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Archive for January, 2011

Third party litigation funding has become intriguing development in the expansion of global class and collective action litigation over the past several years, particularly in Australia.  (For various previous CAB articles addressing third party litigation funding, click here).  The concept of third party litigation funding generally refers to financing of litigation by a private party or corporation that is not a party to the dispute, in exchange for a right to a portion of the recovery if the litigation is successful. 

In the U.S., the ethical rules prohibiting fee-splitting with nonlawyers made most types of third party litigation funding improper (see Model Rules of Prof’l Conduct, R. 5.4(a)), while the existence of law firm funding through contingent fee arrangements (Model Rules of Prof’l Conduct, R. 1.5(c)) made nonlawyer sources of funding unnecessary for the development of class action litigation.

However, in other parts of the world, where contingent fees are prohibited, third party litigation funding has developed as an alternative to provide a means for plaintiffs to pay for class action litigation and to avoid the risks associated with the English rule, or “loser-pays” rule, which requires the loser of a case to pay the other side’s costs and attorneys’ fees.

Sue Lannin, financial reporter for ABC (Australia Broadcasting Corporation) News, published this article on Wednesday discussing the impact that private litigation funding may be having on class action litigation in Australia.  The article quotes one Australian attorney who believes that private litigation funding is responsible for a recent increase in shareholder class actions and will likely continue to generate an explosion of class action litigation in that country.  However, the article also quotes an attorney with a contrary view, that the recent increase in shareholder class actions is simply the result of the financial crisis in the latter part of the last decade.

The combination of deep pockets and the legal ability to pursue class action litigation for profit would appear to be a good recipe for expanding class action litigation anywhere, but whether litigation funding in Australia actually creates a “US-style litigation culture with unregulated legal financiers shopping around for cases” remains to be seen.

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I’m late for my Inns of Court dinner, so time does not permit me to elaborate in detail, but I wanted to point out two recent class action-related reports of note.  Be sure to check them out.

1) Seyfarth Shaw’s Seventh Annual Workplace Class Action Litigation Report.

2) Cornerstone Research, Securities Class Action Filings, 2010 Year in Review.

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While doing research for another article today, I came across a terrific resource that could come in handy to any lawyer who handles consumer class actions.   It is a 2005 article from Alan S. Brown and Larry E. Hepler entitled Comparison of Consumer Fraud Statutes Across the Fifty States, 55 Fed’n Def. & Corp. Couns. Q. 263 (2005).  A copy is available for download for free at the FDCC website.  In an appendix at pages 290-308, the authors included a chart comparing key aspects of each state’s consumer protection statute. 

Although the article is now several years outdated (so it would be prudent to shepardize), it at least provides a good starting point for any attorney researching state consumer protection or “little FTC” laws.  I only wish I had come across this little gem sooner.

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The filed rate doctrine is an important concept that comes into play in many consumer class actions, including those against public utilities, telecommunications providers, and insurers, that challenge the amounts charged by a regulated provider for its services.  In its broadest sense, the doctrine holds that a regulated entity cannot be sued for charging allegedly excessive rates if those rates were filed with a federal or state regulator.

Last fall, in MacKay v. Superior Court, 188 Cal. App. 4th 1427 (2010), a panel of the the California Court of Appeal expressly applied the filed rate doctrine to bar a consumer protection claim based on an insurance companies act of charging allegedly excessive insurance premiums.  This past week, on January 12, 2011, the California Supreme Court denied a motion to depublish the decision, confirming its status as citable authority. 

Here is a key excerpt from the original decision, entered on October 6, 2010:

The filed rate doctrine provides that rates duly adopted by a regulatory agency are not subject to collateral attack in court. Numerous state courts have applied the filed rate doctrine to approved insurance rates. (E.g., Anzinger v. Illinois State Medical Inter-Ins. Exchange (1986) 144 Ill.App.3d 719, 721, 723 [98 Ill.Dec. 533, 494 N.E.2d 655]; Commonwealth v. Anthem Ins. Companies, Inc. (Ky.Ct.App. 1999) 8 S.W.3d 48, 51-52; City of New York v. Aetna Casualty & Surety Co. (N.Y.App.Div. 1999) 264 A.D.2d 304 [693 N.Y.S.2d 139, 140].) Indeed, one such case noted that while the filed rate doctrine originated in federal courts, “it `has been held to apply equally to rates filed with state agencies by every court to have considered the question.'” (Commonwealth v. Anthem Ins. Companies, Inc., supra, 8 S.W.3d at p. 52.) We thus must disagree with Fogel v. Farmers Group, Inc. (2008) 160 Cal.App.4th 1403, 1418 [74 Cal.Rptr.3d 61], to the extent that it rejected the application of the filed rate doctrine to California insurance rates. The Fogel court noted that the parties before it had identified no cases in which the filed rate doctrine had been applied in the context of a rate approved by a state regulatory agency.  Thus, the filed rate doctrine supports our conclusion that there is no tort liability for charging a rate that has been approved by the commissioner.
 
We note, however, the limited nature of our holding. Insurance Code section 1860.1 protects from prosecution under laws outside the Insurance Code only “act[s] done, action[s] taken [and] agreement[s] made pursuant to the authority conferred by” the ratemaking chapter. It does not extend to insurer conduct not taken pursuant to that authority. 
Id. at 1448-49 (internal footnotes omitted).

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Earlier today, the U.S. Supreme Court held oral argument in  Smith v. Bayer, which raises the question of a federal court’s power to enjoin a state court from considering class certification after the federal court had previously denied certification.  A copy of the argument transcript is available for download at the Supreme Court’s website.  Some of the key lines of inquiry from the Court can be summarized as follows:

  • Are there differences between FRCP 23 and West Virginia Rule 23 that should have prevented the application of issue preclusion?
  • Even if the elements of the two rules are substantially the same, does the fact that the West Virginia courts take a more favorable “tone” toward class certification mean that they are different for the purposes of an issue preclusion analysis?
  • Does an individual have a protected due process right to be heard on a procedural issue, such as the appropriateness of class certification, as opposed to a substantive right or cause of action?
  • Does it matter whether the plaintiff in the second case could have intervened in the first one?
  • Why isn’t it sufficient that the state court in a subsequent case can decide to apply issue preclusion, as opposed to the federal court enjoining the state court from even considering the question?
  • Does the absense of a formal judgment mean that the relitigation exception of the Anti-injunction Act cannot apply to class certification orders at all?
  • Can the plaintiff and his or her counsel who unsuccessfully sought class certification in one case be considered sufficiently representative of other absent class members and their counsel to satisfy the identity of interest requirement of issue preclusion?

Although most of the questions involved how the case should be decided under express statutory language and established legal principles, it seems reasonable to expect that the Justices’ views on federalism, and the proper balance between federal and state power, will flavor the Court’s decision.  The federalism theme is one that counsel for the plaintiffs, Richard A. Monohan, fell back to on several occasions during the argument.  Perhaps not coincidently, two of the members of the Court’s conservative bloc, Justice Scalia and Chief Justice Roberts, asked some of the more biting questions implicating the fairness of precluding a new party from re-litigating an unsuccessful attempt at class certification by a different party.

To this point, the Roberts Court’s direction on issues of federalism has been less than clear (see this September 2010 National Law Journal article by Marcia Coyle).  This case offers the opportunity to start charting a more specific course.  At the same time, this is the kind of case that can foster unpredictable alliances within the Court.  For example, the states’ rights supporters may find themselves joining forces with one or more Justices who see unfairness in preventing absent class members from having their day in court on the issue of class certification. 

On the other hand, predicting the outcome or rationale of Supreme Court cases is a lot like predicting the NFL playoffs.

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If you’re a Canadian class action lawyer looking for next big thing in class actions, moose collision litigation was looking pretty promising.  As mentioned in this October 19 CAB entry, a class action was filed against the Province of Newfoundland and Labrador  for alleged negligence in introducing moose into the area early last century, causing an excessive number of collisions with vehicles today.

But according to an article today by Gavin Day, posted on the website of Dawson Creek, B.C. radio station 890CJDC, the trend isn’t likely to catch on in British Columbia.   The article points out that unlike in Eastern Canada, Moose are indigenous to B.C.  And don’t think changing the theory from negligent introduction to negligent population control of the moose already present is likely to work.  Day’s article quotes Gayle Hesse of the B.C. Wildlife Collision Prevention Program as saying “I think there are legal precedents already set for that [referring to prohibiting litigation against the government for failing to control moose population] in our province.”  Apparently B.C. courts have already considered the cutting-edge question of moose collision litigation and said, no thank you.

Presumably, there’s still hope in Manitoba, home of moose so vicious that they have become the mascot of a rough and tumble minor hockey league club:

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Two colleagues separately sent me a copy of the Seventh Circuit Court of Appeals’ decision yesterday in Greenberger v. GEICO General Insurance Co., slip op., No. 09-1603 (7th Cir., Jan. 10, 2011) (Sykes, J.), so I thought it was worthy of a summary. 

Greenberger involved would-be class action claims against an insurer for the alleged practice of not paying to have vehicles restored to their pre-loss condition, as required under its policies.  The district court had granted the defendant’s motion for summary judgment before reaching a decision on class certification.  The Seventh Circuit affirmed.  The panel’s decision ostensibly rests on the holdings of earlier cases and doesn’t pretend to make new law.  However, the number of different issues addressed may make the case a common citation in future class certification response briefs, especially in insurance class actions in Illinois and the Seventh Circuit, but potentially elsewhere as well.  The holdings included:

  • Jurisdiction under the Class Action Fairness Act of 2005 (“CAFA”) attaches to a class action complaint even if a class is never certified.  Slip op. at 5-6 (relying on Cunningham Charter Corp. v. Learjet, Inc., 592 F.3d 805, 806 (7th Cir. 2010)).
  • An insured cannot succeed on a breach of contract claim against his insurer for allegedly failing to bring a vehicle to a pre-loss condition if the vehicle is not available to be examined, because the insured cannot prove either a breach of the contract (by showing that the vehicle was not repaired to its pre-loss condition) or damages (by establishing the difference in value between the vehicle as repaired and the vehicle in its pre-loss condition).  Slip op. at 6-11 (relying on Avery v. State Farm Mutual Automobile Insurance Co., 835 N.E.2d 801 (Ill. 2005)).
  • A plaintiff cannot prevail on a consumer fraud or common law fraud claim if the fraud claim is based on the same predicate facts as a claim for breach of contract.  Slip op. at 11-16 (also relying on Avery).
  • In Illinois, no fiduciary duty exists between insurer and insured as a matter of law, unless the plaintiff can prove by clear and convincing evidence that special circumstances existed such that the insured placed trust or confidence in the insurer.  Slip op. at 16-17 (citing Fichtel v. Bd. of Dirs. of River Shore of Naperville Condo. Ass’n, 907 N.E.2d 903 (Ill. App. Ct. 2009); Martin v. State Farm Mut. Ins. Co., 808 N.E.2d 47 (Ill. App. Ct. 2004)).

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