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Archive for the ‘Colorado Class Action News’ Category

Ever since the U.S. Supreme Court issued its decisions in Smith v. Bayer and Wal-Mart Stores, Inc. v. Dukes, I have wondered aloud whether we would start to see a significant divergence between the standards applicable to class certification in the state and federal courts.  (See the Parting Thoughts Section of this August 31 SCOTUSBlog Post).  My home state of Colorado has been the first to end this speculation, adopting a decidedly more liberal standard for class certification in its decision yesterday in Jackson v. Unocal Corp. than the standards discussed in Dukes and many other lower federal court decisions. 

The main holding of the Colorado Supreme Court’s decision in Jackson can be summarized with the court’s statement that:

A trial court must conduct a rigorous analysis of the evidence and find to its satisfaction that each C.R.C.P. 23 requirement is established.

Jackson, Slip Op. at 18.  At first glance, this statement may not seem out of step with the “rigorous analysis” standard commonly recognized by the federal courts.  However, the majority’s intentional use of the phrase “to its satisfaction” rather than “by a preponderance of the evidence” makes the Colorado standard a potentially far less exacting hurdle.  A large portion of Justice Martinez’s majority opinion is dedicated to explaining why the court chose to make the class certification decision a matter of pure judicial discretion by the trial court rather than a matter of evidentiary proof.  The majority opinion makes reference no less than four times to the state’s “policy of favoring the maintenance of class actions” and juxtaposes this policy against a federal policy that the majority characterizes as “limiting class actions.” 

Also key to the majority’s analysis was the language of Colorado’s rule 23 allowing the court to make a “conditional” class certification order, language that has recently been removed from the federal rule.  Because certification can be tentatively granted and later revoked by the trial court in Colorado, the court reasoned, the applicable evidentiary standard should be more flexible and less definitive than the “preponderance” of the evidence standard applied in most federal courts, where (the Jackson court reasoned) the rule requires a single class certification decision.

The majority addressed two other issues that are closely related to the standard of review.  The first was whether a trial court may resolve factual disputes that overlap with the merits of the case.  On that issue, the majority reached the relatively uncontroversial conclusion that a court may consider disputes about facts that overlap with the merits, but “only to the extent necessary to satisfy itself that the requirements of C.R.C.P. 23 have been met.”  Slip op. at 27.   

The second issue was whether the trial court should resolve expert witness disputes in reaching its determination on class certification.  On this issue, the court’s holding was nuanced.  Although it recognized that the trial court must evaluate the competing experts’ opinions in order to determine whether the evidence at trial can be presented in a way to resolve the class claims through a common set of facts, the majority held that a trial court should not rule on the admissibility of the plaintiffs’ expert’s testimony at the class certification phase.  The majority again recognized that this holding was contrary to the holdings of several federal court decisions, but it reasoned that a different standard was justified under the Colorado rule because a trial court had the power to reconsider a preliminary certification order following a pretrial Shreck (the Colorado equivalent of Daubert, not to be confused with Shrek, the surly but loveable ogre) hearing on the admissibility of a plaintiffs’ expert’s testimony.  See id. at 31-32.

A strongly-worded dissent from Justice Eid, who was joined by Justice Rice, criticized the decision by stating, in summary, that:

the majority’s standardless approach makes class certification in Colorado essentially unreviewable by appellate courts and raises serious procedural due process concerns.

Slip Op. at 1 (Eid, J., dissenting).  Justice Eid’s dissent contains a wealth ammunition for academics, commentators, and the courts of other jurisdictions to question the majority’s reasoning.  But alas, for litigants in Colorado, it does not have the force of law.  So, rather than discuss it in depth, I simply commend it to your reading.

There are a host of questions that arise out of Jackson that will likely be the subject of future litigation in the Colorado courts, and I’ll address a few of them now.  However, I’ll apply the Colorado Supreme Court’s class certification standard to the following remarks by saying that they are preliminary and tentative and subject to later reconsideration as the record develops.

Does the Jackson decision mean that trial courts in Colorado should take a “certify first, ask questions later” approach to the certification question?  

This is a position that any party seeking class certification will likely take in the wake of Jackson.  However, a review of all four companion cases decided by the Colorado Supreme Court on Monday makes clear that this is not a permissible approach.  Jackson vests wide discretion in the trial court to grant or deny certification depending on whether the class certification elements are met to the court’s satisfaction, but it also requires the trial court to consider evidence presented by both sides in analyzing whether class treatment is appropriate.  These conclusions are reflected by the results in State Farm Mutual Automobile Insurance Co. v. Reyher, in which the court applied its new standard and held that a trial court had acted within its discretion in denying class certification after a rigorous analysis, and Garcia v. Medved Chevrolet, Inc., in which it determined that the trial court had erred by granting class certification without taking into consideration the evidence presented by the defendant showing that individual questions would predominate.

Is the “rigorous analysis” standard meaningless in light of the trial court’s vast discretion under Jackson?

 Justice Eid’s dissent argues that the majority’s decision renders the “rigorous analysis” requirement a purely procedural requirement.  In other words, as long as the trial court goes through all the motions, the court still has relatively unfettered discretion to grant or deny certification.  This may be true as an analytical matter, but as a practical matter, performing the “rigorous analysis” requires the trial judge to think critically about how the trial is actually going to be conducted.  It also prevents the trial judge from glossing over what may turn out to be insurmountable practical problems in fairly adjudicating the case through common, class-wide evidence.  Thus, even if a “rigorous analysis” is a purely procedural requirement, that does not mean that it will have no impact on the outcome of class certification motions.

Has the Colorado Supreme Court resurrected the pre-Dukes misinterpretation of Eisen as prohibiting any analysis of the merits of the case?

That the answer to this question is no may not be completely clear from the majority’s opinion in Jackson itself, but it becomes clear when Jackson is read in combination with Justice Martinez’s companion opinion in Reyher.  While, curiously, the majority opinion in Jackson makes no reference to Dukes, the opinion in Reyher cites Dukes approvingly in holding that a trial court cannot simply accept the plaintiff’s allegations as true.  The line that can’t be crossed is that the trial court cannot prejudge the merits, a conclusion that is consistent with the Supreme Court’s recent ruling in Erica P. John Fund, Inc. v. Halliburton Co.

Is class certification now effectively unreviewable in the Colorado appellate courts?

The widely disparate outcomes in the three companion cases decided along with Jackson reflect that appellate review will still have a function after Jackson.  An appellate court may clearly find 1) that the trial court conducted a rigorous analysis of the evidence and acted within its discretion in either granting (Jackson, Patterson) or denying (Reyher) class certification; or 2) that the trial court failed to conduct a rigorous analysis of the evidence and therefore the case must be remanded (Garcia).   What is less clear is whether there ever going to be circumstances in which an appellate court could find that a trial court performed a rigorous analysis but abused its discretion in deciding the outcome of the class certification motion, and whether, if so, the appellate court could dictate the result of the class certification motion rather than remanding that decision to the trial court.

What are the practical implications of Jackson?

There many potential practical implications of the Jackson decision.  First, the standard in Colorado is clearly less stringent than the federal court standard.  This raises the prospect that plaintiffs will view Colorado as a favorable forum for class action litigation, and it will almost certainly raise the stakes in battles over forum selection and federal jurisdiction.  Moreover, given the trial court judge’s broad discretion over the class certification, the particular leanings and predispositions of the trial court judge become pivotal in the likely success or failure of a class action.

Second, the court’s emphasis on the tentative nature of class certification decisions under Colorado Rule 23 means that even once they are certified, class actions in Colorado are likely to be subjected to repeated efforts at decertification as the case progresses.

Third, the emphasis on the “rigorous analysis” standard increases the likelihood that, despite the lack of a clear standard for resolving the issue, class certification will necessitate a mini-trial involving the presentation of live witnesses and a fully-developed record, likely increasing the cost of discovery and the class certification process itself.

On the other hand, none of these potential impacts would be a drastic change from the way that class actions are already being litigated in the Colorado Courts.  Parties already fight over removal and forum selection, courts already conduct evidentiary hearings on class certification motions, and defendants already make repeated efforts at decertifying a class.  Thus, the legacy of  Jackson may ultimately be merely to validate the existing customs and practices for litigating  class actions in Colorado.

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The Colorado Supreme Court’s highly anticipated rulings in four class actions were announced earlier today.  Here are links to the opinions.  I’ll have more commentary on the four decisions soon:

No. 09SC668 – Jackson v. Unocal Corp. – Judgment Reversed (class certification upheld) – Addresses the burden of proof on class certification.

 

No. 09SC1080 – Garcia v. Medved Chevrolet, Inc. Judgment Affirmed (case to be remanded to trial court to conduct rigorous analysis of class certification) – Addresses the circumstances in which the plaintiff in a fraud class action can establish that reliance, injury, and causation can be tried a class-wide basis.

 

No. 10SC77 – State Farm Mut. Auto. Ins. Co. v. Reyher  – Judgment Reversed (denial of class certification upheld) – Addresses the standards for determining whether individual issues predominate and the extent to which the court may consider the merits of a plaintiff’s claims in ruling on class certification.

 

No. 10SC214 – BP America Prod. Co. v. Patterson – Judgment Affirmed (class certification upheld) – Addresses the circumstances in which the plaintiff can prove fraudulent concealment and ignorance of facts giving rise to a claim on a common, class-wide basis.

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The audio feeds for the arguments in three of the four class-action related cases heard today by the Colorado Supreme Court are now available on the court’s website.  Here are some links:

09SC1080 Garcia v. Medved
10SC214 BP America v. Patterson
10SC77 – State Farm v Reyher

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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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In October, Colorado attorney and Wash Park Prophet blogger Andrew Oh-Willeke asked whether there were any statistics on class action filing in the state and federal courts in Colorado.  I responded by providing the raw data on class action filings that I could find through the Court News Service (see October 15, 2010, CAB Post entitled Colorado Class Action Filing Trends).  Oh-Willeke has since authored a post in which he has added some insightful observations on the raw data, including an analysis of on the burden, or lack thereof, that class action lawsuits may be placing on court dockets and some more general comments on class action litigation in general.  Check out his follow-up analysis at the following link:

http://washparkprophet.blogspot.com/2010/11/class-action-lawsuit-statistics-for.html

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I must have more readers than I thought, and some quality readers at that!  Andrew Oh-Willeke, Denver lawyer and author of the blog Wash Park Prophet, posted this question as a comment to one of my recent posts, and it seemed like a great topic deserving of its own post:

Do you know of any statistics on how many class action lawsuits are filed in state courts in Colorado?  The state judiciary doesn’t track Rule 23 motions in the statistics in its annual reports, so it is hard to track trends.  One can make some order of magnitude educated guess by ruling out non-class action eligible suits in District Court (e.g. Rule 120 motions and distaint warrant cases are not going to involve class actions, and presumably all Colorado class actions filed in state court would be filed in District Court, etc.), but, given the different procedural environment, reasoning by analogy from federal district court class action rates isn’t a very sound estimation method, and most places with reputations as class action meccas (e.g. Madison County, Illinois; California) are also unlikely to be representative of Colorado’s state court litigation situation.  Has the Class Action Fairness Act of 2005 shifted what class actions there are in Colorado almost entirely to federal court, or is there a steady stream of class action cases being brought under the radar in the state?

The best source that I’m aware of for tracking filings is a fee-based subscription service called CNS (for Courthouse News Service), which you can find online at http://www.courthousenews.com.   They have a database that tracks filings in the federal courts and some, although not all, state courts.  Below is what I found out from a series of searches on their filings database for U.S. District Court for the District of Colorado, as well as most of the counties along the Front Range.  Because CNS does not include all state courts in Colorado, these numbers are not a complete, but given that the majority of the state population is in the counties whose district courts are included in the CNS database, they should give you a rough idea.
2007
  • 32 total filings described as “class actions”
  • 23 federal court
  • 9 state court filings (Denver 7, Douglas 1, Weld 1)
  •  

2008
  • 25 total filings
  • 19 federal
  • 6 state (Denver 4, Arapahoe 4, Boulder 1)
2009
  • 70 total filings
  • 60 federal court
  • 10 state court (Denver 7, Boulder 3)
2010 (through yesterday)
  • 37 total filings
  • 21 federal court
  • 16 state court (Denver 13, Arapahoe 1, Boulder 2)
So, it appears that while a majority of class action filings have been made in federal court (assuming that there aren’t significant numbers of additional state court filings in counties that aren’t in the CNS database), the percentage of federal filings has not necessarily been increasing in the years following the passage of CAFA in 2005.  In fact, the year with the highest percentage of state court filings is 2010, in which 43% of the total class actions have been filed in state court. 
 
These statistics have to be taken with some huge grains of salt.  They do not reflect removals of cases filed originally in state court.  That analysis could be done using the CNS data because CNS tracks removals, but it would be fairly time consuming.  Moreover, the data also doesn’t provide any qualitative information about the cases included in the statistics.  A pro se filing that uses the words “class action” in the civil cover sheet description would be treated the same as a real class action filed by a reputable firm.  Finally, many of the federal class action filings are employment cases, where federal question jurisdiction provides a jurisdictional basis independent of CAFA.
 
There are a couple of other factors to consider in assessing the potential impact of CAFA on choice of forum.  First, many of the active class actions being litigated in the state were filed before CAFA, so CAFA’s expanded removal jurisdiction does not apply to them.  I am currently defending 3 Colorado class actions in various stages of proceedings, and all three were filed pre-CAFA.  Second, at least in the consumer area, plaintiffs seem to be concentrating less on nationwide class actions and more on individual statewide class actions.  This trend is probably in part due to CAFA but also in part due to a series of decisions over the past decade holding that variations in state consumer protection acts and other laws can preclude class treatment of a would-be nationwide class (see, e.g., In re Bridgestone/Firestone, Inc., 288 F.3d 1012 (7th Cir. 2002)).  CAFA jurisdiction does not apply in a diversity case where the defendant is a citizen of the forum state and more than 2/3 of the class members are also citizens of the forum state.  28 U.S.C. § 1332(d)(4).  A federal court may decline to exercise jurisdiction when the primary defendants and at least 1/3 of the class members are citizens of the forum state.  Id. § 1332(d)(3).    So, there are still many situations where a class action can be brought in state court and not removed by the defendant.

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In April, the Colorado Supreme Court decided Farmers Ins. Exchange v. Benzing, 206 P.3d 812 (Colo. 2009), in which it rejected the “fraud on the market” theory of reliance in a consumer class action.  Now, Garcia v. Medved Chevrolet, Inc., No. 09CA1465 (Colo. Ct. App., Nov. 12, 2009), the Colorado Court of Appeals has rejected the alternative reliance theory that the Benzing court  declined to address: the presumed reliance theory first recognized in the securities class action context in Affiliated Ute Citizens v. United States, 406 U.S. 128 (1972) could apply to establish common proof of reliance in a consumer class action involving alleged fraud by omission.  A synopsis, along with a copy of the opinion, is available at Law Week: http://www.lawweekonline.com/?p=1914

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The Colorado Supreme Court issued one of its most significant class action decisions in recent years today in Farmers Ins. Exch. v. Benzing, No. 07SC483 (Colo., April 27, 2009), rejecting the so-called “fraud on the market” theory of reliance and loss causation in an insurance class action.  Justice Bender authored the decision on behalf of a unanimous court, with two justices not participating.  The key issues addressed in the opinion include:

1) the trial court had discretion to decertify a previously certified class, despite the court of appeals’ finding that the facts and arguments presented in connection with the  decertification motion could have been raised at the initial certification stage, as part of the court’s “continuing obligation to review whether proceeding as a class action is appropriate”, Benzing, slip op. at 19; and

2) the fraud-on-the-market theory of reliance and loss causation was not applicable in an insurance class action where there was no efficient market and where the information alleged to have been concealed was a matter of public record.  Benzing, slip op. at 23-31.

The Court declined to address an alternative theory, also borrowed from the securities context, that common reliance or injury could be established by presumption or inference in a case involving a material omission of fact, as articulated in Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 153-54 (1972).  The court acknowledged a split of authority on whether the Affiliated Ute doctrine could be applied in consumer class actions, but declined to rule one way or another, stating that the issue been “insufficiently raised” before the trial court and court of appeals.  Benzing, slip op. at 32-33 & n.9.

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If you’re a Colorado attorney who didn’t make it to the quarterly CLE luncheon sponsored by the CBA class actions subsection, you missed out.  Dirk W. de Roos and O. Russel Murray gave excellent presentations on developments in class arbitration.  If you’d still like to hear the entire presentation, you’re in luck.  CLE Colorado recorded the audio of the presentation and will include it among its home-study materials.  We’ll have a link on the class action subsection website as soon as it is available.  In the meantime, here are some of the key points:

  • Class arbitration waivers, contracts requiring arbitration but specifying that arbitration proceed on an individual, not class, basis, have been used in a variety of contracts, including employment, executive compensation, consumer, franchise, and settlement agreements.
  • Outside the consumer context, class arbitration waivers have mostly been upheld.
  • Where class arbitration waivers are invalidated, courts most often do so based on traditional contract principles.
  • Class arbitration waivers are increasingly being struck down in consumer agreements, especially in “shrink-wrap” type agreements where the consumer is agreeing simply by using the product.
  • The key U.S. Supreme Court case recognizing the viability of class arbitration (not waivers) is Green Tree Financial Corp. v. Bazzle, 539 U.S., 444 (2003).
  • Class arbitration rules generally track FRCP 23, the main difference being that the decision maker is a private neutral instead of a judge.
  • Class arbitration rules differ from traditional arbitration because they lack the key element of privacy and confidentiality.

Each of the speakers had insights that I thought were interesting:

Dirk de Roos noted that a split among jurisdictions on the enforceability of class arbitration waivers may impact whether a nationwide class can be certified in court over a particular issue given the need to apply different standards to decide whether the action can proceed in court as a class action in the first place.

Russel Murray commented that class arbitration involves a convergence of two more general, controversial issues: 1) many people have an animosity toward class actions and favor ways to limit their application and effectiveness, but, on the other hand  2) many other people have deep concerns about the use of arbitration provisions in consumer agreements and are opposed to agreements that potentially limit the ability of consumers to enforce their rights.

Finally, here is one other item worthy of note.  Russel Murray noted that the National Arbitration Forum rules allow collective resolution of claims only on an opt-in basis, as opposed to the opt-out scheme contemplated by Rule 23 and most other class arbitration rules.  This means that only those plaintiffs who affirmatively opt in to the class after notice. 

The possibility of class arbitration agreements that involve restrictions on class actions less than a complete waiver of the right to bring the case on a collective basis is intriguing.  Imagine a cell phone company including a standard term in its agreements that every claim is subject to class arbitration but that the action would proceed under the National Arbitration Forum rules.  This provision would not be a class arbitration waiver in the strict sense, but it would involve a significant limitation on the ability of a plaintiff to seek collective redress as compared to a class action in court.   As far as I know, the enforceability of this type of class arbitration “reduction” provision has not been tested in court.

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The Colorado Supreme Court held oral argument today in the case of Farmers Insurance Exchange v. Benzing, No. 07SC483.  Audio of the argument is now available at the Colorado Supreme Court’s website.  Among the issues in the case is whether the “fraud on the market” theory, and other presumptions of reliance recognized in securities cases, applied to permit the plaintiff in a consumer fraud case to attempt to prove causation of harm on a class-wide basis without having to prove that each class member suffered injury directly as a result of the alleged fraud. 

The appeal is from a trial court judge’s order decertifying an earlier class certification order authored by another judge.  The second judge had concluded that individualized issues of causation and reliance precluded certification of claims for fraud by omission, finding that whether a policyholder would have made the decision not to buy certain insurance coverage but for the alleged nondisclosures required a case-by-case determination.  The Court of Appeals had relied on the possibility that the plaintiffs might be able to prove liability on a “fraud on the market” theory in holding that the trial court had abused its discretion in decertifying the class.  Under the “fraud on the market” theory, a defendant can be held liable for securities fraud even if each individual shareholder did not rely on the misrepresentation or omission of fact if it can be proven that the fraud had the effect of depressing the overall value of the stock in an efficient market.

The issues for which the Petition for Certiorari was granted are summarized in this ClassActionBlawg entry.

Many of the questions focused on whether there were facts in the record to support the conclusion that proof of causation could be made by class-wide evidence without relying on the “fraud on the market” theory.  Other key questions focused on whether the trial court’s exercise of discretion to decertify the class could be upheld under an abuse of discretion standard even if other courts might have reached the opposite conclusion.  Two concepts not addressed in detail were the impact of the regulated nature of insurance premiums and the fact that premium rates are driven primarily by the actuarial risk assumed by insurers, not by pure market competition.  Both of these facts raise doubts about any assumption that more “fully informed” consumers might have been able to drive down the cost of premiums.

The “fraud on the market” and “price inflation” theories of loss causation appeared to be a growing trend in consumer class actions until earlier this year when the Second Circuit Court of Appeals in the light cigarettes marketing case, McLaughlin v. Philip Morris USA, Inc. et al., No. 06-4666-cv (April 3, 2008).  In McLaughlin, the court held that these types of theories could not be used to justify certification of a consumer class because they were too attenuated and speculative.

Coincidentally, Securities Docket reports today that a method suggested by Michigan law professor Adam Pritchard for companies to avoid or reduce exposure for certain “fraud on the market” securities claims by amending a company’s bylaws has now been proposed by a shareholder of Alaska Air, Inc. to its Chairman and CEO.  That entry also has a link to the proposal itself.

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