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Class Action Defense Settlement Cases–In re Grand Theft Auto: New York Federal Court Decertifies Class Action Holding Proposed Settlement Class In Nationwide Consumer Protection Law Class Action Lacked “Cohesiveness” Required By Rule 23(b)(3)

Certification of Putative Class Action for Purposes of Settlement Required Satisfaction of Rule 23 Class Action Requirements, and Class Proposed for Settlement of Nationwide Class Action Failed to Meet Rule 23(b)(3)’s Predominance Test Requiring Decertification of Class Action New York Federal Court Holds

In 2005, four class action lawsuits were filed against Take-Two Interactive Software and its wholly-owned subsidiary, Rockstar Games; the complaints sought nationwide class action status and alleged, inter alia, violations of the consumer protection statutes of each state and the District of Columbia based on the “inclusion of an interactive, sexual minigame…in their premier product, Grand Theft Auto: San Andreas.” In re Grand Theft Auto Video Game Consumer Litig. (No. II), ___ F.Supp.2d ___ (S.D.N.Y. July 30, 2008) [Slip Opn., at 1]. The Judicial Panel on Multidistrict Litigation coordinated the various class action lawsuits, together with tag-along class action complaints, in the Southern District of New York. Id., at 2. Soon thereafter, the court appointed lead counsel for the putative class and a consolidated, amended class action complaint was filed. Id., at 2-3. The amended class action alleged that defendants marketed and sold Grand Theft Auto with an improper “content rating,” which they obtained by “withholding pertinent information from the entity charged with assigning content ratings to video games, the Entertainment Software Ratings Board”; specifically, the class action complaint charged that defendants failed to disclose that Grand Theft Auto “contained the Sex Minigame…, a game-within-the-game that allowed players to control the protagonist’s movements as he engaged in various sexual acts” and that purchasers could access the Sex Minigame through what came to be known as the “Hot Coffee Mod.” Id., at 3. Defense attorneys moved to dismiss the class action to the extent it advanced claims “under the laws of states where the named plaintiffs did not purchase” the game; the district court denied the motion, holding that a determination of whether to certify the litigation as a class action “was logically antecedent to the standing issues raised therein.” Id., at 4. Plaintiffs thereafter moved the federal court to certify the litigation as a nationwide class action; defense attorneys opposed class action treatment, “challenging the propriety of a nationwide class action that asserts claims under the disparate laws of the fifty states.” Id., at 4-5. Before the court ruled on that motion, the parties negotiated a settlement of the class action claims, id., at 5. In December 2007, the federal court conditionally certified a nationwide class action for settlement purposes and gave preliminary approval to a settlement of the class action, id., at 1, 5-6. However, in light of the Second Circuit Court of Appeal’s subsequent opinion in McLaughlin v. American Tobacco Co., 522 F.3d 215 (2d Cir. 2008), the district court decertified the settlement class. Id. (A summary of the McLaughlin opinion may be found here.)

We cut to the chase of the district court’s 58-page opinion. The district court correctly noted that even for purposes of settlement, the plaintiffs were required to meet the class action criteria set forth in Rule 23(a) – viz., numerosity, commonality, typicality and adequacy of representation – as well as, in this case, Rule 23(b)(3). In re Grand Theft Auto, at 9-10. This latter requirement means that plaintiffs “must show that ‘questions of law or fact common to [Settlement Class] members predominate over any questions affecting only individual members,’ and that the class action ‘is superior to other available methods for fairly and efficiently adjudicating the controversy.’” Id., at 10 (quoting Fed. R. Civ. P. Rule 23(b)(3)). While the proposed settlement is relevant, it goes merely to whether class action treatment would create manageability problems, id. “Trial-manageability issues aside, however, the ‘requirements [of Rule 23(a) and (b)] should not be watered down by virtue of the fact that the settlement is fair or equitable.’” Id. (quoting Denney v. Deutsche Bank AG, 443 F.3d 253, 270 (2d Cir. 2006)).

Put simply, the federal court concluded that plaintiffs “failed to satisfy the predominance requirement of Rule 23(b)(3).” In re Grand Theft Auto, at 10. Not only do the class action claims “arise under the consumer-protection laws of all fifty states and the District of Columbia,” but in at least some states “reliance is an element of consumer fraud.” Id. The district court held, therefore, that McLaughlin compelled decertification as it was “on all fours,” id., at 11. McLaughlin decertified a nationwide class action involving “light” cigarettes because the class action claims “required a showing of individualized reliance,” and the district court found that here the proposed class action “is rife with substantial individualized issues other than the reliance issues that required decertification in McLaughlin.” Id. Because common issues did not predominate over individual issues, the court decertified the settlement class, id. In the court’s words, the proposed class “does not possess the requisite cohesiveness.” Id., at 58.

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