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.
Download PDF file of Demings v. Nationwide Life Insurance]]>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.
Download PDF file of Dickson v. American Airlines]]>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.
]]> We do not discuss the Circuit Court’s opinion in detail. We note that the Eleventh Circuit disagreed with the district court’s conclusion that the class action failed to adequately allege falsity. See Jabil, at *4. But as to scienter, and relying on its decision in Rosenberg v. Gould, 554 F.3d 962 (11th Cir.2009), the Court held that the allegations in the complaint failed to raise a strong inference of intent. See id., at *4-*6. Further, the mere fact that there was a $54 million accounting error did not adequately establish a strong inference of scienter “because [plaintiffs] present the restated amounts as a percentage of net income and not total revenue” but “net income can vary so widely period to period, [that] using it as a baseline for comparison provides the court no real standard on which to judge the significance of the accounting error.” Id., at *6. As the Eleventh Circuit held, “This pleading strategy – picking the metric that will yield the highest percentage values – adds nothing to the inference of scienter that the shareholders attempt to create.” Id. Moreover, the class action’s references to insider stock sales were inadequate because plaintiffs failed to provide any information as to the trading history of those insiders. Id., at *7; see also id., at *8 and *12 (rejecting insider trading claims). “Ultimately, [the Circuit Court held] that the allegations contained in the complaint do not create an inference of scienter that is at least as probable as a non-fraudulent explanation-namely that none of the [defendants] knew of the accounting errors until the investigation began in 2006.” Id., at *7.As usual, the failure of the complaint to adequately allege securities fraud necessitated dismissal of the class action’s claim for control person liability under Section 20(a) of the Securities Exchange Act. Jabil, at *13. Accordingly, the Circuit Court affirmed the dismissal of the class action complaint in its entirety. Id.
NOTE: We do not here summarize the Eleventh Circuit’s discussion of the class action’s Section 10 and Rule 10b-5 claims concerning business condition projections or proxy solicitation. That discussion may be found at pages *9-*11 and *11-*12, respectively.
Download PDF file of Edward J. Goodman Life Income Trust v. Jabil Circuit]]>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, ___ F.3d ___, 2010 WL 6745, *1, *11 (11th Cir. January 4, 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?
]]> By way of background, in 2001, plaintiff purchased a wireless telephone from Sprint and agreed to a two-year service contract for Sprint wireless telephone service. Pendergast, at *1-*3. Plaintiff's two-year contract was subject to Sprint's then-applicable Terms and Conditions, a copy of which was provided in the box sent to plaintiff with the phone. Id. In 2003, plaintiff purchased another wireless telephone from Sprint, keeping his original account number phone number. Id., at *3. Again, a copy of Sprint’s Terms and Conditions were included with the phone. Id. Finally, in 2005 plaintiff purchased yet another wireless telephone from Sprint, receiving a “discount” off its regular price, and yet again obtained a copy of Sprint’s Terms and Conditions. Id.,at *3-*6. At all times, Sprint’s Terms and Conditions contained the mandatory arbitration clause and class action waiver. In December 2006, Sprint sent plaintiff an invoice that provided him with advance notice of a change to its Terms and Conditions, effective January 1, 2007. Id., at *6-*7. According to the notice, “You must have the legal capacity to accept the Agreement. You accept the Agreement when you do any of the following: (a) sign a contract with us on paper or electronically; (b) accept Agreement through an oral or electronic statement; (c) attempt to or in any way use the Services; (d) pay for the Services; or (e) open any package or start any program that says you are accepting the Agreement when doing so. If you don't want to accept the Agreement, don't do any of these things.” Id., at *7 (emphasis in original). Similarly, in December 2007, Sprint sent plaintiff an invoice containing advance notice of amendments to the Terms and Conditions of his usage of Sprint’s service, effective January 1, 2008. Id., at *9. As early as 2004, the terms and conditions applicable to plaintiff’s account included a mandatory requirement that plaintiff arbitrate any dispute with Sprint, and further contained a class action waiver, requiring that any dispute be arbitrated on an individual basis. Id., at *6. Plaintiff remained a Sprint customer until January 20, 2008, when he switched to another service provider without notifying Sprint. Id., at *11.Because federal jurisdiction was premised on diversity, Florida law controls. Pendergast, at *12. Federal law therefore requires reliance on the decisions of Florida’s highest court, and if it has not addressed the issue, then on the state’s intermediate appellate courts “unless there is persuasive evidence that the highest state court would rule otherwise.” Id. (citation omitted). The Eleventh Circuit noted, “‘Where there is any doubt as to the application of state law, a federal court should certify the question to the state supreme court to avoid making unnecessary Erie “guesses” and to offer the state court the opportunity to interpret or change existing law.’” Id. (citation omitted). Such a circumstance existed here, the Circuit Court concluded, because of conflicts among Florida appellate court decisions. For example, with respect to whether Florida requires a showing of both substantive and procedural unconscionability, the Circuit Court noted that the district court correctly interpreted Florida law “as requiring a showing of both procedural and substantive unconscionability,” but added that there was nevertheless “some tension in Florida law regarding the analytical framework courts should use in evaluating both procedural and substantive unconscionability.” Id., at *12-*14. Specifically, “Must courts evaluate both prongs simultaneously in a balancing exercise, or may courts stop the analysis after finding either procedural or substantive unconscionability to be independently lacking?” Id., at *13. See also id. (discussing conflict among Florida court opinions). “As a result of this tension, there is a question as to the analytical method-balancing, sliding scale or independent analysis-courts should use in considering procedural and substantive unconscionability issues under Florida law, which we conclude should be certified to the Florida Supreme Court.” Id., at *14.
With respect to the merits, the Eleventh Circuit found that “Whatever the approach used, it also is not clear whether Sprint's contract with the Plaintiff is procedurally unconscionable under Florida law.” Pendergast, at *14. The district court found that Plaintiff “had a meaningful choice” of alternate providers and “could have rejected the class action waiver within 14 days of signing his 2005 agreement” and switched his phone number to another mobile phone carrier without agreeing to a class action waiver. Id. Plaintiff cited Florida law supporting a finding that Sprint’s class action waiver was procedurally unconscionable, see id., at *15, but another Florida opinion held that “the arbitration clause/class action waiver in a mobile phone contract was not procedurally unconscionable,” see id. Other cases cited by the parties reflected that the outcome “depends highly on the particular facts of the case.” Id. This was particularly problematic here, because “[t]he facts of this case are different from all of the above Florida decisions, and it is not clear what a Florida court would do if this case were presented to it.” Id., at *16. The Circuit Court concluded that “we cannot determine whether a Florida court would find Sprint's contract under the particular facts of this case procedurally unconscionable” and held, “Given the unsettled state of Florida law, the enormous number of mobile phone contracts these days, and the frequency of these types of unconscionability claims, we conclude the question of whether Sprint's contract is procedurally unconscionable should be certified to the Florida Supreme Court.” Id., at *18.
Similarly, with respect to substantive unconscionability, the Eleventh Circuit explained that some Florida cases support plaintiff’s argument “(1) that his improper roaming fees claim is too small to litigate individually; (2) he will be unable to find legal representation because attorneys will not be able to pool plaintiffs as a class and collect fees from the class award; and (3) thus the class action waiver effectively bars him from bringing suit at all.” Pendergast, at *18. However, the facts of this case are “materially different” from the cases cited by plaintiff, “making the substantive unconscionability issue in this particular case an unsettled question under Florida law.” Id., at *19. Plaintiff’s argument that Florida law prohibits Sprint from modifying the service agreements “without new consideration and the mutual consent of the parties” also warranted certification to the Florida Supreme Court, though it would appear that this argument lacks merit. Id., at *20. Finally, plaintiff’s claim that the class action waiver is void as contrary to “the remedial purposes of the FDUTPA” warrants certification because, again, there are Florida appellate court opinions going both ways on the issue. See id., at *21-*22. Accordingly, the Circuit Court certified the questions set forth above to the Florida Supreme Court. Id., at *22-*23.
Download PDF file of Pendergast v. Sprint Nextel]]>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).
]]> The Court of Appeal began by analyzing the class action’s CLRA claim. See In re Vioxx, at 94. California’s CLRA “declares numerous practices in the sale of goods or services to consumers to be unlawful,” but “‘requires that plaintiffs in a CLRA action show not only that a defendant's conduct was deceptive but that the deception caused them harm.’” Id., at 94-95 (citation omitted). The appellate court explained at page 95, “Causation, on a class-wide basis, may be established by materiality. If the trial court finds that material misrepresentations have been made to the entire class, an inference of reliance arises as to the class.” However, the Court further explained that “if the issue of materiality or reliance is a matter that would vary from consumer to consumer, the issue is not subject to common proof, and the action is properly not certified as a class action.” Id. (citation omitted). Here, the evidence established that third party payors were in a different position than individual patients, supporting the trial court’s conclusion that individual issues would not predominate. See id., at 96-98. Moreover, the issue of reliance “could not be resolved on a class-wide basis and instead depended upon an individual determination with respect to each class member.” Id., at 98. In the appellate court’s words, “All of this evidence supports the trial court's conclusion that whether Merck's misrepresentations were material, and therefore induced reliance, is a matter on which individual issues prevailed over common issues, justifying denial of class certification with respect to the CLRA claim.” Id., at 99.With respect to the class action’s UCL claim, the Court of Appeal explained that plaintiffs’ argument was that Merck’s advertising was “fraudulent” within the meaning of the UCL and the false advertising law (FAL). In re Vioxx, at 95. The Court acknowledges that “[c]onsumer class actions under the UCL serve an important role in the enforcement of consumers' rights,” but added that UCL remedies are “limited” in that “‘damages cannot be recovered,’” id. (citations omitted).And while California’s UCL has been interpreted as “so broad as to allow restitution without individual proof of injury, it is not so broad as to allow recovery without any evidentiary support.” Id., at 96 (citation omitted). Specifically, with respect to restitution, the proper measure of damage is the “difference between what the plaintiff paid and the value of what the plaintiff received”; accordingly, “to recover under this measure, there must be evidence of the actual value of what the plaintiff received.” Id. (Injunctive relief is unavailable because Vioxx was withdrawn from the market, so there is “no threat that the misconduct is likely to be repeated in the future.” Id., at 99.) Here, the trial court “specifically found that class damages are not subject to common proof.” Id., at 100. The lower court concluded that the restitution claim “implicates a patient-specific inquiry and therefore fails the community of interest test.” Id. The appellate court agreed that “restitution could not be calculated on a class-wide basis.” Id., at 101. Accordingly, it affirmed the judgment. Id.
Download PDF file of In re Vioxx Class Cases]]>Jury Returns Verdict in Favor of Plaintiffs in Securities Class Action Against Vivendi Universal, S.A., Finding that 57 Public Comments Made between October 2000 and June 2002 were False
Attorneys are reporting that a jury has reached a verdict in the securities class action filed against Vivendi, though the court docket does not yet reflect that a verdict has been reached. In re Vivendi Universal, S.A. Securities Litig., United States District Court, Eastern District of New York, Case No. 1:02-cv-05571-RJH-HBP. The class action reportedly covers approximately one million investors, and damages are estimated to be in the billions of dollars. Vivendi promises to appeal the jury verdict.
]]>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.
Download PDF file of In re Apple iPhone 3G & 3GS “MMS” Marketing & Sales Practices Litigation Transfer Order]]>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.]
]]> The salient difference, however, is that here the Murrays could have avoided the problem created by the tender “by filing a separate complaint, which could have been consolidated with the original suit, had that suit not been moot.” Murray, at *3. “The availability of consolidation undermines the rationale for extending Zeidman to plaintiffs seeking to be added through amendment and minimizes the burden of multiple filings on the district court's docket.” Id. In other words, “the Murrays had a readily available means of preventing the defendants from mooting their suit” but they failed to exercise that option. Id. Accordingly, the Fifth Circuit declined the invitation to extend Zeidman “to the circumstances of this case.” Id. In any event, because the original class action was non-justiciable because it was “moot from the very beginning,” the Circuit Court would not extend Zeidman to the Murrays’ case because “there was no suit to which the Murrays could be added.” Id. The Fifth Circuit therefore affirmed the district court’s dismissal of the class action, id., at *4.Download PDF file of Murray v. Fidelity National Financial]]>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.
]]> Addressing its jurisdiction over the appeal (by the Corporation) and cross-appeal (by Kolbusz) sua sponte, the Eleventh Circuit held that it had jurisdiction over the Corporation’s appeal because “the denial of a motion for an order to show cause why a party should not be held in contempt…is a final order.” Thomas, at *3. However, the Circuit Court held that it did not have jurisdiction over the cross-appeal. This was true because “Kolbusz's cross-appeal does not concern a final order,” so jurisdiction did not exist under Section 1291. Id., at *4. On the contrary, the district court’s order contemplated further action by Kolbusz, id. Nor did jurisdiction exist under the “collateral order” doctrine, id. Further, appellate jurisdiction did not exist under Section 1292(a)(1) because “[t]he effect of the [district court] order was not to grant new injunctive relief.” Id., at *5. And finally, the Circuit Court did not have pendent appellate jurisdiction because review of the district court’s order concerning the breach of contract claim was not “inextricably intertwined with an appealable order.” Id., at *6. Accordingly, the Eleventh Circuit dismissed the cross-appeal for lack of jurisdiction, id., at *8.Turning to the merits of the Corporation’s appeal, defense attorneys argued inter alia that the district court abused its discretion in denying the Corporation’s motion because “Kolbusz's claims of tortious interference and defamation are released and their prosecution violates the injunction entered in the class action because the claims are related to the matters addressed in the class action.” Thomas, at *6. The Eleventh Circuit agreed. In the Circuit Court’s words, “The Corporation presented undisputed evidence that Kolbusz's prosecution of his claims of tortious interference and defamation violated the permanent injunction because the claims are related to matters addressed in the class action. The permanent injunction bars class members from filing or prosecuting released claims, and the settlement agreement broadly defines released claims to include claims that are related to matters addressed in the class action or settlement agreement.” Id. The Eleventh Circuit held that Kolbusz’s tortious interference and defamation claims fell within the scope of the release in the class action settlement Id., at *7-*8. Accordingly, it reversed the district court’s denial of the Corporation’s motion for an OSC as to why Kolbusz should not be held in contempt for seeking to prosecute those claims, id., at *8.
NOTE: The following day, the Eleventh Circuit issued an opinion in a related case involving a lawsuit filed by a Dr. Donald W. Robertson in Florida. Thomas v. Blue Cross & Blue Shield Ass'n, ___ F.3d ___, 2010 WL 183477, *1 (11th Cir. January 21, 2010). There, the district court denied a motion by Dr. Robertson to prosecute his individual claims despite his failure to timely object or opt out, but did so without addressing the merits of the motion. Id., at *2. The Circuit Court held that it lacked jurisdiction over Robertson's appeal from that order. A copy of that opinion may be found here.
Download PDF file of Thomas v. Blue Cross & Blue Shield Ass'n]]>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.
]]> The Circuit Court summarized the district court’s ruling at pages 7 and 8 as follows: “The district court first found that plaintiffs did not challenge the existence or creation of the joint ventures, and the operation of the joint ventures therefore did not yield an inference of illegal agreement. At the same time, the district court held that plaintiffs’ ‘bald allegation that the joint ventures were shams is conclusory and implausible.’ [Citation.] According to the district court, plaintiffs did not challenge the joint ventures’ ‘explicit agreement,’ and any inference ‘of subsequent agreement based on prior, unchallenged explicit agreement is unreasonable.’ [Citation.] The district court went on to hold that other circumstances alleged by plaintiffs were ‘equivocal’ and did not justify the inference of agreement, and the imposition of the unpopular DRMs and pricing structure was not against defendants’ individual economic self-interest when viewed against the backdrop of widespread music piracy. [Citation.]”Reviewing the district court’s dismissal order de novo, the Second Circuit explained, “While for purposes of a summary judgment motion, a Section 1 plaintiff must offer evidence that ‘tend[s] to rule out the possibility that the defendants were acting independently,’…to survive a motion to dismiss under Rule 12(b)(6), a plaintiff need only allege ‘enough factual matter (taken as true) to suggest that an agreement was made.’” Starr, at 8-9 (citations omitted). We do not here parse the Circuit Court’s detailed opinion: for our purposes, it is sufficient to note that the Court concluded “that the district court erred in dismissing the complaint for failure to state a Section 1 claim” because the complaint “alleges specific facts sufficient to plausibly suggest that the parallel conduct alleged was the result of an agreement among the defendants.” Id., at 12; see also id., at 12-15. We note also that the Second Circuit rejected defendants’ claim that the alleged conduct “would be entirely consistent with independent, though parallel, action,” thus rendering the allegations inadequate under Twombly, because it found that “in this case plaintiffs have alleged behavior that would plausibly contravene each defendant’s self-interest ‘in the absence of similar behavior by rivals.’” Id., at 19. Accordingly, the Circuit Court reversed, id., at 20.
Download PDF file of Starr v. Sony BMG]]>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.
]]> Plaintiffs’ proposed to “eliminate[] most of the class allegations, but include[] class claims with respect to the breach-of-contract claim previously dismissed on summary judgment and appealed,” arguing “that they must include these claims in an amended complaint to preserve appellate rights, but did not any authority on point to support that proposition.” Johnson, at 3. Defense attorneys countered that class claims need not be included to preserve plaintiffs’ appellate rights. Id., at 3-4. The federal court agreed with Microsoft, noting that including the claims “would create unnecessary confusion.” Id., at 4. Accordingly, the court allowed plaintiffs to withdraw their class action allegations, “but clarifies that all class claims should be withdrawn.” Id. (italics added). The district court also granted Microsoft’s request to seek, attorney fees incurred in opposing plaintiffs’ class action certification motion, finding that it “has broad authority to impose reasonable conditions upon amendment” and that conditioning plaintiffs’ amendments on payment of those fees was appropriate “because of the Plaintiffs’ delay in withdrawing the class-certification motion and seeking amendment.” Id. While it was true that plaintiffs withdrew their motion prior to oral argument and a ruling on the certification motion, Microsoft was required to prepare an opposition to the motion and thus suffered “harm”; in essence, plaintiffs’ “no harm, no foul” argument would have applied had they withdrawn the class certification motion before Microsoft prepared and filed its opposition, but it was now “too late for that argument.” Id., at 4-5. Accordingly, the district court allowed plaintiffs to withdraw all class allegations and required plaintiffs reimburse Microsoft for fees reasonably incurred in opposing class certification, id., at 5.Download PDF file of Johnson v. Microsoft]]>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.
]]> The Court of Appeal held that plaintiff lacked standing to pursue the class action’s UCL claim. Webster, at 5 et seq. Relief under California’s UCL is limited to injunctive relief and restitution; accordingly, standing to pursue UCL claims is limited “‘to individuals who suffer losses of money or property that are eligible for restitution.’” Id., at 5 (citation omitted). Because plaintiff concedes, as he must, “that he is not eligible for restitution,” it necessarily follows that he lacks standing to prosecute the UCL claim. Id., at 6 (citation omitted). The appellate court rejected plaintiff’s argument that his claim survived under In re Tobacco II Cases, 46 Cal.4th 298 (Cal. 2009), and Fireside Bank v. Superior Court, 40 Cal.4th 1069 (Cal. 2007), finding the cases inapplicable because plaintiff, as named class representative, lacked standing. See Webster, at 6-7. Accordingly, the appellate court affirmed the dismissal of the class action’s UCL claim, id., at 14.NOTE: We do not here summarize the Court of Appeal’s analysis and conclusion that the insurers’ conduct was not an unlawful or unfair business practice. See Webster, at 8-11. We also do not discuss the Court’s conclusion that the class action’s unjust enrichment claim was properly dismissed, see id., at 11-12, and that the Cartwright Act claim failed, see id., at 12-14. Interested readers may find the entire opinion below.
Download PDF file of Webster v. Allstate Insurance]]>