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Posts Tagged ‘class action notice’

Rita Robinson, who writes the Boomer Consumer blog for the Seattle Post-Intelligencer, posted an entry titled Attorneys general oppose DirectBuy’s class-action lawsuit settlement discussing an amicus brief filed by Attorneys General from 34 states, Puerto Rico, and the District of Columbia objecting to a proposed settlement in a consumer fraud class action brought against online wholesale club DirectBuy, Inc. in the U.S. District Court for the District of Connecticut.

A copy of the brief is available for download here courtesy of the Washington Attorney General’s website.   The essential theory of the case was that the defendant “represented that paid DirectBuy memberships entitle customers to purchase goods from manufacturers and suppliers at actual cost when, in fact, Defendants receive kick-backs from the suppliers and manufacturers out of the purchase price paid by DirectBuy members — resulting in members paying more than the actual cost for such goods.”  Amicus Brief at 4.   The 34-page brief raises a variety of objections to the settlement, but the primary beef is that only benefit to claimants was membership extensions or discounts on future memberships, which they argue amounts to a “coupon” settlement.

The case illustrates the practical impact of a key but often overlooked component of the Class Action Fairness Act of 2005, the requirement that “appropriate” government officials be given notice of a proposed class action settlement in federal court.   This is a topic that was the subject of a series of CAB posts in 2008, which you can access at the links below:

As noted in June 25, 2008 entry, although CAFA requires that notice be given to state and federal officials, it is rare for those officials to take any action to object to the settlement after they receive it.  One exception, as exemplified by the DirectBuy case, is a coupon settlement.  (The other thing that can get officials’ attention is where the release in a proposed settlement purports to bind state officials, such as a clause that purports to release parens patriae claims by the state.)

Although CAFA requires notice to state officials, it does not give them any power to prevent the settlement.  In fact, state officials do not even have the express power to formally object to a settlement, which is why when they do act, it is usually in the form of an amicus (friend of the court) brief.  Ultimately, approval or disapproval of the settlement is still up to the trial court.  However, it should go without saying that if you’re a party or attorney seeking approval of a class action settlement, it’s much better not to have government officials filing an amicus brief critical of your settlement.

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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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I was not able to attend the National Institute on Class Actions program in San Fransisco, but class action notice expert Dr. Shannon R. Wheatman (swheatman@gmail.com), was there and she graciously agreed to send me her notes of what sounds like another great conference.  I think that Shannon’s article also marks the first guest post on ClassActionBlawg, and I am very grateful for her contribution.  Shannon’s notes follow below. – PGK

Notes from the 13th Annual National Institute on Class Actions (San Francisco)

Following an introduction from Tydings & Rosenberg partner and National Institute on Class Actions founder, John B. Isbister, Columbia Law Professor John C. Coffee kicked things off with his annual review of developments in federal class action law.  His review covered trends and key decisions over the past five years.  He identified several key areas that he believes are likely to be addressed in the federal courts in the near future. 

Professor Coffee began his discussion on the burden of proof.  He cites a significant shift in the Second, Third, and Fifth Circuits’ adoption of the preponderance of evidence standard for certification.  This has resulted in a front-loading of issues that has typically been consigned to the end of a case.  One example given was on lost causation and damages issues, which may be dispositive, but now need to be addressed at the certification stage in order to prevail.

The First Circuit is resisting the preponderance of evidence standard and this issue will remain at the forefront over the next five years when other circuits decide whether to accept it or not.

The discussion then turned to “hybrid” class actions that seek to combine elements from Rule 23(b)(2) and Rule 23(b)(3) to award injunctive relief and monetary damages.  All circuits have agreed that “incidental” damages can be awarded but their definition of “incidental” differs.   The Ninth Circuit in Dukes v. Wal-Mart, 509 F.3d 1168 (9th Cir. 2007), deemed the damages to be incidental since the primary motive was injunctive relief. 

Since the predominance requirement of Rule 23(b)(3) is a “formidable opponent to class certification” partial certification is gaining acceptance.  Professor Coffee sees this as a possible fix for classes that fail the preponderance of evidence standard.  However, the Second Circuit in McLaughlin v. American Tobacco Company, 522 F.3d 215 (2d Cir. 2008), reversed partial certification because “larger issues such as reliance, injury, and damages” would need to be addressed in individual actions. 

For the past few years Professor Coffee has been discussing class-wide arbitration.  A number of courts have found specific arbitration clauses to be unenforceable and other courts have invalidated class-wide arbitration.  This topic was elaborated on in the first panel discussion.

Highlights of panel discussions

A Funny Thing Happened on the Way to the Courthouse . . . I Had to Litigate an Arbitration Clause!  Crafting, Opposing, and Arguing Clauses and Class-Action Waivers in Three Scenes

Following-up on the 12th Annual’s “I Could Have Sworn it was CAFA, Not Kafka!”  Dan Karon presented a true-to-life example of the evolution of an arbitration clause.   Scene I began with a defense attorney (Todd Fulks) talking with a consultant (Stuart Widman) about the enforceability of his client’s proposed arbitration clause in a mobile phone agreement.  This scenario provided a very entertaining overview of class arbitration challenges.  Scene II involved a discussion between two plaintiffs’ attorneys (Dan Karon and Vincent Esades) who wanted to go forward with a class action for breach of contract but first needed to get a court to rule that the class-action waiver was unconscionable.  Scene III provided a guest appearance from the Honorable Stanwood R. Duval Jr. of the Eastern District of Louisiana.  Judge Duval presided over a mock hearing on the alleged unconscionability of the arbitration clause.  The plaintiff’s attorney commented that the arbitration clause provided a “Willy Wonka effect” with it tiny font.  The most amusing part came when Judge Duval remarked that the arbitration clause “could have been written in invisible ink” in his response to the defense statement that consumers don’t read these agreements anyway so it doesn’t matter. 

Living on the Fault Line: Class Action Issues in California

This panel provided a discussion of the Golden state’s class action landscape.  Hillary Hehman of the California Administration Office of the Courts started the dialogue with an overview of a study on California class actions.  The study found that approximately 22% of class actions filed in California were certified (report is available at www.courtinfo.ca.gov/reference/caclassactlit.htm).  This study dovetails nicely with some research that I was involved in at the Federal Judicial Center that found that approximately 24% of class actions in federal courts were certified (report available at www.fjc.gov).

The remaining panelists (Jocelyn Larkin, Fred Alvarez, Honorable Steven Brick, and Mark Chavez) talked about privacy rights and communication with absent class members prior to certification.  In general, class member contact information is discoverable under California law.  The California Supreme Court in Pioneer Electronics v. Superior Court, 40 Cal.4th 360, 373-374 (2007), ruled that an opt-in procedure is not necessary to allow that communication. 

Hydrogen Peroxide Will Clear it up Right Away: Developments in the Law of Class Certification

This panel (Jessica Miller, John Beisner, Elizabeth Cabraser, Bonny Sweeney, and Shirli Fabbri Weiss) discussed the ramifications of the In Re Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305 (3d Cir. 2008), ruling on class certification standards.   Hydrogen Peroxide shattered the myth that antitrust class actions are a given and laid out several predominance requirements for class certification. Elizabeth Cabraser noted, “merits matter more than they used to.”  The Hydrogen Peroxide ruling did not tell District Courts how far they should go in their merits analysis.  The federal judges have been put into a position where they do not have presumed expertise on deciding the merits so they are reluctant to certify if they are uncertain about the substance of the claims.  The panel suggested that in order to get a class certified you need to move for class certification as early as practicable, get as much discovery as possible, and bring experts in immediately.

A Survival Guide for Today’s Class Action Settlement

The final panel examined the substantive, procedural, and ethical issues that arise in the class settlement process.  Judge DuVal discussed the ethical pitfalls in the distribution and determination of attorneys’ fees.  He discussed the Fifth Circuit’s reversal of the approval of attorneys’ fees in the In re High Sulfur Content Gasoline Products Liability Litigation, 517 F.3d 220 (5th Cir. 2008).  Many lessons can be learned from this case, namely that a judge should not overly rely on the committees’ proposal of attorneys’ fees, ex parte hearings should not be held, supportive data on the distribution plan should be required, and sealing attorneys’ fee documents is a Big No-No.  Judge DuVal said the process must be transparent.  He noted that the court in Turner v. Murphy Oil USA, Inc. used a Special Master to determine fees since the attorneys were in disagreement.  He went on to discuss his work in the Katrina cases (In Re: Katrina Canal Breaches Consolidated Litigation) where plaintiffs’ attorneys waived their fees but were allowed to ask for an enhancement of costs.  Judge DuVal ended his discussion on attorneys’ fees by reminding the audience that “pigs get fed and hogs get slaughtered.”  So it is wise not to become a hog when it comes to attorneys’ fees.

The panel (Judge DuVal, John Hooper, and Mike Ciresi) had a lively discussion on the court’s injunctive powers to protect a settlement.  The All Writs Act and exceptions to the Anti-Injunctive Act aid courts but provide a tremendous opportunity for abuse.  Judge DuVal noted that he issued an injunction in the Katrina litigation against state courts to enjoin any other lawsuits against the agencies involved.

The discussion turned towards objectors.  John Hooper noted that “they are not all professional objectors, there are objectors who are professional.”  At this juncture

Judge DuVal talked about the difficulties with the Katrina cases and the objections that people had about the limited fund settlement.  Effective notice goes a long way to quiet objectors.  Judge DuVal remarked that the “notice in the case was excellent.”  I was the notice expert in the Katrina case and was very moved at the fairness hearing by Judge DuVal’s thoughtful opening remarks, which were meant for the numerous class members who lost so much when the levees failed.  These comments seemed to satisfy some of the objectors.

This provided a good segue into the final presentation on new media options for class action notice.  Katherine Kinsella, a leading expert in the design and dissemination of legal notice, provided an overview of traditional (newspaper, magazines, TV, radio, internet, banner ads, keyword searches) v. new media (mobile, blogs, social).  A tutorial on how new media can be used to reach a class member was demonstrated through text messaging.  Audience members were shown how to use their mobile device to text a short code (listed in a publication notice) in order to get more information about the settlement.  This process of having the class member send a text obviates the Telephone Consumer Protection Act, which bans sending unsolicited advertisements by text to anyone without prior express consent.

The overall take away from this presentation was that new media is “exciting and sexy” but more time is needed for it to evolve to a level where it can reach mass numbers of people.   For example, currently only Facebook and MySpace offer coverage above 10% among adults 18 years of age and over, whereas, numerous magazines (for example, People, National Geographic, Parade, Better Homes & Gardens and Good Housekeeping) individually reach and in some instances greatly exceed 10% coverage.  Moreover, most of our media time is spent on traditional media (47.9% on TV alone).  For now new media can be used to complement the mass audience reach of traditional media.

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If you’re interested in what “appropriate” governmental officals could do after receiving notice of a federal class action settlement, here’s a case that might interest you.  (See my earlier entries on the official notice requirements of 28 U.S.C. 1715 dated March 28 and April 9).  In Figueroa v. Sharper Image Corp., Case No. 05-21251-CIV-ALTONAGA/Bandstra (S.D. Fla., Oct. 11, 2007) (Click Here for a Copy of the Order), the court denied final approval of a coupon settlement in no small part due to an amicus brief critical of the settlement filed by Attorneys General of about 35 states and the District of Columbia.  This is one of the rare cases after the passage of CAFA in which government officials have actually taken steps to comment on the settlement after receiving notice, but it reflects both the influence that government officials may have on a class action settlement if they believe that it is necessary to take action and  means by which they might take action if they choose to do so.  The statute does not prescribe or even expressly permit any particular action to be taken by officials in response to a CAFA notice, but as the Sharper Image decision illustrates, an amicus brief filed by one or more officials in objection to a settlement is likely to strongly influence the court’s final approval decision.

Many thanks to Andy McCallin of the Colorado AG’s office for tipping me off to this decision.  Andy gave a fantastic presentation today on the role of the “appropriate” state officials under CAFA for the inaugural CLE luncheon sponsored by the CBA Class Actions subsection.

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