Insights from DRI Class Action Seminar 2015 – Part 2

Here is part two of my insights from last week’s DRI class action seminar:

No Injury Classes and Article III Standing: Andrew Pincus, lead counsel in Spokeo, Inc. v. Robins (to be decided by the Supreme Court next Term, see my May 1, 2015 blog post), spoke on this subject. The question presented is whether a federal statute can confer standing on a named plaintiff simply based on a statutory violation where the plaintiff does not suffer any concrete harm. Pincus expects the case will be argued in the first or second week of November. His client is making two alternative arguments — a constitutional argument, and a statutory interpretation argument. The constitutional argument is, of course, that Article III requires a concrete harm, in part because the injury needs to be of the type that was recognized in 1787. Also, a showing of actual harm to the plaintiff is necessary, as a matter of separation of powers, to separate private party suits from government enforcement proceedings. Otherwise, there would be an improper delegation of executive branch power. The alternative argument is that the statute at issue (the Fair Credit Reporting Act) should be interpreted as requiring a concrete harm, to avoid a constitutional problem. This is based on the principle of constitutional avoidance, and the principle that if Congress is going to take a step that interferes with the ordinary constitutional framework, it must do so clearly. If Congress were to allow a statutory violation without a concrete harm, it likely would impose a monetary cap with respect to class actions. Most of this seems likely to have less direct impact on insurance class actions, which generally involve state law and rarely present federal statutory claims. But this decision, to the extent it is on constitutional grounds, would govern standing in federal court in diversity cases, and could also influence state courts that look to federal law in evaluating their own standing.

International Class Actions: This panel explained how most of the world now has class actions, and in many countries they are conducted much differently from U.S. class actions. Some of the procedures sound pretty scary from a defense perspective. In Brazil and most of Latin America, the defendant does not know how the class will be defined, and thus cannot properly evaluate the size of the class or exposure, until after liability is determined! And Brazil’s high court has ruled that all class actions are nationwide! Mexico allows class members to opt into the class up to 18 months after the trial court’s decision on the merits. In Argentina, the defendant has only five days to answer the complaint, produce its evidence and identify witnesses for what amounts to an immediate trial on the merits. And we thought the Eastern District of Virginia was the “rocket docket.” France just started to allow class actions last Fall. They will decide both suitability for class treatment and liability in the “first judgment,” although they have no punitive damages. One of the first class actions filed was against an insurance company (no surprise there). In Canada, generally there is a low threshold for class certification, issue certification is common, and defendants typically have few options at the class certification stage. But defendants win some class actions at trial, and they benefit from a “loser pays” rule with respect to attorneys’ fees (although third-party funding is allowed, allowing plaintiffs’ lawyers to shift the risk), and there are no juries. The class action environment internationally is certainly a factor that should be considered when insurers and other large corporations are considering international mergers.

Media Relations in Class Cases: Jim Moorhead presented on this topic. He noted how plaintiffs’ firms have tended to dominate Google searches regarding particular class actions or “hot” issues in class actions generally. Defendants can pay for ads that counteract that. (And it strikes me that defense lawyer blogging helps somewhat since those blog posts often make the first or second page of Google.) Jim also talked about the importance of a social media presence, another area where plaintiffs’ lawyers tend to dominate. Jim emphasized the importance of establishing the company as a source of timely and accurate information on the issue with a strong initial response that is not legalistic, and not a response that may have to be retracted later. He stressed that a company, when faced with a difficult issue, should take specific actions and steps that demonstrate that it is addressing the issue (e.g., stating publicly that it is assigning certain people to investigate or otherwise handle a matter), and make statements about how the company is committed to doing what is lawful and ethical (and making improvements if appropriate). He said there are ways to do this effectively without creating problems in the litigation. When dealing with investigative reporters, he suggested first trying to understand what the story being worked on is, and providing a short written response tailored to that.

Psychology of Legal Ethics: Kevin Underhill of Shook, Hardy & Bacon LLP presented on this topic. Using Watergate and other examples, one of his main points was that ethics transgressions can arise because of “group think,” i.e., the tendency of individuals working on a team not to want to challenge the leader or the general sentiment or initial thinking of a group. This problem can be avoided with a culture that makes sure everyone is comfortable and encouraged to make their own independent evaluation and raise concerns. Other problems arise as a result of moving too quickly, without taking the time to stop and think things through.

 

Insights from DRI Class Action Seminar 2015 – Part 1

As I’ve done in past years, this post and the next one will summarize some takeaways I gleaned from this year’s DRI Class Action Seminar.

Impact of Dart Cherokee: Nowell Berreth, who argued this case in the Supreme Court, spoke about this case, which held that a notice of removal is not required to attach evidence. Rather, it’s merely a pleading like a complaint that needs to include a “short and plain statement” of the grounds for removal. The greatest impact of Dart Cherokee has been the Court’s statement about there being no presumption of removal under CAFA. This has been cited by courts of appeals in summarily reversing or vacating decisions granting motions to remand. Even the Ninth Circuit, which was not previously particularly friendly to removals under CAFA, has done this. So this decision seems to have enhanced defendants’ chances of getting remand decisions reviewed on appeal at the court of appeals level, although the Supreme Court’s ruling about its own CAFA jurisdiction may make it more difficult to get a certioriari petition granted if the court of appeals denies review.

Cutting Edge Developments in Class Action Law: Scott Burnett Smith presented on this topic. He highlighted a couple of circuit splits that might be ripe for Supreme Court review. The Third and Fourth Circuits are split on ascertainability, regarding whether the class members have to be actually identifiable at class certification, or whether it’s sufficient to have merely a method for identifying the class. There is also a split between the Seventh, Ninth and Eleventh Circuits on the viability of injunctions of state court proceedings to protect class settlements — the Seventh Circuit has rejected that (with a certiorari petition remaining pending in the Supreme Court), while the Ninth and Eleventh have allowed it. Although it has not receive a lot of attention, the Supreme Court’s decision on personal jurisdiction in Walden v. Fiore, which narrowed the test for specific jurisdiction, is helping some defendants in class actions. The new test focuses on the defendant’s contacts with the forum state, rather than with the plaintiffs.

Judge Posner on Attorneys’ Fees: Judge Richard Posner of the Seventh Circuit spoke about his concerns with plaintiffs’ attorneys’ fees in class actions. His main concern is that class representatives are not typically acting as clients and making any effort to rein in their lawyers’ fee applications. Defendants also may not worry much about how much of what they are paying goes to the class as opposed to the plaintiffs’ attorneys (although I’m not sure that’s correct where the class members are long-term customers of the defendant whom the defendant has a continuing relationship with). Judge Posner sees objectors as part of the solution to this problem. He said that judges should be evaluating how much time was spent by plaintiffs’ counsel and how the work was allocated between them. And where they have agreed to a modest settlement because of a lower likelihood of success on the merits or on class certification, that should result in a lower fee. He also suggested that in some cases it may make sense to defer the award of fees, or part of it, until it is known how many class members have made claims in a claims-made settlement, and how much relief they have obtained. This allows the fee application to be evaluated in connection with the actual relief to the class. Judge Posner also suggested that the only real justification for cy pres relief is punitive, if the class action device is seen as having a deterrent role. He suggested that judges should give little weight to a “clear sailing” provision in a settlement agreement (an agreement by the defendant not to oppose an attorneys’ fee up to a particular amount), and that if there is a good reason for a reversion provision (allowing money not awarded to be returned to the defendant), it should be permitted. Another panelist made an important point about how Rule 23 does not allow an award of attorneys’ fees if there is no statute or contract provision providing for them. In those circumstances, defendants can take a class action to trial without risking an attorneys’ fee award.

Mediation of Class Cases: Former U.S. Magistrate Judge Diane Welsh of JAMS explained how a procedure of doing individual mediations in select cases, with the individual plaintiffs present, was successful in achieving a mass settlement in a mass tort context. In her view, that was more effective than bellweather trials, which have a tendency to lead to more extreme verdicts on either side, which can make settlement more difficult. Individual mediations of the named plaintiffs’ claims and perhaps some putative class members’ claims might be useful in attempting to settle a class action, depending on the circumstances.

Rule 23 Amendments: Members of the subcommittee of the advisory committee considering potential amendments to Rule 23 discussed the status of their work and took comments from the audience. They are working on a proposal (not reflected in the current draft amendments) to encourage “front-loading” of class actions more, with a list of information that should be provided to the judge early in the case, and information that should be presented with a motion for preliminary approval of a class settlement. They are also considering whether to wade into the debate about ascertainability (given the circuit split discussed above). Some consideration is being given to whether objectors should have to qualify in some respect before they are heard. John Parker Sweeney, president of DRI, argued that the committee should address “no injury” class actions, by adding to the rule a provision that a class cannot be certified if the class members’ injuries are different in scope from the named plaintiffs’ injuries. Committee members expressed some skepticism about whether they should wade into that area given that it is currently before the Supreme Court. Michael Pennington spoke against the proposal to allow settlement classes to be certified without predominance, suggesting that might lead to more “strike suits” by plaintiffs’ attorneys. I suggested that the proposed rule provision that would reinstitute a requirement for court approval of settlements with named plaintiffs should not be adopted because it could make settlement of nonmeritorious class actions more difficult, and goes against Smith v. Bayer Corp.‘s holding that putative class members are not parties until a class is certified. With respect to the proposal that “issues classes” not require predominance, I suggested that if the committee were to adopt that, they should at a minimum allow district courts to evaluate whether predominance is required, in part by evaluating whether the case or issue belongs under Rule 23(b)(2) or Rule 23(b)(3). In some cases the parties reasonably dispute which part of the rule applies, or whether the issue is truly a common issue or not. The judge should be able to decide that predominance is required because the issue belongs under (b)(3), or is one on which individual application is necessary. With respect to ascertainability, I suggested that the committee consider including the requirement in the rule (to reflect the nearly universal case law) but not wade into the debate about how precisely to apply the requirement.

Practical Approaches to Defending Class Actions: John Parker Sweeney pointed out how Wal-Mart v. Dukes provides a good roadmap to defending a class action by taking rigorous discovery of the named plaintiffs and perhaps some putative class members as well. Jennifer Quinn-Barabanov made a good point about how, in filing a Daubert motion and setting up your expert to defend one, you want to make sure you are leaving some issues for the merits, not trying to litigate the merits entirely at the class certification stage. She also made a great point about how defendants can search for public records, public information and third-party sources of information about the named plaintiffs and putative class members to develop additional information in defending against class certification.

Is a Class of Opt Outs Viable? Florida Court of Appeal Says No

A recent Florida appellate court decision caught my eye because it addressed a potentially-important issue that is not expressly addressed by Fed. R. Civ. P. 23, and has rarely been litigated: whether persons who have opted out of a class action settlement may pursue another class action on the same claims. The court held that they could not.

In Bay Area Injury Rehab Specialists Holdings, Inc. v. United Services Automobile Association, No. 2D14-786, 2015 Fla. App. LEXIS 8772 (Fla. 2d Dist. Ct. App. June 10, 2015), approximately 293 class members had opted out of a prior class action settlement. One of the opt outs had also filed a putative class action on largely the same issues that were the subject of the settlement. That case was stayed, by agreement of the parties, pending resolution of the class action that was settled. The plaintiff then sought to represent a class of medical providers who had opted out of the prior class settlement. The trial court granted a motion to strike the class allegations, and the court of appeal affirmed.

The court of appeal explained that “a party who opts out of a class action retains the right to proceed individually, but not to launch a competing class action of opt-outs seeking the same relief resolved on a class basis in a prior lawsuit.” Id. at *7-8. The court of appeal also endorsed the trial court’s reasoning that:

serial class actions would promote a marketplace for competing class actions and erode the benefits of proceeding in a single class action. The underlying lawsuits could proceed ad infinitum. Indeed, these competing class actions would weigh down the mechanism of providing litigants with an economically viable means of addressing their common claims in court through a single representative action.

Id. at *9. The court further noted that “[a]lthough we do not hold in this case that a class action of opt-outs is legally impossible, the need for such a class action would seemingly require exceptional circumstance.” Id. at *10.

This well-reasoned decision likely will be helpful to insurers and other defendants faced with this issue in other jurisdictions, given the paucity of precedent addressing the question. This also may be an area in which an amendment to class action rules to expressly address this issue might be appropriate.

Can an Insurer Intervene in a Class Action to Protect Against a Collusive Settlement?

Liability insurers are sometimes faced with a difficult scenario: Their insured has been sued in a class action with potentially large stakes. The insurer believes they have no duty to defend and a denial of coverage is appropriate. But the result of declining to defend the insured is likely to be a “collusive” class action settlement in which the named plaintiffs, on behalf of the class, agree to a large judgment, with only a relatively small portion of it (if any) collectible against the insured, and the remainder collectible only against the insurer that has denied coverage. A likely scenario where this type of scenario may occur is where the insured has little assets in comparison to the potential liability. The insurer may be confident that its denial of coverage will be upheld. But it cannot be certain of that. And if a court rules that coverage exists, the insurer could be stuck with a very large class action settlement, unless it can challenge the appropriateness of that settlement.

One approach an insurer can take in this scenario is move to intervene in the underlying class action. That motion, however, may need to be filed early in the case, according to a recent Seventh Circuit decision. In CE Design Ltd. v. King Supply Co., No. 12-2930, 2015 U.S. App. LEXIS 11117 (7th Cir. June 29, 2015), the plaintiff filed a class action under the Telephone Consumer Protection Act (“TCPA”) against King Supply, which was insured under CGL and commercial umbrella policies. The insurers denied coverage based primarily on exclusions for TCPA claims. After class certification, King Supply agreed to a $20 million settlement (the policy limits), with only $200,000 (1% of the judgment) executable against King Supply. After the proposed settlement agreement was filed, but before it was approved, the insurers moved to intervene in the case. They also sought a declaratory judgment on coverage separately in a state trial court, and eventually prevailed.

The district court held that the insurers’ motion to intervene was untimely, and the Seventh Circuit affirmed. Judge Posner’s opinion for the Seventh Circuit concluded that the insurers “should have begun worrying when the suit was filed rather than almost three years later” because “[a]lmost all class actions are settled, and . . . a class action settlement may be the product of tacit collusion between class counsel and a defendant.” Id. at *7. Judge Posner wrote that “[a] prospective intervenor must move to intervene as soon as it ‘knows or has reason to know that [its] interests might be adversely affected by the outcome of the litigation.’” Id. at *9-10 (citation omitted).

Judge Posner’s opinion further noted that “even if the insurers had filed a timely motion to intervene, their interest might well have been deemed too contingent on uncertain events to justify granting their motion.” Id. at *11. Judge Posner suggested that insurers might be better off either defending the insured under a reservation of rights, or simply relying on their declaratory judgment action to vindicate their rights. Judge Hamilton wrote a concurring opinion concluding that the insurers lacked the type of interest that would justify intervention because their rights were contingent on whether their coverage decision was correct.

So what is an insurer faced with this quandary to do? Defend under a reservation of rights and incur substantial class action defense costs until the coverage issue is resolved in a declaratory judgment action (if the court will decide that before the underlying case is resolved)? Move to intervene early in the underlying action to protect against a collusive settlement? Or play the odds that the coverage decision will ultimately be upheld? Not an easy call to make. But intervening later in the case is unlikely to succeed, at least in the Seventh Circuit.

DRI Class Action Seminar 2015

The Defense Research Institute (DRI) will be holding its annual class action seminar on July 23 and 24, in Washington, D.C. I’ve attended this program every year since its inception, and have served on the planning committee for several years. The program has continually improved year after year.

This year’s program will feature, among other sessions:

  • a discussion with Judge Posner of the Seventh Circuit regarding attorneys’ fees in class actions
  • a program on class action mediations with retired Judge Diane Welsh
  • a discussion with Judge Robert M. Dow, Jr., a member of the Rule 23 Subcommittee to the Advisory Committee on Civil Rules, regarding the proposed rule changes (see my May 4 blog post for a summary of those)
  • a session by Supreme Court litigator Andrew Pincus on “no injury” classes and Article III standing, which will be the subject of Spokeo v. Robins, to be decided by the Supreme Court next Term (see my May 1 blog post for more on that)
  • a session on managing media relations in class actions by Richard Levick (I heard him speak on this subject several years ago and he was excellent).

I hope to see you there.

Supreme Court to Decide Class Action Issues Involving Settlement Offers to Named Plaintiffs, Statistical Sampling and Class Member Standing Issues Next Term

I’ve been delayed a bit in reporting on this, but the October 2015 term of the U.S. Supreme Court is shaping up to be a blockbuster one for class action law. Perhaps even bigger than the October 2010 term, which brought us Wal-Mart v. Dukes, Smith v. Bayer Corp. and AT&T v. Concepcion. I previously reported on the Court’s grant of certiorari in Spokeo v. Robins, to decide whether a plaintiff who does not suffer any injury has Article III standing to sue for violation of a federal statute. The Court recently granted certiorari in two more class action cases. The rulings that will be issued next Term (probably not until sometime in 2016) could mean effectively the end of class actions as we know them. Or they could mean a reinvigoration of the class action device in a manner quite favorable to the plaintiffs’ bar. Or the outcome could be, as it often is, somewhere in between those extremes.

Settlement Offers to Named Plaintiffs

In Campbell-Ewald Co. v. Gomez, No. 14-857 (SCOTUSblog page), the Court granted certiorari on the following issues: “(1) Whether a case becomes moot, and thus beyond the judicial power of Article III, when the plaintiff receives an offer of complete relief on his claim; (2) whether the answer to the first question is any different when the plaintiff has asserted a class claim under Federal Rule of Civil Procedure 23, but receives an offer of complete relief before any class is certified; and (3) whether the doctrine of derivative sovereign immunity recognized in Yearsley v. W.A. Ross Construction Co., for government contractors is restricted to claims arising out of property damage caused by public works projects.”

The Court will review the Ninth Circuit’s decision in Gomez v. Campbell-Ewald Co., 768 F.3d 871 (9th Cir. 2014), which vacated and remanded a summary judgment ruling in favor of the defendant in a case brought under the Telephone Consumer Protection Act (TCPA). The plaintiff alleged that the defendant violated the TCPA by sending (through a third-party vendor) unsolicited text messages on behalf of the U.S. Navy. The defendant offered the named plaintiff full relief on his claims — $1503 per violation, plus reasonable costs. That’s a pretty nice payday for the inconvenience of a single allegedly unauthorized text message. But that offer was rejected. The Ninth Circuit held that the unaccepted offer did not moot the named plaintiffs’ individual claims or the putative class claims. It relied on its prior decision that agreed with Justice Kagan’s dissent in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013). The Supreme Court majority in Symczyk, which involved a Rule 68 offer of judgment to the named plaintiff, assumed that the unaccepted offer of full relief had mooted the named plaintiff’s claim, because that issue had not been disputed below. The majority held that the collective-action allegations were moot, noting that “[w]hile settlement [with the named plaintiff] may have the collateral effect of foreclosing unjoined claimants from having their rights vindicated in respondent’s suit, such putative plaintiffs remain free to vindicate their rights in their own suits. They are no less able to have their claims settled or adjudicated following respondent’s suit than if her suit had never been filed at all.” Id. at 1531. This language suggests that there is nothing wrong with a defendant forcing a settlement of the named plaintiff’s claim in a manner that renders the putative class action claims moot, at least for purposes of that one case (a new plaintiff can always bring another putative class action, but the defendant can always make an offer of complete relief to that plaintiff). Justice Kagan’s dissent in Genesis Healthcare (joined by Justices Ginsburg, Breyer and Sotomayor) concluded that an unaccepted offer of judgment was a nullity under the plain language of Rule 68. The dissent conceded, however, that an “unconditional surrender” could allow a court to enter judgment for the plaintiff. Justice Kagan further concluded, however, that a judgment for only the named plaintiff would not be complete relief where class treatment was sought.

This case seems to present more cleanly the question the Court did not quite reach in Genesis Healthcare—whether a defendant can effectively defeat a putative class action by offering complete relief to the named plaintiff. If the Court rules in favor of the defendant, that could make it relatively easy for a defendant, in a case involving a named plaintiff’s claim with a relatively small dollar amount, to defeat a class action. Plaintiffs’ lawyers in such cases likely will have to bring “mass joinder” cases, in which they would have to sign up large numbers of clients (and they also might try to sue for injunctive or declaratory relief, where such relief is viable and a defendant is not likely to concede it). But I would not hold your breath for this result (and that’s not merely because I may need to find a new line of work if the case is decided that way). If the Court rules in favor of the plaintiff, that will be, in baseball parlance, a save more than a win for the Plaintiffs’ bar. It will largely be business as usual in the class action world, given that most circuits have generally not permitted defendants free reign to use this tactic, with some exceptions.

Statistical Sampling and Class Member Standing

In Tyson Foods, Inc. v. Bouaphakeo, No. 14-1146 (SCOTUSblog page), the Court granted certiorari to decide: “(1) Whether differences among individual class members may be ignored and a class action certified under Federal Rule of Civil Procedure 23(b)(3), or a collective action certified under the Fair Labor Standards Act, where liability and damages will be determined with statistical techniques that presume all class members are identical to the average observed in a sample; and (2) whether a class action may be certified or maintained under Rule 23(b)(3), or a collective action certified or maintained under the Fair Labor Standards Act, when the class contains hundreds of members who were not injured and have no legal right to any damages.”

This is an employment class action that was tried to a jury verdict after a class was certified. The plaintiffs claimed that Tyson failed to pay overtime wages allegedly due under the Fair Labor Standards Act (FLSA) and Iowa Wage Payment Collection Law for time spent by employees putting on and taking off (donning and doffing) their personal protective equipment and walking time. In Bouaphakeo v. Tyson Foods, Inc., 765 F.3d 791 (8th Cir. 2014), the Eighth Circuit affirmed, in a 2-1 decision, the district court’s order certifying a class action on the state-law claim and a collective action under the FLSA. Tyson argued that differences in clothing used and duties for different jobs and differences in employees’ routines made class certification inappropriate under Wal-Mart v. Dukes. The Eighth Circuit majority rejected this argument on the grounds that Tyson had a companywide policy that applied to all class members. The court found it proper to use the average time it took employees to put on and take off the protective equipment and walk to decide the case. Id. at 797. The Eighth Circuit majority also rejected Tyson’s contention that some class members who did not work overtime did not have standing to sue. The majority characterized that as a question of individualized damages rather than standing, and concluded that Tyson waived this argument by asking for the jury to be instructed to treat employees with no damages as members of the class, and thereby inviting error. Id. at 797-98. The majority also rejected Tyson’s argument that damages were improperly based on the type of “Trial by Formula” that was disapproved of in Dukes. The court attempted to distinguish Dukes on the grounds that “[h]ere, plaintiffs do not prove liability only for a sample set of class members,” but rather “[t]hey prove liability for the class as a whole, using employee time records to establish individual damages. Using statistics or samples in litigation is not necessarily trial by formula.” Id. at 798. The court found it proper for the jury to use average times for donning, doffing and walking, but apply those to class members individually based on their timesheets, in order to reach its verdict. Id.

Judge Beam dissented. He concluded that class members did not suffer the “same injury” under Dukes because of their individualized damages. Id. at 802-03 (Beam, J., dissenting). Judge Beam further concluded that variations among individual class members in donning and doffing times, how they were paid, sickness, vacation, etc. should have resulted in decertification of the class. He also noted that the jury’s verdict likely meant that more than half of the putative class suffered either no damages or less than $1 in damages. Id. at 804. He viewed Tyson’s requested jury instruction, after the class was certified, as not waiving any of its contentions with respect to class certification. Id. at 803.

If the Supreme Court ultimately rules in favor of Tyson, on the grounds that every class member must have standing, and/or that the method used to try this case based on statistical evidence violated the Court’s prohibition on “Trial by Formula,” the decision could be quite helpful in defending class actions. Plaintiffs commonly propose class definitions that include class members without standing. While some circuits have found such classes improper, others have allowed certification of classes that include uninjured class members (see my February 6 blog post for more on this). The “Trial by Formula” issue is critical because plaintiffs often propose to try class actions based on statistical sampling of some kind. A strong reaffirmance of Dukes on this point could be very helpful to defendants. On the other hand, if the majority of the Court were to conclude that class certification in this case was proper, that could potentially be a significant win for the plaintiffs’ bar, depending on how the decision is written.

Rule 23 Subcommittee’s Proposed Amendments

The Rule 23 Subcommittee of the federal Judicial Conference Advisory Committee on Civil Rules recently issued a report with proposed amendments to Rule 23. These are at an early stage and far from final recommendations. Here are some brief descriptions of them and some thoughts:

  • Settlement approval criteria: The proposal is to insert into the rule a series of specific findings that a court would be required to make in approving a settlement. Most federal circuits have adopted a similar set of factors to consider, and the proposal seems unlikely to result in a major change.
  • Settlement class certification: The proposed amendment would state explicitly that a court can certify a class for settlement purposes where the predominance requirement might not be satisfied at trial. From a defense perspective, this could be a helpful clarification.
  • Cy pres relief in settlements: The proposed amendment would require individual distributions to settlement class members where that is economically viable, and allow cy pres relief only where individual distributions are not viable. The cy pres recipient’s interests would be required to reasonably approximate the class members’ interests. This seems generally consistent with the recent trend of federal appellate authority in this area.
  • Objectors: The proposed amendment would require disclosure of any agreement made in connection with the withdrawal of an objection to a proposed settlement, and might require court approval (there are two alternative proposals). Another proposal would explicitly require objections to proposed settlements to comply with Rule 11, and provide for sanctions if the objections are insubstantial or not reasonably advanced for the purpose of rejecting or improving the settlement. These seem to be targeted to making it more difficult for “professional” objectors, who object for the purpose of trying to obtain settlement money.
  • Tenders of Relief / Rule 68 Offers: One proposal would not allow a putative class action to be terminated by a tender of relief to the named plaintiff, unless class certification has been denied, and it would allow an appeal to be taken. Another proposal would make Rule 68 inapplicable in class actions. Another proposal would re-institute a requirement for approval of pre-certification settlements with named plaintiffs. These proposals could be problematic for defendants – there needs to be an efficient way to resolve weak putative class actions prior to certification.
  • Issues classes: The proposal would have the rule state that predominance is not a requirement for certification of an “issues class” to resolve particular issues on a classwide basis under Rule 23(c)(4), and amend Rule 23(f) to give a court of appeals discretion to hear an interlocutory appeal from a decision certifying a class on a particular issue. This proposal would be most harmful to defendants, where in many circuits the question of whether an “issues class” has to satisfy the predominance requirement has not yet been resolved, and there is substantial authority favorable to defendants’ position.
  • Class notice: The proposal would explicitly allow electronic notice, which many courts are currently allowing, at least in part. Electronic notice, where feasible, obviously provides substantial cost savings.

Spokeo, Inc. v. Robins: Supreme Court to Decide Class Action Standing Issue

The U.S. Supreme Court recently granted certiorari in Spokeo, Inc. v. Robins, No. 13-1339 (SCOTUSblog page), to decide whether a plaintiff who does not suffer any injury has Article III standing to sue for violation of a federal statute. The case will not be argued until the next Supreme Court Term, likely in October. It potentially could have a very significant impact on class action practice.

The Court will review Robins v. Spokeo, Inc., 742 F.3d 409 (9th Cir. 2014), in which the plaintiff alleges that that defendant violated the Fair Credit Reporting Act by publishing inaccurate personal information about him potentially relevant to his creditworthiness. The district court initially dismissed the complaint because the plaintiff failed to allege any actual or imminent harm, and the possibility of future injury does not satisfy Article III standing requirements. After the complaint was amended, the district court initially found that allegations of harm to the plaintiff’s employment prospects were sufficient to satisfy the standing requirement, but then reconsidered and found that those alleged injuries were not traceable to the defendant’s conduct, and dismissed the complaint. On appeal, the Ninth Circuit reversed. It cited a 1975 Supreme Court decision stating that “The actual or threatened injury required by Art[icle] III may exist solely by virtue of statutes creating legal rights, the invasion of which creates standing.” Warth v. Seldin, 422 U.S. 490, 500 (1975). The Ninth Circuit further explained that “the violation of a statutory right is usually a sufficient injury in fact to confer standing,” and that “the statutory cause of action does not require a showing of actual harm when a plaintiff sues for willful violations.” Robins, 742 F.3d at 412. The Ninth Circuit further concluded that Congress had the power to confer standing because “the interests protected by the statutory rights at issue,” related to the plaintiff’s credit information, ”are sufficiently concrete and particularized that Congress can elevate them.” Id. at 413.

The opposition to the petition for certiorari argued that the plaintiff has in fact suffered concrete injuries – reputational harm akin to defamation. The plaintiff will likely press that point in the merits briefing as well, and argue for a broad concept of “harm.” The Court invited the Solicitor General to file a brief at the certiorari stage. The United States supported the plaintiff’s position and argued that certiorari should be denied. It also suggested, in the alternative, that the question presented be reformulated more narrowly, but the Court did not do that.

The decision in this case could potentially have a broad impact on class actions brought under various federal statutes, such as the Fair Debt Collection Practices Act, Telephone Consumer Protection Act, Employee Retirement Income Security Act, etc. Class actions arising from data breaches have often turned on standing issues as well. This decision could potentially have a substantial impact on insurers to the extent that their businesses are regulated by federal statutes.

But insurers are much more heavily regulated at the state level, and insurance class actions often focus on state statutes. So how might this case impact state law class actions? The state courts are not constrained by Article III, but the vast majority of class actions are removable to federal court under the Class Action Fairness Act. Suppose a state statute creates a cause of action without requiring a showing of actual injury, and the Supreme Court rules that a federal court cannot hear such a case under Article III. But federal jurisdiction exists under the Class Action Fairness Act. Defendants will argue for dismissal, and plaintiffs will argue for remand to a state court that can hear that case. If Spokeo comes down in favor of the defendant’s position, that could be the next battleground, but we’re a year or two away from that.

Use of Expert Testimony at Class Certification Stage Addressed By Third Circuit

The Third Circuit recently joined the Seventh, Eighth, and Ninth Circuits in holding that, where a Daubert challenge is made to the use of expert testimony in support of class certification, the Daubert challenge must be resolved at that stage. The Third Circuit explained that “[e]xpert testimony that is insufficiently reliable to satisfy the Daubert standard cannot ‘prove’ that the Rule 23(a) prerequisites have been met ‘in fact,’ nor can it establish ‘through evidentiary proof’ that Rule 23(b) is satisfied.” In re Blood Reagents Antitrust Litigation, No. 12-4067, 2015 U.S. App. LEXIS 5630, *9 (3d Cir. Apr. 8, 2015).

That result is hardly surprising. What I found most useful in this opinion was a footnote stressing that “[l]ike any evidence, admissible expert opinion may persuade its audience, or it may not,” and “[w]eighing conflicting expert testimony at the certification stage is not only permissible; it may be integral to the rigorous analysis Rule 23 demands.” Id. at *12 n.10. If the plaintiff’s expert testimony at class certification is weak enough that whether it is admissible under Daubert is a close call, the district court might not even need to reach that issue. That is because the testimony is not persuasive enough to warrant class certification regardless of whether it meets the Daubert threshold. Courts may find that to be a less cumbersome way of resolving the issue, particularly given that class certification is decided by the court, not a jury, and Daubert is more important in the jury context.

Expansion of Class Allows Second Removal Under Class Action Fairness Act, According to Ninth Circuit

It is important to remember that when a putative class action is remanded to state court under the Class Action Fairness Act (“CAFA”), that may not be the end of the jurisdictional battle. Developments in the case, or in the applicable CAFA jurisprudence, may warrant another removal of the case to federal court, if those developments change the removal analysis.

The Ninth Circuit recently decided a case in which the district court had previously remanded the case to state court on the grounds that the amount in controversy under the CAFA was not satisfied. Without any amendment to the complaint, the state court later certified a broader class, resulting in an amount in controversy exceeding $5 million. The district court held that the removal was untimely because it was based on the same complaint. But the Ninth Circuit reversed, finding that a second removal was proper. It explained that “Of course, defendants are not entitled to more than one bite at the apple, but the superior court’s certification order substituted a new apple. . . . When the superior court later certified a broader class, it increased the amount in controversy, effectively amending the complaint.” Reyes v. Dollar Tree Stores, Inc., No. 15-55176, 2015 U.S. App. LEXIS 5222, *9 (9th Cir. Apr. 1, 2015). Because the second removal was accomplished within 30 days of the certification order, it was timely.

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