Whether or not you agree with Dean Klonoff’s criticisms from an academic point of view, the article is a must read for anyone looking for a good synopsis of the key developments in the U.S. class action law over the past several years.  From the Class Action Fairness Act to the Supreme Court’s recent decisions in Dukes and Concepcion to slightly less glamorous topics such as the necessity of a precise class definition, Klonoff’s article is impressive in its comprehensive analysis of relevant recent developments.

Frankel has done an excellent job of summarizing the issues in the case as well as today’s Second Circuit Court of Appeals decision holding that the federal courts lack jurisdiction over the case under the Class Action Fairness Act (CAFA) as a result of the securities exception in 28 U.S.C. §§ 1332(d)(9)(C) and 1453(d)(3), so I won’t re-summarize the article here but simply commend it to your reading.  The case is BlackRock Fin. Mgmt. Inc. v. The Segregated Account of Ambac Assur. Corp., 11-5309-cv(L), (2d Cir., Feb. 27, 2012).

Although the use of Article 77 to create a binding settlement that does not require an opportunity to opt out may be a novel strategy, the case highlights an often-overlooked option that may be available in any class action litigation involving a trust, benefits plan, or other fund with a custodian or trustee.  This would include certain banking and securities cases or class actions filed under the Employee Retirement Income Security Act (ERISA) against a party other than the trustee.  Rather than having to negotiate with class action lawyers, it may be possible in these contexts to come to a global resolution of a dispute by negotiating with the trustee and then seeking court approval of that agreement.  Even if a class action is pending, resolution of the dispute with the trustee may provide grounds to defeat class certification on superiority grounds, since a settlement with a party having a fiduciary responsibility to the beneficiaries of the fund can be an adequate and significantly more efficient means of resolving any dispute.

Washington State v. Chimei Innolux Corp., No. 11-16862 (9th Cir. Oct. 3, 2011) – joining the Fourth Circuit in holding that a parens patriae action brought by state attorneys general or other state officials for the benefit of the state’s citizens is not a “class action” for the purposes of removal under the Class Action Fairness Act (CAFA).

Klier v. Elf Atochem N. Am., Inc., No. 10-20305 (5th Cir., Sept 27, 2011) – holding in the absence of an express provision in the settlement agreement to the contrary that unclaimed funds should be distributed pro rata to class members who participated in the settlement as opposed to being given to charity as a cy pres distribution.  Take note of the concurrence by Judge Edith H. Jones, which makes a strong argument that in the absence of any agreement to the contrary or express waiver of the right to recover unclaimed funds, the equities favor returning those funds to the defendant rather than paying them to the class or distributing them to charity.

Esurance Ins. Co. v. Keeling, No. 11-8018 (7th Cir., Sept. 26, 2011) – holding that when punitive damages are at issue, the correct standard is whether it would be “legally impossible” for the plaintiff to recover an amount of punitive damages that, when combined with the amount of compensatory damages sought, would exceed the $5 million amount in controversy threshold under CAFA, but concluding that it was not legally impossible under Illinois law, even though it was unlikely, that $4.4 million in punitive damages could be awarded in a case where the compensatory damages were slightly more than $600,000.

A great resource for more timely commentary and analysis on recent class action decision in the federal courts of appeals is Alison Frankel’s blog On the Case.

Justice Kagan’s opinion involves a fairly straightforward academic analysis of the “re-litigation exception” to the federal Anti-injunction Act and principles of issue and claim preclusion: where a state court applies a different class certification standard than the standard applicable under FRCP 23, the issue decided in the federal action on class certification is not the same as the one to be decided in the state court proceeding.

However, the practical impact of the decision is that a plaintiffs’ lawyer who is unsuccessful in seeking class certification in federal court can try again in a state that applies a different class certification standard.  Of course, the successive class action is potentially subject to removal under the Class Action Fairness Act (CAFA), but if one of the exceptions to CAFA applies, such as the home state or local controversy exception, the Court’s decision paves the way for multiple bites at the class certification apple.

CAFA Law Blog has been covering this issue extensively in recent months, and I expect they will have an entertaining post about the case in the coming days.  For CAFA Law Blog posts on the topic, see this link.

Judge Hall’s order found fault with many aspects of the settlement, including both the proposed settlement’s procedural and substantive fairness.  Procedurally, Judge Hall was concerned with the nascent stage of the record at the time of the settlement and the lack of discovery performed before the settlement.  Among the court’s substantive concerns were that the in-kind benefits provided under the agreement were similar to a coupon settlement, that the parties had overstated the risks to class members of litigating the case to trial, and that the maximum value of the settlement was too low in comparison to the best possible recovery in order for the settlement to be within the range of reasonableness. 

The court’s opinion expressly does not rule on, although it does discuss, several of the other issues raised by objectors, including the sufficiency of the email notice given to class members and an order by the magistrate judge enjoining a similar lawsuit filed by the State of West Virginia.

It is important to note that the court’s opinion does not at all portend a win for the class at trial.  In fact, pointing to the potential for statewide class actions under individual state consumer protection laws and enforcement actions by individual state attorneys’ general:

[t]he court notes that these state consumer protection statutes may not be suitable for litigation on a nationwide class action basis. . . . However, it appears to the court that they may be well suited for statewide class actions, especially within the states with broadly written consumer protection statutes.  This attempt is already being made in California and Missouri. . . . Further, investigations by state attorneys general are under way in at least a couple states, and, in some states, consumer protection actions can be brought on behalf of consumers. . . .

Therefore, in light of these statutes and the evidence that public and private attorneys are prepared to enforce them, class members appear to have substantially stronger claims than the RICO claims alleged in this case. Because the parties seek to release these state claims via the Settlement Agreement, the strength of these claims must be accounted for in this court’s analysis of the fairness, adequacy, and reasonableness of the Agreement. . . .

Slip op. at 26 (internal citations omitted).

A copy of the brief is available for download here courtesy of the Washington Attorney General’s website.   The essential theory of the case was that the defendant ”represented that paid DirectBuy memberships entitle customers to purchase goods from manufacturers and suppliers at actual cost when, in fact, Defendants receive kick-backs from the suppliers and manufacturers out of the purchase price paid by DirectBuy members — resulting in members paying more than the actual cost for such goods.”  Amicus Brief at 4.   The 34-page brief raises a variety of objections to the settlement, but the primary beef is that only benefit to claimants was membership extensions or discounts on future memberships, which they argue amounts to a “coupon” settlement.

The case illustrates the practical impact of a key but often overlooked component of the Class Action Fairness Act of 2005, the requirement that “appropriate” government officials be given notice of a proposed class action settlement in federal court.   This is a topic that was the subject of a series of CAB posts in 2008, which you can access at the links below:

• Facing the Threat of Government Action Following a Class Action Settlement, July 18, 2008
• CAFA Official Notice Requirements in Action, June 25, 2008
• Get The “Official” Perspective on CAFA Notice to Appropriate Government Officials, June 5, 2008
• Practice Tip: Think CAFA Requirements Only Apply In Removed Cases? Think Again, April 9, 2008
• Practice Tip of the Week: Make Sure to Send Notice to “Appropriate” Government Officials, March 28, 2008

As noted in June 25, 2008 entry, although CAFA requires that notice be given to state and federal officials, it is rare for those officials to take any action to object to the settlement after they receive it.  One exception, as exemplified by the DirectBuy case, is a coupon settlement.  (The other thing that can get officials’ attention is where the release in a proposed settlement purports to bind state officials, such as a clause that purports to release parens patriae claims by the state.)

Although CAFA requires notice to state officials, it does not give them any power to prevent the settlement.  In fact, state officials do not even have the express power to formally object to a settlement, which is why when they do act, it is usually in the form of an amicus (friend of the court) brief.  Ultimately, approval or disapproval of the settlement is still up to the trial court.  However, it should go without saying that if you’re a party or attorney seeking approval of a class action settlement, it’s much better not to have government officials filing an amicus brief critical of your settlement.

CAFA Removal and Remand: Latest Developments

Tuesday, March 29, 1:00pm-2:30pm EDT

Program Description:

Jurisdictional ambiguities in the CAFA statute continue to challenge litigators. One example is the Eleventh Circuit’s Cappuccitti v. DirecTV ruling that the district court lacked jurisdiction because no individual plaintiff or putative class member met the amount-in-controversy requirement. While the Eleventh Circuit later vacated its decision, its initial confusion was caused by CAFA’s ambiguous jurisdictional structure. Another evolving jurisdictional issue is the federal court’s authority to retain jurisdiction post-removal. Courts still wrestle with the effect of post-removal events such as denial of class certification or loss of diversity on continued federal court jurisdiction. While several recent cases more firmly establish continued post-removal federal court jurisdiction, this issue is far from settled.

This program will provide class action litigators with an examination of the latest case law developments in CAFA removal and remand, analyze continued jurisdictional ambiguities and pitfalls, and offer litigation strategies for navigating these ambiguities. The panel will offer perspectives and guidance on these and other critical questions: How are the courts resolving ambiguities in CAFA’s amount-in-controversy requirements for federal court jurisdiction? Do the federal courts retain jurisdiction even after class certification is denied or diversity is destroyed? What post-removal events or circumstances can result in a remand to state court?

The panel presentation will be followed by a  live question and answer session.

For more information and to register, see the Strafford Publications website.

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)).

1. January 5 – In In re Baycol Products Litigation, the Eighth Circuit follows the Seventh Circuit’s lead in upholding the right of a federal court to enjoin a putative statewide class action from proceeding where a federal court had already denied class certification in a case involving substantially similar claims.  (See CAB entries dated January 7 and January 12).
2. February 23 – In a decision that will impact many class actions removed under the Class Action Fairness Act, the Supreme Court adopts the “nerve center test” as the standard for determining corporate citizenship, in Hertz Corp. v. Friend.  (See CAB entry dated March 2)
3. March 31 – The Supreme Court holds that states may not regulate the types of claims that may be filed as class actions in the federal courts, in Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co.  (See CAB entry dated April 8)
4. April 7 – In American Honda Motor Co. v. Allen, the Seventh Circuit holds that a trial court must rule on challenges to the admissibility of expert testimony relevant to class certification before deciding whether a class may be certified.  (See CAB entry dated May 4)
5. April 26 – The Ninth Circuit issues its decision in Dukes v. Wal-mart Stores, Inc., adopting rigorous class certification standards similar to those previously adopted by the Second Circuit in In re IPO Securities Litigation, 471 F.3d 24 (2d Cir. 2006), but nonetheless certifying under FRCP 23(b)(2), what has been called the largest employment discrimination class action in history.
6. April 27 – The Supreme Court seemingly puts an end, for all practical purposes, to the concept of class arbitration by holding that a defendant could not be compelled to defend an arbitration on a class basis where the arbitration clause did not expressly provide for class arbitration, in Stolt-Nielsen S.A. v. Animalfeeds Int’l Corp.  (See CAB entry dated May 11).
7. June 24 – In Morrison v. National Australia Bank, the Supreme Court deals a fatal blow to ”foreign-cubed” class actions, holding that § 10(b) of the Securities and Exchange Act of 1934 does not allow for fraud claims involving transactions on foreign exchanges that occurred outside the United States. (See case summary at SCOTUS blog).
8. July 19, October 20 - An Eleventh Circuit panel issues a controversial decision in Cappuccitti v. DirecTV, Inc., severely restricting CAFA removal jurisdiction to cases where the amount in controversy exceeds $75,000 with respect to at least one class member, but later reverses itself in an October 15 opinion.  (See Guest Post from Eric Jon Taylor and Jon Chally at CAFA Law Blog for more on the first decision and this October 20 CAB entry on the second decision).
9. November 9 – Supreme Court hears oral argument in AT&T Mobility v. Concepcion, in which the Court considers whether the Federal Arbitration Act preempts state law holding a class arbitration waiver unconscionable.  (See CAB fsummary of oral argument dated November 17).
10. December 6 – Supreme Court grants certiorari in Wal-Mart Stores, Inc. v. Dukes, to decide the issue of whether a claim for monetary relief can be certified under FRCP 23(b)(2).  (See CAB entry dated December 7).

Just considering the cases still awaiting ruling before the Supreme Court, 2011 promises to be another exciting year in the world of class actions.  Happy New Year to all!