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Class Action Countermeasures

Discussions of the Strategic Considerations Involved In Class Action Defense

Five Takeaways from the Duke Conference on Class Action Settlements

Posted in Lawyers, Settlement

A few weeks ago, the Duke Law Center for Judicial Studies held a conference on class action settlements in San Diego, to discuss best practices in the wake of the likely Rule 23 amendments. Like all of its conferences, this one was held under the Chatham House Rule, which dictate that you can repeat the substance of anything said but not the identity of the speakers.  The candor these rules foster is extraordinary, and lead to valuable discussions.  So, with that in mind, here are the five most important things attendees took away from the conference.

  1. Plaintiff-oriented amendments.  The real action at this conference surrounded the various amendments to Rule 23(e), which governs settlements.  With a few exceptions noted by particular defense practitioners, it was generally conceded that negotiating and justifying settlements in accordance with Rule 23(e) is generally an issue for the plaintiffs. Plaintiffs, for example, are the ones who tend to write oppositions to objectors’ briefs.  And plaintiffs are the ones who must provide information to the court at the preliminary hearing.  This structural bias was reflected in the attendance: there were numerous judges and plaintiffs’ counsel, but comparatively few defense counsel outside of the panelists.
  2. Fees drive settlement structure.  No matter what the structure developed to resolve a proposed class action, the driving force is almost always the attorneys’ fee.  More specifically, the driving question is how to maximize the amount of the settlement that can be used to justify a fee award.  This is why reverter settlements became unpopular, and it’s also why cy pres relief has been falling out of fashion.  At least one remarked that the single most important factor in a settlement is the of the fee to the relief received by class. This is what objectors pay attention to, and this is what the press covers.
  3. Plaintiffs don’t like their fees to be tied to relief actually received.  One might think realism about the fee/relief ratio would therefore dominate the discussion. Instead, while there were a few admirable exceptions (including several counsel who argued passionately that you can always find more ways to spend money on absent class members), most plaintiffs’ counsel argued just as passionately that their fees should be judged by the “opportunity for relief” made available to the class, regardless of how much money the class members actually wind up claiming or receiving.  And others worried that increased transparency in settlement procedures would inevitably lead to reduced fees.
  4. No one likes objectors.  Seriously, nobody likes objectors. All present paid the proper lip service to the distinction between “good” (or sometimes just pro se) objectors and “bad” (professional) ones, but the ire was there just the same. It was so great that even though there was a designated panel for the topic, it spilled out into at least one other panel on separate settlement reforms.  One prominent plaintiffs’ counsel crystallized the resistance to objectors down to the fact that they wield “outsized leverage” because of the “threat of delay” — a point most counsel appeared to agree with.  (It appears “quick pay” provisions have not caught on as widely as predicted.) But at least one plaintiffs’ attorney spoke up to question whether “principled” objectors are really all that good, if what they seek to do is “gum up the works” by objecting to large-fee settlements.
  5. Watch for deterrence-based arguments in the next few years.  Given the difficulties posed by “good” objectors, and the need for settlement value that justifies plaintiffs’ fees, a number of plaintiffs’ counsel talked about how they have been increasingly talking about the “deterrent value” of their settlements.  (Several judges also said they sometimes look to the deterrent value of a settlement when awarding fees.)  Deterrence is, of course, a particularly squishy concept, with little hard empirical evidence to back it up.  But it appears it will assume increasing importance in the next five to ten years as a replacement for reverter settlements, cy pres relief, and possibly prospective injunctive relief, too.

This is a necessary oversimplification of the conference, which covered a wide range of topics, and featured a remarkable diversity of views.  But for those interested in actionable intelligence about where class actions are headed, the primary takeaways are clear: the fact that fees drive class settlements is not going away, and the debate over the deterrent value of class actions is only going to intensify.

Week in Review: Ascertainability under Rule 23(b)(2) and a Dose of Spokeo

Posted in Uncategorized

This week we consider the Sixth Circuit’s take on how Rule 23’s ascertainability requirement overlaps with the different pathways to certification under Rule 23(b), as well as some post-Spokeo dismissals of putative class actions for lack of standing.

Sixth Circuit Holds No Showing of Ascertainability Required for 23(b)(2) Class Action:  The contours of Rule 23’s implicit “ascertainability” requirement are rarely clearly defined, and often differ between circuits.  In affirming the district court’s certification of a class of individuals contesting the police department’s method of clearing the streets at 3:00 a.m., the Sixth Circuit reminded practitioners that the prong of Rule 23(b) that the class invokes also bears on the applicability of the ascertainability requirement.  In Cole v. City of Memphis, the court held that a class seeking injunctive relief and proceeding under Rule 23(b)(2) need not demonstrate that the class is ascertainable.  The court reasoned that because “[t]he main purpose of a (b)(2) class is to provide relief through a single injunction or declaratory judgment,” the concerns about administrative feasibility that the ascertainability requirement is designed to address are not at play.  Accordingly, the court joined the First, Third, and Tenth Circuits in holding that the ascertainability requirement was inapplicable to Rule 23(b)(2) classes.

District Courts Split on Standing Requirements for FACTA Claims Post-SpokeoTwo months ago, we looked at a decision from the Southern District of Florida holding that a plaintiff asserting a claim under FACTA for extraneous credit card information printed on a retailer’s receipts could withstand a standing challenge on a motion to dismiss, even without specifically identifying an increased risk of identity theft.  Earlier this month, the U.S. District Court for the Western District of Missouri went the opposite way when presented with almost the exact same scenario.  In Thompson v. Rally House of Kansas City, Inc., the plaintiff brought a putative class claim alleging that a sporting goods store violated FACTA by including too many credit card digits on its receipts.  The court held that because the plaintiff failed to allege his receipt was ever at risk of exposure to would-be identify thieves (or even left his possession), and otherwise failed to identify any exposure of his credit card information, he had alleged “only a mere violation” of the statute without actual or imminent concrete harm sufficient to confer standing under Spokeo.

Consumer’s “Failure to Disclose” Class Action Cannot Survive Spokeo Challenge:  In another post-Spokeo dismissal of a putative class action, the U.S. District Court for the District of New Jersey held that a class representative’s claims against a rental car company based on its failure to disclose whether certain loyalty program terms were void in New Jersey failed for lack of concrete injury.  The court held that even if plaintiff identified a technical violation of New Jersey’s Truth-in-Consumer Contract, Warranty, and Notice Act, he alleged only “bare procedural harm, divorced from any concrete harm.” The court focused in particular on the plaintiff’s failure to allege whether any of the terms in question were in fact void under New Jersey law, reasoning that “if those provisions are ultimately applicable, it is hard to imagine what concrete harm Plaintiff suffered.”

Settlement of “All Natural” Product Labeling Suit Drives Home Import of Injunctive Relief Side Door:  In our last Week in Review post, we considered a decision in an “all natural” product-labeling case that decertified the class for the purposes of calculating damages but not for obtaining class-wide injunctive relief, and noted that limiting available class relief in this manner still left plenty of incentive for class counsel to pursue similar actions in the future due to the availability of attorneys’ fees.  To put a finer point on that, we need look no further than the preliminary approval of a settlement agreement in the Southern District of New York that called for the removal of “All Natural” and “100% Natural” from the defendant’s labels, and established a $4.5 million fund for covering class members’ claims and payment of attorneys’ fees.  Although the relief afforded class members in this settlement was not limited to injunctive relief alone, class counsel working under that limitation in future actions will argue that getting the “natural” references removed from product labels still justifies substantial fees.

Week in Review: Lots of Action in “Natural” Product-Labeling Class Litigation

Posted in Uncategorized

This week we take a look at a couple major recent decisions in product-labeling class actions, as well as a close call the Supreme Court will not be deciding this term.

Ninth Circuit Rejects Class Counsel’s Damages Theory, but Leaves a Side Door to Class-wide Relief Open:  The Ninth Circuit’s reversal of the lower court’s determination that an “all natural fruit” label on fruit packed in synthetic citric and ascorbic acids was not likely to deceive consumers as a matter of law has attracted a lot of attention in the world of food-labeling litigation.  The Court vacated an award of summary judgment in favor of the defendant, holding that the jury should decide the question of whether the labeling was misleading to a reasonable consumer.

Of particular interest to readers of this blog is the Ninth Circuit’s holding that the lower court did not err by decertifying the class due to difficulties in calculating damages on a class-wide basis.  The court reasoned that each purchaser’s damages were the amount the consumer paid with the understanding it was an “all-natural” product, less the subjective value of fruit packed in a man-made acid to that particular consumer—and that class counsel had offered no explanation as to how this premium could be calculated with proof common to the class.  Notably, however, the court allowed that the plaintiff could continue to pursue injunctive relief on behalf of the class on remand, providing an avenue to the recovery of class attorneys’ fees—and thus plenty incentive for plaintiffs’ attorneys to file similar claims, even in the absence of a fully-formed class damages theory.

Court Deems Sworn Statements Sufficient to Ascertain Class:  Continuing in the world of “natural” product labeling, a federal district court judge certifying three classes of purchasers of skin- and hair-care products marketed as “Active Naturals” held that class members could satisfy Rule 23’s ascertainability requirement by submitting sworn statements.  Ascertainability is often a difficult hurdle to clear for those seeking to certify classes based on the purchase of routine, day-to-day products because so few consumers retain proof of their purchase  Here, the U.S. District Court for the Southern District of New York held that the class members who contended that synthetic ingredients in the products rendered the package-labeling deceptive could establish membership through sworn statements stating they “purchased the products at issue in the necessary state during the necessary time period.”  While the court acknowledged that this “somewhat criticized method of self-reporting” had its problems, it ultimately determined that denying certification for lack of more objective proof would “severely contract the class action mechanism as a means for injured consumers to seek redress under statutes specifically designed to protect their interests.”

Uncertainty Remains as to Who Decides Class Arbitrabilty under Standard AAA Arbitration Clause:   One issue the Supreme Court will not be providing clarity on this term is whether an arbitrator or court should decide if class-wide arbitration is available under an arbitration agreement that states all “disputes shall be determined by arbitration in accordance with the rules of the American Arbitration Association.”  By denying cert in Scout Petroleum LLC v. Chesapeake Appalachia, LLC, the high court leaves standing the Third Circuit’s holding that, under this particular language, the authority to make this threshold determination belongs to the court, because the arbitration agreement does not “clearly and unmistakably” delegate the question of class-wide arbitrability to the arbitrator.   The Supreme Court’s decision not to take up the issue leaves the waters somewhat murky, as other courts have held that similarly-worded arbitration agreements meet the “clear and unmistakable” standard and thus delegate the issue of class arbitrability to the arbitrator.

Similarities between Claim Rate and Asserted Defect Rate Weigh in Favor of Approving Class Settlement:  A U.S. District Court for the Northern District of Ohio approved a class settlement of claims alleging certain washing machines were particularly susceptible to mold.  In approving the settlement, the Court observed that 7.3% of the 3.5 million class members who received notice of the settlement filed a claim for an award.  As the defendant represented that only 7% of the millions of washing machines sold had an observable defect, the court deemed the congruence in these percentages as evidence of a “favorable class reaction” supporting final approval.


UK Antitrust Class Actions Start to Get Going

Posted in Uncategorized

Brussels Antitrust/Competition partner (and English lawyer) Matthew Hall brings us an update on antitrust class actions filed under new procedures in the UK.

Antitrust class actions in the UK are beginning to take hold before the specialist Competition Appeal Tribunal (the “CAT”).  The two filed to date show the possibilities at different ends of the value scale and the wide range of fact patterns that can be relevant.

The first claim, filed on May 25, 2016 under the new rules introduced on October 1, 2015 (see case page here), is relatively small, with an alleged claim value of GBP 7.7 million, including interest.  As noted in our prior coverage, it was expected that the first claim under the UK’s new procedures would be based on a cartel case (or at least another type of horizontal antitrust law infringement between competitors), but that was not the case.  The claim is instead based on a type of resale price maintenance (“RPM”)—specifically, a finding by the UK antitrust regulator that a supplier of mobility scooters had illegally banned retailers in the UK from advertising online prices below its recommended retail price.

The claim, on an opt-out instead of opt-in basis (which requires court approval), was brought by the UK National Pensioners Convention (“NPC”) on behalf of people who allegedly paid too much for mobility scooters from Pride as a result of this RPM.  The NPC claims that up to 34,000 Pride customers who bought scooters between 2010 and 2012 may each be entitled to around a GBP 200 refund, or more in specific cases.

Since these types of claims are very new in the UK (and this is the first) the parties will be tackling for the first time in the UK many class action issues.  These will be familiar to U.S. readers, but perhaps not to those elsewhere.  As things stand, the CAT has asked any person with an interest (including any member of the proposed class) to provide, by November 11, 2016, any objections to its collective proceedings order (“CPO”).  The CPO is the order that would permit the proposed class representative to act as such and to bring the opt-out collective proceedings.

The latest, and second such, claim (see case page here) was filed before the CAT on September 8, 2016.  This recent claim is much bigger and, hence, received significantly more press coverage in the UK and elsewhere.  Indeed, with an alleged claim value of GBP 14 billion including interest, this is, according to the law firm acting for the claimants, “the biggest [claim] in UK legal history.”  That may or may not be the case, but quite clearly the alleged claim is huge, and puts the new UK rules right under the spotlight.

This claim is also a follow-on case, but based on a finding by the EU-wide antitrust regulator, the European Commission (“EC”).  The EC found that, from May 22, 1992 until December 19, 2007, the MasterCard payment organisation had infringed EU antitrust law by in effect setting a minimum price which merchants had to pay to their acquiring bank for accepting payment cards in the European Economic Area (“EEA,” consisting of the EU plus Norway, Iceland and Liechtenstein).  This was implemented by means of Intra-EEA fallback interchange fees for MasterCard-branded consumer credit and charge cards and for MasterCard- or Maestro-branded debit cards.  The EC’s finding was based on a horizontal antitrust infringement theory, as opposed to the vertical infringement found in the mobility scooters case.

The proposed class comprises individuals who between May 22, 1992 and June 21, 2008 purchased goods and/or services from businesses selling in the UK that accepted MasterCard cards (i.e., they do not need to have used a MasterCard) at a time at which those individuals were both: (1) resident in the UK for a continuous period of at least three months and (2) aged 16 years or over.  Unsurprisingly, the class is likely to be extremely large (estimated at 46,200,000 individuals).  The claimants (the class representatives) are also applying for this case to go forward on an opt-out basis.

These two cases are very different, but show the wide range of possibilities before the CAT for the new class action antitrust law in the UK.  One case is relatively small in value terms (particularly for a class case) while the other is claimed to be the largest-ever UK claim of any type.  One case relates to a vertical infringement of antitrust law (a type of RPM), while the other relates to a horizontal infringement (but still not a classic “smoke-filled-room” cartel).  One concerns a relatively small group of customers, while the other concerns a large portion of the entire UK population.

Both cases, however, are opt-out cases (or the class representatives are at least seeking to go down that route). Assuming they do continue down that route, the CAT will tightly manage the process so as to make sure that the various protections in the legislation against the perceived problems with class claims are implemented.

It will take some time to get to the substance of these cases (if they ever do get there), but at least in the MasterCard case, a key issue is going to be whether pass-on by the retailers to the cardholders actually took place.  The claimants (the class representatives) will need to show that interchange fees were passed on to consumers by retailers.  In this context, both sides will scrutinise very closely a recent judgment of the CAT also concerning MasterCard (see case page here).  That case involved a claim brought by a UK supermarket (Sainsbury’s) against MasterCard, where the CAT ruled that pass-on had not taken place:

It follows that MasterCard’s pass-on defence must fail. No identifiable increase in retail price has been established, still less one that is causally connected with the UK MIF.  Nor can MasterCard identify any purchaser or class of purchasers of Sainsbury’s to whom the overcharge has been passed who would be in a position to claim damages.

There will no doubt be a huge battle on that issue if it ever comes to it, but (as with the mobility scooters case), many preliminary steps need to be dealt with before the real substance will come to the fore.  Trial dates for both cases are not expected before late 2017 at the earliest. In the meantime, we await the next class action claim in the UK CAT, and wonder whether it, unlike its predecessors, will be based on a true cartel theory.

Objectors: The Defense Lawyer’s Friend

Posted in Settlement

I’ve been busy this week with a number of things, but a few of them, including the upcoming amendments to Rule 23 and prepping for a Strafford webinar on Thursday, have me thinking about the proper role of objectors again.

I think I’ve mentioned before that a number of class action lawyers (especially on plaintiffs’ side) really don’t like those who come in and try to improve settlements.  Some of this is simple financial self-interest: barring a quick-pay provision, class counsel doesn’t get paid until the settlement is finalized.  But some of this is also actual distaste.  In fact, plaintiffs’ lawyers speak of settlement objectors in the same terms in-house counsel use to describe those same plaintiffs’ lawyers.

These days, of course, lawyers are far more civil in describing objectors.  The rise of public-interest groups like the Competitive Enterprise Institute’s Center for Class Action Fairness or the National Consumer Law Center have lawyers straining to distinguish between the “good objectors” who want to improve class action settlements and the “professional objectors” who just want to make a quick buck.

I’d like to offer a heretical opinion.  From the perspective of someone who defends class actions, it doesn’t much matter whether an objector is a “good” public-interest objector or a “bad” professional objector.  And that’s because, from the defense perspective, the objectors do the same thing: they come into a settlement where there is a distinct gap between the relief for the class and the fees for the plaintiffs’ attorneys, and they point out the various ways in which the settlement enable such a gap to exist.

I’m in no way pretending this is not aggravating.  If you have just spent two weeks in mediation, a harried, cost-conscious client behind you and putative class counsel two rooms over, eating the same stale pastries, insisting a large enough settlement to justify their fees, then yes, the sudden appearance of an objector with their hand extended too is not what you want to see, even if class counsel has to shoulder the task of dealing with them.

But savvy defendants can make this situation work for them by anticipating it.  The simple truth is that objectors are most likely to show up where there is a problem with the settlement, one that stems from the difference between the defendant’s estimation of the case’s merit and class counsel’s need for fees.  Public interest objectors won’t attack decent settlements, and professional objectors won’t see much margin in doing so.

And if you know where, when, and why an objector will show up, you can take steps to avoid the problems that will attract them.  Moreover, you can use the possibility of objections as a way of (1) field-testing the value of the case with your client; and (2) bringing class counsel around to your way of thinking.  If the only way to accomplish a settlement is by engaging in illusory injunctive relief, cy pres distributions, or coupons, then the case probably doesn’t have that much merit to begin with.

Week in Review: How the Causes of Action Asserted Impact Which Defendants Face Certification

Posted in Uncategorized

This week we consider a decision that illustrates how the suitability—or unsuitability—of certain causes of action for certification can render certain defendants more susceptible to class actions than others, as well as a state court’s specific objection to a proposed class action settlement.

Breach of Implied Warranty of Merchantability Claim Provides Path to Certification Where Fraud Claim Dead Ends:  Fraud is a notoriously difficult claim to litigate on a class-wide basis due to the individualized proof required to meet the reliance element. In the context of false advertising claims, an unintended consequence of this is that it may be easier to pursue a class action against the seller of a product than the manufacturer whose packaging included the purported misrepresentation.  At least such was the case in a recent Northern District of Ohio decision regarding consumers’ allegations that packaging on toddler wipes misrepresented they were “sewer and septic safe.”  The court refused to certify a fraud claim against the manufacturer due to the predominance of individualized issues, but did certify a breach of the implied warranty of merchantability claim against the seller on the grounds that if the product did not live up to this warranty, all purchasers were affected in the same way.

Broad Release Language in Settlement Agreement Precludes Preliminary Approval:  Rather than striking an objectionable provision in a class action settlement, a California Superior Court denying preliminary approval issued a ruling so specific as to essentially toss the blue pencil to the parties and say, “Here, you do it.”  The action arose out of claims of underpayment of wages by an insurance company, and the provision the court refused to approve purported to release all class-member employees’ claims “known or unknown, that were or could have been brought based on the facts or claims alleged in any version of the complaints filed in this matter arising during the class period.”  The court emphasized that the release was the only piece of the settlement standing in the way of the approval, and that the denial of preliminary approval was without prejudice. The case is captioned Tara Tunforss v. Allstate Insurance Co., Case No. BC448390.

Court Denies Satellite Radio Provider’s Motion for Decertification as the Same Old Song:  The Central District of California denied a satellite radio provider’s motion to decertify a class of song owners who filed suit over the payment of royalties for the use of their material.  Defendant Sirius XM contended that each artist’s claim would be too individualized for class resolution, but the court denied the motion without oral argument, characterizing the defendant’s arguments as rehashes of those asserted sixteen months ago in opposition to the plaintiffs’ motion for certification.  In that initial ruling on certification, the court held that individualized issues did not predominate as to song ownership because those questions could be resolved through a streamlined attestation process.  The court further held that individualized issues did not predominate as to the plaintiff’s proposed damages analysis, because the theory’s reliance on already available data concerning the percentage of plays of each song on satellite radio made it a logical and workable damages theory.

Litigation Matters: The Curious Case of Tyson Foods v. Bouaphakeo

Posted in Uncategorized

Just a brief update today.  Last week, the latest edition of the Cato Supreme Court Review was published, and it included an article by yours truly entitled Litigation Matters: The Curious Case of Tyson Foods v. Bouaphakeo.  Here’s the abstract from SSRN:

The general assumption when analyzing Supreme Court jurisprudence is that the opinion is the product of a clash between the justices (and their 30-odd clerks) and their specific ideological predilections. And there is no question that judges — especially those on the Supreme Court and the various federal appellate judges — matter in the development of law in the United States. But the role of the litigator is often overlooked. Given the adversarial nature of the American justice system, this is surprising. It is the litigator who frames the issues that appear before the judge at each level. It is the litigator who creates the record the judge must examine. And it is the litigator who makes the particular tactical choices that result in the case as it appears before the judge on appeal. Despite its comparatively narrow ruling, Tyson Foods is an interesting case because it makes the effects of those choices particularly transparent.

Week in Review: How Excluding the Plaintiff’s Expert Can Position You Perfectly to Defend a Rule 23(f) Appeal and More

Posted in Uncategorized

This week we take a look at how a trial court’s evidentiary rulings can foreclose pathways to appealing a ruling on certification down the line, as well as a Hail Mary appeal by a group of Super Bowl ticketholders that fell harmlessly to the turf. 

Exclusion of Expert by District Court Renders Certification Appeal a Quick Exercise:  The Ninth Circuit recently affirmed denial of class certification in a putative class action filed against an automaker over allegedly defective brakes, based on its determination that there was no evidence of a common defect.  What may be more interesting to practitioners than the outcome is the path that led to the appellate court’s determination on certification.  Because the plaintiffs attempted to prove their “common defect” theory through an expert whose testimony was excluded by the lower court, the Ninth Circuit’s holding that the district court did not abuse its discretion by excluding that testimony effectively resolved the certification issue as well.  With no evidence of a common defect, it was a short, easy step to affirm the denial of certification.

Separate Classes Can’t Save Super Bowl Ticket Purchasers’ Bid for Certification:  Class counsel seeking to avoid predominance challenges to certification will often use subclasses or separate classes to attempt to concentrate similarly situated class members.  That play call fell flat for a group of football fans dissatisfied with their tickets to Super Bowl XLV, as the Fifth Circuit upheld the lower court’s order declining to certify classes of “displaced” ticketholders, “relocated” ticketholders, and “obstructed-view” ticketholders.

For the “relocated” class members who were given different seats, the court held that individual issues still predominated over common issues because the key questions—whether the new seat was of lesser-quality, and if so, how it affected the damages analysis—could not be resolved on a classwide basis.  Similarly, the court held that individualized issues regarding the extent or materiality of any particular obstruction prevented certification of the “obstructed-view” class.  Lastly, the “displaced” class of ticketholders—those who never received a seat to the game at all—ran into another problem that can haunt those who split their classes too thinly: the court held this class failed to satisfy Rule 23(a)’s numerosity requirement.

Sixth Circuit Aligns with Seventh Circuit on Data Breach Class Actions:  Following its decision in Lewert v. P.F. Chang’s China Bistro this April, some commentators declared the Seventh Circuit the place to be for those seeking to bring a data-breach class action (for a discussion of some of the obstacles that remain for those plaintiffs notwithstanding Lewert, look here).  Regardless of the ultimate viability of these actions, the Seventh Circuit gained an ally last week when the Sixth Circuit reversed the lower court’s dismissal of a data-breach class action for lack of standing, holding that plaintiffs had sufficiently identified a substantial risk of harm because “[w]here a data breach targets personal information, a reasonable inference can be drawn that the hackers will use the victims’ data for the fraudulent purposes alleged in plaintiffs’ complaint.”  The court also held that reasonably incurred mitigation costs, such as paying for credit security freezes, also qualify as a concrete, particularized injury.

Settlement Contingencies Based on Company’s Valuation Too Uncertain for Court:  Courts reject proposed class action settlements all the time, often because the court concludes that the terms of the settlement agreement do not afford sufficient relief to class members to justify their waiver of rights (or, for the cynical among us, the attorneys’ fees).  A San Francisco Superior Court judge recently held that uncertainty about the relief that will ultimately be afforded to class members can likewise torpedo a settlement.  In the Wash.io Wage and Hour Cases, the parties’ proposed settlement calculated different potential payouts to class members based on the future valuation of the defendant, an app-based laundry service, and the court concluded the odds of any particular valuation being reached needed to be assessed prior to determining whether the agreement was a fair deal for class members.


Will Collective Arbitration Waivers Land in the Supreme Court Again?

Posted in Uncategorized

The long-running battle over collective action waivers in the arbitration clauses of employment agreements continues to rage in the Courts of Appeals.  Two recent decisions (and the cert petitions filed in their wake) may well lead the Supreme Court to consider once again the thorny relationship between the class/collective action mechanism and federal arbitration law.

Just weeks ago, a divided panel of the Ninth Circuit delivered its opinion in Morris v. Ernst & Young, LLP, vacating an order by the N.D. Cal. that would have compelled individual arbitration of claims that the defendant misclassified employees in order to deny them overtime wages.  The panel majority went out of its way to emphasize that it had no qualms with such disputes being sent to arbitration—or to any number of other, more inventive forms of alternative dispute resolution:

The illegality of the “separate proceedings” term here has nothing to do with arbitration as a forum. . . . The same infirmity would exist if the contract required disputes to be resolved through casting lots, coin toss, duel, trial by ordeal, or any other dispute resolution mechanism, if the contract (1) limited resolution to that mechanism and (2) required separate individual proceedings. The problem with the contract at issue is not that it requires arbitration; it is that the contract term defeats a substantive federal right to pursue concerted work-related legal claims.

Circuit Judge Sandra Ikuta’s vigorous dissent, which called the majority’s opinion “breathtaking in its scope and in its error,” rejected that analysis. Instead, she traced a common thread through the Supreme Court’s many decisions enforcing arbitration clauses, finding that “the Supreme Court consistently rejects claims that a ‘contrary congressional command’ precludes courts from enforcing arbitration agreements according to their terms, including when such agreements waive the use of class mechanisms.”  In other words, if the claimed statutory rights at issue in Gilmer, CompuCredit, and Italian Colors didn’t cut it for the Supreme Court, neither does the National Labor Relations Act’s right to “concerted activities.”

The dissent in Morris is hardly a lone voice in the wilderness.  In its decision late last year in Murphy Oil USA, Inc. v. NLRB, the Fifth Circuit reiterated its previously articulated stance that “(1) the NLRA does not contain a ‘congressional command overriding’ the Federal Arbitration Act . . . and (2) ‘use of class action procedures . . . is not a substantive right’ under Section 7 of the NLRA.”

These divergent outcomes are now the subject of parallel cert petitions in Morris and Murphy Oil.  Unsurprisingly, each petition cites the other Court of Appeals decision.  Time—and perhaps the volume of amicus curiae briefs sought to be filed—will tell whether the Supreme Court decides to use one or both of these cases as an opportunity to clarify what statutory rights, if any, can override the Federal Arbitration Act’s national policy favoring arbitration.

Common overcharges may not be so common

Posted in Scholarship, Uncategorized
Often, when a plaintiffs’ counsel seek to certify a class asserting a hard-to-prove financial injury, they will rely on a statistics or economics expert to demonstrate that there has been some kind of “common overcharge” for the product at issue.  This method is extremely common in antitrust class actions, but also shows up increasingly in various kinds of consumer class actions, including product liability class actions (“we would not have paid this much for a product with a defect”) and food-labeling class actions (“we would not have paid so much for Nutella if we’d known it was sugary”).
The “common overcharge” argument is seductive.  It provides a judge a common method of determining a key element of liability, offered by an expert, and backed up by math.  But, as economists have pointed out, it’s not necessarily accurate.  And this critique is not coming from the perspective of nailing down everyone’s damages to the last decimal point.  Instead, economists are concerned about adequately accounting for heterogeneity of demand when they construct hypotheses. That is, they’re trying to make sure that the model they have created actually acts like the buyers it’s supposed to represent.  Doing otherwise would mean either overcharging the defendant (not good for either deterrence or fairness) or under-compensating a class (not good for compensation or fairness).
In their article Turning Daubert on its Head: Efforts to Banish Hypothesis Testing in Antitrust Class Actions, economists Laila Haider, John Johnson, and Gregory Leonard take on the question of whether a single statistical technique can really account for a heterogenous group.
It has become standard in modern empirical economics to recognize and, where possible, account for, possible heterogeneity across economic agents (e.g., customers and suppliers) in their responses to changes in economic factors. For example, the well-known “BLP” approach frequently used in demand analysis allows for the possibility that different consumers have different levels of price sensitivity (including possibly zero sensitivity). Thus, for a defendant’s economist to raise the possibility that a regression model may differ across customer-suppliers is consistent with the current state-of-the-art in economics research.
(Footnotes omitted, emphases added.)  (“BLP” refers to “best linear predictor,” the old “fit the line to the scatterplot” method.)
In other words, there are solid economic reasons not to accept the plaintiffs’ expert’s use of a broad regression that downplays differences among class members.  In fact, it is often good Use of individual regressions/hypothesis testing in class actions.
The authors specifically discuss antitrust class actions, but their analysis easily transfers to products liability and consumer class actions as well.  In fact, any time a plaintiff’s economist claims she can come up with a simple averaged overcharge, defense counsel should be on guard.  As econometrics get more sophisticated, it is becoming clear that an “average overcharge” may be just about as useful as “average state law.”