Archive for October, 2008

In my haste in getting the CABWR out yesterday, I omitted a couple of interesting class-action-related posts from Spam Notes.  For those of you on the email distribution list, hopefully you’ll see the humor in getting spam about spam:



And now for something completely different…

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Class Action Blogosphere Weekly Review’s “Lay Down the Gauntlet” Challenge of the Week

I know this is going to make me sound like Ayn Rand, but why would we possibly want to encourage a public policy that imposes liability on employers for failing to force all of their hourly employees not to work during meal and rest breaks?

I sense that there are a few bloggers out there who will have an answer (or who will take great issue with the premise of the question).

For continuing coverage of proceedings in the California wage and hour class action decision, Brinker Restaurant Corp. v. Superior Court, and other recent decisions involving wage and hour claims for unpaid time worked during meal and rest breaks, see this post and others from The Complex Litigator…


… and this post from Wage Law:


With that out of the way, here are some more blog entries from the week that was that might be of interest to class action practitioners:

Class Action Decisions

William Shatner stars in this typically colorful case review from CAFA Law Blog of a California federal court’s order remanding to state court a class action that had been removed under the Class Action Fairness Act (CAFA), finding that the defendant had filed to establish by a preponderance of the evidence that the $5 million amount in controversy threshold was met:


Classified discusses another CAFA amount-in-controversy decision accepting jurisdiction where the damages requested only “likely exceed” the $5 million amount:


North Carolina Business Litigation Report summarizes a North Carolina Business Court’s decision permitting a plaintiff to withdraw class claims and enter into a confidential settlement with the defendant:


Class Action Defense Blog provides a synopsis of a Ninth Circuit Court of Appeals decision addressing choice of law issues and their impact on the enforceability of a class arbitration waiver:


This guest post on Drug and Device Law Blog addresses the Federal Circuit Court of Appeals’ recent decision concluding that a “reverse payment settlement” in which a the holder of a patent to a branded drug agreed to make payments to a generic challenger in settlement of a patent infringement lawsuit did not violate antitrust laws:


How Appealing summarizes a decision by Judge Richard A. Posner that “offers a useful discussion of the pros and cons of class actions” and draws from the personal experience of the wives of the panel’s members in reversing class certification in a deceptive advertising case:


Class Action (and Related) Commentary

Overlawyered reports on an order compelling the transfer of more than 600 mentally disabled residents of a nursing facilities to group homes entered as the result of a settlement in a public interest group’s class action against the Commonwealth of Massachusetts, the objection of the parents of one of the residents arguing that their son’s health would be endangered by the transfer, and proposed legislation to require courts to notify parents and guardians in class actions and give them a right to opt out:


In this Huffington Post entry, Tracy Siska comments on the indictment of former Police Commander Jon Burge and class actions filed against the Chicago Police Department alleging that illegal detentions and prisoner abuse persisted in the department persisted until as recently as 2005, years after the events underlying Burge’s indictment:


Point of Law offers an abstract from a National Review article discussing the Alaska “loser-pays” rule for shifting attorneys fees:


Class Action Trends

Jan Norman on Small Business discusses trends in California wage and hour class actions and offers tips for employers from employment lawyer John McKasson:


The D&O Diary discusses “The New Phase of Credit Crisis Litigation” as well as other class-action-related trends, and provides a bit of comic relief at the end of this post:


Class Action Scandals

The New York Times Deal Book Blog reports on the sentencing of two former Milberg Weiss partners for their role in an illegal kickback scheme (see CAB entry here):


Mass Tort Litigation Blog reports on the Kentucky Supreme Court’s decision to disbar two lawyers involved in a scandal involving alleged wire fraud in connection with a Fen-Phen class action settlement:


Class Action Potpourri

FP Legal Post comments on a video game featuring vicious class action lawyers.  (See CAB entry here) …


… and Securities Docket doesn’t think the game is a good idea:


The Australian newspaper’s Letters Blog includes a reader’s entry suggesting a government-sponsored class action is a better response than a bailout to the economic crisis:


and finally, The UCL Practitioner offers “An Introduction to the California Blogosphere,” which includes reviews of several of the great California-and-class-action-centric blogs often featured on CABWR and others covering a variety of legal topics:


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For those interested in the internationalization of class action law, be sure to read the Second Circuit’s decision in Morrison v. National Australia Bank Ltd., 2008 WL 4660742 (2d Cir. Oct. 23, 2008).  (Thanks to  The 10b-5 Daily and Point of Law for tipping me off to the decision).

I have previously commented on the trend in efforts to expand securities class actions filed in U.S. Courts against foreign defendants to include foreign nationals who bought stock on foreign exchanges.  (See entries dated July 31 and Sept. 6).   Courts and commentators have begun to refer to these cases as “foreign cubed” class actions.  These earlier entries summarized United States district court opinions addressing whether foreign investors who bought stock on a foreign exchange should be included as members of a class or subclass in a securities class action in a U.S. court.  This analysis has focused on the court’s prediction of whether courts in the foreign jurisdiction would recognize the a judgment in a U.S. class action as preclusive as to absent class members.

The Morrison decision addresses the circumstances in which a U.S. court has subject matter jurisdiction to resolve a dispute between foreign investors and a foreign company at all.  The court rejected the argument that there should be a bright-line rule prohibiting jurisdiction by U.S. courts in all “foreign cubed” class actions.  Instead, the court reiterated an analytical framework that it had previously adopted in other cases involving securities claims against foreign defendants.  Here are the highlights of that analytical framework:

  • U.S. jurisdiction is governed by a “conduct test” and an “effects test,” which are to be analyzed together in some cases to give the court “a better picture of whether there is sufficient United States involvement to justify the exercise of jurisdiction . . . .” Morrison, slip op. at 8 (however, in Morrison, the appellant was relying solely on the “conduct test” so the court focused on that element.)
  • The “effects test” looks to whether the alleged wrongful conduct “had a substantial effect on the United States or upon United States citizens.”  Morrison, slip op. at 8
  • The “conduct test” requires that “the defendant’s conduct in the United States [be] more than merely preparatory to the fraud, and [that] particular acts or culpable failures to act within the United States directly cause[] losses to foreign investors abroad” for subject matter jurisdiction to exist.”  Morrison, slip op. at 11 n.6 (quoting Alfadda v. Fenn, 935 F.2d 475, 478 (2d Cir. 1991)).

Technically, much of the opinion is dicta because in the end the court affirmed the lower court’s dismissal for lack of subject matter jurisdiction, holding that not enough of the conduct giving rise to the securities fraud claims occurred in the United States.  The plaintiffs had argued that the “conduct test” could be satisfied because allegedly falsified numbers that had been communicated to investors in Australia had been prepared in Florida by a U.S. subsidiary.  Weighing a variety of factors, the court concluded that the portion of the conduct that took place in Florida was not significant enough to justify the exercise of jurisdiction.  Among other factors, the court noted that the subsidiary’s corporate obligations were exclusively to its parent and that the actual communication of the allegedly false statements was carried out in Australia by the publicly traded parent.  Another important consideration was the impact of the U.S. Supreme Court recent decision in Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 128 S. Ct. 761 (2008), holding that an act of deception without public disclosure is, at best, too remote in the chain of causation to support proof of reliance in a securities fraud case.

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AP writer Greg Risling reported today on the sentencing of former Milberg Weiss partners Steven Schulman and David Bershad for their roles in a scheme involving the payment of kickbacks to plaintiffs in securities class actions.  Both lawyers were sentenced to six month prison terms.  The scandal involved paying class representatives a portion of the oftentimes multi-million dollar legal fee awards obtained as part of large class action settlements.  In this way, the conspirators were able to provide a significantly greater incentive for a plaintiff to pursue the case than if he or she were limited to recovering an amount necessary to compensate them for their injury.  However, fee-splitting with non-lawyers is considered unethical under long-standing rules of professional conduct.  According to the article, available at Newsweek.com:

In a letter submitted to Federal District Court Judge John Walter, Bershad apologized for the deception.

“I now recognize that our behavior grievously injured the judicial process,” he wrote. “I will live out my days with the painful knowledge that our acts tarnished all of the good work we did.”

Co-conspirator William Lerach published an essay in Portfolio.com earlier this year entitled “I am Guilty,” in which he unapologetically blamed his conviction on zealous prosecutors, the bar associations, big business, and just about everyone other than himself.  Lerach’s diatribe makes the quote from Bershad’s letter seem downright contrite, until you look more closely at his word choice: “I now recognize.”  Though subtle, either the introductory clause reflects a lingering defiance, being code for “I know I need to say this but I don’t really mean it,” or Bershad was commenting on the difficulty of seeing anything wrong with his behavior in the first place: “how could I possibly have known that what I was doing was illegal?”  Either way, his failure to state simply that “Our behavior grievously injured the judicial process” reflects the warped sense of morality that underlies the actions of the lawyers involved in the scandal.

Bershad’s apology fails to recognize that his illegal acts didn’t just tarnish “all the good work” he believes he did, they took the “good” of the work entirely.

Essentially, the argument is that fee-splitting with clients, while concededly unethical and illegal, was a morally necessary tactic to level the playing field in taking on powerful interests.  “Whistleblowers” just needed an extra push to convince them to help the white knights seek justice against evil corporations.  Lerach’s essay even goes so far as to compare his crusade to that of the lawyers who brought the landmark civil rights decision Brown v. Board of Education, though his essay glosses over the small detail that those lawyers did not need kickbacks to persuade a plaintiff to help them do justice.

The “end justifies the means” argument does not work here.  Taking on wrongs in the name of public interest is what attorneys general and other regulators are for.  If public prosecution is not enough, and if there is a true problem in incentivizing victims to pursue a civil remedy without having to bribe them, then we should have a debate about how to change the system.  The kind of private vigilante justice that Lerach and his counterparts championed, where the rule of law is abandoned in the name of the common good, can only lead to exploitation and greed.  It can in no way be considered “good work.”

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I shouldn’t encourage this, but I just couldn’t resist.  OTS Software offers a free game called “Class Action Killers,” which it describes as follows:

Class Action Killers is a 3D 3rd-person shooter game. Attorney Max Fees has dispatched his lethal lawyers to destroy the city. You must stop his lawyers and put an end to Max Fees. Be especially careful of the female lawyers as they love to attack from behind.

The game is free for download here.  For anyone who’s just had enough of class action lawyers and is otherwise inclined to do something drastic, I suppose that this game provides a somewhat more harmless outlet for your rage.

Please note, I have not downloaded “Class Action Killers” myself and cannot verify that the download is safe or that the game is any fun.

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Here are some blog entries from the week that was that might be of interest to class action practitioners:

Class Action Art?

In one of the more original class action-related blog postings ever featured in the CABWR, Artist Izhar Cohen has created a graphic description of an Israeli court’s recent class action ruling in a case filed against a milk container manufacturer in his blog My Window (see CAB entry discussing the decision here):


Class Action Decisions

The Complex Litigator and Wage Law break the news on the California Supreme Court’s decision to grant a petition for review in the wage and hour class action case, Brinker v. Superior Court:



Also see The Complex Litigator for this commentary on a California Court of Appeal decision reversing de-certification of a class action brought under the California Unfair Competition Law (UCL) based on the ascertainability of class members:


The UCL Practitioner summarizes a California Court of Appeal decision addressing the distribution of funds set aside to pay class action settlement awards in a claims-made settlement (See CAB entry discussing claims-made settlements here), when the parties have not agreed to a specific method for dealing with those funds…


…and a Ninth Circuit Court of Appeals decision discussing choice of law issues in a case involving the enforceability of a class arbitration waiver clause:


ContractsProf Blog reports on a New York appellate court decision upholding the denial of a motion to dismiss in a would-be class action filed against a credit card company over alleged improper disclosure of gift card fees:


Phoenix New Times blog Valley Fever discusses a federal court’s ruling in favor of a class of inmates challenging the constitutionality of their treatment and the conditions at the Maricopa County, Arizona jail:


The Overtime Blog discusses a wage and hour class certification decision discussing the information that the defendant was required to produce in order to assist the plaintiff to update address information for class members:


CAFA Law Blog has an uncharacteristically serious analysis of a case highlighting the importance of a putative class definition in determining whether jurisdiction exists under the Class Action Fairness Act (CAFA):


Class Action Defense Blog offers a synopsis of a Fifth Circuit Court of Appeals decision reversing class certification in a case under the Telephone Consumer Protection Act (TCPA), holding that the plaintiff could not prove lack of consent to receive fax advertisements on a class-wide basis:


International Class Action Law

China Business Law Blog and China Law Blog both comment on a New York Times article discussing the challenges facing efforts to seek redress in China’s courts from injuries allegedly caused by the recent tainted milk scandal.  (See previous CAB entry here):



Class Action (and Related) Commentary

Point of Law offers analysis of a challenge to the constitutionality of the FISA Amendments Act of 2008, which permitted the U.S. Attorney General to seek dismissal of pending class actions against telecommunications companies for their roles in cooperating with a federal surveillance program:


FP Legal Post expresses disgust over a battle between Canadian class action firms over the right to represent the plaintiff class in a settlement with a life insurance company:


Mass Tort Litigation Blog comments on and makes a request for input on the phenomenon of Internet forums dedicated to communication between mass tort claimants and their attorneys:


North Carolina Business Litigation Report explains some of the nuances of a shareholder class action filed in the North Carolina Business Court seeking to enjoin a bank merger:


Class Action News

Classified summarizes recent class action-related news:


The Am Law Daily and the NLJ Legal Pad/LA report on the filing of a class action lawsuit under the federal WARN Act and various state wage laws by several former employees against the recently dissolved international law firm Heller Ehrman:



Love Note Press reports on a plea from a Singapore politician for investors not to file securities class action suits against failing banks:


… and more on the story and related news from The Online Citizen:


Overlawyered comments on an Australian newspaper’s report on a class action against the International Olympic Committee, asserting that the organization failed to act quickly enough in taking action against a website that was using its trademarks to scam ticket purchasers:


Class Action Trends

The D&O Diary provides an update on the latest in litigation filed in the wake of the global financial crisis and government bailout:


E-Tips discusses trends in decisions on the enforceability of class arbitration waivers in various jurisdictions in the U.S. and Canada:


Gabe’s Guide to the e-Discovery Universe describes a harrowing escape from a hurricane and throws in some tidbits on e-discovery and subprime litigation trends:


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This evening, I came across an excellent blog article by David J. Sales, a trial lawyer with the Florida personal injury firm, Searcy Denney.  His article discusses Democratic Presidential candidate Barack Obama’s vote in favor of the Class Action Fairness Act of 2005 and the significance of that vote in demonstrating an independent streak, allowing him to counter John McCain’s claim to being the “maverick” candidate willing to break with his party.

Sales makes two insightful observations about CAFA that refute popular myths about the statute.  First, he points out that by passing a statute that shifts jurisdiction over many class action lawsuits from state courts to the federal courts, Congress created a “decidedly anti-federalist” measure, a point that calls into question any perception of the law as a triumph in conservative lawmaking.  Second, he notes that the effects of CAFA have not been been measurably harmful to consumers as many Democrats and trial lawyers warned, a point that discredits any argument that support for CAFA could only have been justified by a pro-big business, anti-consumer agenda.

CAFA has not brought about an end to class actions, as some conservatives hoped and as some liberals had feared.  Maybe for some the law didn’t go far enough in preventing class action abuse, and maybe for others it went too far in restricting access to justice.  But it did add some reasonable procedures that may at least in some cases improve the quality of decision making and prevent abuse in class actions.  Isn’t that exactly the kind of compromise that the vast majority of us who find ourselves closer to the middle of the American political spectrum would like to see happen more often?

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Efforts to expand access to collective redress in the UK have been the subject of several recent entries here at ClassActionBlawg (see these entries dated October 9, September 1, and August 28).  According to an article published today in the Times Online, a British appellate court has dealt a setback to reformers by rejecting theories of damages considered novel in the UK but available under certain circumstances in US courts.  The case involves claims by a feed supplier against chemical companies for price-fixing and other acts of illegal competition in the vitamin market.  Unable to prove compensatory losses, the plaintiff sought other remedies, including disgorgement of profits and punitive damages.  The court rejected these theories, upholding a long-standing principle that civil damages should be limited to those necessary to compensate the plaintiff for losses caused by the illegal competition. 

Lawyers interviewed for the Times Online article predicted that the ruling could negatively impact collective redress reforms that have been proposed by the Civil Justice Council (CJC), because the inability to collect non-compensatory damages and the requirement of proof of individual compensatory damages could reduce the desirability of bringing collective actions for competition violations. 

For better or for worse, I’m not convinced this is true.  The same problem should apply, at least conceptually, in many types of cases brought in the U.S., yet class actions are commonly pursued in the US even where compensatory damages are the stated remedy being sought.  Difficulty in proving individual compensatory damages is not necessarily a disincentive because of the refusal by courts in many jurisdictions to consider individual problems in proof of damages at the class certification stage and the likelihood that the case will result in a settlement before the case gets to the point where the individual damages issues get resolved.  Part of the problem is the perception of the risk that if liability is found, courts will gloss over the lack of proof of individual damages for all or part of a class in an effort to ensure redress for whatever portion of the class was harmed.  However, many cases never get to the point where this issue is actually addressed.  Added to this problem is the fact that the plaintiffs’ bar is constantly thinking up new ways to argue that individual injuries and damages can be proved through “common” evidence.  One illustrative example is the use of the “fraud on the market” theory that has been adopted in securities cases and is now finding its way into consumer fraud cases.  Many of these theories are illogical or subject to proof only through questionable “expert” analysis, but the mere threat that they might succeed is often all the leverage the plaintiff needs to leverage a settlement where all members of the class obtain some relief without ever having to prove to a court that all members of the class were truly damaged.

Of course, the loser pays rulemay be a barrier to same level of entrepreneurial creativity in the UK as we see in the US.  Moreover, the possibility that lawyers in the UK will be able to think up creative ways to get around the proof of compensatory damages requirement may not be the best argument to persuade the government decision makers to accept the CJC proposals.  But, it seems unlikely that yesterday’s damages ruling means that if the CJC’s proposals are adopted, no one will have incentive to use them.

On the other hand, having a collective action procedure that never gets used wouldn’t be a first.

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WordPress has added a nifty new polling feature, so I thought I’d try it out.  Let’s find out who’s reading ClassActionBlawg.  Please click all options that apply.

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Here are some blog entries from the week that was that might be of interest to class action practitioners:

Class Action Blog Post Title of the Week

CAFA Law Blog‘s entries often make me chuckle, but here is one that had me rolling for some reason (probably lack of sleep due to late night blogging): “Plaintiff Gets His Bic Flicked on a CAFA Removal in California”:


Class Action Decisions

The Complex Litigator and The UCL Practitioner  both offer commentary on a California Court of Appeal decision addressing the collateral estoppel effect of a final order denying class certification on a subsequent class action brought by a different named plaintiff but raising the same claims:



Class Action Defense Blog summarizes an Eighth Circuit Court of Appeals decision upholding a class arbitration waiver clause:


Class Action Trends

Compliance Week provides some excellent commentary on the rise of subprime mortgage litigation in an article that includes quotes on subprime litigation trends from The D&O Diary‘s Kevin LaCroix and one of my law partners, Fritz Chockley:


For synopses of various cases addressing Truth in Lending Act (TILA) issues, including the viability of class actions for rescission of mortgages, see this entry from Foreclosure Combatant.  (Note that the Seventh Circuit Court of Appeals recently overturned the decision in Andrews v. Chevy Chase Bank.  See this September 26 CAB Entry).


Mass Tort Litigation Blog provides information about the speakers scheduled for the upcoming 12th Annual ABA National Institute on Class Actions in New York City:


Class Action News

RetiredPlayers.org reports on the commencement of the trial in a class action brought on behalf of former NFL players against the NFL Players’ Association and Player’s, Inc. seeking a share of licensing revenues:


The D&O Diary reports on what may be the first settlement of a subprime-related securities class action:


Overlawyered provides a link to a Connecticut Employment Law Blog entry updating readers on proceedings in an employment class action filed by several professional wrestlers against WWE and discussing why the case may have broader implications in cases involving the distinction between an employee and independent contractor.  (Aside-There’s still no sign of a consumer fraud class action against professional wrestling on the grounds that it is fake–I know, it would be extremely difficult to prove):



Class Action Commentary

Legal Radar comments on the impact of the denial of class certification in cases brought by rice farmers against a seed manufacturer for alleged contamination caused by its genetically modified seeds:


Pro Publica discusses the challenge facing the plaintiffs in securities class actions filed in the wake of the recent credit crisis in light of the heightened burden of proof in securities class actions under the 1995 Private Securities Litigation Reform Act (PSLRA):


TM&S offers commentary on the “fairness” of the Fair and Accurate Credit Transactions Act of 2003 (FACTA), which has generated controversy by providing a vehicle for class action liability to small business due to technical violations of credit card receipt requirements…


… and here’s more insightful FACTA commentary from guest columnist Randy J. Maniloff, writing for Point of Law:


Class Action Reform

Drug and Device Law follows up on a recent post discussing Michigan Law Professor Adam Pritchard’s idea for corporations to stave off “fraud on the market” securities class actions through amendments to their articles of incorporation:


International Class Action Law

News Link provides a brief introduction to class action law in India:


Pogo Was Right responds to a Korea Times article discussing a potential class action suit against an Internet company accused of leaking private consumer information.  The news article includes a description of an interesting dispute resolution procedure to be employed prior to trial:


With Vigour and Zeal summarizes a report issued by the law firm Fullbright & Jaworski on litigation trends and statistics, including statistics on UK companies facing class actions in the US and on subprime-related class actions:


Class Action Potpourri

Legal Writing Competitions announces a law student writing competition in which the winner will be selected for publication in Class Action Reports:


Hair Balls reports on the case of a disgruntled traveler who brought a class action against an airline for having to pay a fuel surcharge for a flight he didn’t take:


Cannabis Liberty muses about the possibility of a class action to vindicate the victims of false positives in drug testing due to their choice of adopting an “organic natural lifestyle”:


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