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Whirlpool Corporation made headlines yesterday when a Ohio federal court jury issued a verdict finding that the manufacturer’s washers did not have a defect that caused them to develop mold.  The verdict comes in the first of the “moldy washer” cases to reach a trial, following the Sixth Circuit Court of Appeals’ decision in 2013 that the case should be certified as a class action despite the inability to resolve the question of damages on a class wide basis.  Along with the Seventh Circuit’s decision in Butler v. Sears, Roebuck & Co., Nos. 11-8029, 12-8030 (7th Cir., Aug. 22, 2013), the Sixth Circuit’s decision in  In re Whirlpool Corp. Front‐Loading Washer Products Liability Litigation, No. 10-4188 (6th Cir. July 18, 2013) have come to epitomize the concept of “issue certification,” where a class is certified for the purpose of resolving some, but not all, of the issues in the a case.  Both the Sixth and Seventh Circuits held that classes should be certified to decide the question whether the washers had a defect, despite strong objection from the defendants, who presented evidence showing that a vast majority of washing machine purchasers had never complained about any mold problems.  Last year, the Supreme Court declined certiorari review in both cases.

The Whirlpool jury’s decision that the washers were not, in fact, defective is seemingly a huge win for the defense bar, but the verdict also provides fodder for courts to justify granting class certification on isolated issues in other cases where it is clear that individual damages trials would be necessary.  As Judge Posner rationalized in reaffirming the original decision in Butler following remand by the Supreme Court to reconsider in light of the Court’s Comcast decision:

Sears argued that most members of the plaintiff class had not experienced any mold problem. But if so, we pointed out, that was an argument not for refusing to certify the class but for certifying it and then entering a judgment that would largely exonerate Sears—a course it should welcome, as all class members who did not opt out of the class action would be bound by the judgment.

Butler, slip op. at 4.  Certainly, that is the scenario that has played out for Whirlpool, at least as to a class of Ohio purchasers (with more trials of other state-wide class claims to come).

But at what cost?  Before the litigation sees any final resolution, Whirlpool will have paid its legion of outside attorneys to defend it in MDL proceedings, motions to dismiss, class certification discovery,  class certification proceedings, two trips to the Seventh Circuit, two trips to the Supreme Court, trial preparation, trial, post-trial motions, and inevitably more appeals, all to achieve “exoneration” in the face of allegations that a small number of their customers experienced mold in their washing machines.  The plaintiffs’ attorneys will have spent a similar amount of time and efforts on their side of all of these proceedings.  And, with the plaintiffs’ attorneys vowing to press ahead with more statewide class trials, the parties are still no closer to having any clear process for resolving the dispute on a global basis.  It doesn’t take a law and economics expert to spot the inefficiencies in this process.

Although the Whirlpool verdict arguably illustrates Judge Posner’s point that the defendant could very well win on the class issue and bind the entire class, that is small consolation for other defendants facing the prospect of expensive class trial proceedings for the purpose of giving a shot at redress to a tiny fraction of its customers who may claim some small injury from a product defect, data breach, misleading label, or any other general business practice.  As much as it serves to “largely exonerate” Whirlpool, the jury’s rejection of the claimed defect calls into question the wisdom of allowing the product defect issue go forward on a class wide basis in the first place rather than requiring the individual claimants to press forward with their claims individually.

Anyone still checking this site will have noticed a complete lack of new content lately, which is mostly the result of pure laziness on my part but partially due to the demands of several other writing projects I’ve been working on.  I’m pleased to announce that one of these articles it out, and the folks at Practical Law the Journal have graciously given permission for me to post a reprint here.  Click the following link to view the article, entitled Key Issues in Data Breach Litigation, which is featured in the October 2014 issue.  Please be sure to visit the Practical Law website to learn how to subscribe to more great content on timely legal topics.

Also, speaking of data privacy litigation, I’ll be part of a panel presenting on the topic at the ABA Institute on Class Actions next week in Chicago.  It’s not too late to register.

The ABA-sponsored annual National Institute on Class Actions is the premier CLE conference focusing on class action trends.  This year’s event will be held on October 23 and 24 in Chicago.  I will be participating on a panel discussing trends in privacy class actions, and there are a variety of other excellent panel presentations scheduled, including a program on business development for both plaintiff’s and defense attorneys.  This year’s Showcase Program is a Town Hall Meeting with the Rule 23 Subcommittee of the Advisory Committee on Civil Rules, so if you would like to have some input into the future of Rule 23, you’d best be in attendance!   For those of you who are new to class actions, Dan Karon and Drew McGuinness are reprising their second-to-none Class Actions 101 program.

For more information and to sign up for this excellent program, please click the link below.

http://shop.americanbar.org/eBus/Default.aspx?TabID=1444&productId=211246

 

After becoming one of the hottest trends during the latter part of the last decade, developments in international class action law have waned a bit over the past couple of years, but a new case may be changing that trend.  An Austrian law student, Max Schrems, made news earlier this week (see examples here and here) when he announced a “class action” against Facebook Ireland, the subsidiary that offers the popular social networking service outside of North America.  Schrems has filed a lawsuit in Austria seeking to pursue, on behalf of himself and other non-North American claimants, a variety of legal claims relating to Facebook’s use of consumer data as well as alleged illegal tracking and surveillance activity.  As reported yesterday by Natasha Lomas at Tech Crunch, more than 25,000 individuals have “joined” the lawsuit so far, by signing up at a website set up for that purpose and assigning their claims to Schrems.

This is by no means the first data privacy lawsuit ever filed against Facebook, and it is difficult to say at this point whether the legal claims have any prospect of success.  However, the case is intriguing from a procedural point of view because it is a suit seeking collective redress on behalf of thousands of non-North American consumers in a jurisdiction that is not known as a hotbed of class action litigation.  Many features of the case serve to illustrate differences between US-style class actions and “class actions” as they are developing in other parts of the world.  I’ve highlighted a few of them below.

Opt In Versus Opt Out

Outside common law jurisdictions like the United States, Canada, Israel, and Australia, collective action procedures generally follow an opt-in model, where each individual litigant has to take affirmative steps to participate in the lawsuit. This is a major distinction with the Rule 23 model followed in the United States, where a certified class binds all class members unless they expressly opt out of the case, and it creates a major limitation to the leverage created by grouping claims together.

Class Action through Private Contract and Novel Application of Existing Procedures

Many civil law countries lack an express mechanism for grouping large numbers of similar claims together into a single case except in very limited circumstances.  Even when specific collective action procedures exist, they can often be pursued only by a consumer association or government regulator rather than by private litigants.  Private litigants have filled the gap by entering into private agreements in which they group together on their own by assigning their individual claims contractually to a single plaintiff who will pursue the claims as a group.  Aggregation of claims by assignment has become a popular practical vehicle for pursuing group litigation, especially in continental Europe.

In Austria, a July 12, 2005 decision by the Austrian Supreme Court set out a two factor test for deciding whether assigned claims can proceed in a single case.  loosely translated, the standard requires that there be some central or significant question common to all claims, and that the factual and legal issues arising out of the individual claims be homogenous in nature as they relate to the common questions.  The Commercial Court of Vienna has applied this standard in several cases to make an initial determination of whether to “admit” the action, or in other words allow the assigned claims to proceed in a single case.  This initial evaluation does bear a resemblance to the class certification procedure applied under Rule 23 of the Federal Rules of Civil Procedure, applicable to class actions in the U.S. courts.

For a more detailed description of the “Austrian-style class action” procedure, see Christian Klausegger‘s chapter on the subject in the World Class Actions book that I have shamelessly promoted on this blog since its publication in 2012.

Litigation Funding

In Austria, as in many other parts of the world, contingent fees are prohibited.  At the same time, however, court fees are often assessed based on the total amount in dispute, so the more money in dispute, the higher the fees are that have to be paid to the court, in addition to the hourly fees to be paid to counsel. These factors combined significantly limit the incentive to pursue collective litigation in these jurisdictions. They have also led litigants to have to look for alternative ways of funding litigation, the most prevalent of which is private litigation funding by a for-profit institution that is not itself a law firm.  The litigation funder finances the litigation, including payment of court fees and hourly attorney fees, in exchange for a contractual right to earn a profit if the litigation is successful.

Litigation funding is also available in the United States, but it has been slower to develop, primarily because contingent fees and agreements to advance litigation costs do not typically violate rules of ethics or public policy. In fact, the opposite is true: rules prohibiting fee-sharing with non-lawyers can make private litigation funding a tricky proposition in the United States.  As a result, private law firms have the financial means of funding litigation (either on their own or by associating with other firms) and are driven to pursue litigation without the need for financing through the promise of a percentage of the recovery if the case is successful.

The Impact of Morrison and Kiobel

The United States Supreme Court has issued two key recent decisions limiting foreign litigants’ access to the US Courts as a forum for pursuing class actions.  Limitations on access to the class action procedures available in the US courts may lead foreign litigants to experiment more frequently with alternatives  in foreign jurisdictions.  Whether the Facebook class action in Austria is part of a trend in this direction remains to be seen.

What Drives Claims for Collective Redress?

In the United States, the promise of a large contingent fee can incentivize an entrepreneurial lawyer with a creative legal theory to pursue class action litigation even in the absence of widespread public awareness of a perceived wrong.  The procedural and financial barriers to pursuing claims for collective redress largely prevent this phenomenon from occurring outside the United States, Canada, and a few other jurisdictions.  Instead, “class actions” can be pursued as a practical matter only when there is enough public outrage or concern over a particular event or business practice that large numbers of individuals are willing to take the time to participate (or when there is a sufficient number of institutional plaintiffs with the financial resources and incentive to pursue the suit, such as in certain securities fraud and competition/antitrust cases).  This means that both mainstream media and–somewhat ironically in the case of Facebook–social media have a necessary role in the success or failure of collective litigation abroad.

The U.S. Supreme Court issued its decision earlier today in Halliburton Co. v. Erica P. John Fund, Inc., No. 13-317 (Halliburton II), its most highly-anticipated class-action-related decision of the October 2013 term.  Those who were hoping for a sea-change in securities class action jurisprudence were left disappointed, as the Court, in an opinion authored by Chief Justice Roberts, declined to overrule its 25-year-old decision in Basic Inc. v. Levinson, 485 U.S. 224 (1988).  Rather than abolish the framework established in Basic, which provides a means for securities fraud plaintiffs to satisfy the elements of class certification through a class-wide presumption of reliance on material misrepresentations, the Court instead held that a defendant can rebut the presumption by demonstrating, at the class certification stage, that the alleged misrepresentations did not actually have any impact on the stock price.  In doing so, the Court reversed the Fifth Circuit Court of Appeals’ decision barring the defendant from offering evidence of non-impact on stock price at the class certification stage.

The Court distinguished its earlier decision in the same case, Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. ___ (2011) (Halliburton I), in which it held that a plaintiff should not be required to prove materiality of the alleged misrepresentation at the class certification stage.  The distinction between the issue of materiality of a misrepresentation (a merits issue not appropriate for the class certification phase according to Halliburton I), and the issue of whether a misrepresentation actually had a common price impact on the stock (a proper class certification question according to Halliburton II) is the key to making sense of the Court’s decision today.  As Justice Roberts stated:

[P]rice impact differs from materiality in a crucial respect. Given that the other Basic prerequisites must still be proved at the class certification stage, the common issue of materiality can be left to the merits stage without risking the certification of classes in which individual issues will end up overwhelming common ones. And because materiality is a discrete issue that can be resolved in isolation from the other prerequisites, it can be wholly confined to the merits stage.

Price impact is different. The fact that a misrepresentation “was reflected in the market price at the time of [the]transaction”—that it had price impact—is “Basic’s fundamental premise.” Halliburton I, 563 U. S., at ___ (slip op., at 7). It thus has everything to do with the issue of predominance at the class certification stage. That is why, if reliance is to be shown through the Basic presumption,the publicity and market efficiency prerequisites must be proved before class certification. Without proof of those prerequisites, the fraud-on-the-market theory underlying the presumption completely collapses, rendering class certification inappropriate.

Halliburton II, slip op., at 21-22.  In other words, a merits question that is indisputedly common to the class should not be considered prior to class certification, but a merits question that also bears on whether the issues to be resolved at trial are truly common or individualized in the first place must be considered as part of the class certification decision.

It’s not too late to register for this Thursday’s CLE program at the University of San Francisco.  See the particulars below.

CLICK HERE FOR MORE INFORMATION AND TO REGISTER

Who’s in Charge Here?: The Role of Lawyers, Clients, Insurers, and Judges in Class Actions and Mass Tort Litigation

Presented by the Class Actions and Derivatives Suits, Consumer Litigation, and Mass Torts Committees

Thursday, June 19, 2014, 12:00pm – 7:00pm

University of San Francisco Law School, San Francisco, CA

FREE PARKING AND 2 ETHICS CREDITS!!

The Gulf Oil Spill, the 9-11 terrorist attacks, massive product recalls and credit card data breaches—these and other large-scale conflicts generate correspondingly massive litigation, requiring courts, parties, attorneys, and insurers to adapt to increasingly complex challenges.  For this half-day CLE event, we have assembled a distinguished group of judges, academics, mediators, and counsel to discuss some of the most pressing issues facing the various stakeholders.

Our all-star panels will explore ethical and other standards for selecting and evaluating named class representatives; coverage and other current issues surrounding consumer data breach class actions; the balancing of individual plaintiffs’ interests in settlement of mass tort cases; and cutting-edge case management techniques gleaned for among the most tragic mass disasters of our time—the 9-11 attacks and the Gulf Oil Spill.

We are pleased to feature the Hon. Alvin Hellerstein, U.S. District Court for the S.D. of New York—who presided over the 9-11 cases; the Hon. Jon Tigar of the U.S. District Court for the N.D. of California; Tara Kelly, inside counsel at British Petroleum (Houston); Prof. Deborah Hensler of Stanford Law School; Assoc. Dean Joshua Davis of the University of San Francisco School of Law; Thomas Kang at the ACE Group (Los Angeles); and Jocelyn Larkin, Executive Director of the Impact Fund (Berkley), among our distinguished panelists.  Lunch will be provided, and the program will be followed by a sponsored cocktail hour, providing ample opportunities for networking.  Come join us for an enlightening afternoon!

Program Highlights:

  • Whose Class Is It Anyway? –The Policy, Practice, and Ethics Behind the Search for Named Plaintiffs (Ethics CLE Credit Applied for)
  • Recent Developments in Data Privacy Class Actions and Insurance Coverage
  • It’s The Trees Not the Forest – Considering Individual Interests in Mass Torts Settlements
  • Judicial Quasi-Class Actions – Managing MDL and mass tort litigation through judicial control over the appointment of lead counsel, attorneys’ fees, and cost-shifting

Faculty:

  • Hon Alvin K. Hellerstein, U.S. District Court of the Southern District of New York
  • Hon Jon S. Tigar, U.S. District Court for the Northern District of California
  • Professor Joshua Davis, University of San Francisco Law School
  • Professor Deborah Hensler, Stanford University Law School
  • Tara Kelly, British Petroleum, Houston, Texas
  • Thomas Kang, ACE North American Professional Risk, Los Angeles
  • Catherine Yanni, JAMS, San Francisco
  • Jocelyn Larkin, Impact Fund, San Francisco
  • Sheila Birnbaum, Quinn Emanuel Urquhart & Sullivan, New York, New York
  • Paul Karlsgodt, BakerHostetler, Denver, Colorado (Program Co-Chair)
  • Linda D. Kornfeld, Kasowitz, Benson, Torres & Friedman LLP, Los Angeles
  • Karen Menzies, Robinson Calcagnie Robinson Shapiro Davis, Newport Beach
  • Andrew McGuinness, Ann Arbor, Michigan (Program Co-Chair)
  • Rudy Perrino, Walsworth Franklin Bevins & McCall, Los Angeles
  • Rosemarie Ring, Munger, Tolles & Olson LLP, San Francisco
  • Christina Terplan, Clyde & Co., San Francisco
  • Timothy Tomasik, Tomasik Kotin Kasserman, Chicago, Illinois
  • Donna L. Wilson, Manatt, Phelps & Phillips, Los Angeles

Thanks to our Platinum Sponsors!

  • University of San Francisco School of Law
  • Heffler Claims Group
  • Gilardi & Co. LLC
  • Brown Claims Management Group
  • Garden City Group
  • Munger, Tolles & Olson LLP

Gold Sponsors

  • BakerHostetler
  • Clyde & Co.

The California Supreme Court issued its long-awaited decision in Duran v. U.S. Bank National Association yesterday, addressing the use of statistical sampling as a way of evaluating aggregate liability and damages in a class action. Although Duran is a wage and hour case, its analysis is pertinent to the use of statistical evidence in a variety of other class action contexts.

In the opening line of his majority opinion, Justice Corrigan referred to Duran “an exceedingly rare beast” because it was a wage and hour class action that had proceeded all the way through trial to verdict.  In the trial court, the plaintiff had presented testimony from statistician Richard Drogin, who had also notably served as an expert for the plaintiffs in Walmart Stores Inc. v. Dukes.  Drogin proposed a random sampling analysis that purported to estimate the percentage of the defendant’s employees that had been misclassified for purposes of entitlement to overtime pay.  The trial court did not rely on Drogin’s analysis but instead came up with its own sampling approach, which involved pulling the names of 20 class members, hearing testimony from these witnesses along with the named plaintiffs, and then extrapolating the court’s factual findings across the entire class in order to determine the defendant’s liability.

The supreme court affirmed a decision by the Court of Appeal holding that this sampling approach violated due process and was a manifest abuse of discretion.  Generally, there were two independent reasons for the supreme court’s conclusion: 1) the use of random sampling deprived the defendant of the opportunity to present individualized evidence supporting its defenses to the claims; and 2) the sampling method adopted by the court was inherently flawed and unreliable.

Without categorically rejecting the use of statistics as a tool in managing class action litigation, the supreme court identified numerous conceptual limitations on its use.  First, “[s]tatistical methods cannot entirely substitute for common proof . . . .  There must be some glue that binds class members together apart from statistical evidence.”  So, while statistics may serve as circumstantial evidence to support a common issue–such as the existence of centralized policy or practice, they may not be used as a substitute for establishing commonality or for avoiding individualized determination of individual issues–such as by generalizing effects of a given policy or practice on large groups of claimants where the effects vary in actuality.

Second, a trial court cannot utilize statistical evidence in a way that prevents the individual adjudication of individual defenses.  Although courts are encouraged to develop innovative procedures in managing individual issues, a court cannot ignore individual issues altogether or prevent them from being decided on an individual basis.

Third, if statistical evidence is to be used as part of a litigation plan for managing complex class action, the methods to be employed should be presented, evaluated, and scrutinized at the class certification stage.  The court should not simply assume that statistical methods will permit class treatment and certify the class based on this hypothetical possibility.

Fourth, the court must ensure that the statistical method to be employed has to be reliable, based on statistically valid data, and not prone to a high margin of error.  In other words, junk science or ad hoc, rough justice are not enough.

The Duran opinion is worthy of careful study for anyone considering the use of statistics in class certification proceedings, both in the wage and hour context and in class actions more generally.  It also provides a colorful illustration of the due process and manageability problems posed by the “trial by formula” approach to class actions that the United States Supreme Court criticized in Dukes.

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