement,” see id., at 11-12, and that discretion existed in determining whether to grant such modifications,. see id., at 12-13. The district court therefore concluded at page 14, “Plaintiffs do not have a legitimate claim of entitlement to a loan modification. Thus, the HAMP does not provide Plaintiffs with a ‘protected property interest,’ the denial of which must comport with due process protections.” Accordingly, the court denied plaintiffs’ motion for preliminary injunction. Id., at 15.

Posted In: Class Action Court Decisions

Judicial Panel Grants Plaintiff Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407, Over Objection of Common Class Action Defendants, but Transfers Class Actions to Western District of Pennsylvania

Seven class actions – two in the Northern District of Illinois, and one each in the Middle and Southern Districts of Florida, the Northern District of Georgia, the Southern District of New York and the Western District of Pennsylvania, – were filed against various Enterprise Rent-A-Car entities alleging labor law violations. In re Enterprise Rent-A-Car Wage & Hour Employment Prac. Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. June 10, 2009) [Slip Opn., at 1]. According to the allegations under the class actions, “defendants violated the Fair Labor Standards Act (FLSA) by misclassifying their assistant managers as salaried and thus not entitled to overtime.” Id. Attorneys for plaintiffs in one of the Illinois class actions 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, where their class action was pending. Id. “With the exception of plaintiff in the Western District of Pennsylvania action, who urges that the Panel select that district as transferee district, all responding plaintiffs support selection of the Northern District of Illinois. Responding defendants Enterprise Rent-A-Car Co., Inc., and its affiliates, however, oppose centralization, and, if the Panel orders centralization over their objections, ask that the Eastern District of Missouri be selected as transferee district.” Id. The Judicial Panel granted the motion to centralize the class action lawsuits, rejecting defendants’ claims that the various class actions presented individual issues. The Panel explained:

In opposing centralization, defendants argue, inter alia, that the actions do not share factual issues, because individual Enterprise subsidiaries – unique to each state – employed the assistant branch managers and were responsible for classifying them as exempt and ensuring compliance with the FLSA. We are not persuaded by this argument, however, because the record indicates that the involvement vel non of Missouri-based Enterprise Rent-A-Car Co., Inc., in overseeing its subsidiaries and, in particular, setting policies affecting the employment of assistant managers is, in fact, an open question common to the actions in the litigation. On this and any other common issues, centralization under Section 1407 has the benefit of placing all actions in this docket before a single judge who can structure pretrial proceedings to consider all parties’ legitimate discovery needs, while ensuring that common parties and witnesses are not subjected to discovery demands that duplicate activity that has already occurred or is occurring in other actions.

Id., at 1-2. The Judicial Panel rejected the Northern District of Illinois, however, even though it enjoyed wide support, deciding instead that the Western District of Pennsylvania as the appropriate transferee court because “[t]he first-filed action is pending there, and that action is measurably more advanced than either [class action in Illinois],” id., at 2. Accordingly, the Panel transferred all class actions pending outside of Pennsylvania to that district. Id.

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

Class Action Complaint Alleging Securities Fraud Violations Failed to Allege Facts (as Opposed to Conclusions) or Adequately Plead Scienter under Heightened Pleadings Requirements of Private Securities Litigation Reform Act (PSLRA) Illinois Federal Court Holds

Plaintiffs filed a putative class action against various officers and directors of Midway Games alleging violations of federal securities laws; specifically, the class action complaint “alleg[ed] that the executives artificially inflated the market value of Midway stock by deceiving the public about the company’s financial position.” Zerger v. Midway Games, Inc., ___ F.Supp.2d ___ (N.D. Ill. October 19, 2009) [Slip Opn., at 1]. (Plaintiffs also filed a class action against Midway Games, but voluntarily dismissed it after Midway filed for bankruptcy protection. Id., at 2.) According to plaintiffs, the allegations underlying the class action complaint established violations of §§ 10(b) and 20(a) of the Securities Exchange Act of 1934, and of SEC Rule 10b-5. Id., at 1. Defense attorneys moved to dismiss the class action complaint for failure to meet the heightened pleading requirements established by the PSLRA (Private Securities Litigation Reform Act), id. The district court granted the motion and dismissed the complaint.

Over the course of 20 years, Midway developed more than 400 video games for various platforms, including home-console, handheld, coin-operated and PC. Zerger, at 2. In 2001, the company decided to focus on home-console and handheld devices, such as Xbox, Game Cube, Game Boy and PlayStation. Id. In 2005, the company “announced its first profitable quarter in five years,” id. But in the words of the Circuit Court, “all was not well with Midway’s business model.” Id., at 3. And while the company “repeatedly assured the market that Midway had sufficient working capital to fund day-to-day operations and to continue product development,” in September 2005 it had to borrow money to fund its day-to-day operations. Id. The class action complaint outlined other alleged omissions, see id., at 3-5, concluding that defendants took advantage of the false impression they had given the market to sell 800,000 shares of stock, nearly all of them in a 3-week period, id., at 5. Plaintiffs also blamed Sumner Redstone (chairman of Viacom and controlling shareholder of Midway) for the inflated stock prices because he had announced that he was “evaluating Midway as a potential acquisition target for Viacom” and had purchased millions of shares of stock in the company. Id. Analysts expressed concern that these purchases caused Midway’s stock to be “somewhat overvalued” and warned that if Redstone decided to sell his shares then the stock price would drop. Id. Redstone later announced that Viacom would not acquire Midway, and the stock “immediately began to lose value” ultimately falling more than 50%. Id., at 5-6.

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

District Court Properly Found Class Action’s State Law Claims Fell within Scope of Securities Litigation Uniform Standards Act (SLUSA) Sixth Circuit Holds

Plaintiff filed a putative class action against Fifth Third Bank and its holding company, Fifth Third Bancorp., alleging breach of fiduciary duty and breach of contract. Segal v. Fifth Third Bank, N.A., 581 F.3d 305, 308 (6th Cir. 2009). According to the allegations underlying the class action complaint, Fifth Third “ breached its fiduciary and contractual duties to the class in three ways: (1) It invested fiduciary assets in proprietary (and often higher-fee) Fifth Third mutual funds rather than superior funds operated by the Bank's competitors; (2) it promised trust beneficiaries that their fiduciary accounts would receive ‘individualized’ management and breached that agreement by providing standardized and largely automated management…, often by ‘relatively inexperienced’ and ‘low-level’ employees…; and (3) it invested too many of the funds' assets in low-yielding investments in order to cover the accounts' near-term tax liabilities.” Id. Defense attorneys moved to dismiss the class action on the grounds that the state law claims were preempted by the Securities Litigation Uniform Standards Act of 1998 (SLUSA); the district court agreed and dismissed the class action complaint. Id. The Sixth Circuit affirmed.

The Sixth Circuit explained that Congress enacted Private Securities Litigation Reform Act (PSRLA) to “curb[] ‘perceived abuses’ of federal class-action securities litigation by imposing special requirements and obstacles on claimants filing such actions.” Segal, at 308 (citations omitted). However, “some claimants responded by ‘avoid[ing] the federal forum altogether,’ bringing ‘class actions under state law, often in state court’ instead.” Id., at 309 (citation omitted). Because this “was not what Congress had in mind,” it enacted SLUSA: its purpose was to “‘prevent certain State private securities class action lawsuits alleging fraud from being used to frustrate the objectives of’ PLSRA…[by] expressly prohibit[ing] certain state law class actions,” id. (citation omitted). The Circuit Court explained that “SLUSA prohibits a claimant from filing a class action when four things are true: (1) the class action is ‘covered,’ which means it involves more than fifty members; (2) the claims are based on state law; (3) the action involves a ‘covered security,’ which means a nationally listed security; and (4) the complaint alleges ‘an untrue statement or omission of a material fact in connection with’ buying or selling a covered security or a ‘manipulative or deceptive device or contrivance in connection with’ buying or selling a covered security.” Id. (citations omitted). The parties agreed that the first three of these requirements were satisfied by the class action – the question on appeal was whether the last requirement had been met. Id.

Continue reading "SLUSA Class Action Defense Cases–Segal v. Fifth Third Bank: Sixth Circuit Affirms Dismissal Of Class Action Complaint Holding Class Action Claims Fell Within Scope Of SLUSA" »

Posted In: Class Actions In The News, Class Action Court Decisions, PSLRA/SLUSA Class Actions

Class Action Alleging Securities Fraud Properly Dismissed because Class Action Complaint Failed to Meet Heightened Pleading Requirements Established by Private Securities Litigation Reform Act (PSLRA) Sixth Circuit Holds

Plaintiffs filed a putative class action against Omnicare and individual officers and directors of Omnicare alleging violations of federal securities laws; in the words of the Sixth Circuit, “Seizing on a few vague statements from management, the plaintiffs try to turn bad corporate news into a securities class action.” Indiana State Dist. Counsel of Laborers, etc. v. Omnicare, Inc., 583 F.3d 935 (6th Cir. 2009) [Slip Opn., at 1, 2]. We do not here summarize the “sprawling and repetitive” allegations underlying the class action complaint, id., at 3; interested readers may find the Circuit Court’s summary at pages 3 through 7 of the opinion. Defense attorneys moved to dismiss the class action, which the district court granted. See id., at 7-8. Reviewing the district court’s decision de novo, id., at 8, the Sixth Circuit affirmed. The Court summarized its holding at page 2 as follows, “Because the Private Securities Litigation Reform Act (‘PSLRA’) forbids such alchemy, we generally affirm the district court’s dismissal, although we reverse its disposition regarding the claims brought under the Securities Act of 1933.”

The Sixth Circuit began its analysis by explaining that § 10(b) securities fraud claims must be pleaded with the same specificity as fraud claims under FRCP Rule 9(b). Omnicare, at 9. The Court further explained, “Bolstering this rule of specificity, the PSLRA imposes further pleading requirements…. First, the complaint must ‘specify each statement alleged to have been misleading’ along with ‘the reason or reasons why the statement is misleading.’… Second, plaintiffs must ‘state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.’” Id. (citations omitted). Under this standard, the Sixth Circuit affirmed. The Circuit Court concluded that the statements challenged by the class action complaint were not material, see id., at 9-11, or failed to adequately allege loss causation, see id., at 11-12, or failed to establish that defendants knew Omnicare’s claims of “legal compliance” were false when made, see id., at 13-16.

Continue reading "PSLRA Class Action Defense Cases–Indiana State District Counsel v. Omnicare: Sixth Circuit Affirms Dismissal Of Securities Fraud Class Action Noting Bad Corporate News Does Not Automatically Mean Securities Fraud" »

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

Class Action Alleging Violations of California’s Song-Beverly Act Properly Dismissed because Zip Codes are not “Personal Identification Information” Within the Meaning of the Statute California Appellate Court Holds

Plaintiff filed a putative class action against Williams-Sonoma alleging inter alia violations of California’s “Song-Beverly” Act, which “prohibits merchants that accept credit cards in transacting business from requesting and recording ‘personal identification information’ concerning the cardholder.” Pineda v. Williams-Sonoma Stores, Inc., ___ Cal.App.4th ___ (Cal.App. October 23, 2009) [Slip Opn., at 1]. According to the allegations underlying the class action complaint, defendant “requested and recorded the customer's zip code for the purpose of using it and the customer's name to obtain the customer's address through the use of a ‘reverse search’ database.” Id., at 1-2. Specifically, as part of plaintiff’s credit card purchase, Williams-Sonoma requested her zip code, and used it (in combination with her name) to perform a reverse-search, from which it obtained her residential mailing address. Id., at 2. Defense attorneys demurred to the class action on the grounds that “a zip code is not ‘personal identification information’” within the meaning of Song-Beverly. Id., at 3. (We do not here discuss the other causes of action.) The trial court agreed and dismissed the class action. Id. The Court of Appeal affirmed.

The Court of Appeal did not spend an excessive amount of time analyzing the issue before it, as it is quite straight-forward and, in the author’s view, governed by existing case law. See Party City Corp. v. Superior Court, 169 Cal.App.4th 497 (Cal.App. 2008) (concluding zip codes are not “personal identification information” under Song-Beverly). After summarizing Song-Beverly, see Pineda, at 4, the appellate court followed Party City. The Court rejected plaintiff’s argument that Party City was distinguishable on the ground that, in that case, there was no evidence that the merchant actually used the zip code to perform a reverse search, id., at 5-6. The Court of Appeal concluded, “Simply put, the Act either allows a retailer to ask customers for a zip code or it prohibits this conduct. The Party City court concluded, and we agree, that the Act does not prohibit this conduct.” Id., at 6. Accordingly, the appellate court affirmed the dismissal of the class action. Id., at 9.

Posted In: Class Action Court Decisions

Plaintiffs in Class Action Challenging Late Fees Imposed on Credit Card Accounts and Contesting Enforceability of Arbitration Clause that Includes a Class Action Waiver were Entitled to Conduct Limited Discovery to Support Claim that Class Action Waiver was Unconscionable Rhode Island Federal Court Holds

Plaintiffs filed a putative class action against Bank of America alleging violations of the federal Truth in Lending Act (TILA) and breach of credit card agreements based on the late fees charged by the Bank on credit card accounts; the class action complaint also sought a declaration that the arbitration clause in the credit card agreements, which included a class action waiver, was unenforceable. Trombley v. Bank of America Corp., 636 F.Supp.2d 151, 152 (D.R.I. 2009). The Bank argued that the credit card agreements “include an enforceable arbitration provision, which provides that Delaware law is the governing authority, precludes class actions, and designates the National Arbitration Forum (‘NAF’) for arbitration proceedings.” Id., at 153. Defense attorneys moved to compel arbitration of the class action’s claims on an individual basis based on the class action waiver in the arbitration clause; plaintiffs opposed the motion, arguing that the class action waiver was unconscionable and therefore unenforceable. Id., at 152. Plaintiffs also sought additional time to respond to the Bank’s motion, in order to conduct discovery concerning the unconscionability of the class action waiver. Id., at 153. The Bank opposed plaintiffs’ request for additional time, asserting that the motion to compel arbitration presented issues that were “largely legal questions and that the information necessary to support the plaintiffs’ arguments is available to them without discovery.” Id. The district court granted plaintiffs additional time to conduct discovery and, accordingly, postponed ruling on the motion to compel arbitration.

Preliminarily, the district court observed that the arbitration clause contains an express exception which provides that any challenge to the class action waiver is to be decided by the court rather than by an arbitrator. Trombley, at 152-53. The federal court also noted that it was plaintiffs’ burden to establish that the arbitration clause was unconscionable, and that plaintiffs’ request for additional time was for purposes of conducting “limited discovery” concerning the Bank’s assertion that the class action claims “are subject to arbitration.” Id., at 153. Specifically, plaintiffs argued “that they need[ed] discovery to challenge the class action waiver in the arbitration provision with factual support that the waiver is unconscionable because it operates as a bar to the claims raised in this case.” Id., at 154. The district court agreed that plaintiffs were entitled to conduct discovery relevant to the issue of whether, because of the small amounts involved in any individual claim “has resulted in few or no individual claims being brought against [the Bank],” id. And with respect to the question of unconscionability, the district court held that plaintiffs were entitled to “limited discovery to address the procedures used by [the Bank] to sign up credit card members and the substantive issues of the costs and the alleged institutional bias of the NAF,” id. Accordingly, the federal court granted plaintiffs 60 days for the purpose of conducting “discovery limited to the enforceability of the class action waiver provision and the procedural and substantive unconscionability of the arbitration provision.” Id.

Posted In: Arbitration, Class Action Court Decisions

Class Action Complaint Against Credit Reporting Agencies Alleging State Law Claims Arising from Sale of “Trigger Leads” to Mortgage Lenders Properly Dismissed because Class Action Claims were Preempted by Federal Fair Credit Reporting Act (FCRA) Second Circuit Holds

Plaintiff, a mortgage lender, filed a putative class action against various consumer reporting agencies, including Equifax, Trans Union and Experian, alleging various state-law claims based on defendants’ “sale of mortgage ‘trigger leads’ to third party lenders”; the class action complaint explained that “trigger leads” reflect a consumer’s interest in obtaining a loan. Premium Mortgage Corp. v. Equifax, Inc., 583 F.3d 103, 2009 WL 3163225, *1 (2d Cir. 2009). According to the allegations underlying the class action complaint, “defendants’ practice of permitting other lenders to purchase ‘pre-screened’ consumer reports…that, in essence, contain trigger leads” results in the disclosure of “proprietary customer information” because “such information is not readily known in the industry and it cannot be obtained except through extraordinary effort.” Id. Specifically, “the prescreened reports in question use the information conveyed by a trigger lead as a screening criterion in order to generate a list of consumers who are in the market for mortgages and other loan facilities” and “[t]he lenders purchasing these lists then compete with plaintiff and similarly situated mortgage brokers by offering terms on loans to the customers.” Id. Defense attorneys moved to dismiss the class action on the grounds that the claims were preempted by the federal Fair Credit Reporting Act (FCRA); the district court granted the motion and dismissed the class action. Id. The Second Circuit affirmed.

The Circuit Court reviewed the district court order de novo. Premium Mortgage, at *2. The Second Circuit readily affirmed the district court’s order with respect to “the bulk of plaintiff’s state common-law claims” based on the FCRA’s unambiguous language that “no requirement or prohibition may be imposed under the laws of any State ... with respect to any subject matter regulated under ... subsection (c) or (e) of section 1681b of this title, relating to the prescreening of consumer reports.” Id. (quoting § 1681t (b)(1)(A)). The class action’s claims concerned “consumer reports,” within the meaning of the FCRA, because “trigger leads are simply one of the constituent parts” of such reports; the Circuit Court therefore rejected plaintiff’s argument that “its claims are not preempted because the trigger leads themselves are not “consumer reports” under the FCRA.” Id. The Second Circuit also rejected plaintiff’s attempt to create a distinction, for preemption purposes, between the class action’s statutory and common-law claims. See id., at *2-*4. Because the claims fell squarely within the FCRA, the Circuit Court affirmed the district court order dismissing the class action complaint on grounds of preemption. Id., at *4.

Posted In: FCRA Class Actions, Class Action Court Decisions

Class Action Alleging Violations of California’s Unfair Competition Law (UCL) and Consumer Legal Remedies Act (CLRA) Properly Denied Class Action Treatment because Putative Class Members Lacked Commonality California Appellate Court Holds

Plaintiff filed a putative class action in California state court against DIRECTV on behalf of satellite television service subscribers alleging false advertising; specifically, the class action complaint alleged that DirecTV violated California’s Consumer Legal Remedies Act (CLRA) and Unfair Competition Law (UCL). Cohen v. DIRECTV, Inc., ___ Cal.App.4th ___ (Cal.App. October 28, 2009) [Slip Opn., at 1, 2]. According to the allegations underlying the class action complaint, defendant used false advertising to induce consumers to “purchase more expensive ‘high definition’ or ‘HD’ services.” Id., at 2. Plaintiff alleges that he had the company’s “basic” service, but switched to HD service, at a higher monthly fee and purchasing the new equipment required, based on advertisements promising “higher quality television images,” id., at 2. However, the class action alleged that DIRECTV “started tinkering with the HDTV channels making up the HD Package in an effort to preserve bandwidth” and eventually “reduced the bandwidth of transmission from ‘19.4 Mbps’ … to ‘an astonishing 6.6 Mbps,’ and also reduced the ‘horizontal and interlaced vertical lines’ on certain channels.” Id. The complaint was premised on the theory that class members had “‘subscribed to DIRECTV’s HD Package based upon DIRECTV’s national advertising and marketing of the HD Package;’ and that DIRECTV ha[d] ‘represented that channels in its HD Package are broadcasted in the . . . 1920x1080i standard and at 19.4 Mbps, which they are not,’ and that DIRECTV has ‘advertised the sale of its HD Package without the intent to provide the customers with broadcasts in the . . . 1920x1080i standard and at 19.4 Mbps.’” Id., at 3. Defense attorneys moved the trial court to compel arbitration of the class action claims, but the court denied the motion and the appellate court affirmed. See Cohen v. DIRECTV, Inc., 142 Cal.App.4th 1442 (Cal.App. 2006). Eventually, plaintiff moved the trial court to certify the litigation as a nationwide class action, and supported the motion with “print advertising and promotional materials for its HD Package.” Cohen, at 4. Defense attorneys opposed class action treatment, and submitted to the trial court declarations from a number of subscribers attesting that they upgraded their service without relying on the company’s print advertising or other promotional materials. Id. The trial court denied class action certification, holding that the class was not ascertainable and did not possess a well-defined community of interest because it included subscribers who never saw any DIRECTV ads, or who saw ads that did not reference bandwidth or pixels, or who otherwise were not influenced by the company’s advertising. Id., at 5-6. The class definition was thus overbroad, id., at 6. Additionally, the laws of each state would govern the claims of their respective class members. Id., at 6-7. The trial court therefore denied class action certification, id., at 7. Plaintiffs appealed, and the Court of Appeal affirmed.

After summarizing the standard governing class action certification in California, see Cohen, at 8, the appellate court turned to the question of ascertainability. The Court of Appeal held that the trial court erred in finding that the class was not ascertainable because “The defined class of all HD Package subscribers is precise, with objective characteristics and transactional parameters, and can be determined by DIRECTV’s own account records.” Id., at 10. However, the appellate court agreed that the proposed class lacked commonality. First, the appellate court agreed that “subscribers’ legal rights may vary from one state to another state, and that subscribers outside of California may not be protected by the CLRA and UCL.” Id., at 13. The appellate court concluded that it was not error to deny plaintiff’s request to restrict class membership to a state-wide class because even as so limited commonality would not exist. The Court explained at page 13, “The record supports the trial court’s finding that common issue of fact do not predominate over the proposed class because the class would include subscribers who never saw DIRECTV advertisements or representations of any kind before deciding to purchase the company’s HD services, and subscribers who only saw and/or relied upon advertisements that contained no mention of technical terms regarding bandwidth or pixels, and subscribers who purchased DIRECTV HD primarily based on word of mouth or because they saw DIRECTV’s HD in a store or at a friend’s or family member’s home.”

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

District Court Erred in Dismissing RESPA Class Action because Kickback Prohibition does not Require that Consumers Suffer an Overcharge as a Prerequisite to Prosecuting Claim for RESPA Violation Third Circuit Holds

Plaintiffs filed a putative class action against Countrywide Financial Corporation, Countrywide Home Loans and Balboa Reinsurance Company alleging violations of the federal Real Estate Settlement Procedures Act of 1974 (RESPA); the class action complaint was “brought by homebuyers who sought to recover statutory treble damages pursuant to section 8(d)(2) of [RESPA], codified at 12 U.S.C. § 2607(d)(2).” Alston v. Countrywide Fin. Corp., 585 F.3d 753 (3d Cir. 2009) [Slip Opn., at 1, 3]. According to the allegations underlying the class action complaint, “[plaintiffs’] private mortgage insurance premiums were channeled into an unlawful ‘captive reinsurance arrangement’ – essentially, a kickback scheme – operated by their mortgage lender, Countrywide Home Loans… and its affiliated reinsurer, Balboa Reinsurance…in violation of RESPA section 8(a) and section 8(b),” id., at 3. The class action alleged that “in enacting and amending section 8, Congress bestowed upon the consumer the right to a real estate settlement free from unlawful kickbacks and unearned fees, and Countrywide’s invasion of that statutory right, even without a resultant overcharge, was an injury-in-fact for purposes of Article III standing.” Id. Defense attorneys moved to dismiss the class action complaint for lack of jurisdiction on the ground that “plaintiffs’ monthly PMI premiums were filed with the PID [Pennsylvania Insurance Department] and, therefore, per se reasonable under the filed rate doctrine.” Id., at 7. Defense attorneys also argued that because plaintiffs’ PMI rates had been approved by the state, they could not have suffered an overcharge and, absent an overcharge, they had not suffered the “injury-in-fact” required for Article III standing. Id. The district court granted the motion and dismissed the class action without prejudice. Id., at 3, 7-8. Plaintiffs appealed, and the Third Circuit reversed.

The class action was premised on the theory that Countrywide steered homebuyers who needed PMI insurance to companies that would “reinsure” the PMI policies with Balboa pursuant to a “captive reinsurance arrangement.” Alston, at 5. Further, the lawsuit claimed that because “Balboa did not assume risk commensurate with the amount of premiums it received” – having purportedly collected almost $900 million without paying any money in claims – the premiums paid to Balboa constituted “kickbacks to Countrywide by the primary insurer, in return for Countrywide’s referral of PMI business to the primary insurer, thereby violating RESPA’s anti-kickback provision,” id., at 6. In other words, Countrywide “offered only ‘sham’ reinsurance coverage,” id. Plaintiffs alleged that because of the kickback scheme they were entitled to statutory damages under RESPA even if the scheme did not result in overcharges to the consumer. Id., at 6-7. The Circuit Court defined the issue as follows: “What is before us for decision turns on a question of statutory interpretation—does or does not the plain language of RESPA section 8 indicate that Congress created a private right of action without requiring an overcharge allegation? We conclude that it does. Accordingly, we will reverse the Order of the District Court.” Id., at 3.

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

Class Action Alleging Violations of FCRA (Fair Credit Reporting Act) Properly Dismissed because Mailer Constituted “Firm Offer” within Meaning of FCRA Third Circuit Holds

Plaintiff filed a putative class action against State Farm Mutual Automobile Insurance Company alleging violations of the federal Fair Credit Reporting Act (FCRA); specifically, the class action complaint alleged that State Farm obtained credit information in order to send out “prescreened offers” but that it did so in violation of the FCRA. Gelman v. State Farm Mut. Auto. Ins. Co., 583 F.3d 187, 2009 WL 3163553, *2 (3d Cir. 2009). According to the allegations underlying the class action complaint, in November 2004 State Farm asked Experian for plaintiff’s consumer credit report without his consent, and that he did not learn about it until April 2006, “when he received a copy of his consumer credit report from Experian.” Id. State Farm claimed that it obtained plaintiff’s credit report for a “permissible purpose” within the meaning of the FCRA, and “used it to select [plaintiff] to receive materials pertaining to insurance products that he might qualify for and/or be interested in.” Id. The mailer sent to plaintiff stated that it was a “prescreened offer,” and invited him to contact State Farm for a quote in order to determine whether switching to State Farm as his auto insurance carrier could save him money. Id. The mailer also contained a “prescreen & opt-out notice,” id. The class action alleged that the mailer is nothing more than “an invitation to call State Farm to find out about the various insurance products that State Farm might attempt to sell”; in other words, “the State Farm mailing is nothing more than promotional material soliciting him to contact State Farm regarding its various insurance products and that it is therefore not the kind of firm offer of insurance that would legitimize State Farm's access to his credit report under federal law.” Id., at *2. Defense attorneys moved to dismiss the class action; the district court granted the motion as to all claims in the class action complaint, id. The Third Circuit affirmed.

The class action alleged that State Farm intentionally or negligently obtained plaintiff’s credit report under false pretenses and without a permissible purpose, and sent an offer of insurance that failed to include the “clear and conspicuous” disclosures required by the FCRA. Gelman, at *2. The complaint sought declaratory and injunctive relief, id. The district court granted State Farm’s motion to dismiss the class action because it found that the mailer “constituted an offer of insurance under the FCRA,” that “the FCRA does not provide for a private right of action to recover for disclosures that are contrary to provisions of the FCRA,” and that “the FCRA does not provide private litigants declaratory and injunctive relief.” Id. We do not here summarize the Circuit Court’s discussion of the legal background behind the FCRA, see id., at *3-*4. The Circuit Court began its legal analysis by addressing the district court’s conclusion that State Farm’s mailer satisfied the FCRA because the offer of insurance need not have “value” to the consumer. Id., at *4. Plaintiff’s theory was premised “exclusively” on the Seventh Circuit opinion in Cole v. U.S. Capital, Inc., 389 F.3d 719 (7th Cir. 2004), which held that a “firm offer” under the FCRA “must have sufficient value for the consumer to justify the absence of the ... protection of his privacy.” Id. (quoting Cole, 389 F.3d at 726). (The Third Circuit’s summary of Cole may be found at pages *4 and *5 of its opinion.)

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Posted In: FCRA Class Actions, Class Action Court Decisions

District Court Erred in Refusing Motion to Stay Class Action Against Bank and Compel Arbitration of Individual Claim based on Arbitration Clause with Class Action Waiver because Class Action Waiver, and Cost-Sharing Provision, of Arbitration Clause did not Render Provision Unconscionable Eighth Circuit Holds

Plaintiff filed a putative class action in Missouri state court against Chase Bank alleging that it had imposed penalties on credit card holders and that it had violated Missouri’s Merchandising Practices Act (MMPA); in essence, the class action complaint alleged that Chase improperly increased the interest rate charged on credit card balances. Cicle v. Chase Bank USA, 583 F.3d 549, 2009 WL 3172157, *1 (8th Cir. 2009). According to the allegations underlying the class action complaint, plaintiff’s credit card with Chase initially “carried a 7.99% annual percentage rate (APR) on unpaid balances,” but then “increased dramatically, to 25.99%.” Id. When asked about the increase, the Bank responded that “a credit agency had reported her as past due on an unrelated loan or account, so Chase increased the APR from the 7.99% ‘Preferred Customer Pricing’ rate.” Id. Defense attorneys removed for the class action to federal court under CAFA (Class Action Fairness Act of 2005) and on the ground of federal question jurisdiction under the National Bank Act (NBA). Id. The Bank then asked the district court to stay the class action to compel plaintiff to arbitrate her individual claim pursuant to the terms of the arbitration clause in her Cardmember Agreement, which included a class action waiver. Id. The district court denied the defense motion, concluding that the class action waiver and the provisions for cost-sharing were unconscionable under Missouri law, id., at *3. The Eighth Circuit reversed, holding that the class action waiver was neither substantively nor procedurally unconscionable.

The Cardmember Agreement contained an arbitration clause, governed by the Federal Arbitration Act (FAA), that required arbitration on an individual basis of any dispute with the bank; specifically, the arbitration clause contained a class action waiver, prohibiting the cardmember from bringing “a class action or other representative action” and precluding the cardmember from being “part of any class action or other representative action.” Cicle, at *1-*2. The arbitration was to be binding, and covered “any claim, dispute or controversy by either you or us against the other, or against the employees, parents, subsidiaries, affiliates, beneficiaries, agents or assigns of the other, arising from or relating in any way to the Cardmember Agreement, any prior Cardmember Agreement, your credit card Account or the advertising, application or approval of your Account (‘Claim’).” Id., at *2. The arbitration clause provided an exception for small claims court matters, id. With respect to costs, the arbitration clause provided that the Bank would pay for the filing fee (up to $500) and, “if there is a hearing, we will pay any fees of the arbitrator and arbitration administrator for the first two days of that hearing.” Id. The agreement provided that all other fees would be “allocated in keeping with the rules of the arbitration administrator and applicable law,” and that each side otherwise would be responsible for their own attorney fees and costs, regardless of whether they prevailed, unless the arbitrator orders otherwise based on “any applicable law.” Id. Reviewing the district court’s decision de novo, see id., at *3, the Eighth Circuit reversed its refusal to enforce the arbitration clause.

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Posted In: Arbitration, Class Action Fairness Act (CAFA), Class Action Court Decisions

Judicial Panel Grants Plaintiff Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407, Despite Certain Plaintiff and Defense Objections, and Transfers Actions to Southern District of Florida

Five class actions – two in California and Florida, and one in New Jersey – were filed against various defendants – including Wachovia Bank, Bank of America and Citibank – “relating to industry-wide bank posting policies and procedures” surrounding overdraft fees. In re Checking Account Overdraft Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. June 10, 2009) [Slip Opn., at 1, 2]. According to the allegations under the class actions, the various defendant banks had implemented policies and procedures “relating to the imposition of overdraft fees…on their customer’s checking accounts in a manner to maximize these fees.” Id., at 2. Plaintiffs in one of the Florida class actions 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 Florida, id., at 1. Plaintiffs in the New Jersey class action and defendants Wachovia and Bank of America supported the motion, but Bank of America argued for transfer to the Western District of North Carolina. Id. Plaintiffs in the California class actions and defendant Citibank opposed the motion and if the motion were granted argued for centralization in the Northern District of California. Id. The Judicial Panel granted the motion to centralize the class action lawsuits, explaining at page 2: “While there will be some unique questions of fact from bank-to-bank, these actions share sufficient factual questions relating to industry-wide bank posting policies and procedures to warrant centralization of all actions in one MDL docket.” The Panel also agreed that the Southern District of Florida was the appropriate transferee court “because (1) two of the involved actions before the Panel are pending there, and (2) this district has the capacity to manage this MDL proceeding.” Id., at 2. Accordingly, the Panel transferred the class actions centralized in the Southern District of Florida. Id., at 2-3.

Posted In: Multidistrict Litigation, Class Action Court Decisions

Class Action Complaint Against Amazon Challenging Shipping and Handling Fees Satisfied Rule 23 Requirements for Class Action Treatment California Federal Court Holds

Plaintiff filed a putative class action against Amazon.com alleging violations of California’s Unfair Competition Law (UCL) and Consumer Legal Remedies Act (CLRA); specifically, the class action complaint alleged that Amazon, in addition to receiving “a sales commission and a percentage of the sales price for each item sold,” charged shipping and handling fees to buyers “without input from Marketplace Sellers” even though it was the sellers who “took care of packaging and shipping products.” Baghdasarian v. Amazon.Com, Inc., 258 F.R.D. 383, 385 (C.D. Cal. 2009). According to the allegations underlying the class action complaint, Amazon failed to disclose to buyers that it kept a portion of the shipping and handling fees and this act was “fraudulent” within the meaning of the UCL and CLRA, id. Plaintiff decided not to seek class action treatment of the class action complaint’s CLRA claim, but moved for class action certification of the UCL claim. Id. Plaintiff argued that the lawsuit satisfied the requirements for class action certification under Rule 23(b)(3), id., at 386. Defense attorneys opposed class action treatment, but the district court granted the motion.

The district court first held that plaintiff had standing to prosecute the class action. See Baghdasarian, at 386-87. Specifically, the federal court held that plaintiff had standing to prosecute the class action’s UCL claim, rejecting defense arguments that plaintiff had not suffered any economic harm because he “received the benefit of his bargain.” See id., at 386-87. The court also had little difficulty in finding that the requirements of Rule 23(a) for class action certification had been met. Id., at 388-89. The court also found that the class action requirements for certification under Rule 23(b)(3) had been met. The federal court readily found that the predominance test had been satisfied, see id., at 389-90, and also concluded that a class action would be “the most efficient way to resolve the claims of all class members, especially since the individual claims are small and economically unfeasible to litigate individually,” id., at 390, thus satisfying the superiority prong of Rule 23(b)(3). Accordingly, the district court granted plaintiff’s motion for class certification, see id., at 391.

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

Class Action Alleging Defendants’ Greenhouse Gas Emissions Contributed to Global Warming thereby Increasing Ferocity of Hurricane Katrina Improperly Dismissed because Plaintiffs had Standing to Assert Class Action’s Nuisance, Trespass and Negligence Claims and these Claims did not Present Nonjusticiable Political Questions Fifth Circuit Holds

Plaintiffs filed a putative class action against numerous defendants seeking damages arising from Hurricane Katrina; the class action complaint, filed on behalf of property owners on the Mississippi Gulf coast, alleged that “defendants’ operation of energy, fossil fuels, and chemical industries in the United States caused the emission of greenhouse gasses that contributed to global warming, viz., the increase in global surface air and water temperatures, that in turn caused a rise in sea levels and added to the ferocity of Hurricane Katrina, which combined to destroy the plaintiffs’ private property, as well as public property useful to them.” Comer v. Murphy Oil USA, Inc., 585 F.3d 855 (5th Cir. 2009) (Slip Opn., at 1). The class action complaint sought “compensatory and punitive damages based on Mississippi common-law actions of public and private nuisance, trespass, negligence, unjust enrichment, fraudulent misrepresentation, and civil conspiracy.” Id., at 2. Defense attorneys moved to dismiss the class action on the grounds of that plaintiffs lacked standing and that the class action claims constituted “nonjusticiable political questions.” Id. The district court granted defendants’ motion and dismissed the class action, id. The Fifth Circuit reversed as to the nuisance, trespass and negligence, concluding that plaintiffs had standing and that the claims do not “present nonjusticiable political questions,” but affirmed the dismissal of the class action’s remaining claims. Id., at 3.

The Circuit Court spent a considerable amount of time on the question of standing, see Comer, at 3-17, but we do not here discuss that aspect of the opinion in detail. We note only that the Fifth Circuit concluded that the class action’s “nuisance, trespass and negligence claims…clearly satisfied the…constitutional minimum standing requirements” because “[t]hese state common-law tort claims, in which plaintiffs allege that they sustained actual, concrete injury in fact to their particular lands and property, can be redressed by the compensatory and punitive damages they seek for those injuries.” Id., at 7-8. The question, then, was “whether any of those claims present a nonjusticiable political question, as the district court believed they did.” Id., at 17. Based on its lengthy analysis, see id., at 18-34, the Circuit Court held that these class action claims could proceed “[b]ecause those claims do not present any specific question that is exclusively committed by law to the discretion of the legislative or executive branch” and accordingly “they are justiciable,” id., at 17. Again, we do not summarize that detailed legal analysis here. Interested readers may find the entire text of the Fifth Circuit opinion below. We simply set forth the Circuit Court’s conclusion, at pages 34 and 35 of the opinion, which states:

Continue reading "Class Action Defense Cases–Comer v. Murphy Oil: Fifth Circuit Reinstates Class Action Alleging Global Warming Exacerbated Damage Caused By Hurricane Katrina" »

Posted In: Class Action Court Decisions

Class Action Alleging Antitrust Violations on Behalf of Indirect Purchasers Failed to Satisfy Class Action Requirements of Rule 23(b)(3) because no Methodology for Establishing Class Wide Damages but Request for Class Action Certification under Rule 23(b)(2) taken under Submission California Federal Court Holds

Plaintiff filed a putative class action against Apple alleging violations of federal and state antitrust laws; specifically, the class action complaint challenged Apple’s sale of music for its iPod through its iTunes online music store. Somers v. Apple, Inc., 258 F.R.D. 354, 355 (N.D. Cal. 2009). According to the allegations underlying the class action complaint, Apple utilizes proprietary hardware and software for its iPod and digital music downloads, Apple’s share of the online music market is 83% and of the online video market is 75%, and Apple “deliberately” makes music and videos purchased at its online store “inoperable with its competitors’ [hardware],” id., at 355-56. The class action alleges that this allows Apple “to charge iPod purchasers a supracompetitive price by preventing consumers who have purchased music files from iTMS from playing their music on Apple’s competitors’ digital media players.” Id., at 356. While a related case sets forth parallel allegations on behalf of consumers who purchased iPod’s directly from Apple, see The Apple iPod iTunes Antitrust Litigation, U.S.D.C. Northern District of California Case No. C 05-00037 JW, this class action is filed on behalf of consumers who made their purchases through third-party vendors. Id. Plaintiff moved the court to certify the litigation as a class action under both Rule 23(b)(2) and (b)(3), id., at 357. Defense attorneys opposed the motion, arguing that “Plaintiff fails to advance class-wide methods of demonstrating individual coercion or damages” and that “a nationwide class is not appropriate, because California antitrust law should not be applied on a nationwide basis.” Id., at 357-58. The district denied the motion.

After summarizing the legal framework surrounding certification of class actions in indirect purchaser antitrust class actions, see Somers, at 358-59, the district court turned to the request for certification under Rule 23(b)(3). (The court assumed without discussion that requirements of Rule 23(a) had been met.) Plaintiff argued that a class action would be manageable because “her expert’s methodology is sufficient to establish damages on a class-wide basis.” Id., at 359. Defense attorneys disagreed, arguing that the expert “fails to demonstrate how all class members suffered injury as a consequence of [Apple’s] alleged anticompetitive activity,” id. The district court held an evidentiary hearing on the competing, proposed methodologies, id., at 360-61, and concluded that plaintiff had not assuaged the court’s concerns as to a method of establishing damages for the class, id., at 361. Accordingly, the court denied class action certification because “Plaintiff has failed to meet her burden of establishing ‘a reliable method for proving common impact on all purchasers of [D]efendant’s products throughout the chain of distribution.’” Id., at 361 (citation omitted). And with respect to plaintiff’s motion for certification of a class under Rule 23(b)(2), the district court noted that it had requested further briefing on this issue and held that “the Court will not rule on this issue until it has greater understanding of the claims, the class definition, and the form of injunctive relief sought by Plaintiff in this case and the Plaintiffs in the parallel Direct Purchaser Action.” Id. Accordingly, it took the latter request under submission. Id.

Continue reading "Class Action Defense Cases–Somers v. Apple: California Federal Court Denies Class Action Certification Of Rule 23(b)(3) Class In Indirect Purchaser Antitrust Class Action But Reserves Ruling On Class Action Treatment Under Rule 23(b)(2)" »

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

Class Action Alleging Violations of Federal Americans with Disabilities Act (ADA) could not Properly be Certified with Respect to All 92 Franchise Restaurant Locations because no Common Architectural Design to Stores so no Commonality/Typicality Existed, but Class Action Treatment Warranted as to 10 Stores Frequented by Named Plaintiffs California Federal Court Holds

Three named plaintiffs filed a putative class action against Burger King alleging that certain of its California restaurants violated the federal Americans with Disabilities Act (ADA), California’s Americans with Disabilities Act (Unruh) and California’s Disabled Persons Act (CDPA) in various ways; specifically, the class action complaint alleged that the three named plaintiffs are mobility-impaired and had encountered barriers at Burger King restaurants. Castaneda v. Burger King Corp., ___ F.Supp.2d ___, 2009 WL 3151168 (N.D. Cal. September 25, 2009) (Slip Opn., at 1-2). Burger King has about 600 California locations, 92 of which “are leased by Burger King Corporation to the franchisees, which operate and maintain them.” Id., at 2. This class action involved only the 92 leased properties, id. The class action complaint sought injunctive relief, as well as statutory penalties under Unruh and the CDPA. Id. According to the allegations underlying the class action, the locations at issue “were built according to ‘one or a limited number of architectural design prototypes developed by Burger King’” and that some locations were “remodeled in conformance with Burger King’s construction and design plans and specifications.’” Id., at 5 (italics omitted). Plaintiffs moved the district court to certify the litigation as a state-wide class action, but “retreated from their allegations of common architecture, design, construction, and policies.” Id. Instead, plaintiffs argued that Burger King “maintains substantial control over the leased restaurants,” id., at 9. Defense attorneys opposed class action treatment, arguing inter alia that common questions do not predominate. The district court granted class action treatment, but severely limited the scope of the class: the court explained, “The normal class in an ADA action proceeds against a single store on behalf of all disabled persons using that store. The instant action seeks to proceed against approximately 92 different stores throughout California on behalf of a class of all mobility-impaired persons at all 92 locations. All of the stores are Burger King restaurants. Although the class claims would share Burger King Corporation as a common target, the physical differences among the 92 locations would predominate over the common issues, there being no common blueprint among them (or even among any subset of them). Whether or not any store was ever out of ADA compliance would have to be determined store by store, feature by feature, before turning to the easier question of whether defendant as the franchisor/landlord, would have a duty to force the franchise to remediate. Therefore, such a large sprawling class will not be certified. Instead, separate classes will be certified against each of the ten individual restaurants where a named plaintiff encountered alleged access barriers.” Id., at 1-2.

The district court addressed first plaintiffs’ request for certification under Rule 23(b)(2) of a class action covering all 92 leased stores. See Castaneda, at 12 et seq. The federal court found “several major obstacles to a 92-store class.” Id., at 13. It found the class lacked commonality under Rule 23(a)(2), explaining that “[b]ecause each location has unique facilities, there is neither a common core of salient facts regarding what accessibility barriers each restaurant’s patrons face nor a shared predicate legal issue of whether each restaurant’s facilities violates the ADA or California statutes.” Id. The court also found that typicality under Rule 23(a)(3) was missing “because every store may well be different,” id. As to Rule 23(b)(2)’s class action factors, the district court found class action treatment inappropriate because (1) the class action complaint sought significant statutory damages, and (2) injunctive relief cannot be awarded against stores that are not in violation of the ADA, which would require “a highly individualized and extremely detailed mirror-by-mirror, door-to-door, ramp-by-ramp, detail-by-detail examination of each store.” Id. The federal court’s detailed analysis of these factors may be found at pages 14 through 22 of its opinion.

Continue reading "Class Action Defense Cases–Castaneda v. Burger King: California Federal Court Severely Limits Scope Of Class In ADA Class Action Holding Commonality/Typicality Not Met For Stores Not Frequented By Named Plaintiffs" »

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

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

Four class actions – one each in Kentucky, Louisiana, Massachusetts and New York – were filed against various defendants including Merrill Lynch arising out of “allegations that Merrill Lynch and/or its employees made misrepresentations or omissions in the context of the sale of auction rate securities (ARS) and manipulated the auctions for ARS in order to prevent auction failures.” In re Merrill Lynch & Co., Inc., Auction Rate Securities (ARS) Marketing Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. June 10, 2009) [Slip Opn., at 1]. According to the allegations underlying the class action lawsuits, “Merrill Lynch failed to disclose that (1) ARS were not cash alternatives similar to money market funds, and (2) the ARS sold by Merrill Lynch were only liquid because, at the time of sale, Merrill Lynch and other broker-dealers artificially supported and manipulated the market to maintain the appearance of liquidity and stability.” Id., at 1-2. 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 Southern District of New York; plaintiffs in the class actions pending outside of that district opposed the motion. Id., at 1. The Judicial Panel rejected the objections to pretrial coordination and granted the motion to centralize the class action lawsuits, finding that “Centralization under Section 1407 will eliminate duplicative discovery, prevent inconsistent pretrial rulings, and conserve the resources of the parties, their counsel and the judiciary.” Id. The Panel also agreed that the Southern District of New York – “where the first-filed has been pending for over a year” – was the appropriate transferee court. Id., at 2. Accordingly, the Panel ordered all class actions outside of the Southern District of New York transferred to that district, id., at 34.

Posted In: Multidistrict Litigation, Class Action Court Decisions

Class Action Alleging Breach of Annuity Contract for Failure to Pay Promised Interest Rate Failed Entitling Defense to Summary Judgment on Class Action Complaint Tennessee Federal Court Holds

Plaintiff filed a putative class action against AIG Annuity Insurance Company alleging breach of contract; specifically, the class action complaint alleged that AIG failed to pay the amount of interest promised under the annuity contract. Cirzoveto v. AIG Annuity Ins. Co., 625 F.Supp.2d 623, 625 (W.D. Tenn. 2009). According to the allegations underlying the class action complaint, plaintiff purchased an annuity “designed and issued by AIG Annuity and sold by Union Planters Bank” that was to pay 4.6% interest and that “all expenses, including anticipated interest credited to an annuity owner's contract, were considered when determining the initial base rate of interest.” Id. Defense attorneys moved for summary judgment on the ground that it complied with the terms of the annuity contract because the contract expressly disclosed that the 4.6% interest rate was for the first year only, and that it was guaranteed to be at least 2% thereafter. Id. Further, plaintiff had signed an “Owner Acknowledgement Form” confirming that he had “read and understood the disclosures regarding, among other contract features, the payment of interest rates and assessment of withdrawal charges.” Id. Further, contrary to the allegations in the class action complaint, the contract set forth a “Withdrawal Charge Schedule” setting forth the charges for “early withdrawals,” id.; plaintiff, however, had withdrawn all funds within 18 months of obtaining the annuity, id., at 626. The district court granted AIG’s motion and entered judgment in its favor on the class action complaint.

The district court found that AIG did not breach the annuity contract with plaintiff because, contrary to the class action's allegations, the contract did not "expressly or implied" guarantee plaintiff a 4.6% interest return for the life of the annuity. Cirzoveto, at 626. With respect to the breach of contract claim, plaintiff argued that AIG breached the “reasonable expectation” that the higher interest rate would be paid beyond the first year, but the federal court held that such personal opinions cannot trump the clear and unambiguous language of the contract. Id., at 627. Further, plaintiff “failed to produce substantial evidence that he has suffered damages,” because plaintiff cashed out less than 18 months after purchasing the annuity and “was entitled to receive only the value of the premiums he had paid, less any previous withdrawals he made from the annuity.” Id. In other words, he was entitled to receive only a refund of premium, which is “exactly what he received.” Id., at 627-28

Continue reading "Class Action Defense Cases–Cirzoveto v. AIG: Tennessee Federal Court Grants Defense Motion For Summary Judgment Against Claims Asserted In Class Action Alleging Breach Of Contract" »

Posted In: Class Action Court Decisions

Class Action Seeking Damages for Diminished Property Values resulting from Release of Chemicals causing Ground Contamination Warranted Class Action Treatment Florida Court Holds

Plaintiffs filed a putative class action against Raytheon alleging that the release of chemicals at a Facility owned by Raytheon caused ground contamination that diminished the property values. Sher v. Raytheon Co., 261 F.R.D. 651 (M.D. Fla. 2009) (Slip Opn., at 1-2, 13-14). According to the allegations underlying the class action complaint, “various industrial activities” were performed at the site which “caused chemicals…including TCE, vinyl chloride and 1, 4-dioxane, to leak into the soil and groundwater at the Facility.” Id., at 2 (footnotes omitted). The class action alleges that the chemicals leaked into the ground and “migrated beyond the boundaries of the Facility and into the surrounding neighborhood,” id., at 2-3. Plaintiffs claim that they were unaware of the ground contamination until a March 2008 news article and newscast. Id., at 4. The federal court explained, “In its current form, the proposed class area consists of over 1,000 property owners and 1,300 parcels of property…. The proposed class area is composed of ten sub-areas or neighborhoods…. There are seventeen different property types within the proposed class area, including various residential (single-family, apartments, condominiums); commercial (stores, shopping center); and institutional uses (schools, a church); as well as vacant land….” Id., at 5. The class action sought monetary damages “for the diminution in the value of their properties that the contamination caused and any restoration costs,” as well as injunctive relief to prevent further contamination. Id., at 13-14. Plaintiffs moved the district court to certify the litigation as a class action, id., at 1. Defense attorneys opposed class action treatment primarily on the ground that “common issues cannot predominate when the Court will have to make individualized inquiries as to causation and damages for each property owner.” Id., at 14. The defense also argued that “under Plaintiffs’ definition, every property owner would be included even if chemicals from the Facility cannot be detected in their groundwater.” Id. The district court granted class action treatment.

We do not here summarize the federal court’s discussion of the named plaintiffs or the various experts. See Sher, at 5-13. The district court began its analysis by noting that the definition of the class “is an overriding concern in environmental or mass toxic tort cases” and that “many courts treat ‘class definition’ as a threshold issue.” Id., at 17. This requirement necessitates that plaintiffs “‘distinguish[] members of the proposed class from the general public based upon’ the defendant's alleged actions against them.” Id. (citations omitted). Plaintiffs argued that their proposed class definition was proper “because it includes a particular group (real property owners), that were harmed during a particular time frame (beginning on March 29, 2008), in a particular location (over Defendant’s groundwater plume) and in a particular way (groundwater contamination).” Id., at 18. Defense attorneys countered that “the geographic boundaries delineated on the Property Map arbitrarily identify a subset of the general public http://classactiondefense.jmbm.com/cgi-bin/mt.cgi?__mode=view&_type=entry&blog_id=1#rather than a distinct class of persons affected by Defendant's alleged activities” and that the putative class subsumes within its sweep “every property owner in the proposed class area – including countless persons whose properties show no detection of chemicals from the Facility.” Id. The federal court concluded that the class definition was sufficiently definite. Id., at 18-20.

Continue reading "Class Action Defense Cases–Sher v. Raytheon: Florida Federal Court Grants Class Action Status To Class Action Complaint Alleging Toxic Tort Liability For Ground Contamination" »

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

Class Action Challenging Disney Prohibition Against use of Segways at Parks Warranted Dismissal for Lack of Standing Florida Federal Holds because Disney Afforded Named Plaintiffs “Access” to its Parks through Scooters, Wheelchairs, and 4-Wheel “Electronic Stand-Up Vehicles” (ESVs) but Barred Segways for Safety Reasons

Plaintiffs filed a putative class action against Walt Disney World alleging violations of the federal Americans with Disabilities Act (ADA); specifically, the class action complaint alleged that Disney violated the ADA by refusing to allow disabled persons to use Segways within the park. Ault v. Walt Disney World Co., ___ F.Supp.2d ___ (M.D. Fla. October 6, 2009) (Slip Opn., at 1, 3-5). According to the allegations underlying the class action complaint, plaintiffs are disabled individuals who prefer to use Segways for mobility “rather than a ‘traditional’ mobility device such as a wheelchair or scooter.” Id., at 3. Disney accommodates disabled guests, and provides wheelchairs and scooters, but for safety reasons has banned the use of two-wheeled devices such as Segways. Id. However, because it realized that some disabled guests would prefer to stand, it designed a 4-wheel “electronic stand-up vehicle” (ESV) that it makes available to guests. Id., at 4. The parties vigorously litigated the class action, and ultimately reached a proposed class action settlement that would permit Disney’s policy against Segways to remain but require Disney “to make a certain number of its ESVs available to disabled guests at its Parks.” Id., at 5. The district court conditionally certified the matter as a class action for settlement purposes and granted preliminary approval to the settlement, id., at 1. The federal court received almost 100 objections to the proposed settlement, including objections from various disability-rights groups, the U.S. Department of Justice and the Attorneys General of twenty-three States. Id., at 1-2. After conducting “an extensive two-day fairness hearing,” the federal court concluded that plaintiffs lacked standing to prosecute the action and, accordingly, vacated its prior order and dismissed the class action complaint without prejudice. Id., at 2.

The class action focuses on the use of Segways at Disney parks. The district court explained, “Although Disney has reviewed its policy against Segways annually, it has consistently concluded that Segway use may not be safe in its densely crowded Parks. For that reason, Disney’s ESV was built around essentially the same technology as its proprietary sit-down scooters and underwent similar safety testing.” Ault, at 4-5. Specifically, Disney designed its ESV to meet “the safety standards for power scooters established by the Rehabilitation Engineering and Assistive Technology Society of North America.” Id., at 5 n.8. In examining the standing of the named plaintiffs, the court noted that one of them, who suffered from progressive Multiple Sclerosis, would “sometimes uses a Segway as her mobility device,” but her legs would get stiff and it was “difficult for her to even stand without needing to hold on to something,” id., at 6; accordingly, she only used her Segway about once a month, id., at 6 n.11, and previously used a traditional scooter during a multi-day visit to Disney parks, id., at 6. Another named plaintiff walked around the park during the first two days of her trip to Disney World, but used a scooter on the third day for a couple of hours. Id., at 7. The last named plaintiff testified that he is “physically able to use a wheelchair or scooter” but prefers his Segway “because no one looks at him and wonders what is ‘wrong’ with him,” id. The district court also summarized various objections to the class action settlement. See id., at 8-11.

Continue reading "ADA Class Action Defense Cases–Ault v. Walt Disney World: Florida Federal Court Dismisses ADA Class Action For Lack Of Standing Holding Class Action Did Not Seek "Access" But "Human Dignity" Through New Technology" »

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

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

Thirteen (13) class actions – four in California, four in the Eastern District of New York, three in Colorado and one in the Southern District of New York and the Western District of Pennsylvania – were filed against various defendants including various Oppenheimer entities. In re Oppenheimer Rochester Funds Group Securities Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. June 17, 2009) [Slip Opn., at 1]. The class actions shared a common basis: “All actions share factual questions relating to (1) the operation of municipal bond markets and their liquidity, (2) the impact of market conditions on the types of assets held in the funds, (3) the risks inherent in certain types of holdings, including tobacco bonds and inverse floaters, (4) whether these types of investments were properly disclosed prior to October 2008, and/or (5) whether the concentration of these and other allegedly risky investments was contrary to the fundamental investment objectives and representations of the Oppenheimer municipal bond funds. Although four different municipal bond funds are involved in these thirteen actions, the investment strategies and public disclosures are similar and all funds are overseen by a common investment manager and distributor/underwriter. Thus, regardless of which municipal bond fund is involved in each action, all actions can be expected to focus on a number of common defendants and/or witnesses.” Id., at 2. Defense attorneys for various Oppenheimer 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 or Eastern District of New York, id., at 1. The responses by plaintiffs in the various class actions were all over the map – some opposed the motion, while others supported the motion but requested centralization in Colorado, California, Pennsylvania. Id. The Judicial Panel granted the motion to centralize the class action lawsuits, id., at 2. The Panel also selected the District of Colorado as the appropriate transferee court because “RBSW is headquartered in Atlanta, a significant amount of discovery is likely to take place in that district.” Id. Accordingly, the Panel transferred the Ohio class action to Georgia. Id., at 1-2.

Posted In: Multidistrict Litigation, Class Action Court Decisions

Plaintiffs’ Amendment to Class Action Complaint Following Removal under Class Action Fairness Act (CAFA) Defeated CAFA Jurisdiction Warranting Remand of Lawsuit to State Court Wisconsin Federal Court Holds

Plaintiffs filed a putative class action in Wisconsin state court against various defendants seeking “damages resulting from a flash flood that inundated plaintiffs’ homes in the town of Bagley, Wisconsin in 2007.” Irish v. Burlington Northern Santa Fe Railway Co., 632 F.Supp.2d 871, 872 (W.D. Wis. 2009). Defense attorneys removed the class action to federal court on grounds of diversity even though two of the defendants shared Wisconsin citizenship with the plaintiffs, arguing that the Wisconsin-resident defendants were fraudulently joined to defeat diversity, and also asserting removal jurisdiction under the Class Action Fairness Act (CAFA). Id., at 872-83. “Plaintiffs’ moved to remand the case to state court, arguing that joinder was not fraudulent and that their suit was not subject to the Class Action Fairness Act.” Id., at 873. The district court determined that the joinder was not fraudulent but that CAFA removal jurisdiction existed, id. Plaintiffs sought and obtained leave to amend their class action complaint, “disavowing their class action allegations and seeking relief for only the named plaintiffs.” Id. The district court then remanded the class action to state court on the ground that it “no longer had subject matter jurisdiction under the Class Action Fairness Act.” Id. Defense attorneys moved the district court to reconsider its remand order, arguing that because CAFA jurisdiction existed at the time of removal, it could not be taken away by subsequent amendment “even if the case was no longer a class action.” Id. The district court granted reconsideration but again held that the case had to be remanded to state court.

As a preliminary procedural matter, the district court noted that defendants also filed a notice of appeal from the remand order with the Seventh Circuit. Irish, at 873. For reasons we do not discuss here, the district court concluded that it retained jurisdiction over the matter to reconsider its remand order. See id., at 873-74. Turning to the merits, the district court noted that the reconsideration motion was primarily directed at “[the] decision to remand the suit on the basis of a post-removal amendment of the complaint.” Id., at 874. The district court rejected the argument that “for the purpose of determining whether subject matter jurisdiction exists in a case removed from state court under [CAFA], the court is bound by the allegations of the original complaint and may not consider any later amendments.” Id., at 875. The court reaffirmed its holding that “the dismissal of plaintiff's class action claims eliminated the ground for the court's grant of diversity jurisdiction under the Class Action Fairness Act.” Id., at 876.

Continue reading "CAFA Class Action Defense Cases–Irish v. Burlington: Wisconsin Federal Court Reaffirms Order Remanding Class Action To State Court Holding Post-Removal Amendments Destroyed CAFA Removal Jurisdiction" »

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

Class Action Failed to Allege Violation of California’s Unfair Competition Law (UCL) based on Merchant’s Refusal to Redeem Gift Card for Cash because California Law gives Merchant Option Whether to Redeem (So Long as Gift Card Value Less than $10) California Federal Court Holds

Plaintiff filed a putative class action in California state court against McDonald’s alleging violations of California’s Unfair Competition Law (UCL) and unjust enrichment. Marilao v. McDonald's CORP., 632 F.Supp.2d 1008, 1009-10 (S.D. Cal. 2009). According to the allegations underlying the class action complaint, plaintiff sought “to redeem a gift card he received for cash instead of dining at McDonald's, but was told…that he could not receive cash for his gift card.” Id., at 1010. The class action complaint further alleged that “McDonald's gift cards provide…‘[t]he value on this card may not be redeemed for cash ... unless required by law.’” Id. Defense attorneys removed the class action to federal court under the Class Action Fairness Act of 2005 (CAFA), id., at 1009-10. McDonald’s then moved to dismiss the class action for failure to state a claim, id., at 1010. The district court granted the motion and dismissed the class action with leave to amend.

With respect to the class action’s UCL claim, plaintiff alleged that McDonald’s conduct violated California Civil Code § 1749.5(b)(1), which provides that “[a]ny gift certificate sold after January 1, 1997, is redeemable in cash for its cash value, or subject to replacement with a new gift certificate at no cost to the purchaser or holder.” Marilao, at 1011. However, California Civil Code § 1448 provides, “If an obligation requires the performance of one of two acts, in the alternative, the party required to perform has the right of selection, unless it is otherwise provided by the terms of the obligation.” In this case, then, the district court reasoned, McDonald’s had the option of “either redeeming a gift card in cash for its cash value or by replacing a gift card with a new card at no cost to the purchaser or holder.” Marilao, at 1011. The statute relied upon by plaintiff does not compel a contrary finding, so McDonald’s did not violate § 1749.5(b)(1) by refusing to redeem plaintiff’s gift card for cash. Id., at 1011-12. The court stressed that the class action did not implicate § 1749.5(b)(2), added in 2007, which requires merchants to redeem gift certificates with a cash value of less than $10, id., at 1012. The federal court also agreed with defense attorneys that plaintiff lacked standing to assert the class action’s UCL claim because he had not suffered injury in fact, or lost money or property, as a result of the allegedly unfair act. Id., at 1012. The court explained at page 1013, “Plaintiff did not expend money on his gift card, as he alleges that he received it as a gift…. Plaintiff does not allege that he lost money or property, as his gift card still retains its value to redeem it for McDonald's products. Plaintiff also does not sufficiently allege that he has been denied money to which he has a cognizable claim, as Plaintiff is not entitled to redeem his McDonald's gift card for cash whenever presented to McDonald's under § 1749.5(b)(1). Accordingly, the Court concludes that Plaintiff fails to sufficiently allege his standing to bring a claim under the UCL.”

Continue reading "UCL Class Action Defense Cases–Marilao v. McDonald’s: California Federal Court Dismisses Class Action Alleging McDonald’s Legally Required To Redeem Gift Cards For Cash But Grants Leave To Amend Class Action Complaint" »

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

District Court Erred in Denying Motion to Dismiss Class Action because California Statute Regarding Armenian Genocide was Preempted by Foreign Affairs Doctrine Ninth Circuit Holds

In December 2003, plaintiff filed a class action against various defendants on behalf of “persons of Armenian descent who claim benefits from insurance policies issued by” two of the defendants; the class action complaint sought damages for breach of contract and breach of the implied covenant of good faith and fair dealing, among other claims. Movsesian v. Victoria Versicherung AG, 578 F.3d 1052, 1055 (9th Cir. 2009). The class action complaint followed California’s enactment of Code of Civil Procedure section 354.4 in 2000, which “provide[d] California courts with jurisdiction over certain classes of claims arising out of insurance policies that were held by ‘Armenian Genocide victim[s]’” and which “extend[ed] the statute of limitations for such claims until December 31, 2010.” Id., at 1054. The Ninth Circuit noted that “Section 354.4 was modeled after §§ 354.5 and 354.6, which extended the statute of limitations until 2010 for Holocaust-era insurance claims and World War II slave labor claims, respectively…. Both of these sister statutes have been found unconstitutional, because they interfered with the national government's foreign affairs power.” Id., at 1054-55 (citations omitted). Defense attorneys moved to dismiss the class action complaint on the grounds that the class members lacked standing and that Section 354.4 was unconstitutional because it “violated the due process clause of the United States Constitution and was preempted under the foreign affairs doctrine.” Id., at 1055. The district court held that the statute was not preempted and accordingly allowed certain claims in the class action to remain. Id. The Ninth Circuit reversed.

The Circuit Court summarized the case at page 1053 as follows: “Section 354.4 of the California Code of Civil Procedure extends the statute of limitations until 2010 for claims arising out of life insurance policies issued to ‘Armenian Genocide victim[s].’ [Citation.] The primary issue in this appeal is whether § 354.4 interferes with the national government's conduct of foreign relations. We conclude that it does, and accordingly, we hold that the California statute is preempted. The district court's order denying the Rule 12(b)(6) motion to dismiss is reversed.” After summarizing the de novo standard of review, see id., at 1055-56, the Ninth Circuit analyzed the constitutionality of § 354.4 under the foreign affairs doctrine. The Circuit Court explained at page 1056, “This case presents the issue whether § 354.4 of the California Code of Civil Procedure interferes with the national government's power to conduct foreign affairs.” After a detailed analysis, that we do not summarize here, see id., at 1056-60, the Ninth Circuit concluded that “there is an express federal policy prohibiting legislative recognition of an ‘Armenian Genocide,’” id., at 1060. The Circuit Court next turned to whether the statute “clearly conflicts with the presidential foreign policy prohibiting legislative recognition of an Armenian Genocide,” and concluded that it did because it uses the phrase, “Armenian Genocide.” See id., at 1060-61.

Continue reading "Class Action Defense Cases–Movsesian v. Victoria Versicherung: Ninth Circuit Reverses Denial Of Motion To Dismiss Class Action Holding California Statute Regarding Armenian Genocide Unconstitutional" »

Posted In: Class Action Court Decisions

District Court Properly Granted Defense Motion for Summary Judgment as to Commute Time and Preliminary Activities Time, but Issue of Fact Existed as to Whether Postliminary Activity of Daily Transmissions to Employer Warranted Compensation Ninth Circuit Holds

Plaintiff filed a putative class action against his employer, Lojack, alleging violations of the federal Fair Labor Standards Act (FLSA); specifically, the class action complaint alleged that defendant failed to compensate its installation technicians for “time they spent commuting to worksites in Lojack's vehicles and for time spent on preliminary and postliminary activities performed at their homes.” Rutti v. Lojack Corp., Inc., 578 F.3d 1084, 1086-87 (9th Cir. 2009) (footnote omitted). According to the allegations underlying the class action, most installation and repair work was performed on location, and plaintiff was “required to travel to the job sites in a company-owned vehicle.” Id. Lojack paid its installation technicians on an hourly basis, and plaintiff was paid “for the time period beginning when he arrived at his first job location and ending when he completed his final job installation of the day.” Id., at 1086. Plaintiff alleged, however, that he was not compensated for “off-the-clock” activities that he “performed before he left for the first job in the morning and after he returned home following the completion of the last job,” and that “Lojack required technicians to be ‘on call’ from 8:00 a.m. until 6:00 p.m. Monday through Friday, and from 8:00 a.m. until 5:00 p.m. on Saturdays,” during which time they had to “keep their mobile phones on and answer requests from dispatch to perform additional jobs, but they were permitted to decline the jobs.” Id. (footnote omitted). Defense attorneys moved for summary judgment; the district court granted the motion, “holding that [plaintiff’s] commute was not compensable as a matter of law and that the preliminary and postliminary activities were not compensable because they either were not integral to [plaintiff’s] principal activities or consumed a de minimis amount of time.” Id. Plaintiff appealed, id., at 1087. The Ninth Circuit affirmed in part, agreeing that plaintiff’s commute time and preliminary activities were not compensable, but reversed and remanded with respect to plaintiff’s “postliminary activity of required daily portable data transmissions,” id., at 1086.

The Ninth Circuit first held that the time plaintiff spent commuting was not compensable. See Rutti, at 1088-93. The Circuit Court explained that, under the Employee Commuting Flexibility Act, 29 U.S.C. § 254(a)(2), an employer may require an employee to commute in a company vehicle. See id., at 1088-90. Further, the Court held that the conditions placed by defendant on plaintiff’s use of the company vehicle did not render his commute time compensable. See id., at 1090-92 (citing Bobo v. United States, 136 F.3d 1465 (Fed. Cir. 1998), and Adams v. United States, 471 F.3d 1321 (Fed. Cir. 2006)). And finally, the Ninth Circuit held that California law did not require Lojack to compensate plaintiff for his commute time in the company’s vehicle. See id., at 1092-93. Accordingly, the Circuit Court affirmed the district court’s conclusion “that [plaintiff] is not entitled to compensation for the time spent commuting to and from his job sites in a vehicle provided by Lojack under either 29 U.S.C. § 254(a)(2) or California law.” Id., at 1093.

Continue reading "FLSA Class Action Defense Cases–Rutti v. Lojack: Ninth Circuit Affirms Defense Summary Judgment In FLSA Class Action Except As To One Claim Seeking Compensation For Postliminary Activities" »

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

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

Two class actions – one in Georgia and one in Ohio – were filed against various defendants including RBS Worldypay arising out of “an unauthorized intrusion into RBSW’s computer system.” In re RBS Worldpay, Inc., Customer Data Security Breach Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. June 9, 2009) [Slip Opn., at 1]. According to the allegations under the class actions, the intrusion meant that various personal information (including Social Security numbers) of more than one million holders of gift cards and payroll cards was allegedly compromised.” Id. Defense attorneys for RBS Worldpay 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 Georgia; plaintiffs in the Georgia class action supported the motion. Id. The Judicial Panel granted the motion to centralize the class action lawsuits and agreed that the Northern District of Georgia was the appropriate transferee court because “RBSW is headquartered in Atlanta, a significant amount of discovery is likely to take place in that district.” Id. Accordingly, the Panel transferred the Ohio class action to Georgia. Id., at 1-2.