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Archive for April, 2012

Conventional wisdom says that a defendant should move to dismiss a class action complaint if there are grounds to do so.  Motions to dismiss have many potential strategic benefits beyond the mere possibility of an early victory, including allowing the defendant to avoid expensive discovery pending resolution of key threshold legal issues, providing an early opportunity to educate the judge about the weaknesses of the plaintiffs’ case, and pinning down the plaintiff’s legal theories at an early stage.  However, it is always important to consider that there are alternative approaches, including:

  • Moving for summary judgment instead of moving to dismiss on the pleadings;
  • Moving to strike the class allegations or for an early ruling on class certification, leaving for a later date the matter of the plaintiffs’ individual claim; or
  • Simply filing an answer and waiting until the record is more well-developed before raising a potentially dispositive legal argument, either in a later motion for summary judgment or a motion for judgment on the pleadings.

Without question, every defendant has an incentive to obtain resolution of a class action in the quickest, most efficient way possible.  However, filing a motion to dismiss is not the most efficient means of resolution in every case.  If the motion is unsuccessful, the trial court can develop preconceived notions about the strength of the plaintiff’s claims if they are attacked too early based on an undeveloped record.  This is a risk especially where the trial judge has a reputation of denying motions to dismiss without serious analysis.  But beyond the possibility that the motion will be denied, there is a potential downside to winning an early motion to dismiss on the pleadings.  Having to defend a successful motion to dismiss on appeal can be an unnecessary expense in comparison to the available alternatives, and there is a risk of an unfavorable appellate ruling that can cause lasting harm on remand.  Another consideration is that winning a dispositive motion prior to class certification will only bind the named plaintiff and doesn’t bind other class members (although in practice, defendants are usually willing to take the risk of future lawsuits if it means getting the current one dismissed).

There are two common scenarios in which defendants are successful in obtaining early dismissal of class action claims.  The first is where the plaintiff’s underlying legal theory is a novel one.  One recent example is a putative class action filed against New York Law School alleging that the school misrepresented its employment statistics, causing students to attend law school with the hopes of significant employment prospects, only to find themselves with limited job options upon graduation.  A state court recently dismissed the case in a lengthy opinion that relies heavily on factual matters of which the court took judicial notice (link courtesy of www.abovethelaw.com).  Another example is a putative class action in California challenging McDonald’s alleged practice of using toys in Happy Meals to entice children to buy unhealthy food.  That case was dismissed last week, in a written decision that does not contain any analysis of the court’s reasons for sustaining the defendant’s demurrer (presumably, the court articulated the reasons orally). 

There is no particular reason to believe that either of these decisions will be reversed on appeal, but the risk of reversal is present in almost any decision granting a motion to dismiss due to the individual plaintiff’s failure to state a claim.  Even if the plaintiff’s legal theory is novel or borderline frivolous, there is always a danger that an appellate panel, left to analyze the case from the perspective of pure application of the law based on the facts viewed in the light most favorable to the plaintiff, will find that the plaintiff has stated a claim.  This creates the related risk that due to the undeveloped state of the record, the appellate court will make generalized statements about the viability of the cause of action that will make it more difficult to obtain summary judgment or a denial of class certification later.  This risk is most evident where the named plaintiff has alleged facts that, while implausible, would state an individual claim if accepted as true, but where the facts alleged are so individualized to the named plaintiff that they wouldn’t possibly support a common claim on a class-wide basis.  In that situation, it is important to at least consider the alternative approaches of attacking class certification or filing a motion for summary judgment on a more well-developed record.

A second common scenario where defendant can obtain early dismissal of a class action is where there is a possible complete legal defense to the plaintiff’s class claims, but the defense is based on an unsettled question of law.  In that situation, a win in the trial court may only guaranty years of litigation in the appellate courts rather than putting an end to the dispute.  There may be strategic advantages to a defendant testing the legal theory early in the case anyway, but it is always important to consider other approaches.  One situation in which the defendant may be better off waiting to raise a potentially dispositive legal defense is where the facts are likely to show that the plaintiff’s claim is baseless as a matter of fact, so that an early motion for summary judgment may be a more efficient alternative.

Of course, there is no set formula for deciding whether to file an early motion to dismiss.  Instead, the decision requires an analysis of a variety of different variables that will depend on the specific case.  A non-exhaustive list of the factors includes:

  • the strength of the legal arguments and the extent to which the law is settled;
  • the style and predilections of the trial court judge;
  • the extent to which discovery can be limited or stayed if a motion to dismiss is pending;
  • the likelihood of reversal given the composition and leanings of the applicable appellate court;
  • the existence of alternative defenses, such as those based on facts outside the pleadings;
  • the likelihood that the case will survive class certification; and
  • the perceived willingness of the named plaintiffs and their attorneys to explore settlement or to abandon the case following an adverse trial court ruling;
  • the effect of long-term uncertainty over a challenge to a particular business practice as the case awaits resolution in the appellate courts; and
  • the cost of defending the judgment on appeal in comparison to the amount at stake in the litigation.

There are many situations in which the cost and potential long-term risks of seeking an early dismissal are outweighed by the benefits of a quick win in the trial court.   But, while filing an early motion to dismiss is always a strategy to consider, it is important to at least consider alternatives that may be only slightly more costly in the short term and may provide a better foundation for a win in the trial court to remain a win forever.

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I’m not sure that WordPress site statististics would be admissible in a class action as proof of readers’ interest, but the recent CAB site stats do appear to show some level of interest in the topic of statistics in class actions. 

So, readers may be interested in an upcoming Strafford Publications webinar in which I will be participating on May 23, 2012, entitled Statistics in Class Action Litigation: Admissibility, Expert Witnesses and Impact of Wal-Mart v. Dukes.  For those of you who think that title sounds familiar, this is an update of a Strafford webinar held last year shortly after the Dukes decision was announced.  Find out if our predictions then were at all close to the mark. 

Here’s a link to the Strafford page for the webinar, where you can get more information and register:

http://www.straffordpub.com/products/statistics-in-class-action-litigation-admissibility-expert-witnesses-and-impact-of-wal-mart-v-dukes-2012-05-23

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For those of you interested in the topic of statistics in mass and class actions, U. Conn. Law Professor and Mass Tort Litigation Blog contributor Alexandra D. Lahav has written an academic paper on the subject in the Texas Law Review, aptly entitled The Case for “Trial by Formula.”  For Professor Lahav’s synopsis of the paper, a link to the paper, and a brief response to last week’s CAB post on the subject, see this Mass Tort Litigation Blog post.

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Editor’s Note: This is a joint post for ClassActionBlawg and the newly-launched Baker Hostetler Class Action Lawsuit Defense Blog.  Be sure to bookmark the Baker Hostetler blog at www.classactionlawsuitdefense.com for the latest in class action trends and decisions.

A common temptation in class action litigation is to fashion procedures based on “rough justice” to avoid overburdening the courts or attempting to redress alleged mass harm.  Over the past decade, as storage and computing power have increased exponentially, it has become increasingly tempting to use statistical sampling as a proxy for the actual adjudication of facts in class or mass actions.  The idea is that if the facts regarding a statistically significant subset of a class can be evaluated for a particular issue or set of issues, then the results of the evaluation of the sample can be extrapolated across the rest of the class.

One jurisdiction in particular where this approach has gained traction has been California.  There, the use of statistical sampling has been recognized for several years as a means of apportioning damages in some cases.   See Bell v. Farmers Ins. Exchange (2004) 115 Cal.App.4th 715 [9 Cal.Rptr.3d 544] (Bell III).   However, in recent years, plaintiffs have attempted to use statistical sampling as proof of liability, not simply as a means of apportioning damages when liability has been established or (as in Bell III) it is not contested.  This approach was harshly criticized in Part III of Justice Scalia’s majority opinion in Wal-Mart v. Dukes, (notably, this was the portion of the Dukes opinion with which all nine justices concurred):

The Court of Appeals believed that it was possible to replace such proceedings with Trial by Formula. A sample set of the class members would be selected, as to whom liability for sex discrimination and the backpay owing as a result would be determined in depositions supervised by a master. The percentage of claims determined to be valid would then be applied to the entire remaining class, and the number of (presumptively) valid claims thus derived would be multiplied by the average backpay award in the sample set to arrive at the entire class recovery— without further individualized proceedings. [internal citation omitted].  We disapprove that novel project.

Earlier this year, in Duran v. U.S. Bank National Association, No. A125557 & A126827 (Cal. App., Feb.  6, 2012), a division of the California Court of Appeal agreed with the above-quoted dicta in Dukes and rejected an attempt to use statistical sampling to prove liability an a wage and hour class action.  The plaintiff had presented testimony from statistician Richard Drogin, who had also served as an expert for the plaintiffs in Dukes.  Drogin presented 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 adopted a sampling approach that was modeled on (but not exactly the same as) Drogin’s proposal.  

The Court of Appeal held that the trial court’s approach was improper and that it violated defendant’s due process rights for a variety of reasons, including that 1) the use of statistics to estimate the total number of employees who had been misclassified deprived the defendant an opportunity to present relevant evidence and individualized defenses as to individual plaintiffs’ alleged misclassification; 2) the court’s statistical methodology was flawed because it arbitrarily used a sample of 20 employees without any basis for concluding that the sample was statistically significant; 3) even the use of sampling as to damages was improper because the methodology used had an unacceptably high margin of error.

The Duran opinion is worthy of careful study for anyone considering the use of statistics in class certification proceedings, both in the employment context and in other types of class actions.  The opinion examines many of the due process problems with allowing proof of liability through statistical sampling, the most significant of which is that it tends to deprive a defendant of presenting evidence in its defense that it would be able to present in an individual case.  It also provides an additional illustration of what the Supreme Court considered an improper “trial by formula” in Dukes.

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A few weeks ago, I posted a link to a Cornerstone Research report concluding that securities class action settlements were at a 10-year low.  Yesterday, securities litigators Daniel Tyukody and Gerald Silk posted an article in the New York Times DealBook blog entitled Understanding the Dip in Class-Action Securities Settlements with some insights explaining the downturn.  Among the explanations are lower starting inventory, the added size and complexity of credit crisis-related lawsuits, increased legislative and judicial scrutiny over securities class actions, and a decline of financial restatements by companies.  The article is a must read for anyone interested in understanding US securities class action trends.

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After some deep soul-searching, I’ve decided that it’s time to take this site in a new direction. Writing about class action news and trends has had its rewards, but for months now, I’ve been drawn to another calling.  So, I am excited to announce a major change to the theme of this site.  Starting soon, ClassActionBlawg will become ClassFashionBlawg, a hub for the hottest news, notes, and gossip from the world of fashion.  Move over Newberg, it’s Versace time!

More on this exciting announcement coming on the 31st of this month…

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