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Archive for the ‘Consumer Class Actions’ Category

I’ll be speaking on a panel discussion of data privacy trends on May 4 in Chicago as part of PLI’s 22nd Annual Consumer Financial Services Institute.  Other panels will discuss a broad range of excellent topics, including the future of the CFPB and other federal and state regulatory trends, consumer class action developments, TCPA litigation and regulatory trends, fair lending and debt collection practice issues, and ethics, just to name a few.  In addition to the Chicago live program, PLI has another program schedule in New York in late May, which will be accompanied by a live webcast and groupcasts in several other cities.  For more information, click the link below.  Hope to see you there!

http://www.pli.edu/Content/Seminar/22nd_Annual_Consumer_Financial_Services_Institute/_/N-4kZ1z10oz2?ID=288896&t=HLK7_FCLTY

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One of the key questions in the aftermath of the Supreme Court’s recent decision in Comcast Corp. v. Behrend is the extent to which damages must be susceptible to classwide calculation in order to justify class certification.  In particular, the question is as follows: When the Comcast Court held that class certification was improper because the plaintiff had failed to demonstrate that “damages are capable of measurement on a classwide basis,” did it mean that Rule 23(b)(3) certification is never proper if damages cannot be determined on a classwide basis?  If the answer to this question is yes, then consumer class actions are in trouble because it’s a rare case where classwide determination of damages is possible.  But if the answer to this question is no, then as the Comcast dissent suggested, “the opinion breaks no new ground on the standard for certifying a class action under Federal Rule of Civil Procedure 23(b)(3).”

Yesterday, in the second of two moldy washing machine class actions that had been vacated and remanded for further consideration in light of Comcast, the Seventh Circuit Court of Appeals joined the Sixth Circuit in answering “no” to this question.  In Butler v. Sears, Roebuck & Co., Nos. 11-8029, 12-8030 (7th Cir., Aug. 22, 2013) (Posner, J.), the court reaffirmed its earlier decision that if common issues predominate over individualized issues in resolving the question of liability, then a class can be certified even if the question damages would require individual determinations. As usual, Judge Posner’s decision is colorful and an interesting read, even for those who disagree with the outcome.  The Sixth Circuit’s decision, which was issued last month, is In re Whirlpool Corp. Front‐Loading Washer Products Liability Litigation, No. 10-4188 (6th Cir. July 18, 2013).

In evaluating the potential broader impact of the Sixth and Seventh Circuit’s decisions, it is important to maintain a clear distinction between the question of damages and the related questions of injury and causation of damages.  Courts have long accepted that individualized damages questions do not prevent class certification, and the moldy washer decisions themselves break little new ground other than to interpret Comcast as not having altered that longstanding principle.  However, saying that individualized questions of damages can be left for a later proceeding is very different than saying that there is a good reason to certify a class when the elements necessary to prove liability itself (which typically include both the existence of injury and causation) cannot all be resolved on a classwide basis.  Individualized questions of whether a given class member has suffered any compensable injury at all or whether the allegedly wrongful conduct caused any alleged injury should still defeat predominance, and neither Sears nor Whirlpool should be read to suggest differently.  In those cases, because the plaintiffs had advanced what these courts concluded was a viable theory of common injury, the only individualized questions related to the amount of, and not the existence of, damages. See In re Whirlpool Corp., slip op. at 22 (“Because all Duet owners were injured at the point of sale upon paying a premium price for the Duets as designed, even those owners who have not experienced a mold problem are properly included within the certified class.)

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I’m a few weeks behind in reporting this, but I still thought it was worth noting that the Florida Supreme Court held oral argument last month in a case that could test the the reach of the U.S. Supreme Court’s 2011 decision on class arbitration waivers in AT&T Mobility v. Concepcion.  In McKenzie Check Advance of Florida LLC v. Wendy Betts, SC11-514, the plaintiff relied on factual evidence in an attempt to prove that the lack of a class action device has made it impossible for her to obtain legal representation to pursue her claims in arbitration.  The case thus potentially raises the question of whether a case-specific finding of unconscionablility, as opposed to a statewide policy invalidating class arbitration waivers more generally, is permissible despite the Court’s holding in Concepcion (I say potentially because it appears that there are factual questions about whether the evidence really supports the proposition that there would be no lawyer willing to take the plaintiff’s case in an individual arbitration).  Recall that the arbitration provision at issue in Concepcion contained several consumer-friendly features, which could have supported the conclusion that it did not actually deprive a consumer of any opportunity to vindicate his or her rights, although Justice Scalia’s majority opinion did not turn on the existence of these features.

This AP article by Bill Kaczor has a good summary of the arguments on both sides and some of the key questions posed during oral argument.  A link to the video feed of the oral argument can be found here (although the server was not responding when I tried to play it).

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Two readers sent me tips yesterday on important decisions from the Second and Third Circuit Courts of Appeals that will be of interest to class action practitioners:

First, John G. Papianou of the Philadelphia firm Montgomery, McCracken, Walker & Rhoads, LLP forwarded a copy of the Third Circuit’s decision in Long v. Tommy Hilfiger U.S.A., Inc., No. 11-1554 (3d Cir., Jan. 24, 2012).  The Third Circuit affirmed a lower court’s decision (summarized in this February 14, 2011 CAB Post) holding that 1) the Fair and Accurate Credit Transactions Act (FACTA) prohibits a merchant from printing a consumer’s expiration month (as opposed to the entire expiration date) on a credit card receipt but that 2) the standard for a willful violation of FAСTA is one of objective reasonableness, meaning that if a merchant acted in conformance with a reasonable, albeit erroneous, interpretation of the statute, it cannot be held liable for a willful violation, regardless of its subjective knowledge or intent.

Second, New York securities class action lawyer Noah L. Shube forwarded a copy of the Second Circuit’s highly anticipated decision in In Re American Express Merchants’ Litigation, No. 06-1871 (2d Cir., Feb. 1, 2012).  In that case, the Second Circuit reaffirmed its conclusion invalidating a class arbitration waiver on federal statutory grounds.  The case had been vacated and remanded by the U.S. Supreme Court to reconsider in light of its recent decision in  AT&T Mobility v. Concepcion.  Yesterday’s decision follows a previous ruling finding the clause unenforceable, which had previously been vacated, remanded for reconsideration in light of the Court’s decision in Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010), only to be reaffirmed by the Second Circuit in a March 8, 2011 ruling (discussed in this March 9, 2011 CAB entry).  In yesterday’s decision, the Second Circuit relied on the federal law of arbitrability, a concept not squarely addressed in either of the Supreme Court’s recent class arbitration decisions, in holding the class arbitration waiver unenforceable.

The Baker Hostetler class action team is putting together a more detailed alert discussing yesterday’s decision in In re American Express Merchants’ Litigation, and I’ll post a link to that alert as soon as it is available.

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Class action news has slowed a bit over the Summer months, at least compared to the non-stop action we witnessed this Spring.  But one area that has seen continued development in the past few months has been the area of class arbitration waivers, where several lower court decisions have been issued in the wake of AT&T Mobility LLC v. Concepcion.  A view of the decisions shows that class actions are far from dead, despite the dire predictions of many experts following the decision.  As my partner, John Lewis, noted in a recent interview with the AmLaw Daily, “While many people thought Concepcion was the end of the line, now we’re seeing the reaction to Conception with district courts distinguishing it on various grounds.”  Here is a quick summary of several key decisions that have interpreted or applied Concepcion:

Chen-Oster v. Goldman Sachs, Inc. (link courtesy of Justia.com) – U.S. District Court for the Southern District of New York – July 7, 2011 – applying the federal common law of arbitrability in rejecting the argument that Concepcion required enforcement of class arbitration waiver in a gender discrimination pattern and practice case, holding that enforcement of the arbitration clause at issue would interfere with the enforcement of a federal substantive right.

Brown v. Ralphs Grocery Company (link courtesy of Impact Litigation Journal, which also has a  summary of the decision here) – California Court of Appeal – July 12, 2011 – holding that representative actions for state labor code violations under California’s Private Attorney General Act (PAGA) were not preempted by the FAA because Concepcion did not address preemption in cases involving PAGA’s statutory procedure and because the procedure did not involve many of the attributes of class action procedure that the Supreme Court had held were inconsistent with the purposes of arbitration.

Kanbar v. O’Melveny & Myers (link also courtesy of the AmLaw Daily) – U.S. District Court for the Northern District of California – July 21, 2011 –  holding in an employment discrimination case that notwithstanding Concepcion, an arbitration provision was unconscionable under California state law and that state law was not preempted under the FAA, but nonetheless compelling arbitration on the grounds that the plaintiff had waived her right to object to enforceability of the arbitration clause.

Cruz v. Cingular Wireless LLC – Eleventh Circuit Court of Appeals – August 11, 2011 – holding that Concepcion compelled the conclusion that arbitration clause was enforceable in a case involving the same exact arbitration clause that was at issue in Concepcion (the clause in AT&T’s mobile phone contract).

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In response yesterday’s entry discussing Daniel Fisher’s article on the potential impacts of Concepcion, I got one of the best comments that I’ve ever received on this site.  It comes from Portland complex injury and consumer class action attorney David Sugerman, who blogs at www.davidsugerman.com.  Of course, I disagree with just about every word of it, but with imagery like a bunch of corporate fat cats “fixing to celebrate the opening of the all-you-can-eat trough of greed,” I could not help but re-post it here:

I’m amused. As I said to defense counsel at a large multi-national firm, I guessed that midway through the second glass of champagne, the defense bar realized it had a real problem. He is apparently looking for a new job or to transition into other areas of practice.

Your one concrete example–retail sales–is, as you know, a less viable class because of problems of ascertainment, notice, locating the class, providing notice and obtaining and distributing relief. And not all retail sales cases survive. You likely recall the Gateway case some years ago with the forced mandatory arbitration clause in the paperwork in the box that was deemed accepted upon registration?

I love the concerted talking points in the defense bar that these cases are not done. Those of us who represent consumers know better.

We also know the torrent about to be unleashed when consumers can no longer take concerted action to stop nickel and diming on high-volume, small amount claims. AT&T, Comcast, banks, utilities, credit card companies are fixing to celebrate the opening of the all-you-can-eat trough of greed.

The argument that Congressional or Executive action *might* change things proves too much. Absent such action, consumer class cases are pretty much done. The argument also illustrates the crass overreaching in SCOTUS’ opinion, with views on federalism and statutory construction that are as breathtaking as the Citizens United case.

This is really not a problem for me because I handle a wide range of consumer and plaintiff problems. But my colleagues in high-priced defense firms who defend consumer class actions for a living are likely to have problems.

So no, if I were a high end defense attorney, I wouldn’t take much comfort in Forbes view or the talking points. It’s going to get bleak out there.

Lest you doubt my dire predictions, let’s set a wager for 12 months from the decision on how many consumer class actions have been filed, how many layoffs in the defense industry, or some other agreed-upon metric that we can revisit next year.

Ok, David, friendly banter on.

First, I must say that I don’t know a single defense lawyer who owns a private jet, but I know several plaintiffs’ lawyers who do, so all this talk about “high-priced” defense firms rings a little hollow to me.

Second, defense lawyers will have jobs for as long as there are plaintiffs’ lawyers around to file lawsuits, and somehow I don’t see the plaintiffs’ bar throwing in the towel this easily.  What you may see is simply a shift in the kinds of class actions that get filed in the future, or the industries that are targeted.  I say “targeted” because in my experience trends in consumer class actions are more often driven by the creativity of the entrepreneurial trial bar than by any epidemic of corporate greed.  Don’t get me wrong, I’m not saying there aren’t well-publicized scandals involving an epidemic of corporate greed (See Enron), but they tend to generate securities or ERISA class actions, not consumer class actions.

Finally, I’ll wager you, although not for money.  Only for pride.  (I’m not made of money after all, I’m just a defense lawyer).  I’ll bet that not only don’t we see a decrease, but we’ll actually see an increase in consumer class actions over the next year.  Sort of like the rash of class actions filed just before CAFA took effect.  I’m not sure at this moment how we’ll measure this, but I’d imagine that there’s a consulting firm out there (no doubt worried about the effect Concepcion is going to have on its own bottom line) planning just the kind of research we need.

So, if you’re a consulting firm looking for a project, we’ve got a job for you (pro bono, of course)…

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Daniel Fisher, who writes the Full Disclosure blog at Forbes.com, posted an article last Friday titled Has Scalia Killed the Class Action?  Fisher’s article one of the best I’ve seen in discussing the potential practical impact that the Supreme Court’s recent class arbitration waiver decision in AT&T Mobility v. Concepcion may have on future consumer class action litigation.  I highly recommend it. 

Although much remains to be seen about Concepcion‘s long-term impact, from a practitioner’s point of view, two things are clear to me. 

First, the consumer class action is far from dead.  As Fisher’s article points out, there are many cases that won’t implicate arbitration clauses in consumer contracts at all, such as those involving retail products.  Moreover, even setting aside the prospect of executive branch or Congressional action in effectively overruling Concepcion, there are a variety of legal arguments that are sure to be raised for invalidating or avoiding enforcement of class arbitration waivers in the lower courts, notwithstanding the Supreme Court’s decision.  There are countless theories, many of which have yet to be dreamed up by enterprising plaintiffs’ lawyers, for why a consumer class action in a particular case should be allowed to go forward in court notwithstanding an arbitration provision.

Second, the fact that future legislative or executive action or lower court judicial gloss may water down or limit Concepcion‘s ultimate impact should not keep companies from taking advantage of what is now, at minimum, an enhanced tool for protection against the significant cost of defending against class action litigation.  In the short term, any in-house or outside counsel charged with advising corporate clients should be considering ways to incorporate class arbitration waivers or similar provisions into the client’s form contracts and terms of use.  While it may not be failsafe protection from class actions, a well-drafted, reasonably limited class arbitration waiver, has an exponentially greater chance of being enforced than it did before the Concepcion decision was announced.

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Last week, following the Supreme Court’s decision in AT&T Mobility v. Concepcion, I commented that the decision does not answer the question whether a federal court has the power to declare a class arbitration waiver unconscionable.  Although not on this precise issue, the Court has granted cert on a related issue relating to the enforceability of arbitration agreements that preclude class actions.

The issue presented in CompuCredit Corp. v. Greenwood, No. 10-948 is “Whether claims arising under the Credit Repair Organizations Act, 15 U.S.C. § 1679 et seq., are subject to arbitration pursuant to a valid arbitration agreement.”  This would-be class action involves a potential conflict between two competing federal laws, the Federal Arbitration Act and the Credit Repair Organizations Act (CROA).  The Ninth Circuit Court of Appeals held that a class arbitration waiver was void “because the CROA specifically prohibits provisions disallowing any waiver of a consumer’s right to sue in court for CROA violations.”  In reaching that conclusion, it held that the statute’s reference to a “right to sue” was an express statement of Congressional intention to preclude waivers of consumer’s rights to bring a lawsuit in court, thus falling within an exception to the otherwise liberal policy favoring arbitration.

The case has been added to the Court’s docket for the October 2011 term.

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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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The filed rate doctrine is an important concept that comes into play in many consumer class actions, including those against public utilities, telecommunications providers, and insurers, that challenge the amounts charged by a regulated provider for its services.  In its broadest sense, the doctrine holds that a regulated entity cannot be sued for charging allegedly excessive rates if those rates were filed with a federal or state regulator.

Last fall, in MacKay v. Superior Court, 188 Cal. App. 4th 1427 (2010), a panel of the the California Court of Appeal expressly applied the filed rate doctrine to bar a consumer protection claim based on an insurance companies act of charging allegedly excessive insurance premiums.  This past week, on January 12, 2011, the California Supreme Court denied a motion to depublish the decision, confirming its status as citable authority. 

Here is a key excerpt from the original decision, entered on October 6, 2010:

The filed rate doctrine provides that rates duly adopted by a regulatory agency are not subject to collateral attack in court. Numerous state courts have applied the filed rate doctrine to approved insurance rates. (E.g., Anzinger v. Illinois State Medical Inter-Ins. Exchange (1986) 144 Ill.App.3d 719, 721, 723 [98 Ill.Dec. 533, 494 N.E.2d 655]; Commonwealth v. Anthem Ins. Companies, Inc. (Ky.Ct.App. 1999) 8 S.W.3d 48, 51-52; City of New York v. Aetna Casualty & Surety Co. (N.Y.App.Div. 1999) 264 A.D.2d 304 [693 N.Y.S.2d 139, 140].) Indeed, one such case noted that while the filed rate doctrine originated in federal courts, “it `has been held to apply equally to rates filed with state agencies by every court to have considered the question.'” (Commonwealth v. Anthem Ins. Companies, Inc., supra, 8 S.W.3d at p. 52.) We thus must disagree with Fogel v. Farmers Group, Inc. (2008) 160 Cal.App.4th 1403, 1418 [74 Cal.Rptr.3d 61], to the extent that it rejected the application of the filed rate doctrine to California insurance rates. The Fogel court noted that the parties before it had identified no cases in which the filed rate doctrine had been applied in the context of a rate approved by a state regulatory agency.  Thus, the filed rate doctrine supports our conclusion that there is no tort liability for charging a rate that has been approved by the commissioner.
 
We note, however, the limited nature of our holding. Insurance Code section 1860.1 protects from prosecution under laws outside the Insurance Code only “act[s] done, action[s] taken [and] agreement[s] made pursuant to the authority conferred by” the ratemaking chapter. It does not extend to insurer conduct not taken pursuant to that authority. 
Id. at 1448-49 (internal footnotes omitted).

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