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Posts Tagged ‘dispositive motion’

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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Conventional wisdom says that for a defendant, class certification is to be avoided at all costs, and many defendants may assume that the best strategy for dealing with a certified class, short of settlement, is to find a way to get the class decertified.  But it’s important to remember that a class action judgment has a preclusive effect on all class members if the defendant wins. 

As a result, a defendant should always at least consider whether filing a dispositive motion or simply defending the case on the merits at trial may be a better strategy than seeking decertification.  This may especially be true where there is a risk that individual plaintiffs will pursue their own suits even if the class action is not successful.  If so, a successful defense of the class action may prevent even greater exposure, or at least the significant defense costs associated with defending numerous individual cases.

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I commented recently on the fact that the well publicized “class-action” trial against the United States Department of Veteran’s Affairs was never actually certified as a class action.  Instead, the case is being pursued by two nonprofit veterans’ advocacy groups who are pursuing the case on behalf of their members based on a concept called associational standing.  The popular media often uses the misnomer “class action” to define a wide range of lawsuits in which one or a few litigants prosecute a case on behalf of a larger group of interested parties.  Here is a partial glossary of them, along with some other terms often associated with representative actions:

Class Actions – Class actions are brought by one or more class representatives on behalf of a larger group of similarly situated people or legal entities.  Rule 23, Federal Rules of Civil Procedure, and similar state rules of civil procedure, govern whether a case can proceed as a class action.  A case does not become a true class action until the judge certifies a class.  Before a class is certified, lawyers and courts often refer to the case as a putative class action.

Derivative Suits – These lawsuits are brought by shareholders of a corporation on behalf of the corporation to pursue the rights of the corporation that the corporation itself has failed to enforce.  Derivative suits are governed by Rule 23.1, Federal Rules of Civil Procedure and similar state court rules.  A lawyer considering a lawsuit for corporate wrongdoing may face a choice between filing the case as a class action or a derivative suit.  See this recent WSJ Law Blog article for a recent example.

Collective actions – Some statutes, notably the federal Age Discrimination and Employment Act (ADEA) and Fair Labor Standards Act (FLSA), allow a court to certify a collective action as opposed to a representative action.  The key difference between these collective actions and representative actions like class actions is that in a collective action, absent parties are asked whether they want to opt in to the lawsuit.  By contrast, in a class action, absent parties are bound by the result of the litigation unless they opt out of the case after getting notice.  Many FLSA cases are brought as both collective actions and class actions.   The collective action procedure covers the FLSA claim, while the class action procedure governs any related state law claims.  Here’s a good article for more detail on the distinctions between collective actions and class actions.

Attorney general actions – State attorneys general and other governmental authorities (like the Federal Trade Commission) may, by statute, bring actions to enforce the rights of consumers and the public at large.  Here’s a link to the Colorado Attorney General’s consumer protection page.  See the Federal Trade Commission website for examples of consumer actions being pursued by the FTC.

Parens patriae actions – Parens patriae actions are a species of attorney general actions in which the government brings claims to recover monetary losses on behalf of its citizens.  In these actions, the government stands in the shoes of individual citizens and prosecutes the action to recover money for their benefit.  Here’s a link to a paper addressing parens patriae actions.

Private attorney general actions – Some statutes allow any person to bring an action to protect the rights of the public.  Until recently, an example of a statute allowing this type of action was the California Unfair Competition Law, Business & Professions Code Section 17200, which allowed a case to be brought on behalf of consumers injured by a defendant’s act of unfair competition, whether or not the plaintiff him or herself was harmed in any way.  This changed recently when the voter referendum Proposition 64 was passed, which requires a litigant to have lost money or other property as a result of the challenged practice, and must be able to satisfy the requirements for a class action in order to be allowed to pursue a UCL claim in a representative capacity.  A great resource for developments on the UCL is Kimberly Kralowec’s blog The UCL Practitioner.  Another example is California’s Labor Code Private Attorneys General Act of 2004 (PAGA), also called the Bounty Hunter Statute, which allows employees to pursue violations of the state labor code whether or not they had suffer injury, including the ability to pursue statutory penalties on behalf of the state and to share in any recovery of those penalties.  Here’s a link to an interesting California Court of Appeal decision addressing both PAGA and the UCL and the viability of an assignment of representative claims under those laws.

Qui tam actions – The federal False Claims Act is another example of a law that allows a private individual to pursue an action on behalf of the government.  An individual who has information about the misappropriate or theft of government funds may file an lawsuit under the Act known as a qui tam action.  The government has an opportunity to decide to take over the prosecution of the case, but if it declines, the person who filed the action may proceed and in the event of a recovery, he or she is entitled to a portion of the recovery.  Here is a link to an article summarizing the federal False Claims Act.

Associational actions – An association may, in some circumstances, bring an action on behalf of its members.  See this previous entry regarding the recent trial against the VA for more discussion on the requirements for associational standing.

Mass actions – Many lawsuits that people commonly associate with the term “class action” are really mass actions.  Mass actions are cases that involve the joinder of many individual claims for discovery, resolution of certain legal issues, or other purposes.  Unlike class actions, however, each claim ultimately has to be brought by an individual plaintiff, who must have some involvement in the proceedings.  Examples include many products liability cases, like those involving alleged injuries caused by tobacco, asbestos, or pharmaceuticals, where a common set of acts form the basis of a the claim for liability but where the effects are too individualized to establish all of the requirements necessary to support a true class action.  They may also be cases involving claims that arise from a single catastrophic event, like an airplane crash, toxic leak, or oil spill.  A well-known example is the Exxon Valdez oil spill case.  When numerous mass actions against the same defendant or group of defendants are filed in the federal courts, the cases are often transferred to a single district court under rules promulgated by the United States Judicial Panel on Multidistrict Litigation (MDL)

Bellwether trials – This is not so much a type of lawsuit but rather a procedural device to assist in resolving cases involving similar claims.  A bellwether trial is a essentially a sample test case, where one claim or set of claims are tried first to establish a precedent for the rest.  Bellwether trials generally cannot be used to bind parties in one case to the results of another, but they can be a useful tool for providing information to assist attorneys with valuing similar cases for settlement purposes.  Here are some good entries discussing bellwether trials from the Drug and Device Blog and the Mass Tort Litigation Blog.

Aggregator actions – For lack of a better phrase, this novel procedural vehicle involves the assignment of various plaintiffs’ right to pursue a lawsuit to a single person or entity, called an aggregator.  This procedural device is at issue in a case now pending before the United States Supreme Court.  See this entry at SCOTUS Blog.

Virtual representation – This is a concept applied in the trusts and estates area.  Under the doctrine of virtual representation, the participation in a proceeding of one heir or trust beneficiary can sometimes be deemed to be sufficient to protect the interests of unborn, unascertainable, or minor beneficiaries who could not otherwise appear.  See page 20 of this comprehensive summary of the 2005 Uniform Trust Code.

Non-mutual offensive collateral estoppel – The doctrine of collateral estoppel, or issue preclusion, provides that a party can be prevented from relitigating certain issues that were previously resolved against it.  Ordinarily, the concept applies to issues that were previously litigated between the same parties, but is sometimes possible for a plaintiff to bind a defendant to an earlier ruling in a case in which the plaintiff was not a party, if the earlier case involved a plaintiff with similar interests, and if the defendant had the same incentives to defend the lawsuit.  This doctrine has been applied only in very limited situations.  For a good analysis, see this Ninth Circuit Court of Appeals opinion

Reverse Bifurcation – Is a controversial procedure used in the West Virginia courts in which the punitive damages phase of a mass tort case against a defendant is tried before the liability phase.  See previous entries here, here, and here.

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