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In keeping with the time-honored tradition of end-of-the-year top 10 lists, I’ve assembled my annual list of the top 10 most significant class action developments below.  Whether these are actually the top 10 most significant decisions over the past year may be subject to reasonable debate, so please feel free to add your own favorites in the comments section.

1. Certiorari denied in “moldy washer” cases – In my view, the single biggest development impacting class action practice over the past year was the Court’s decision not to take on the question of “issue certification” presented in the Sears and Whirlpool “moldy washer” cases.  This non-decision opens the door for significant litigation over whether isolated issues should be certified for class treatment even where significant individual litigation would be necessary following resolution of the class wide issues.

2. Judge Posner’s class action settlement decisions – Judge Posner wins the award for the jurist having the single biggest impact on class action practice in 2014.  In addition to the Supreme Court declining to take on review of his decision in one of the “moldy washer” cases, Butler v. Sears, Roebuck & Co., Judge Posner authored two significant (and harshly worded) decisions discussing the standards for evaluating the fairness of class action settlements, including Eubank v. Pella Corp., Nos. 13-2091, -2133, 2136, -2162, 2202 (7th Cir., June 2, 2014), and Redman v. RadioShack Corp., case number 14‐1470, 14‐1471 and 14‐1658 (7th Cir., Sept. 19, 2014).  These decisions are emblematic of a more general trend in the courts of subjecting class action settlements, especially coupon settlements, to ever-greater scrutiny.

3. Basic framework remains largely unchanged after Halliburton II – One of only three Supreme Court decisions of significance on class action issues this past year, the Court largely maintained the status quo in declining to overrule the framework for evaluating “fraud on the market” theory of reliance in securities class actions.

4. Whirlpool trial ends with victory for the defendant – Not long after the Supreme Court declined review, the first of the “issue” class cases went to trial against Whirlpool.  The trial ended in a defense verdict, although as I wrote in October, I’m not sure that’s necessarily a good thing for defendants in the long-term.

5. Court clarifies removal pleading standards in Dart Cherokee Basin Operating Co. v. Owens – In one of the Roberts Court’s most helpful class-action-related decisions, at least from a practical standpoint, the majority removed barriers to corporate defendants’ ability to remove cases under the Class Action Fairness Act (CAFA), clarifying that jurisdictional facts need only be pled, not supported by evidence, in the notice of removal.

6. California Supreme Court issues significant decision on the use of statistical evidence to support class certification – An individual state court decision has to be pretty significant to make my annual top 10 list, but I think Duran v. U.S. Bank National Association fits the bill.  The decision is one of the most comprehensive to date in addressing the potential pitfalls of reliance on statistics as a proxy for common, class wide proof.

7. Supreme Court holds in AU Optronics that consumer actions brought by state attorneys general are not “mass actions” subject to the Class Action Fairness Act – It’s probably a misnomer to call AU Optronics a “class action” case, since the issue presented was whether actions brought by state AGs on behalf of consumers were “mass actions.”  But because the case involved interpretation of CAFA, it makes this year’s list.

8. International class and collective action litigation continues to expand – Class, collective, and multi-party actions continue to expand outside of the United States and Canada.  Examples included France joining the list of Civil Law jurisdictions in Europe to enact a “class action” law, and a group action in Austria, joined by more than 25,000 litigants, challenging Facebook privacy policies.

9. Data breach class actions proliferate – High profile data breaches and hacking incidents made news, and resulted in class actions, in 2014.  From a rash of payment card breaches impacting customers of large retailers like Target and Home Depot to the more recent Sony hacking incident, data breach class action litigation shows no signs of slowing down any time soon.

10. Supreme Court grants, then dismisses, certiorari in Public Employees’ Retirement System of Mississippi, v. IndyMac MBS, avoiding a high court ruling on the question of whether statute of repose can be tolled for absent class members under the American Pipe tolling doctrine.  In what has become a trend of the past year, this is yet another missed opportunity for the Supreme Court to address a class action issues of significance.

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After becoming one of the hottest trends during the latter part of the last decade, developments in international class action law have waned a bit over the past couple of years, but a new case may be changing that trend.  An Austrian law student, Max Schrems, made news earlier this week (see examples here and here) when he announced a “class action” against Facebook Ireland, the subsidiary that offers the popular social networking service outside of North America.  Schrems has filed a lawsuit in Austria seeking to pursue, on behalf of himself and other non-North American claimants, a variety of legal claims relating to Facebook’s use of consumer data as well as alleged illegal tracking and surveillance activity.  As reported yesterday by Natasha Lomas at Tech Crunch, more than 25,000 individuals have “joined” the lawsuit so far, by signing up at a website set up for that purpose and assigning their claims to Schrems.

This is by no means the first data privacy lawsuit ever filed against Facebook, and it is difficult to say at this point whether the legal claims have any prospect of success.  However, the case is intriguing from a procedural point of view because it is a suit seeking collective redress on behalf of thousands of non-North American consumers in a jurisdiction that is not known as a hotbed of class action litigation.  Many features of the case serve to illustrate differences between US-style class actions and “class actions” as they are developing in other parts of the world.  I’ve highlighted a few of them below.

Opt In Versus Opt Out

Outside common law jurisdictions like the United States, Canada, Israel, and Australia, collective action procedures generally follow an opt-in model, where each individual litigant has to take affirmative steps to participate in the lawsuit. This is a major distinction with the Rule 23 model followed in the United States, where a certified class binds all class members unless they expressly opt out of the case, and it creates a major limitation to the leverage created by grouping claims together.

Class Action through Private Contract and Novel Application of Existing Procedures

Many civil law countries lack an express mechanism for grouping large numbers of similar claims together into a single case except in very limited circumstances.  Even when specific collective action procedures exist, they can often be pursued only by a consumer association or government regulator rather than by private litigants.  Private litigants have filled the gap by entering into private agreements in which they group together on their own by assigning their individual claims contractually to a single plaintiff who will pursue the claims as a group.  Aggregation of claims by assignment has become a popular practical vehicle for pursuing group litigation, especially in continental Europe.

In Austria, a July 12, 2005 decision by the Austrian Supreme Court set out a two factor test for deciding whether assigned claims can proceed in a single case.  loosely translated, the standard requires that there be some central or significant question common to all claims, and that the factual and legal issues arising out of the individual claims be homogenous in nature as they relate to the common questions.  The Commercial Court of Vienna has applied this standard in several cases to make an initial determination of whether to “admit” the action, or in other words allow the assigned claims to proceed in a single case.  This initial evaluation does bear a resemblance to the class certification procedure applied under Rule 23 of the Federal Rules of Civil Procedure, applicable to class actions in the U.S. courts.

For a more detailed description of the “Austrian-style class action” procedure, see Christian Klausegger‘s chapter on the subject in the World Class Actions book that I have shamelessly promoted on this blog since its publication in 2012.

Litigation Funding

In Austria, as in many other parts of the world, contingent fees are prohibited.  At the same time, however, court fees are often assessed based on the total amount in dispute, so the more money in dispute, the higher the fees are that have to be paid to the court, in addition to the hourly fees to be paid to counsel. These factors combined significantly limit the incentive to pursue collective litigation in these jurisdictions. They have also led litigants to have to look for alternative ways of funding litigation, the most prevalent of which is private litigation funding by a for-profit institution that is not itself a law firm.  The litigation funder finances the litigation, including payment of court fees and hourly attorney fees, in exchange for a contractual right to earn a profit if the litigation is successful.

Litigation funding is also available in the United States, but it has been slower to develop, primarily because contingent fees and agreements to advance litigation costs do not typically violate rules of ethics or public policy. In fact, the opposite is true: rules prohibiting fee-sharing with non-lawyers can make private litigation funding a tricky proposition in the United States.  As a result, private law firms have the financial means of funding litigation (either on their own or by associating with other firms) and are driven to pursue litigation without the need for financing through the promise of a percentage of the recovery if the case is successful.

The Impact of Morrison and Kiobel

The United States Supreme Court has issued two key recent decisions limiting foreign litigants’ access to the US Courts as a forum for pursuing class actions.  Limitations on access to the class action procedures available in the US courts may lead foreign litigants to experiment more frequently with alternatives  in foreign jurisdictions.  Whether the Facebook class action in Austria is part of a trend in this direction remains to be seen.

What Drives Claims for Collective Redress?

In the United States, the promise of a large contingent fee can incentivize an entrepreneurial lawyer with a creative legal theory to pursue class action litigation even in the absence of widespread public awareness of a perceived wrong.  The procedural and financial barriers to pursuing claims for collective redress largely prevent this phenomenon from occurring outside the United States, Canada, and a few other jurisdictions.  Instead, “class actions” can be pursued as a practical matter only when there is enough public outrage or concern over a particular event or business practice that large numbers of individuals are willing to take the time to participate (or when there is a sufficient number of institutional plaintiffs with the financial resources and incentive to pursue the suit, such as in certain securities fraud and competition/antitrust cases).  This means that both mainstream media and–somewhat ironically in the case of Facebook–social media have a necessary role in the success or failure of collective litigation abroad.

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I’ll be presenting at a Webcast on trends in social media and the law next Friday, June 6, along with Michele L. Gibbons of Jones Day.  See below for a program summary.  You can register by clicking this link:

Social Media Crash and Burn:
Cleaning up the Mess and Rebuilding
LIVE Webcast

In today’s digital age, corporations spend more on online advertising than in print to the tune of billions. However, as the corporate world utilizes social media, they should also be ready and responsive when the inevitable crash and burn occurs. Poorly executed social media campaigns have cost companies and individuals, big time.

Getting ahead of the game is always a good technique to help mitigate the risk and minimize the damages. Once a campaign is out in the wild, there’s no stopping it. You need to think ahead. Join this LIVE Webcast as some of the industry’s great minds share their opinions on best practices for using social media effectively and safely. They will also provide an in-depth look at its features and practical uses. The discussion will also include the following:

Thursday, June 6, 2013
12:00 pm – 2:00 pm (ET)

Credit Info:
Course Level: Intermediate
Prerequisite: None
Method of Presentation:
Group-Based-Internet
Recommended CLE/CPE Hours:
1.75 – 2.0
Advance Preparation:
Print and review course materials
Course Code: 134422 

• Advantages and Disadvantages of Social Media as a Marketing Tool
• Things to Consider in Generating and Implementing Social Media Policies
• Securing Data: Understanding CDA’s Safe Harbor and Privacy law
• Effective Ways of Mitigating and Managing Risks That May Exist
• Significant Legal Issues Related to Social Media Usage
• Damage Control
• Up-to-the minute Regulatory Updates
Social Media Crash and Burn: Cleaning up the Mess and Rebuilding — LIVE Webcast is a must-attend event for In-House Counsel, Risk Officers and Administrators, Data Security Professionals and other related professionals.

Speakers:
Paul G. Karlsgodt, Partner, BakerHostetler
Michele L. Gibbons, Of Counsel, Jones Day
(Note: if CLE or CPE is needed, a minimal/partial processing fee is $49 for the registrant. Otherwise, it’s 100 percent free to participate in the webcast.)
Register for this event
Email: info@knowledgecongress.org with any questions.
(Please note, complimentary passes are available for the first 30 registrants. Once all of the passes are used, attendees can register for the deeply discounted rate of $25 each, courtesy of BakerHostetler.)

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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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Strafford Publications is sponsoring a webinar on class action settlement objectors next Thursday, January 10, 2013 at 1:00 EST. This is a reprise of a webinar that I did with New Jersey Appellate Law blogger Bruce Greenberg a year or so ago.  Due to a scheduling conflict, I won’t be able to participate this time, but my partner Casie Collignon will share her valuable insights instead.  For more information and to register, click the title of the program below:

Class Action Settlement Objectors

Minimizing and Defending Against Challenges by Professional Objectors, Government Officials and Public Interest Groups

A live 90-minute CLE webinar/teleconference with interactive Q&A


Thursday, January 10, 2013 (5 days) 1:00pm-2:30pm EST, 10:00am-11:30am PST

Description

Objections by outside attorneys, government officials and public interest groups can jeopardize or delay class action settlements. Both sides can face problematic objections from “professional objectors” who may appear to be motivated solely to extract part of the fee or take over as class counsel.

Government official objections are usually aimed at coupon settlements and settlement release language intended to bind state officials. Public interest groups that file objections have varied purposes and political agendas. Coupon settlements and cy pres provisions are natural targets.

Both plaintiff and defense counsel may take advantage of several key preventative measures and tactics to ward off and protect proposed settlements from non-class counsel objectors as well as government and public interest objections.

Listen as our panel of experienced class action attorneys provides a review of trends and case law developments in settlement objections from non-class attorney objectors and government or private interest objectors. The panel will discuss best practices for plaintiff and defense counsel to minimize and overcome challenges from objectors.

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Those of you who enjoyed the recent CAB summary of the presentation on privacy class actions at the ABA’s 16th Annual Class Actions Institute will be interested to know that the re-submitted settlement agreement in Fraley v. Facebook, No. No. C 11-1726 RS (N.D. Cal) was preliminarily approved Monday by Judge Richard Seeborg.  Here is a link to a Reuters article by Jessica Dye summarizing the settlement and the court’s decision.

 

 

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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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