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Archive for June, 2012

Earlier today, the Tenth Circuit joined the majority of Circuit Courts of Appeals in holding that a plaintiff cannot conclusively avoid federal removal jurisdiction under the Class Action Fairness Act of 2005 (CAFA) by including in the complaint a statement of intention not to seek more than $4,999,999.99 in damages on behalf of the putative class.  In Frederick v. Hartford Underwriters Insurance Company, No. 12-1161 (10th Cir. June 28, 2012) the Tenth Circuit followed decisions from the First, Second, Fourth, Sixth, Seventh, Eighth and Eleventh Circuits in holding that a Defendant may support jurisdiction by showing by a preponderance of the evidence that the amount in controversy exceeds $5 million, even if the plaintiff expressly pleads a lesser amount.  It rejected a more stringent “legal certainty” standard, which has been applied by the Ninth and Third Circuits.

The Frederick decision means that plaintiffs cannot foreclose federal jurisdiction in class actions through creative pleading in the Tenth Circuit.  However, the burden is still on the defendant to prove as a matter of fact that the amount at stake in the case exceeds $5 million.  Therefore, it also highlights the need for defense counsel to gather, plead, and be prepared to prove specific facts showing the amount at stake in the case. 

It is always important to remember that proving the amount in controversy does not require the defendant to prove the damages that are likely to be awarded against it in the case (of course most defendants would say that this amount is zero).  Instead, it requires the defendant to establish the highest amount that the plaintiff class could conceivably win based on the legal claims presented, the relief sought (both damages and other relief sought expressly and damages that could legally flow from the claims presented), and the maximum potential value that the plaintiff could reasonably put on that relief.  The preponderance standard requires the defendant to prove facts that would cause more than $5 million to be awarded if the plaintiff proves the claims and potential theories of damages that flow from those claims.

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The United States Supreme Court has granted certiorari in another class action to be heard during the October 2012 term.  In Comcast Corp. v. Behrend, No. 11-864, an antitrust class action, the Court will address the following issue:

Whether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis.

The case is an appeal from the Third Circuit Court of Appeals’ ruling in 2011 upholding the district court’s finding that the plaintiff had presented by a preponderance of the evidence that damages could be proved on a common, class-wide basis.  However, a lengthy opinion from Judge Jordan, concurring in part and dissenting in part, took issue with the conclusions reached by the plaintiffs’ expert that antitrust damages could be established on a common basis for the class as a whole. 

As with many of the cases addressed by the Supreme Court over the past few years, this case provides an opportunity for the court to either enter a specific ruling narrowly tailored to the area of law in which it applies (here, antitrust or competition law) or a sweeping ruling impacting the procedure governing class certification more generally.  In particular, the Behrend case could potentially resolve the issue whether difficulties in proving damages on a class-wide basis is a reason to deny certification.  For many years, lower courts have relied on the rule that individualized damages issues are not a barrier to class certification.   A reversal of that rule could have a major impact on the viability of class actions in a variety of contexts.

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According to Pete Kasperowicz at The Hill’s Floor Action Blog, Senator Al Franken (D-Minn.) and Representative Rosa DeLauro (D-Conn.) have introduced legislation in Congress intended to reverse limitations on employment discrimination class actions recognized in the Supreme Court’s 2011 decision in Wal-Mart Stores, Inc. v. Dukes

A fact sheet available on Senator Franken’s official website describes the key provisions of the bill as follows:

The Equal Employment Opportunity Restoration Act will restore workers’ ability to challenge discriminatory employment practices on a class-wide basis. It adds to Title 28 of the U.S. Code a new section 4201, which does the following:

  • Section 4201(a) creates a new judicial procedure – called “group actions” – that workers can use when bringing employment discrimination cases. The requirements for establishing a group action are the same as the pre-Dukes requirements for maintaining a class action under Rule 23 of the Federal Rules of Civil Procedure—namely, clarifying that the merits of the case need not be proven to certify the group action.
  • Section 4201(b) provides that group actions can be used regardless of whether the group is challenging an objective employment practice, a subjective employment practice, or a mixed employment practice (such as the use of a written test to qualify for an interview).  It also provides that employers’ written anti-discrimination policies can be considered as a defense to certification only insofar as the employer demonstrates that the policy actually has been implemented in practice.
  • Section 4201(c) says that the group actions authorized by this section are subject to the same procedural requirements as class actions authorized by Rule 23. These include notice and opt-out requirements. This section also preserves the application of the Class Action Fairness Act and the availability of appeals.
  • Section 4201(d) says that courts can use statistical analyses and any other procedures they deem necessary to provide justice to prevailing plaintiffs.

It does not appear from Senator Franken’s fact sheet that the bill has significant bipartisan support, and having just been introduced, there is no telling how far it will go towards becoming law in its present form.  However, we’ll keep an eye on any future developments here at CAB.

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The United States Supreme Court granted certiorari today in Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, No. 11-1085, to address the requirements for certifying a securities class action based on the “fraud-on-the-market” theory of reliance.  The “fraud-on-the-market” theory involves allegations that public misrepresentations or omissions adversely affected the market price of a stock causing losses to an entire class of investors whether or not they individually relied on the information.  The theory can alleviate a common barrier to class certification, the need to prove individual reliance on alleged fraud.  As summarized by the folks at SCOTUS blog, the issues accepted for review are as follows:

(1) Whether, in a misrepresentation case under Securities and Exchange Commission Rule 10b-5, the district court must require proof of materiality before certifying a plaintiff class based on the fraud-on-the-market theory; and (2) whether, in such a case, the district court must allow the defendant to present evidence rebutting the applicability of the fraud-on-the-market theory before certifying a plaintiff class based on that theory. (Breyer, J., recused)

Amgen comes close on the heels of the Court’s decision last term in Erica P. John Fund Inc. v. Halliburton Co., in which a unanimous Court overturned a Fifth Circuit Court of Appeals ruling that the plaintiff in a securities class action brough under the fraud-on-the-market theory must prove loss causation at the class certification phase.  While the Court in Erica P. John Fund held that proof of the element of loss causation on the merits could not be required as a precondition of class certification, it was not presented with the question of what proof is needed at the class certification phase to support the application of the fraud-on-the-market doctrine itself.

The case will be heard in the October 2012 Supreme Court term.

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For anyone who was interested in my recent “save the date” post about the upcoming webcast, Social Media for Lawyers: Do’s, Don’ts, Why Nots, and You Probably Shouldn’ts, click the title for a link to the West Publications web page for the program, where you can get more information and sign up.  We hope you can make it!

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The latest issue of the ABA Section of Litigation magazine Litigation News has a very useful article for class action practitioners entitled Mooting the Class.  The article is authored by Litigation News Associate Editor John W. Joyce. 

The article discusses the various approaches taken in different federal circuits in determining whether settlement with the named class representative renders a class action moot.  The article also includes some helpful practice tips on the subject from seasoned class action practitioners on both sides of the bar.  If you are a defendant considering this tactic, or a plaintiff trying to prevent it, you’d be wise to read this article.

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I’m a few weeks behind in reporting this, but I still thought it was worth noting that the Florida Supreme Court held oral argument last month in a case that could test the the reach of the U.S. Supreme Court’s 2011 decision on class arbitration waivers in AT&T Mobility v. Concepcion.  In McKenzie Check Advance of Florida LLC v. Wendy Betts, SC11-514, the plaintiff relied on factual evidence in an attempt to prove that the lack of a class action device has made it impossible for her to obtain legal representation to pursue her claims in arbitration.  The case thus potentially raises the question of whether a case-specific finding of unconscionablility, as opposed to a statewide policy invalidating class arbitration waivers more generally, is permissible despite the Court’s holding in Concepcion (I say potentially because it appears that there are factual questions about whether the evidence really supports the proposition that there would be no lawyer willing to take the plaintiff’s case in an individual arbitration).  Recall that the arbitration provision at issue in Concepcion contained several consumer-friendly features, which could have supported the conclusion that it did not actually deprive a consumer of any opportunity to vindicate his or her rights, although Justice Scalia’s majority opinion did not turn on the existence of these features.

This AP article by Bill Kaczor has a good summary of the arguments on both sides and some of the key questions posed during oral argument.  A link to the video feed of the oral argument can be found here (although the server was not responding when I tried to play it).

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This is not class action related, but it is blawg related.

I will be participating in a CLE webcast on July 27, 2012, which has the working title Social Media for Lawyers: Do’s, Don’ts, Why Nots, and You Probably Shouldn’ts.  The will be presented by the West LegalEdCenter.  My co-panelists will be Kristine Scott, Corporate Compliance Director – Privacy, for Aon Service Corporation, and fellow class action blogger H. Scott Leviant of The Complex Litigator.  Below is a brief summary of the program.  I’ll post more details as soon as they are available.  We hope you can join us!

In this webcast, our panel will address the common ethical and legal pitfalls associated with the growing use of blogs, Twitter, facebook, LinkedIn, and other social media in law firms and corporate environments.  The three unique perspectives  offered by the panelists on this timely subject will provide useful information for both in-house lawyers and private practitioners in a variety of firm sizes and practice areas. 

Part I will address the unique ethical issues facing the plaintiffs’-oriented or small firm lawyer.  Issues include the ethics of “friending” judges, how to ethically use social media in advertising, whether to segregate personal and professional social media use, how to provide legal commentary without giving legal advice, selecting social media based on practice type (one size does not fit all), and the circumstances under which it is appropriate to use social media to publicize events in a pending case.

Part II will address ethical and risk management issues facing corporate lawyers and executives.  Topics to be addressed in Part II include best practices in social media policies, the use of social media by employers in vetting potential employees, protection of employee or customer privacy, and how and when it is appropriate for an employer to  monitor employee social media use.

Part III will focus on ethical issues for large firms and lawyers in large firms.  Topics include maintaining a level of appropriate decorum without boring your audience, when and how to talk about clients in social media, the danger of “issues” conflicts and other conflicts of interest, and best practices in law blog comments policies and disclaimers.

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