Beware Intended Consequences of Class Action Reform, Too

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Dave and I wrote this article for Law360, which was published today. Here it is in its entirety.

On March 8th, Law360 published an article from two class action defense lawyers who argue that the anti-class action bill currently working through Congress (known as H.R. 985) doesn’t go far enough in its quest to “stem[] class action litigation.”  They call in particular for legislation designed to mitigate the “in terrorem effect” that they insist causes corporations to “settle truly meritless claims.”

This in terrorem boogeyman has been trotted out for decades, every time that a pretext is needed to close the courthouse doors to victims of corporate abuse.  Let’s shoo away the boogeyman this time around, rather than again allowing dramatic changes to the law.  There are many good reasons to do so.

For one, studies of class actions and class settlements—including by the Federal Judicial Center—do not support the intensely negative view of litigation as blackmail.[1]  “[T]he class action is more nearly a shield than a sword.  It has protected companies from bankruptcy, but it appears to have rendered few companies insolvent, if any.”[2]

The blackmail analogy has no empirical backing. Again and again, scholars have debunked the myth that class actions foster extortionate claims.… Read more

Class Cert Appeals & the Muddy Waters of the 9th Circuit

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In less than two weeks, the Supreme Court will hear oral argument on the following issue: Whether a federal court of appeals has jurisdiction to review an order denying class certification after the named plaintiffs voluntarily dismiss their individual claims with prejudice.

The underlying decision, which we’ve written about previously, is the Ninth Circuit’s ruling in Baker v. Microsoft.  In Baker, the district court struck class allegations, Plaintiffs sought leave to appeal under Federal Rule of Civil Procedure 23(f), and leave was denied.  Plaintiffs then voluntarily dismissed their individual claims with prejudice and appealed.  The Ninth Circuit concluded it had jurisdiction because the dismissal – even though it came by stipulation – was “sufficiently adverse” to be an appealable final decision.

With the Supreme Court poised to rule in Baker, the Ninth Circuit recently issued a second published decision involving a similar issue. Bates v. Bankers Life & Casualty Co.  In Bates, as in Baker, the district court granted a motion to strike class allegations.  From there, the posture of the cases diverged.  Rather than voluntarily dismissing with prejudice (as in Baker), the Bates plaintiffs filed an unopposed motion for entry of final judgment pursuant to Federal Rule of Civil Procedure 54(b).… Read more

Public Outcry As Republicans Push Radical Bill to Kill Class Actions

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Here’s an update on the status of the Fairness in Class Action Litigation Act of 2017 (H.R. 985), which we first touched on in an earlier post. Today, the bill was voted out of the House Judiciary Committee along party lines by a 19-12 vote, without making a single change and without holding a single hearing.

Introduced just last week, the bill has already generated sweeping opposition, including from the American Bar Association and its 400,000 attorney members, as well as consumer-, environmental-, disability-, labor- and civil-rights groups. The ABA letter opposes the bill because it would cut access to courts. The civil-rights groups’ and advocates’ letter, which includes 120 signatories, contends this “poorly drafted legislation will create needless chaos in the courts without actually solving any demonstrated problem.” The disability-rights groups did not mince words, either; “H.R. 985 would be devastating to the rights of people with disabilities.” For their part, the consumer, environmental, and labor groups’ joint letter slams the bill as “sweeping, reckless legislation” and calls the House Judiciary Committee’s consideration of this monumental bill without holding a single hearing “an outrage.”

So there you have it: a House Judiciary Committee unwilling to hold even a single hearing on radical limitations on the right of the injured and helpless to band together to seek relief in court, and a public swiftly organizing to resist.… Read more

9th Circuit Affirms Class Certification in RICO Suit

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Last week, the Ninth Circuit affirmed certification of nationwide classes in a suit featuring RICO, contract, and other claims.  The published opinion dealt with a range of issues, including typicality, predominance, and superiority.

The case is Just Film, Inc. v. Buono.  No. 14-16132, 2017 WL 510452 (9th Cir. Feb. 7, 2017).  The full opinion is worth a read; a few highlights follow.

Typicality

One argument defendants raised was that the named plaintiffs’ injuries differed from the injuries suffered by other class members.  The Ninth Circuit held that the differing injuries did not defeat typicality:

The requirement of typicality is not primarily concerned with whether each person in a proposed class suffers the same type of damages; rather, it is sufficient for typicality if the plaintiff endured a course of conduct directed against the class. Although Campbell was able to fend off the attempted fraud before it reached into and diminished her bank account, there is no reason why she cannot prove the nature of the fraudulent scheme for benefit of all class members, whether or not their precise injuries are identical.

Predominance

Defendants challenged predominance on several grounds, including that damages would vary by class member and would require individualized evidence.  … Read more

House Republicans Push Radical Class Action Reforms

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Last Wednesday, Congressman Bob Goodlatte (R-Va.), Chairman of the House Judiciary Committee, introduced the Fairness in Class Action Litigation Act of 2017 (H.R. 985), a sweeping set of proposals that would effectively kill many class actions.

The bill proposes to:

  • require that “the party seeking to maintain such a class action affirmatively demonstrates that each proposed class member suffered the same type and scope of injury as the named class representative or representatives” (This poorly worded proposal was widely panned as the “Volkswagen Bailout Bill” when Rep. Goodlatte last introduced it in 2015, because it would have wiped away class actions and excused the worst corporate misconduct.)
  • require a class action complaint to identify whether the named plaintiff has ever been represented by class counsel before; if yes, no class action may be certified (Don’t we want plaintiffs to be represented by experienced counsel, and why does a prior representation automatically foreclose a future class proceeding where the same attorney represents the same client?)
  • restricts attorney fee awards (Courts, of course, already closely scrutinize class recoveries and attorney fee awards.)
  • limit a court’s authority to certify issue classes by requiring that “the entirety of the cause of action from which the particular issues arise satisfies all the class certification prerequisites” (Because Judge Posner is wrong that it is more efficient, “in terms both of economy of judicial resources and of the expense of litigation to the parties,” to decide some issues on a class basis rather than all issues in separate trials, see Butler v.
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When is Food “Defective”?

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Judge David Carter of the Central District of California answered this question recently in the Peterson v. Costco Wholesale Co.  In Peterson, a Hepatitis A outbreak in the western United States was linked to the consumption of a berry mix sold at Costco locations.  Plaintiffs sued Costco, asserting strict liability and other common law claims.  Judge Carter certified nine single-state subclasses for the purposes of determining liability.

Most recently, the question posed at summary judgment was whether plaintiffs could “demonstrate any defect in the berry mix.”  Petersen v. Costco Wholesale Co., 2017 WL 187134, at *4 (C.D. Cal. Jan. 17, 2017).  An answer in the affirmative was needed for plaintiffs’ strict liability claim to proceed.

Costco argued there was no evidence of a defect, contending that plaintiffs should have to demonstrate that they each “ate berry mix that was actually contaminated with hepatitis A and thus each … was actually exposed to hepatitis A.”  Plaintiffs countered that the berry mix was defective because, anyone who ate the berries urgently needed to obtain a hepatitis A vaccination. And Costco replied that, if plaintiffs’ theory was accepted, then the court would be saying that as a matter of law, “a recall alone demonstrates defect in the recalled products.”

Judge Carter sided with the plaintiffs:

the mere fact of a recall is insufficient to render a defendant liable under a theory of strict products liability to everyone who purchased a recalled product.

Read more

9th Circuit Finds Art III Standing Under Spokeo in TCPA Case

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After a longer delay than several other circuits, the Ninth Circuit has again provided analysis of the Supreme Court’s Spokeo decision – this time in the TCPA context.

In the TCPA context, a strong majority of courts appear to be in agreement that statutory violations give rise to concrete harm.  The Ninth Circuit agrees.

The panel in Van Patten v. Vertical Fitness Group, began its Article III analysis by citing Spokeo for the proposition that “’both history and the judgment of Congress play important roles’ in supporting our conclusion that a violation of the TCPA is a concrete, de facto injury.”

The court elaborated:

The TCPA establishes the substantive right to be free from certain types of phone calls and texts absent consumer consent. Congress identified unsolicited contact as a concrete harm, and gave consumers a means to redress this harm. We recognize that Congress has some permissible role in elevating concrete, de facto injuries previously inadequate in law “to the status of legally cognizable injuries.” Spokeo, 136 S. Ct. at 1549 (quoting Lujan, 504 U.S. at 578). We defer in part to Congress’s judgment….

[T]he telemarketing text messages at issue here, absent consent, present the precise harm and infringe the same privacy interests Congress sought to protect in enacting the TCPA.

Read more

How Will the 9th Circuit Rule in Spokeo?

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In-depth analyses on the Supreme Court’s Spokeo decision have now been handed down by the Third, Seventh, and other Circuits.  Little has come from the Ninth Circuit thus far, though that court recently heard oral argument in Spokeo itself on remand from the Supreme Court.  While we await that decision, a recent ruling from a different Ninth Circuit panel may impact or foreshadow the Spokeo panel’s ruling.

In Syed v. M-I, LLC, — F.3d —-, No. 14-17186, 2017 WL 242559 (9th Cir. Jan. 20, 2017), the Ninth Circuit briefly addressed Spokeo in the context of the Fair Credit reporting act.  Here’s the full analysis:

Syed has established Article III standing. A plaintiff who alleges a “bare procedural violation” of the FCRA, “divorced from any concrete harm,” fails to satisfy Article III’s injury-in-fact requirement. Spokeo, Inc. v. Robins, — U.S.—, 136 S. Ct. 1540, 1549 (2016). However, Syed alleges more than a “bare procedural violation.” The disclosure requirement at issue, 15 U.S.C. § 1681b(b)(2)(A)(i), creates a right to information by requiring prospective employers to inform job applicants that they intend to procure their consumer reports as part of the employment application process. The authorization requirement, § 1681b(b)(2)(A)(ii), creates a right to privacy by enabling applicants to withhold permission to obtain the report from the prospective employer, and a concrete injury when applicants are deprived of their ability to meaningfully authorize the credit check.

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Spokeo Circuit Split?

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In the past week, panels from the Third and Seventh Circuits have issued rulings that interpret the Supreme Court’s Spokeo decision on Article III standing. The decisions reflect a possible circuit split concerning the test for determining when the violation of a federal statute gives rise to a “concrete” harm under Spokeo.

In the Supreme Court’s decision, there are several references to “risk of harm” in the discussion of when a statutory violation causes concrete harm.  For example, toward the end of the opinion, the Court wrote:

A violation of one of the FCRA’s procedural requirements may result in no harm. For example, even if a consumer reporting agency fails to provide the required notice to a user of the agency’s consumer information, that information regardless may be entirely accurate. In addition, not all inaccuracies cause harm or present any material risk of harm. An example that comes readily to mind is an incorrect zip code. It is difficult to imagine how the dissemination of an incorrect zip code, without more, could work any concrete harm.

(emphasis added).

In its recent Horizon decision, the Third Circuit held that the “material risk of harm” language in Spokeo should not be read to raise the bar for pleading concrete injury:

Although it is possible to read the Supreme Court’s decision in Spokeo as creating a requirement that a plaintiff show a statutory violation has caused a “material risk of harm” before he can bring suit, 17 id.

Read more

9th Circuit Refuses to Compel Arbitration in Samsung Litigation

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In a published decision handed down on Thursday, the Ninth Circuit affirmed a denial of a motion to compel arbitration in a class action about the performance of the Galaxy S4 phone.

The court’s analysis hinged in large part on the circumstances surrounding the purchase, including the location of the arbitration language.  Plaintiff bought the phone at a Verizon Wireless store. Inside the box, a warranty brochure purported to require the plaintiff to arbitrate any disputes with Samsung arising from the “warranty or the sale, condition or performance of the product[].”  Plaintiff did not read the brochure and left it, along with the box, at the Verizon store when he left with his new phone. The receipt plaintiff received said that he agreed to arbitrate any disputes with Verizon, but did not mention Samsung.

Samsung tried to force arbitration under two theories.  First, by arguing that the inclusion of the arbitration provision in the warranty brochure created a contract between plaintiff and Samsung. Second, Samsung argued that by signing his agreement with Verizon, plaintiff agreed to arbitrate his claims against Samsung. The Ninth Circuit rejected both arguments.

On the first, the panel rejected Samsung’s theory that the warranty brochure created a binding contract between plaintiff and Samsung to arbitrate, relying on the general California rule that an offeree’s silence does not constitute consent.  … Read more