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Archive for the ‘Supreme Court Decisions’ Category

The U.S. Supreme Court issued its decision earlier today in Halliburton Co. v. Erica P. John Fund, Inc., No. 13-317 (Halliburton II), its most highly-anticipated class-action-related decision of the October 2013 term.  Those who were hoping for a sea-change in securities class action jurisprudence were left disappointed, as the Court, in an opinion authored by Chief Justice Roberts, declined to overrule its 25-year-old decision in Basic Inc. v. Levinson, 485 U.S. 224 (1988).  Rather than abolish the framework established in Basic, which provides a means for securities fraud plaintiffs to satisfy the elements of class certification through a class-wide presumption of reliance on material misrepresentations, the Court instead held that a defendant can rebut the presumption by demonstrating, at the class certification stage, that the alleged misrepresentations did not actually have any impact on the stock price.  In doing so, the Court reversed the Fifth Circuit Court of Appeals’ decision barring the defendant from offering evidence of non-impact on stock price at the class certification stage.

The Court distinguished its earlier decision in the same case, Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. ___ (2011) (Halliburton I), in which it held that a plaintiff should not be required to prove materiality of the alleged misrepresentation at the class certification stage.  The distinction between the issue of materiality of a misrepresentation (a merits issue not appropriate for the class certification phase according to Halliburton I), and the issue of whether a misrepresentation actually had a common price impact on the stock (a proper class certification question according to Halliburton II) is the key to making sense of the Court’s decision today.  As Justice Roberts stated:

[P]rice impact differs from materiality in a crucial respect. Given that the other Basic prerequisites must still be proved at the class certification stage, the common issue of materiality can be left to the merits stage without risking the certification of classes in which individual issues will end up overwhelming common ones. And because materiality is a discrete issue that can be resolved in isolation from the other prerequisites, it can be wholly confined to the merits stage.

Price impact is different. The fact that a misrepresentation “was reflected in the market price at the time of [the]transaction”—that it had price impact—is “Basic’s fundamental premise.” Halliburton I, 563 U. S., at ___ (slip op., at 7). It thus has everything to do with the issue of predominance at the class certification stage. That is why, if reliance is to be shown through the Basic presumption,the publicity and market efficiency prerequisites must be proved before class certification. Without proof of those prerequisites, the fraud-on-the-market theory underlying the presumption completely collapses, rendering class certification inappropriate.

Halliburton II, slip op., at 21-22.  In other words, a merits question that is indisputedly common to the class should not be considered prior to class certification, but a merits question that also bears on whether the issues to be resolved at trial are truly common or individualized in the first place must be considered as part of the class certification decision.

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Earlier today, the Supreme Court granted cert in Dart Cherokee Basin Operating Company, LLC v. Owens, No. 13-719, in which it will take up the contours of the standard for providing factual support in a notice of removal under the Class Action Fairness Act of 2005 (CAFA).  Specifically, the issue presented is as follows:

Whether a defendant seeking removal to federal court is required to include evidence supporting federal jurisdiction in the notice of removal, or is alleging the required “short and plain statement of the grounds for removal” enough?

This is the third CAFA removal case that the Court has accepted in as many years.  During the October 2012 term, the Court decided Standard Fire Ins. Co. v Knowles, 133 S. Ct. 1345 (2013), in which it held that a class representative may not avoid CAFA jurisdiction by stipulating to a recovery of damages of less than $5,000,000 on behalf of members of the proposed class.  Earlier in the current term, the Court decided Mississippi ex rel. Jim Hood v. AU Optronics Corp., Case No. 12-1036 (U.S. Jan. 14, 2014), holding that a parens patriae action brought by a state attorney general on behalf of Mississippi residents was not a “mass action” subject to CAFA.

 

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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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The U.S. Supreme Court issued its first class-action-related decision of the 2013-14 term today, or more precisely, its first non-mass-action-related decision of the term.  In Mississippi ex rel. Jim Hood v. AU Optronics Corp., Case No. 12-1036 (U.S. Jan. 14, 2014), the Court held that a parens patriae action brought by the Mississippi attorney general on behalf of Missouri citizens was not a “mass action” subject to the Class Action Fairness Act of 2005.  My partner Casie Collignon has a more detailed write-up on the decision at the BakerHostetler blog Class Action Lawsuit Defense.

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2013 was a memorable year for class actions.  I’ve assembled my top 10 most significant developments below.  There were almost enough U.S. Supreme Court decisions to fill up the entire list, but my number 1 development was still a pair of lower court decisions that may also become the story of the year in 2014.

10. Kiobel v. Royal Dutch Petroleum Co., 133 S.Ct. 1659 (2013) – Not a class action decision per se, but likely to have significant repercussions on the development of international class action law.  Extraterritorial effect of the Alien Tort Statute is significantly limited.

9. Clapper v. Amnesty Intern. USA, 133 S. Ct. 1138 (2013) - Another non-class action decision already having a significant impact on the question of standing in data privacy class actions.

8. Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064 (2013) - Class Arbitration is not completely dead, but there’s a blueprint for how to kill it.

7. American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013)- Arbitration continues to reign supreme, even under the “federal law of arbitrability”

6. Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013) – Can class actions be defeated simply by picking off the representatives one at a time?  That’s for the circuits to decide.

5. Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, 133 S.Ct. 1184 (2013) – Supreme Court holds that materiality is a common question and that proof of materiality is not a prerequisite to class certification, but raises questions about the continued viability of the Basic fraud on the market presumption in securities cases.

4. Certiorari granted in Halliburton v. Erica P. John Fund, No 13-317 - That didn’t take long.  On the heels of , Supreme Court agrees to revisit the Basic fraud on the market presumption.

3. Comcast Corp. v. Behrend, 133 S.Ct. 1426 (2013) – Limited holding = damages theory has to match theory of liability.  Expansive holding = no class certification unless the question of damages is susceptible to common, classwide proof.  Which holding will be embraced by the lower courts?

2. Standard Fire Ins. Co. v Knowles, 133 S. Ct. 1345 (2013) – First ever CAFA decision limits representative plaintiffs’ ability to bind class prior to class certification.  Can’t avoid federal jurisdiction by stipulating to no more than $4,999,999.99 in damages on behalf of a putative class.

1. Moldy Washing Machine Decisions – Limited Comcast holding prevails so far.  Two lower courts reaffirm class certification orders after remand in light of Comcast.  Issue certification is alive and well, for the moment, but stay tuned to see if the Court takes up these cases in 2014.

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The Supreme Court granted certiorari earlier this week in Halliburton Co. v. Erica P. John Fund, 13-317, a second trip to the high Court for the same case.  At issue is whether the Court should overrule holding of Basic Inc. v. Levinson, which recognized the “fraud-on-the-market” theory of class wide reliance in securities fraud cases.  The Court foreshadowed its willingness to consider this issue last term when it decided Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, 132 S. Ct. 2742 (2012).  Both Amgen and the Court’s earlier decision in  Erica P. John Fund v. Halliburton Co., 131 S. Ct. 2179 (2011) were victories for plaintiffs, with the Court holding in both cases that plaintiffs were not required to prove questions on the merits as a prerequisite to class certification.  However, in Amgen, Justice Alito’s concurrence as well as dissenting opinions by Justices Scalia and Thomas (joined by Justice Kennedy) all raised questions about the continued viability of the Basic decision.

At the risk of oversimplification, the “fraud-on-the market” theory is that a material misrepresentation made in connection with the sale of a publicly traded security can have an effect on the entire market, so that investors may be harmed (or benefitted) by the misrepresentation even if they did not directly rely on it, because enough investors in the market did rely on it to the point where the price was affected.  A decision by the Court that this presumption is no longer viable could seriously limit or eliminate securities fraud class actions, because without the “fraud-on-the-market” presumption, a required element of a securities fraud claim, reliance, becomes an individualized question of fact.  As a result, Halliburton becomes the first case on the Court’s 2013-14 docket that has a potential for a truly significant impact on class actions.

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Today, Whirlpool and Sears filed petitions for a writ of certiorari with the U.S. Supreme Court asking seeking review of decisions by the Sixth and Seventh Circuits upholding certification orders in class actions alleging that design defects create a tendency for mold to develop in front-loading washing machines manufactured by the defendants.  The two lower court decisions, which were discussed in this August 23, 2013 CAB Post, are Butler v. Sears, Roebuck & Co., Nos. 11-8029, 12-8030 (7th Cir., Aug. 22, 2013) (Posner, J.) and In re Whirlpool Corp. Front‐Loading Washer Products Liability Litigation, No. 10-4188 (6th Cir. July 18, 2013).  Earlier decisions in both cases had previously been vacated and remanded for reconsideration in light of the Court’s decision in Comcast Corp. v. Behrend, and both the Sixth and Seventh Circuits reached the same conclusion on remand: that class certification was proper even though most potential class members were not actually affected by mold in their washing machines.

The issues presented for review in Sears, Roebuck & Co. v. Butler are as follows:

1. Whether the predominance requirement of Rule 23(b)(3) is satisfied by the purported “efficiency” of a class trial on one abstract issue, without considering the host of individual issues that would need to be tried to resolve liability and damages and without determining whether the aggregate of common issues predominates over the aggregate of individual issues.

2. Whether a product liability class may be certified where it is undisputed that most members did not experience the alleged defect or harm.

In Whirlpool Corp. v. Glazer the cert petition requests review of the following issues:

1. Whether the Rule 23(b)(3) predominance requirement can be satisfied when the court has not found that the aggregate of common liability issues predominates over the aggregate of individualized issues at trial and when neither injury nor damages can be proven on a classwide basis.

2. Whether a class may be certified when most members have never experienced the alleged defect and both fact of injury and damages would have to be litigated on a member-by-member basis.

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One of the key questions in the aftermath of the Supreme Court’s recent decision in Comcast Corp. v. Behrend is the extent to which damages must be susceptible to classwide calculation in order to justify class certification.  In particular, the question is as follows: When the Comcast Court held that class certification was improper because the plaintiff had failed to demonstrate that “damages are capable of measurement on a classwide basis,” did it mean that Rule 23(b)(3) certification is never proper if damages cannot be determined on a classwide basis?  If the answer to this question is yes, then consumer class actions are in trouble because it’s a rare case where classwide determination of damages is possible.  But if the answer to this question is no, then as the Comcast dissent suggested, “the opinion breaks no new ground on the standard for certifying a class action under Federal Rule of Civil Procedure 23(b)(3).”

Yesterday, in the second of two moldy washing machine class actions that had been vacated and remanded for further consideration in light of Comcast, the Seventh Circuit Court of Appeals joined the Sixth Circuit in answering “no” to this question.  In Butler v. Sears, Roebuck & Co., Nos. 11-8029, 12-8030 (7th Cir., Aug. 22, 2013) (Posner, J.), the court reaffirmed its earlier decision that if common issues predominate over individualized issues in resolving the question of liability, then a class can be certified even if the question damages would require individual determinations. As usual, Judge Posner’s decision is colorful and an interesting read, even for those who disagree with the outcome.  The Sixth Circuit’s decision, which was issued last month, is In re Whirlpool Corp. Front‐Loading Washer Products Liability Litigation, No. 10-4188 (6th Cir. July 18, 2013).

In evaluating the potential broader impact of the Sixth and Seventh Circuit’s decisions, it is important to maintain a clear distinction between the question of damages and the related questions of injury and causation of damages.  Courts have long accepted that individualized damages questions do not prevent class certification, and the moldy washer decisions themselves break little new ground other than to interpret Comcast as not having altered that longstanding principle.  However, saying that individualized questions of damages can be left for a later proceeding is very different than saying that there is a good reason to certify a class when the elements necessary to prove liability itself (which typically include both the existence of injury and causation) cannot all be resolved on a classwide basis.  Individualized questions of whether a given class member has suffered any compensable injury at all or whether the allegedly wrongful conduct caused any alleged injury should still defeat predominance, and neither Sears nor Whirlpool should be read to suggest differently.  In those cases, because the plaintiffs had advanced what these courts concluded was a viable theory of common injury, the only individualized questions related to the amount of, and not the existence of, damages. See In re Whirlpool Corp., slip op. at 22 (“Because all Duet owners were injured at the point of sale upon paying a premium price for the Duets as designed, even those owners who have not experienced a mold problem are properly included within the certified class.)

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Those of us who have been following the Supreme Court’s decisions on class actions and arbitration over the past few years may have been a bit surprised when the Court recently upheld an arbitrator’s decision to compel class arbitration in Oxford Health Plans LLC v. SutterOxford Health bucked a trend of decidedly defendant-friendly decisions on issues relating to the interplay between class actions and arbitration.  Today, the Court moved back into more familiar territory in deciding American Express Co. v. Italian Colors Restaurant (“Amex III“).  

The holding in Amex III, as summarized in the syllabus, is that “[t]he FAA does not permit courts to invalidate a contractual waiver of class arbitration on the ground that the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery.”  Thus, just is it had held that state law of unconscionability could not be used to invalidate a class arbitration waiver in AT&T Mobility LLC v. Concepcion, the Court’s holding today limits the use of federal law to invalidate arbitration provisions that preclude class actions. 

Will Amex III finally be the case to end class actions as we know themConcepcion hasn’t, so I doubt Amex III will either.

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The Supreme Court issued its decision today in the first of two arbitration-related class action cases on the 2012-13 docket.  Today’s decision bucks what had been a trend in the Court’s decisions in recent years strongly favoring individual arbitration and limiting the situations in which class arbitration (private arbitration in which the plaintiffs proceed in a representative capacity on behalf of a class) can occur.

In a unanimous ruling, the Court in Oxford Health Plans LLC v. Sutter upheld an arbitrator’s decision to interpret an arbitration agreement as allowing for class arbitration, despite express reference to class arbitration in the parties’ written agreement.  Writing for the Court, Justice Kagan reasoned that applicable standard of review prevents the courts from second-guessing whether the arbitrator’s interpretation of the party’s contract was the correct one and only permits review of whether the decision was based on an interpretation of the parties’ agreement.  Because the arbitrator’s decision was clearly based on an analysis of contractual intent, the arbitrator’s decision could not be overturned.  The fact that the arbitrator had interpreted the parties’ agreement as providing for class arbitration and the deferential standard applicable to the arbitrator’s decision distinguished Oxford Health Plans from Stolt-Nielsen S.A. v. AnimalFeeds International Corp., in which the Court had held that class arbitration cannot be compelled absent express agreement by the parties.

Important to the Court’s decision was the fact that the defendant had conceded that the arbitrator should decide the question of whether the parties had agreed to class arbitration.  It was this concession that let Justice Alito to agree with the Court’s decision.  However, in a concurring opinion joined by Justice Thomas, Justice Alito expressed doubt that any ruling in the class arbitration proceeding would have any preclusive effect as to absent class members, an observation that raises a serious question about whether the Oxford Health decision will be of any practical impact in other cases.  He noted:

Class arbitrations that are vulnerable to collateral attack allow absent class members to unfairly claim the “benefit from a favorable judgment without subjecting themselves to the binding effect of an unfavorable one,” American Pipe & Constr. Co. v. Utah, 414 U. S. 538, 546– 547 (1974).  In the absence of concessions like Oxford’s, this possibility should give courts pause before concluding that the availability of class arbitration is a question the arbitrator should decide.

Defendants will likely see the concurrence as a roadmap for asking the question to be addressed by a court in the first instance, as opposed to simply conceding that the arbitrator should decide the issue whether class arbitration is allowed. 

There are two clear takeaways from the Oxford Health decision: 1) in drafting an arbitration provision, make sure to address the issue of whether arbitration on a class-wide basis will be allowed.  Under Stolt-Nielsen, agreements that bar class arbitration will be enforced; 2) think carefully before conceding that an arbitrator, rather than a court, should make decisions about how an arbitration agreement should be interpreted.

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