Articles Posted in Class Action Fairness Act (CAFA)

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Following Removal of Class Action to Federal Court under CAFA (Class Action Fairness Act), Plaintiffs Decision to Amend Complaint to Eliminate Class Action Allegations did not Destroy Federal Court Jurisdiction because Jurisdiction is Determined at Time of Removal and is not Affected by Subsequent Events Seventh Circuit Holds

Plaintiffs filed a putative class action in Wisconsin state court against Burlington Northern Santa Fe Railway Company and Burlington Northern Santa Fe Corporation alleging that defendants’ “failure to inspect and maintain a railroad trestle caused the town to flood in July 2007, damaging their property.” In re Burlington Northern Santa Fe Railway Co., 606 F.3d 379, 379-80 (7th Cir. 2010). Defense attorneys removed the class action to federal court under CAFA (Class Action Fairness Act); plaintiffs then amended the complaint to remove the class action allegations and the district court remanded the matter to state court on the ground that without the class action allegations federal court jurisdiction was lacking under CAFA. Id., at 379. Id. Defense attorneys sought leave to appeal the remand order; the Seventh Circuit granted the petition and reversed.

The Seventh Circuit noted that “the parties battled extensively over jurisdiction” in the district court. In re Burlington, at 380. Defense attorneys argued diversity jurisdiction existed because the joinder of the non-diverse individual employee defendants was fraudulent, but the district court found it to be tactical rather than fraudulent. Id. The district court agreed, however, that jurisdiction existed under CAFA, and denied plaintiffs’ first motion to remand. Id. Plaintiffs thereafter sought and obtained leave of court to amend the complaint to remove the class action allegations. Id. The federal court also considered the motion to amend to be “an implied motion to remand the case, which it granted.” Id. In the district court’s view, because the amended complaint did not contain any class action allegations, jurisdiction under CAFA no longer existed. Id.

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Even if Defendants Removed Class Actions to Federal Court Prematurely, Subsequent Class Action Complaints Filed by Plaintiffs Prior to Filing Motion for Remand Established Federal Court Jurisdiction under Class Action Fairness Act (CAFA) so District Court did not Err in Denying Motion to Remand Class Actions to State Court Fourth Circuit Holds

In 2003, three plaintiffs filed individual state court lawsuits against various defendants, including Residential Funding, “alleging violations of the Maryland Secondary Mortgage Loan Law.” Moffitt v. Residential Funding Co., LLC, ___ F.3d ___ (4th Cir. May 3, 2010) [Slip Opn., at 1, 4]. The lawsuits were dismissed in 2006 on statute of limitations grounds, “[b]ut in 2009, the Maryland Court of Appeals reversed, permitting the cases to go forward.” Id., at 4 (citation omitted). Plaintiffs’ counsel then advised the various defendants, in writing, “that plaintiffs intended to amend their individual complaints into class actions.” Id. Plaintiffs’ counsel also provided defendants with copies of the three anticipated class action complaints. Id. The draft class action lawsuits alleged that the putative class covered “thousands of members” and, though they did not pray for a specific amount in damages, the cover letter estimated that the damage suffered by each class member ranged from $20,000 to $90,000. Id. Believing that the draft complaint constituted “other paper[s]” within the meaning of 28 U.S.C. § 1446(b) and that the draft class action complaints established federal jurisdiction under the Class Action Fairness Act (CAFA), and “[f]earing that the thirty-day deadline would expire before plaintiffs actually filed the amended complaints,” defense attorneys removed the lawsuits to federal court. Id. Plaintiffs’ counsel thereafter filed the amended class action complaints in the federal court, id., at 4-5, and “defendants filed motions for leave to amend their original notices of removal in order to base removal on plaintiffs’ actual filing of the complaints,” id., at 5. Plaintiffs then moved to remand the class actions to state court, id., at 5. Plaintiffs’ counsel conceded that the amended class action complaints fell within the scope of CAFA for purposes of federal court jurisdiction, but they argued that the removals were premature because neither the letter nor the draft class action complaints constituted “other paper[s]” within the meaning of § 1446(b). Id. The district court denied the motion, id. Plaintiffs obtained leave to appeal the district court’s order, id., at 5-6, and the Fourth Circuit affirmed.

The Circuit Court began its analysis by observing that it “need not decide whether the cases were improperly removed” because even if they were “the amended complaints provided an independent basis for the district court to retain jurisdiction.” Moffitt, at 3. Plaintiffs’ “principal argument” is that federal court jurisdiction “did not exist at the time of removal,” accordingly, the motion for remand should have been granted. Id., at 6. The Fourth Circuit recognized that the removal statute requires the case be subject to federal court adjudication “at the time the removal petition is filed,” id. (citation omitted), but held that “the mere fact that a case does not meet this timing requirement is not ‘fatal to federal-court adjudication’ where jurisdictional defects are subsequently cured.” Id. (citation omitted). It was therefore unnecessary for the Court to decide whether federal court jurisdiction over the cases existed at the time defense counsel removed them to federal court, because “plaintiffs independently conferred jurisdiction on the district court by filing their amended class action complaints prior to moving to remand.” Id., at 7. The Circuit Court also reasoned, “Requiring pointless movement between state and federal court before a case is tried on the merits can…impose significant costs on both courts and litigants[,]” and “Here, it would be a waste of judicial resources to remand these cases on the basis of an antecedent violation of the removal statute now that jurisdiction has been established.” Id., at 8. Put simply, the Fourth Circuit found that “these cases would likely end up in federal court regardless of whether we ordered remands at this juncture.” Id. Thus, “considerations of judicial economy weigh against requiring such a pointless exercise and in favor of allowing this case to go forward in a federal forum where jurisdiction has been perfected.” Id. The Circuit Court therefore affirmed the district court order denying plaintiffs’ motion to remand the class actions to state court, id., at 9.

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“Mass Action” Provision in Class Action Fairness Act (CAFA), Extending Federal Court Jurisdiction to Lawsuits Involving at Least 100 Plaintiffs, did not Permit Federal Courts to Treat Multiple, “Virtually Identical Complaints” by Same Plaintiffs’ Counsel as a Single Lawsuit for Purposes of Determining Number of Plaintiffs Seventh Circuit Holds

Five separate but “mostly identical complaints” (not class actions) were filed against various Bayer entities in Illinois state court seeking damages for personal injuries allegedly caused by Bayer’s prescription drug Trasylol. Anderson v. Bayer Corp., ___ F.3d ___ (7th Cir. June 22, 2010) [Slip Opn., at 1, 3]. According to the “virtually identical” lawsuits, “plaintiffs (or their decedents) suffered injuries as a result of being administered Trasylol during heart surgery.” Id., at 3-4. Defense attorneys removed the lawsuits to federal court under the Class Action Fairness Act (CAFA), asserting that the lawsuits fell within CAFA’s “mass action” provision “which allows the removal of cases joining the claims of at least 100 plaintiffs that otherwise meet CAFA’s jurisdictional requirements.” Id., at 3. The district court remanded four of the five lawsuits on the ground that they involved less than 100 – it was, apparently, only by accident that the fifth lawsuit named precisely 100 plaintiffs. Id. Bayer asked the Seventh Circuit for permission to appeal the remand order; defense attorneys argued that the Circuit Court should “hold that (1) plaintiffs cannot avoid federal diversity jurisdiction by carving their filings into five separate pleadings, and (2) there is diversity jurisdiction over most plaintiff’s claims because the claims of the small number of non-diverse plaintiffs were fraudulently misjoined and should be severed.” Id. The Circuit Court rejected the appeal because it agreed with the district court that the lawsuits fell outside the scope of CAFA’s “mass action” provision because they involved fewer than 100 plaintiffs; accordingly, the Court held that it was without jurisdiction to reach the second issue advanced by Bayer. Id.

Plaintiffs’ counsel originally filed “four virtually identical complaints, using verbatim language,” in Illinois state court “on behalf of 57 unrelated plaintiffs.” Anderson, at 3-4. Defense attorneys removed the lawsuits to federal court on grounds of diversity, arguing that the non-diverse plaintiffs had been joined fraudulently to defeat diversity jurisdiction. Id., at 4. The federal court remanded the complaint to state court sua sponte. Id. On remand, plaintiffs’ counsel amended the lawsuits to add another 111 plaintiffs, distributed across the four complaints and bringing the total number of plaintiffs in one of those lawsuits to 100; plaintiffs’ counsel also filed a fifth lawsuit. Id. Bayer again removed the lawsuits to federal court on the ground that the five separate complaints “should be treated as a single mass action,” id. The lawsuits were again remanded to state court and Bayer filed a petition seeking permission to appeal under the CAFA provision that “creates an exception for class actions to the general rule that remand orders are not reviewable.” Id. (citing 28 U.S.C. § 1447(d)).

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District Court Properly Remanded Class Action to State Court on Ground that Variable Life Insurance Policy Constituted a “Security” Within the Meaning of Exception to Federal Court Jurisdiction under CAFA (Class Action Fairness Act) Seventh Circuit Holds

Plaintiff filed a putative class action against the issuer of his life insurance policy, Lincoln National Life Insurance, alleging that it breached the terms of certain of its variable life insurance policies. Lincoln Nat’l Life Ins. Co. v. Bezich, ___ F.3d ___ (7th Cir. June 25, 2010) [Slip Opn., at 1]. According to the allegations underlying the class action complaint, “Each month, Lincoln deducts cost-of-insurance charges from the accounts of its policyholders…[that] are not determined based on expected mortality, as promised by the policy.” Id., at 1-2. Defense attorneys removed the class action to federal court, asserting jurisdiction under the Class Action Fairness Act (CAFA), id., at 2. However, the district court remanded the class action to state court on the ground that CAFA provides an exception for class actions “that solely involves a claim . . . that relates to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security (as defined under section 2(a)(1) of the Securities Act of 1933 (15 U.S.C. 77b(a)(1)) and the regulations issued thereunder).” Id. (citing § 1332(d)(9)(C)). Defendant filed a petition with the Seventh Circuit seeking permission to appeal the district court’s remand order. Id., at 1-2. Lincoln National Life argued “that its petition raises a ‘novel and important issue’ under CAFA: ‘whether contract claims grounded in the traditional insurance features of variable life insurance policies, as opposed to those related to their security features, qualify under the securities exception to CAFA.’” Id., at 2. Because the Seventh Circuit agreed with the district court’s conclusion that § 1332(d)(9)(C) required remand, it dismissed the appeal for lack of jurisdiction. Id.

The Circuit Court explained that Lincoln allowed the holders of single variable life insurance policies to “allocate money between a General Account, which accumulates value from premium payments, and a Separate Account, an investment account whose value varies depending on the performance of the investments selected.” Bezich, at 2-3. The policyholder may place 100% of his or her funds in either the General or Separate Account, or may split the funds between the accounts in any percentage they desire. Id., at 3. “The Separate Account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940,” id. (citation omitted). The class action challenges the insurance charges deducted from both the General and Separate Account based on the percentage of funds in each account. Id. Defense attorneys argued that the appeal should be accepted because “no court of appeals has ever considered the application of CAFA to this type of variable life insurance policy.” Id.

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District Court Order Remanding Class Action to State Court Must be Dismissed because Class Action Fairness Act did not Authorize Appellate Review of Specific Facts of the Case Second Circuit Holds

Plaintiffs, the “holders of certificates issued by the trusts,” filed a putative class action in New York state court against various Countrywide Financial entities seeking a declaratory judgment that, under the terms of Pooling and Servicing Agreements between plaintiffs and defendants, Defendant Countrywide Servicing is required to repurchase the certain loans from the plaintiff-trusts “at a price equal to their unpaid principal plus any accrued interest.” Greenwich Financial Services Distressed Mortgage Fund 3 LLC v. Countrywide Financial Corp., ___ F.3d ___, 2010 WL 1541628, *1, *2 (2d Cir. April 20, 2010). Defense attorneys removed the class action to federal court pursuant to the Class Action Fairness Act (CAFA), id., at *1. Plaintiffs moved to remand the class action to state court on the grounds that “while CAFA extended federal jurisdiction for most class actions meeting certain monetary and diversity requirements, it did not apply to this action because the statute exempted suits involving claims that ‘relate[d] to the rights, duties[,] … and obligations relating to or created by or pursuant to any security.’” Id. (quoting 28 U.S.C. § 1332(d)(9)(C)). The district court agreed and remanded the class action to state court, id. Defendants appealed the remand order. The Second Circuit dismissed the appeal, concluding that it lacked jurisdiction to consider it.

The Circuit Court explained that appeal turned on a provision in CAFA that “bars appellate review of orders remanding securities class actions to state court.” Greenwich Financial, at *1. By way of background, the defendants originate and service residential home loans. Id. Defendant Countrywide Home Loans raised money to finance the loans by selling mortgages in securitization transactions “to specially created trusts, which received payment of interest and principal from mortgage borrowers.” Id. The trusts then “sold certificates to investors,” which entitled the owners to repayment of their principal and to interest payments, id. Defendant Countrywide Servicing administered the loans under Pooling and Servicing Agreements (PSAs). Id. Defendants Countrywide Home Loans and Countrywide Servicing, together with various other entities, were parties to the PSAs; however, the holders of the certificates and Defendant Countrywide Financial were not. Id. According to the allegations underlying the class action, in 2008, the attorneys general of seven states filed lawsuits against various Countrywide entities alleging predatory lending; specifically, “The states alleged that Countrywide engaged in deceptive sales practices, charged unlawful fees, and made loans it had no reasonable basis to think could be repaid.” Id., at *2. Countrywide eventually entered into a single settlement agreement resolving the multi-state litigation, which required Countrywide “to modify the terms of many of the mortgages owned by the trusts and administered by Countrywide Servicing on behalf of the trusts.” Id. Under the terms of the settlement, some homeowners “would make smaller payments of interest and principal to the trusts, thereby decreasing the value of the certificates.” Id.

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Class Action Complaint Premised on Risk of Identity Theft Failed to Adequately Allege Injury in Fact and, Accordingly, Must be Dismissed for Lack of Standing Pennsylvania Federal Court Holds

Plaintiff filed a putative class action against Aetna in federal court, asserting jurisdiction under the Class Action Fairness Act (CAFA), arising out of “an alleged security breach of Defendant’s online job application database”; specifically, the class action complaint alleged that plaintiff (who had worked for Aetna previously) applied online for a position with Aetna and, as part of the application, “uploaded his personal information as well as his resume” and subsequently learned that Aetna’s job application website had been hacked. Allison v. Aetna, Inc., ___ F.Supp.2d ___ (E.D. Pa. March 8, 2010) [Slip Opn., at 1-2]. According to the allegations underlying the class action complaint, Aetna “tout[ed] the security measures that [it] employed to protect such information against accidental or unauthorized access or disclosure.” Id., at 1. The website contained email addresses, Social Security numbers, and personal contact information of people to whom Aetna had extended job offers. Id..at 2. Aetna disclosed that the email addresses had been stolen but that it did not know whether any other information had been compromised, id. Additionally, Aetna could not confirm that plaintiff’s email address had been stolen, and the class action complaint did not allege that plaintiff had received any phishing email or that there was “any other sort of misuse of the database information or his information specifically.” Id., at 2-3. In response to the intrusion, Aetna “offered Plaintiff credit monitoring assistance and identity theft insurance.” Id., at 3. Instead, plaintiff filed his putative class action, alleging that Aetna’s data security system was inadequate and asserted causes of action “for negligence, breach of implied contract, breach of express contract, negligent misrepresentation, and invasion of privacy.” Id., at 3-4. Defense attorneys moved to dismiss the class action, id., at 4. The district court granted the motion, concluding that plaintiff had failed to establish an injury in fact.

The district court explained that the class action complaint was light on facts. The complaint “details the various ways in which Sensitive Information can be exploited, the dangers of identity theft, and the costs and inconvenience it causes its victims”; however, the “only allegation of actual misuse relates solely to the phishing emails that were sent to others.” Allison, at 3-4. The complaint also outlines various steps taken by putative class members, largely centered on monitoring identity theft, and concludes that class members “face a significant risk of identity theft” and that he, personally, suffered anxiety, emotional distress, and loss of privacy. Id., at 4. In analyzing the motion to dismiss, the federal court began by noting that Article III jurisdiction requires plaintiff establish standing to prosecute the class action and, specifically, that he establish “an injury in fact . . . ; a causal connection between the injury and the conduct complained of; and substantial likelihood of remedy – rather than mere speculation – that the requested relief will remedy the alleged injury in fact.” Id., at 4-5 (citation omitted). Moreover, “[t]he assumption of truth does not apply . . . to legal conclusions couched as factual allegations or to ‘[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements.’” Id., at 6 (citation omitted).

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

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

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

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

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

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

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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.

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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.

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