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Posts Tagged ‘ninth circuit’

The Ninth Circuit Court of Appeals issued a ruling yesterday that will be a blow to plaintiffs seeking to sue call centers in class actions for violations of California’s Invasion of Privacy Law, Cal. Penal Code § 632 (sometimes called the “wiretapping” statute).  The law prohibits the recording or monitoring of confidential telephone calls without the caller’s consent.  It is an appealing basis for class action claims because it provides for statutory penalty of $5,000 per violation, creating the possibility of annihilating exposure in a case that involves a call center that handles thousands of customer calls.

In Faulkner v. ADT Security Services, Inc., the court affirmed the trial court’s dismissal of a claim under the statute based on allegations that a call center for a security company recorded the call of a customer who called with a billing dispute.  The Ninth Circuit fell short of holding that a billing dispute with a security company could never qualify as a “confidential” communication giving rise to liability under the law, but it did observe that whether a particular call was confidential would require unique facts:

For example, a caller might be asked to verify his identity by confirming his social security number or his unlisted telephone number, or to disclose other private or potentially private information. If adequately pled, such facts might well support a finding of confidentiality.

Slip op. at 9, n.***.  The need to examine the particular content of each call to determine whether liability is present would in most cases create an individualized issue of fact preventing class certification.  So, although the ruling does not close the door on claims against call centers for violations of the Invasion of Privacy law, it presents a hurdle to the certification of potentially bankrupting class actions.

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Having been focused on several other speaking and writing projects recently (in addition to my day job), it’s taken longer than I had hoped to comment on several recent class-action-related decisions by the federal circuit courts of appeals.  Here’s a brief summary of three recent decisions of note:

Washington State v. Chimei Innolux Corp., No. 11-16862 (9th Cir. Oct. 3, 2011) – joining the Fourth Circuit in holding that a parens patriae action brought by state attorneys general or other state officials for the benefit of the state’s citizens is not a “class action” for the purposes of removal under the Class Action Fairness Act (CAFA).

Klier v. Elf Atochem N. Am., Inc., No. 10-20305 (5th Cir., Sept 27, 2011) – holding in the absence of an express provision in the settlement agreement to the contrary that unclaimed funds should be distributed pro rata to class members who participated in the settlement as opposed to being given to charity as a cy pres distribution.  Take note of the concurrence by Judge Edith H. Jones, which makes a strong argument that in the absence of any agreement to the contrary or express waiver of the right to recover unclaimed funds, the equities favor returning those funds to the defendant rather than paying them to the class or distributing them to charity.

Esurance Ins. Co. v. Keeling, No. 11-8018 (7th Cir., Sept. 26, 2011) – holding that when punitive damages are at issue, the correct standard is whether it would be “legally impossible” for the plaintiff to recover an amount of punitive damages that, when combined with the amount of compensatory damages sought, would exceed the $5 million amount in controversy threshold under CAFA, but concluding that it was not legally impossible under Illinois law, even though it was unlikely, that $4.4 million in punitive damages could be awarded in a case where the compensatory damages were slightly more than $600,000.

A great resource for more timely commentary and analysis on recent class action decision in the federal courts of appeals is Alison Frankel’s blog On the Case.

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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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In an opinion entered in April in Rodriguez v. West Publishing Corp., the U.S. Court of Appeals for the Ninth Circuit stated its disapproval of the practice of plaintiffs’ counsel entering into incentive agreements with putative class representatives, which required their attorneys to seek successively higher payment in the event of class settlements in successively higher dollar amounts.  The court described the problem as follows:

Incentive awards are fairly typical in class action cases. See 4 William B. Rubenstein et al., Newberg on Class Actions§ 11:38 (4th ed. 2008); Theodore Eisenberg & Geoffrey P. Miller, Incentive Awards to Class Action Plaintiffs:  An Empirical Study, 53 U.C.L.A. L. Rev. 1303 (2006) (finding twenty-eight percent of settled class actions between 1993 and 2002 included an incentive award to class representatives). Such awards are discretionary, see In re Mego Fin. Corp. Sec. Litig., 213 F.3d 454, 463 (9th Cir. 2000), and are intended to compensate class representatives for work done on behalf of the class, to make up for financial or reputational risk undertaken in bringing the action, and, sometimes, to recognize their willingness to act as a private attorney general. Awards are generally sought after a settlement or verdict has been achieved.

The incentive agreements entered into as part of the initial retention of counsel in this case, however, are quite different. Although they only bound counsel to apply for an award, thus leaving the decision whether actually to make one to the district judge, these agreements tied the promised request to the ultimate recovery and in so doing, put class counsel and the contracting class representatives into a conflict position from day one.

The court went on to approve the settlement, which called for the creation of a $49 million settlement fund to compensate a class consisting of aspiring lawyers who paid for  BAR/BRI bar review courses from August 1997 through July 31, 2006.  The court reasoned that although the incentive agreements were improper, there were two settlement class representatives who had not been parties to the agreements.  However, the court remanded for a reconsideration of the attorneys fees to be awarded to the class counsel who had negotiated the incentive agreements and the possibility of an award to counsel for objectors who successfully objected to the incentive fee agreements.

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Does a United States Circuit Court of Appeals decision not to review an order granting or denying class certification mean that the appellate court agreed with the class certification order?  Not necessarily.

Since 1998, Rule 23(f) of the Federal Rules of Civil Procedure has provided a way to seek appellate review of a federal district court’s grant or denial of class certification.  However, appellate review is completely discretionary.  The rule states that a “court of appeals may permit an appeal” of a class certification order if filed within 10 days.  FRCP 23(f) (emphasis added).  This means that before considering any of the issues raised on appeal, the court of appeals first considers whether to allow the appeal to go forward at all.  The court of appeals has “unfettered discretion whether to permit the appeal” and “[p]ermission to appeal may be granted or denied on the basis of any consideration that the court of appeals finds persuasive.”  Rule 23, comment to 1998 amendments. 

Thus, when a U.S. Circuit Court of Appeals denies permission to appeal a class certification order, the denial has no obvious meaning in terms of the ultimate resolution of the issues sought to be raised by the appeal.  Denial could mean that the court agrees with the underlying decision regarding class certification, but more likely it means that the court simply did not believe that it was necessary to resolve the issues on interlocutory (before trial and/or final judgment) review.   Normally, interlocutory issues may not be appealed at all, the exception to this rule being where interlocutory appeal is allowed by a specific statute or rule.  See 28 U.S.C. 1292.  As the 1998 comments to Rule 23 note, a Federal Judicial Center study “supports the view that many suits with class-action allegations present familiar and almost routine issues that are no more worthy of appellate review than many other interlocutory rulings.”  So, the fact of denial of a request under Rule 23 for review of a class certification order doesn’t mean that the court of appeals agrees with the substance of the order.

Any number of things can happen to a class certification order even if interlocutory review is denied.  The trial court can exercise its discretion under Rule 23(c)(1)(C) to alter or amend the order at any time.  Later proceedings at the trial court level, especially the development of key facts, can change the court’s decision on certification.  Alternatively, the parties may reach a settlement in which they agree to alter the class definition for settlement purposes, subject to the trial court’s approval.  Still another possibility is that the court of appeals may review a court’s pretrial class certification decision as part of an appeal after a final judgment is entered by the trial court, either as a result of a trial or as a result of other rulings on the merits of the claims.  The fact that a court of appeals denied permission to appeal a class certification decision before a final judgment does not bar it from considering those issues in an appeal taken as of right after the final judgment.  As a result, it is possible–although rarely do proceedings ever get this far in practice–for a trial court to grant certification, have a trial on the claims for which the class was certified, and enter judgment for or against the class, only to have the court of appeals later reverse the initial order granting class certification.

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