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Posts Tagged ‘standing’

In recent years, academics outside of the United States have made some of the most valuable contributions to the development of legal theory of class actions and other collective litigation.  Here are two examples of recent works by thought leaders in this area:

INDIVIDUAL STANDING IN CLASS ACTIONS (A LEGITIMIDADE DO INDIVÍDUO NAS AÇÕES COLETIVAS)

Author: Larissa Clare Pochmann da Silva (Master in Law in UNESA, Doctorate in Law student at UNESA and Professor of Complex Litigation and Civil Procedure at UCAM – Rio de Janeiro, Brazil)

Abstract (translated from Portuguese):

Individual Standing in Class Actions offers an important and interesting approach to the question of standing, one of the most important themes relating to the development of Brazilian class actions.

The first part the book summarizes research on foreign law, inquiring into the state of the art of collective protection throughout Latin America (Brazil, Argentina, Chile and Mexico), in the United States and Canada, in the European Union (Germany, France, England and Italy) and in Australia.  Part two offers a comparative analysis of these jurisdictions’ various approaches to standing.

Part three organizes the main objections to representational standing and argues for laws recognizing the standing of individuals to sue in a representative capacity, demonstrating the reasons for its relevance, and the important role to be played by lawyers in class actions.

Finally, the book addresses the question of the participation of the individual from various perspectives, seeking to offer a systematic framework for the standing discussion and proposals for the improvement of collective protection in Brazil.

The result is a work that contributes to the development and strengthening of collective action law in Brazilian and brings a new perspective of modernization and improvement of tools for access to justice and the effectiveness of the process.

Pochmann da Silva’s book is available at http://www.editoragz.com.br/produto.asp?prodId=199.

 

AN ECONOMIC ANALYSIS OF RELIANCE IN MARKET FRAUD AND NEGLIGENT MISREPRESENTATION

Authors: Alon Klement and Yuval Procaccia (Interdisciplinary Center (IDC) Herzliyah – Radzyner School of Law, Israel)

Abstract:

A deeply entrenched principle in the law of fraud and negligent misrepresentation provides that damages can be recovered only upon a showing of reliance. To prevail, plaintiffs must not only establish the mere falsity of a statement, but also show that they had acted upon the statement and sustained injury as a consequence.

Despite the intuitive appeal of this principle, this paper argues that the reliance requirement ought to be abandoned. Harm can be caused by a misrepresentation without reliance, and recovery for such loss should not be barred. When a firm misrepresents an attribute of a product, its price in equilibrium typically rises. The inflated price is an injury caused to all consumers, relying and non-relying alike. A rule restricting recovery to only relying consumers results in inadequate deterrence of the firm, which in turn spurs a host of inefficient effects: it may distort allocative efficiency; encourage investments by firms in the production of fraud; induce investments by consumers in self-protection efforts and in detrimental reliance investments; and prompt competing firms to invest excessively in signaling. Furthermore, it undermines deterrence by erecting a substantial barrier to private enforcement through class actions.

While the discussion focuses on consumer markets, it applies more broadly to other markets and other market structures. We explicitly discuss its extension to security markets, in which the requirement has been famously revoked. While the analysis supports existing policy in the domain of primary security markets, it does not do so in the context of secondary markets.

Klement and Procaccia’s article is available for download at SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2372922

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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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Editor’s Note: Many thanks to Larissa Clare Pochmann da Silva, complex litigation professor at Cândido Mendes University in Rio de Janeiro, Brazil, who graciously agreed to provide this valuable update on collective and mass action reforms being considered in Brazil. Not all of the reforms discussed in her article are expected to become law in the immediate future. However, they represent unique and creative potential approaches to common problems in collective redress, which should be of interest to anyone who follows trends in representative and multi-party litigation.

Recent Developments in Collective Process and Mechanisms for Solving Collective Conflicts in Brazil

By Larissa Clare Pochmann da Silva

Class Actions

Collective actions in Brazil are not new. The first legislative enactment occurred with the 1934 Constitution, which provided, in art. 113, no. 38, the popular action. From 1934 until today, the collective procedural law has had, in its history, advances and retreats. The most important laws before 1988 were law 4.717/65, about the popular action, and law 7.347/85, about class actions. The 1988 Constitution increased protection of collective rights in a broad sense the constitutional level. Later, in 2009, Law n. 12.016/2009, repealing previous legislation (Law n. 1533), was enacted to regulate the collective writ of mandamus.

Today, the mechanisms used for collective protection are the popular action, class actions and collective writ of mandamus. Each one has its own mechanisms; however there are several general rules applicable to all of them, and they are discussed generally below.

The collective process aims to protect diffuse, collective and homogeneous rights, all of which have explicit definition in the art. 81 of the Consumer Protection Code:

Article 81 – The defense of the interests and rights of consumers and victims can be exercised either individually or collectively.

§ – Collective defense will be exercised when dealing with:

I – diffuse rights or interests, so understood, for the purposes of this Code, the trans, of indivisible nature, they hold people indeterminate and linked by factual circumstances;

II – collective interests or rights, so understood, for the purposes of this Code, the indivisible nature of trans holds that group, category or class of persons linked to the opposing party or by a legal relationship-based;

III – homogeneous interests or rights, herein defined as arising from a common origin.

Unlike the United States and other common law countries, Brazil doesn’t have a certification process for class actions.

Key Current Issues

Two concepts that today represent the greatest difficulties of the collective process in Brazil are standing and res judicata, but res judicata, since 2011, has become a less controversial issue than standing.

Standing, in the words of Professor Barbosa Moreira, is eclectic. Who has standing? This would be the public sector, associations and individual. Individuals only have standing to propose a popular action. Political parties with representation in Congress, union organization and associations legally established and in operation for at least a year, in the interests of its members or associates (art. 5, LXX of the Federal Constitution), have standing for collective writ. The Public Prosecutor; the Public Defender; Union, states, the Federal District and municipalities; the local authority; public corporation; foundation or mixed capital company and associations, which have existed since at least one year (requirement can be waived by the judge in this case, since the social relevance of observed) and has relevance to the topic, have standing for class actions.

There has been much discussion in recent years about the standing of the public prosecutor to pursue legal action for the protection of homogeneous individual rights. The view that predominates today is the importance of verifying whether the homogenous individual interests identified by the public prosecutor have the essential magnitude capable of characterizing a genuine social interest. If so, the Public Prosecutor will have standing for filing the lawsuit.

However, the issue is still in debate. In the Extraordinary Appeal No. 605,533, the Supreme Court of Brazil (STF) accepted review to decide whether prosecutors have standing to propose measures to protect legal rights related to delivery of medicines to patients with serious illnesses. Depending on the STF’s decision, the case may either be an important development in the history of collective protection or represent a phase of retrocession in the protection of rights.

The standing of the Public Defender is also being debated. The Public Defender’s standing in the legal system generally is governed by Law No. 11.448/2007. The role of the Public Defender in collective protection, however, is pending of decision by the Supreme Court, which must rule on that issue in the Direct Action of Unconstitutionality No. 3943-1. Another question is whether standing of the Public Defender is restricted to cases when the group involves persons who are unable to pay a lawyer to protect their own interests or if the Public Defender can act in every case that involves transindividual interests. The prevailing view is that Public Defender cannot act unless the group involves persons who are unable to pay a lawyer to protect their own interests.

The effects of res judicata are specified in art. 103 of the CDC, the systematic secundum eventus litis. In general, the res judicata effect of a sentence (judgment) is formed erga omnes, in the case of diffuse rights, ultra parts, limited to a group, category or class, in the case of collective rights, and erga omnes in the case of individual homogeneous rights to benefit all victims. The exception is when the claim is dismissed for lack of evidence, in which case any legitimate claimant may bring another action with the same basis drawing on new evidence.

Proposed Reforms

Article 16 of the Class Action Law places territorial limits on the effects of res judicata. However, in October 2011, the Special Court of the Superior Court, in Recurso Especial No. 1,243,887, ruled in that “… the effects and effectiveness of the judgment are not confined to geographic limits, but the objective and subjective limits of what was decided.” (STJ. Recurso Especial nº 1.243.887/PR. Corte Especial. Rel. Min. Luis Felipe Salomão. DJ 19/10/2011).

One of the challenges in analyzing the collective process in Brazil is the difficulty of finding accurate data and national level on the collective process. The National Register for Class Actions and for Class Action Investigation, proposed by Resolution No. 2, June 21, 2011, and originally expected to be in force beginning December 2011, so far not been implemented. It is estimated that the National Register will finally enter into force in the second half of this year.

Nowadays, each court has its own system of search, which provides the data processing procedures in the court determined that the search engines have different search parameters, i.e., some courts make the details of the processes by name only the defendant, others only provide process data by reporter, other process per year, which makes an overview of information difficult in national terms.

There are bills to bring improvements to the collective protection, but it’s still hard to think that the changes will occur anytime soon.

A bill for a new law on class actions and the proposed legislative amendment to the Code of Consumer Protection, Draft Law No. 5.139/09, aims to replace Law No. 7.347/85. The Draft Law has had a long course and numerous changes in its text. In general, the project aimed, among other modifications, (a) to substantially reduce judicial activism, restoring the prevalence of the initiative of the parties, (b) to adopt the principle of dynamic evidentiary burden by assigning the responsibility of proving a fact to the party better able to accomplish it, and (c) to emphasize the public prosecutor’s power to conduct a civil investigation preliminary to the class action.

The project also provided for the creation of the Register of Class Actions, mentioned above, and would confer standing to the public prosecutor without any restriction on the defense of individual homogeneous rights, which today is still a controversial point in the collective process of Brazil.

The project sought to clearly express the role of associative entities. Art. 6 would convey standing to the Brazilian Bar Association (including its sections only–subsections were removed from the legal text for a suggested amendment), unions, and associates formed for the purpose of monitoring the exercise of professions (restricted by the interests linked to their category), the political parties with representation in Congress, in the Legislative Assemblies or Municipal Chambers, and civil associations and foundations under private law legally constituted for at least one year, for the defense of rights related to their institutional objectives. According the art. 6 § 1, the requirement that civil associations and foundations must have been constituted for at least may be waived at the judge’s discretion with consent of the committee and the submission of nominal roll of members.

On March 17, 2010, the draft resolution was rejected by the Constitution and Justice Commission of the Chamber of Congressman in a vote by a majority of 17 votes to 14, the ground of lack of debate and public discussion. On March 23, 2010, members of the committee of lawyers responsible for drafting the project appealed against the dismissal. A new opinion in favor of approving the project was issued on April 27, 2010. However, a few days later, the project was declared suspended unless another appeal should be filed. A second appeal was filed later that year.

No decision has been made on the appeal, and so it remains uncertain whether the bill will be transformed into law, which would represent another major step for Brazilian collective protection, or be permanently archived, burying important ideas for themselves the effectiveness of collective protection.

In 2011, there was a proposal to amend the Consumer’s Protection Code, the project PLS 282/12. The proposal does away with one of these controversial points regarding standing, dismissing any discussion on the standing of the prosecutor to the defense of individual rights homogeneous, stating that these rights, by their nature, already have social relevance. The project also dismisses the discussion about the Public Defender: the Public Defenders can act in all the cases of transindividual rights, not only when there is a group that couldn’t pay for a lawyer. Another proposal would widen participation in public actions through the filing of amicus curiae submissions. However, there is, so far, no indication on the adoption of these proposals.

Thus, despite the existence of bills to improve the previsions on collective protection, there aren`t prospects for approval soon. The only reform that is likely to occur this year is the implementation of the National Register for Class Actions and for Class Action Investigation. On the other hand, as we will explain, the mass torts are to gain a new instrument in the near future.

Mass Torts

A mechanism known today in conflict resolution for mass torts in the country is the so called recurso repetitivo (repetitive appeals). It has existed in the law since 2008, when Law No. 11,672 included items 543-543-B and C of the Code of Civil Procedure. The amendment states that when there are multiple claims requiring resolution of an identical point of law, the President of the court of origin may admit one or more representative features of the dispute and refer them to the Supreme Court (543-B of the Civil Procedure Code) or to the STJ ( 543-C of the Civil Procedure Code). The other cases are to be suspended until the final pronouncement of the Court in the representative appeal. The grouping of recursos repetitivos will take in consideration only the essential issue in discussion whenever resolution of that issue can reduce the analysis of other issues in the same plea.

The Court justice in charge of reporting the case may request information, which must be provided within 15 days to state or federal courts concerning the dispute. After receiving the information, and after the demonstration of third parties, if appropriate, the case will be referred to the Public Prosecutor will for a period of 15 days. After the deadline for Public Prosecutors, the process will be placed on the agenda of the section or the Special Court, which must be judged with preference over other cases, except criminal cases and requests by accused of habeas corpus.

After a final decision, the judgment is to be published. Any identical issues in the stayed cases are to be decided based on the judgment of the Superior Court, and any unique issues remaining in the other cases pending in the court of will be re-examined by the Court of origin in the case.

Another procedure to resolve claims massed, but in the court of first instance, is a “preliminary ruling”. When the matter at issue is solely of law and judgment has already been pronounced in other similar cases, the judge can enter the same ruling in the case without notifying the defendant. In spite of the criticisms on this provision, it is important to note that it only applies to issues of law.

There are other legal instruments that aim to reach the speed of the procedure in mass tort cases, but one in particular worth mentioning is an instrument that it likely to join the legal system very soon, when it approved the Project for the New Civil Procedure Code.

Proposed Reform: Incidente de resolução de demandas repetitivas

The design of the new Civil Procedure Code was presented to the Senate President on August 6, 2010 and as of July 2012, after passing the Senate, already proceeding through the house, was in the process of public hearings. One of its innovations is the incidente de resolução de demandas repetitivas (incident for solving repetitive pleas, or “Incident”), inspired by the second version of the German Musterverfahren, but with many peculiarities.

The mechanism is found under Chapter VII of Project of the New Civil Procedure Code, Articles 930 to 941, in the title “Of Processes in the Courts,” which is not just about appeal, but all the processes that proceed through the courts. It exemplifies one of the concerns of the project: a uniform jurisprudence of the courts, trying to avoid conflicting decisions.

The Incident will take place in case of dispute that may generate significant multiplication of processes based on an identical question of law and cause serious legal uncertainty due to the risk of conflicting decisions. The mechanism will only work for identical issues of law not being applied to questions of fact. One of the practical challenges in implementing the new rule will be the difficulty of decoupling the issues of law of the facts. In fact, law and fact are associated, and it is often difficult in practice to make a clear distinction between the two.

The parties with standing to raise the new Incident procedure, which can be done ex officio by the court, are the parties and the public prosecutor, through simple petition, although the prosecutor must intervene to do so. Incidents raised will be recorded in the National Council of Justice.

The judge to whom the Incident is raised (the rapporteur) may inquire of the lower court which handled the process originally, and the information should be provided within 15 days. After the information is provided, the court of appeal will evaluate the request, and if the use of the Incident is approved, all cases that deal with the same question of law in the court of appeal jurisdiction area will be suspended until a ruling on the common legal question. The time period in which other cases are suspended is limited to six months as a rule, but the period can be extended by the rapporteur of the Incident.

The design of the new code specifically provides for the investigation and resolution of a single case to be admitted as a paradigm of the controversy. The code does not specify whether the Incident is to be considered a representative process, an individual process, or a collective process. In any event, all individual actions may be suspended the same as in a collective action if they are not chosen as representative of the dispute process.

Interested parties may participate in the controversy, joined by the request for documents or conducting investigations. They will have fifteen days to present documents and explain the controversy in 15 days, as well as the Public Prosecutor.

In the trial day, all interested parties are limited to a total of 30 minutes of presentation time to the court. This can be a very small amount of time per interested party, depending on the number who seek to appear. Thus, as a practical matter, although the Incident process is described as participatory, stakeholders have a limited practical ability to manifest themselves in the process. Instead, all cases are decided based on a paradigm.

There is a possibility of appeal to the Superior Court (STJ), or in extraordinary cases, to the Supreme Court (STF), from the court of origin where the Incident was approved. The appeal can be brought by any person who is party to ongoing process which discusses the same legal situation.

After the judgment of the Incident, the bill states that a party may file a complaint in the court that issued the judgment is another court disregards the theory adopted in the Incident.

This was just a brief overview of the new Incident procedure, which is expected to be integrated into Brazilian law in the very near future. However, the bill for a new civil procedure code is still in process, and there are a large number of projects of new bills and new codes in analysis in Brazil, so changes can happen at any time.

So, stay tuned!

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For those who practice in the area of insurance-related class actions, I highly recommend an article posted yesterday by Robinson and Cole Partner Wystan Ackerman, who is the primary contributor to his firm’s Insurance Class Actions Insider blog.  The article, Standing to Sue in Insurance Class Action Addressed By Second Circuit, summarizes the Second Circuit Court of Appeals decision late last month in Mahon v. Ticor Title Ins. Co., No. 10-3005-cv, 2012 U.S. App. LEXIS 12947 (2d Cir. Jun. 25, 2012), which held that the “juridical link” doctrine could not be used to give a plaintiff who bought insurance from one insurance company standing to represent a class of insureds who purchased policies from the defendant’s sister companies.

The Mahon decision is an important development in the area of insurance class action law.  Insurance companies are commonly organized into holding company systems.  (The primary reason for this is not to make it more difficult to sue them, but rather so that they can comply with individual states’ domicile, risk-based capital, rate filing, and  other regulatory requirements, as well as to allow the introduction of new products without disrupting the expectations of existing policyholders.)  As a result, the same insurance brand can be sold through a number of different underwriting companies.  At the risk of grossly oversimplifying the concept, the “juridical link” argument, as it has been raised in the insurance class action context, is that companies that are linked together through common ownership, brand, business practices, or sharing of resources can be sued in the same lawsuit by a representative plaintiff that has a claim against any one of them.

Those who prosecute or defend insurance class actions on a regular basis will recognize that the juridical link argument is nothing new.  Use of the juridical doctrine as a tactic to sue multiple, related defendants in a single class action hit its peak in the middle part of the last decade.  However, the tactic has waned in recent years as plaintiffs’ lawyers realized that it was much more efficient to simply round up a separate class representative for each underwriting company than to spend their time and effort briefing the complex procedural and constitutional issues implicated by the juridical link doctrine. 

Even so, as the recentness of the Mahon decision suggests, the argument has not gone away for good, and practical considerations in any given case can make it a tactic worth pursuing.  And, if the doctrine is on the comeback trail as a litigation tactic, Mahon provides an arrow in the quiver of defense attorneys for defeating it.

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Not two full weeks after I invoked the “juridical link” doctrine as an example of one of the most obscure legal concepts I could think of  (see July 6, 2009 entry, In Defense of the Big Law Blog), a North Carolina Court has apparently applied the doctrine in allowing a class action to be brought against related defendants with whom the named plaintiff had no direct claim.  Mack Sperling of The North Carolina Business Litigation Report has a thorough synopsis of the case, Clark v. Alan Vester Auto Group, Inc. 

The juridical link doctrine developed as a rule allowing joinder of claims against related governmental actors, but plaintiffs sometimes try to invoke the doctrine as a mechanism to avoid the necessity of establishing separate standing to sue each of several defendants named in a class action.  Under the unique circumstances in Clark, where a group of defendants had the same owner, management, and accountant and shared a common computer system and common policies, employees, officers, and sales processes, among other common features, the argument was successful.  Other courts have declined to recognize the juridical link doctrine as an exception to standing, especially where there is no allegation of a conspiracy or concerted conduct between the defendants. 

For more discussion of the history and courts’ treatment of the juridical link doctrine as an exception to standing, see Fernandez v. Takata Seat Belts, Inc.,  108 P.3d 917 (Az. 2005).

For a list of words that rhyme with “juridical” see this link.

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There have been a variety of recent news reports about a trial that began today in a “class action” lawsuit against the United States Department of Veterans Affairs, or VA.

The case, now captioned Veterans for Common Sense v. Peake, was filed by two nonprofit groups on behalf of veterans of the Iraq and Afganistan wars and earlier conflicts alleging systemic problems in the VA’s system of providing healthcare services and admistering benefits for veterans with Post Traumatic Stress Disorder (PTSD) and other mental illnesses.  Among the allegations is that delays in the processing of claims and other problems with claims handling and appeals of the denials of those claims have contributed to an “epidemic of suicides” among affected veterans.  A two-week trial to the court began today before Judge Samuel Conti of the United States District Court for the Northern District of California in San Fransisco.  The plaintiffs seek injunctive relief including supervision over VA healthcare services and the administration of VA benefits, including the appointment of a special master to oversee the handling of claims.  The claims appear to include constitutional due process claims and statutory claims under specific federal laws providing for veterans’ medical benefits.  Trial is to the court rather than to a jury because the plaintiffs are seeking an injunction and not money damages.

From a class action practitioner’s perspective, perhaps the most interesting aspect of the case is the fact that it is not a class action at all.  According to a report on Law.com (click here), the case was originally filed as a class action but the plaintiffs’ attorneys ultimately made a strategic decision not to seek class certification.  Rather than seeking certification on behalf of a class of veterans, plaintiffs’ counsel decided to proceed solely on behalf of two nonprofit veterans’ advocacy groups, Veterans for Common Sense and Veterans United for Truth.  In an order dated January 10, 2008, Judge Conti had previously denied the government’s motion to dismiss on the ground that the two groups lacked standing to sue.  (Copy of January 10, 2008 Order).  Rejecting the government’s argument that the two groups were mere advocacy groups who could not sue by themselves without the participation of individual veterans, the court held that the two groups had organizational standing under the principles outlined by the United States Supreme Court in Friends of the Earth, Inc. v. Laidlaw Envtl. Servs., Inc., 528 U.S. 167, 181 (2000) and Warth v. Seldin, 422 U.S. 490, 511 (1975).  Under these principles, an association may sue on behalf of its individual members if

its members would otherwise have standing to sue in their own right, the interests at stake are germane to the organization’s purpose, and neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit.

Friends of the Earth, 528 U.S. at 181.  In turn, the participation of individual members is not required when its members face “immediate or threatened injury” as a result of the challenged action and “the nature of the claim and of the relief sought does not make the individual participation of each injured party indispensable to proper resolution of the cause.”  Warth, 422 U.S. at 511.  In applying these standards, the court concluded that

[g]iven the nature of Plaintiffs’ claims, especially in regard to the allegations of systemic legal violations, the Court, at this stage, is not convinced that the individual participation of each injured party will be indispensable to the present action. Plaintiffs’ due process claim will depend largely on the claims adjudication procedures enacted under the VJRA, and not necessarily on individual veteran’s claims. The same is true regarding Plaintiffs’ access to the courts claim. Plaintiffs’ claim for denial of statutorily mandated health care can satisfy this standing requirement if, for example, Plaintiffs demonstrate that the current system under the VJRA leads to system-wide denials of this health care or if the VA fails to recognize and treat PTSD within this two-year period.

January 10, 2008 Order at 6.  However, the Court also suggested that this decision might be subject to later change should future events make clear that the participation of individual veterans would be required.  Presumably, this means that the representative nature of the lawsuit is subject to additional argument and evidence at trial, in addition to the merits of the plaintiffs’ claims.

Copies of the various pleadings, orders, and other filings in the case are available at a website provided by the plaintiff organizations (click here).

Other various articles discussing the case are listed below:

http://www.mercurynews.com/news/ci_9004226

http://news.bbc.co.uk/2/hi/americas/7357909.stm

http://www.reuters.com/article/asiaCrisis/idUSN18393680

http://www.opednews.com/articles/genera_jason_le_080421_va_confirms_18_vets_.htm

http://abclocal.go.com/kgo/story?section=news/local&id=6094234

http://www.fogcityjournal.com/wordpress/2008/04/19/veterans-claims-of-inadequate-care-goes-to-trial-monday/

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/02/05/MNQLUQ4IS.DTL&hw=veterans&sn=001&sc=1000

http://www.commondreams.org/archive/2008/01/17/6440/

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