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Archive for October, 2008

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”:

http://www.cafalawblog.com/-case-summaries-plaintiff-gets-his-bic-flicked-on-a-cafa-removal-in-california.html 

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:

http://www.uclpractitioner.com/2006/10/new_class_certi.html

http://www.thecomplexlitigator.com/2008/10/procedural-news.html

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

http://classactiondefense.jmbm.com/2008/10/arbitration_class_action_defen_9.html 

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:

http://www.complianceweek.com/article/5079/sub-prime-litigation-its-only-just-begun

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).

http://loanaudit.wordpress.com/2008/10/15/truth-in-lending-act-developments/

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:

http://lawprofessors.typepad.com/mass_tort_litigation/2008/10/12th-annual-aba.html

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:

http://retiredplayers.org/2008/10/15/retired-players-class-action-trial-to-begin-next-week/

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

http://www.dandodiary.com/2008/10/articles/subprime-litigation/first-subprime-securities-lawsuit-settlement/

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):

http://overlawyered.com/2008/10/update-wrestlers-class-action-against-wwe/

http://www.ctemploymentlawblog.com/2008/10/articles/decisions-and-rulings/wwe-lawsuit-update-what-you-need-to-know/

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:

http://www.legalradar.com/2008/10/class-action-ag.html

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):

http://www.propublica.org/article/fraud-suits-in-the-pipeline-face-high-burden-of-proof-1014/#When:16:13:01Z

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…

http://www.tmspay.com/2008/10/14/is-facta-really-fair-and-accurate/

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

http://www.pointoflaw.com/columns/archives/2008/10/whole-enchilada-inc-v-traveler.php

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:

http://druganddevicelaw.blogspot.com/2008/10/end-of-securities-fraud-class-actions_15.html

International Class Action Law

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

http://www.newslink.in/2008/10/15/all-about-the-class-action-lawsuit/

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:

http://www.pogowasright.org/article.php?story=20081012081754274

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:

http://kranenburgesq.com/blog/2008/10/fulbrights-fifth/

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:

http://legalwritingcompetitions.blogspot.com/2008/10/class-action-reports-publication.html

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:

http://blogs.houstonpress.com/hairballs/2008/10/guy_sues_continental_airlines.php

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”:

http://cannabisliberty.com/2008/10/09/a-class-action-suit-id-like-to-see/

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The Jerusalem Times published an interesting op-ed article today praising a Tel Aviv court’s decision in a consumer class action.  The case arose out of allegations that the defendant had knowingly used a carcinogenic silicon compound to line its milk cartons. 

The class action was brought not on behalf of a class of persons alleged to have been physically harmed by the milk consumption, but rather on behalf of a class of consumers who would not have purchased the defendants’ product had they known about the potential dangers.   The article describes this consumer fraud theory as a “legal innovation” that was pivotal to the outcome in the face of the defendant’s argument that it should not be held liable because the plaintiff could not prove physical harm resulting from exposure to the silicon.  The article goes on to express the hope that the case will be a “watershed which will encourage further class action suits,” arguing that while there is a perceived abuse of class actions in the U.S., Israel suffers “from the opposite problem: not enough class action suits.”

Of course, the “legal innovation” described by the article is nothing new in the U.S.  Faced with the problem of being unable to prove injury or damages for a products liability claim on a class-wide basis, class action lawyers have often turned to consumer fraud theories, especially in recent cases brought against the tobacco and pharmaceutical industries.  My criticism of this tactic is that it is not well-suited to provide redress for those who truly suffered harm.  It seeks to compel the defendant to pay for its infraction, not for the benefit of those harmed by the dangerous product, but for an entirely different class of individuals who can claim at best that they were exposed to the danger (a fact which they would have remained blissfully ignorant but for the lawsuit).

In the Israeli case, the judge apparently found that consumers would not have purchased the defendants’ milk had they been apprised of all the facts.  If there truly were facts to support the conclusion that no reasonable consumer would have bought the product if the true facts had been disclosed, then maybe this is the right outcome.  But there are very few situations where this absolute conclusion is warranted.  Consumers buy products for any number of reasons, even products known to be dangerous or that have known negative health effects.  Tobacco is a clear example.  

Certainly, there is no justification for the kind of conduct as described in the article, and one could argue that the end justifies the means, but relying on a “the public wouldn’t have bought it if they had known it was dangerous” argument in what really should be products liability cases has always struck me as intellectually dishonest.  In these cases, the consumer fraud claim is little more than a pretext for imposing punishment for a bad act that lacks a clear harm or that has only individualized harms that don’t really meet the standards for class action treatment.  If a company is selling a dangerous product that causes physical harm, then tort law provides a civil remedy.  The fact that there may not be a collective remedy for those physical harms does not justify reliance on a legal fiction to create a means for collective redress on behalf of an over-inclusive class of people who weren’t truly harmed by defendant’s bad acts.  Perhaps better government enforcement, not more class action suits, is the answer.

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Magnified by the most recent credit crisis, subprime mortgage litigation continues to be a hot topic among those following developments in class actions.  Peter Page of the National Law Journal authored an interesting article, published today, discussing the most recent wave of lawsuits stemming from the ugly recent turn in the subprime mortgage crisis.  The article focuses on recent securities fraud class action filings involving claims of failure to disclose subprime investments by mortgage companies, banks, and others.

Securities fraud cases are only a part of the wave of class action litigation that has been spawned by the subprime mortgage fiasco.  Subprime-related issues have formed the basis for a wide range of class actions brought on behalf of a wide range of plaintiffs and based on a wide variety of causes of action, with varying success.  The many types of subprime-related class actions include:

  • Consumer protection actions involving claims for predatory lending;
  • Class actions claiming racial discrimination in mortgage lending;
  • Class actions by subprime loan borrowers under the Truth in Lending Act (TILA);
  • Securities fraud class actions claiming failure to disclose facts about subprime investments;
  • ERISA Class Actions alleging improper subprime investments on behalf of the participants of a pension or retirement plan; and
  • Shareholder derivative lawsuits alleging nondisclosure of and mismanagement involving subprime investments.

The most recent CADS Report, the newsletter of the ABA’s class action and derivative suits committee, has a nice collection of articles on developments many of these areas.  The Newsletter is available only to ABA CADS members (I won’t comment in detail here on the perhaps fitting choice of acronyms), but non-members can get a preview here, along with information on how to join.

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Fullbright & Jaworski International attorneys Antony Corsi and Ian Pegram authored an article published yesterday in the Times Online discussing whether proposed opt-out collective action procedures are likely to lead to huge increases in litigation costs for companies doing business in the UK and due to a rash of frivolous class actions. 

As I have noted in previous entries, the British reforms have been proposed by a quasi-governmental “Public Advisory Body” called the Civil Justice Council.  Following a report issued in February, the CJC held a conference in March and issued specific recommendations for reforms to collective action procedures in August.  Most recently, a conference was held to discuss those recommendations in September in which lawyers, judges, academics, and trade union representatives provided comments on the recommendations.  Reports on all of these events are available on the CJC’s main web page under “What’s New.”

The recommendations would make British collective action procedures more similar to U.S. class actions, but overall collective actions in the UK would still be different from the truly representative class action system in the U.S.  This August 28 ClassActionBlawg entry summarizes the proposed changes.  One of the most significant changes would be the adoption of a procedure allowing collective actions to be brought on an “opt-out” basis (where absent plaintiffs would be bound by the result unless they affirmatively excluded themselves from the litigation).  Currently, the current UK standard for collective actions is “opt-in”, where plaintiffs have to affirmatively join the suit in order to participate.  As examples in the Corsi and Pegram article illustrate, allowing cases to be litigated on an opt-out basis as opposed to an opt-in basis can make a huge difference to the legal exposure, since oftentimes only a very small percentage of the potential plaintiffs bother to participate in an opt-in case.

Corsi and Pegram conclude that despite changes that would add certain features of U.S.-style class action procedure to the UK, those changes are not likely to produce the “American-style excesses” that many in the business community fear.  They point out that the CJC has been particularly sensitive to these concerns and has proposed procedures, including strict oversight by specialist judges, to prevent abuse of the process.  Walter Olson of Point of Law, discussing the article in this entry, opines that other aspects of civil procedure in the UK–such as stricter limits on forum shopping and a loser-pays attorneys fee-shifting rule–are more likely reasons why we might not expect a flood of class action litigation if the reforms are adopted.  As other commentators have pointed out, Europeans have different societal attitudes toward litigation in general and toward the role of the courts in providing redress for private harm, which may also play a part in tempering the legal exposure to businesses that might otherwise be expected to result from an increased availability of collective redress.

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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-Related Post of the Week

Rebecca Tushnet’s 43(B)log provides a nice overview of a Massachusetts federal court’s decision to certify two multi-state subclasses of consumers in a case against pharmaceutical companies for allegedly inflating the Average Wholesale Prices (AWPs), used in establishing reimbursement schedules under Medicare and insurance plans, in order to increase their market share.  The case is intriguing from a procedural perspective because in analyzing the elements of class certification for the purpose of certifying a multi-state consumer class, the court relied on the results of a bellwether trial held to address the claims of two classes of Massachussets consumers, which resulted in a verdict on the merits for the plaintiffs.  Based on the merits determination made in that trial, the court concluded that a multi-state class action could be certified despite differences in different state laws relating to consumer protection, fraud, damages, and statutes of limitation:

http://tushnet.blogspot.com/2008/10/grouping-prevails-in-multistate.html 

Class Action Decisions

The UCL Practitioner reports on a California Court of Appeal decision holding that a court’s gag order prohibiting a newspaper from reporting on a class action filed against it by employees was an unlawful prior restraint:

http://www.uclpractitioner.com/2008/10/class-action-ag.html

Health Plan Law comments on a decision by the U.S. District Court for the Northern District of California holding that a plaintiffs’ complaint in a putative class action seeking health benefits for a putative class of policyholders state an ERISA claim under the pleading standards set forth in Bell Atlantic Corp. v. Twombley, where the complaint did not expressly allege that the defendant was the plan administrator:

http://healthplanlaw.com/?p=765

Class Action Defense Blog provides a synopsis of a West Virginia federal court’s decision denying a motion for class certification in a putative medical monitoring class action due to a finding that individual issues would predominate:

http://classactiondefense.jmbm.com/2008/10/class_action_defense_casesrhod.html

FDA Law Blog summarizes a Ninth Circuit Court of Appeals ruling reversing the dismissal of a class action brought on behalf of a putative class of federally funded medical clinics to enforce, as third party beneficiaries, alleged contractual restrictions on drug prices in agreements between the federal government and drug manufacturers:

http://www.fdalawblog.net/fda_law_blog_hyman_phelps/2008/10/ninth-circuit-d.html

The Southeast Texas Record reports on an order granting summary judgment in favor of various defendants in a toxic tort class action brought against oil companies alleging that emissions from oil refineries had polluted the surrounding neighborhoods, causing property damage and personal injuries:

http://www.setexasrecord.com/news/contentview.asp?c=215213

Securities Docket provides a synopsis of an Eleventh Circuit Court of Appeals decision upholding a lower court’s dismissal of a securities class action on the grounds that the plaintiff had failed to adequately plead wrongful intent:

http://www.securitiesdocket.com/2008/10/08/eleventh-circuit-affirms-dismisal-of-securities-class-action-against-home-depot-and-executives/

Class Action Trends

Mark Aufflick discusses a novel new method that has been proposed for delivering notice of a class action:

http://mark.aufflick.com/blog/2008/10/09/using-windows-update-to-find-class-action-plaintiffs

Art Market Monitor comments on a case filed by a dissatisfied art collector against an art dealer and museum for selling limited edition prints without a number:

http://www.artmarketmonitor.com/2008/10/06/class-action-reaction/

Class Action Resources

Many thanks to Werner R. Kranenburg of the European securities litigation blog With Vigour and Zeal for including ClassActionBlawg in a listing of helpful online class action-related resources:

http://kranenburgesq.com/blog/2008/10/more-class-action-resources/

Federal Civil Practice Bulletin summarizes the articles included in a recent University of Pennsylvania Law Review Symposium issue on developments relating to the Class Action Fairness Act (CAFA):

http://federalcivilpracticebulletin.blogspot.com/2008/10/u-penn-law-review-publishes-articles.html

Legal Research Plus discusses a new resource from BloombergLaw Reports for keeping up with trends in class action law:

http://legalresearchplus.com/2008/10/03/new-resources-for-keeping-up-with-class-action-litigation-and-global-class-action-developments/

Class Action Commentary

Tort Deform cites a New York Times article in which three law professors assert that corporations are less likely to use mandatory arbitration clauses in non-consumer agreements as in consumer agreements and argues that this trend is indicative of the unfairness of using mandatory arbitration clauses in consumer agreements…

http://www.tortdeform.com/archives/2008/10/if_arbitration_is_so_wonderful.html

… and Canadian law blog eLegal hails a recent Washington Supreme Court decision invalidating a class arbitration waiver in a consumer contract as a “big win for consumers”:

http://canton.elegal.ca/2008/10/06/us-court-decision-big-win-for-consumers/

Home Equity Theft Reporter offers commentary on a recent Seventh Circuit Court of Appeals decision holding that homeowners could not pursue a claim for rescission of a subprimehome loan under the Truth in Lending Act (TILA) on a class basis:

http://homeequitytheft.blogspot.com/2008/10/more-on-federal-court-ruling.html

f/k/a comments on the dismissal of an anti-feminist’s class action seeking a ruling that private clubs’ ladies’ night discounts are unconstitutional and offers a more extensive analysis of ladies’ night cases (of which there are surprisingly many):

http://blogs.law.harvard.edu/ethicalesq/2008/10/04/lady-judge-says-ladies-nights-are-not-unconstitutional/

Class Action News

Wage Law provides an update on an appeal to the California Supreme Court of the much-publicized wage and hour class action decision involving alleged unpaid wages for work during meal and rest breaks, Brinker Restaurant Corp. v. Superior Court (2008) 165 Cal. App. 4th 25:

http://wagelaw.typepad.com/wage_law/2008/10/brinker-petition-for-review-status.html

Class Action-Related Scholarship

Mass Tort Litigation Blog contributor Elizabeth ChambleeBurch provides an abstract to her article discussing problems with nonclass aggregation of mass tort claims.

http://lawprofessors.typepad.com/mass_tort_litigation/2008/10/procedural-just.html

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