By Perry Cooper
Companies have been trying to find ways to curtail class actions for years to limit their own liability.
While Justice Antonin Scalia was alive, defendants had an ally on the U.S. Supreme Court, as evidenced by a series of pro-defendant class action decisions.
But since Scalia’s death two years ago, the Supreme Court seems to have lost its appetite for limiting the class device.
Spokeo, Inc. v. Robins gave defendants fodder for challenging class actions from the standing stage. But results have been mixed and plaintiffs are finding ways around it.
Last term the court gave defendants another potential tool for curtailing class actions from the start— Bristol-Myers Squibb Co. v. Superior Court, a jurisdictional ruling.
This article discusses the fallout from these cases and other trends that class action practitioners should have their eye on in 2018.
Class actions haven’t seen a resurgence of interest at the Supreme Court since Justice Neil Gorsuch’s confirmation. Some court watchers speculated that Gorsuch would continue the anti-class action trend established by his predecessor Scalia, but so far that hasn’t borne out. Gorsuch doesn’t have much of a record on class actions from his time on the Tenth Circuit, so there isn’t a lot to predict how he’ll treat such suits in the future.
The court heard only one case that turned on class action procedure last term, Microsoft Corp. v. Baker. The underlying suit involved Xbox consoles that allegedly scratched game discs. But the Supreme Court wasn’t looking at the merits. It was looking at a plaintiffs’ tactic for getting appellate review after class certification was denied.
After the Ninth Circuit didn’t accept their interlocutory appeal under Federal Rule of Civil Procedure 23(f), the Xbox owners voluntarily dismissed their whole suit. They called this dismissal a final judgment to allow them to expedite appeal of the certification denial.
The Supreme Court wasn’t impressed with the strategy, which it viewed as a way to get a second bite at the apple. Justice Ruth Bader Ginsburg wrote the opinion in favor of the defendants. Although she usually sides with plaintiffs, she’s a former civil procedure professor who doesn’t look favorably on gaming the system.
This outcome wasn’t too surprising, and hasn’t much changed the class action landscape since it came out last June. Gorsuch wasn’t on the court when the case was argued so he didn’t participate in the decision.
But Gorsuch was on the Supreme Court, and in the majority, for the one case from last term that may have the biggest effect on class action practice. It wasn’t a class action at all, however. That’s Bristol-Myers Squibb Co. v. Superior Court where the court considered specific jurisdiction in a mass action involving injuries from Bristol-Myers’ blood-thinner Plavix.
The question was whether non-Californians could combine their claims with those of California residents in a California state court. Specific jurisdiction has to do with whether the suit “arises from or is related to” the defendants’ activities in the state.
The California courts found the plaintiffs had specific jurisdiction based on how similar the residents’ and nonresidents’ claims were and the company’s contacts with the state. Those contacts included drug research, but not research on Plavix specifically.
In June the Supreme Court ruled 8–1 that this version of specific jurisdiction was “too relaxed.”
Companies have been quick to jump on this decision, filing motions to dismiss in large multistate cases. They argue that it applies to class actions as well, foreclosing all nationwide class actions except those filed in the defendant’s home state.
But plaintiffs’ attorneys say that Bristol-Myers itself wasn’t a class action and wasn’t in federal court, and so only applies to cases consolidated in state court.
Few rulings have come out from the district courts on whether the decision applies to class actions, so the question is far from settled.
Four of the courts that have considered the issue have held they don’t have jurisdiction over claims of out-of-state plaintiffs: the Eastern District of Pennsylvania, the Northern District of New York, the Eastern District of New York, and two cases from the Northern District of Illinois.
Two have gone the opposite way, finding they can exercise jurisdiction over out of state plaintiffs: the Northern District of California and the Eastern District of Louisiana.
Defendants may want to be careful when deploying Bristol-Myers to take down nationwide class actions.
Plaintiffs might give up and stop filing large class actions all together. But the plaintiffs’ bar is adaptable, so Bristol-Myers could mean defendants will have to face multiple, state-specific class actions over the same claims, or more suits in the defendant’s home state.
That doesn’t do much to help with manageability or consistency, two goals often cited by defendants.
Bristol-Myers application to class actions may make its way back up to the Supreme Court.
A more recent decision out of the Ninth Circuit could add to the squeeze on nationwide class actions. In re Hyundai & Kia Fuel Econ. Litig.involves claims that Hyundai and Kia overstated the fuel efficiency of their cars.
At the end of January, the Ninth Circuit overturned approval of a $200 million deal, citing concerns about whether the case should have been certified for settlement at all.
The court said too many variations existed in the state consumer laws at issue and therefore common issues didn’t predominate over individual issues—one of the requirements for class certification.
Defendants say this ruling is nothing new. It’s just an application of the Supreme Court’s 20-year-old decision in Amchem Prods. Inc. v. Windsor, which stressed that predominance is just as important when certifying a class for settlement as it is when certifying a class for trial. But courts since Amchem haven’t really taken a hard line against multistate class settlements.
But the ruling could also add uncertainty and expense for defendants who want to settle.
Judge Sandra Ikuta wrote the decision. She was in the dissent when the full Ninth Circuit heard Dukes v. Wal-Mart Stores Inc. The Supreme Court later sided with her and reversed class certification in its blockbuster employment law decision.
But she generally takes positions contrary to her Ninth Circuit colleagues, and the ruling made such bold statements on settlements, the case is likely to be reheard en banc itself.
Before there was Bristol-Myers there was Spokeo, Inc. v. Robins. Courts continue to struggle with how much of an injury is needed to establish standing in statutory cases since the Supreme Court’s decision in May 2016.
Spokeo Inc. scrapes the internet and aggregates information it finds about you. Thomas Robins said the website posted inaccurate information about him, information that incidentally improved his résumé.
He used this as a basis to file a class action under the Fair Credit Reporting Act, which allows plaintiffs to seek statutory penalties of up to $1,000 per violation when a credit agency posts inaccurate information. Spokeo argued his injuries were just technical violations of the statute that didn’t cause him any real, identifiable harm.
That decision came down a few months after Scalia died in February 2016. Perhaps to avoid a 4–4 split, the court didn’t make any bright-line rules in its Spokeo decision.
The issue is whether a bare statutory violation constitutes a concrete injury to give a plaintiff standing to sue in federal court—and to bring a class action. The Supreme Court said the Ninth Circuit wasn’t thorough enough when it analyzed whether the plaintiff’s injury was both concrete and particular to him.
On second look, the Ninth Circuit said the plaintiff’s alleged injuries were sufficiently concrete to sue. That wasn’t the outcome that defendant Spokeo wanted. The company tried to convince the Supreme Court to look at the case again, but the court denied certiorari Jan. 22.
There is another case waiting if the court decides it does want to further clarify its standing requirements.
CareFirst, Inc. v. Attias will give the court the chance to look at how much harm is necessary in the data breach context. That’s the main area of the law where this standing debate is coming up right now. The court should decide whether to take on that petition after its Feb. 16 private conference.
The lower court decisions applying Spokeo are a muddle. No clear circuit split exists because the cases have mainly come down to the facts.
In the data breach context, many varying facts can determine whether a court finds plaintiffs can sue. The first question is whether the existence of a data breach alone creates standing. Some courts seem to be coming around to this idea that the risk of data theft is enough harm.
Some courts say having your name and birthday stolen is enough to put you at risk, but others say maybe the risk is only real if your credit card and Social Security number are stolen.
Courts also disagree about whether it’s enough harm when the plaintiffs allege the company just wasn’t careful enough with their data as less real risk of theft exists. Or if plaintiffs allege hackers stole the data as presumably hackers only steal information because they plan to use it later. The law is still unsettled, so there’s not great guidance yet for parties dealing with data breach claims.
Outside of the data breach context, much variation exists based on the statute the plaintiffs are suing under.
Defendants hoped that Spokeo would kill the Telephone Consumer Protection Act, which provides $500 in statutory penalties for every unsolicited robocall, text, or fax. But courts seem to agree that the pain of receiving these messages is enough to clear the Spokeo injury hurdle.
Suits alleging technical violations of some other statutes are having less success. Courts are more skeptical of allowing claims to proceed under the Fair Credit Reporting Act and the Fair Debt Collection Practices Act.
The courts still disagree about whether these violations rise to the level of harm needed for Spokeo standing, and decisions often turn on the facts of the cases.
To fight Spokeo dismissal, plaintiffs are filing in state courts where they can argue the standing threshold isn’t as stringent as in Article III federal courts.
Defendants tried a few times to remove these suits under the Class Action Fairness Act and then dismiss them for lack of Spokeo standing. But courts haven’t responded well to that tactic. One court even ordered sanctions against a defendant who tried it.
There is one case involving a class action issue left for the Supreme Court to hear this term. China Agritech v. Resh is a securities class action. The Supreme Court has shown an appetite for nitpicky cases that will only affect securities law. But this one is expected to have a wider impact as the question raised is whether American Pipe tolling should be extended to subsequent class actions.
In 1974, the Supreme Court said in American Pipe & Construction v. Utah, that the filing of a class action tolls the statute of limitations for members of the proposed class.
Members are protected from having time run out on their individual claims until class certification is denied.
Courts are divided on whether the statute of limitations is tolled only for individual claims by plaintiffs who would have been members of the failed class action or also for subsequent class actions.
The Sixth Circuit notably allowed a follow-on class action to Dukes to proceed in Phipps v. Wal-Mart Stores, Inc. The Supreme Court said in Dukes that certification of a nationwide class of 1.5 million female employees wasn’t tenable. After that decision, the Phipps plaintiffs sued on behalf of women in a smaller region.
The Sixth Circuit said the statute of limitations on their claims was tolled while Dukes was pending, so the later class action was allowed to go forward. It is still pending in the district court.
Companies worry that the costs of defending these piggyback class actions, stacked one on top of the other will force them to settle claims they wouldn’t otherwise. It seems likely the justices will be sympathetic to that concern when they hear oral argument March 26.
Cy pres may finally get its day at the Supreme Court next term.
Cy pres in the class action context refers to distributing class settlement funds in a way that indirectly benefits class members because it isn’t feasible to compensate them directly. Usually it’s just a method for disposing of left over funds: when there’s too little money to do another round of distributions to class members, the remainder goes to charity.
Frequent class action objector Ted Frank of the Competitive Enterprise Institute Center for Class Action Fairness filed a certiorari petition in a privacy settlement with Google where all the money goes to cy pres.
The company settled allegations that it disclosed internet search terms to third-party websites by agreeing to pay $8.5 million. The parties decided it wouldn’t be feasible to distribute funds from the deal directly to the 129 million class members who would receive only pennies apiece.
Instead, the parties agreed that $5.3M would go to six charities working on privacy and internet policy, and class counsel would take home $3.2M. Frank says money should go to class members first before parties fall back on giving funds to charity. He also questions the choice of charities, several of which have ties to plaintiffs’ counsel.
The Supreme Court has been looking to review a cy pres-only settlement since 2013. Then, Chief Justice John Roberts wrote a statement to accompany a denial of certiorari in a Facebook privacy case saying the court may need to clarify limits on cy-pres only settlements.
The response brief in the Google case is due in March. This could be the case that gets cy pres before the court.
A few other trends seem to have fizzled recently.
In 2016, the tide was turning on arbitration clauses. Agencies in the Obama administration were rolling out rules to ban arbitration. Scalia was off the bench, Merrick Garland of the D.C. Circuit had been nominated to replace him, and if Garland didn’t get confirmed, everyone was looking to who Hillary Clinton would nominate.
But President Donald Trump’s win put the brakes on this anti-arbitration momentum. Nearly all of the agency rules have been overturned since he took office.
Most significant was the Consumer Financial Protection Bureau’s rule covering financial products, which was overturned by Congress in October.
Arbitration seems to be here to stay, much to the chagrin of consumer and employee advocates who have been fighting it for years.
There is also the trio of cases the Supreme Court heard the first day of the term. The cases ask whether the National Labor Relations Act invalidates class action waivers in employment contracts.
As one would expect, the left-leaning justices came out strong in favor of workers during oral argument. Justice Anthony Kennedy, who as usual is likely to be the deciding vote, was hard to read. Gorsuch didn’t speak up during the argument, giving no indication of how he might rule.
If the court comes down on the side of the workers, employers can expect a flood of class actions to be filed as their claims are released from arbitration.
If the court sides with employers, more companies are likely to add class action waivers to their employment contracts. Now about 55 percent of nonunion private sector employees are bound by an arbitration agreement, according to one study.
Another trend that was once big news in the class action world but seems to have fizzled is ascertainability.
This is the debate over whether plaintiffs need to provide a reliable method for identifying class members to get a class certified. Ascertainability comes up most often in small-dollar consumer suits because people don’t generally keep the receipts they could use to prove class membership.
The federal circuits were once split on whether ascertainability existed at all, and if so how strict a standard to apply. But arguably the circuits’ approaches are coming into harmony as the Third Circuit backed off its strict interpretation of the requirement.
That may be why the Supreme Court has passed up several opportunities to consider ascertainability in recent years, even since Gorsuch joined the court.
But defendants keep trying to get the court to bite. A securities class action against energy producer Petrobras would have given the court the chance to take it up, but the parties reached a settlement at the beginning of January. That case is off the table, at least for now.
Another ascertainability question has been raised in a TCPA case up on a petition for review but the court won’t move on it for a few months.
To contact the reporter on this story: Perry Cooper in Washington at email@example.com
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