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Archive for the ‘Class Action Trends’ Category

The California Supreme Court issued its long-awaited decision in Duran v. U.S. Bank National Association yesterday, addressing the use of statistical sampling as a way of evaluating aggregate liability and damages in a class action. Although Duran is a wage and hour case, its analysis is pertinent to the use of statistical evidence in a variety of other class action contexts.

In the opening line of his majority opinion, Justice Corrigan referred to Duran “an exceedingly rare beast” because it was a wage and hour class action that had proceeded all the way through trial to verdict.  In the trial court, the plaintiff had presented testimony from statistician Richard Drogin, who had also notably served as an expert for the plaintiffs in Walmart Stores Inc. v. Dukes.  Drogin proposed 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 did not rely on Drogin’s analysis but instead came up with its own sampling approach, which involved pulling the names of 20 class members, hearing testimony from these witnesses along with the named plaintiffs, and then extrapolating the court’s factual findings across the entire class in order to determine the defendant’s liability.

The supreme court affirmed a decision by the Court of Appeal holding that this sampling approach violated due process and was a manifest abuse of discretion.  Generally, there were two independent reasons for the supreme court’s conclusion: 1) the use of random sampling deprived the defendant of the opportunity to present individualized evidence supporting its defenses to the claims; and 2) the sampling method adopted by the court was inherently flawed and unreliable.

Without categorically rejecting the use of statistics as a tool in managing class action litigation, the supreme court identified numerous conceptual limitations on its use.  First, “[s]tatistical methods cannot entirely substitute for common proof . . . .  There must be some glue that binds class members together apart from statistical evidence.”  So, while statistics may serve as circumstantial evidence to support a common issue–such as the existence of centralized policy or practice, they may not be used as a substitute for establishing commonality or for avoiding individualized determination of individual issues–such as by generalizing effects of a given policy or practice on large groups of claimants where the effects vary in actuality.

Second, a trial court cannot utilize statistical evidence in a way that prevents the individual adjudication of individual defenses.  Although courts are encouraged to develop innovative procedures in managing individual issues, a court cannot ignore individual issues altogether or prevent them from being decided on an individual basis.

Third, if statistical evidence is to be used as part of a litigation plan for managing complex class action, the methods to be employed should be presented, evaluated, and scrutinized at the class certification stage.  The court should not simply assume that statistical methods will permit class treatment and certify the class based on this hypothetical possibility.

Fourth, the court must ensure that the statistical method to be employed has to be reliable, based on statistically valid data, and not prone to a high margin of error.  In other words, junk science or ad hoc, rough justice are not enough.

The Duran opinion is worthy of careful study for anyone considering the use of statistics in class certification proceedings, both in the wage and hour context and in class actions more generally.  It also provides a colorful illustration of the due process and manageability problems posed by the “trial by formula” approach to class actions that the United States Supreme Court criticized in Dukes.

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Earlier today, the Supreme Court denied certiorari in two highly anticipated appeals of decisions by the Sixth and Seventh Circuit Courts of Appeals to grant class certification over breach of warranty claims involving allegedly defective washing machines.  The denial of cert in Butler v. Sears, Roebuck & Co., Nos. 11-8029, 12-8030 (7th Cir., Aug. 22, 2013) (Posner, J.) and In re Front‐Loading Washer Products Liability Litigation, No. 10-4188 (6th Cir. July 18, 2013) was a surprise to many commentators who had seen the moldy washer cases as providing the perfect opportunity for the Court to continue its trend clarifying the boundaries of class certification in cases like Wal-Mart Stores, Inc. v. Dukes,  Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, and Comcast Corp. v. Behrend.  The denial of cert means that the Court will not be addressing the question of whether it is appropriate for a federal court to order class certification of discrete, common issues in a case without analyzing whether those issues predominate more generally over the individualized questions, like injury or damages.  That question will be left to the lower courts for the time being.

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In case you missed it, the BakerHostetler class action defense team published its second annual Year-End Review of Class Actions last month.  The 2013 issue was expertly edited by Dustin Dow of our Cleveland office, and features contributions from other members of the firm’s class action defense team across the country.  The 54-page report has a thorough recap of the key class action developments in the U.S. Supreme Court as well as other federal and state courts, summaries of key developments in various substantive areas of law in which class actions are prominent, and a preview of what to look for in 2014.  Click the link above to download a copy.

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The Class Actions, Mass Torts and Derivative Suits Subcommittee of the Colorado Bar Association, now ably chaired by my BakerHostetler partner, Casie Collignon, held its first CLE luncheon of the year this past Friday.  The program, United States Supreme Court vs. Class Actions in 2013, featured excellent commentary about the Supreme Court’s 2013 class action decisions by The Honorable Marcia Krieger, Chief Judge, U.S. District Court for the District of Colorado, Seth Katz of Burg Simpson, and John Fitzpatrick of Wheeler Trigg O’Donnell.  Here are just a few of the many insightful observations made by each of the speakers:

Judge Krieger opened by observing that none of the cases this term have been a surprise from the standpoint of what a trial court judge would have expected given existing law.  Amgen was predictable because the question of materiality in a securities fraud case is unquestionably a common issue, so it is not surprising that it is a question for trial, not a prerequisite for class certification.  Standard Fire can be viewed as a straightforward application of agency law: a plaintiff cannot bind a class of people that he or she doesn’t yet represent.  Comcast exemplifies the importance of examining the plaintiffs’ theory of liability and the relationship to the theory of loss.  Damages are not the same as loss.  The theory by which the plaintiff establishes loss determines the measure of damages.

When asked to identify any trends that she has been seeing in class actions recently, Judge Krieger identified issue certification as a key trend.  She has been seeing more situations where the factual issues may be individualized but there are common legal issues that can be resolved classwide.  She noted that she has been inclined to grant partial certification limited to the common legal issue(s) in that situation.

From the plaintiffs’ perspective, Katz agreed that the outcome of Standard Fire was not surprising, and he went as far as to say that the outcome was correct, noting that plaintiffs’ attorneys shouldn’t be afraid of the federal courts.  Although the holding of Amgen was favorable to plaintiffs, Katz noted an issue that should be of great concern to plaintiffs, and that is the commentary from the conservative wing of the court suggesting that they might be willing to revisit the fraud-on-the-market presumption adopted in Basic Inc. v. Levinson.  Katz sees the potential of a 4-4 split on that issue, with Chief Justice Roberts being the deciding vote.  He predicts market studies being commissioned by both sides over the coming years to demonstrate or disprove the continued efficiency of the markets.

Comcast, Katz noted, caused a collective sigh of relief in the plaintiffs’ bar because it does not go as far as many would have feared by requiring Daubert hearings at the class certification phase.  He noted that one positive impact for plaintiffs arising from the “death of Eisen” (the rejection in decisions like Wal-Mart and Comcast of the idea that merits questions were off-limits at the class certification phase) is that it gives plaintiffs’ counsel an opportunity to obtain merits discovery much earlier in a case than was allowed previously.  On the other hand, Katz expressed fear about the possibility that the Court is trying to raise the bar for plaintiffs with a subtle change in the language about what common proof is necessary on the issue of damages.  Where earlier decisions required that damages be “susceptible to classwide proof,” the Comcast majority phrased the standard as requiring the plaintiff to “prove classwide damages.”  Katz predicts that defendants will argue that this means damages must be uniform, as opposed to simply being susceptible to formulaic calculation.  He noted, however, that the few lower courts that have interpreted Comcast so far have rejected a broad application of the decision.

Fitzpatrick combined philosophical commentary about the evolution of class actions with some practical tips for defense lawyers.  Standard Fire, he argued, is proof that judicial hellholes still exist.  He pointed to Amgen as an example of the dangers of accepting conventional wisdom, pointing out that the outcome in that case might well have been different if the defendants had stipulated to the existence of an efficient market.

Comcast, Fitzpatrick said, provides an opportunity for defendants to prevail at the class certification stage by discrediting a plaintiffs’ expert.  Focus not just on the opinions themselves, he suggested, but also on 1) the existence of bias; 2) the expert’s credentials, and 3) flaws in the methodology.  Scour the country for transcripts about the plaintiffs’ experts.  Look at misstatements and exaggerations in the expert’s CV.  Make sure you find and read all of their prior statements in books, media, and transcripts.  Just as important, Fitzpatrick reminded defense practitioners, is the make sure to prepare your own experts for class certification.

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An article posted by my colleagues Judy Selby and Zack Rosenberg in the BakerHostetler Class Action Lawsuit Defense Blog raises some important issues for any company that could find itself the target of a class action lawsuit.  With the proliferation of data privacy and other consumer class actions, that’s just about any company these days.  The article, titled Courts Are Liberally Construing Litigation Insurance Coverage for Class Action Defenses and So Should Defendants, addresses the important issue of liability insurance covering class action lawsuits.  

I’m often surprised in speaking with in-house attorneys and risk management personnel that they are unaware of the extent to which their current insurance coverage might protect them if they were ever sued in a class action, and that they have not considered certain types of specialty lines insurance, such as cyber risk insurance, that might protect them from potentially catastrophic liability and defense costs arising out of a class action.  This is an especially important consideration for companies in industries that aren’t frequently targeted in class actions, because those companies may not think about the benefits of insurance protection until it’s too late.

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Don’t miss the upcoming Strafford webinar on recent developments in TCPA class actions, scheduled for March 20.  My colleague Justin Winquist and I will provide commentary from the defense perspective, while Keith J. Keogh and John G. Watts will offer the plaintiffs’ viewpoint.  For more information about the program and to register, click this link.  Here’s a brief synopsis of the program:

TCPA consumer and privacy class action litigation remains steady following the 2012 milestone U.S. Supreme Court case Mims v. Arrow Financial Services.

The Mims case opened the door for plaintiffs’ attorneys to file TCPA class actions in state or federal court, even where diversity jurisdiction does not exist. Since Mims, defendants have tested state law limitations on federal claims and whether state or federal statutes of limitations defenses apply.

TCPA claims challenging text messages to cellphones are also on the rise, forcing courts to consider how to interpret the Act in light of new technology.

Listen as our authoritative panel of class action attorneys explains the latest trends in telephone and fax advertising under the TCPA, highlighting key issues of federal jurisdiction, state law limitations, and how courts are adapting their decisions to new technology. The panel will provide plaintiff and defense counsel with best practices for litigating in this rapidly-changing area of law.

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Yesterday, the ALPS 411 Blog published my guest post titled I got this email about a class action.  What should I do?  Among other things, the post addresses how one goes about deciding whether an emailed class action notice is real or spam (or worse). 

For readers not familiar with the company, ALPS is an attorney liability insurer and financial services provider headquartered in my home state of Montana.  Be sure to check out the ALPS 411 Blog for excellent content relating to a host of topics of interest to attorneys, including ethics, malpractice, risk management, and general practice tips.

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I’m pleased to announce that the BakerHostetler Class Action Defense Team has just released its 2012 Year-end Review of Class Actions, a joint project with the firm’s Employment Class Actions, Antitrust, and Data Privacy practice teams.  See below for a synopsis of the project.  Click the link above to access a copy of the report itself:

We are pleased to share with you the BakerHostetler 2012 Year-end Review of Class Actions, which offers a summary of some of the key developments in class action litigation during the past year. Class action litigation continues to persist in all areas of civil litigation despite the Supreme Court’s 2011 decisions in AT&T Mobility v. Concepcion and in Wal-Mart Stores, Inc. v. Dukes, which were seen by many commentators as marking the beginning of the end of class actions as we know them. But while the Supreme Court’s 2011 decisions have had a significant impact on class action litigation, they have not brought about its demise and are not likely to do so anytime soon. In the last two years, we’ve seen landmark decisions and the addition of important judicial gloss to those decisions. 2013 will be no different as the Supreme Court is set to weigh in on a series of key cases this spring.

We hope you find this Review a useful tool as you move forward into the new year. This comprehensive analysis of last year’s developments in class action procedure and jurisdiction, as well as developments by subject matter will hopefully provide context and insight as you look ahead to 2013′s expected trends in class action law, including the proliferation of privacy class action litigation and class action litigation relating to the LIBOR rate-fixing scandal.

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My colleagues at BakerHostetler have put together some great content on several class action-related topics recently that readers should find interesting.

First, the Baker Hostetler Class Action Defense Team issued an executive alert today discussing the Supreme Court’s decision to grant certiorari in another case involving class arbitration waivers.  The alert, titled U.S. Supreme Court Considers Arbitration Clauses and Class Actions Next Year, summarizes the issues to be addressed in Oxford Health Plans LLC v. Sutter.  The alert was authored by newly elected Cleveland Partner Ruth E. Hartman and Class Action Defense Team Leader Ernie Vargo.

Another executive alert, titled Recent Trends in Class Actions for Telephone and Fax Solicitation and Advertising, was issued last week by the Privacy and Data Protection and Class Action Defense Teams.   The alert, authored by my colleague in Denver, Justin Winquist, summarizes the latest trends in class action litigation under the Telephone Consumer Protection Act (TCPA).

Finally, my partner Casie Collignon authored a blog post yesterday with an update on the latest in the ongoing saga of Dukes v. Wal-Mart on remand following the U.S. Supreme Court’s decision.  The post is entitled, California District Court Awaits Class Certification Motion in Wal-Mart.

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This is the fifth of what will be six posts summarizing my notes of the six presentations at the ABA’s 16th Annual Class Actions Institute held last month in Chicago.  For more on this excellent conference, see my October 31, November 5, November 6, and November 18 CAB posts.

Session 4 was one of the highlights of the conference for me, as it covered a hot area of class action litigation that has recently become a focus of my own practice and likely a focus for many readers of this blog: privacy class actions.  It was titled “My Kind of Case, Pri-va-cy Claims,” The Hottest New Trend in Class-Action Litigation.  Fred Burnside moderated another excellent panel, which consisted of his partner Stephen M. Rummage, who offered a defense view, Jay Edelson, who offered the plaintiff’s view, and the Honorable James F. Holderman, who offered insights from the bench.

Privacy cases can roughly be broken down into two categories: 1) cases involving alleged negligence, such was when consumer data is stolen or compromised through hacking or theft, and 2) intentional breaches of privacy, such as through the sale of private information for marketing purposes.  The panel covered both types of cases.

Data Breach Cases Arising Out of Alleged Negligence

Much of the early jurisprudence in this area has related to the question of whether a breach of privacy without any financial loss is a cognizable injury sufficient to confer standing on a plaintiff.  In general, many of the federal district courts that have dismissed data breach class actions due to a failure to allege or prove injury have done on Article III standing grounds.  However, there are signs that this tide could be turning.  A specific example is the Eleventh Circuit’s decision in Resnick v. AvMed, Inc., No. 11-13694 (11th Cir. Sept. 5, 2012), in which the court overturned the dismissal of a data breach complaint on the grounds that allegations of actual identity theft resulting from information on a stolen computer was sufficient injury to confer standing. 

The Resnick decision also illustrates a developing theory of relief in data breach cases, which is the theory that a failure to protect customer data amounts to unjust enrichment or breach of an implied contract.  One of the theories in Resnick was that a portion of the health insurance premiums that the plaintiff had paid to the defendant was in exchange for the defendant’s promise to safeguard the plaintiff’s private information and that the defendant would be unjustly enriched by being allowed to keep the full value of the premiums due to its alleged failure to protect the data from theft.  The Eleventh Circuit held, without discussion, that these allegations were sufficient to withstand a motion to dismiss a claim for breach of implied contract or unjust enrichment under Florida law, although it upheld the dismissal of claims for negligence per se and for breach of the covenant of good faith and fair dealing.

In contrast to Resnick is a recent federal district court decision dismissing claims arising out of a Sony Gaming Networks breach (link courtesy of Law360).  The case was largely dismissed under FRCP 12(b)(6) due to the plaintiffs’ inability to allege an injury resulting from the breach.  One key difference between the two cases seems to be the inability of the plaintiffs in the Sony case to allege any identity theft resulting from the breach.  The probability of a dismissal for lack of injury or standing in a data breach class action does appear to be higher where there is no evidence of identity theft or other use of any compromised information.  Similarly, allegations of across-the-class-damages, such as those brought under a breach of contract theory, have fared better than allegations of individualized damages, such as identity theft.   

Intentional Privacy Breach and Statutory Damages Cases

An area creating a unique set of problems is privacy class actions seeking statutory damages, such as class actions seeking damages under the Video Protection Privacy Act, or VPPA.  Several high-profile cases have been filed against Netflix, Best Buy, and others under this statute, which provides for $2,500 per violation in statutory damages. 

The problem for all parties in these types of cases is that the statutory damages, when aggregated over hundreds, thousands, or even millions of consumers, can become crippling to the defendant, making a settlement at even close to the maximum aggregate value of the claims a practical impossibility. 

This creates a problem in settlement approval: how is a court supposed to judge what settlement  amount is reasonable in a case where the damages sought would be crippling if the plaintiff were to win at trial?

The case of Murray v. GMAC Mortgage Corporation, 434 F.3d 948 (7th Cir. 2006) provides a good illustration of this dilemma.  The case involved a potentially crushing recovery of statutory damages under the Fair Credit Reporting Act.  The trial court had declined to approve a settlement that would have resulted in a $3,000 award for the named plaintiff, or three times the maximum statutory damages award, and potentially leaving less than $1 for each of the remaining class members, or less than 1% of the minimum statutory award.  The Seventh Circuit reversed the trial court’s decision, but it punted on the question of what would be a reasonable settlement given the “ruinously high” statutory damages at stake in the case.  The Murray case does seem to stand for the proposition that you can’t just pluck a number out of the air in setting a settlement amount.

A more recent example was the proposed settlement in Fraley v. Facebook, No. No. C 11-1726 RS (N.D. Cal).  An initial settlement proposal that provided for a $10 million cy presaward and no cash payments to class members was rejected in August.  See this link to Order Denying Motion for Preliminary Approval courtesy of consumerwatchdog.org.  In that order, Judge Seeborg made the following observation about the quandary presented in the case:

The issue this presents appears to be a novel one: Can a cy pres-only settlement be justified on the basis that the class size is simply too large for direct monetary relief? Or, notwithstanding the strong policy favoring settlements, are some class actions simply too big to settle? 

Under a revised proposed settlement, each claimant would be entitled to receive up to $10, but if the total claims plus the attorneys’ fee award exceeds the entire $20 million amount available under the settlement, the claims will be reduced pro rata.  If there are so many claims that the per claim amount became less than $5, then the Judge will have discretion to decide to award the funds to a charity as a cy pres award.  Another unique facet of the revised settlement is that Facebook is allowed to challenge the attorneys’ fee amount requested by plaintiffs’ counsel.

The panelists discussed Edelson’s struggle in attempting to bring class actions under the California “Shine the Light” law, which requires companies to disclose to whom they are selling customers’ information.  Edelson said he has lost almost all of those cases, but he is hopeful of a turnaround in the appellate courts.  This let to a broader point about the development of privacy class actions.  New theories have traditionally been unsuccessful at the trial court level, but oftentimes patience and perseverance has paid off for the plaintiffs’ bar.

One common type of privacy-related statutory damages class action is class actions under the Telephone Consumer Protection Act (TCPA), which prohibits unsolicited faxes and automated telephone calls.  Edelson noted that cases under the TCPA are settling for between  $150-400 per unsolicited fax/call.  The statutory damages amount is $500 per unsolicited fax or call, and $1,500 for willful violations.  A trend in TCPA cases, especially in the Ninth Circuit, has been TCPA class actions based on unsolicited text messages.

In general, intentional privacy cases tend to be good certification cases, and the real battles tend to be on the merits.  However, even in statutory damages cases, there can still be defenses to class certification.  Ascertainability of the class can often be an issue.  For example, the question of whether a given class member consented to certain types of direct marketing or the release of private information to third parties can often be an individualized question that prevents class certification. 

A common question that arises in statutory damages cases is whether the named plaintiff must prove some sort of injury to herself and/or members of the putative class in order to recover statutory damages.  In some situations, courts have held that no proof of injury is required at all for the recovery of statutory damages.  There are generally two standing questions 1) is there constitutional standing to sue; and 2) is there statutory standing under the statute on which the claims are based.  One justification that plaintiffs offer for why statutory damages would be awarded without proof of injury is that is provides a means of disgorging ill-gotten gains from the defendant.

Parting Thoughts

The panel offered some good advice for practitioners, including the following kernels of wisdom: 1) Understand that privacy cases strike a particular nerve with both consumers and courts; people don’t like the idea that their private information is being used for an improper purpose(this is an area where plaintiffs’ lawyers often don’t have much difficulty convincing plaintiffs to participate in the legal process); 2) Counsel your clients upfront on privacy issues to avoid the situation where a class action becomes an issue.  2) Keep track of what Jay Edelson is doing to make sure you are up on the latest trends. 

In closing, the panel offered thoughts on the problem of statutory damages being aggregated into excessive damages amounts that a defendant is unlikely to pay in settlement and a court is unlikely to ever award.  If nobody thinks that a plaintiff should get $1 billion for a mere technical statutory violation, then why not change the law to reflect what the plaintiff really be able to recover?  One of the problems in this area is that the techology moves much faster than the legislative process.  Congress is always passing legislation to deal with an old problem.

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