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Class Action Countermeasures

Discussions of the Strategic Considerations Involved In Class Action Defense

The Cost-Conscious Plaintiff

Posted in Scholarship

After years in the class action defense bar, I’ve learned that few things will get the average non-lawyer to think I’m doing God’s work more than talking about class action attorneys’ fees. The general consensus is that while all lawyers overcharge their clients, class action lawyers do it more–and more spectacularly–than most.

And that’s why it’s so surprising to read a recent article for the DePaul Law Review from law professors Morris A. Ratner and William B. Rubenstein titled Profit for Costs, which argues that, in addition to attorneys’ fees, class action plaintiffs’ lawyers should be allowed to mark up their photocopying and expert expenses. Or, as they put it:

[F]ocusing on law firm investments, we explore how enabling cost profits might funnel resources to cases that are meritorious but presently underfunded, thereby increasing access to justice.

I’ll leave it to others to debate the policy implications of this proposal (although a few flaws are apparent right away, including a few the authors acknowledge).

I’m more interested in how Professors Ratner & Rubinstein analyze the effect costs have on plaintiffs’ work, in no small part because Professor Ratner used to be a plaintiffs’ lawyer himself. And there are two primary implications they identify. First, plaintiffs’ lawyers may not take on cases that require too much expert development as opposed to just motions practice:

[A] firm considering investing in two cases, one involving high costs and low attorney time and the other involving relatively low costs and high attorney time, will invest in the latter case because the possibilities of fee profits and fee multipliers—with no possibility of profiting from costs—makes the investment much more attractive. This means that a set of high-costs cases will likely not be pursued, even if the odds of prevailing are similar.

The authors provide a table that develops a few examples of what they mean by high-cost versus low-cost cases. What’s most interesting is that the low-cost cases, at least according to their descriptions, are more likely to get certified than the “meritorious” high-cost cases. Some enterprising law student might look at whether not making costs a profit center might actually screen out cases that should not be class actions. (I’d also point out briefly that Professor Ratner’s earlier work undermines the decision-making model presented here; according to him, plaintiffs’ firms are very poor at guessing what their fees will look like.)

Second, the authors write that cost investments may drive some early settlement decisions:

Because attorneys receive relatively little reward for their cost in- vestments, they may be tempted to settle cases on the eve of such investment points. For example, a firm may:

•  Work a case through motion practice, but settle before investing significantly in outside experts;

•  Avoid or defer moving for class certification, although such certification would give it settlement leverage, if it were going to be required to pay the costs of notice of a litigation class—costs that would normally be shouldered by the defendant in the event of a settlement; or

•  Pursue a case to the point of trial but settle before investing significantly in such a trial.”

The strategic implications here are clear. (No, not “pursue strategies that drive up costs”– plaintiffs already assume defense counsel do that, and several courts have pointed out that it is improper.) Instead, keep an eye on the cost points the plaintiff is likely to face. If you have to make a settlement overture, that may well be the time to do so.

Can Class Counsel Use Discovery to Find Their Named Plaintiffs?

Posted in Motions Practice

Two couples, the Varsamises and the Giannopolouses, sued Iberia Air Lines for not properly compensating them after their international flights were delayed. Their counsel soon ran into plaintiff-related difficulties: the Giannopolouses were not typical of the class (and wound up accepting Iberia’s Rule 68 offer of judgment); the Varsamises’ claims were dismissed at the summary judgment stage. The class action was over; all that was necessary was for someone to call time of death. And Iberia filed a motion for final judgment to do just that.

At that point, plaintiffs’ counsel filed a motion of their own, “to reopen discovery for the purpose of identifying substitute class representatives and for an order authorizing plaintiffs’ counsel to engage in pre-certification communications with putative class members.”

In essence, counsel wanted the opportunity to identify other potential class members, so that they could solicit them to carry on with the lawsuit. To continue belaboring the medical drama analogy, counsel looking for any extraordinary measures it could take to bring this case back. Iberia, for what should be obvious reasons, opposed the motion.

Class counsel relied on a pair of opinions by Judge Posner that suggested that, under certain circumstances, an uncertified class action has a life beyond that of the named plaintiff who filed the complaint.

The trial court, in Giannopolous v. Iberia Lineas Aeras de Espana SA, No. 11 C 775, 2014 U.S. Dist. LEXIS 73003 (N.D. Ill. May 29, 2014), disagreed, observing that counsel’s

 arguments miss the point. The question is not whether the Court retains jurisdiction, nor whether contact information for potential class members is relevant and discoverable. Rather, the salient question is whether the Court can permit Plaintiffs’ counsel to issue discovery requests when there is no named plaintiff (or certified class) with a “live claim” who can “carry on” the litigation–including issuing discovery requests. The Court retains jurisdiction to entertain motions to intervene while the former named plaintiff whose claim is dismissed or moot keeps the case warm so that someone with a live claim can intervene. However, “carrying on” the litigation–i.e., issuing discovery requests or filing an appeal–cannot occur without a new named plaintiff with a legally protected interest who is willing to step forward to pick up the spear dropped by the named plaintiffs. The former named plaintiff cannot propose to be the representative itself, even though its claim has been resolved. Here, Plaintiffs’ counsel is lacking a client with a live claim, and so Plaintiffs’ counsel may not seek discovery to find one.”

(Emphases added, internal quotations & citations omitted.) Class actions involve high stakes (and therefore lucrative fees), so it’s not surprising that class counsel will do everything in their power to keep a case going even after it appears to have died a natural death. The Giannopolous opinion is an excellent reminder that there are limits to the extraordinary measures plaintiffs’ counsel can take to keep a dying case alive.


The Peril of the Professional Plaintiff – Donaca v. Dish Network, LLC

Posted in Certification

Historically, courts have grudgingly accepted the professional plaintiff in class action practice. As Judge Easterbrook of the Seventh Circuit once said, in the context of a FCRA class action, the word professional “implies experience, if not expertise.” One law student note offered one possible strategy for arguing that professional plaintiffs are inadequate class representatives: focus on their relationship with class counsel.

In Donaca v. Dish Network, LLC, No. 11-cv-02910-RBJ-KLM, 2014 U.S. Dist. LEXIS 19740 (D. Colo. Feb. 18, 2014), the District of Colorado offers another possible argument.  Donaca involved alleged robocalls made in violation of the TCPA. The named plaintiff, as the court noted:

has made it his business, literally, to fight back. According to his deposition testimony, he considers himself to be a consumer rights advocate. He does regular research on telemarketers. He estimates that in 2011 he derived approximately 60% of his income from TCPA-related activity, meaning collecting money through settlements of claims he made against violators. He belongs to an email group of consumer rights advocates, many of whom deal in telemarketing, and through which he met his lead counsel in this case.

(Internal citations omitted.) As professional plaintiffs go, that all sounds noble enough. Who wouldn’t want to sue robocallers and make some money while doing it? But Mr. Donaca had a few problems. First, it wasn’t clear he was a member of the proposed class. But, more important for our purposes, his activities undermined his counsel’s ability to argue that a class action was superior to other forms of litigation. Or, as the court put it:

the facts of this case do not convince me that class treatment is necessarily superior to other methods for a fair and efficient adjudication of TCPA claims. Mr. Donaca’s own example suggests the contrary. He has been generating something in the range of 60% of his income from suits or threats to sue telemarketers. Few people will make such claims for an occupation or avocation. But it does seem to me that if one is sufficiently annoyed by unsolicited prerecorded calls (or live calls), there is a remedy that has actually and successfully been used.

(Emphasis added.)

The takeaway here? If you suspect you have a professional plaintiff, dig into just how professional he is. The better he does at his “job,” the more likely you have a good superiority argument.

How to deal with the new “Mass FACTA” class actions

Posted in Certification

Massachusetts has seen a small uptick in class actions in the last eighteen months, particularly ones that cite Mass Gen. Law Ch. 93A, Masschusetts’s consumer protection law. David G. Thomas, James P. Ponsetto, and Michael E. Pastore of Greenberg Traurig have an explanation. In their Law360 article Behind The Class Action Surge Against Mass. Retailers  takes an in-depth look at a line of cases originated by the Supreme Judicial Court’s ruling in Tyler v. Michaels Stores Inc., 464 Mass. 492 (2013). These class actions challenge the practice of including ZIP codes in the information that retailers collect (much like the way the federal statute FACTA challenged the collection of similar information).  As they describe it, in Tyler,

the SJC reiterated that the harm or injury must be caused by the alleged violation. As a result, the SJC arguably narrowed the scope of Chapter 93A injury in Tyler (a long-awaited narrowing).

Nonetheless, the SJC also gave the plaintiffs’ class bar a road map as to how to plead and potentially prove Chapter 93A injury and damages for violations of Chapter 93, Section 105(a). For example, in Tyler, the separate and distinct injury was receiving unwanted junk mail or having personal information sold to a third-party for a profit. Since the SJC’s decision, the plaintiff’s class action bar has targeted other retailers allegedly following similar policies and alleged these very same separate and distinct injuries to consumers in their complaints.”

In other words, the Supreme Judicial Court’ interpretation has resulted in the same surf of lawsuits that FACTA did under similar circumstances.

In addition to providing an analysis of the relevant Massachusetts cases, the authors also offer up several preventive measures defendants can take, as well as a few arguments against certification:

Tyler addressed the injury issue only in the context of a motion to dismiss filed in the district court. Neither the SJC nor the district court addressed whether the putative class should be certified (which since has settled). Accordingly, a putative class representative would have to prove that the common issue of “Chapter 93 injury” and causation is appropriate for class certification, e.g., that all class members gave their ZIP codes, the “giving” did not fall into one of the enumerated exceptions, and that those ZIP codes were used to send consumers unwanted junk mail or to sell their information to a third-party for a profit. Accordingly, there may very well be some strong defenses to class certification in these cases, which, of course, will be based on the facts of the underlying policy and a retailer’s actions.

So, like with FACTA class actions, defendants should look at the specific transactions, and the policies in place behind the data collection. It’s often the cases in these kinds of retailer class actions that the storefront experience is not as common as the plaintiffs suppose.

Expert Testimony and the Reasonable Consumer

Posted in Certification

Cosmetics giant Maybelline markets Superstay 24 lipstick, which is supposed to be more comfortable, withstand heat and humidity, and go 24 hours without needing a transfer. Some customers decided that, despite the advertising, the lipstick did not last a full 24 hours without transfer; so they sued Maybelline claiming that it had violated various California fraud statutes.

As many lawyers know, California’s consumer fraud statutes have lesser reliance standards. For example, reliance is judged on an objective “reasonable consumer” standard that means plaintiffs often do not have to demonstrate individualized reliance to get a class certified.

So faced with a class action attacking its marketing of the lipstick (Algarin v. Maybelline, LLC, No. 12cv3000, 2014 U.S. Dist. LEXIS 65173 (S.D. Cal. May 12, 2014)), one would expect Maybelline to either (1) argue everything but reliance, or settle quickly.

Instead, Maybelline attacked the reliance requirement directly, using expert testimony to establish what its “reasonable consumer” actually cared about.

Maybelline has introduced unrefuted evidence of who the reasonable consumer in the target audience is and what drives her in making purchasing decisions. As Maybelline contends, the Court does not need to look to the hypothetical reasonable consumer.

(Emphases added.)  Interestingly, Maybelline’s expert found a large number of repeat purchasers, which indicated that a large number of Maybelline’s consumers either did not care about the duration of the lipstick, or were satisfied with it as it stood. Its expert also surveyed a number of buyers, repeat and otherwise, to see what they did care about when buying lipstick. His results allowed Maybelline to successfully attack the class definition (which was overbroad), and argue that individualized issues would predominate over any common issues.

Maybelline presents evidence, in the form of Dr. Seggev’s survey and report as well as Maybelline’s Early Trier Study, to show the proposed class includes: (1) a large percentage of the potential class of SuperStay purchasers are repeat purchasers who cannot be considered to be misled by the duration representation identified by Plaintiffs and (2) one-time purchases of the Class Products who had no duration expectations and whose purchasing decisions were made without regard to product duration. Because the proposed class includes these “uninjured” purchasers, the class is impermissibly overbroad and thus unascertainable.

The takeaway here is a good one for those who litigate frequently in California, as well as elsewhere: don’t be afraid to use expert testimony to attack the basics of plaintiffs’ case.

How Valuable Are Confidential Witnesses to Class Action Complaints?

Posted in Motions Practice

Securities class actions are interesting for many reasons. They involve large stakes, and so they also attract outsized personalities. They are also more strictly regulated than other class actions. And, as a result, they often lead to unusual tactics for class action litigation. For example, as Professor Mark Gideon points out in his article Recanting Confidential Witnesses in Securities Litigation, 45 Loy. U. Chi. L.J. 575 (2014), because of the heightened pleading requirements they face, securities plaintiffs rely increasingly on confidential witnesses to prop up their complaints, particularly when pleading scienter.

Professor Gideon expresses concern about those courts that have either (1) discounted the testimony of confidential witnesses, or (2) allowed defendants discovery into the information alleged confidentially.

Recanting may not occur as often as some observers suggest, but it has occurred on a number of occasions. And some percentage, perhaps a substantial percentage, of this recanting is false. Various solutions to the problem of flawed CWs have been proposed, but some of these proposals are as flawed as the witnesses. Permitting the depositions of CWs prior to the resolution of motions to dismiss is both unwise and contrary to the express provisions of the PSLRA. Likewise, courts should decline to consider declarations by recanting CWs in the context of motions to dismiss.

From my perch having defended securities class actions, the “problem” with confidential witnesses is how they change the tactics involved in class litigation. Any time a defendant is faced with a complaint, it will conduct an internal review to determine how many of the allegations are valid, and how many are false. If those allegations are buttressed by a confidential witness’s testimony, then the defendant will do its best to identify (and, if appropriate, speak to) the witness so it can determine the truth of the allegations it must defend. That will occur regardless of whether there is a discovery stay. And if the witness is willing to recant on the record, the defendant can bring that to the court’s attention through a Rule 11 motion.

Similarly, my intuition is that courts tend not to trust CWs in complaints because an individual with damning information about corporate misconduct has other avenues than just talking to a plaintiff’s investigator; they can, for example, file a qui tam action or go through the SEC’s whistleblower program.

In fact, the presence of a confidential witness may act as a red flag for many defense counsel, alerting them to allegations that cannot be traced to an identifiable source, and therefore may actually be less reliable than other sources.

Which is not to say that plaintiffs have no tools to allege scienter; among other things, the Supreme Court has allowed them to use inferences from investor-relation campaigns to do so.

So what’s the takeaway here? For plaintiffs (and I know there are some who read this blog), be careful how much you rely on a confidential witness. And for defendants, if you see a confidential witness in a complaint, press further. Those are often the areas that don’t withstand scrutiny.

Rule 68 and Statutory Damage Claims – Franco v. Allied Interstate LLC

Posted in Motions Practice

In Franco v. Allied Interstate LLC, No. 13 Civ. 4503, 2014 U.S. Dist. LEXIS 47077 (S.D.N.Y. Apr. 2, 2014), the named plaintiff sued the defendant for sending him a debt collection letter that implied he could face garnishment of his wages if he did not pay his debt. He did not allege any actual damages, relying instead on the FDCPA’s statutory damages provision.

In response, the defendant made a Rule 68 offer of judgment of $1,501 plus reasonable costs and attorneys’ fees as allowed by the court, one dollar more than the statutory maximum damages the plaintiff could receive. The plaintiff refused the offer, and the defendant moved to dismiss the complaint as moot.

This kind of case has come up before, with varied results. This time, the Southern District of New York found the claims moot. It acknowledged that offer of judgment cases are controversial, but pointed out that the case before it was more clear-cut than most. In particular, because the case involved statutory damages, it held that neither the relation-back doctrine (often used to preserve injunctive-relief claims) nor the traditional concern about mooting classwide injunctive relief applied. Instead, because the plaintiff had sought only statutory damages:

 here as in Genesis Healthcare Corp., defendant’s offer of judgment offered plaintiff complete relief on his individual claims, and plaintiff ‘failed to assert any continuing economic interest in shifting attorney’s fees and costs to others.’

The takeaway in this case is fairly simple: even as Rule 68 remains controversial, it may work particularly well in statutory damages class actions.

Is the Search for Class Unity Misguided?

Posted in Scholarship

That’s the question asked (and answered) by Texas law professor Robert G. Bone in his paper The Misguided Search for Class Unity. In it, Professor Bone argues that there are two views of the class action: (1) an “internal, outcome-based” view that tends to favor certification for the efficiency benefits, and (2) an “external, process-based” view that tends to oppose certification based on concerns about individual participation and legitimacy. According to Professor Bone, the external view has been ascendant, particularly with recent Supreme Court decisions that require more cohesiveness in a class before certification is appropriate. He believes this is a bad thing:

Cohesiveness limits the availability of the class action and does so in a crude way that correlates poorly with the values that the limits are supposed to serve. This is a serious problem because the class action is an essential component of civil adjudication in the modern world. Mass marketing produces mass harms, which in turn generate massive numbers of suits that can impose huge burdens on the court system as well as the victims themselves. When the number of cases gets very large, class aggregation, though imperfect, can offer the only realistic hope of meaningful recovery at reasonable cost.

Professor Bone’s article is an interesting account of arguments for the class action from an admitted “internal view” scholar. And his candor about his viewpoint leads to a few interesting admissions. Among them is the fact that he (like several other scholars who write about it), think defendants’ invocation of “due process” or “day in court” ideals (such as when a defendant argues that a class is not certifiable if individual litigation would lead to varied outcomes) are largely rhetorical. But even more interesting is his account of how Rule 23 looks from an “internal” perspective:

Rule 23(b) is the key provision for the internal view because 23(b) focuses on the functional reasons for class treatment and functional reasons drive certification and class definition within the internal view. As for Rule 23(a), subdivision (a)(1)’s numerosity requirement expresses a preference for non-class litigation and (a)(4) plays the important role of assuring adequate representation. But 23(a)(2) and (a)(3) make little sense as independent certification requirements. From an internal perspective, Rule 23(a)(2)’s common question requirement adds nothing that is not already covered by 23(b), since the only commonality a class must share is that which serves 23(b)’s class action goals.10 And 23(a)(3) collapses into (a)(4), since the only reason for typicality is to assure that the class representative and class attorney vigorously litigate in the interests of the class. Moreover, given the realities of modern class-action litigation and the agency costs endemic to the attorney-class relationship, the internal view, concerned as it is with achieving outcome goals, focuses mainly on potential conflicts of interest between the class attorney and the class when analyzing adequacy of representation under 23(a)(4).

In other words, it is difficult to reconcile the “internal” view of the class action with the text of Rule 23.

The article itself is well worth a full read. But the takeaway is a fairly simple one: the “internal” or “outcome-based” (one could fairly say “result-oriented”) view of the class action is not consistent with Rule 23 as it stands. When facing arguments that hinge largely on the need for aggregation or the allegedly heinous conduct of a defendant, it is always worth looking back at the actual rule governing the aggregation.

When Ascertainability Is Just the Symptom

Posted in Certification

Challenges to ascertainability have become noticeably more popular over the last few years. As a result, defendants will sometimes challenge the class definition even though there are deeper problems with the class. As a recent case shows, however, it is usually worth probing deeper than the definition in one’s arguments.

Steimel v. Minott, No. 1:13-cv-957-JMS-MJD, 2014 U.S. Dist. LEXIS 38228 (S.D. Ind. Mar. 24, 2014) offers some object lessons in what ascertainability problems can really mean. In Steimel, the plaintiffs sued the Secretary of the Indiana Family and Social Services Administration after a change in policy (transferring developmentally disabled individuals from one Medicaid waiver program for which they technically did not qualify to one for which they did) resulted in a reduction in services. The plaintiffs sought to certify a class of

“Any and all persons, current and future, terminated from the A&D Waiver as a result of the 2011 Policy Change who require more services each year than are available through the FS Waiver and who are not enrolled in the CIH Waiver.”

The class definition contained some obvious flaws: among others, it was hopelessly vague. Who “require[s] more services?” How does one identify the people “not enrolled” in a program? And the court duly found the class to be hopelessly indefinite.

But it went further. Drawing on the flaws in the class definition it also found the following difficulties with certifying a class:

No numerosity. The court pointed out that

 If class membership is unascertainable, there is no basis for the Court to conclude that the putative class is so large that joinder of all members is impracticable.

It’s a simple point, but an effective one. If you can’t identify the class members, you usually can’t determine how many of them there are.

No commonality. The court also pointed out that–contrary to the requirements of Wal-Mart Stores, Inc. v. Dukes, there was no “glue” holding the class together. As a result, it could not simply re-define the class to solve the vagueness problem.

 the problems with Plaintiffs’ proposed class run deeper than the class definition; they are rooted in the misguided nature of Plaintiffs’ contention that the 2011 Policy Change is the “glue” that renders the case certifiable.

In other words, it was the lack of a common question with a common answer that caused the problem with the class definition, not the other way round.

No workable injunctions. The court also found that injunctive relief (and therefore, certification under Rule 23(b)(2) would not be appropriate.

For the same reasons the putative class is not ascertainable–particularly the difficulty in determining whether one “requires” more services than available on the FS Waiver–an injunction requiring the FSSA to ensure that those terminated from the A&D Waiver receive the services they require would “merely initiate a process through which highly individualized determinations of liability and remedy are made.”

Courts do not always find 23(b)(2) and a vague class incompatible; after all, sometimes an injunction can help an indefinite group of people. But that is when there is a common issue too address. In a situation like this, to properly make class members whole, one would have to issue narrowly tailored, individualized injunctions.

The takeaway here is an important one: ascertainability may be one of the most obvious problems with a class, but it is often just a symptom of deeper issues. A truly effective class opposition will explore why just amending the class definition will not solve plaintiffs’ problems.

Auctioning Class Settlements

Posted in Uncategorized

It’s a matter of conventional wisdom that class action settlements rarely benefit absent class members as much as they could. Despite a valid fear of either explicit collusion or bad incentives, courts will often rubber-stamp class settlements that provide wide releases and lucrative attorneys’ fees, but little value to the absent class member. And, over the years, there have been a number of proposals for addressing this issue.

Now, Notre Dame professor Jay Tidmarsh (who has published a lot of interesting material recently), offers his solution in his forthcoming article Auctioning Class Settlements.

Professor Tidmarsh’s proposal, in a nutshell:

When the parties in a class action arrive at a settlement, the court should put the settlement up for auction. If third parties bid more for the case than the settlement offer, the proceeds of the highest bid are distributed to the class. Ownership of the class’s claims shifts to the winning bidder, who has an incentive to monitor counsel while continuing to press the case against the defendant.

While this proposal allows a “winning bidder” to reap the excess value of the settlement (while offering some of that surplus to the class), Professor Tidmarsh believes that the real benefit will be the effect on the plaintiffs’ and defendant’s incentives:

Faced with the prospect of being outbid by others, and thus foreclosed from realizing a full fee for the work put into the case, counsel has little incentive to agree to a sweetheart deal. The same is true of the defendant, who cannot be assured of escaping the litigation unless it pays fair value for the class’s claims.

Professor Tidmarsh also delves into a number of the possible logistical issues to such an auction, such as timing and funding. (Oddly, he doesn’t really explain what transaction costs might result from administering the auction, although given his analysis, one can largely infer them.)

The primary issue to note is that this isn’t too far off from the current process of objection, where a class member will object that the terms of the auction are not generous enough, and, if successful at convincing the court, can collect fees for adding value to the settlement. Objectors, however, rarely receive kudos. So one has to ask the question, why doesn’t the objection process have the salutary effect Professor Tidmarsh ascribes to his settlement auction?