Archive for February, 2011

Matt Masich of Law Week Colorado has a good article out today previewing oral arguments scheduled for tomorrow in four class-action related cases.  The outcome of these cases could have a dramatic effect on class action practice in the state. 

The issues to be considered include the proper standard for reviewing class certification, the burden of proof on class certificeation, the level of scrutiny to be given to expert testimony at the class certification stage, the extent to which a plaintiff must prove that all class members suffered injury to justify class treatment, and whether reliance and causation can be presumed in putative class actions seeking damages for fraud.

Here is the schedule of the oral arguments to be held tomorrow, March 1, 2011, in the four cases, along with the issues presented in each case:

9:00 a.m., State Farm v. Reyher, No. 10SC77 (see the Court of Appeals’ Opinion)

Whether the court of appeals erred in reversing the trial court’s denial of class certification under C.R.C.P. 23.

10:00 a.m., Garcia v. Medved Chevrolet, No. 09SC1080 (see the Court of Appeals’ opinion)

Whether the court of appeals erred in reversing the trial court’s certification of a class.

1:30 p.m., BP America v. Patterson, No. 10SC214 (See the Court of Appeals’ opinion)

Whether the court of appeals erred in affirming the trial court’s certification of a class.

2:30 p.m., Jackson v. Unocal Corp., No. 09SC668 (See the Court of Appeals’ opinion)

1) Whether the court of appeals erred by creating a “preponderance of the evidence” burden of proof in the certification of a class pursuant to C.R.C.P. 23.

2) Whether the court of appeals erred by requiring the trial court to assess the credibility of expert testimony at the class certification stage.

3) Whether the court of appeals’ construction of C.R.C.P. 23 improperly invaded the trial court’s case management discretion.

The oral argument in each case is scheduled for one hour.

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I will be speaking in an upcoming live phone/web seminar on CAFA removal issues sponsored by Strafford Publications.  Here is some information about the program:

CAFA Removal and Remand: Latest Developments

Tuesday, March 29, 1:00pm-2:30pm EDT

Program Description:

Jurisdictional ambiguities in the CAFA statute continue to challenge litigators. One example is the Eleventh Circuit’s Cappuccitti v. DirecTV ruling that the district court lacked jurisdiction because no individual plaintiff or putative class member met the amount-in-controversy requirement. While the Eleventh Circuit later vacated its decision, its initial confusion was caused by CAFA’s ambiguous jurisdictional structure. Another evolving jurisdictional issue is the federal court’s authority to retain jurisdiction post-removal. Courts still wrestle with the effect of post-removal events such as denial of class certification or loss of diversity on continued federal court jurisdiction. While several recent cases more firmly establish continued post-removal federal court jurisdiction, this issue is far from settled.

This program will provide class action litigators with an examination of the latest case law developments in CAFA removal and remand, analyze continued jurisdictional ambiguities and pitfalls, and offer litigation strategies for navigating these ambiguities. The panel will offer perspectives and guidance on these and other critical questions: How are the courts resolving ambiguities in CAFA’s amount-in-controversy requirements for federal court jurisdiction? Do the federal courts retain jurisdiction even after class certification is denied or diversity is destroyed? What post-removal events or circumstances can result in a remand to state court?

The panel presentation will be followed by a  live question and answer session.

For more information and to register, see the Strafford Publications website.

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The Baker Hostetler website has a new Executive Alert discussing the Seventh Circuit Court of Appeals’ decision in Kartman v. State Farm Mut. Automobile Ins. Co., Case no. 09-1725, 2011 U.S. App. LEXIS 2830, and its potential implications.  Kartman addressed, among other things, the applicability of Rule 23(b)(2) to consumer class actions in which the ultimate goal is to recover money for class members.  According to the Executive Alert:

This decision is significant in its rejection of the creative attempt to certify a class of consumer claims for injunctive relief, the analysis of the “finality” and “appropriateness” elements of Rule 23(b)(2) for which little authority exists, and the willingness to delve into the merits of the underlying claims to determine that class certification was not appropriate.

Congratulations to my partner, Mark Johnson, and the rest of his team in Columbus on their victory in the case on behalf of State Farm.

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Class action notice expert and occasional CAB guest blogger, Dr. Shannon Wheatman, has a must-read article coming out on trends in class action notices.   The article, co-authored with plain language expert, Dr. Terri R. LeClercq, is being published in the University of Texas law journal The Review of Litigation and will be titled Majority of Class Action Publication Notices Fail to Satisfy Rule 23 Requirements.  As the title suggests, Wheatman and LeClercq have found that a majority of class action notices are still not meeting the plain language notice guidelines established by the Federal Judicial Center.  What’s more, their study suggests that many class action notices do not even meet the basic requirements set forth expressly in FRCP 23(c)(2)(B).

The article summarizes historical developments and best practices dealing with plain language notices in class actions, and sets forth the results of an empirical study of class action notices given between 2004 and 2009.  The study included publication notices given in both state and federal courts and in the settlement context as well as the contested certification context.   The notices had been used in cases involving a wide variety of subject matter areas, including “antitrust, banking and finance, consumer, employment, environmental, humanrights, insurance, pharmaceutical, privacy, securities, and telecommunications.”  The key findings included:

  • Over 90% of securities notices used an uninformative case caption in the header of the notice.
  • Most notices did not include a noticeable and informative headline to capture the attention of potential class members.
  • Over 60% of notices were written in less than an 8-point font.
  • The majority of notices failed to clearly inform class members of the binding effect of the settlement.
  • Over two-thirds of the notices with an opt-out right did not inform the class member that they could opt out of the litigation or settlement.
  • Over 75% of the notices did not tell class members they had the right to appear through an attorney.
  • Over two-thirds of the notices failed to satisfy the concise, plain language requirement of Rule 23.

Shannon R. Wheatman and Terri R. LeClercq, Majority of Class Action Publication Notices Fail to Satisfy Rule 23 Requirements, 30 Rev. Litig. 53, 58 (2011). 

For anyone who has flipped through People Magazine or Sports Illustrated recently, it is probably not a revelation to hear that class action notices are not meeting the requirement that they “concisely and clearly state in plain, easily understood language” certain basic information to class members.  For those of us responsible for carrying out class action notice plans that comply with the rules of civil procedure, however, this article is a reminder that we need to do better. 

Unfortunately, the article is not available online, but for more information on the print version, see the UT Law Publications website, or email Shannon Wheatman at swheatman@kinsellamedia.com.

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Over the weekend, John Papianou, class action defense lawyer and Partner at Montgomery, McCracken, Walker & Rhoads, sent me a copy of Long v. Tommy Hilfiger U.S.A. Inc., No. 09-1701 (W.D. Pa., February 11, 2011) (link courtesy of www.justia.com), an interesting decision involving the Fair and Accurate Transactions Act of 2003 (“FACTA”), 15 U.S.C. §§ 1681c(g), 1681n(a)(1)(A).

FACTA contains provisions requiring that account numbers on credit card receipts be truncated to no more than the last five digits and that receipts not display the card’s expiration date.  It is a popular subject of class actions because it provides for statutory penalties for willful violations of its truncation requirements, which potentially alleviates the need to prove individual injury.

FACTA class actions can pose an extreme risk to companies because, when they are aggregated, the per-violation statutory penalties of $100 to $1000 can far outweigh the potential harm caused by the disclosure of credit card information.  Moreover, in the case of smaller companies, the potential liability can dwarf the net worth of the company itself.  The potential for “annihilating” liability has led several courts to hold that class actions are not a superior method of adjudicating actions for statutory penalties under FACTA.  See, e.g., Leysoto v. Mama Mia I, Inc., 255 F.R.D. 693, 697-98 (S.D. Fla. 2009) (link courtesy of Class Action Defense Blog), see also Stillmock v. Weiss Markets, Inc., No. 09-1632 (4th Cir. July 1, 2010) (unpublished) (Wilkinson, J., concurring specially).  However, the Ninth Circuit Court of Appeals recently held that the prospect of liability that is vastly disproportionate to the actual harm suffered by a prospective class was not a sufficient basis to reject class certification on superiority grounds. Bateman v. American Multi-Cinema, Inc., — F.3d — (9th Cir. Sept. 27, 2010), reversing Bateman v. American Multi-Cinema, Inc., 252 F.R.D. 647 (C.D. Cal. 2008) (link courtesy of Class Action Defense Blog).

In Long, the defendant had complied with the five-digit truncation requirement.  It had printed the expiration month, but not the year, on the receipt.  The court interpreted the words “expiration date” as requiring both the month and the year of expiration, and found that the defendant had not been in violation of the prohibition against printing the expiration date on a credit card receipt.  Alternatively, the court held that even if printing the month had been a technical violation, it could not be a wilful violation sufficient to trigger statutory penalties.  In reaching this conclusion, the court followed the reasoning of the Seventh Circuit Court of appeals in Shlahtichman v. 1-800 Contacts, Inc., 615 F. 3d 794 (7th Cir. 2010) (link courtesy of www.findlaw.com) that the standard for assessing whether a wilful violation has occurred is an objective one, whether a reasonable person in the position of the defendant could have believed that it was a violation.  The decision to apply an objective rather than a subjective standard is important, as Papianou pointed out to me, because it renders unnecessary any factual analysis (and discovery) of what the defendant actually believed.

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According to this February 8, 2011 article from Lee Ann Schultz of the Twin Cities Daily Planet, the Minnesota legislature is considering a bill that, according to its sponsors, would curtail consumer class action litigation in the state.  The bill, HF211, has three key provisions of interest, which would:

  1. limit private actions under three consumer protection statutes to actions filed by “natural persons who purchase or lease goods, services, or real estate for personal, family, or household purposes”;
  2. require proof of personal loss of money in order to support a cause of action for damages under the consumer protection statutes; and
  3. make class certification orders immediately appealable and imposes an automatic stay of proceedings at the trial court while the appeal is pending.

All three measures are similar to class action reform measures passed or at least considered by various states over the past decade or so.  However, there are at least three aspects of the proposed reforms that would make consumer protection actions in Minnesota more restrictive than in other states.

First, this bill appears to limit consumer protection actions to actual consumers.  Some state statutes broadly construe who is a “consumer” for the purposes of enforcing the consumer protection law, so that small businesses and other non-natural “persons” can sometimes qualify. 

Second, while most states have some sort of requirement that there be proof of causation of injury in a consumer protection case, HF211 would require a specific kind of injury:

No award of damages in an action covered by this subdivision may be made without proof that the person or persons seeking damages suffered an actual out-of-pocket loss. The term “out-of-pocket loss” means an amount of money equal to the difference between the amount paid by the consumer for the good or service and the actual market value of the good or service that the consumer actually received.

This language appears to restrict consumer protection claims to only those situations in which the named plaintiff and other would-be class members suffered a loss of value to the product or service purchased.  So, a claim that deceptive marketing or advertising practice caused consumers to suffer financial losses other than loss of value to the product itself would apparently be foreclosed.  The specific language may be intended to avoid the kinds of uncertainty that has plagued litigants in California following the passage of Proposition 64 in 2005, a voter-approved reform that requires proof that the named plaintiff “lost money or other property” in order to pursue a class action under the state’s Unfair Competition Law (UCL).

Curiously, the bill makes reference to a requirement that this injury be proved on an “individual” basis, even in a class action:

Each such person seeking to recover damages for violations of these sections, either in an individual action, a class action, or any other type of action, is required to plead and prove on an individual basis that the deceptive act or practice caused the person to enter into the transaction that resulted in the damages.

It is unclear whether this language, if adopted, would a) effectively prevent any consumer protection claim from being pursued on a class basis because all consumer protection claims would require individual proof of injury, b) be interpreted only as a threshold matter to insure that the class representative (but not absent class members) has standing before the case is allowed to proceed, or c) somehow introduce a new requirement of “individual” proof for all class actions, even while still allowing class actions to be pursued in some form.

Third, this bill would allow appeals of class certification decisions as of right and would create an automatic stay.  By contrast, federal rule 23(f), and the similar rules of many states allow interlocutory appeal of class certification orders only in the discretion of the appellate courts and do not mandate an automatic stay of proceedings at the trial court level while the appeal is pending.

The Bill was introduced in the state House on January 24.  It is not clear what the Bill’s chances of passage are.  Only one of the Bill’s 12 authors is a Democrat (or, for my Minnesota friends who want to be picky, DFL).

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The seemingly revolutionary concept of a “reverse class action” has gotten some attention from the technical media lately, in reference to efforts by the holder of a copyright to seek common relief against a group of alleged infringers.  As pointed out earlier today by Mike Masnick in this entry on his blog TechDirt, “reverse class action” in this context is actually a procedural vehicle that is not new, but is rarely used in practice: certification of a class of defendants.

Rule 23(a) expressly contemplates the possibility of a defendant class because it provides that “[o]ne or more members of a class may sue or be sued as representative parties on behalf of all members only if” the prerequisites of numerosity, commonality, typicality, and adequacy are satisfied.  FRCP 23(a) (emphasis added).  However, the successful use of this mechanism in practice has proven rare.

Defendant classes in cases seeking damages are impractical in most cases because Rule 23(b)(3), the portion of the rule governing actions for damages, requires that class members be given notice and an opportunity to opt out of the case.  So, you could theoretically sue a class for damages if you could meet the other criteria, but each defendant would have the right to exclude himself or herself from the case, which could leave you back where you started.

Another possibility is an action for injunctive relief against a defendant class under FRCP 23(b)(2).  Depending on Supreme Court’s upcoming decision in Wal-mart v. Dukes, Rule 23(b)(2) could provide a mechanism for obtaining significant monetary relief as well, without the same opportunity as in Rule 23(b)(3) for class members to opt out.  However, courts are split on whether the express language of FRCP 23(b)(2) prevents certification of a defendant class.  Some courts have held that the language in FRCP 23(b)(2) permitting class certification when  “the party opposing the class has acted or refused to act on grounds that apply generally to the class . . .” means, logically, that the party opposing class certification cannot be the defendant.  However, other courts have allowed defendant classes under FRCP 23(b)(2), at least in special situations, such as a case against a class of government officials.   See Generally Brown v. Kelly, No. 07-3356-cv, slip op. (2d Cir., June 24, 2010) (discussing the split in the courts recognizing that Rule 23(b)(2) could be used to certify a class of local government officials under some circumstances, but reversing class certification on other grounds).

That leaves FRCP 23(b)(1).  Again, this section uses the phrase “by or against individual class members,” so it at least opens up the possibility of a defendant class.  However Rule 23(b)(1)(A) authorizes class actions only when individual actions “would establish incompatible standards of conduct for the party opposing the class,” potentially ruling out classes of defendants categorically under the same reasoning that has been applied to Rule 23(b)(2).  Rule 23(b)(1)(B) allows class actions where individual adjudications “would be dispositive of the interest of the other members” or “would substantially impede or impair their ability to protect their interests.”   It is not clearly established what circumstances might meet this standard, but the mere possibility that one case will have a stare decisis (precedential) effect on others is probably not  enough.  (See this 2003 Tech Law Journal article discussing Tilley v. TJX Cos., 345 F.3d 34 (1st Cir. 2003)).

For more on the concept of defendant classes (in the patent infringement context), see this June 2009 Los Angeles Lawyer article by Mark Anchor Albert.

For anyone curious about the possibility of defendant class actions in Canada, see this 2004 article by Vince Morabito  in the Duke Journal of Comparative and International Law.

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Berta Baz published this article yesterday in Money Market UK, which may be of interest anyone who tracks developments in class and collective actions abroad.  The article discusses the tension between a collective action notice procedure and the Spanish Data Protection Act.

According to the article, a Madrid court issued an order requiring the Spanish bank BBVA to produce electronic customer data to consumer association ADICAE so that the association could solicit customers to opt in to a collective action against the bank.  The bank produced the data to the court but asked that the data not be passed on to the association until a request for an injunction is considered by the Constitutional Court.  The question apparently to be raised there is whether Spanish data privacy law prevents an order requiring a company to produce private data to the plaintiff representative in a collective action so that the plaintiff can give notice of the opportunity to opt in the lawsuit. 

Like many civil law jurisdictions in Europe, Spain allows collective litigation only on an opt-in basis (would-be group members have to affirmatively opt in to be bound).  (For more on Spanish Collective Litigation, see this article by Pablo Gutiérrez de Cabiedes Hidalgo, available courtesy of the Stanford Global Class Actions Exchange).

Baz points out that there is a practical alternative to requiring the defendant to turn its customer data over to the plaintiff in a collective action that arguably does not violate privacy rights: requiring the defendant to give the notice to the class members directly.  It is unclear, under either procedure, who bears the cost of sending the notice.

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