Class Action Defense Blog

Class Action Claims Alleging Employer Violated State Law because it did not Ensure Employees took Meal and Rest Breaks Failed because Employer need only make Meal and Rest Breaks “Available” but need not “Ensure” they are taken California State Court Holds

Plaintiff filed a class action against his former employer, Public Storage, alleging state labor law violations; in pertinent part, the class action complaint alleged that the paystubs defendant provided to employees failed to comply with state law, and that defendant failed to ensure that employees took all meal and rest breaks permitted by state law. Brinkley v. Public Storage, Inc., 167 Cal.App.4th 1278 (Cal.App. 2008) [Slip Opn., at 2]. The trial court granted plaintiff’s motion to certify the litigation as a class action. Id., at 4-5. Defense attorneys then moved for summary judgment on the grounds that (1) the class action paystub claim failed because defendant’s misstatements were not knowing and intentional, and plaintiff did not suffer any injury, and (2) the class action meal and rest period claims failed because defendant made the breaks available, and California law requires nothing more. Id., at 2. The trial court granted the defense motion and entered judgment in favor of defendant as to all causes of action in the class action complaint premised on those theories (the third, fifth and sixth causes of action). Id., at 5. The California Court of Appeal affirmed. We address the issues in reverse order, because far more labor law class action complaint allege missed meal and rest breaks.

With respect to the class action’s meal and rest period claim, the appellate court held that an employer need only make such breaks available to employees but need not ensure that they are taken. Brinkley, at 10-12 (meal periods) and 12-13 (rest periods). Specifically addressing the class action’s meal breaks claim, the appellate court explained that while plaintiff introduced evidence only that he and other class members “at times missed meal breaks,” but he “did not produce evidence that he or other employees were denied an opportunity to take them.” Id., at 12. Similarly, as for the class action’s rest period claim, defendant pointed to its written policy authorizing employees to take rest breaks, plaintiff’s receipt of that policy, and defendant statements at meetings instructing employees that they were required to take rest periods. Id., at 13. The Court of Appeal held that plaintiff’s allegation that he “could not” take rest breaks was insufficient to raise a triable issue of material fact, id.

Continue reading "Class Action Defense Cases–Brinkley v. Public Storage: In Labor Law Class Action, California State Court Affirms Defense Summary Judgment On Class Action’s Meal And Rest Period Claims Holding Breaks Need Only Be Available" »

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

Securities Fraud Class Action Properly Dismissed without Leave to Amend because Class Action Failed to Plead Loss Causation, Scienter or Falsity with Specificity Required by Private Securities Litigation Reform Act (PSLRA) Ninth Circuit Holds

Plaintiff filed a putative class action against Corinthian Colleges (one of the nation's largest operators of private for-profit vocational colleges) and three of its officers, alleging violations of federal securities laws; specifically, the securities fraud class action alleged violations of §§ 10(b) and 20(a) of the Securities and Exchange Act of 1934 and Rule 10b-5. Metzler Investment GMBH v. Corinthian Colleges, Inc., 540 F.3d 1049, 1055 (9th Cir. 2008). According to the class action complaint, “Corinthian's colleges are pervaded by fraudulent practices designed to maximize the amount of federal Title IV funding – a major source of Corinthian's revenue-that those schools receive.” Id. (footnote omitted). Defense attorneys moved to dismiss the class action for failure to meet the heightened pleadings requirements of the Private Securities Litigation Reform Act of 1995 (PSLRA); the district court granted the motion but dismissed the class action complaint with leave to amend. Id., at 1060. Plaintiff filed an amended class action complaint, and defense attorneys again moved to dismiss for failure to meet the PSLRA’s heightened pleading requirements. Id. The district court granted the motion and dismissed the class action without leave to amend, id. The Ninth Circuit affirmed.

We do not here discuss the class action complaint in detail: a detailed summary may be found at pages 1055 through 1059 of the opinion. The Ninth Circuit summarized the class action’s allegations of fraud as including “a variety of false or deceptive schemes: falsifying financial aid applications to obtain federal funds and increase federal award entitlements; encouraging students to falsify federal student aid forms themselves; manipulating student enrollment by counting students not yet enrolled (referred to in the [class action complaint] as ‘false starts’); manipulating or falsifying student grades to maintain federal funding eligibility; exposing the company to bad debt in order to meet regulatory requirements for continued federal funding; delaying notification to federal officials of dropped students and delaying refunds to the federal government after students had dropped; and manipulating job placement data in order to satisfy federal and state regulatory requirements.” Metzler Investment, at 1055. The fraud allegations were based on information from confidential witnesses – “former Corinthian employees that served at numerous campuses in differing capacities” including” campus presidents, admissions officials, financial aid officers, and IT and accounting personnel.” Id., at 1056. The class action complaint relied also on government investigations and private litigation that allegedly confirmed Corinthian's practices, and noted that certain States had revoked, or were threatening to revoke, Corinthian’s accreditation. Id. With respect to scienter, the class action relied on (1) “suspicious stock sales” totaling more than $33 million by two of the individually-named officers, (2) “Corinthian's ‘hands on’ management and tracking of student data and information,” to suggest that “Corinthian's management must have known about underlying fraudulent conduct to achieve maximum federal funding at various schools,” and (3) the allegation that Corinthian’s corporate officers knew that its early revenue recognition practices – “crediting a full month's worth of tuition regardless of whether a student started at the beginning or end of that particular month” – was improper. Id., at 1058. The bottom line is that the alleged fraud purportedly violated GAAP and inflated Corinthian’s stock price, id., at 1056.

Continue reading "PSLRA Class Action Defense Cases–Metzler v. Corinthian Colleges: Ninth Circuit Affirms Dismissal Of Securities Fraud Class Action Holding Class Action Complaint Failed To Meet PSLRA’s Heightened Pleading Requirements" »

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

As a resource to California class action defense attorneys, we provide weekly, unofficial summaries of the legal categories for new class action lawsuits filed in California state and federal courts in the 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 October 31 - November 6, 2008, during which time 39 new class action lawsuits were filed. Labor law class actions generally top the list of the new class action filings, often by a strikingly wide margin. This past week, however, new class action lawsuits alleging employment-related claims dropped substantially, allowing class actions alleging violations of California's Unfair Competition Law (UCL), which include false advertising claims, to seize the top spot. There were a total of 13 new UCL class actions filed during the relevant time period, representing 33% of the total number of new class actions filed. The only other category that satisfied the 10% threshold involved labor law class actions, with 12 new filings (31%).

Posted In: Class Actions In The News

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

Two putative nationwide class actions were filed in the Central District of California and the Northern District of Illinois against Toys “R” Us alleging violations of the federal Fair and Accurate Credit Transactions Act (FACTA); specifically, the class action complaints allege that defendant printed “certain credit and debit card information on customer receipts” in violation of FACTA.” In re Toys "R" Us - Delaware, Inc., Fair & Accurate Credit Transactions Act (FACTA) Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. October 9, 2008) [Slip Opn., at 1]. 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 Central District of California; plaintiffs in California class action – which is “significantly more advanced” than the Illinois action – did not oppose the motion, but plaintiffs in the Illinois class action did oppose the motion. Id. The Illinois class action plaintiff argued in part that centralization was unnecessary because there are only two actions pending; the Judicial Panel, however, concluded, “Although only two actions are now pending, they are brought on behalf of nearly identical putative nationwide classes, and there is a risk of inconsistent rulings on class certification.” Id. Even though there were only two actions, centralization was appropriate under Section 1407 because “[it] will eliminate duplicative discovery; prevent inconsistent pretrial rulings, especially with respect to class certification; and conserve the resources of the parties, their counsel and the judiciary.” Id. Accordingly, the Judicial Panel granted the motion to centralize the class action lawsuits and agreed that the Central District of California was the appropriate transferee court because the “first-filed action has been pending there for almost two years.” Id., at 1-2.

Posted In: Class Actions In The News, FCRA Class Actions, Multidistrict Litigation, Class Action Court Decisions

California Legislature Intended Unclaimed Class Action Settlement Funds to be Used Charitably rather than Returned to Defendant California State Court Holds

Plaintiffs filed a class action against GTE California (now Verizon) alleging that it “engaged in unfair business practices by improperly billing residential customers for rented telephone equipment.” Cundiff v. Verizon California, Inc., 167 Cal.App.4th 718 (Cal.App. 2008) [Slip Opn., at 2]. The parties ultimately negotiated a settlement of the class action; under the terms of the settlement, which covered approximately 170,000 class members, Verizon agreed to reimburse three subclasses of customers various monetary amounts, to donate $1 million to certain designated charities, and to pay named plaintiffs $5000 each as an incentive award. Id., at 4. At the hearing for final approval of the class action settlement, plaintiffs’ counsel requested a percentage of the value of the common fund established by the settlement, which they estimated to be $88 million, id., at 5. Because there was “no way of knowing what the ultimate value of the settlement will be,” the trial court used the lodestar method and awarded $1.7 million in fees. Id., at 6. Later, the class action settlement administrator reported that more than $400,000 in settlement checks remained uncashed or had been returned as no longer valid, id. The parties could not agree on the disposition of the unclaimed funds: plaintiffs’ counsel sought to amend the judgment under California Code of Civil Procedure section 384 so as to direct the administrator to disburse the unclaimed funds pro rata to the designated charities; defense attorneys argued that Section 384 was inapplicable and the funds should revert to Verizon. Id., at 7. The trial court ordered the money returned to Verizon holding that Section 384 did not apply because “the parties simply failed to provide for the possibility of unclaimed funds in the settlement agreement.” Id. The Court of Appeals reversed.

Section 384(a) states that “the intent of the Legislature…[is] to ensure that the unpaid residuals in class action litigation are distributed, to the extent possible, in a manner designed either to further the purposes of the underlying causes of action, or to promote justice for all Californians.” Section 384(b) authorizes trial courts to “amend the judgment to direct the defendant to pay the sum of the unpaid residue…to nonprofit organizations or foundations to support projects that will benefit the class or similarly situated persons, or that promote the law consistent with the objectives and purposes of the underlying cause of action, to child advocacy programs, or to nonprofit organizations providing civil legal services to the indigent.” Based on its construction of the statute, the appellate court held that (1) the unclaimed funds constituted “residue” within the meaning of Section 384, Cundiff, at 9-11, and (2) Section 384 is not limited to cy près or “fluid recovery” settlements, id., at 11-13. The Court rejected Verizon’s argument that the settlement established a “claims-made” procedure that required the unclaimed funds revert to Verizon, see id., at 13-14. Accordingly, it reversed the trial court order and remanded for further proceedings. Id., at 15.

Posted In: Class Action Court Decisions

Class Action Certification of Multi-State Class Action Alleging Consumer Protection Act Violations Improper because Reliance on Allegedly False/Deceptive Advertisements cannot be Presumed and Commonality not Present Seventh Circuit Holds

Plaintiff filed a putative multi-state class action against Sears, Roebuck alleging false advertising under various state consumer protection statutes and individual claims for violations of Tennessee’s Consumer Protection Act; specifically, the class action complaint asserted that Sears engaged in deceptive advertising practices in connection with the sale of its Kenmore clothes dryers. Thorogood v. Sears, Roebuck & Co., 547 F.3d 742 (7th Cir. 2008) [Slip Opn., at 1]. According to the class action, “the words ‘stainless steel’ were imprinted on the dryer, and point of sale advertising explained that this meant that the drum in which the clothes are dried inside the dryer was made of stainless steel”; plaintiff, however, believed that this meant “that the drum was made entirely of stainless steel.” Id. The class action was filed in federal court, asserting federal jurisdiction under the Class Action Fairness Act (CAFA). Id., at 2-3. The district court granted plaintiff’s motion for class action certification, id., at 3. In concluding that class action treatment was warranted, the district court reasoned that because “Sears marketed its dryers on a class wide basis…reliance can be presumed.” Id., at 10. The Seventh Circuit granted Sears’ appeal and reversed.

The Seventh Circuit discussed at length the pros and cons of class action lawsuits. See Thorogood, at 3-6. It identified one of the problems with class action lawsuits as “the tendency, when the claims in a federal class action are based on state law, to undermine federalism.” Id., at 6. The Circuit Court explained at page 6, “Our plaintiff wants to litigate in a single federal district court half a million claims wrested from the control of the courts of the 29 jurisdictions in which those claims arose and the law of which govern the claimants’ entitlement to and scope of relief. The instructions to the jury on the law it is to apply will be an amalgam of the consumer protection laws of the 29 jurisdictions, and procedural rules by which particular jurisdictions expand or contract relief will be ignored.” The Court noted, for example, that Tennessee’s Consumer Protection Act does not permit class actions. Id. Defense attorneys argued, therefore, that the class action sought relief on behalf of Tennessee residents that would not be available to them in state court. Id., at 7-8. The Seventh Circuit agreed, observing that “the purpose of the diversity jurisdiction is to protect out-of-state residents against state judicial bias in favor of residents; it is not to expand relief obtainable under state law.” Id., at 8.

Continue reading "Sears UCL Class Action Defense Cases–Thorogood v. Sears: Seventh Circuit Decertifies Class Action Holding Reliance Cannot Be Presumed And Trial On Consumer Protection Class Action Claims Would Require Individual Hearings And Proof" »

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

Private Injunctive Relief Unavailable Under Truth in Lending Act, so District Court in TILA Class Action Seeking such Relief Improperly Granted Class Action Treatment under Rule 23(b)(2) and Erred Further in Awarding $22 Million in Damages as “Restitution or Disgorgement” under Declaratory Judgment Act Eleventh Circuit Holds

Plaintiff filed a class action against Beneficial Florida, Inc. and numerous affiliates (the Bank) alleging violations of the federal Truth in Lending Act (TILA) in the disclosures made by the Bank in connection with a $2000 loan; the class action complaint alleged that the Bank violated TILA by listing the fee for non-filing insurance (NFI) in the wrong column on the disclosure form. Christ v. Beneficial Corp., ___ F.3d ___ (11th Cir. October 28, 2008) [Slip Opn., at 1-2]. Specifically, the class action alleged that the Bank disclosed the NFI as an “amount charged” when it should have been disclosed as a “finance charge,” id., at 4. In part, plaintiff’s class action complaint sought damages, injunctive relief, declaratory relief, and disgorgement, id., at 4-5. The Judicial Panel on Multi-District Litigation centralized the class action with other related class actions against the Bank in the Middle District of Alabama, and ultimately the Alabama federal court certified a nationwide class action against the Bank under Rule 23(b)(2), id., at 5-6, which authorizes class actions where a defendant acted “on grounds that apply generally to the class, so that injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole,” FRCP Rule 23(b)(2). In certifying the class action, the district court held that “[i]njunctive and declaratory relief are available under TILA,” id., at 6 (citation omitted). The district court later granted summary judgment in favor of the plaintiff class “and awarded injunctive relief and over $22 million in restitution and disgorgement pursuant to the Declaratory Judgment Act.” Id., at 3. The Eleventh Circuit reversed.

The Eleventh Circuit primarily addressed whether “private injunctive relief” is available under TILA: it noted that TILA is silent on the issue, neither expressly authorizing such relief nor prohibiting it, and that the district court “inferred from TILA’s silence that TILA provides private injunctive relief.” Christ, at 8. Based on its detailed analysis, the Circuit Court disagreed. See id., at 8-12. The Eleventh Circuit then held that certification of a Rule 23(b)(2) class action was inappropriate because the Declaratory Judgment Act, standing alone, would not support such an order. Id., at 12. The Court explained, “The relief sought under the Declaratory Judgment Act is essentially a declaration of liability under TILA, and can only ‘lay the basis for a damage award rather than injunctive relief.’” Id. (citation omitted). Accordingly, because it held that TILA did not authorize private injunctive relief, the Eleventh Circuit vacated the class action certification order. Id.

Continue reading "TILA Class Action Defense Cases–Christ v. Beneficial: Eleventh Circuit Reverses Class Action Certification And Damage Award In Truth-In-Lending-Act Class Action Holding TILA Does Not Authorize Actions Seeking Private Injunctive Relief" »

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

Class Action Claims Against Merrill Lynch Preempted by SLUSA (Securities Litigation Uniform Standards Act of 1998) because Pension Manager Lawsuit Constituted “Covered Class Action” under SLUSA Eleventh Circuit Holds

Plaintiff, a quasi-governmental agency that manages pension funds for armed forces personnel, filed a putative class action in Florida state court against Merrill Lynch alleging violations of various Florida state laws; it filed separate class action lawsuits against Lehman Brothers and against Pension Fund of America (PFA). Instituto de Prevision Militar v. Merrill Lynch, 546 F.3d 1340, 2008 WL 4723777, *1-*2 (11th Cir. 2008). According to the class action complaint, plaintiff was solicited by Pension Fund of America (PFA) to deposit pension funds with Merrill Lynch in a retirement trust account; believing PFA was the agent of Merrill Lynch, plaintiff invested almost $8 million in PFA through Merrill, id., at *2. The class action alleged further that PFA was carrying out an embezzlement and money laundering scheme, and at the time the class action was filed PFA could not account for almost $3 million of the funds plaintiff invested in it through Merrill Lynch. Id. Defense attorneys moved to dismiss the class action on the grounds that plaintiff’s claims were preempted by the federal Securities Litigation Uniform Standards Act (SLUSA); plaintiff opposed dismissal, arguing that the class action complaint was not a “covered class action” within the meaning of SLUSA. Id., at *3. The district court granted the motion and dismissed the class action. Id. The Eleventh Circuit affirmed.

The Eleventh Circuit explained that “[t]he central question presented on appeal is whether [SLUSA] bars [plaintiff] from pursuing state law claims against Merrill Lynch & Co. and its affiliates for their role in a fraud committed on [plaintiff] by [PFA], a non party to this action.” Instituto, at *1. The Circuit Court summarized the class action as one that arose out of PFA’s theft of funds that it was supposed to have invested, and that sought to hold Merrill Lynch liable under Florida state law for PFA’s fraud “because it allowed PFA to hold itself out as Merrill Lynch’s agent, and because it failed to stop PFA from misappropriating [plaintiff’s] funds.” Id. However, “Congress enacted the Securities Litigation Uniform Standards Act to ensure that securities fraud class actions were brought under federal law.” Id. The district court granted the defense motion to dismiss because it found plaintiff’s class action was a “covered class action” within the meaning of SLUSA. Id. The Circuit Court focused its analysis on whether that determination was correct, see id., at *4, and concluded that it was, id., at *6. The Eleventh Circuit further held that each of the four elements required for SLUSA preclusion had been met by Merrill Lynch. See id., at *6-*10.

Continue reading "SLUSA Class Action Defense Cases–Instituto de Prevision Militar v. Merrill Lynch: Eleventh Circuit Affirms Dismissal Of Class Action By Pension Manager Holding SLUSA Preempts Class Action Securities Fraud Claims Against Merrill Lynch" »

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

To assist class action defense attorneys anticipate the types of cases 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 California state and federal courts in the 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 October 24 - 30, 2008, during which time 53 new class action lawsuits were filed. Class actions alleging employment-related claims generally top the list of the new class action filings by a wide margin. This past week, 25 of the new class actions alleged labor law claims, representing 47% of the total number of new class actions filed. The only other categories that satisfied the 10% threshold involved class action lawsuits alleging unfair business practice claims, which include false advertising claims, with 12 new filings (23%), and class action lawsuits alleging violations of California's Song-Beverly Act, with 6 new filings (11%).

Posted In: Class Actions In The News

Judicial Panel Grants Plaintiff Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407, Unopposed by any Responding Parties, and Transfers Actions to Western District of North Carolina

Three class actions – one in California, Illinois and North Carolina – were filed against LendingTree and other defendants alleging that LendingTree failed to “limit access to and/or adequately safeguard private customer information in violation of the Fair Credit Reporting Act.” In re Lending Tree, LLC, Customer Data Security Breach Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. October 7, 2008) [Slip Opn., at 1]. Plaintiff’s lawyer for the North Carolina 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 Western District of North Carolina; no responding party opposed centralization, but the parties could not agree on the appropriate transferee court. Id. Certain other plaintiffs, and defendants LendingTree and Home Loan Center supported the motion; plaintiffs in the Illinois and California class actions argued for transfer to the Central District of California. Id. The Judicial Panel granted the motion to centralize the class action lawsuits, id., at 1-2. The Panel also agreed that the Western District of North Carolina was the appropriate transferee court “because (1) LendingTree is headquartered in Charlotte, North Carolina, and parties, witnesses and documents may be found there, and (2) this district has the capacity to handle this docket and, in the past, has been underutilized as a transferee district.” Id., at 2.

Posted In: FCRA Class Actions, Multidistrict Litigation, Class Action Court Decisions

Labor Law Class Action Settlement Providing Class Members with Gift Cards Worth $67.50 found Fair and Reasonable but California Federal Court Reduces Attorney Fee Award from 39.4% to 34% of Class Action Settlement Value

Plaintiffs filed a class action against Victoria’s Secret alleging labor law violations; specifically, the class action complaint “alleg[ed] that Victoria’s Secret requires job applicants to participate in a ‘sales tryout’ during which they are trained and directed to work in Victoria’s Secret stores without pay.” Fernandez v. Victoria’s Secret Stores, LLC, ___ F.Supp.2d ___ (C.D. Cal. July 21, 2008) [Slip Opn., at 1]. The final version of the amended class action complaint asserted claims for “(1) failure to pay wages, (2) unfair trade practices, (3) unfair competition, and (4) conversion.” Id. The district court certified the litigation as a class action, id., at 1-2, and the parties reached a settlement of the class action, id., at 2. Under the settlement agreement, Victoria’s Secret would pay a maximum of $10 million, with $3.5 million going toward attorney fees. Id., at 4. The class members would receive gift cards valued at $67.50, id. The federal court found that the notice to class members was adequate, id., at 5-7, and that the settlement of $67.50 per class member was fair, id., at 7-14, particularly since out of the 77,000 notices sent to class members only 3 people filed objections to the settlement and only 29 opted out of the settlement, id., at 13. The majority of the district court’s order was devoted to a consideration of whether the attorney fees requested were appropriate.

The district court explained that, in the Ninth Circuit, a court considering attorney fee awards in “common fund” class actions “‘has discretion to use either a percentage or lodestar method.’” Fernandez, at 14 (citation omitted). Further, “The Ninth Circuit has established 25% of the common fund as a benchmark to use in awarding fees under the percentage-of-fund method.” Id., at 15 (citations omitted). But the lodestar method should be used if a 25% award “‘would be either too small or too large in light of the hours devoted to the case or other relevant factors.’” Id., at 15-16 (citation omitted). The fee requested – $3.5 million less $150,000 in costs, or $3.35 million in attorney fees – represented 33½% of the class action settlement’s common fund. Id., at 17. Plaintiffs’ counsel approximated the lodestar at about $1.6 million, so a multiplier in excess of 2.1 would be required to justify the fee award requested, id. And because the class action settlement involved gift cards, the court reduced the actual cash value of the settlement to $8.5 million. Id., at 18-19. The valuation makes the attorney fee request 39.4% of the total settlement value, id., at 20. The district court concluded that this percentage was too high, but awarded almost $2.9 million in attorney fees, representing 34% of the value of the class action settlement. Id., at 27-28.

Posted In: Class Action Court Decisions

“Core-Operations Inference” Insufficient Alone to Support PSLRA’s Heightened Pleading Requirements for Scienter in Securities Fraud Class Action Ninth Circuit Holds

Plaintiffs filed a putative class action against Washington Mutual and individual officer defendants alleging securities law violations; specifically, the class action complaint alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. South Ferry LP, # 2 v. Killinger, 542 F.3d 776, 779 (9th Cir. 2008). The class action “relate[d] to several related aspects of WAMU's mortgage lending business.” Id., at 780. The class action focused on two types of risks: the first involved the mortgage servicing rights (MSR) related risk that WAMU would lose revenue “due to the pre-payment of loans that it services”; the second involves a “pipeline risk” that WAMU will “commit to fund a loan at a certain interest rate only to see market interest rates change by the time the loan is finalized.” Id. According to the class action complaint, “the individual defendants made materially false or misleading statements concerning WAMU's ability to manage MSR-related and pipeline risk during the class period.” Id. Defense attorneys moved to dismiss the class action for failure to meet the heightened pleading requirements under the Private Securities Litigation Reform Act (PSLRA). Id., at 779. The district court granted the motion as to certain defendants, but denied the motion as to others; it found plaintiff met the heightened pleading requirements of the PSLRA “by inferring that the remaining defendants had knowledge of WAMU's difficulties with their information systems ‘because of the nature of the statements they [Defendants] were making and the nature of these specific alleged operational problems,’” id., at 781 (quoting In re Northpoint Communications Group, Inc. Securities Litig., 184 F.Supp.2d 991, 998 (N.D. Cal. 2001)). In short, the district court believed “that it may be inferred that facts critical to a business's ‘core operations’ or important transactions are known to key company officers,” id. Defense attorneys filed an interlocutory appeal, and the Ninth Circuit reversed.

The issue on appeal was “whether a scienter theory that infers that facts critical to a business's ‘core operations’ or an important transaction are known to a company's key officers satisfies the PSLRA's heightened pleading standard.” South Ferry, at 783. After reviewing its prior cases on the subject, see id., at 783-84, the Ninth Circuit explained at page 784 that plaintiffs argued that while not adequate in and of itself to satisfy the scienter requirement of the PSLRA, “the core-operations inference can be one relevant part of a complaint that raises a strong inference of scienter.” The Ninth Circuit concluded, “Where a complaint relies on allegations that management had an important role in the company but does not contain additional detailed allegations about the defendants' actual exposure to information, it will usually fall short of the PSLRA standard.” Id., at 784. Moreover, “a general matter, ‘corporate management's general awareness of the day-to-day workings of the company's business does not establish scienter-at least absent some additional allegation of specific information conveyed to management and related to the fraud’ or other allegations supporting scienter.” Id., at 784-85 (citation omitted).

Continue reading "WAMU PSLRA Class Action Defense Cases–South Ferry v. Killinger: Ninth Circuit Reverses District Court Order Denying Motion To Dismiss Securities Fraud Class Action Holding Core-Operations Inference Alone Does Not Satisfy PSLRA" »

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

FLSA Class Action Plaintiffs Required to Disclose Evidence of Computation of Damages under Rule 26(a) and Failure to do so Justified District Court Order Granting Motion In Limine Barring such Damages Evidence at Trial as Sanction under Rule 37 Ninth Circuit Holds

Plaintiffs filed a class action against Construction Protective Services alleging violations of the federal Fair Labor Standards Act (FLSA) and of the California Labor Code. Hoffman v. Construction Protective Services, Inc., 541 F.3d 1175, 1177 (9th Cir. 2008). The district court certified an opt-in class under the FLSA, and the parties provided with discovery. However, “at no time prior to trial did [named plaintiffs] disclose damage calculations either for each individual Opt-In Plaintiff other than themselves or for the group as a whole.” Id., at 1177-78. Defense attorneys moved in limine to preclude any evidence not produced pursuant to Rule 26; ultimately, the district court severed the named plaintiffs’ claims from the opt-in plaintiffs because of the court’s concern that plaintiffs’ lawyer “did not have a solid understanding of his clients' damages.” Id., at 1178. The court further excluded all evidence of damage not related to the named plaintiffs. Id. A jury returned partial verdicts in favor of the named plaintiffs, and the class appealed “the exclusion of damages evidence and the award of attorney fees.” Id. The Ninth Circuit affirmed.

The issue before the Ninth Circuit was “whether the district court erred in precluding the admission of evidence regarding damages as a sanction under [Rule 37] for failure to disclose damage calculations under Rule 26(a).” Hoffman, at 1177. Reviewing the district court’s ruling for abuse of discretion, and giving “particularly wide latitude to the district court’s discretion to issue sanctions under Rule 37(c)(1), id., at 1178, the Circuit Court first held that plaintiffs’ had not been denied a “meaningful opportunity” to oppose the motion in limine, id., at 1179. Turning to the merits of the district court’s ruling, the Ninth Circuit held plaintiffs’ failure to disclose their damage computations was not substantially justified and, accordingly, the district court had not abused its discretion in precluding plaintiffs from introducing such evidence at trial. Id., at 1179-80. Put simply, “plaintiffs’ disclosure of their damage calculations was required under Rule 26(a), and their failure to do so was not harmless. Id., at 1180. Indeed, the Ninth Circuit held that it was “eminently reasonable for the court to require full disclosure of damages for the entire case.” Id. Accordingly, it affirmed the ruling of the district court.

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

District Court Order in Unfair Competition Law (UCL) Class Action Dismissing Class Action Complaint and Compelling Arbitration of Plaintiff’s Individual Claims Reversed and Remanded for Further Consideration because District Court’s Analysis of Whether South Dakota Law or California Law Applied was Flawed Ninth Circuit Holds

Plaintiff filed a class action against Citibank in California state court alleging violations of the state’s Unfair Competition Law (UCL); specifically, the class action “alleged that Citibank increased the class members’ interest rates retroactively, without advance notice, resulting in additional lump sum finance charges being improperly imposed.” Hoffman v. Citibank (South Dakota), N.A., 546 F.3d 1078 (9th Cir. 2008) [Slip Opn., at 14492]. Defense attorneys removed the class action to federal court, id. Defense attorneys then moved to dismiss the class action complaint and to compel arbitration of plaintiff’s individual claims. Id., at 14893. The district court concluded that the choice of law provision was enforceable, that South Dakota law governed the agreement, and that under South Dakota law “the class arbitration waiver was not unconscionable and was enforceable.” Id. Accordingly, the district court granted the defense motion, dismissed the class action, and ordered plaintiff to arbitrate her claims “on an individual, non-class basis.” Id. The district court certified its order for immediate appeal, and the Ninth Circuit reversed.

We do not here summarize the history of the plaintiff’s credit card account or the changes to the written credit card agreement, including the addition of a binding arbitration clause. See Hoffman, at 14489-90. We note only that the arbitration agreements including a class-action waiver provision. See id., at 14489-92. In analyzing the district court’s order, the Ninth Circuit noted that it reviews orders compelling arbitration de novo, and that “[a]n arbitration agreement governed by the Federal Arbitration Act is presumed to be valid and enforceable.” Id., at 14493 (citation omitted). It noted further the well-settled rule that “applicable state law controls whether an arbitration agreement is unconscionable and, therefore, unenforceable.” Id. The Ninth Circuit also noted that it “agree[d] with the district court’s conclusion that Citibank’s class arbitration waiver is not procedurally unconscionable under South Dakota law and therefore is enforceable if South Dakota law controls.” Id., at 14495 n.2. However, the Circuit Court held that the trial court erred in determining that South Dakota law applied, because “[f]ederal courts sitting in diversity look to the law of the forum state when making choice of law determinations,” id., at 14494, and the district court failed to examine under California law whether South Dakota or California law applied, id., at 14494-95. Accordingly, it remanded the action to the district court so that it could reexamine the issue. Id., at 14495.

Continue reading "UCL Class Action Defense Cases–Hoffman v. Citibank: Ninth Circuit Reverses District Court Order Dismissing Class Action And Compelling Arbitration And Remands For Reanalysis Of Whether Class Action Waiver In Arbitration Agreement Was Enforceable" »

Posted In: Arbitration, Class Action Court Decisions

As a resource to California class action defense attorneys, we provide weekly, unofficial summaries of the legal categories for new class action lawsuits filed in California state and federal courts in the 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 October 17 - 23, 2008, during which time 39 new class action lawsuits were filed. Class actions alleging employment-related claims generally top the list of the new class action filings by a wide margin. This past week, 23 of the new class actions alleged labor law claims, representing 59% of the total number of new class actions filed. The only other category that satisfied the 10% threshold involved class action lawsuits alleging unfair business practice claims, which include false advertising claims, with 9 new filings (23%).

Posted In: Class Actions In The News

Judicial Panel Grants Defense Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407, Opposed by Some Class Action Plaintiffs and Two Attorneys General, but Transfers Actions to Southern District of California

Seven class actions – three in the Central District of California, two in the Southern District of California, one in Illinois and one in Kentucky – were filed against Countrywide Financial Corp. and affiliated entities; the various class action complaints “aris[e] out of allegations that Countrywide engaged in predatory lending practices by (1) originating and/or servicing residential mortgages in an unlawful, unfair or deceptive fashion, (2) misrepresenting or concealing the terms, risk, or suitability of the loans; and/or (3) placing borrowers in loans that they could not afford.” In re Countrywide Financial Corp. Mortgage Marketing & Sales Practices Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. October 14, 2008) [Slip Opn., at 1-2]. Four related class actions were filed in Connecticut, Florida , Indiana and the West Virginia, and were treated as potential tag-along actions by the Judicial Panel. Id., at 1 n.2 Defense attorneys for Countrywide Bank, Countrywide Home Loans, and Bank of America 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 Central District of California; plaintiffs in both class actions supported the motion. Id., at 1. The various class action plaintiffs generally agreed on centralization, but could not agree on an appropriate transferee court. Class action plaintiffs in one of the putative nationwide class actions pending in the Central District of California supported the defense motion, but plaintiffs in another class action pending in the Central District of California, as well as plaintiffs in the Kentucky tag-along class action, argued for centralization in the Western District of Kentucky. Id. Still other plaintiffs – including Attorneys General for California and Illinois – opposed centralization entirely. Id.

The Judicial Panel granted the motion to centralize the class action lawsuits. In re Countrywide Financial, at 2. The Panel explained at page 2, “Centralization under Section 1407 will eliminate duplicative discovery; avoid inconsistent pretrial rulings, including on the issue of class certification in some actions; and conserve the resources of the parties, their counsel and the judiciary. The sufficiency of class allegations is an overarching issue in the putative nationwide class actions in this MDL proceeding.” With respect to the argument of the Attorneys General that federal jurisdiction over their actions is improper and that their actions should be remanded to state court, the Judicial Panel concluded that “these motions can be presented to the transferee judge”; however, the Panel “urge[d] the transferee judge to consider them expeditiously.” Id., at 2. The Judicial Panel transferred the class actions to the Southern District of California, because “(1) two of the seven actions in this docket are pending in this district, (2) Countrywide’s principal place of business is in California, and parties, witnesses and documents may be found there, and (3) the Southern District of California has the capacity to handle this litigation.” Id., at 2-3.

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

District Court Properly Dismissed ERISA Class Action because Employer’s Termination of Pensioner Death Benefits Underlying Class Action Claims were “an Unvested Welfare Benefit” and ERISA did not Prohibit Termination of the Benefit Third Circuit Holds

Plaintiffs, former employees of AT&T and Lucent Technologies, filed a putative class action against various defendants alleging violations of the Employee Retirement Income Security Act (ERISA); specifically, the class action complaint alleged that defendants violated ERISA in terminating a pensioner death benefit. In re Lucent Death Benefits ERISA Litig., 541 F.3d 250, 252 (3d Cir. 2008). The class action asserted “four claims under ERISA and federal common law on behalf of a putative class of pensioners” and centered on the allegation “that Lucent had terminated the pensioner death benefit unlawfully and sought declaratory and injunctive relief reversing that termination.” Id., at 253. Defense attorneys moved to dismiss the class action on the ground that the benefit underlying the putative class action was “an unvested welfare benefit” and, accordingly, “neither [ERISA], nor unilateral contract principles prohibited its termination.” Id., at 252. The district court dismissed the class action complaint, finding that “the plan documents were not ambiguous and therefore extrinsic evidence was not relevant to construing them” and holding, as argued by defense attorneys, that “the pensioner death benefit was an unvested welfare benefit and that neither ERISA nor unilateral contract principles prohibited its elimination.” Id., at 253. The Third Circuit affirmed.

As the Circuit Court’s opinion centers on the substantive law governing ERISA rather than the class action aspects of the lawsuit, we do not further discuss the case. We quote only the Circuit Court’s conclusion: “The pensioner death benefit, a lump-sum payment made in the event of a pensioner's death, was an unvested welfare benefit that Lucent could terminate without violating ERISA or unilateral contract principles. We thus affirm the decision of the District Court dismissing the pensioners' complaint….” In re Lucent Death Benefits, at 257. Interested readers may find the Third Circuit’s entire opinion here.

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

Securities Fraud Class Action Failed to Adequately Allege Scienter under Heightened Pleading Requirements of the Private Securities Litigation Reform Act (PSLRA) so District Court Properly Granted Defense Motion to Dismiss Class Action Complaint Eighth Circuit Holds

After Ceridian Corporation publicly disclosed accounting errors that “necessitated multiple amendments and restatements of its published financial statements,” the SEC opened an investigation into the company’s accounting practices and “numerous class action complaints were filed against Ceridian and three former corporate officers.” In re Ceridian Corp. Securities Litig., 542 F.3d 240, 243 (8th Cir. 2008). The class actions alleged securities fraud in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5. Id. The class actions were consolidated, and defense attorneys moved to dismiss the consolidated class action complaint for failure to “state with particularity facts giving rise to a strong inference that the defendant[s] acted with the required state of mind,” as required by the Private Securities Litigation Reform Act (PSLRA). Id. The district court granted the motion and dismissed the class action. Relying on the Supreme Court’s opinion in Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S.Ct. 2499 (2007), id., at 244, the Eighth Circuit affirmed.

The Eighth Circuit recited the well-settled heightened pleading requirement, including “the required state of mind,” established by the PSLRA. In re Ceridian, at 244. The Circuit Court noted that scienter may be established through “proof of severe recklessness, that is, ‘highly unreasonable omissions or misrepresentations that ... present a danger of misleading buyers or sellers which is either known to the defendant, or is so obvious that the defendant must have been aware of it.’” Id. (citation omitted). The Eighth Circuit observed that under Tellabs, “Not only must a plaintiff state with particularity facts giving rise to an inference of scienter that is strong when viewed in isolation, the inference ‘must be more than merely plausible or reasonable-it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent.’” Id. (citation omitted).

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

Class Action Alleging Violation of Telephone Consumer Protection Act (TCPA) Improperly Certified as Class Action because Issue of Consent to Receipt of Fax Advertisements not Susceptible to Class-Wide Proof Fifth Circuit Holds

Plaintiff filed a class action against BioPay alleging violations of the federal Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227; The class action complaint alleged that BioPay, through a third-party contractor, sent more than 4000 fax advertisements over a four-year period to potential clients in Louisiana. Gene & Gene LLC v. BioPay LLC, 541 F.3d 318, 322 (5th Cir. 2008). The allegations underlying the class action were that the Bank decided to “implement[] a plan to consolidate the trust management activities of other banks it had acquired” and led class members to believe that “their assets were being managed on an individualized basis, when in fact the assets were being invested in shares of the Nations Funds mutual fund, managed by an investment company substantially owned by the Bank.” Id. The class action alleged further that “higher-yielding and better-managed mutual funds were available in the marketplace,” but the Bank directed customers to Nations Funds for the Bank’s economic benefit and that the Bank accomplished this by sending “misleading letters” to trustees and beneficiaries that, in part, threatened “adverse tax consequences” if they went elsewhere. Id. Defense attorneys moved to dismiss the federal claims on the merits, and moved to dismiss the state-law claims as preempted by SLUSA (Securities Litigation Uniform Standards Act of 1998). Id. In part, the defense argued that the class action should be dismissed on the grounds of judge shopping because plaintiffs’ counsel “had already filed at least five class actions in various jurisdictions seeking redress for the same alleged injuries.” Id., at 1125. The district court granted the defense motion in its entirety, and denied plaintiffs’ request for leave to file an amended class action complaint. Id., at 1125. Defense attorneys filed an interlocutory appeal under Rule 23(f) arguing (1) the district court lacked subject matter jurisdiction over the class action, and (2) the district court erred in certifying the litigation as a class action. Id., at 321-22. The Fifth Circuit held that the district court had subject matter jurisdiction by virtue of the Class Action Fairness Act of 2005 (CAFA), but reversed the class action certification order.

By way of background, the TCPA prohibits sending “unsolicited advertisements” from one fax machines to another; a fax is deemed to be an “unsolicited advertisement” if it advertises “the commercial availability or quality of any property, goods, or services” and is sent without “prior express invitation or permission.” BioPay , at 322 (citation omitted). In this regard, Federal Communications Commission rules adopted to implement the TCPA provide that advertisements “from persons or entities who have an established business relationship with the recipient can be deemed to be invited or permitted by the recipient.” In re Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, 7 F.C.C.R. 8752, 8779 n.87 (1992). (The TCPA was amended by the Junk Fax Prevention Act of 2005, but this case involves acts that predate those amendments.) The TCPA authorizes private rights of action by recipients of unsolicited fax advertisements “to enjoin future violations of the TCPA and/or to recover the greater of his actual damages or $500 for each such violation,” and “[t]he monetary award may be trebled if the court finds that a violation was willful or knowing.” BioPay, at 322 (citation omitted).

Continue reading "Class Action Defense Cases–Gene & Gene v. BioPay: Fifth Circuit Reverses Class Action Certification Of TCPA Class Action Holding Plaintiff Failed To Establish Class-Wide Proof Existed As To Issue Of Consent To Receive Fax Advertisements" »

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

Securities Fraud Class Action Properly Dismissed by District Court because Class Action Complaint Failed to Allege Scienter under Heightened Pleadings Requirements of the PSLRA (Private Securities Litigation Reform Act of 1995) Eleventh Circuit Holds

In May 2006, plaintiff John Mizzaro filed a securities fraud class action against Home Depot and six of its officers and directors; the gravamen of the class action complaint was that “(1) Home Depot obtained excessive rebates from its vendors, and (2) violated the securities laws by not informing investors that the financial results it reported for fiscal years 2001-2004 were inflated by these excessive rebates.”  Mizzaro v. Home Depot, Inc., ___ F.3d ___ (11th Cir. October 8, 2008) [Slip Opn., at 5-6].  According to the class action, the failure to make this disclosure constituted a violation of § 10(b) of the Exchange Act of 1934 and Rule 10b-5. The class action complaint also sought to hold the individual defendants liable based on the allegation that they were “control persons” under § 20(a) of the Exchange Act.  Id., at 6.  Four identical class action lawsuits followed; the class actions were consolidated and plaintiff Bucks County Retirement Board was appointed lead plaintiff.  Id., at 5.  Defense attorneys moved to dismiss each of the class actions; in response, Bucks County filed a 150-page Amended Class Action Complaint, which became the operative class action complaint in all five cases.  Id.  Defense attorneys again moved to dismiss the class action complaint arguing, in part, that the allegations “failed to create a ‘strong inference’ that [defendants] acted with the requisite scienter” under the Private Securities Litigation Reform Act of 1995 (PSLRA).  Id., at 6. The district court dismissed the class action and denied plaintiff’s motion for leave to further amend its class action complaint; the court held that the amended class action complaint “failed to adequately plead scienter, and that granting leave would be futile because the additional facts presented in the motion for leave would not change t hat result.”  Id., at 7.  In a 60-page opinion, the Eleventh Circuit affirmed.

The Circuit Court explained that “[t]o survive a motion to dismiss under the [PSLRA], the factual allegations contained in a private securities fraud class action complaint must raise a ‘strong inference,’ one that is ‘cogent and compelling,’ that the named defendants acted with the requisite scienter.”  Mizzaro, at 4.  This article assumes the reader is familiar with the PSLRA and with the U.S. Supreme Court opinion in Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S.Ct. 2499 (2007); the author’s summary of Tellabs may be found here .  Central to the Eleventh Circuit’s analysis was its determination of an issue not addressed in Tellabs – viz., “how courts should go about evaluating allegations based on statements made by unidentified, confidential witnesses.”  Id., at 14.  As a matter of first impression, the Circuit Court held that a securities fraud complaint need not name a confidential source “so long as the complaint unambiguously provides in a cognizable and detailed way the basis of the whistleblower’s knowledge.”  Id., at 16.  However, in light of legitimate reasons to be “skeptical of confidential sources cited in securities fraud complaints,” id., the Eleventh Circuit held that “the weight to be afforded to allegations based on statements proffered by a confidential source depends on the particularity of the allegations made in each case, and confidentiality is one factor that courts may consider,” id., at 16-17.  The Court clarified its holding at page 17 as follows, “Confidentiality… should not eviscerate the weight given if the complaint otherwise fully describes the foundation or basis of the confidential witness’s knowledge, including the position(s) held, the proximity to the offending conduct, and the relevant time frame.”

Continue reading "PSLRA Home Depot Class Action Defense Cases–Mizzaro v. Home Depot:  Eleventh Circuit Affirms Dismissal Of Securities Fraud Class Action Holding Class Action Complaint Failed To Satisfy PSLRA’s Heightened Pleading Requirements" »

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