Posted On: March 9, 2009 by Michael J. Hassen Email This Post

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Lead Toys Class Action Defense Cases–In re Mattel: California Federal Court Denies Motion To Dismiss Class Action Complaint Holding Class Action Allegations Were Adequate Save For Federal CPSA Claim

Defense Motion to Dismiss Class Action Claim under Federal Consumer Protection Safety Act (CPSA) Granted but Remaining Claims in Class Action Adequately Pleaded and Survived Motion to Dismiss California Federal Court Holds

Plaintiffs filed a class action against numerous defendants, manufacturers and retailers of children's toys, alleging they “sold certain toys that were defective and unsafe, and made actionable representations about the quality of the products.” In re Mattel, Inc., Toy Lead Paint Products Liab. Litig., 588 F.Supp.2d 1111, 1114 (C.D. Cal. 2008). Specifically, the class action focused on three types of toys: “toys that were produced with allegedly unsafe levels of lead paint, toys that included small, swallowable magnets that allegedly pose a hazard to children, and a specific toy blood pressure cuff that allegedly contains high levels of lead, but is not specifically alleged to contain lead paint.” Id. The class action advanced numerous claims for relief, including violations of the federal Consumer Protection Safety Act (CPSA), and of California’s Consumers Legal Remedies Act (CLRA), unfair competition law (UCL), and Song-Beverly Consumer Warranty Act (CWA). Id. The class action defendants included Mattel and Fisher-Price (the “Manufacturer Defendants”), id. n.2, and Target, Toys “R” Us, Wal-Mart, KB Toys and Kmart (the “Retailer Defendants”), id. n.3. The Consumer Product Safety Commission ordered a recall of the lead paint toys and magnet toys, and the Manufacturer Defendants provided replacement toys to consumers. Id. Wal-Mart moved to dismiss the class action claims against it, and the remaining defendants filed a separate motion to dismiss the class action as to them. Id. The district court granted the motion in part, and denied the motion in part.

Defense attorneys first argued that the “a voluntary product replacement pursuant to a 16 C.F.R. § 1115.20 corrective action plan preempts state law remedies seeking reimbursement for an allegedly hazardous product.” In re Mattel, at 1115. The district court disagreed. The federal court explained that CPSC regulations permit a company to “submit a voluntary ‘corrective action plan’ to correct an alleged violation of the consumer product safety laws.” Id. (citing 16 C.F.R. § 1115.20(a)). However, the same regulations “explicitly state that actions taken in a voluntary corrective action plan have ‘no legally binding effect,’ and that the CPSC ‘reserves the right to seek broader corrective action.’” Id. (quoting 16 C.F.R. § 1115.20(a)). If preemption applied, as defendants argued, then a manufacturer could essentially “choose their own remedy to a CPSA violation with no guarantee for input from harmed parties…and little incentive on the part of the CPSC to ensure that the proposed remedy was completely adequate.” Id. (citation omitted). The district court therefore rejected the preemption argument, id., at 1116.

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Posted On: March 7, 2009 by Michael J. Hassen Email This Post

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Labor Law Class Action Lawsuits Again Claim Top Spot Among Weekly Class Action Lawsuits Filed In California State And Federal Courts

In order to assist class action defense attorneys anticipate the types of class actions against which they will have to defend in California, we provide weekly, unofficial summaries of the legal categories for new class action lawsuits filed in the state and federal courts located in Los Angeles, San Francisco, San Jose, Sacramento, San Diego, San Mateo, Oakland/Alameda and Orange County areas. We include only those categories that include 10% or more of the class action filings during the preceding week. This report covers the period from February 27 - March 5, 2009, during which time 41 class actions were filed. Class actions asserting employment-related claims generally top this list, and this again proved true. In this reporting period, 23 new labor law class action lawsuits were filed, representing 56% of the total number of new class actions filed during the past week. Only one other category met the 10% threshold, as there were 11 new class actions alleging violations of California's Unfair Competition Law (UCL), which includes false advertising claims (27%).

Posted On: March 6, 2009 by Michael J. Hassen Email This Post

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Class Action Defense Cases—In re Chrysler: Judicial Panel On Multidistrict Litigation (MDL) Grants Plaintiff Motion To Centralize Class Action Litigation In District Of New Jersey

Judicial Panel Grants Plaintiff Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407, Opposed by Common Class Action Defendant, and Transfers Class Actions to District of New Jersey

Five class actions – one each in California, Florida, Illinois, New Jersey, and New York – were filed against Chrysler arising out of an alleged defect in the 2.7 liter engine used in several Chrysler cars; specifically, the class actions alleged that design defects made the 2.7 liter engine “prone to the formation of oil sludge, which causes the engine to malfunction.” In re Chrysler LLC 2.7 Liter V-6 Engine Oil Sludge Products Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. February 10, 2009) [Slip Opn., at 1]. An additional class action was filed in Massachusetts, and treated by the court as a potential tag-along action, id., at 1 n.2. Plaintiffs in the New Jersey class action 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 District of New Jersey; defense attorneys opposed centralization, and argued alternatively that the class action should be centralized in Illinois. Id. The argued that the class actions do not involve “duplicative discovery” because “the proposed classes do not overlap,” that informal coordination of discovery can adequately address any risk of overlapping discovery, and that common plaintiffs’ counsel in four of the class actions “supports coordination among the parties as a superior method of streamlining discovery.” Id., at 1-2. The Judicial Panel granted the motion to centralize the class action lawsuits and agreed that the District of New Jersey was the appropriate transferee court, id., at 1.

The Judicial Panel recognized that the five class actions seek certification of statewide classes under the laws of five different states, but discovery will still overlap. In re Chrysler, at 2. The Panel found that the class actions “involve common questions of fact,” and that centralization “will eliminate duplicative discovery; prevent inconsistent pretrial rulings; and conserve the resources of the parties, their counsel and the judiciary.” Id., at 1. Put simply, the class actions “are nearly identical in terms of the facts alleged, and discovery undoubtedly will overlap.” Id., at 2. Pretrial coordination “will enable one judge to streamline pretrial proceedings and make consistent rulings on discovery disputes, dispositive motions, and issues relating to experts.” Id. The different issues presented by class certification, then, do not affect the propriety of centralization; rather, “the transferee judge may find that, eventually, the just and efficient conduct of these actions would best be served by suggesting to the Panel that the Panel remand these actions to the transferor courts for class certification considerations.” Id. But at least for purposes of discovery, centralization was warranted and the District of New Jersey is the appropriate transferee court because the New Jersey class action has been pending longer than the other class actions. Id. Accordingly, the Panel ordered the class actions transferred to New Jersey. Id.

Download PDF file of In re Chrysler LLC 2.7 Liter V-6 Engine Oil Sludge Products Litigation Transfer Order

Posted On: March 5, 2009 by Michael J. Hassen Email This Post

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CAFA Class Action Defense Cases–Katz v. Gerardi: Seventh Circuit Reverses Order Remanding Class Action To State Court Holding Class Action Fairness Act May Trump Securities Act Of 1933

District Court Erred in Remanding Securities Class Action to State Court because Evidentiary Hearing Required to Determine Whether Section 22(a) of Securities Act Precluded Removal of Class Action to Federal Court Pursuant to CAFA (Class Action Fairness Act) Complaint Seventh Circuit Holds

Plaintiff filed a putative class action in state court against various defendants purportedly on behalf of “a class of persons who contributed real property (or interests in real property) to the Archstone real estate investment trust, in exchange for interests called ‘A-1 Units’”; the class action complaint asserted that defendants violated federal securities laws. Katz v. Gerardi, 552 F.3d 558, 559 (7th Cir. 2009). According to the allegations underlying the class action, “In 2007 Archstone merged into Tishman-Lehman Partnership. Holders of A-1 Units were offered a choice of cash or Series O Preferred Units in the entity formed by the merger. [Plaintiff] contends that the merger violated the terms of the A-1 Units, because neither cash nor the Series O Preferred Units offered investors the same tax benefits as A-1 Units.” Id. Defense attorneys removed the class action to federal court pursuant to the Class Action Fairness Act of 2005 (CAFA), id. The district court remanded the class action to state court on the grounds that the Securities Act of 1933 prohibited removal, id., at 560. The Seventh Circuit granted defendants’ application for permission to appeal and reversed the district court’s remand order.

The Circuit Court began its analysis by observing, “One might suppose that a statute enacted in 2005 supersedes a statute enacted in 1933, but the district court held that § 22(a) [of the Securities Act of 1933] controls because it is ‘more specific’ than the 2005 Act – for § 22(a) deals only with securities litigation, while the 2005 Act covers class actions in many substantive fields.” Katz, at 560. The Seventh Circuit also noted that “[o]nly purchasers of securities may pursue actions under the 1933 Act,” id. (citation omitted). But the district court found it sufficient that the class action complaint “invokes the Securities Act of 1933,” which, in the district court’s view, was alone sufficient to preclude removal.” Id. The Seventh Circuit disagreed: “It is hard to distinguish between a claim artfully designed to defeat federal jurisdiction and one that is properly pleaded but unsuccessful on the merits, but it cannot be right to say that a pleader's choice of language always defeats removal.” Id. Based on the Circuit Court’s analysis, “Section 22(a) and the 2005 Act are incompatible; one or the other must yield,” id., at 561, and further that § 22(a) did not “insulate” the class action’s alleged claims under the Securities Act from removal under CAFA. See id., at 561-63.

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Posted On: March 4, 2009 by Michael J. Hassen Email This Post

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Pfizer Class Action Defense Cases–Clark v. Pfizer: Pennsylvania State Trial Court Grants Summary Judgment As To Certain Class Action Claims And Decertifies Litigation As Class Action

Defense Motion for Summary Judgment Granted as to Class Action’s Express Warranty Claim and Granted as to Other Class Action’s Claims as to Individuals who did not Benefit from Off Label Use of Prescription Drug, and Defense Established Grounds to Decertify Class Action because Individual Questions Predominate Pennsylvania State Trial Court Holds

Plaintiffs filed a class action against Pfizer and Warner-Lambert alleging that their drug, Neurontin, approved by the FDA for epilepsy and for neuralgia, was sold by prescription for “off label” purposes “not approved by the FDA.” Clark v. Pfizer, Inc., Philadelphia Common Pleas Case No. 1819 (February 9, 2009) [Slip Opn., at 1]. The trial court noted that doctors were free to prescribe Neurontin “for any condition that they believe to be appropriate even if not FDA approved,” explaining that this practice “is known as off-label prescribing and although permissible in the medical profession, federal law prohibits a drug manufacturer from promoting off-label uses of an approved medication.” Id. According to the class action, defendants “deliberately and unlawfully promoted Neurontin to physicians for ‘off-label uses’ for which effectiveness had not been scientifically demonstrated.” Id., at 2. Defendants were charged criminally in federal court; they pleaded guilty to two specific violations of off-label marketing, and paid a $240 million fine. Id. The class action asserted claims for misrepresentation, negligence and breach of warranty, and sought reimbursement of all drug costs paid by individuals as opposed to insurers, id., at 1. The trial court certified the lawsuit as a class action; defense attorneys moved to decertify the class action and for summary judgment. Id.

Defendants’ motion stressed that certain physician’s prescribed Neurontin for off-label purposes because they believed it would help – and believed it did help – their patients, not because of defendants’ marketing efforts. Clark, at 2-4. The trial court easily concluded that the class action’s express warranty claim failed because “there is no evidence that plaintiffs saw, heard or in any way received any warranties that Neurontin could be used in circumstances not approved by the FDA.” Id., at 4. Further, “[t]he alleged fraud on the medical profession which is the essence of plaintiffs’ claims does not create any warranty.” Id. Accordingly, the trial court granted summary judgment as to the class action’s express warranty claim, id. As to the misrepresentation and negligence claims, the class action alleged that “through defendants’ concerted activities they incorrectly convinced that entire medical community of the effectiveness of off label uses.” Id. However the evidence presented demonstrated that “some of the class members have suffered no injury” because they “received a medical benefit” from the off-label use of Neurontin, id. The court therefore granted summary judgment “as to those class members who benefited from prescribed off label uses of Neurontin,” but denied the motion as to class members who received no benefit from off label uses. Id., at 4-5.

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Posted On: March 3, 2009 by Michael J. Hassen Email This Post

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Microsoft/Vista Class Action Defense Cases–Kelley v. Microsoft: Washington Federal Court Grants Microsoft Motion To Decertify Class Action Because Rule 23(b)(3)’s Predominance Requirement No Longer Met

Though District Court Initially Granted Class Action Treatment in Class Action Challenging Microsoft’s Marketing of “Vista Capable” PCs, Motion to Decertify Class Action Granted because Plaintiffs could not Establish Causation Element on a Class-Wide Basis Washington Federal Court Holds

Plaintiffs filed a putative nationwide class action against Microsoft alleging inter alia violations of Washington’s Consumer Protection Act or similar state consumer protection statutes and for unjust enrichment; the class action complaint “challenge[d] various aspects of Microsoft’s marketing of its Windows Vista…operating system.” Kelley v. Microsoft Corp., ___ F.Supp.2d ___ (W.D. Wash. February 18, 2009) [Slip Opn., at 2-3]. According to the allegations underlying the class action, nearly a year before releasing Vista, Microsoft authorized PC manufacturers to place stickers on their computers indicating that they were “Windows Vista Capable”; the class action complained that “a large number” of these computers were in fact capable of operating only the “Basic” version of Vista, not the Premium, Business or Ultimate versions of Vista. Id., at 2. The class action additionally alleged that Microsoft’s “Express Upgrade Guarantee Program” permitted customers to upgrade from Windows XP only to Vista Basic, id. The gravamen of the class action complaint is that “Basic cannot fairly be called ‘The Real Vista.’” Id. Defense attorneys countered that “Basic provides customers with a number of benefits over XP and is part of the Vista line.” Id. The district court certified the litigation as a class action, and Microsoft subsequently moved to decertify the class and for summary judgment, id., at 1. The district court granted the motion to decertify the litigation as a class action but denied summary judgment.

The federal court began by noting that “a district court may revisit its decision to certify a class in order to address developments that arise during the course of litigation.” Kelley, at 4 (citations omitted). Indeed, “[a] court’s power to revisit certification is ‘a vital ingredient in the flexibility of courts to realize the full potential benefits from the judicious use of the class action device.’” Id., at 5 (citation omitted). Microsoft’s motion for class decertification centered on Rule 23(b)(3)’s predominance requirement, id. “Courts have recognized that consumer fraud cases may present unique considerations when determining predominance” and “courts have decertified classes when it becomes apparent that the predominance factor can no longer be satisfied.” Id. (citations omitted). Defense attorneys argued that plaintiffs cannot establish on a class-wide basis the “causation” element of the complaint’s consumer fraud claim. Id., at 8. The district court agreed.

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Posted On: March 2, 2009 by Michael J. Hassen Email This Post

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Amex Class Action Defense Cases–Homa v. American Express: Third Circuit Reverses Dismissal Of Consumer Fraud Class Action Holding Class Action Arbitration Waiver Unenforceable Under New Jersey Law

District Court Erred in Dismissing Class Action Based on Arbitration Clause in Credit Card Agreement and Class Action Waiver in Arbitration Clause because New Jersey Law rather than Utah Law Applied and, under Facts Underlying Class Action Complaint, New Jersey would not Enforce Class Action Arbitration Waiver Third Circuit Holds

Plaintiff filed a class action against American Express and American Express Centurion Bank (collectively “Amex”) alleging violations of New Jersey’s Consumer Fraud Act; the class action complaint asserted that Amex misrepresented the terms of its “Blue Cash” credit card reward program, which allegedly promised customers up to 5% cash back on purchases made with the card. Homa v. American Express Co., ___ F.3d ___, 2009 WL 440912, *1 (3d Cir. February 24, 2009). According to the allegations underlying the class action, plaintiff (a New Jersey resident filing the putative class action on behalf of other New Jersey residents) was denied “failed to award him the promised amount of cash back in violation of the New Jersey Consumer Fraud Act.” Id. The credit card underlying the class action claims was subject to a cardholder agreement that required arbitration of any disputes and that included a class action waiver, requiring that any claim “be arbitrated on an individual basis ... [with] no right or authority for any Claims to be arbitrated [as] a class action.” Id. The Agreement included also a choice-of-law provision that stated Utah law governed any disputes, id. Defense attorneys moved to compel arbitration of the putative class action claims on individual basis; the defense argued in part that Utah law expressly permits class action arbitration waivers in consumer credit agreements. Id. Plaintiff opposed the motion on the ground New Jersey law would prohibit enforcement of the class action waiver and that application of Utah law to deny class action relief would violate New Jersey’s public policy. Id. The district court treated the motion as a motion to dismiss under Rule 12(b)(6) and granted the motion, dismissing the class action complaint with prejudice. Id. Plaintiff appealed and the Third Circuit reversed.

According to the Third Circuit, “This appeal raises important issues under state law. Nevertheless, we must first consider whether the Federal Arbitration Act (‘FAA’), 9 U.S.C. §§ 1-16, precludes this Court from applying state law unconscionability principles to void a class-arbitration waiver. We conclude that it does not.” Homa, at *1 (citing Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 687 (1996)). As part of that analysis, the Circuit Court determined whether Utah law or New Jersey law governed the dispute. Id., at *2-*3. The Court concluded that “the Supreme Court of New Jersey might well find that the application of Utah law allowing class-arbitration waivers in the context of a low-value consumer credit suit violates a fundamental policy of New Jersey.” Id., at *3 (footnote omitted). But the Third Circuit found also that it must first address whether “the FAA and this Court's decision in Gay v. CreditInform, 511 F.3d 369 (3d Cir. 2007), preclude us from applying New Jersey unconscionability principles to a class-arbitration waiver.” Id. Based on its analysis of the FAA, id., at *3-*5, the Circuit Court held that its prior decision in Gay does not preclude the Court from relying on New Jersey law to invalidate the class action arbitration waiver, id., at *5. And the Court further concluded that if New Jersey law governed the dispute then the district court erred in granting the motion to dismiss the class action because “the class-arbitration waiver violates fundamental New Jersey public policy as applied to small-sum cases,” id., at *6. So the critical issue was whether Utah law or New Jersey law applied.

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Posted On: February 28, 2009 by Michael J. Hassen Email This Post

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New Employment-Related Class Action Lawsuits Retain Top Spot Among Weekly Class Action Lawsuits Filed In California State And Federal Courts

As a resource for California class defense attorneys, we provide weekly, unofficial summaries of the legal categories for new class action lawsuits filed in the California state and federal courts located in Los Angeles, San Francisco, San Jose, Sacramento, San Diego, San Mateo, Oakland/Alameda and Orange County areas. We include only those categories that include 10% or more of the class action filings during the preceding week. This report covers the period from February 20 - 26, 2009, during which time 41 class actions were filed. Labor law class actions generally top the list, and this reporting period was no exception. In this reporting period, 19 new labor law class action lawsuits were filed, representing a relatively low 46% of the total number of new class actions filed during the past week. Only two other categories satisfied the 10% threshold: there were 9 new class actions alleging violations of California's Unfair Competition Law (UCL), which includes false advertising claims (22%), and there were 4 new class actions alleging violations of federal securities laws (10%).

Posted On: February 27, 2009 by Michael J. Hassen Email This Post

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Class Action Defense Cases—In re Bank of America Auction Rate Securities (ARS): Judicial Panel On Multidistrict Litigation (MDL) Grants Defense Motion To Centralize Class Action Litigation But Transfer Class Actions To California

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

Three class actions – one each in California, Illinois and New York – were filed against Bank of America Investment Services, Inc.; Bank of America Securities, LLC; Bank of America Corp. (collectively “BofA”) alleging “that Bank of America entities and/or its employees made misrepresentations in the context of the sale of auction rate securities (ARS).” In re Bank of America Corp. Auction Rate Securities (ARS) Marketing Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. February 12, 2009) [Slip Opn., at 1]. Two additional class actions were filed in New York, and treated as potential tag-along matters, id., at 1 n.2. Defense attorneys filed a motion with the Judicial Panel for Multidistrict Litigation (MDL) requesting centralization of the class actions pursuant to 28 U.S.C. § 1407 in the Southern District of New York, id., at 1. Lead plaintiff in the California class action opposed the motion, or alternatively requested that the class actions be centralized in California; lead plaintiff in the Illinois class action also opposed centralization, or alternatively requested centralization of the class actions in Illinois. Id. The Judicial Panel granted the motion to centralize the class action lawsuits, id., at 2, but determined that the Northern District of California was the appropriate transferee court, id., at 3.

In opposing centralization of the class actions, plaintiffs’ lawyers argued: “(1) the actions do not share sufficient questions of fact; (2) there are only a few actions involved in the litigation, making voluntary coordination among the parties preferable to formal centralization; and (3) centralization of the actions to which the Private Securities Litigation Reform Act of 1995 (PSLRA) applies with the Independence Tube action (to which, plaintiffs assert, the PSLRA does not apply) will slow the progress of the latter action.” In re BofA, at 1-2. The Judicial Panel disagreed, explaining at page 2, “All actions possess a common factual core regarding Bank of America’s role in selling ARS. In particular, plaintiffs in all actions allege that…Bank of America failed to disclose that (1) ARS were not cash alternatives similar to money market funds, and (2) the ARS sold by Bank of America were only liquid because, at the time of sale, Bank of America and other broker-dealers artificially supported and manipulated the market to maintain the appearance of liquidity and stability. Transfer of these related actions under Section 1407 will foster a pretrial program that: (1) allows pretrial proceedings with respect to any non-common issues to proceed concurrently with pretrial proceedings on common issues, [citation]; and (2) ensures that pretrial proceedings will be conducted in a streamlined manner leading to the just and expeditious resolution of all actions to the overall benefit of the parties.” The Panel selected the Northern District of California without analysis, id., at 2-3.

Download PDF file of In re Bank of America Corp. Auction Rate Securities (ARS) Marketing Litigation Transfer Order

Posted On: February 26, 2009 by Michael J. Hassen Email This Post

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CAFA Class Action Defense Cases–Dennison v. Carolina Payday Loans: Fourth Circuit Affirms Remand Of Class Action To State Court Holding Class Action Fairness Act (CAFA) Minimal Diversity Not Established

Class Action Properly Remanded to State Court because under CAFA (Class Action Fairness Act) Defendant is Citizen of Both State of Incorporation and State of Principal Place of Business, and CAFA does not Permit Defendant to Choose State of Citizenship to Satisfy Minimal Diversity for Removal Jurisdiction Fourth Circuit Holds

Plaintiff filed a class action in South Carolina state court against Carolina Payday Loans alleging violations of state law in “payday loans” that were allegedly unconscionable; plaintiff was a South Carolina citizen, and brought the putative class action complaint on behalf of herself and other South Carolina citizens. Dennison v. Carolina Payday Loans, Inc., 549 F.3d 941, 942 (4th Cir. 2008). Defense attorneys removed the class action to federal court asserting removal jurisdiction under the Class Action Fairness Act (CAFA); the defense argued minimal diversity had been met because Carolina Payday “is a citizen of Georgia, where it claims it has its principal place of business, even though it is also a citizen of South Carolina, where it is incorporated,” or because some members of the putative class may have moved out of state. Id. The district court granted plaintiff’s motion to remand the class action to state court because Carolina Payday and the putative class members were citizens of South Carolina. Id. The district court additionally found that the class action “fell within the ‘home-state exception’ to CAFA jurisdiction set forth in 28 U.S.C. § 1332(d)(4) because in a class limited by definition to ‘citizens of South Carolina,’ at least two-thirds of the class members necessarily are citizens of South Carolina.” Id. The Fourth Circuit granted defendant’s request for permission to appeal the remand order, and affirmed.

The Circuit Court found this case to be “substantively identical” to Johnson v. Advance America, Cash Advance Centers of South Carolina, Inc., 549 F.3d 932 (4th Cir. 2008). Dennison, at 942. Because the class action complaint expressly defined the putative class “to include only citizens of South Carolina,” defense counsel’s speculation that class members may have moved out of state was inaccurate. Id. The Fourth Circuit first held that a class defined as “all citizens of South Carolina” is indistinguishable from a class defined as “citizens of South Carolina who are domiciled in South Carolina” because “an individual must be domiciled in a State in order to be a citizen of that State.” Id., at 942-43 (citations omitted). Accordingly, the class action complaint properly limited the scope of the class to South Carolina residents/citizens. Id., at 943. The Court therefore found irrelevant Carolina Payday’s evidence that some of its South Carolina borrowers were now citizens of other states because class membership was limited to “citizen[s] of South Carolina at the time the complaint was filed.” Id. The Fourth Circuit also found unpersuasive the defense argument that because Carolina Payday has its principal place of business in Georgia, it is allowed to rely on its Georgia citizenship to establish minimal diversity under CAFA. See id., at 943-44. The Circuit Court explained at page 944 that CAFA “does not give greater weight to a corporation's principal place of business than to its place of incorporation” and that, accordingly, for purposes of establishing diversity under CAFA “Carolina Payday is a citizen of both South Carolina, its State of incorporation, and Georgia, assuming it is able to demonstrate that its principal place of business is in Georgia.” The Fourth Circuit therefore affirmed the district court order remanding the class action to state court, id., at 944.

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Posted On: February 25, 2009 by Michael J. Hassen Email This Post

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CAFA Class Action Defense Cases–McLoughlin v. People’s United: Connecticut Federal Court Denies Motion To Remand Class Action To State Court Holding Removal Jurisdiction Exists Under Class Action Fairness Act (CAFA)

Class Action Properly Removed to Federal Court under CAFA (Class Action Fairness Act of 2005) because Defendants Established by Preponderance of the Evidence that Class Action Placed more than $5 Million in Controversy Connecticut Federal Court Holds

Plaintiffs filed a class action in Connecticut state court against Bank of New York Mellon (“Mellon”) and People’s United Bank (“Bank”) alleging negligence, invasion of privacy, breach of fiduciary duty, and violations of Connecticut’s Unfair Trade Practices Act (CUTPA); the class action complaint asserted that Mellon lost electronic data belong to Bank customers. McLoughlin v. People's United Bank, Inc., 586 F.Supp.2d 70, 71 (D.Conn. 2008). According to the allegations underlying the class action, the Bank entered into a contract with Mellon to store customer data and records electronically, and Mellon created backup tapes of this information which were later lost. Id. The class action “alleged damages [that] include ‘improperly charged account fees,’ ‘the costs of remedying the [data] breach through the purchase of identity theft protection and monitoring of accounts to ensure against identity theft,’ damages for ‘unnecessary and illegal intrusion into their privacy rights,’ and ‘mental and emotional distress’ as well as punitive damages and attorney's fees.” Id., at 71-72. Defense attorneys removed the class action to federal court pursuant to the Class Action Fairness Act of 2005 (CAFA); plaintiffs moved to remand the class action to state court. Id., at 72. Plaintiffs argued that the $5 million amount in controversy had not been met because the class may consist of only 450,000 people (whereas defendants asserted up to 10 million people may have been affected). Id. The district court refused to remand the class action to state court.

After summarizing removal jurisdiction under CAFA, the and defendants’ burden of establishing that removal jurisdiction exists, the district court observed that, because the class action complaint failed to specify the amount of damages sought, Mellon and the Bank were required to show by a preponderance of the evidence that the amount in controversy exceeds $5 million. McLoughlin, at 72. The federal court observed that this was “the only point of dispute,” id., at 72, and the parties were entitled to introduce evidence to establish the amount in controversy, id., at 72-73. Defendants introduced the only evidence on this issue, which showed that 556,000 Bank customers and a total of 10 million people were affected. Id., at 73. Also, plaintiffs’ counsel had stated that he was seeking “seeking seven years of credit monitoring, credit insurance, and other damages for his clients.” Id. Defendants also introduced evidence that Experian charges $14.95 per month for credit monitoring services, id. Plaintiffs did not challenge these figures, and the district court explained that “at $14.95 a month, for seven years, the amount in controversy for each class member would be $1,255.80.” Id. The amount in controversy for 10 million class members, then, would be more than $12 billion, id. Accordingly, defendants had adequately established removal jurisdiction under CAFA, and the district court denied plaintiffs’ motion to remand the class action to state court. Id., at 74.

Download PDF file of McLoughlin v. People's United Bank

Posted On: February 24, 2009 by Michael J. Hassen Email This Post

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Class Action Defense Cases–Moore-Thomas v. Alaska Airlines: Ninth Circuit Reverses Dismissal Of Class Action For Failure To Arbitrate Under RLA And Holds Class Action Improperly Removed To Federal Court

Defendant Improperly Removed Labor Law Class Action to Federal Court and Therefore District Court Erred in Dismissing Class Action for Lack of Subject Matter Jurisdiction Ninth Circuit Holds

Plaintiff filed a class action against Alaska Airlines alleging labor law violations; the class action complaint asserted that defendant willfully failed to pay its former employees all wages due upon termination as required by Oregon law. Moore-Thomas v. Alaska Airlines, Inc., ___ F.3d ___ (9th Cir. January 27, 2009) [Slip Opn., at 979]. Plaintiff, a customer service agent employed by defendant and subject to a collective bargaining agreement (CBA), filed a class action in Oregon state court, seeking “statutory penalties, costs and disbursements, pre- and post-judgment interest, and reasonable attorneys’ fees,” id., at 980. Defense attorneys removed the class action to federal court, and argued that the district court had jurisdiction under 28 U.S.C. § 1331 because the class action was governed by the Railway Labor Act, id. Defense attorneys then moved to dismiss the class action for lack of subject matter jurisdiction, arguing that the RLA preempts the class action’s state law claims, and therefore that the class action must be dismissed because plaintiff had not complied with the mandatory arbitration provisions of the RLA, id., at 980-81. Plaintiff moved to remand her class action to state court on the grounds that the RLA did not preempt her claims and so the federal court lacked subject matter jurisdiction, id., at 981. The district court ruled that the RLA preempts the claim in plaintiff’s class action “because her claim requires interpretation of the CBA”; thus, removal was proper, and the class action was dismissed for lack of subject matter jurisdiction because plaintiff failed to arbitrate her claim pursuant to the RLA. Id. Plaintiff appealed, and the Ninth Circuit reversed.

Relying on the Supreme Court opinion in Hawaiian Airlines, Inc. v. Norris, 512 U.S. 246 (1994), which considered preemption under the Labor Management Relations Act (LMRA), the Ninth Circuit explained that “the RLA similarly ‘pre-empts state law only if a state-law claim is dependent on the interpretation of a CBA.’” Moore-Thomas, at 982-83 (quoting Hawaiian Airlines, 512 U.S. at 262-63 & n.9). The Circuit Court found that “the district court here understandably impliedly interpreted the analogy drawn between LMRA and RLA preemption in Hawaiian Airlines as rendering the two standards fully coequal such that LMRA complete pre-emption applies in the RLA context as well.” Id., at 983. Plaintiff argued that the district court erred because “the RLA is subject to ‘ordinary’ rather than ‘complete’ pre-emption.” Id. The Ninth Circuit explained, “[Plaintiff] asserts that the distinction is crucial because, under the complete pre-emption exception to the well-pleaded complaint rule, ‘federal law displaces a plaintiff’s state-law claim, no matter how carefully pleaded.’” Id. (citation omitted). Based on its analysis, see id., at 984-87, the Court agreed that the RLA “does not provide a basis for finding complete pre-emption in this case and that, as a result, Alaska’s removal on the grounds of the RLA’s governing this action was improper.” Id., at 983. Accordingly, the Ninth Circuit concluded that the district court erred in dismissing the class action, and held that the class action was improperly removed to federal court, id., at 987. The Circuit Court therefore remanded the class action to the district court with orders to deny the motion to dismiss and to remand the class action to state court, id.

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Posted On: February 23, 2009 by Michael J. Hassen Email This Post

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PSLRA Class Action Defense Cases–Public Employees’ Retirement Ass’n v. Deloitte & Touche: Fourth Circuit Affirms Dismissal Of Securities Class Action Without Leave To Amend For Failure To Adequately Plead Scienter

Securities Fraud Class Action Claims Against Accountants Properly Dismissed for Failure to Plead Scienter Required by Private Securities Litigation Reform Act (PSLRA) because Evidence Showed Company Concealed Information from Accountants Fourth Circuit Holds

Plaintiffs filed a class action against various defendants alleging securities fraud violations; the class action complaint alleged that Royal Ahold, N.V., a Dutch corporation, and U.S. Foodservice, Inc. (USF), a Maryland-based Ahold subsidiary, engaged in improper accounting practices. Public Employees' Retirement Ass’n of Colorado v. Deloitte & Touche LLP, 551 F.3d 305, 306 (4th Cir. 2009). The class action also alleged that Ahold’s accountants, Deloitte & Touche LLP (Deloitte U.S.) and Deloitte & Touche Accountants (Deloitte Netherlands) – which are two legally distinct entities, participated in Ahold’s alleged fraud, id. Defense attorneys for the Deloitte defendants moved to dismiss the class action on several grounds, including for failure to satisfy the heightened pleading requirements established by the Private Securities Litigation Reform Act (PSLRA). In pertinent part, the PSLRA requires that plaintiffs plead facts alleging a “strong inference” that the defendant in a securities fraud lawsuit acted with the requisite scienter. Id., at 306. The district court granted the defense motion and dismissed the class action complaint as to the Deloitte defendants without leave to amend, id., at 307-08. The Fourth Circuit affirmed, finding “the inference that the Deloitte defendants lacked the necessary scienter more compelling than any competing inference that they knowingly or recklessly perpetrated a fraud on Ahold's investors” and that the proposed second amended class action complaint was futile. Id., at 306.

We do not here discuss in detail the nature of the improper accounting practices underlying the class action claims. See Deloitte, at 306-08. In brief, the two frauds Ahold alleged perpetrated involved (1) the improper consolidation of revenue from various joint ventures, in violation of GAAP, that resulted in substantial overstatement of earnings, and (2) the premature recognition of income from promotional allowances. Id., at 307. The actions led Ahold to restate earnings for fiscal years 2001 and 2002, and revealed that Ahold’s accounting practices had overstated earnings by more than $500 million. Id. The announcement led to a 60% drop in stock price, and to SEC civil enforcement actions against Ahold and various individual defendants. Id. Moreover, at least 21 private class action lawsuits were filed alleging securities fraud, and the Judicial Panel on Multidistrict Litigation centralized the class actions for pretrial purposes in the District of Maryland, id. The district court appointed Public Employees' Retirement Association of Colorado and Generic Trading of Philadelphia, LLC as Lead Plaintiffs, and a Consolidated Amended Securities Class Action Complaint was filed against Ahold entities, the Deloitte defendants, and others. Id. Lead Plaintiffs settled the class action as to the non-Deloitte defendants, and then filed a motion to amend the class action complaint to assert new claims against the Deloitte defendants. Id., at 308. The district court denied the motion on the basis of futility, and the Fourth Circuit affirmed.

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Posted On: February 21, 2009 by Michael J. Hassen Email This Post

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Labor Law Class Action Lawsuits Regain Dominance Among Weekly Class Action Lawsuits Filed In California State And Federal Courts In Week Of Heavy Class Action Activity

In order to allow class defense attorneys anticipate the types of class actions against which they will have to defend in California, we provide weekly, unofficial summaries of the legal categories for new class action lawsuits filed in the California state and federal courts located in Los Angeles, San Francisco, San Jose, Sacramento, San Diego, San Mateo, Oakland/Alameda and Orange County areas. We include only those categories that include 10% or more of the class action filings during the preceding week. This report covers the period from February 13 - 19, 2009, during which time an unusually high number of class actions were filed; in total, 59 new class action lawsuits were initiated in these courts during this reporting period. Class actions alleging employment-related claims generally top the list of new class action filings by a wide margin, and during this reporting period 23 new labor law class action lawsuits were filed, representing a relatively low 39% of the total number of new class actions filed during the past week. Only two other categories satisfied the 10% threshold: there were 12 new class actions alleging violations of California's Unfair Competition Law (UCL), which includes false advertising claims (20%), and there were 11 new class actions alleging violations of the federal Americans with Disabilities Act (ADA) (19%).

Posted On: February 20, 2009 by Michael J. Hassen Email This Post

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Class Action Defense Cases— In re Text Messaging Antitrust: Judicial Panel On Multidistrict Litigation (MDL) Grants Plaintiffs’ Motions To Centralize Class Action Litigation But Chooses Northern District Of Illinois As Transferee Court

Faced with Three Motions for Centralization, Judicial Panel Grants Plaintiffs’ Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407, Unopposed by Responding Class Action Plaintiffs and Defendants, and Transfers Class Actions to Northern District of Illinois

Sixteen (16) class actions – filed in federal courts in the District of Columbia, Arkansas, Illinois, Kansas, Louisiana, Mississippi, New Jersey, Ohio, Pennsylvania, Puerto Rico, and Texas – were filed against various defendants alleging violations of federal antitrust laws; 15 additional and related class actions also were filed, and were treated as potential tag-along class actions. In re Text Messaging Antitrust Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. December 3, 2008) [Slip Opn., at 1 and n.1]. According to the class actions, the defendants “conspired to fix, raise, maintain, and stabilize the price of text messaging services sold in the United States in violation of the Sherman Antitrust Act.” Id., at 2. Three separate motions were filed with the Judicial Panel for Multidistrict Litigation (MDL) requesting centralization of the class actions pursuant to 28 U.S.C. § 1407: plaintiffs in two of the Illinois class actions sought centralization there or in New Jersey; plaintiffs in the Louisiana class action sought centralization there or in Ohio; plaintiffs in the District of Columbia class action sought centralization there. Id., at 1. All responding parties agreed that centralization was appropriate, and “variously support[ed] one or more of the suggested transferee districts or the following districts: the Eastern District of Pennsylvania, the District of Puerto Rico, or the Western District of Washington.” Id. The Judicial Panel granted the motion to centralize the class action lawsuits, and decided that the Northern District of Illinois was the appropriate transferee court because (1) 6 class actions were already pending in that district and (2) it “provides a relatively central forum for this nationwide litigation.” Id., at 2.

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Posted On: February 19, 2009 by Michael J. Hassen Email This Post

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Class Action Defense Cases–Solon v. Midwest Medical: Illinois State Appellate Court Holds Statutory Authorization For Reasonable Expenses Up To $20 Did Not Support Charging $20 Flat Fee In Connection With Copy Services

As Matter of First Impression, in Class Action Challenging $20 Flat Fee for “Handling” Copy Requests for Medical Requests, Statute Only Authorized Reimbursement of “Reasonable Expenses” which, by Definition, would Vary Among Copy Requests Illinois State Court Holds

Plaintiffs filed a class action against Midwest Medical Records Association (MMRA) alleging deceptive and illegal practices in violation of Illinois law; specifically, the class action complaint alleged that MMRA “overcharge[ed] patients for requested copies of medical records.” Solon v. Midwest Medical Records Ass'n, Inc., 898 N.E.2d 207, 208 (Ill.App. 2008). According to the allegations underlying the class action, MMRA is retained by health care facilities and practitioners to handle patient requests for copies of medical records; MMRA employees work on-site at the health care offices where they “receive medical records requests, locate and copy the requested records, and send the records to the patient along with a bill for services.” Id. The class action further alleges that MMRA does not charge the health care provider for its services but, rather, charges the patients a fee for providing the records requested, id. Specifically, MMRA negotiates a “price per page” that it will charge the patients, and adds a “flat $20 handling fee, which defendant refers to as a ‘process fee.’” Id., at 208-09. The class action alleged, inter alia, that this charge violated the Consumer Fraud and Deceptive Business Practices Act and the Uniform Deceptive Trade Practices Act, id., at 209. Defense attorneys moved to strike portions of the class action on the grounds that the flat $20 handling fee did not violate Illinois law, id. at 208. The trial court denied the motion but certified the following question for appellate review: “Is it reasonable per se for a provider of medical record copies under [sections 8-2001 and 8-2003 of the Code] to charge the full amount of the $20 process fee, or is the provider limited to a lesser charge if the evidence shows that the lesser charge is all that is reasonable?” Id., at 209. The appellate court concluded that the $20 fee was not per se reasonable.

In essence, the class action alleged that Illinois law “only permits defendant to charge for the lesser of the ‘reasonable expense of production, Illinois' statutory price limit for copies applicable to the type of copies [defendant] furnished, or a fair price for the copies.’” Solon, at 209. The gravamen of the class action was that it was improper to charge a flat $20 handling fee in connection with the copy requests. Id. The Illinois appellate court recognized that this presented an issue of first impression, and it began its legal analysis by summarizing the rules governing statutory construction. Id. The relevant statute provides, “Every [health care provider] shall, upon the request of any patient * * *, * * * permit copies of [a patient's medical] records to be made by him * * * or his * * * physician * * *…. The [health care provider] shall be reimbursed by the person requesting copies of records at the time of such copying for all reasonable expenses, including the costs of independent copy service companies, incurred by the health care facility in connection with such copying not to exceed a $20 handling charge for processing the request for copies * * *.” Id., at 209-10 (quoting 735 ILCS 5/8-2001 (West 2004)). Additionally, “the patient must reimburse health care providers for the cost of the copies at a maximum per-page rate that varies with the number of pages copied, as well as any shipping costs.” Id., at 210(citing 735 ILCS 5/8-2001, 8-2003 (West 2004)). Defense attorneys argued that a flat $20 fee is reasonable per se “because it is within the maximum amount allowed to be charged under the statute”; plaintiffs countered that the statute permits only “‘reasonable expenses’ incurred in connection with copying the records” in addition to the per page cost of the copies themselves, and that the amount of those expenses may not exceed $20. Id.

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Posted On: February 18, 2009 by Michael J. Hassen Email This Post

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FDCPA Class Action Defense Cases–Herkert v. MRC Receivables: Illinois Federal Court Amends Class Definitions And Certifies Class Action In FDCPA (Fair Debt Collection Practices Act) Class Action

Class Action Challenging Defendants Debt Collection Practices Warranted Class Action Treatment Illinois Federal Court Holds

Plaintiffs filed a class action against MRC Receivables and others alleging violations of the federal Fair Debt Collection Practices Act (FDCPA) and the Illinois Collection Agency Act (ICAA). Herkert v. MRC Receivables Corp., 254 F.R.D. 344, 346 (N.D.Ill. 2008). Defendants are engaged in the business of “purchasing and managing charged-off consumer receivables portfolios.” Id. After defendants filed suit against them to collect on credit card debts, plaintiffs filed their class action lawsuit, id. Specifically, the class action complaint alleged that defendants “had a policy and practice of violating Section 1692e and 1692f of the FDCPA, and Section 425/9(a)(20) of the ICAA,” id., at 346-47. The gravamen of the class action is that defendants filed lawsuits to collect credit card debts without attaching a signed contract to the complaints, and after the expiration of the 5-year statute of limitations. Id., at 347. Plaintiffs moved the district court to certify the litigation as a class action, id., at 346. The district court amended the definition of the class and, as amended, granted plaintiffs’ motion for class action treatment.

The motion for class certification proposed three classes, under the FDCPA and one under the ICAA. Heckert, at 347. The district court readily found Rule 23(a)(1)’s numerosity requirement for class actions to be satisfied because defendants “file…thousands of cases each month in Illinois state court.” Id., at 348. The federal court rejected defendants’ claim that they would not be able “to construct an accurate search of their record-keeping system on a searchable, system-wide basis, and that it would thus be impossible to determine the identity of the class members.” Id. However, the court agreed to amend the class definitions “to ensure that the classes are ascertainable based on objectively identifiable criteria, namely, according to the date of the final statement of account as given in the affidavits attached to the state court complaints.” Id. As so amended, the class definition would not require the parties to rely on defendants’ records in order to ascertain class membership, id., at 349.

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Posted On: February 17, 2009 by Michael J. Hassen Email This Post

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FLSA Class Action Defense Cases–Gortat v. Capala Brothers: New York Federal Court Grants Plaintiffs’ Motion To Dismiss Crossclaims Against Named Plaintiffs In Labor Law Class Actions

In FLSA Class Action, Plaintiffs’ Motion to Dismiss Crossclaims by Defendants Granted because Negligence and Breach of Fiduciary Duty Claims could not Survive New York Federal Court Holds, but Conversion Claim not Challenged and Defendants Granted Leave to Amend Tortious Interference Claim

Six plaintiffs filed a class action against their employer, Capala Brothers, a construction company, alleging violations of the federal Fair Labor Standards Act (FLSA) and the New York Minimum Wage Act; in response to the class action complaint, defendants counterclaimed against the plaintiffs for conversion, negligence, tortious interference with contract, and breach of fiduciary duty. Gortat v. Capala Brothers, Inc., 585 F.Supp.2d 372, 374 (E.D.N.Y. 2008). The counterclaims to the class action were premised on the following: (1) the negligence claims alleged that four plaintiffs were negligent in replacing a roof to a building, resulting in $40,000 in rain damage, that three plaintiffs were negligent in failing to secure electrical motors at the site, which were also damaged by rain, that two plaintiffs were negligent in allowing concrete to harden in a concrete mixer, and that two plaintiffs were negligent in failure to secure two certain equipment resulting in their loss; (2) the tortious interference with contract claim alleged that three plaintiffs interfered with the employment contracts of current Capala employees, “caused lower moral[e], dissent and lower productivity” causing $100,000 in damage to Capala, and that one plaintiff, after quitting, “interfered with the employment contracts of the other four plaintiffs” causing $300,000 in damages to Capala, and (3) the breach of fiduciary duty claim alleged that plaintiffs “fail[ed] to provide ‘adequate and timely notice’ before quitting…as required by their employment contracts” causing Capala to default on certain construction contracts and suffer $400,000 in damages. Id., at 374-75. Plaintiffs answer the conversion counterclaim, but moved to dismiss the remaining counterclaims, id., at 374. The district court granted plaintiffs’ motion.

The district court first addressed the negligence claims, explaining that New York law “prohibits employers from making any deduction from employee wages except as required by law or regulation or as authorized by the employee for his or her benefit,” including claims for negligence or lost profits. Gortat, at 375 (citations omitted). The federal court concluded that while defendants’ crossclaims were not “obvious examples of attempted wage deduction,” they served the same function and so could be “treated as such to prevent employers from circumventing the protection of employee wages” provided for by New York law. Id., at 375-76. Accordingly, it granted the motion to dismiss defendants’ negligence claims against the named plaintiffs, id., at 376. With respect to the tortious interference claims, the district court observed that plaintiffs were terminable at will and that plaintiffs could not be liable unless they engaged in “culpable” conduct. Id. The court found that the allegations failed to allege wrongful conduct adequate to support the interference claim, so those claims, too was dismissed. Id. Turning to the breach of fiduciary duty claim against the plaintiffs, the federal court noted that defendants were required to pleading “both the existence of a duty based on a relationship of trust and confidence and breach of that duty.” Id. (citation omitted). Failing to give advance notice of terminating their employment, standing alone, did not constitute a sufficient basis to support the breach of fiduciary duty claim, id., at 376-77.

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Posted On: February 16, 2009 by Michael J. Hassen Email This Post

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Class Action Defense Cases–Hauk v. JP Morgan Chase: Ninth Circuit Affirms Summary Judgment On Class Action’s TILA Claim But Reverses As To Class Action’s UCL And False Advertising Claims

District Court Properly Granted Summary Judgment in Favor of Bank as to Claim Alleging Violation of Federal Truth In Lending Act (TILA) because Bank’s Disclosures were Accurate, but Genuine Issue of Material Fact Precluded Summary Judgment as to Unfair Competition Law (UCL) and False Advertising Law (FAL) Claims Ninth Circuit Holds

Plaintiff filed a class action against JP Morgan Chase alleging violations of the federal Truth in Lending Act (TILA), the federal Fair Credit Reporting Act (FCRA) and California’s Consumers Legal Remedies Act (CLRA); plaintiff’s amended class action complaint added claims for alleged violations of California’s Unfair Competition Law (UCL) and False Advertising Law (FAL). Hauk v. JP Morgan Chase Bank USA, ___ F.3d ___ (9th Cir. January 23, 2009) [Slip Opn., at 827]. The class action complaint asserted that plaintiff opened a Chase credit card, subject to a Cardmember Agreement (CMA), and later took advantage of a “balance transfer offer” that promised a promotional fixed 4.99% APR by transferring $10,000 to his Chase card. Id., at 825. According to the allegations underlying the class action, the CMA allowed Chase to increase the interest rate if plaintiff made a late payment to Chase or any other creditor, id. The class action centered on the allegation that Chase charged plaintiff an APR of 28.74% because it maintained that “he was no longer eligible to receive the promotional 4.99% APR,” id., at 825-26; specifically, Chase argued that plaintiff had made a late payment to another creditor three months before he accepted the balance transfer offer from Chase, id., at 826. While Chase would have automatically canceled the balance transfer offer to plaintiff had it discovered the late payment as part of its monthly cardmember account review, which includes reviewing Experian credit reports, Chase claimed that it did not discover the late payment until after plaintiff had accepted the offer to transfer a balance to his credit card. Id. Defense attorneys removed the class action to federal court, and moved for summary judgment on the grounds that the class action’s state law claims were preempted by federal law and that plaintiff’s TILA and CLRA claims were defeated by the disclosures in Chase’s CMA. Id., at 827. The district court rejected the preemption argument, but agreed with the defense that plaintiff could not prove Chase knew of the late payment before accepting the balance transfer offer and so plaintiff’s state law claims could not survive. Id. The Ninth Circuit reversed as to the UCL and FAL claims for relief.

The Ninth Circuit noted that plaintiff voluntarily withdrew his FCRA claim and did not appeal from the dismissal of the class action’s CLRA claim; accordingly, the appeal was directed to the grant of summary judgment as to plaintiff’s TILA, UCL and FAL claims. Hauk, at 827. The Circuit Court devoted most of its attention to the TILA claim. The Ninth Circuit summarized TILA and Regulation Z, see id., at 828-29, and the disclosures made by Chase in conjunction with the balance transfer offer, see id., at 830-31. In pertinent part, Chase may waive its right to increase a cardholder’s APR because of a late payment if it knows of, but does not promptly act on, that default, id., at 830-31; however, Chase does not waive its right to increase the APR “based on a late payment it discovered after it mailed the [balance transfer offer], even if that late payment occurred before it mailed the [balance transfer offer],” id., at 831 (citations omitted). The Circuit Court noted further that “TILA is only a ‘disclosure statute’ and ‘does not substantively regulate consumer credit,’” id. In this case, then, the district court properly granted summary judgment on the class action’s TILA claim because “the injury [plaintiff] suffered neither resulted from any lack of TILA disclosures nor gave rise to a claim under TILA.” Id. The Ninth Circuit explained that “while an inaccurate disclosure that itself breaches a credit agreement may also violate TILA…, the breach of a credit agreement based on conduct independent of the disclosures does not necessarily give rise to a TILA claim.” Id., at 832-33 (citation omitted). In affirming the dismissal of the TILA claim, the Ninth Circuit recognized contrary authority out of the Third Circuit, see id., at 833-34 (citing Rossman v. Fleet Bank (R.I.) Nat’l Ass’n, 280 F.3d 384, 399-400 (3d Cir. 2002)), but rejected that circuit’s “expansive reading of Regulation Z,” id., at 833. Rather, the Ninth Circuit concluded at page 835, “We hold that a creditor’s undisclosed intent to act inconsistent with its disclosures is irrelevant in determining the sufficiency of those disclosures under sections 226.5, 226.6, and 226.9 of Regulation Z.” And because defendant’s disclosures complied with TILA and Regulation Z, summary judgment was proper, id.

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Posted On: February 15, 2009 by Michael J. Hassen Email This Post

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Class Action Defense Cases–Dukes v. Wal-Mart: Ninth Grants Rehearing En Banc Of District Court Order Certifying Nationwide Class Action Against Wal-Mart In Labor Law Class Action Alleging Sex Discrimination Covering 1.5 Million Class Members

Wal-Mart’s Petition for Rehearing En Banc of District Court Order Certifying Nationwide Labor Law Class Action Alleging Sex Discrimination Against 1.5 Million Employees Granted by Ninth Circuit

We have previously reported on the Ninth Circuit opinion in Dukes v. Wal-Mart, Inc., 474 F.3d 1214 (9th Cir. 2007), which affirmed a district court order granting plaintiffs’ motion for class action certification in a nationwide labor law class action alleging sex discrimination; the certified class action covered 1.5 million members, but the district court concluded that the action nonetheless would be manageable. Our summary of Dukes may be found here. On February 13, 2009, the Ninth Circuit voted to grant Wal-Mart’s petition for rehearing en banc. Dukes v. Wal-Mart, Inc., Case Nos. 04-16688 and 04-16720 (9th Cir. February 13, 2009) [Slip Opn., at 1-2]. Accordingly, the opinion of the three-judge panel affirming the district court order granting class action certification may no longer be cited as precedent in the Ninth Circuit.

Download PDF file of Order Granting Rehearing En Banc