Class Action Defense Blog

Truth-in-Lending Act (TILA) Class Action Lawsuit Erroneously Granted Class Action Status because TILA does not Permit Rescission as a Class Action Remedy only Damages Seventh Circuit Holds

Plaintiffs filed a putative class action against Chevy Chase Bank for violations of the federal Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq.; the class action complaint alleged that, in connection with its adjustable rate mortgage loans, the Bank failed to make the disclosures required by federal law. Andrews v. Chevy Chase Bank, 545 F.3d 570 (7th Cir. 2008) [Slip Opn., at 3-4]. The class action sought not only statutory damages and attorney fees, but prayed for rescission as well, id., at 4.. The district court granted plaintiffs’ motion for class action certification, see Andrews v. Chevy Chase Bank, FSB, 240 F.R.D. 612 (E.D. Wis. 2007); our summary of that opinion may be found here. The author stated in that summary, “[T]he author notes that the court’s analysis is brief and superficial, and fails to address any of the cases that hold rescission to be unavailable on a class-wide basis. See, e.g., McKenna v. First Horizon Home Loan Corp., 475 F.3d 418, 423 (1st Cir. 2007) (holding that ‘as a matter of law, class certification is not available for rescission claims, direct or declaratory, under the TILA’).” Defense attorneys filed an interlocutory appeal: the Seventh Circuit explained, “we are called on to answer one question: May a class action be certified for claims seeking the remedy of rescission under the Truth in Lending Act (‘TILA’), 15 U.S.C. § 1635? The only two federal appellate courts to have addressed this question have answered ‘no,’ see McKenna v. First Horizon Home Loan Corp., 475 F.3d 418 (1st Cir. 2007); James v. Home Constr. Co. of Mobile, Inc., 621 F.2d 727 (5th Cir. 1980), and we agree. TILA’s statutory-damages remedy, § 1640(a)(2), specifically references class actions (by providing a damages cap), but TILA’s rescission remedy, § 1635, omits any reference to class actions. This omission, and the fundamental incompatibility between the statutory-rescission remedy set forth in § 1635 and the class form of action, persuade us as a matter of law that TILA rescission class actions may not be maintained.” Id., at 1-2. Accordingly, the Seventh Circuit reversed.

The Circuit Court noted that because the issue presented in the appeal is “purely legal” – viz., whether class action claims for rescission may be pursued under TILA – the district court order is subject to de novo review, rather than the “abuse of discretion” standard generally employed when reviewing an order granting class action certification. Andrews, at 5. The Seventh Court noted at page 6, “Whether TILA allows claims for rescission to be maintained in a class-action format is an issue of first impression in our circuit, but the First and Fifth Circuits, in addition to California’s court of appeals, have held as a matter of law that rescission class actions are unavailable under TILA.” (Citations omitted.) The problem, in the Circuit Court’s words, was simple: TILA provides borrowers with a right of rescission under certain circumstances: “Debtors may rescind under TILA by midnight of the third business day after the transaction for any reason whatsoever…. Rescinding a loan transaction under TILA ‘“requires unwinding the transaction in its entirety and thus requires returning the borrowers to the position they occupied prior to the loan agreement.”’ Id. (citations omitted). The remedy is considered “purely personal”: “It is intended to operate privately, at least initially, ‘with the creditor and debtor working out the logistics of a given rescission.’” Id., at 7 (citations omitted). Moreover, the rescission remedy provided for in TILA “appears to contemplate only individual proceedings; the personal character of the remedy makes it procedurally and substantively unsuited to deployment in a class action.” Id. (citation omitted). Put simply, “Rescission is a highly individualized remedy as a general matter, and rescission under TILA is no exception. The variations in the transactional ‘unwinding’ process that may arise from one rescission to the next make it an extremely poor fit for the class-action mechanism.” Id.

Continue reading "TILA Class Action Defense Cases–Andrews v. Chevy Chase: Seventh Circuit Reverses Class Action Certification Of TILA Class Action Against Chevy Chase Bank Holding Rescission Not Available In Class Actions Under TILA" »

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

District Court Order Reducing Fee Award from 8.5% Negotiated with Lead Plaintiff to 3% of Value of Securities Class Action Settlement not Subject to Attack on PSLRA Grounds because Argument Waived as not Raised below and Attorney Fee Award is Reasonable Second Circuit Holds

Plaintiffs filed a class action complaint against Nortel Networks alleging violations of federal securities laws; specifically, the class action alleged that defendant “knowingly and recklessly issued false and misleading statements and engaged in various accounting manipulations causing its stock price to be inflated between October 24, 2000 and February 15, 2001.” In re Nortel Networks Corp. Securities Litig., 539 F.3d 129, 130-31 (2d Cir. 2008). After several years of litigation, the parties reached a settlement of the class action (Nortel I); the district court gave final approval to a class action settlement valued at more than $700,000,000. Id., at 131. As part of the settlement, class counsel negotiated a fee award under the Private Securities Litigation Reform Act of 1995 (PSLRA) that provided for an attorney fee award of 8.5%. Id., at 130. At the same time, Nortel settled another class action involving similar securities claims filed on behalf of a separate class of plaintiffs (Nortel II); the value of that class action settlement also was valued at more than $700 million. Id., at 131. Class counsel in each class action sought an award of attorney fees: the district court in Nortel II awarded approximately 8% of the total class recovery in fees; the district court in Nortel I awarded approximately 3% of the total class recovery in fees. Id. Class counsel in Nortel I, Milberg Weiss & Bershad LLP, appealed the fee award, id., at 130, and the Second Circuit affirmed.

The district court based its attorney fee award on its independent analysis of the factors set forth by the Second Circuit in Goldberger v. Integrated Resources, Inc., 209 F.3d 43, 50 (2d Cir. 2000); this analysis led the district court to conclude that an 8.5% fee award would be excessive and that a 3% fee award – amounting to approximately $34 million – would be “fair and reasonable.” In re Nortel Networks, at 131-32. On appeal, “Milberg argues that the district court erred by disregarding the purportedly altered fee-award scheme under the [PSLRA] pursuant to which Milberg's negotiated fee with the lead plaintiff would have been presumptively reasonable.” Id., at 130. The Second Circuit held that Milberg waived the argument by failing to raise it in the district court. See id., at 132-34. Turning to the reasonableness of the fee award itself, the Second Circuit held that it “will not overturn a district court's award of attorneys' fees ‘absent an abuse of discretion, such as a mistake of law or a clearly erroneous factual finding.’” Id., at 134 (citation omitted). The Circuit Court noted that the district court properly considered each of the relevant factors, and that it “carefully weighed” those factors in making its award. Id. The Court rejected Milberg’s argument that “the district court abused its discretion in part because it awarded a fee significantly below those awarded in other cases where we have upheld higher percentage fees and higher lodestar multipliers” and “erred by not using the 8% Nortel II award as a ‘benchmark,’” id. While the award was “toward the lower end of reasonable fee awards,” and while the Circuit Court was “troubled by the district court's failure to discuss Nortel II and why it believed the fee award here to be more reasonable,” the question on appeal was “not whether we would have awarded a different fee, but rather whether the district court abused its discretion in awarding this fee.” Id. Accordingly, the Circuit Court affirmed the district court’s attorney fee award. Id.

Continue reading "Attorney Fee Class Action Defense Cases–In re Nortel Networks: Second Circuit Affirms Class Action Attorney Fee Award Of 3% Of Value Of Nortel Securities Class Action Settlement Rather Than 8.5% Negotiated With Lead Plaintiff" »

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

Products Liability Class Action Complaint Originally Filed in 1999 Removable under CAFA (Class Action Fairness Act) because Maryland Law Holds Amendments that Add New Party Plaintiffs do not Relate Back so 2007 Amendment to Add New Named Plaintiffs Commenced New Class Action under CAFA Maryland Federal Court Holds

In 1999, plaintiffs filed a putative class action in Maryland state court against four automobile manufacturers seeking “damages arising from the cost of replacing allegedly defective seating systems”; Eight years later, defense attorneys removed the class action to federal court on the ground that removal jurisdiction existed under the Class Action Fairness Act of 2005 (CAFA). Lloyd v. General Motors Corp., 560 F.Supp.2d 420, 421 (D.Md. 2008). Plaintiffs did not dispute that their class action involved more than 100 plaintiffs, or that the amount in controversy was more than $5,000,000, or that the minimal diversity test under CAFA had been met. Id., at 423 n.3. Instead, plaintiffs moved to remand the class action to state court on the ground that the Class Action Fairness Act applies only to class actions “commenced” on or after February 18, 2005 – long after they had filed their class action complaint in this case. Id., at 421. Defense attorneys countered that plaintiffs’ fourth amended class action complaint materially changed the lawsuit so as to “commence” a new action within the meaning of CAFA. Id. The district court agreed and denied the motion to remand the class action state court.

The initial class action complaint alleged that the seating systems in defendants' cars were “unreasonably dangerous” because they were “susceptible to rearward collapse in the event of a rear-end collision.” Lloyd, at 421. Over the following six months, plaintiffs amended the class action complaint three times “adding several new named plaintiffs and significantly expanding the class of relevant automobiles.” Id. In March 2000, the Maryland state court granted defendants' motion to dismiss the third amended class action complaint “ruling that the Plaintiffs had failed to plead actual injury and that their claims were barred by the economic loss doctrine.” Id., at 422. The case was tied up in the appellate courts until February 2008, when the Maryland Court of Appeals reinstated the class action complaint. Id. (citing Lloyd v. General Motors Corp., 916 A.2d 257 (Md. 2007). On August 19, 2007, plaintiffs filed a fourth amended class action complaint that, in the district court’s words, “alter[ed] their claims in three significant respects: first, by adding five new named plaintiffs, three of whom were never a part of the putative class; second, by including in the putative class lessees of class vehicles for model years 1988-2005; and third, by including in the putative class owners of class vehicles for model years 1988-89 and 2000-2005. “ Id. It was based on these amendments that defense attorneys removed the class action to federal court, arguing that under CAFA a new action had been “commenced” after February 18, 2005. Id.

Continue reading "CAFA Class Action Defense Cases–Lloyd v. General Motors: Maryland Federal Court Denies Motion To Remand Class Action Holding That Under Maryland Law Amendment Adding New Plaintiffs Commenced New Action Under Class Action Fairness Act" »

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

Trial Court Properly Dismissed Lawsuit Seeking Recovery under Fee-Splitting Agreement underlying Class Action because Attorney-Plaintiff Failed to Disclose Fee Agreement to Class Action Court as Required by California Law and because Attorneys’ Respective Rights to Fees were Finally Determined by Class Action Court, thus Barring Subsequent Action under Doctrine of Res Judicata, California State Court Holds

Plaintiff, attorney Ronald Mark, was retained by an individual to commence a labor law class action against his former employer, General Nutrition Corporation (GNC); prior to filing the class action complaint, plaintiff asked defendant, attorney Jeffery Spencer, to serve a co-counsel in the class action litigation, and the attorneys signed a written agreement that proposed to split any fee award 50-50, subject to renegotiation in the event that one of them fails to perform an equal share of the work. Mark v. Spencer, ___ Cal.App.4th ___ (Cal.App. August 22, 2008) [Slip Opn., at 3.]. The attorneys filed the class action complaint in November 2001; the class action was settled in 2004, obtaining final court approval in December 2004. Id. The attorneys filed a motion requesting “a $600,000 lump sum for attorney fees and expenses” to “Class Counsel,” and Mark and Spencer filed separate declarations in support thereof. Id. Neither Mark nor Spencer notified the trial court of their written fee-splitting agreement, and only Spencer appeared at oral argument on the attorney fee application. Id. Ultimately, the trial court awarded Spencer about $401,000 and Mark about $76,500, and the class action defendant wired these sums to Spencer and Mark, respectively. Id., at 4. Mark filed a lawsuit against Spencer seeking “his share” of the class action attorney fee award; the trial court granted Spencer’s motion to dismiss the complaint ruling (1) Mark failed to comply with California law requiring disclosure of fee agreements in class action cases, and (2) Mark was precluded from collaterally attacking the attorney fee award based on an agreement not provided to the trial court at the time it determined the class action attorney fee award. Id. The Court of Appeal affirmed.

First, the appellate court held that Mark was required to disclose the fee-splitting agreement in the class action. After summarizing the potential conflict of interest created by such agreements, see Mark, at 5, and the Rules of Professional Conduct governing such agreements, see id., at 5-6, the Court of Appeal held that “ [t]o fulfill its role in protecting absent class members, the class action court must consider the potential effect of a fee-splitting agreement before approving a proposed settlement,” id., at 8. Put simply, “Rule 3.769 [of the California Rules of Court] was designed to protect class members from potential conflicts of interest with their attorneys by requiring the full disclosure of all fee agreements in any application for dismissal or settlement of a class action.” Id., at 2. The Court rejected plaintiff’s invitation to enforce the fee agreement despite potential harm to the class: “In essence, Mark urges us to sanction the concealment of material information from the class action court, even if it harms the absent class members. The integrity of the judicial system demands we not do so.” Id., at 8. The class action court’s decision to approve the class action settlement could have been affected by the disclosure of the fee-splitting agreement, and “attorneys would have little incentive to disclose the agreement if they could simply enforce it in a separate action.” Id., at 9.

Continue reading "Attorney Fees Class Action Defense Cases–Mark v. Spencer: California State Court Affirms Dismissal Of Lawsuit Seeking Damages Under Fee-Splitting Agreement Underlying Class Action Following Class Action Court Fee Award Inconsistent With Agreement" »

Posted In: Class Action Court Decisions

Securities Class Action Properly Dismissed because Allegations in Class Action Complaint Failed to Meet PSLRA’s Heightened Pleading Requirements Eighth Circuit Holds

Plaintiff filed a class action complaint against Hutchinson Technology and six of its officers and directors alleging violations of federal securities law; the class action complaint asserted claims under Section 10(b) of the Securities Exchange Act of 1934 and under Rule 10b-5 of the Securities and Exchange Commission implementing regulation, as well as control person liability under Section 20 of the 1934 Act. In re Hutchinson Technology, Inc. Securities Litig., 536 F.3d 952, 954-55 (8th Cir. 2008). Defense attorneys filed a motion to dismiss the class action complaint on the ground that it failed to meet the heightened pleading requirements of the Private Securities Litigation Reform Act (PSLRA). Id., at 955. The district court granted the motion and denied plaintiff’s request for leave to file an amended class action complaint. Id. Plaintiff appealed, and the Eighth Circuit affirmed.

Very briefly, Hutchinson manufactures and supplies suspension assemblies for computer hard disk drives. In re Hutchinson, at 955. In 2005, the company’s five largest customers accounted for 90% of its revenue, and sales of suspension assemblies accounted for 95% of its total revenue. Id. After giving guidance of $0.10 earnings per share (EPS) for the fourth quarter of 2004, the company reported EPS of $0.15 to $0.20 for that quarter and announced that it expected an increase in product demand in the first quarter of 2005. Id. Hutchinson stock price increased more than 10% on the news, from $30.93 to $34.09. Id. Thereafter, despite releasing positive information, Hutchinson’s stock price dropped to about $30 per share; also during this time, certain officers sold a total of 137,750 shares of stock at $29-$30 per share for a total of about $6 million, and later sold another 26,820 shares at $33.55-$34 per share for a total of about $1 million. Id., at 956. We do not summarize further additional positive guidance provided by the company, or additional shares of stock sold by insiders. See id., at 956-57. But on August 30, 2005, the company issued a press release disclosing lower demand and a reduction in sales and earnings for fourth quarter 2005: in response, the company stock price dropped from $31.51 to $26.16. Id., at 957. In addition to the financial allegations, the class action complaint contained allegations from five confidential witnesses. Id., at 957-58. In granting the defense motion to dismiss the class action complaint, the district court “[held] that the complaint did not meet the heightened pleading standards for falsity and scienter required by the PSLRA.” Id., at 958. Additionally, it dismissed the Section 20 class action claim (concerning “control person” liability) as derivative of the class action’s Section 78j(b) claim. Id. Finally, the district court denied leave to amend the class action complaint because it found that amendment would be futile, id.

Continue reading "PSLRA Class Action Defense Cases–In re Hutchinson: Eighth Circuit Affirms Dismissal Of Class Action Holding Class Action Complaint Failed To Meet Heightened Pleading Requirements Under The Private Securities Litigation Reform Act (PSLRA)" »

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

In order to assist class action defense attorneys anticipate the types of class actions against which they will have to defend in California state and federal courts, 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 September 12 - 18, 2008, during which time an unusually high number of new class action lawsuits were filed -- 61. Class action lawsuits asserting employment-related claims generally top the new class action filings list, often by a wide margin. This yet again proved to be true. During the past week, 28 of the new class action lawsuits involved labor law claims, representing 46% 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 9 new filings (15%), and class action lawsuits alleging violations federal securities laws, with 8 new filings (13%).

Posted In: Class Actions In The News

Over Objection of Defense Attorneys, Judicial Panel Grants Plaintiffs’ Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407, but Agrees with Defendant that Class Actions should be Centralized in Western District of North Carolina

Nine class action lawsuits were filed against Family Dollar Stores alleging violations of the federal Fair Labor Standards Act (FLSA); specifically, the class action complaints alleged that under the FLSA defendant’s store managers are entitled to overtime pay. In re Family Dollar Stores, Inc., Wage & Hour Employment Prac. Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. April 8, 2008) [Slip Opn., at 1]. Six of the class actions were pending in the Western District of North Carolina; the three other class actions were pending in Florida, Tennessee and Texas. Id. Plaintiffs’ lawyers in five of the North Carolina class actions filed a motion with the Judicial Panel for Multidistrict Litigation (MDL) requesting centralization of the class actions pursuant to 28 U.S.C. § 1407 in the Northern District of Alabama; plaintiffs in the other class actions supported the motion. Id. Defense attorneys opposed pretrial coordination, and alternatively argued that the class action lawsuits should be transferred to the Western District of North Carolina. Id. The Judicial Panel noted that five additional, related class action complaints had been filed against Family Dollar Stores in Alabama, Arizona, Colorado, North Carolina and Pennsylvania, and that it would treat these class actions as tag-along cases. Id., n.1. The Judicial Panel granted the motion to centralize the class action lawsuits, id. But the Panel rejected Alabama as a transferee court. Rather, the Judicial Panel agreed with defense attorneys to centralize the litigation in the Western District of North Carolina because “(1) six of the nine actions are already underway there, and (2) Family Dollar Stores, Inc., is headquartered in Charlotte, North Carolina, and witnesses and documents will likely be found there.” Id., at 1-2.

Posted In: Multidistrict Litigation, Class Action Court Decisions

Class Action Against Wireless Service Provider Challenging Whether Carrier may Pass Business tax through to Customers Without Specifically Disclosing it Service Contract not Preempted by FCA (Federal Communications Act) because State Law did not Seek to Regulate Rates but Rather “Other Terms and Conditions” of Wireless Service Ninth Circuit Holds

Plaintiff filed a class action in Washington state court against his wireless service provider, Cingular, alleging that it improperly passed on to its customers the “business and occupation tax” (B & O Tax) levied by the state; according to the class action complaint, Cingular’s monthly invoices to plaintiff included a $0.31 line item charge identified as “State B & O Surcharge,” which the class action alleged should not have been passed through to customers or, at the very least, should have been disclosed in Cingular’s contract with its customers. Peck v. Cingular Wireless, LLC, 535 F.3d 1053, 1054-55 (9th Cir. 2008). The class action sought recover for violation of Washington’s Consumer Protection Act (CPA), breach of contract, and unjust enrichment, and sought declaratory and injunctive relief, id., at 1055. Defense attorneys removed the class action to federal court, id. Defense attorneys then moved to dismiss the class action complaint, alleging that the claims therein were preempted by the Federal Communications Act (FCA), which “prohibits state regulation of telecommunications carriers’ rates.” Id. The district court followed an FCC opinion that the FCA preempted state laws that sought to regulate line item billing for cellular wireless services, and dismissed the class action claims as preempted by the FCA. Id. Plaintiff appealed the dismissal of his class action complaint, and the Ninth Circuit reversed. Id., at 1054.

The Ninth Circuit began by observing that “while a state may not regulate a wireless carrier's rates, it may regulate the ‘other terms and conditions’ of wireless telephone service.” Peck, at 1056. But federal law “leaves its key terms undefined”: “‘It never states what constitutes rate and entry regulation or what comprises other terms and conditions of wireless service.’” Id. (quoting Cellular Telecomms. Indus. Ass'n v. FCC, 168 F.3d 1332, 1336 (D.C. Cir.1999)). The Circuit Court then observed, “When a statute is ambiguous or leaves key terms undefined, a court must defer to the federal agency's interpretation of the statute, so long as such interpretation is reasonable.” Id. (citation omitted). As noted above, the FCC interpreted the FCA as barring states from regulating “rate structures” and “rate elements,” including line item charges; accordingly, “the FCC [has] concluded state laws that regulate line item charges in wireless bills were pre-empted by the FCA.” Id. The Eleventh Circuit rejected the FCC's interpretation that rates include line item charges based on its conclusion that federal law “unambiguously preserved the ability of the States to regulate the use of line items in cellular wireless bills,” and vacated the FCC’s order that contained its interpretation of the applicable law. Id. (citation omitted). The Ninth Circuit explained that “as a result of the [Eleventh Circuit’s] vacatur of the Second Report and Order, there is no FCC ruling on the issue of whether ‘rates’ include line item charges.” Id., at 1057.

Continue reading "Class Action Defense Cases–Peck v. Cingular: Ninth Circuit Reverses Dismissal Of Class Action Holding That Federal Communications Act Did Not Preempt State Law Requiring Disclosure Of Line Item Charges" »

Posted In: Class Action Court Decisions

Pursuant to District Court Order Enjoining Law Firm from Filing Further Lawsuits Involving Collapse of Enron Absent Leave of Court, District Court Properly Denied Leave to File 24 New Lawsuits in Texas State Court Seeking to Assert 7 New Claims, but only as to those Claims Subject to Two-Year or Three-Year Statutes of Limitation, Requiring Reversal of District Court Order as to Proposed New Claims Subject to Four-Year Limitations Periods Fifth Circuit Hold, but only as to those Claims Subject to Two-Year or Three-Year Statutes of Limitation, Requiring Reversal of District Court Order as to Proposed New Claims Subject to Four-Year Limitations Periods

In 2001, a Houston law firm (Fleming & Associates) filed several individual and class action lawsuits in Texas state courts against Enron, its accounting firm, and various officers; the class action and individual complaints were brought on behalf of shareholders and arose of the collapse of Enron’s stock price. Newby v. Enron Corp., 542 F.3d 463, 2008 WL 4113964, *1 (5th Cir. 2008). Enron filed for bankruptcy protection in December 2001, and “[s]even years later, litigation involving the Enron collapse endures.” Id. The Fleming firm has played a central role in that litigation, and repeatedly has “sought ex parte temporary restraining orders to prevent the defendants from destroying Enron-related documents.” Id. The Circuit Court explained, “Based on the Fleming Firm's conduct in seeking ex parte orders in state court, on February 15, 2002, the district court issued a memorandum and order enjoining the Fleming Firm from filing any new Enron-related actions without leave of the court (the ‘February 15, 2002, injunction’).” The Fleming Firm challenged this order but the Fifth Circuit affirmed the injunction, holding that district courts have the authority under the All Writs Act to issue “narrowly tailored” injunctions to “enjoin[] repeatedly vexatious litigants from filing future state court actions.” See Newby v. Enron Corp., 302 F.3d 295, 302 (5th Cir. 2002). The Fifth Circuit there explained, “The district court in this case was attempting to rein in a law firm that represents over 750 plaintiffs .... The problem is Fleming's unjustified and duplicative requests for ex parte temporary restraining orders, without notice to lawyers already across the counsel table from Fleming and engaged in the prosecution and defense of virtually identical claims in federal suits.” 2008 WL 4113964 at *2 (quoting Newby, 302 F.3d at 302). In October 2003, the Fleming Firm sought and obtained leave of court to file two more Enron-related actions in state court. Id., at *2. In July 2003, “the district court issued a scheduling order in the Newby securities class action,” and three years later, in July 2006, the district court granted plaintiffs’ motion to certify the litigation as a class action. Id.

In October 2005, before it obtained class action status in Newby, the Fleming Firm sought leave to file 24 more Enron-related lawsuits in Texas state courts. 2008 WL 4113964 at *2. The lawsuits sought to represent 1200 shareholders and to seek recovery against “several financial institutions and Enron outside officers and directors” under seven theories – “common law fraud and fraud-on-the-market, negligence, statutory fraud, aiding and abetting liability under the Texas Securities Act, civil conspiracy, aiding and abetting common law fraud, and negligent misrepresentation.” Id. The district court denied the motion on the ground that each of the proposed claims were time-barred and that the applicable statutes of limitation had not been tolled. Id. The Fleming Firm appealed, and the Fifth Circuit affirmed in part and reversed in part.

We do not discuss the Fifth Circuit’s reasoning in detail. At bottom, the Circuit Court held that the district court properly denied leave to file suit as to claims subject to two- or there-year statutes of limitation, unless the time period for filing such claims had been tolled, but the district improperly denied leave to file suit as to claims subject to a four-year statute of limitations. 2008 WL 4113964 at *3-*5. The Fleming Firm filed its motion on October 14, 2005: “Given that the Fleming Firm's clients had notice of their claims on October 17, 2001, the longest statute of limitations at issue here (four years) would have expired on October 17, 2005, unless a tolling doctrine applies.” Id. at *3. The district court had held that even claims subject to a four-year limitations period were time-barred because, under the district court’s local rules, the Fleming Firm could not have filed suit “until twenty days after the Fleming Firm filed the motion, or until November 3, 2005.” Id. The Fifth Circuit disagreed, and held that “it is up to the state court to determine how to proceed” as to those claims. Id., at *5. In sum, the district court improperly denied the motion for leave to file the claims “involving common law fraud and fraud-on-the-market (Count I), statutory fraud (Count III), and aiding and abetting common law fraud (Count VI), because these claims all have a four-year statute of limitations, and the Fleming Firm submitted its motion for leave to file suit before that limitations period expired.” Id.

Continue reading "Class Action Defense Cases–Newby v. Enron: Fifth Circuit Partially Partially Affirms District Court Order Denying Law Firm Leave To File New State Law Claims Involving Enron But Reverses As To Claims Governed By Four-Year Limitations Period" »

Posted In: Class Action Court Decisions

District Court Properly Granted Summary Judgment in Class Action Alleging Coca-Cola Violated ERISA by Interpreting Plan so as to Permit an Offset Based on Receipt of Social Security Benefits and to Recoup Overpayment of Benefits Eleventh Circuit Holds

Plaintiffs, participants in long term disability plan, filed a class action against their employer, Coca-Cola, in its capacity as sponsor and administrator of a benefits plan alleging violations of the Employee Retirement Income Security Act of 1974 (ERISA); specifically, the class action complaint challenged the plan administrators “reduction of benefits under a long-term-disability plan based on a participant's receipt of Social Security disability benefits.” White v. Coca-Cola Co., ___ F.3d ___, 2008 WL 4149706, *1 (11th Cir. September 10, 2008). The class action “contest[ed] the plan administrator's interpretation of both a provision that permits an offset for the receipt of other disability benefits and a provision that allows the plan to recoup overpayments of benefits.” Id. The parties filed cross-motions for summary judgment; the district court granted the defense motion and entered judgment in favor of Coca-Cola on the class action claims. Id. Based on this ruling, the district court denied as moot plaintiffs motion to certify the litigation as a class action. Id., at *4. The Eleventh Circuit affirmed.

We do not here summarize the terms of the plan, other than to note that it “grants the committee exclusive responsibility and discretionary authority ‘to construe the Plan and decide all questions arising under the Plan,’ including the authority ‘to determine the eligibility of Participants to receive benefits and the amount of benefits to which any Participant may be entitled under the Plan.’” White, at *1. We note also that the plan “works with” Social Security benefits received, and provides “for the recoupment of any overpayment of benefits.” Id., at *2. Procedurally, before filing the class action, one of the plaintiffs asked Coca-Cola to reconsider his benefits payments arguing, in part, “that, even if the plan permits the offset of his future benefits to account for his Social Security benefits, the plan and ERISA prohibit the recovery of an overpayment of his past benefits.” Id., at *3. The committee retained outside counsel, who concluded that the plan’s offset provision was ambiguous but that the committee could legally interpret the plan to permit an offset in the manner that it had: accordingly, the committee did not alter its interpretation of the plan. Id.

Continue reading "ERISA Class Action Defense Cases–White v. Coca-Cola: Eleventh Circuit Affirms Summary Judgment In Favor Of Employer In ERISA Class Action Holding Plan Administrator’s Decision To Reduce Benefits Based On Social Security Benefits Was Reasonable" »

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

Class Action Complaint Properly Kept in State Court Rather than Referred to Arbitration because Class Action Waiver Provision in Arbitration Clause Rendered Dispute Resolution Provision of Consumer Service Agreement Unenforceable as Unconscionable Washington State Court Holds

Plaintiff filed a class action against AT&T alleging that it wrongly charged him “city utility surcharges and usurious late fees”; specifically, the class action complaint alleged that plaintiff signed up with AT&T for long distance telephone service, and that his monthly bills “included a Wenatchee city utility tax surcharge, even though he lives outside the Wenatchee city limits.” McKee v. AT&T Corp., ___ P.3d ___ (Wash. August 28, 2008) [Slip Opn., at 1-2]. According to the class action, AT&T assessed taxes based on zip codes, and plaintiff’s zip code included not only people who lived in Wenatchee, but also people who lived outside the city limits. Plaintiff’s class action alleged that AT&T collects taxes from its customers “whether the customers owe the tax or not,” and imposes a late fee of 1.5% if the bill is not paid timely. Id., at 2. Defense attorneys removed the class action to federal court on the ground that it raised claims under federal law; plaintiff amended the class action complaint to omit any reference to federal law, and the district court remanded the class action back to state court. Id. Defense attorneys then moved to compel arbitration of the dispute pursuant to the dispute resolution provisions of their long distance service contract. Id., at 1. The dispute resolution provision required arbitration of all disputes and prohibited class actions; it also provides that claims must be brought within two years, and “limits a consumer’s right to collect punitive damages and attorney fees.” Id., at 4. The trial court denied the motion, finding the dispute resolution provision in AT&T’s Consumer Services Agreement to be unconscionable. Id., at 1. The Washington Supreme Court affirmed.

The Supreme Court explained that plaintiff “did not sign any agreement with AT&T” when he accepted AT&T as his long distance provider, and that he did not know whether he received a contract in the mail from AT&T. McKee, at 2-3. Defense attorneys submitted declarations that stated plaintiff received a “specific agreement” as part of his “fulfillment package,” and attached the agreement to their declarations, id., at 3. Plaintiff argued that the agreement was unconscionable: “He claimed he had no meaningful choice and the agreement was overly one-sided and harsh because it prohibited class actions, shortened the statute of limitations, prohibited punitive damages and attorney fees, required arbitration be kept secret, and required application of New York law.” Id., at 5. The trial court agreed with plaintiff: he ruled that the dispute resolution provision of the agreement was substantively unconscionable “because of the provisions prohibiting class actions, shortening the statute of limitations, limiting damages, requiring confidentiality, and” Id., at 5. A few months later, defense attorneys moved for reconsideration based on a new declaration that stated prior information provided under oath was in error because “AT&T had amended its agreement ‘in significant ways, including, for example, the removal of the two-year statute of limitations, the ability of the customer to determine whether the proceedings should be confidential, and specifically allowing consumers to obtain statutory relief—including damages and attorney’s fees—through the arbitration process.’” Id., at 6. The trial court denied the motion, and AT&T appealed. Id., at 7.

Continue reading "Arbitration Class Action Defense Cases–McKee v. AT&T: Washington State Court Holds Class Action Waiver Arbitration Clause Enforceable Affirming Trial Court Order Denying AT&T’s Motion To Compel Arbitration Of Class Action" »

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 September 5 - 11, 2008, during which time 31 new class action lawsuits were filed. Labor law class action lawsuits generally top the new class action filings list by a wide margin, and during the applicable reporting period 14 of the new class action lawsuits (45%) asserted employment-related claims. The only other categories that satisfied the 10% threshold involved class action lawsuits alleging unfair business practice claims, which include false advertising claims, with 7 new filings (23%), and class action lawsuits alleging violations or privacy rights by dissemination or failure to protect the personal information of consumers, with 3 new filings (10%).

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, Unopposed by Class Action Plaintiffs, and Transfers Actions to Northern District of Illinois

Seven class actions were filed against defendants Spin Master Ltd. and Spin Master, Inc. in six federal district courts – one in New Jersey and one in Pennsylvania – arising out of the “design and manufacture of Aqua Dots” and/or challenging “the adequacy of the November 2007 voluntary recall of this product.” In re Aqua Dots Products Liab. Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. April 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 Northern District of Illinois or, alternatively in the Eastern District of Arkansas; all responding parties supported pretrial coordination though they recommended various competing districts as the appropriate transferee court. Id. At oral argument, all parties agreed on the Northern District of Illinois. Id. The Judicial Panel granted the motion to centralize the class action lawsuits, explaining at page 1 that the lawsuits involved common questions of fact and that centralization “will eliminate duplicative discovery; avoid inconsistent pretrial rulings–especially on the issue of class certification; and conserve the resources of the parties, their counsel and the judiciary.” Id. The Judicial Panel also agreed that the Northern District of Illinois was the appropriate transferee court “because (1) the Illinois district is relatively conveniently located in relation to documents and witnesses located at Spin Master Ltd.’s Canadian headquarters, and (2) all parties now agree upon centralization in this district.” Id., at 2.

Posted In: Multidistrict Litigation, Class Action Court Decisions

Judicial Panel Grants Plaintiff Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407, Unopposed by Other Class Action Plaintiffs or Defendants, but Rejects Southern District of Florida in Favor of District of Puerto Rico as Appropriate Transferee Court

Five class actions – three in the Southern District of Florida, one in the Middle District of Florida and one in the District of Puerto Rico – were filed against Horizon Lines and others alleging “that defendants conspired to fix prices of cabotage services to and from Puerto Rico in violation of the Sherman Antitrust Act.” In re Puerto Rican Cabotage Antitrust Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. August 13, 2008) [Slip Opn., at 1]. Lawyers for plaintiffs in one of the Southern District of Florida class actions filed a motion with the Judicial Panel for Multidistrict Litigation (MDL) requesting centralization of the class actions pursuant to 28 U.S.C. § 1407 in the Southern District of Florida. Id. No responding party opposed pretrial coordination but the parties could not agree on an appropriate transferee court, arguing various for the Southern District of Florida, the Middle District of Florida, the Eastern District of Louisiana, or the District of Puerto Rico. Id. The Judicial Panel also was advised that 18 additional class actions had been filed – 10 in Puerto Rico, and four each in the Middle and Southern Districts of Florida – and the Panel treated these as tag-along cases. Id., at 1 n.1. The Judicial Panel granted the motion to centralize the class action lawsuits and, after noting that the District of Puerto Rico or the Southern or Middle Districts of Florida would be appropriate transferee courts, decided upon the District of Puerto Rico because 11 actions are pending in that district already and because centralization in that court will “achieve the dual benefits of convenience and of spreading the workload of multidistrict litigation cases..” Id., at 1-2.

Posted In: Multidistrict Litigation, Class Action Court Decisions

Class Action Claims Concerning Medicare Prescription Drug Benefits Fell Within Express Preemption Provision of Medicare Prescription Drug Improvement and Modernization Act of 2003 so District Court did not Err in Grant Defense Motion to Dismiss Class Action Complaint Ninth Circuit Holds

Plaintiffs filed a putative class action complaint against Humana Health Plan, Inc. and Humana, Inc. (collectively “Humana”) concerning medication benefits under Medicare. Uhm v. Humana Inc., ___ F.3d ___ (9th Cir. August 25, 2008) [Slip Opn., at 11553-54]. The class action complaint alleged that defendants failed to provide plaintiffs with the materials necessary for them to obtain Medicare prescription drug benefits, and that plaintiffs “were forced to buy their prescription medications out-of-pocket at costs higher than those provided by Humana’s plan, despite the fact that the PDP premium was deducted from their social security checks.” Id., at 11555. The class action alleged theories of “breach of contract, violation of several state consumer protection statutes, unjust enrichment, fraud, and fraud in the inducement,” and sought to represent a class consisting of “all persons who paid, or agreed to pay, Medicare Part D prescription drug coverage premiums to Humana and who did not receive those prescription drug benefits in either a timely fashion or at all.” Id., at 11555-56. Defense attorneys moved to dismiss the class action on the ground that plaintiffs’ claims “are preempted by the express preemption provision of the Medicare Prescription Drug Improvement and Modernization Act of 2003.” Id., at 11553. The district court granted the defense motion and dismissed the class action on the grounds of preemption: The district court found that the class action claims fell within the scope of the administrative review process established by the concluded that the standards promulgated by CMS under the Act governed the Uhms’ grievances as alleged in the complaint, that the administrative process established by the Medicare Prescription Drug Improvement and Modernization Act and so were “were preempted by the Act’s express preemption provision.” Id., at 11556. The district court also denied plaintiffs’ motion for reconsideration, which argued in part that “unlike Humana Health Plan, Inc., Humana, Inc. is not regulated under the Act, and therefore the claims against Humana, Inc. cannot be preempted.” Id., at 11553. The Ninth Circuit affirmed.

Due to the limited number of Medicare prescription drug class action cases, we do not discuss the opinion in any detail. We note only the Circuit Court’s conclusion, “Because the allegations brought by the Uhms fall precisely within the ambit of the federal standards provided for in the Act and its implementing regulations, the Uhms’ claims are preempted.” Uhm, at 11573. The opinion is provided below for ease of reference to those interested in the details of the Ninth Circuit’s analysis.

Posted In: Class Action Court Decisions

Antitrust Lawsuit Brought by State on Behalf of Insurance Policyholders as a Parens Patriae Action, not a Class Action, Removable to Federal Court under Class Action Fairness Act (CAFA) because “Real Parties in Interest” were Policyholders and “Real Nature” of Lawsuit was “Mass Action” Fifth Circuit Holds

The State of Louisiana filed a parens patriae action (not a class action) against numerous insurance companies, including Allstate, State Farm, Farmers and USAA, alleging violations of the state’s antitrust laws; specifically, the complaint alleged that defendants “worked together to form a ‘combination’ that illegally suppressed competition in the insurance and related industries” and that “[i]n a scheme to thwart policyholder indemnity and in direct violation of their fiduciary duties, insurer defendants and others continuously manipulated Louisiana commerce by rigging the value of policyholder claims and raising the premiums held in trust by their companies for the benefit of policy holders to cover their losses as taught by McKinsey Company. Louisiana ex rel. Caldwell v. Allstate Ins. Co., 536 F.3d 418, 421-22 (5th Cir. 2008). Pursuant to the Class Action Fairness Act (CAFA), defense attorneys removed the lawsuit to federal court, id., at 422. The defense urged that the law was “in substance” a “class action” or a “mass action” within the meaning of the Class Action Fairness Act because it seeks treble damages on behalf of all Louisiana insurance policyholders. Id., at 423. Louisiana moved the district court to remand the action to state court, arguing that CAFA did not apply because the lawsuit was not a class action. Id., at 422-23. Focusing on who the “real parties in interest” are, the district court denied the motion. As permitted by the Class Action Fairness Act, the Fifth Circuit granted Louisiana permission to appeal the remand order. The central issue on appeal was “whether the ‘person who [was] injured in his business or property’ – in this case the policyholders – are the real parties in interest.” Id., at 430. The Fifth Circuit concluded, “We have no reason to believe that they are not,” id., and affirmed.

We do not here discuss the factual allegations in the State’s complaint. See Allstate, at 422-23. The Fifth Circuit summarized defendants’ arguments as follows: Even though the complaint is styled as a parens patriae action, it is “in substance and in fact” a class action within the meaning of the Class Action Fairness Act. Id., at 423. Defense attorneys argued that the fact Louisiana was not proceeding under Rule 23 was not dispositive; rather, they urged the district court to “look beyond the labels used in the complaint and determine the real nature of Louisiana’s claims,” and they “highlighted that several other similar purported class actions are and/or were pending before the same federal district court, where the same group of lawyers filed, or attempted to file, nearly identical claims as those alleged in this case by the state of Louisiana, as further evidence that this lawsuit is in fact a class action.” Id., at 423 (citations omitted). The Circuit Court explained at page 423 that “the district court was primarily concerned about who the real parties in interest are in this case.” The district court believed that he was obligated to examine the true nature of the lawsuit, explaining that “it's the Court's responsibility to not just merely rely on who a plaintiff chose to sue, or, in this case, how the plaintiff chose to plead, but I have to look at the specific substance” of the action. Id. The district court concluded that the State was but a nominal party, and the real parties were the insurance policyholders; accordingly, it concluded that the lawsuit was properly removable under CAFA and denied the motion to remand. Id.

Continue reading "CAFA Class Action Defense Cases - Louisiana v. Allstate: Fifth Circuit Holds State's Parens Patriae Lawsuit Removable To Federal Court Under Class Action Fairness Act (CAFA) Based On "Real Parties In Interest" And "Real Nature" Of Action" »

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

Class Action Challenging Wireless Phone Company’s Advertisements of Discounted Cell Phone Prices as False for Failing to Disclose that Sales Tax would be Calculated based on the Non-Discounted Price Falls within Safe Harbor Provision of State Administrative Regulation thereby Warranting Dismissal of Class Action Complaint California State Court Holds

Plaintiff filed a class action in California state court against Cingular Wireless alleging violations of the state’s unfair competition law (UCL): According to the class action complaint, Cingular advertises that it will give purchasers a 50% discount off the retail price of a wireless phone they enroll in a calling plan package. California’s Code of Regulations requires that Cingular compute the sales tax on the “non-sale price” of the phone, but does not require that this charge be passed on to the purchaser. Cingular does pass the sales tax on to its customers, but prior to sale does not advise them that the sales tax will be computed based on the full price of the phone. The class action alleged that Cingular engaged in false advertising “by failing to inform the consumer that the tax would be imposed on the full price of the cell phone.” Yabsley v. Cingular Wireless, LLC, ___ Cal.App.4th ___, 81 Cal.Rptr.3d 903 (Cal.App. August 18, 2008) [Slip Opn, at 1]. Defense attorneys demurred to the first amended class action complaint on the ground that the regulations provide a “safe harbor” for the payment of taxes such as the one underlying the class action’s UCL claim; the trial court sustained the demurrer without leave to amend. Id., at 1-2. The Court of Appeal affirmed.

The class action complaint alleges that Cingular “advertised a cell phone for $149.99, a 50 percent reduction in the phone's retail price, if the purchaser enrolled in a Cingular wireless calling plan.” Yabsley, at 2. Plaintiff saw the advertisement and purchased the phone and enrolled in the plan: His sales receipt, however, disclosed that he had been taxed on the phone’s regular price of $299.99, rather than its discounted price, resulting in $11.62 more in sales tax. Id. Plaintiff filed his class action complaint against Cingular and the State Board of Equalization “asserting that Regulation 1585, governing taxation of sales of wireless communication devices, was invalid because it conflicted with Revenue and Taxation Code section 6051 imposing a sales tax on gross receipts.” Id. Plaintiff’s first amended class action complaint also named the Board and Cingular as defendants, but plaintiff dismissed the Board that same day. Id. The class action alleged that Cingular's advertisements were deceptive because they “fail[ed] to apprise prospective customers that sales tax would be charged on the undiscounted price of the cell phone.” Id. Defense attorneys demurred, arguing that the safe harbor provided by Regulation 1585 (see Note) immunized Cingular against such claims: “This regulation requires that sales tax on a ‘bundled’ cell phone sale, i.e., a cell phone purchased with a call plan, be calculated based on the phone's higher, unbundled price.” Id., at 3. The trial court agreed and dismissed the class action. Id.

Continue reading "Class Action Defense Cases–Yabsley v. Cingular: California State Court Affirms Dismissal Of UCL Class Action Holding Administrative Regulation Created Safe Harbor For Class Action's False Advertising Claims Against Cingular" »

Posted In: Class Action Court Decisions

District Court Certified Class Action but Subsequently Decertified Class Action as to Damages because of “Unique and Individualized Proof” Required by Class Action Allegations Eleventh Circuit Holds

The Owner-Operator Independent Drivers Association, which “represents truck owners and truck drivers who enter into lease agreements to provide equipment and services to haul freight in interstate commerce for Landstar System,” a U.S. Department of Transportation-approved motor carrier, filed a class action complaint against Landstar and others alleging defendants violated the federal Truth in Leasing regulations; specifically, the class action alleged that defendants “fail[ed] to disclose in their lease agreements that banking fee charges would be deducted from compensation paid to the truck owners and drivers” and “fail[ed] to provide documentation regarding the computation of charge-back items including pricing information submitted by Qualcomm.” Owner-Operator Independent Drivers Assn., Inc. v. Landstar System, Inc.., ___ F.3d ___, 2008 WL 4058042, *1 (11th Cir. 2008). The class action “sought damages and equitable relief, including restitution, disgorgement of Landstar's profits, and injunctive relief.” Id., at *2. Defense attorneys moved to the complaint on the ground that the two-year statute of limitations had run the class action claims; the district court denied the motion, ruling that a four-year limitations period applied. Id., at *3. Eventually, the district court granted plaintiff’s motion to certify the litigation as a class action, id. The court noted, however, that “not all aspects of this case present common issues” and specifically stated that “if these common questions are resolved in favor of the putative class, the issue of damages will be unique and subject to individualized proof.” Id. The parties waved their right to a jury trial, id., and the district court ruled that “[the] only claims remaining in this action are those regarding injunctive relief, damages sustained, and attorney's fees,” id., at *4. On the first day of trial, the district court granted defendant’s motion to decertify the class as to damages, explaining that “issues regarding damages sustained by individual members of the Class would require unique and individualized proof.” Id., at *4. However, the class action was not decertified with respect to the complaint’s prayer for injunctive relief. Id. Ultimately, the district court entered judgment in favor of Landstar on the issue of damages, and entered judgment as a matter of law in favor of Landstar. Id., at *5-*6. Plaintiff appealed seven of the district court’s rulings, id., at *6; defense attorneys filed a cross-appeal. The Eleventh Circuit affirmed in part and reversed in part.

We do not discuss the specific factual allegations leveled against Landstar. See Landstar, at *1-*3. For our purposes, the Circuit Court’s discussion of the class action certification issues is paramount. In this regard, based on its ruling that plaintiff had to prove actual damages, the district court decertified the class action. Id., at *16. The district court reasoned that “decertification is appropriate because the determination of the remaining issue of damages in this case on a class-wide basis is unfeasible, unmanageable, and would not be superior to individual actions.” Id. The Eleventh Circuit noted that there are “‘extreme cases in which computation of each individual's damages will be so complex, fact-specific, and difficult that the burden on the court system would be simply intolerable...but we emphasize that such cases rarely, if ever, come along.’” Id. (citation omitted). The Circuit Court concluded that plaintiff “failed to establish that actual damages can be easily calculated for all class members, [so] the District Court did not abuse its discretion in decertifying the class for actual damages.” Id., at *17.

Continue reading "Class Action Defense Cases–Owner-Operator v. Landstar: Eleventh Circuit Reverses Judgment In Favor Of Defense But Affirms Decertification Of Class Action Status" »

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

In order to assist class action defense attorneys anticipate the types of cases against which they will have to defend in California state and federal courts, 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 the holiday-shortened week of August 29 - September 4, 2008, during which time only 26 new class action lawsuits were filed. Labor law class action lawsuits generally head the list of new class action filings in California state and federal courts, but last week class actions alleging unfair business practices topped the list. During this reporting period, 16 of the new class action lawsuits (62%) asserted employment-related claims. The only other categories that satisfied the 10% threshold involved class action lawsuits alleging unfair business practice claims, which include false advertising claims, with 5 new filings (19%).

Posted In: Class Actions In The News

Class Action Plaintiff Lessees of Vehicles were “Indirect Purchasers” – not “Direct Purchasers” – within the Meaning of Illinois Brick and therefore Lacked Standing to Prosecute Antitrust Claims in Class Action Complaint First Circuit Holds

Plaintiffs, lessees of new cars, filed a class action against various automobile manufacturers alleging violations of the Sherman Act and the Clayton Act; the antitrust class action complaints alleged that “defendant manufacturers conspired to restrict the flow of cheaper Canadian cars into the U.S. market…resulting in artificially high rental payments under plaintiffs’ lease agreements in the United States.” In re New Motor Vehicles Canadian Export Antitrust Litig., 533 F.3d 1, 2 (1st Cir. 2008). Defense attorneys moved to dismiss the class action under the Supreme Court’s decision in Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977) and Kansas v. UtilCorp United, Inc., 497 U.S. 199 (1990); because plaintiffs were “indirect purchasers,” defendants argued that they lacked standing to prosecute the antitrust class action. Id. Previously, the district court had ruled that “a putative MDL plaintiff class containing both purchasers and lessees of new cars could not seek antitrust damages under federal law”; the court suggested that plaintiffs add dealers from whom they purchased or leased vehicles as named defendants. Id. Plaintiffs argued that because their class action complaint was on behalf of lessees only, not purchasers, that Illinois Brick did not apply; the district court rejected this argument, holding that the lessees were “indirect purchasers” and therefore lacked standing to prosecute the class action, id., at 2-3. The First Circuit affirmed.

In Illinois Brick, the Supreme Court established a bright-line rule prohibiting plaintiffs, as well as defendants, from relying on “passing-on” theories in antitrust cases; the rule is designed “to prevent multiple recoveries (by both direct and indirect purchasers) and to avoid the complexity and difficulty of apportioning damages.” In re New Motor Vehicles, at 3 (citation omitted). UtilCorp extended this rule to complaints alleging that “the direct purchaser would pass all of the illegal overcharge on to its consumers,” id. (citation omitted). The issue in this class action, then, is whether plaintiffs were “indirect purchasers,” or whether lessees were “direct purchasers” as held in In re Mercedes-Benz Anti-Trust Litig., 364 F.Supp.2d 468 (D.N.J. 2005). In re New Motor Vehicles, at 4. The First Circuit held that In re Mercedes-Benz was “easily distinguishable,” id.; the Circuit Court’s analysis may be found at pages 4 and 5 of the opinion. The First Circuit also rejected plaintiffs’ efforts to “recast” the allegations in the class action complaint so as to advance a “vertical conspiracy” theory, holding that the arguments were contrary to the pleadings and that it would in any event fail. See id., at 5-6. Because the class action complaints at issue “on their face do not allege a scenario in which plaintiffs could be direct purchasers,” the Circuit Court affirmed the order of dismissal. Id., at 6.

Posted In: Multidistrict Litigation, Class Action Court Decisions