Class Action Fairness Act (CAFA) Interlocutory Appeals: Article Published in DRI's In-House Defense Quarterly

Posted on November 27, 2012 by Wystan M. Ackerman

I recently published an article on Class Action Fairness Act (CAFA) interlocutory appeals (pdf) in the Defense Research Institute’s In-House Defense Quarterly magazine.  DRI was kind enough to allow me to republish it here for readers of my blog.  My article focuses on the practical challenges in these appeals given their expedited timeframe, and strategies for petitioning for permission to appeal, opposing permission to appeal, and seeking a stay pending appeal.  If you take a look, I’d be interested in any comments you have on it.

Using Voluntary Refund Programs to Prevent or Defend Class Actions

Posted on August 09, 2012 by Wystan M. Ackerman

My fellow class action blogger Paul Karlsgodt did a great post last week on “Voluntary Refund Programs as a Class Action Defense Strategy.”  Paul  discusses an article recently published by law professor Eric Voigt on the use of voluntary refund programs to prevent and defend against class actions.  If you have a very good memory of what I’ve written on this blog, you might remember that I did a blog post back on September 16, 2011 about Prof. Voigt’s draft of this article.  Prof. Voigt argues that, contrary to what some courts have concluded, voluntary refund programs should be considered in analyzing superiority, that is, determining whether a class action is superior to other available methods for adjudicating the controversy, as provided for in Fed. R. Civ. P. 23(b)(3).  Prof. Voigt explains how a court’s consideration of a voluntary refund program is consistent with the original intent behind the Rule 23 superiority requirement.  Prof. Voigt also makes some suggestions about how a voluntary refund program might be constructed in order to prevent or avoid a class action.  As Paul Karlsgodt notes, “Voigt’s article is one of the first I have seen addressing this issue in detail, and I highly recommend it to practitioners, academics, judges, and policymakers alike.”  I second that.

Another Article on Recent Developments in Insurance Class Actions

Posted on May 17, 2012 by Wystan M. Ackerman

I know what you’re thinking if you’re a regular reader of this blog. I just wrote a blog post last week about an article I co-authored in the Tort Trial & Insurance Practice Law Journal covering recent developments in insurance class actions.  I don’t mean to overly promote my own articles one after another, but I also just published a piece in the Defense Research Institute’s For the Defense magazine entitled “Recent Developments in Insurance Class Actions.pdf.”  I wrote the articles months apart.  It’s just a coincidence that they both happened to come out around the same time.  This second piece has a different focus, discussing the impact that Wal-Mart v. Dukes has had in insurance cases, the impact of AT&T v. Concepcion, and recent developments under the Class Action Fairness Act.  DRI has been kind enough to allow me to republish my article here.  If you have any thoughts, comments or even criticism of these articles, please e-mail me.        

Article on Recent Developments in Insurance Coverage and Class Action Litigation

Posted on May 10, 2012 by Wystan M. Ackerman

If you’re looking for a quick update on insurance class action law and coverage litigation,  I recently co-authored an article in the Tort Trial & Insurance Practice Law Journal, published by the American Bar Association.  The article, entitled, “Recent Developments in Insurance Coverage Litigation.pdf,” is part of an annual issue of the journal on recent developments in the law impacting the tort and insurance practice areas.  My portion of the article is Section III on “Coverage-Related Class Actions,” starting at page 286.  I survey developments in the past year in property insurance class actions, auto class actions, life insurance class actions and health insurance class actions.  My co-authors have written sections on faulty workmanship claims, an insurer’s duty to indemnify, and coverage related to climate change, which you may also find of interest.  The ABA was kind enough to grant permission for me to republish the article here.

The Apex Doctrine on Depositions of High-Level Executives: New DRI Article Provides Insights

Posted on February 29, 2012 by Wystan M. Ackerman

This month’s For the Defense magazine published by the Defense Research Institute has an interesting article by Christopher M. Tauro and Kip J. Adams entitled “Use of the Apex Doctrine.”  The article has a comprehensive survey of the law regarding protecting high-level corporate executives from unnecessary depositions, where the executive has little or no knowledge of relevant facts.  (These articles are usually posted online by DRI but I haven’t found this one there yet.)

This is an issue that frequently arises in class actions.  In some cases (securities cases being a typical example) it may not be possible to prevent depositions of senior executives because they were personally involved to a substantial extent in relevant facts.  In other cases the executive knows nothing or hardly anything about the issue involved in the class action and there is a strong basis to invoke the apex doctrine.  A couple things I think insurers in particular should give careful consideration to:

  • Most large insurance organizations have a number of writing companies that issue the insurance policies, as well as a publicly-traded parent company, sometimes with other entities in between.  The organizations should give careful thought to whether the senior executives of the parent company should be the officers of the companies that write the policies.  If the parent company executives are not officers of the companies that issue the policies (and become the defendants in class actions and other litigation), that can strengthen arguments against depositions of parent company executives. 
  • Some insurance policies have officers of the company putting their signatures on the policy forms.  Again, careful thought should be given to whose signatures appear there.  No doubt some plaintiffs’ lawyers will argue that they have the right in a class action or other complex litigation to depose the executives whose signatures appear on their clients’ policies, even if they have no personal involvement in handling of claims or underwriting.   

Article on Insurance Impact of 2011 Supreme Court Decisions on Class Actions

Posted on January 29, 2012 by Wystan M. Ackerman

An article I wrote entitled “The Supreme Court’s 2011 Class Action Decisions: Their Impact on Insurance Class Actions” was recently published as part of New Appleman on Insurance:  Critical Issues in Insurance Law.  There is a synopsis of the article and link to it on LexisNexis’s Insurance Law Community blog.  I welcome comments, questions and criticism from readers.  I should have a small number of hard copies available at some point, so if you don’t have access to Lexis and would like a hard copy, just e-mail me.

Strategies For Reducing Insurance Class Action Exposure: Thoughts On "Verdict For The Defense"

Posted on November 21, 2011 by Wystan M. Ackerman

Avid readers of this blog will recall that, back on August 18, 2011, I posted about Rob Herrington’s new book, Verdict For The Defense, which focuses on strategies for reducing class action and mass action exposure.  I’ve now managed to find the time to read the book.  It’s a good read, written in a way that is accessible to non-lawyers and helpful both to business leaders and their in-house and outside lawyers.  It’s written in a generic fashion so that its guidance could apply with appropriate tailoring to any industry, although there is a significant focus on product manufacturers.  Here are my thoughts on how Herrington’s recommendations could benefit insurers:

Herrington recommends that companies perform proactive internal reviews to try to identify business practices that can potentially lead to class action or mass action exposure, and then take steps to limit their exposure.  He calls this a “Liability Firewall Process.”  First, the company examines its processes from the perspective of a consumer and a plaintiffs’ lawyer (perhaps even hiring a plaintiffs’ lawyer to assist with this), and identifies areas of risk.  Second, the company assesses the various risks that are identified, deciding which risks warrant that action be taken and which ones are the highest priorities.  Third, the company decides whether to take steps to reduce or eliminate the risk, or live with it.  This process would continue permanently, identifying new potential areas of risk from time to time.  He suggests creating a “Liability Firewall Team” to do this work, consisting of in-house and/or outside counsel who know their way around class actions, and appropriate business people senior enough to give the team sufficient clout within the organization to achieve its goals.  It is of course important to take steps to protect the team’s work under the attorney-client privilege.  After issues are identified, the steps that can be taken to reduce risk will vary depending on the nature of the risk, but can include changes in business practices to eliminate potential claims, or steps to try to create what he calls “Strategic Variability.”  That is, trying to ensure that there is enough variability in the way a company handles a particular issue that it will be more difficult for a plaintiffs’ attorney to obtain class certification.

Here is how I see this process applying in the insurance industry:  A company could put together a team to review both underwriting and claims procedures.  The team could include people that know the products, know the processes and lawyers who know their way around class actions.  The review probably would be limited to personal lines since that is where the vast majority of class actions arise from (although there have been some commercial lines cases).  The team would review the entire process an insured experiences, from purchasing a policy through making and settling a claim, as well as policy cancellation (voluntary or involuntary).  The team would review all of the advertising materials and other sales-related materials used by the company or provided by the company to its agents.  It also would review a sample of consumer complaints and/or aggregate data regarding consumer complaints if that is maintained, ideally both formal complaints and “informal” complaints posted on the Internet.  The team also would review all written policies and procedures for underwriting and claims, every standard form letter that might go to insureds, and every piece of paper that gets sent to insureds enclosing their policy forms or regarding their premium payments or the cancellation of their policy.  The team also would review the policy forms, identify provisions that might give rise to class actions, and discuss with senior claims people how claims are being handled.  The team also might review a random sample of underwriting files and claim files, and interview the adjusters who handled claims raising issues of concern.  The team also might meet with the regulatory department and review any areas where there have been significant recent insurance department inquiries or questions about whether the company’s policy forms or procedures are adequately in compliance with state statutes and regulations.  (A comprehensive review of state statutes and regulations pertaining to underwriting and claim handling could also be undertaken to be completely thorough, but that by itself would be a massive project that could overwhelm the rest of the project for insurers that write in all or substantially all states.) The lawyers on the team would also review recent class action filings against the industry.  The team would try to identify, as best as possible, where there might be class action exposure and then recommend steps that management could take to reduce the risk of a class action being filed or reduce the chances of a class being certified.  Once these steps are taken, regular follow-up would be necessary, including review by the team of significant proposed changes in policies and procedures, advertising, significant new areas of consumer complaints, new products, etc.

This undoubtedly would be a time-consuming and expensive process, both in terms of internal resources and any outside resources that the company might retain.  To the extent the process would require too many resources, it could be tailored to areas that the team and/or management believes are more likely to have more risk.  In the end, this process could be well worth the effort – if it prevents even a single serious class action (or, more likely, a series of class actions on a particular issue), it will be well worth the investment.  It could also have collateral business benefits as well, if the team develops solutions that not only reduce litigation risk but improve customer experience and the company’s image and reputation.  In addition, as Herrington points out, the more happy customers you have, the harder it will be for plaintiffs’ lawyers to find one who is willing to be a named plaintiff in a class action.  Best in class companies probably already are doing this kind of thing, but maybe not in a comprehensive, ongoing way, and maybe not with lawyers who are focusing on potential class action / mass action exposure as part of the team.

Further Thoughts on Voluntary Relief Programs Defeating Superiority in Class Actions

Posted on September 16, 2011 by Wystan M. Ackerman

In response to my recent post about the Seventh Circuit’s decision in the Aqua Dots litigation, law professor Eric Voigt of Faulkner University alerted me to a draft article he’s written entitled “A Company’s Voluntary Refund Program for Consumers Can Be a Fair and Efficient Alternative to a Class Action to Warrant the Denial of Class Certification.”  He argues that the Seventh Circuit got it wrong in Aqua Dots when it concluded that the superiority prong of Rule 23(b)(3), which requires that a court find that “a class action is superior to other available methods for fairly and efficiently adjudicating the controversy,” only allows a court to compare class action litigation to other methods of litigation, not other methods of resolving the dispute (such as a voluntary refund program).  Prof. Voigt has studied the history of the proceedings of the Advisory Committee that drafted this portion of the rule in 1966, and the writings at that time by Professor Charles Alan Wright, who was a member of that Advisory Committee, and other scholars.  He finds that the original intent was to allow a comparison between class action litigation and other non-judicial methods of resolution.  Prof. Voigt also notes that early court decisions after the 1966 adoption of the superiority requirement understood the rule as allowing a comparison between class litigation and non-judicial resolution, including administrative proceedings.  He also argues that a voluntary refund program can be the sole basis for denying class certification in appropriate cases, and provides some thoughts on desirable features of such a program.

So if you are a defendant that has provided voluntary relief to a putative class, you may want to argue both a lack of superiority and a lack of adequacy of representation.  On superiority you may want to push back against Judge Easterbrook’s opinion, particularly if you are outside of his Circuit, and perhaps cite Prof. Voigt’s article once it is published.  I don’t know the whole history of the Aqua Dots case and have not read the briefs, but it strikes me as potentially an instance where a court decided an issue (the meaning of “adjudicating” in Rule 23(b)(3)) without the benefit of thorough briefing and historical research on it.  Perhaps the Seventh Circuit might have reached a different result if they had the benefit of Prof. Voigt’s research and analysis.

 

New Book on Class Action Defense Strategy for Business Leaders

Posted on August 18, 2011 by Wystan M. Ackerman

I recommend a recent post by Russell Jackson on his Consumer Class Actions and Mass Torts Blog.  He interviews Rob Herrington about a book he recently published on class action defense strategy, which is targeted for business leaders.  I’ve bought the book and will offer my thoughts tailored to insurance class actions on my blog after I find the time to read it.  Some of you may also be interested in reading it.

Here are a few initial thoughts that occurred to me based on Russell’s interview.  The interview comments that:

Too often, however, business leaders are brought into the discussion too late - after a class has been certified or just before a key deposition.   At that point, it usually is too late; executives face a Hobson's choice of paying millions to settle what often seem like dubious cases or risking trial, where exposure may be in hundreds of millions or even billions of dollars.

I don’t see this factual scenario too often in insurance class actions, the business people tend to get involved quite early when this kind of lawsuit is filed.  But, as the interview also notes, by the time suit is filed, it may be too late to take any business steps to reduce exposure, at least in that case.  The best way to reduce exposure is to identify issues that might give rise to class action exposure well before any suits are filed and take steps to mitigate the exposure.  That’s never easy to do, and it looks like Rob Herrington did some research on this and his book offers some insights on how to do that.  I look forward to reading about that.

Another interesting comment in the interview was about potential legal reforms pertaining to class actions.  Herrington suggested:

First, impose a discovery stay and a heightened pleading standard for putative class actions, similar to the reforms instituted through the Private Securities Litigation Reform Act (PSLRA).  In too many cases, plaintiffs' lawyers use discovery, particularly the enormous costs of e-discovery, to put pressure on defendants to settle.  There is no reason to permit plaintiffs to wield that type of weapon until the court is satisfied that the complaint states a cause of action based on facts, rather than speculation and innuendo.  Second, permit an immediate appeal of orders granting class certification (rather than just those denying) and permit more robust review by appellate courts.   . . . Finally, implement a system that requires plaintiffs to pay for discovery costs up and until the point where they can establish, through evidence, a prima facie case of liability.

I’m not sure we don’t already have both of these as a practical matter in substantial part, at least in federal courts.  My reading of the Supreme Court’s decisions in Ashcroft v. Iqbal and Bell Atlantic Corp. v. Twombly is that there is a heightened pleading standard for complex cases, including class actions, and also the Court says discovery should be stayed pending resolution of a motion to dismiss or a motion to strike the class allegations.  Most federal district courts seem to agree with that, although not uniformly.   Rule 23(f) provides for immediate appeals from decisions granting class certification in federal court, although review is discretionary.  Most state courts have such interlocutory appeals as well.  So I think we’re pretty far along towards achieving items (1) and (2).  Other than mandating an absolute stay as with the PSLRA I’m not sure how much more could be done in federal court.  As to the third suggestion, that is such a major change that it seems like a longshot to achieve.  Another approach might be to require plaintiffs’ attorneys to pay some portion of the defense costs if class certification is denied.

As an aside, the ABA is currently working on its new Blawg100 list of top law blogs, so for any readers of my blog who think there are blogs worthy of inclusion on that list, such as Russell’s or even mine, feel free to submit the ABA’s electronic nomination form.

 

NAMIC Paper on Third-Party Litigation Funding: Class Action Issues

Posted on June 23, 2011 by Wystan M. Ackerman

The National Association of Mutual Insurance Companies (NAMIC) recently published a paper on the topic of third-party litigation funding (pdf), advocating for legislation restricting its use.  Third-party litigation funding, as the term suggests, involves a third party investor providing funding to help finance the cost of litigation, typically in exchange for a share of the proceeds if the case is successful, and often with no recourse against the borrower if the case is unsuccessful.  This has been prevalent in the UK for some time and is becoming more prevalent in the US. 

The paper is relatively short and an interesting read; I recommend it.  A response from a litigation funding company that has a blog is also worth reading.  What I'll focus on here is the part dealing with class actions.  NAMIC writes: 

Class action litigation is particularly vulnerable to the pursuit of profit through third-party funding schemes.  There is no practical way to obtain permission from all the potential plaintiffs as to whether the attorneys representing the class may obtain litigation funding, or from whom they may obtain it.  Nor are members of the class in a position to negotiate or approve the terms of the funding arrangement.  Thus, the entire process of obtaining funding will occur without the consent, or even the knowledge, of the plaintiffs.

Moreover, once the funding arrangement is in place, decisions regarding the strategy and tactics to be employed in a class action will be entirely at the discretion of the funding company and the attorney, again without the involvement of the plaintiffs.

I see a few things the paper overlooked here that are also in play.  For a class to be certified, either on the merits or for settlement purposes only, court approval is required.  I would expect most judges would require disclosure of the existence and terms of any third-party funding arrangement in a notice to class members.  Judges should closely scrutinize any such arrangement in deciding adequacy of representation.  These arrangements are ripe for creating ethical issues and conflicts that might impact the adequacy of the class representative and class counsel, and might be grounds for denying certification.  Unlike individual cases, in putative and certified class actions, judges have substantial power to take appropriate steps where a third-party litigation funding arrangement is inappropriate or where the funding company may be playing an improper role in the litigation.

Defense counsel in class actions should be sure to explore whether these arrangements exist in their cases.  With these arrangements becoming more prevalent, "standard" interrogatories and document requests will now need to include requests pertaining to third-party litigation funding.

 

DRI Article Discusses Strategies for Defending Class Actions on Insurance Coverage Issues

Posted on May 26, 2011 by Wystan M. Ackerman

Readers of my blog may be interested to know that I recently published an article entitled “Defending Class Actions on Coverage Issues” in For the Defense, a publication of the Defense Research Institute.  The article discusses pros and cons of various strategies for defending insurance coverage class actions, including: (1) seeking resolution of a coverage issue before discovery through a motion to dismiss or a motion for summary judgment on the named plaintiffs’ claims; (2) demanding appraisal or arbitration of the named plaintiffs’ claims; (3) moving to strike the class action allegations based on the pleadings; (4) seeking a case management order requiring phased and limited discovery on class certification issues; and (5) preemptively filing a motion to deny class certification before completing discovery and before the plaintiffs’ attorney files a motion for certification. 

If any of you have thoughts on what I have to say in the article, or things I’ve left out, e-mail me, I welcome a dialogue on this.