Class Action Defense Blog

Both the Los Angeles Times and Yuki Noguchi of the Washington Post report today on yesterday's announcement by Verizon that it will soon implement a fundamental change in its cancellation fee policy for cellular telephone subscribers. In the face of a California class action that the Times reports seeks "to recover early cancellation fees from Verizon Wireless and Sprint Nextel," the company will calculate the early termination fee based on the proportional amount of time remaining on the subscription agreement.

Verizon's defense against this California class action is not a lone event. Similar class actions are pending in several states, the Washington Post reports. In fact, the Post reports that early termination fees ranks third on the list of complaints against cellular telephone companies, and the Los Angeles Times quotes Verizon CEO Denny Strigl as identifying this issue as "the single largest [complaint] that our customers have." As Mr. Strigl candidly admitted, "It's a legitimate complaint: If they leave in month one or month 23, they pay the same charge."

Verizon also will reportedly begin offering to existing customers the same discount for new handsets that it offers to new subscribers.

Noguchi's article, entitled "Verizon to Reduce Contract Termination Fee," may be found in the June 29, 2006 edition of the Washington Post. The Los Angeles Times article, entitled "Verizon Wireless to Prorate Cancellation Fees," may be found in the business section of the June 29, 2006, edition of the Los Angeles Times.

Posted In: Class Actions In The News

28 U.S.C. § 1447(e)

Once a class action has been removed to federal court based on diversity jurisdiction, a plaintiff may seek to destroy diversity by naming additional defendants. Any such attempt would fall squarely within the ambit of 28 U.S.C. § 1447(e), which provides as follows:

If after removal the plaintiff seeks to join additional defendants whose joinder would destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and remand the action to the State court.

The plain language of the statute addresses the two most obvious questions. First, must the district court allow a plaintiff to join additional party-defendants?The answer is clearly "no" - Section 1447(e) expressly states, "the court may deny joinder" (italics added).

Second, must the district court remand the case to state court if it grants leave to add non-diverse party-defendants? Again, the answer is clear - "yes."As the Third Circuit observed, "Hence, a district court can sometimes, after suit is filed, permit the destruction of subject matter jurisdiction."Kabakjian v. United States, 267 F.3d 208, 212 (3rd Cir. 2001).

The Ninth Circuit addressed a situation where the district court granted joinder of non-diverse parties but did not remand the matter.See Morris v. Princess Cruises, Inc., 236 F.3d 1061, 1068 (9th Cir. 2001). Based on the particular circumstances of that case - viz., the existence of original jurisdiction over the matter had it been filed initially in federal court - the Ninth Circuit affirmed. The language of the opinion is, however, instructive:

Once removal has occurred, the district court has two options in dealing with an attempt to join a non-diverse party. 28 U.S.C. § 1447(e) provides that "[i]f after removal the plaintiff seeks to join additional defendants whose joinder would destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and remand the action to the State court." Newcombe v. Adolf Coors Co., 157 F.3d 686, 691 (9th Cir. 1998). Here, the district court did neither, permitting joinder of the non-diverse parties while retaining jurisdiction over the action. If diversity were the only basis for the court's subject matter jurisdiction, joinder of the non-diverse Insurers would have divested the court of jurisdiction.Desert Empire Bank v. Ins. Co. of N. Am., 623 F.2d 1371, 1374, 1377 (9th Cir. 1980) (permissive joinder of nondiverse defendant following removal to federal court divested court of subject matter jurisdiction).

Morris v. Princess Cruises, at 1068 (italics added).

In sum, Section 1447(e) unambiguously gives the district court only two options when a plaintiff seeks to add a non-diverse party-defendant following removal of the case to federal court:"deny joinder, or permit joinder and remand the action to the State court" (italics added). The court is without discretion to act otherwise.If diversity is destroyed, the case must be remanded unless an independent basis for federal court jurisdiction still exists.

Posted In: Class Actions In The News, Removal & Remand

28 U.S.C. S 1447 - 30 day Time Limit

Defendants in class actions often remove their case to federal court whenever possible. Plaintiffs invariably seek to remand class actions to state court. Thus, once a class action has been removed to federal court, it can be expected that plaintiff's counsel will file a motion to remand the matter to state court. Remand of cases to state court is governed by 28 U.S.C. S 1447(c). "A motion to remand the case on the basis of any defect other than lack of subject matter jurisdiction must be made within 30 days after the filing of the notice of removal," 28 U.S.C. S 1447(c). However, "If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." Id.

Thus, like its removal counterpart (28 U.S.C. S 1446(b), which requires removal within 30 days of receipt of the necessary pleading or other paper), Section 1447(c) requires that any motion to remand - except one based on lack of subject matter jurisdiction - "must be made within 30 days after the filing of the notice of removal." The United States Supreme Court summarized the requirement this way:

Once a defendant has filed a notice of removal in the federal district court, a plaintiff objecting to removal "on the basis of any defect in removal procedure" may, within 30 days, file a motion asking the district court to remand the case to state court. S 1447(c). This 30-day limit does not apply, however, to jurisdictional defects: "If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." Ibid.

Caterpillar Inc. v. Lewis, 519 U.S. 61, 69, 117 S.Ct. 467, 473 (1996).

The exception for subject-matter jurisdiction cases simply reflects the general rule that jurisdictional defects may be asserted at any time and cannot be waived. See, Regents of University of California v. Bakke, 438 U.S. 265, 380 n.1, 98 S.Ct. 2733, 2794 n.1 (1978) ("lack of jurisdiction . . . touching the subject matter of the litigation cannot be waived by the parties") (quoting United States v. Griffin, 303 U.S. 226, 229, 58 S.Ct. 601, 602, 82 L.Ed. 764 (1938)). See also, United States v. Meyer, 439 F.3d 855, 863 (8th Cir. 2006) ("[l]ack of subject matter jurisdiction cannot be waived by the parties or ignored by the court") (quoting In re Wireless Tel. Fed. Cost Recovery Fees Litig., 396 F.3d 922, 928 (8th Cir.2005)).

Continue reading "Motions to Remand: Class Action Defense Issues" »

Posted In: Removal & Remand, Topics of Interest

Changing Class Definition in Class Action Does Not Constitute New Case Permitting Removal Under CAFA (Class Action Fairness Act) Seventh Circuit Holds

Congress enacted CAFA (Class Action Fairness Act of 2005) for the purpose of expanding defense access to federal courts in class action cases. CAFA applies only to class actions filed after its effective date (February 18, 2005), but federal courts have held that certain pleading amendments - such as adding a new party-defendant - constitutes the commencement of a "new case" thus permitting removal by defense attorneys to federal court. Class action defendants often benefit if they can remove the case to federal court, and many have tested the limits of CAFA by removing class action cases on the grounds that different actions by the plaintiffs' lawyer commenced a new suit.

Continue reading "Class Action Defense Cases: Knudsen v. Liberty Mutual" »

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

In a prior article, we discussed defense lawyer concerns about federal government efforts to require companies to divulge communications with its attorneys. That effort arises from federal guidelines contained in what is known as the Thompson memorandum, written in 2003. Another guideline suggests that corporate payment of lawyer fees for the criminal defense of employees will constitute a "black mark" against the company and may lead to an indictment. Lynnley Browning of the New York Times reports that yesterday a federal judge issued "the first major criticism from the bench" against tactics used by prosecutors and the Thompson memo. As Browning concisely summarized the issue:

Prosecutors have argued that the Thompson memorandum guidelines are simply factors that prosecutors must consider in evaluating a company's cooperation and are not ironclad requirements. Defense lawyers and corporate lawyers, however, contend that the memorandum is being used as a club to bludgeon companies into disclosing legal secrets, cutting off legal fees and showing other signs of cooperation to avoid being indicted.

In a case concerning the criminal trial of former KPMG employees, a New York federal judge ruled that coercing a company into not paying lawyer fees for the defense of employees violates the employees' constitutional rights. KPMG initially capped attorneys fees at $400,000 and then stopped paying defense costs entirely "to avert an indictment," Browning reports. She adds, "KPMG is regarded as a textbook example of how firms can avoid indictment by cooperating with prosecutors, in part by firing employees suspected of wrongdoing - even before they are found guilty - and by cutting off legal fees." The article quotes indicted class action law firm Milberg Weiss as stating, "We hope that courts will continue to hold the Justice Department accountable for such overreaching use of the Thompson memorandum." Little is known of the class action firm's pre-indictment communications with federal investigators, but in its defense, its attorneys may reveal details of the length investigation that preceding the criminal charges.

The Browning article, entitled "U.S. Tactic On KPMG Questioned," may be found in the June 28, 2006, edition of the New York Times. It is well worth reading.

Posted In: Class Actions In The News

After a California state court denied a motion for class certification in a putative class action brought under the Consumer Credit Reporting Agencies Act (CCRAA), California Civil Code §§ 1785.1 et seq., plaintiff’s lawyer convinced the trial judge to allow communication by letter with potential class members that advised them of their potential legal rights against the defendant in the class action and sought their cooperation in pursuing the plaintiff’s damage claim in her lawsuit. Experian Information Solutions, Inc. v. Superior Court, 138 Cal.App.4th 122, 127-29 (Cal.App. 2006). Defendant thus succeeded in its defense of the class action, but the court order opened the floodgates to potential new lawsuits. A California appellate court granted defendant’s petition for writ of mandate and, in an opinion issued on March 30, 2006, held that it is improper for plaintiffs’ attorneys to advise putative class members in class actions that they may have individual claims against the defendant:

After a class-certification motion is denied, can a court order a plaintiff or a neutral third party to send a letter to former potential class members notifying them of possible claims against the defendant? No. There is no legal basis to permit such a communication.

Experian, at 131 (italics added). In so holding, the California appellate court observed, “In non-class action litigation, it is not the court’s role to order notification to third parties of their possible legal claims. . . . Thus, after class certification has been denied by a trial court, court-ordered notifications to former, potential class members that they might have legal claims against a defendant are impermissible.” Id., at 131-32 (citation omitted).

NOTE: The court did permit limited communication for the purpose of obtaining evidence relevant to plaintiff’s individual claim, but the basis for that communication falls outside the scope of this summary.

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

The news continues to go from bad to worse for class action law firm Milberg Weiss and its lawyers indicted on May 18, 2006, on charges that it paid more than $11 million in kickbacks to clients to serve as plaintiffs. According to Julie Creswell and Jonathan Glater of the New York Times, one such plaintiff, Howard J. Vogel, admits in a plea bargain with federal prosecutors that “he and relatives were linchpins in [a] long-running arrangement” that helped class action law firm Milberg Weiss “reap hundreds of millions of dollars as counsel in securities lawsuits.” Vogel reportedly received $1.1 million from the class action firm to serve as plaintiff in a class action against Oxford Health Plans, and served as plaintiff for Milberg Weiss in many other class actions, often illegally receiving up to 14% of the attorney fees awarded to the law firm.

But the proverbial plot thickens with Mr. Vogel’s purported admission that he actually purchased shares of stock in Oxford Health “on the belief that [the company] was on the verge of collapse.” Because a class action plaintiff must have claims that satisfy the commonality and typicality requirements of Rule 23, “speculative investments” – that is, stock purchased in the hope that the share price will fall so that one can sue the company alleging violations of state and federal securities laws – if discovered by the defense would seriously undermine the plaintiff’s ability to obtain certification of a class action.

The article by Creswell and Glater, “For Law Firm, Plaintiff Had Golden Touch,” may be found in the June 6, 2006, New York Times.

Posted In: Class Actions In The News, Certification of Class Actions

The Los Angeles Times recently reported that the efforts of Cingular Wireless to stop three class actions from proceeding in California state court came to an end on June 5, 2006, when the United States Supreme Court refused to grant certiorari in cases involving California court rulings that rejected class action restrictions in arbitration agreements. The rulings permitted plaintiffs to “bypass” arbitration. According to the Los Angeles Times, “The central questions was how much room the federal law [Federal Arbitration Act] leave for states to apply neutral rules such as California’s prohibition on ‘unconscionable’ contracts. The California Supreme Court invoked that doctrine in 2005 to bar waivers of class-action rights in disputes that ‘predictably involve small amounts of damages’ and large numbers of customers.” See Discover Bank v. Superior Court, 36 Cal.4th 148, 162 (Cal. 2005).

The U.S. Supreme Court's decision in this case is not surprising in light of the history of this class action. Plaintiffs' attorneys argued in the California trial court that the class action ban in the arbitration contracts were unconscionable and invalid. On May 18, 2005, the California Court of Appeal for the First District, Division 5, reversed, concluding "that under the facts in the present case the contractual ban on class-wide arbitration is not unduly one-sided, harsh, or in violation of public policy." Parrish v. Cingular Wireless, LLC, 28 Cal.Rptr.3d 802, 805 (Cal.App. 2005). The California Supreme Court granted review and transferred the matter back to the Court of Appeal for reconsideration in light of its then-recent opinion in Discover Bank. On remand, the California appellate court agreed with plaintiffs' attorneys, concluding "that the arbitration clause at issue here prohibiting class-wide arbitration is unconscionable and unenforceable." Parrish v. Cingular Wireless, LLC, 2005 WL 2420719 (Cal.App. 2005), but the opinion was not published. It is exceptionally difficult to persuade the California Supreme Court or the United States Supreme Court to review an appellate decision that is not published.

Nonetheless, the petition generated understandable interest: Though it denied review, the U.S. Supreme Court permitted the Pacific Legal Foundation, the American Bankers Association, the U.S. Chamber of Commerce, and Amazon.com leave to file amici curiae briefs. The scope of FAA is still the subject of considerable debate; Circuit Courts do not agree on whether the right to pursue class actions may be waived as part of an arbitration agreement and, if so, under what circumstances class action waivers are enforceable. While the U. S. Supreme Court refused to hear Cingular’s case, it is only a matter of time before the High Court will accept a case and address these thorny questions.

The article, “High Court Rebuffs Appeal By Cingular,” may be found in the Business Section of the June 6, 2006, Los Angeles Times.

Posted In: Class Actions In The News

Former California Manager Seeks Class Action Status in Lawsuit Alleging Failure to Pay Overtime and Failure to Provide Meal and Rest Breaks

In prior articles, we have discussed the prevalence of class actions against employers alleging labor law violations. These are among the "favorites" of plaintiff class action attorneys. Henry Lee of the San Francisco Chronicle reports today that a putative class action has been filed against Starbucks in federal court by a former manager who worked in two California Starbucks shops. According to the article, this class action follows the settlement of an earlier class action against Starbucks that had alleged the company had misclassified its managers as exempt from overtime. The plaintiff's lawyer claims that the prior class action led to a change in company policy so that Starbucks' managers are now paid an hourly wage. The current class action seeks damages for allegedly unpaid overtime and unpaid meal and rest periods. Mr. Lee's article, "Starbucks faces suit over OT," may be found in today's business section of the San Francisco Chronicle.

Posted In: Class Actions In The News, Employment Law Class Actions

Arbitration Agreements Retroactive and Enforceable But Class Actions And Attorney Fees Waiver Unenforceable First Circuit Holds

Circuit Courts of Appeal continue to struggle with whether class action waivers in arbitration agreements are enforceable. On April 20, 2006, the First Circuit addressed that issue, and several others, in Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006). Subscribers filed putative class actions against cable TV giant Comcast alleging violations of state and federal antitrust laws. Comcast moved to compel arbitration based on an arbitration clause first added to the subscription service agreements in 2001. This motion was critical to Comcast's defense of the class action for several reasons, chief among them that the arbitration agreements barred class action arbitration and barred recovery of attorney fees and costs. The district court concluded that the arbitration provisions did not apply retroactively and refused to compel arbitration. Id., at 29-30. The First Circuit Court of Appeals reversed, but severed the class action waiver provision, as well as the provision barring recovery of attorney fees and costs, holding that those provisions "prevent the vindication of statutory rights under state and federal law." Id., at 29. Kristian spans 40 pages in the Official Reports and so cannot be explored in detail here. It will be discussed at length in a separate article concerning the enforceability of class action waivers in arbitration agreements. We provide here but a brief overview of the highlights of Kristian.

* Comcast provided adequate notice of the arbitration agreements and the provision waiving class actions, provided as a "billing stuffer" with the subscribers' November 2001 invoices, Kristian, at 30, 36-37. The arbitration provision - including the waiver of class action claims - was set forth in bold face and capital letters, id., at 31-32.

* While none of the plaintiffs' initial service agreements contained arbitration clauses or the class action waivers, the arbitration agreements nonetheless applied retroactively. Id., at 30, 31-36.

Continue reading "Class Action Defense Cases–Kristian v. Comcast: Class Action Waiver In Arbitration Clause Unenforceable" »

Posted In: Arbitration, Class Actions In The News, Class Action Court Decisions

The defense of class actions can span several years, and generally class action complaints allege damages dating back many years. That combination played a part in the record settlement of a pregnancy discrimination class action lawsuit, according to Amy Joyce of the Washington Post. By way of background, Nynex Corporation was formed in 1984 to provide telephone service to the states of Maine, Massachusetts, New Hampshire, New York, Rhode Island and Vermont. The company acquired Bell Atlantic in 1997 and adopted its name. Three years later, in 2000, Bell Atlantic acquired GTE and changed its name to Verizon Communications. Verizon’s predecessors, Nynex and Bell Atlantic, “were accused of violating federal law by denying women pension and other benefit accruals when they spent time on pregnancy or maternity leave,” Ms. Joyce reports. Verizon recently agreed to pay almost $49 million to more than 12,000 former and current female employees to settle the landmark case.

The Washington Post reports that the settlement was consummated in 2002, but that final figures were not available until the EEOC (Equal Employment Opportunity Commission) had “completed its projects of how much would be paid in future benefits.” The article by Amy Joyce, “Record $48.9 Million Set in Maternal Bias Suit Verizon Inherited,” may be found in the June 6, 2006, Washington Post.

Posted In: Class Actions In The News, Employment Law Class Actions

California Holds in Class Actions Case That Liability for Failure to Pay Prevailing Wages on Public Works Projects is Limited to Direct Employer

On April 18, 2006, a California court published its opinion in a class action case that addressed an issue of first impression in California: whether employees on public works projects may sue parties other than their direct employer for alleged violations of the prevailing wage law. Violante v. Communities Southwest Dev. & Constr. Co., 138 Cal.App.4th 972 (Cal.App. 2006). There, construction workers filed a putative class action in California state court for recovery of prevailing wages, alleging that perhaps thousands of workers "were paid less than prevailing wages as required by California Labor Code section 1770 et seq. for public works projects." The class action complaint alleged violations of Labor Code section 1774, breach of contract and unfair business practices against numerous defendants including S. J. Burkhardt, Inc., the contractor that hired Raymond David Paci, doing business as Pacific Structures; Pacific Structures had employed plaintiffs directly. The trial court sustained the demurrers of three other defendants - Chapman Heights (a contractor), Communities Southwest Development and Construction Company (a developer and general partner of Chapman Heights), and Yucaipa Valley Acres (a developer and contractor) - without leave to amend and plaintiffs appealed. 138 Cal.App.4th at 975-76.

After a careful analysis of the statutory scheme, the Court held at page 979, "Plaintiffs have a right of action against the subcontractor, their direct employer [citations]. . . . But the Labor Code nowhere requires the contractor to pay prevailing wages to a subcontractor’s employee or permits a subcontractor’s employee to sue the prime contractor when the subcontractor fails to pay prevailing wages."

Plaintiffs contend defendants violated section 1774 because plaintiffs were not paid prevailing wages by their direct employer, a subcontractor. This is an untenable interpretation. The Labor Code provides a contractor and a subcontractor must pay prevailing wages to their respective employees on a public works project, not that a contractor must pay prevailing wages to a subcontractor’s employees. 138 Cal.App.4th at 978 (italics added).

Continue reading "Violante v. Communities Southwest -- California Class Action Defense Cases" »

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

Employment Arbitration Agreement Under FAA (Federal Arbitration Act) Enforceable By Employer Illinois Supreme Court Holds

As discussed in a separate article, Circuit Courts of Appeal and state courts do not agree on the enforceability of arbitration agreements in employment contracts. This issue may be of critical importance in the defense of class actions, because a class action waiver in an employment arbitration agreement cannot possible be enforceable if the court would refuse to enforce the arbitral forum even without a class action restriction. On March 23, 2006, in an opinion that should have direct and positive impact in the defense of class action waivers in arbitration agreements in the state, the Illinois Supreme Court cast its vote on the issue, holding that under the FAA (Federal Arbitration Act, 9 U.S.C. § 1 et seq. (1994)), employment arbitration agreements are enforceable under “principles of fundamental contract law because we believe that approach is more faithful to the FAA.” Melena v. Anheuser-Busch, Inc., 847 N.E.2d 99, 107 (Ill. 2006).

In Melena, Anheuser-Busch hired plaintiff in February 1999. One year later, it mailed to employees a letter announcing a new “Dispute Resolution Program” that included a requirement for arbitration under the FAA. Employees were informed that “’by continuing or accepting an offer of employment’ with Anheuser-Busch, all employees to whom the policy was applicable ‘agree as a condition of employment to submit all covered claims to the dispute resolution program.’” 847 N.E.2d at 101. Plaintiff was injured in September 2002, and fired in March 2003. She filed suit against Anheuser-Busch in state court in May 2003. ANHEUSER-BUSCH moved to compel arbitration, but the trial court denied the motion without explanation. The appellate court affirmed, concluding that “’even if the plaintiff entered into the agreement knowingly, she did not do so voluntarily,’” and expressing doubt “about whether an agreement to arbitrate, offered as a condition of employment, ‘is ever voluntary.’” Id., at 102 (quoting appellate court opinion).

The Illinois Supreme Court reversed, holding: “In our view, the FAA’s plain language makes clear that arbitration agreements are enforceable except for state-law grounds for ordinary contract revocation.” 847 N.E.2d at 107 (italics added, citations omitted). Importantly, the Illinois Supreme Court did not make any distinction between arbitration agreements in an employment context or in a commercial setting, and did not suggest that a class action waiver provision would be interpreted under different contract principles.

Continue reading "Melena v. Anheuser-Busch -- Class Action Defense Issues" »

Posted In: Arbitration, Class Actions In The News, Employment Law Class Actions, Class Action Court Decisions

Dominic O’Connell and Dominic Rushe of The Sunday Times reported today that a putative class action has been filed in New York against British Airways and Virgin Atlantic alleging a price-fixing conspiracy. The lawsuit reportedly was filed June 23 by Cohen, Milstein, Hausfeld & Toll, and alleges that "[British Airways and Virgin Atlantic] implemented their agreement by exchanging information in secret . . . communications."

The article states that British Airways revealed last week that the Office of Fair Trading and the American Department of Justice was investigating charges of price-fixing related to fuel surcharges on long-haul flights, and reports that BA placed two senior executives on leave during the investigation. O'Connell's and Rushe's article, "BA and Virgin hit by US class-action suit over ‘price fixing’," may be found in the June 25, 2006, edition of The Sunday Times.

Posted In: Class Actions In The News

Condo Buyers Allowed to Pursue Class Action Against Developer for Understating Common Expenses

The Toronto Star reports this morning that an Ontario judge has certified a class action brought by homeowners in a condominium development alleging that the developer "significantly understated" the "total funds required" to cover the project's common expenses for the first year to be $413,000. This amount proved woefully inadequate. In its second year of operation, the project approved a budget reflecting a 62% increase in common expenses, but still fell $48,000 short of meeting expenses. While Canadian law governing class actions differs from that in the United States, for our purposes the important point is that a putative class action was filed against the developer, alleging that the sales materials and disclosure statements were "inaccurate, false, deceptive and misleading."

Bob Aaron, a Toronto real estate lawyer, reports that "the developer was warned in writing by the property manger 'that unless drastic adjustments are made, the second-year budget will likely be doubled.'" Mr. Aaron's article is entitled, "Condo buyers' class-action suit bears watching" and may be found in the June 24, 2006 edition of the Toronto Star.

Note: Coincidentally, the leading condo hotel lawyer in the United States has worked on more than 60 condo hotel projects all over the world. He is Jim Butler of Jeffer, Mangels, Butler & Marmaro. Anyone developing or financing a condo hotel-whether ground up construction or conversion-should contact Jim Butler to discuss the project. The Global Hospitality Group chaired by Jim Butler has assisted clients with more than $40 billion of hotel transactions involving more than 1,000 properties around the globe.

Posted In: Class Actions In The News, Certification of Class Actions

Supreme Court Expands Breadth of Potential Employee Claims for Alleged Retaliation

In a prior article on class actions and class action defense, we discussed the rise of employment law class actions. One area that had not yet been widely subject to class actions consists of alleged retaliation claims. Every employment law practioner knows that Title VII of the Civil Rights Act of 1964 prohibits discrimination based on "race, color, religion, sex, or national origin," 42 U.S.C. § 2000e-2(a). To protect employees who seek to establish such employment discrimination, Congress included an "anti-retaliation" provision in Title VII that prohibits discrimination against one who has "made a charge, testified, assisted, or participated" in a Title VII matter, 42 U.S.C. § 2000e-3(a). By their nature, such claims are "class action resistant" because they are based on the case-by-case treatment of the employee and the specific conduct against which the employer alleges seeks to retaliate. That may change.

On June 22, 2006, the United States Supreme Court fundamentally altered the landscape of employment law retaliation claims. See Burlington Northern & Santa Fe Railway Co. v. White, 548 U.S. ___, ___ S.Ct. ___ (2006). Title VII retaliation claims require proof of an "adverse employment action" but courts have disagreed on what satisfies this requirement. The Supreme Court summarized the issues presented and its answers as follows:

The Courts of Appeals have come to different conclusions about the scope of the Act’s anti-retaliation provision, particularly the reach of its phrase “discriminate against.” Does that provision confine actionable retaliation to activity that affects the terms and conditions of employment? And how harmful must the adverse actions be to fall within its scope?

We conclude that the anti-retaliation provision does not confine the actions and harms it forbids to those that are related to employment or occur at the workplace. We also conclude that the provision covers those (and only those)employer actions that would have been materially adverse to a reasonable employee or job applicant. In the present context that means that the employer’s actions must be harmful to the point that they could well dissuade a reasonable worker from making or supporting a charge of discrimination. Slip Opn., at 1-2.

Continue reading "Burlington Northern v. White -- Class Action Defense Issues" »

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

Certification of Class Actions and Supplemental Jurisdiction - District Court Improperly Denied Class Certification of State Law Claimants Who Did Not Opt In to Federal Class Action Under FLSA (Fair Labor Standards Act) D.C. Circuit Holds

The FLSA (Fair Labor Standards Act) requires that potential class members affirmatively opt in to class actions based on the overtime pay provision. See 29 U.S.C. §§ 207, 216(b). Certain class actions under Federal Rules of Civil Procedure Rule 23, however, require that potential class members opt out of class action cases. See Fed.R.Civ.Proc., Rule 23(b)(3), (c)(2)(B). On May 26, 2006, the D.C. Circuit Court of Appeals held as a matter of first impression that the district court erred in refusing to exercise supplemental jurisdiction over the claim of, and in denying class action certification to, those state law class action claimants who did not also opt in to a FLSA overtime class action. Lindsay v. Government Employees Ins. Co., 448 F.3d 416 (D.C. Cir. 2006).

Plaintiffs filed a putative class action alleging that GEICO willfully misclassified certain employees as "administrative" in order to avoid paying them overtime in violation of FLSA, 29 U.S.C. § 207(a), and sought certification to pursue an opt in class action under FLSA. Lindsay, at 418. Plaintiffs also alleged that GEICO's conduct violated New York's Minimum Wage Act, N.Y. Labor Law, §§ 650 et seq., and sought certification to pursue an opt out class action pursuant to Rule 23. Id. As the D.C. Circuit summarized at page 418:

The district court denied certification of the state law class, concluding that the FLSA class certification procedure requiring all class members to affirmatively opt in precluded it from exercising supplemental jurisdiction over those state law claimants who did not affirmatively join the FLSA claim. We disagree and therefore reverse the order denying certification and remand to the district court.

Continue reading "Class Action Defense Cases--Lindsay v. GEICO: District Court Erred In Refusing To Exercise Supplemental Jurisdiction Over State Law Claimants Who Did Not Opt In to FLSA Class Action" »

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

28 U.S.C. § 1447 - Supplemental Jurisdiction When Federal Claims Are Resolved

Defendants in class actions often remove their case to federal court whenever possible. Plaintiffs invariably seek to remand class actions to state court. Thus, once a class action has been removed to federal court, it can be expected that plaintiff’s counsel will file a motion to remand the matter to state court. When removal is based on federal questions jurisdiction, then plaintiffs may seek to secure remand by dismissing their federal question claims.

What happens, then, if an action is removed to federal court based on federal question jurisdiction and the district court exercises supplemental jurisdiction (see 28 U.S.C. §1367) over the remaining state claims, but the federal question claims are later resolved (whether by voluntary dismissal, motion to dismiss or summary judgment) leaving only state law claims before the court?

Remand of cases to state court is governed by 28 U.S.C. §1447(c). “A motion to remand the case on the basis of any defect other than lack of subject matter jurisdiction must be made within 30 days after the filing of the notice of removal,” 28 U.S.C. § 1447(c). However, “If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded.” Id.

If an action is removed to federal court based on federal question jurisdiction but the federal question claims are later revolved, leaving only state law claims, then two separate questions are presented. First, how does the 30-day time period for filing a motion to remand apply? A recent district court opinion holds that the absence of a federal question goes to subject matter jurisdiction and therefore is not subject to the 30-day rule:

Clearly, the defect urged by Plaintiffs is one of subject-matter jurisdiction, and not some other defect in the removal procedure. Thus, Plaintiffs' alternative request for discretionary remand to state court is not subject to the thirty-day time limitation in §1447(c), and is, therefore, timely. See e.g., Pierpoint v. Barnes, 94 F.3d 813, 818 (2d Cir. 1996) (stating that the thirty day time period was specifically written “in terms of a defect in ‘removal procedure’ in order to avoid any implication that remand is unavailable after disposition of all federal questions . . . .”).

Hardy v. GMRI, Inc., 2006 WL 752506, *2 (S.D. Iowa 2006).

Continue reading "Motions to Remand - Supplemental Jurisdiction When Federal Claims Are Resolved: Class Action Defense Issues" »

Posted In: Removal & Remand

Class Action Securities Fraud Cases Must Plead Economic Loss and Causal Connection Between Alleged Fraud and Loss

Class actions alleging securities fraud are commonplace. Whenever a publicly traded stock declines in value, an investor is ready to file a class action claiming that the stock price had been inflated or that he would not have invested in the company but for misleading representations made by the company. Congress enacted the Private Securities Litigation Reform Act of 1995 (PSLRA) hoping, in part, to stem the “abusive” practice of “the routine filing of lawsuits . . . with only a faint hope that the discovery process might lead eventually to some plausible cause of action.” H.R. Conf. Rep. No. 104-369, p. 31 (1995), U.S. Code Cong. & Admin. News 1995, pp. 679, 730.

Class action defendants had high hopes for the PSLRA: it imposes limits on damages and attorney fees, imposes limits on the way lead plaintiffs are selected and the amounts they can be awarded, imposes sanctions for frivolous litigation, provides companies with a “safe harbor” for certain statements, and allows courts to issue stays of discovery pending motions by a defendant to have the case dismiss. See, 15 U.S.C. § 78u-4. Also, Section 21D(b)(2) of the PSLRA requires that a plaintiff alleging securities fraud “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” SLUSA, discussed in a separate article, represents Congress’s attempt to fill in the loopholes in the PSLRA. Other holes, however, have been left to the judicial branch. The U.S. Supreme Court filled one such hole in Dura Pharmaceuticals v. Broudo, 544 U.S. 336, 125 S.Ct. 1627 (2005).

A class action alleging securities fraud was filed against Dura Pharmaceuticals in a California federal court. The complaint alleged that Dura falsely represented that a new product would secure FDA approval and that its drug sales would be profitable. The Supreme Court opinion sets forth the basic allegations of the complaint, which we do not repeat here. The Court stated at pages 339-40:

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

Class Action Settlement Approval of Nationwide Class Action Reversed and Remanded for District Court Failure to Analyze Value of Class Claims Under the State Laws of Each Applicable Jurisdiction Seventh Circuit Holds

On June 19, 2006, the Seventh Circuit Court of Appeals considered for the second time a proposed class action settlement of a nationwide class action against Fleet Mortgage brought under the Truth in Lending Act (TILA), the Fair Credit Reporting Act (FCRA) and various state laws. Mirfasihi v. Fleet Mortgage Corp., ___ F.3d ___, 2006 WL 1667802 (7^th Cir. 2006) (“Fleet II”). As explained below, the class action involved two classes: a “telemarketing class,” and an “information-sharing class.” The Seventh Circuit previously reversed district court approval of a proposed settlement of the class action claims because “the district court failed to consider adequately the value of the claims of the so-called ‘information-sharing class’ (a class of consumers whose privacy interests were purportedly intruded upon, but who did not suffer any out-of-pocket damages).” Slip Opn., at 1-2 (citing Mirfasihi v. Fleet Mortgage Corp., 356 F.3d 781 (7^th Cir. 2004) (“Fleet I”).

The class action involved claims that Fleet sold mortgage information to third-party telemarketers, and that Fleet “was an active collaborator in drafting the script that the telemarketers used and allowed direct billing of the fees for the telemarketers’ products onto the mortgage bill of its customers, without obtaining pre-approval from customers.” Slip Opn., at 2. The “telemarketing class” consisted of 190,000 people who purchased financial products from the telemarketers; the “information-sharing class” consisted of 1.4 million Fleet borrowers whose information had been sent to telemarketers but who had not purchased any services from them. Id., at 2-3.

The class action settlement approved by the district court in Fleet I provided for payments to the telemarketing class, but the information-sharing class “was left out in the cold and received nothing.” Slip Opn., at 3. (The terms of the class action settlement are detailed in Fleet I and Fleet II; we focus here only on the monetary recovery for each class.) Fleet I reversed the district court’s approval of the class action settlement because “the district court failed to consider with adequate specificity the reasonableness of an entire class receiving a ‘big fat zero’ in the settlement.” Slip Opn., at 4 (citing Fleet I, at 785). “Specifically, the district court did not canvass all potential avenues of recovery to determine whether the information-sharing class’s claims were indeed essentially hopeless (and thus worthless) under the pertinent controlling law.” Slip Opn., at 4.

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