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Archive for November, 2010

Debate about legal reforms outside the U.S. can often provide a revealing look at the strengths and weaknesses of the U.S. legal system.  For policymakers in other countries, U.S. consumer protection laws can be the gold standard for access to justice and, at the same time, the epitome of litigiousness run amok.

As an example, check out today’s column from Globe and Mail law reporter Jeff Gray discussing Bill C-36, a proposed reform being considered by the Canada Senate that would permit the government to order mandatory product recalls.  Gray has quotes from several Canadian class action lawyers, both from the plaintiff’s and defense side, making predictions on the potential effects of the bill and commenting on the development of Canada’s consumer protection laws as compared to the United States.

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Emerald Supplies Ltd. v. British Airways PLC is already being heralded as a rejection of US-Style class actions in the UK, but my reading of the opinion leaves the question far from settled.  The opinion falls far short of foreclosing the possibility of a representative action in every case where the plaintiffs’ interests are not literally identical.  In fact, the opinion appears to turn on two flaws that may very well have prevented class certification under US procedure.

In articulating the standard for what constitutes “the same” interest sufficient to justify treatment of a case as a representative action under Civil Procedure Rule 19.6, Lord Justice Mummery was careful to say that “[t]his does not mean that the membership of the group must remain constant and closed throughout. It may indeed fluctuate. It does not have to be possible to compile a complete list when the litigation begins as to who is in the class or group represented.”  Opinion ¶ 63.  Instead, he articulated two problems in treating the case as a representative action, both of which would also be potentially fatal to class certification under Rule 23. 

First, he observed that there were problems in ascertaining who was a member of the proposed class:

The problem in this case is not with changing membership. It is a prior question how to determine whether or not a person is a member of the represented class at all. Judgment in the action for a declaration would have to be obtained before it could be said of any person that they would qualify as someone entitled to damages against BA. The proceedings could not accurately be described or regarded as a representative action until the question of liability had been tried and a judgment on liability given. It defies logic and common sense to treat as representative an action, if the issue of liability to the claimants sought to be represented would have to be decided before it could be known whether or not a person was a member of the represented class bound by the judgment.

Id.  Second, he observed that certain defenses might be available as to some members of the would-be class, but not others:

A second difficulty is that the members of the represented class do not have the same interest in recovering damages for breach of competition law if a defence is available in answer to the claims of some of them, but not to the claims of others: for example, if BA could successfully run a particular defence against those who had passed on the inflated price, but not against others. If there is liability to some customers and not to others they have different interests, not the same interest, in the action.

Id. ¶ 64.  In conclusion, Lord Justice Mummery returned to his concern about the inability to determine class membership without first ruling on the merits:

In brief, the essential point is that the requirement of identity of interest of the members of the represented class for the proper constitution of the action means that it must be representative at every stage, not just at the end point of judgment. If represented persons are to be bound by a judgment that judgment must have been obtained in proceedings that were properly constituted as a representative action before the judgment was obtained. In this case a judgment on liability has to be obtained before it is known whether the interests of the persons whom the claimants seek to represent are the same. It cannot be right in principle that the case on liability has to be tried and decided before it can be known who is bound by the judgment. Nor can it be right that, with Micawberish optimism, Emerald can embark on and continue proceedings in the hope that in due course it may turn out that its claims are representative of persons with the same interest.

Id. at 65.

The primary concern raised by Lord Justice Mummery is the problem of a “fail-safe” class, a common obstacle to class certification in the U.S.    Even under the seemingly more liberal US Rule 23, a class cannot be defined in such a way that requires the case to be adjudicated on the merits before it can be determined who is in the class.  (See recent CAB review quoting Anderson & Trask’s, The Class Action Playbook, comparing fail-safe classes to Schrödinger’s cat).  Thus, classes consisting of “all consumers who were defrauded” or “all purchasers who paid inflated prices due to the defendant’s act of price fixing” are not sufficiently ascertainable to be certified under Rule 23.

The secondary concern could also prevent certification under US law.  The fact that a defendant’s defenses may vary from person to person is often a consideration in denying class certification under Rule 23.

In short, it appears to this outsider that it may be too early to tell whether Emerald Supplies is truly the death knell for US-Style class actions in the UK, or whether it is simply the first in a line of decisions defining the contours of a more robust law of representative actions across the pond.

One thing is certain, though.  There are very few US judges who could get away with using the word “Micawberish” in an opinion.

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University of Missouri Law Professor S.I. Strong, guru of international class arbitration, has two new intriguing publications coming out soon.  In both works, she discuss the academic debate about the appropriate international arbitration rules for dealing with large groups of similar claims and discuss the ways in which multi-party or representative procedures are likely to evolve outside the United States.  Strong examines the common conception of “class action arbitration” as a “uniquely American device” and posits that a system of multi-party arbitration, better characterized as “collective” arbitration than “class” arbitration, may be more likely to emerge as the predominant procedural device in international disputes subject to arbitration.

Drafts of both articles are available for download at SSRN via the links below.

From Class to Collective: The De-Americanization of Class Arbitration, 26 ARBITRATION INTERNATIONAL 493 (2010)

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1656511

Class Arbitration Outside the United States: Reading the Tea Leaves, DOSSIER VII – MULTIPARTY ARBITRATION (ICC Institute of World Business Law, 2010).

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1517272

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(Editor’s note – Revised at 6:26 p.m. MST to include link to the decision.  See below)

As reported by Jane Croft and Pilita Clark at the Financial Times and Eric Larson at Bloomberg, the Court of Appeal of England and Wales ruled yesterday that an antitrust suit filed by two shipping businesses against British Airways may not go forward as a collective action on a representative basis.    Based on the description of the ruling in the media reports, the decision seems to reaffirm the conventional wisdom that opt-out representative actions are not viable in the UK under existing procedure and that new legislation will be necessary before US-style class actions come to the UK.

Here is a link to the text of the decision, courtesy of BAILII.org 

The law firm Ashurst LLP also has a summary of the decision and related commentary available for download at its website:

www.ashurst.com/page.aspx?id_content=5559 

Check back in a few days for more commentary on this decision…

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The Supreme Court heard argument last week in the case that many commentators were calling a possible death knell for consumer class actions.  (See previous CAB posts on  Nov. 4, 2010 and Nov. 9, 2010)

So does the future of consumer class actions still seem dire after oral argument?

The basic issue is whether the Federal Arbitration Act pre-empts state contract law when state courts find class arbitration waivers unconscionable.  In other words, if an arbitration clause forecloses the possibility of a consumer class action, can state courts declare the waiver unconscionable, and therefore invalid?

Moreover, if states are permitted to find arbitration clauses that bar class actions unconscionable, will it end arbitration as a viable tool of conflict resolution?  Companies may avoid arbitration provisions in the future because none will want to deal with class arbitrations, which offer all the procedure of court litigation plus plenty of liability exposure, without the benefit of judicial review.

 Several Justices made comments suggesting a lack of comfort in telling states they can’t decide for themselves what constitutes an unconscionable contract.  If that sentiment plays out in the opinion, concerns about federalism and states rights may play a larger role in the outcome than any pro-business or pro-consumer bias or any leaning for or against class actions among the Court’s members.

 JUSTICE SCALIA: “What if — what if a State finds it unconscionable to have an arbitration clause in an adhesion contract which requires the arbitration to be held at a great distance from — from where the other party is and requires that party to pay the cost of the arbitration? Can a State not find that to be unconscionable?”

Justice Kagan followed up on the theme, questioning AT&T Mobility’s apparent position that state courts should generally have discretion to find contract provisions unconscionable, except class arbitration waivers.

JUSTICE KAGAN:  “… how about a provision prohibiting certain kinds of attorney’s fees? How about a provision prohibiting certain kinds of — a law prohibiting certain kinds of discovery provisions? And you said that would be fine, for the State courts to hold those things unconscionable, but it’s not fine for the State court to hold a class arbitration prohibition unconscionable. So what separates the two? How do we know when something is on one side of the line and something is on the other?”

In the face of arguments that California’s unconscionability law is disproportionately hostile to arbitration waivers, Justice Ginsberg, among others, observed that California applies its unconscionability doctrine equally to both arbitration contracts as well as non-arbitration contracts.

JUSTICE GINSBURG: “There is nothing that indicates that California’s laws are applying a different concept of unconscionability. You haven’t come up and said, oh, look what they did here. And in another case they said it has to shock the conscience.  Maybe across the board, California is saying: We think that unconscionability should have a broader meaning. Is it unfair to the weaker party to the bargain? Is there really no genuine agreement here? And if that is so, that will fit our definition of unconscionability.  How do we draw the line between a law that says discovery has to happen in arbitration, and one that says a — in a contract of adhesion, if the superior party retains the right to do discovery but tells the inferior party, you can’t? And a State says, that’s unconscionable.”

In response, Andrew Pincus, the attorney representing AT&T Mobility, with the help of Justice Alito, made the point that the California courts did in fact apply the state’s unconscionability doctrine differently to the class arbitration waiver in the Concepcion’s contract.  That is, the lower courts did not focus on the fairness of the contract’s terms to the Concepcions, the  actual plaintiffs before the court.  This runs contrary to the way most contract terms are assessed for fairness.  Instead, the courts focused on the contract’s fairness to a future class of possible plaintiffs.  If the lower courts had viewed the generous arbitration clause in the Concepcion’s phone contract for its fairness to the Concepcions, the contract may not have been deemed unconscionable.  Instead, the lower courts appear to have found the arbitration clause unconscionable merely because it barred the class action device.

 MR. PINCUS: “First of all, let me explain why the hypotheticals that you posit and that Justice Scalia posited and that Justice Sotomayor posited have been addressed under the traditional unconscionability doctrine that we described. In all of those cases, what courts have said is this provision — we are measuring whether it is unconscionable at the time of contracting; we are looking at the effect on the party before the court; can this person get to arbitration, is the fee too high, is it too far away. What about — we are looking at the effect on this particular person and we are deciding whether it shocks the conscience or whatever their across-the-board State standard is.  And in all of those cases, that’s what those courts do, and that’s why those provisions have been  invalidated, because they are invalidated under an evenhanded application of the unconscionability provisions that courts apply when they assess –”

 JUSTICE ALITO: “I thought that — I don’t want to interrupt your complete answer.”

 MR. PINCUS: “Sure.”

 JUSTICE ALITO: “But I thought that was the gist of your argument, the heart of your argument, that traditional unconscionability in California and elsewhere focuses on unfairness to the party who is before the tribunal. So here it would be unfairness to the Concepcions, rather than unfairness to other members of the class who are not before the court.”

 MR. PINCUS: “That’s exactly right, Justice Alito.”

 Read the entire transcript or listen to an audio recording at Scotus Blog

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It’s back!  We can’t promise that it will appear weekly, so we changed the name to Class Action Blogosphere “Periodic” Review.  But, as always, we have combed through our favorite blogs and news feeds to bring our readers up to speed on a some of the notable developments in class action news.

The End of Consumer Class Actions as We Know Them?

One story is, by far, the biggest news in the class action world.  Today, the U.S. Supreme Court will hear argument in the case of AT&T Mobility Services v. Concepcion.  The key issue is whether class action exemptions in consumer contracts are enforceable even when state contract law bars such exemptions.  AT&T argues that the Federal Arbitration Act preempts state contract law.  Thus, if a class action exemption is tied to an arbitration clause it is enforceable despite contrary law at the state level.  For an accessible read, check out Brian T. Fitzpatrick’s story in the San Francisco Chronicle…

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/11/06/INA41G6I3I.DTL

… and see also

All Writs Act Better than Collateral Estoppel

Class action defense lawyers may have a new tool to use against copycat class actions; particularly those involving plaintiffs’ lawyers who attempt to extort settlements through threat of discovery.  It’s called the All Writs Act.  It was used by Judge Posner in the Seventh Circuit to grant an injunction blocking a copycat class action in another jurisdiction.  The case is called Thorogood v. Sears, Roebuck & Co.  For more information check out Andrew Trask’s November 10 post on Class Action Countermeasures.  Judge Posner even cites Trask’s new book, The Class Action Playbook.  (See CAB Review of the book here).

http://www.classactioncountermeasures.com/2010/11/articles/discovery/using-the-all-writs-act-to-block-copycat-class-actions/

For a slightly different take on Posner’s decision, read Russell Jackson’s post on Consumer Class Actions & Mass Torts.

http://www.consumerclassactionsmasstorts.com/2010/11/articles/predominance-1/7th-circuit-enjoins-relitigation-of-denial-of-class-certification/

Motion to Dismiss + Discovery = Motion Granted?

The Rule 12(b)(6) Motion to Dismiss can sometimes feel like a mini-motion for summary judgment.  Over the years, courts have been more willing to consider information beyond merely the pleadings including documents that are referenced by plaintiffs and central to their claims.  Anything more is supposed to convert the motion to dismiss into a motion for summary judgment, right?  Maybe not.  One court has apparently permitted discovery in the context of a Rule 12 Motion to dismiss.  Get the story in a post titled Preemption, Pleading & Rule 11 at Drug and Device Law.

http://druganddevicelaw.blogspot.com/2010/11/preemption-pleading-rule-11.html

Big Changes Coming for Rule 26 and Expert Witnesses

The communications between attorneys and their expert witnesses are currently discoverable in federal court. Not for long.  Federal Rule 26 is about to change in a way that will protect certain communications between counsel and expert.  The rule change will also extend work product protection to the draft reports of experts.  Check out the latest post in the North Carolina Business Litigation Report.

http://www.ncbusinesslitigationreport.com/2010/11/articles/discovery-1/work-product-protection-for-communications-between-lawyers-and-expert-witnesses-coming-next-month-under-revised-federal-rules-of-civil-procedure/

Hooters Waitresses Have no Class … Action?

Always read the fine print.  According to the Washington Post, whatever the Supreme Court decides in AT&T Mobility Services vs. Concepcion may have ramifications for a class of waitresses trying to sue Hooters.  You see, the job application has an arbitration clause that bars lawsuits.

http://www.washingtonpost.com/wp-dyn/content/article/2010/11/05/AR2010110507318.html?hpid=moreheadlines

Oppress Me, Please

Professor James C. Morton reports on a Canadian decision allowing class certification of a case seeking the remedy of “oppression” in his blog, Morton’s Musings.  Doesn’t sound like a very pleasant  remedy to us, but they march to the beat of their own drummer north of the border.

http://jmortonmusings.blogspot.com/2010/11/oppression-remedy-properly-sought-in.html

You Mean to Tell Me that Fast Food Makes you Fat!?

Sean P. Wajert of Mass Tort Defense reports on a recent decision denying class certification to a plaintiff seeking to hold a fast food chain responsible for allegedly misleading consumers into thinking that its fare poses no health risks.

http://www.masstortdefense.com/2010/11/articles/class-action-alleging-false-food-ads-rejected/

Securities Class Action Filings Down

As reported in the Conference Board’s Governance Center Blog by guest contributor Anthony Galban, Sr. V.P. of Chubb & Son, securities class action filings are down significantly in 2010.

http://tcbblogs.org/governance/2010/11/04/guest-contributor-securities-class-action-filings-are-down-but-will-the-trend-continue/

Hot Pockets are Fast and Tasty

Greg Mersol of Baker Hostetler’s new Employment Class Action Blog reports on the latest in a series of California decisions denying class certification in a wage and hour case seeking to hold an employer liable for not ensuring that its employees to take meal breaks.

http://www.employmentclassactionreport.com/class-action/another-court-denies-certification-of-a-california-meal-break-class/

Describe that Class for Me Again?

The Complex Litigator‘s H. Scott Leviant reviews a recent California Court of Appeal decision holding that class certification was not appropriate because the proposed class was not ascertainable.

http://www.thecomplexlitigator.com/post-data/2010/11/1/in-sevidal-v-target-corporation-an-unascertainable-class-doo.html

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The U.S. Supreme Court will hear oral argument next week in a case involving one of the hottest issues in class action law these days, the enforceability of class arbitration waivers.  Class arbitration waivers are contract clauses that require arbitration, combined with an agreement to waive the right to pursue any dispute as a class action. 

AT&T Mobile LLC v. Concepcion, docket no. 09-893, is an appeal of the Ninth Circuit’s opinion in Laster v. AT&T Mobile LLC, No. 08-56394 (9th Cir. Oct. 27, 2009), which held that a class arbitration waiver in a mobile phone terms of service agreement was unconscionable as a matter of California law. 

The Ninth Circuit opinion was in line with a trend among state and federal courts in striking down class arbitration waivers in consumer contracts on unconscionability grounds.  However, the case involved what the Ninth Circuit called a “new wrinkle”.  The clause at issue had provided for a “premium” payment of $7,500 to a consumer who obtained an arbitrator’s award higher than the company’s last settlement offer.  This provision arguably provided the incentive to pursue an individual suit that courts had found to be lacking in previous cases involving class arbitration waivers.  Despite the wrinkle, the court found that the case was not distinguishable from an earlier case in which it had found a class arbitration waiver unconscionable, and it rejected the defendant’s argument that the Federal Arbitration Act preempted the application of state law in determining the enforceability of the waiver.

The supreme Court granted certioriari to consider:

Whether the Federal Arbitration Act preempts States from conditioning the enforcement of an arbitration agreement on the availability of particular procedures-here, class-wide arbitration-when those procedures are not necessary to ensure that the parties to the arbitration agreement are able to vindicate their claims.

SCOTUS Blog has this preview of the upcoming oral argument.

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