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Archive for May, 2009

While we here in the U.S. continue to litigate class actions over snake oil products and 75 cent charges on our cell phone bills, Canadian class action lawyers have been finding ingenious ways to use class actions to effectuate real social change.  The latest example, according to FP Legal Post,  is a class action filed in B.C. against the University of Victoria on behalf of people who got parking fines after getting booted or towed on university grounds.  The complaint alleges that the University had no legal authority to impose the fines.  This latest suit comes on the heels of a class action filed on behalf of Manitoba drivers who got speeding tickets near construction zones.

 

http://network.nationalpost.com/np/blogs/legalpost/archive/2009/05/28/parking-tickets-challenged-in-class-action.aspx

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To follow up with yesterday’s CAB entry on Supreme Court Nominee Sonia Sotomayor, here are some key quotes from other entries  from around the web discussing her record in class actions and related litigation:

Business Week:  “When it comes to class-action lawsuits and securities-fraud cases, Sotomayor’s record holds as a pragmatist.” 

http://www.businessweek.com/blogs/money_politics/archives/2009/05/sotomayor_on_di.html?chan=top%20news_top%20news%20index%20-%20temp_news%20+%20analysis (via Securities Docket)

Lots, Stocks, and Gavel: “[S]he took an activist position in favor of an interpretation that would have allowed the suit to go forward, in spite of specific language in the law that would have barred it.”

http://lotsstocksandgavel.wordpress.com/2009/05/26/sonia-sotomayor-and-securities-litigation/

WSJ Law Blog: “There is no reason for the business community to be concerned.”

http://blogs.wsj.com/law/2009/05/26/sotomayor-and-business-no-reason-to-be-concerned/

Reuters: “Experts say it can be difficult to predict how a federal appeals court judge like Sotomayor will rule on business cases as a member of the Supreme Court.”

http://tvnz.co.nz/world-news/factbox-sotomayor-cases-2758347

Statutory Construction Blog: “I . . . found 3 cases where the Court reviewed a decision of Judge Sotomayor that involved statutory construction. They’re real snoozers, and am not sure they tell us much but…”

http://lawprofessors.typepad.com/statutory/2009/05/the-supremes-review-of-sotomayors-statutory-construction-cases.html

Wal-Mart Watch: “Most view her record [i]s decidedly moderate, though she has implied in the past that the gender and ethnicity of judges should and does influence their judicial decision-making.”

http://walmartwatch.com/blog/archives/is_wal_mart_happy_with_obamas_supreme_nominee/

The Volokh Conspiracy: “[M]any in the business community were hopeful that the President would select someone who would fit into the Roberts’ Court’s overall approach to business cases. That is someone who is not overtly pro-business, but recognizes the importance of narrow rulings that reinforce settled expectations. . . .  Does the Sotomayor nomination conform to the business community’s expectations?  It is not so clear. . . .”

http://volokh.com/posts/1243433224.shtml

Forbes (by Walter Olsen of Overlawyered and Point of Law): “Issues of business law don’t come across as Sotomayor’s great passion one way or the other, so it’s hard to know what all this portends for the high court’s direction on business issues should she be confirmed.”

http://www.forbes.com/2009/05/26/obama-conservative-supreme-court-nomination-opinions-contributors-sotomayor.html

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After hearing and reading countless media reports today about how Supreme Court Appointee Sonia Sotomayor’s  judicial record will be scrutinized between now and her confirmation, I got to wondering about her judicial record in class actions.  My research turned up a few key cases on class action issues, which I have summarized below.

In Dabit v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 395 F.3d 25 (2d Cir. 2005), Judge Sotomayor authored an opinion affirming in part and reversing in part the dismissal of a putative securities class action, holding that the Securities Litigation Uniform Standards Act (“SLUSA”) did not preempt certain state law claims alleging damages relating to securities transactions brought by plaintiffs who were not buyers or sellers of the securities.  The portion of the decision that limited the reach of SLUSA preemption was overruled by the United States Supreme Court, in a 8-0 decision authored by Justice Stevens in Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71, 126 S. Ct. 1503 (2006).  The case turned primarily on an issue of statutory interpretation, the meaning of the phrase, “in connection with the purchase or sale of a covered security” as used in the portion of the statute that expressly preempts class actions based on state law, with the Supreme Court adopting a broad interpretation of that phrase in contrast to the narrow interpretation given by the Second Circuit.

In Moore v. PaineWebber, Inc., 306 F.3d 1247 (2d Cir. 2002), Judge Sotomayor wrote an opinion upholding a denial of class certification in a RICO fraud case after recognizing that common proof of misrepresentations could be made in a form other than a written, standardized sales script, finding that the district court had not abused its discretion in holding that there was no evidence of a centralized scheme in which common misrepresentations were made to all class members.

Martens v. Thomann, 273 F.3d 159 (2d Cir. 2001) may be an example of the type of decision that reflects a trait highlighted by the President’s comments and media reports, a respect for the impact of judicial decisions on lives of real people.  In this case, the court reversed and remanded, primarily on due process and other procedural grounds, the district court’s imposition of sanctions against two class representatives and their individual attorneys who sought to pursue a motion to “enforce” a previously approved settlement in a Title VII employement class action.

From a class action defense perspective, In re Visa Check/MasterMoney Antitrust Litigation, 280 F.3d 124 (2d Cir. 2001) would be the most troubling of Judge Sotomayor’s class action decisions, were it not for her participation on the panel in In re Initial Public Offering Securities Litigation, 471 F.3d 24 (2d Cir. 2006).  The In re Visa Check opinion, issued prior to the 2003 amendments to FRCP 23, suggested a standard that prohibited a district court from weighing any disputed evidence that might overlap with the merits of the plaintiffs’ claim as long as the plaintiff could provide some expert testimony that, if believed, would support the conclusion that one or more issues could be decided on a classwide basis.  However, in In re IPO Securities Litigation, decided post-2003, the court held that a court must weigh conflicting evidence in determining whether each element necessarily for class certification had been certified even though that decision may also overlap with the merits.  In reaching that conclusion, the court stated that:

we . . . disavow the suggestion in Visa Check that an expert’s testimony may establish a component of a Rule 23 requirement simply by being not fatally flawed. A district judge is to assess all of the relevant evidence admitted at the class certification stage and determine whether each Rule 23 requirement has been met, just as the judge would resolve a dispute about any other threshold prerequisite for continuing a lawsuit.

In re IPO Securities Litigation, 471 F.3d at 24. 

Judge Sotomayor has issued published decisions in a few other class action lawsuits during her tenure as a judge on both the appellate and trial court levels.  These decisions appear fairly case-specific and do not reflect a particular judicial philosophy on class action issues. 

  • In re WorldCom, Inc., 546 F.3d 211 (2d Cir. 2008) – Upheld bankruptcy court’s order discharging putative state law class claims that a telecommunications company’s act of sending light pulses through fiber optic cable buried on his property constituted a trespass and supported a claim for unjust enrichment.

 

  • In re NYSE Specialists Securities Litigation, 503 F.3d 89 (2d Cir. 2007) – Affirmed lower court decision that the New York Stock Exchange was entitled to absolute immunity on certain claims brought on behalf of a would-be class of investors but reversed on grounds that the lead plaintiffs lacked standing to sue the Exchange for federal securities fraud for alleged false statements involving other entities. 

 

  • Specht v. Netscape Communications Corp., 306 F.3d 17 (2d Cir. 2002) – Upheld the trial court’s decision denying a motion to compel arbitration in a set of consolidated, putative class actions where the arbitration provision was set forth on a web page located below the “download” button allowing users to download free software off the Internet.

 

  • Cruz v. Coach Stores, Inc., 202 F.3d 560 (2d Cir. 2000) – Affirmed the denial of a motion for class certification in an employment discrimination case after agreeing that the motion was untimely, that the elements of class certification had not been met, and that the district court had not abused its discretion in finding that the plaintiffs’ proferred expert report submitted in support of the motion was inadmissible.

 

  • Hoffmann v. Sbarro, Inc., 982 F. Supp. 249 (S.D.N.Y. 1997) – Allowed a opt-in class to proceed in a case seeking unpaid employment benefits under the Fair Labor Standards Act (“FLSA”). 

 

  • Semmler v. Metropolitan Life Ins. Co., 172 F.R.D. 86 (S.D.N.Y. 1997) – Denied class certification in an ERISA case seeking relief for a plan administrator’s decision to deny certain benefits for healthcare services.

 

  • Nellis v. Shugrue, 165 B.R. 115 (S.D.N.Y. 1994) – Upheld a bankruptcy court had the power to approve a global settlement of debtors’ claims over objections from certain debtors that the settlement should be considered a “class action” settlement.

Overall, her decisions on class action issues do not suggest a pro-plaintiff or pro-defense bias.  Rather, they seem to reflect a willingness to consider each case on its own merits and to either admit when she has made a mistake or at least be guided by changing circumstances rather than any ridged adherence to a predetermined philosophy or idealogy.

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Thanks to Dan Trudeau of Rust Consulting for recommending a useful article authored by his colleague Tiffaney Allen entitled Anticipating Claims Filing Rates in Class Action Settlements.  The article is dated November 2008, but it was new to me.  The article provides only a basic summary of the many factors that can impact settlement claims rates, but it is a good primer for anyone unfamiliar with the claims process in a class action settlement.

Claims filing rates, or “take” rates, in class action settlements will vary on a variety of factors, as Allen’s article points out.  These factors include the amounts available, the clarity of the notice, the ease of making a claim, the structure of the settlement, the make-up of the class itself, the geographic area covered by the settlement class, and many other variables. 

Insiders sometimes throw around the figure 10% as generic rule of thumb for how many claimants are expected to make a claim for benefits in a typical claims-made or common fund settlement, at least in consumer class actions.  But the reality is that the claims rate can vary significantly depending from case to case.  It is possible in some cases and with appropriate expert guidance to predict claims rates with reasonable accuracy.  However, lawyers and their clients who enter into a class-action settlement with the over-simplified assumption that class members will claim only $.10 on the dollar do so at their peril.

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The California Supreme Court today issued its highly awaited decision in In re Tobacco II Cases, No. S147345 (Cal., May 18, 2009).  The 4-3 majority opinion addressed two issues relating to standing in class actions filed under the California Unfair Competition Law (“UCL”):

1) the UCL “standing requirements are applicable only to the class representatives, and not all absent class members;” and

2) “a class representative proceeding on a claim of misrepresentation as the basis of his or her UCL action must demonstrate actual reliance on the allegedly deceptive or misleading statements, in accordance with well-settled principles regarding the element of reliance in ordinary fraud actions.”

This may be the proverbial case where bad facts make bad law.  The majority’s decision appears to be motivated in no small way by a need not to let the tobacco industry get away with years of misleading advertising targeted toward minors.  To this end, the majority uses language that potentially opens the door to “bait and switch” litigation where litigants with legitimate individual claims file actions on behalf of overly broad classes of people who themselves were not injured monetarily by alleged wrongful conduct, only to demand verdicts or settlements in amounts based on the fallacious premise that these same classes were injured by the conduct.  The dissenting opinion offers an example of what many may fear could be the result of the majority’s decision:

Consider the following scenario: A local chain of family-owned supermarkets receives a large shipment of ground beef and puts it out for sale. The stores’ meat departments label and display the meat as “ground round,” the leanest grade. The stores’ regular price for ground round is $5.99 per pound, but the display labels offer the meat from this shipment at a “reduced price” of $4.99 per pound. The company has not intentionally misrepresented the product.

However, in the exercise of due care, it should have known the meat is ground sirloin, a wholesome but slightly fattier grade. The chain is actually selling other quantities of ground sirloin, correctly labeled, at its regular $4.99 per pound price.
Customer A visits one of the stores, seeking to buy ground beef. Concerned about his fat intake, he does not intend to purchase any grade other than ground round and would not knowingly do so. Relying upon the incorrect “ground round” label, he buys a pound of the meat, so labeled, at the $4.99 price, and consumes it. A substantial number of other customers also see the incorrect “ground round” labels. However, many do not care about the grade of ground beef they eat, do not realize the significance of the label, and are not influenced by it. Nonetheless, they also buy substantial quantities of the mislabeled meat and happily consume it.

Customer A later discovers the labeling mistake. He obtains counsel and brings a UCL action alleging false advertising that caused him actual injury or loss in the amount of $4.99. He claims restitution to himself in that amount. In the suit, he further seeks to certify a class of all other customers who saw the incorrect labels and purchased the mistakenly mislabeled meat. Regardless of whether these persons relied on the incorrect description when purchasing the mislabeled product, he prays for restitution, on their behalf, of all profits the stores received from such purchases.

Under the majority’s concept of no-injury class actions, the plaintiff, Customer A, may well succeed in this endeavor if the case proceeds in court. Realizing this, the company quickly settles. That cannot be what the voters intended when they adopted the substantial reforms set forth in Proposition 64.

Hopefully, later courts will recognize that there are limitations beyond the threshold issue of standing that should prevent this type of unjust and illogical outcome, but only time will tell.

Update, May 19, 2009: In related news, California grocery stores statewide reported a huge influx of patrons at their meat departments this morning.  Many of the new customers were wearing expensive suits and handing out business cards.

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Baker & Hostetler‘s products liability and construction litigation practice teams issued an Executive Alert today on class action and other litigation involving allegedly defective drywall manufactured in China.  This is a litigation trend that has been getting quite a bit of press lately.  Here is an excerpt from the Alert:

Florida homeowners have filed at least six class action lawsuits alleging violations of product liability statues and state consumer fraud statutes, negligence and breach of express and implied warranties. Similar class action lawsuits have also been filed in Alabama and Louisiana. The alleged defective Chinese drywall was reportedly first used around 2002 during the housing construction boom, particularly in Florida. An estimated 60,000 homes in the U.S. may be affected.

As more complaints and lawsuits surface, businesses that were involved with the manufacture, supply or installation of Chinese drywall will likely encounter related legal and economic challenges and could face long, expensive legal battles.

For the entire Alert, click this link to the firm’s website:

http://www.bakerlaw.com/chinese-drywall-litigation-how-best-to-protect-your-company-05-18-2009/

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Although not directly related to class actions, Melanie Lindner of Forbes has an article today discussing tips on how to “sniff out a liar” that is worth reading for any litigator.  The article includes a link to a pictorial listing of simple tips on how to spot someone who is being less then honest.

http://www.forbes.com/2009/05/13/lie-detector-madoff-entrepreneurs-sales-marketing-liar.html?partner=yahoobuzz

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