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Class Action Countermeasures

Discussions of the Strategic Considerations Involved In Class Action Defense

Should MDL Judges Act More Like Class Action Judges?

Posted in Scholarship, Uncategorized
Class actions are not the only form of aggregate litigation. Multi-district litigation (“MDL”), the process by which large numbers of smaller lawsuits are consolidated before a single judge for pretrial purposes, without requiring any kind of certification process, has been around since 1968.  And, as courts have demanded more rigor for Rule 23 certification, MDLs have become more popular, particularly for mass torts.
With that increasing popularity comes increasing scrutiny.  To take just one example, a new paper on the proper role of the judge in MDL cases by professors Andrew Bradt and D. Theodore Rave has received press coverage only days after its posting on SSRN.
The paper deserves the recognition.  It’s a good summary of the problems with MDLs, and contains an interesting solution to at least one of the issues scholars and lawyers have confronted.
As the authors write:
Despite its transfer-and-remand structure, judges, lawyers, and scholars all recognize that the goal of MDL is not merely centralized discovery followed by thousands of trials scattered around the country. The goal is mass settlement. By centralizing nationwide proceedings in mass tort cases—essentially gathering all of the relevant players into same forum before the same judge—MDL creates a perfect environment for the parties to negotiate a global resolution of the defendant’s liability to potentially thousands of claimants in one fell swoop.6 And, as MDL has begun to take center stage in both the federal courts and procedure scholarship,7 perhaps the most controversial issue is clarifying the proper role of the judge in achieving these mass settlements—in particular whether the MDL judge should review settlements, and reject them if they are unfair, as a judge in a class action would be obliged to do under Federal Rule of Civil Procedure 23(e).
(Footnotes omitted)
MDLs, of course, are not class actions.  There are no absentee members, and consolidation is supposed to only be for pretrial proceedings.  (In reality, there are often just a few “bellwether” trials held in front of the MDL court.)
Faced with the question of how to keep aggregate settlements fair without the protections of Rule 23(e), Professors Bradt & Rave suggest a novel solution:
the judge in an MDL ought to conceive of her role as acting in an “information forcing” capacity; that is, the judge should use the MDL process to force the disclosure of information to allows the parties in MDL cases to make informed decision about whether to accept proposed settlements. And often, the single most useful piece of information that the MDL judge can communicate to claimants will be a simple and frank assessment of the fairness of deal, even if that assessment will have no binding force.
Their argument is straightforward.  Aggregate litigation of any type faces a governance problem, because there are always a large number of claimants represented by a small number of lawyers.  As a result, no individual claimant will exert much control over the litigation.  Moreover, the lawyers will be tempted to cut corners, and may not reconcile the conflicts between their interests and their clients’.
Class actions resolve this dilemma through certification under Rule 23.  But MDL cases don’t have that kind of structural protection.  Instead, litigants remain dependent on their lawyers and the steering committee to watch out for their interest.
Some judges have addressed this concern by appointing themselves fiduciaries of the small claimants, and treating the MDL as a “quasi-class action.”  This role is controversial, and possibly in violation of the Rules Enabling Act.
But, the authors note, judges don’t need formal authority to register their opinion of MDL settlements.  And, based on the reactions of one set of litigants to a judge’s declaration that a settlement was “unfair” (instead of seeking mandamus, they re-negotiated to address the judge’s concerns), they believe MDL judges may simply need to be more aggressive in sharing their thoughts about the progress of the litigation.
It’s an intriguing idea, though not without its flaws.  As Bradt & Rave note, some judges may not have the bandwidth to monitor the MDLs in front of them this closely; and some may be biased toward any settlement so long as it clears their docket or provides some relief to many claimants.
The fact is, however, that aggregation by MDL is not going away.  And lawyers concerned with mass torts will be grappling with these issues for some time to come.  Professors Bradt & Rave have provided a concise, thought-provoking summary that is sure to have influence in this area.

Week in Review: Appellate Court Upholds Damages-Based Challenge to Predominance and More

Posted in Uncategorized

This week’s recap examines a recent appellate ruling that provides a nice roadmap for arguing a plaintiff’s theory of damages cannot satisfy Rule 23’s predominance requirement, as well as another district court’s efforts to parse out the contours of standing based on statutory violations post-Spokeo.

How an Individualized Damages Inquiry Can Preclude Certification:  It’s generally accepted that a damages theory that requires individualized proof as to the measure of class members’ damages does not necessarily doom a class under Rule 23(b)(3)’s predominance requirement.  However, where individualized inquiries are necessary simply to establish the fact of damages, then denying certification under Rule 23(b)(3) may be appropriate.  The U.S. Court of Appeals for the Third Circuit illustrated this point nicely in affirming the district court’s denial of class certification sought by students alleging their law school published misleading employment statistics about its graduates by including part-time and non-legal positions in its totals.  The court held that the plaintiffs’ damages theory—that the misleading statistics inflated the cost of tuition for all applicants—required individualized inquiries as to how these statistics impacted each class member’s decision-making process in choosing to pay tuition.

FACTA Claim Withstands Post-Spokeo Challenge to Plaintiff’s Standing:  We’re all watching to see how Spokeo’s intricate line-drawing regarding what types of statutory violations provide a basis for standing plays out on the ground.  A recent decision from the U.S. District Court for the Southern District of Florida held that a putative class representative who claimed she received a receipt from a retailer containing her credit card’s expiration date in violation of the Fair and Accurate Credit Transactions Act (“FACTA”) established standing sufficiently to withstand a motion to dismiss.  Citing Spokeo, the Court reasoned that FACTA creates a substantive legal right for consumers to receive receipts that protect their personal financial information by truncating their personal credit card numbers and expiration dates, and that the violation of this right constituted a concrete harm sufficient to give the plaintiff standing to pursue her claims.

Ninth Circuit Weighs in on Two Arbitration Provisions:  Last week was a big one for anyone following the status of class action waivers in arbitration agreements in the Ninth Circuit.  In a widely covered decision, the Ninth Circuit held that a class-action waiver in an employment agreement violated the employees’ right under the National Labor Relations Act “to engage in . . . concerted activities for . . . mutual aid or protection.”  Look for a detailed analysis of that ruling and its implications here soon.  In the meantime, defense practitioners can take solace in the Ninth Circuit’s ruling affirming the lower court’s enforcement of an arbitration agreement included in a direct-to-consumer genetic testing company’s online terms of service.  The Ninth Circuit rejected the putative class representatives’ arguments that the arbitration clause’s fee-shifting provision, forum-selection clause, and provision exempting intellectual property disputes were unconscionable.

Putative Class Member Frozen Out Based on HVAC Repair History:  The U.S. District Court for the Eastern District of Pennsylvania denied certification of a putative class representative’s claims against an HVAC manufacturer regarding an allegedly defective evaporator coil that leaked refrigerant during normal use.  The court held the named plaintiff was neither a typical nor adequate class representative because an HVAC servicer replaced several parts in addition to the evaporator coil when the plaintiff’s unit malfunctioned, and because the evaporator coil itself was discarded rather than returned, precluding further testing as to whether it was defective.  In addition, the court held that predominance was lacking because class members would have to present individualized proof to show what defect caused their HVAC unit to malfunction.

Court Finds Spokeo Closes Door on TCPA Claim

Posted in Uncategorized

Telephone Consumer Protection Act litigators Sarah Zielinski, Laura Lange, and Shawna English bring us an update on the role the Supreme Court’s decision in Spokeo, Inc. v. Robins (previously covered here) played in the recent dismissal of a TCPA case in California federal district court for lack of standing.  We’ll continue to monitor developments in the months to come.

The Problem with Prospective Injunctive Relief

Posted in Scholarship
There are several practices in class action litigation that really only work if you squint real hard and accept that, as a practical if not a doctrinal matter, class actions are just “different” than other litigation.  These practices tend to go unchallenged until someone without a vested interest in the current system points out that, once you stop squinting like that, it’s pretty clear the practice in question doesn’t hold up to legal scrutiny.  These include the circular nature of damages in securities class actions, the basis for employing cy pres relief in class settlements, and now, thanks to a recent article by Professor Erin L. Sheley of Calgary School of Law and professional gadfly Ted Frank of the Center for Class Action Fairness, the use of prospective injunctive relief in consumer-fraud class actions.  [Disclosure: Ted and I used to be colleagues, and I have occasionally worked pro bono for the Center and its clients.]
As Sheley and Frank put the central problem:
Injunctive relief can be broadly categorized as being either retrospective or prospective depending upon whether the injunction serves to cure a wrong in past transactions, or affects future relationships between a defendant and its customers. Courts generally ignore this distinction but, as we will show, much is at stake in it.  Unlike retrospective injunctive relief, which ostensibly benefits members of the plaintiff class (for example, an automobile recall to fix a defect), prospective relief does nothing to directly benefit actual plaintiffs or to redress their alleged injuries.
(Emphases added.)
Sheley and Frank’s challenge to this practice has two prongs.  First, they attack the courts’ expertise at enforcing injunctive settlements, drawing on a number of recent high-profile class acton settlements.  They then look at the possible ways in which prospective injunctive relief would violate existing legal rules, including:
  • the fact that prospective relief settlements often preclude claims that haven’t arisen yet;
  • the settlements may violate counsel’s fiduciary duty to various class members; and
  • the standing problems that arise when you provide injunctive relief prohibiting future conduct to remedy past violations.
Sheley and Frank’s arguments are a mixed blessing to defendants.  After all, they are primarily aimed at the validity of settlements, which class action defendants are parties to.  So, an in-house counsel might ask, why would we want to cut off access to a perfectly useful tool for ridding ourselves of low-value cases?
The answer is that what Sheley and Frank have provided, albeit indirectly, is a good blueprint for fighting class actions where the plaintiff asks for prospective injunctive relief in the complaint.  These kinds of complaints are not rare: plaintiffs often ask for prospective injunctive relief as one of their remedies, even in cases like consumer fraud.  The reasons for these requests are various: sometimes plaintiffs are trying to set up a settlement like the ones described above; sometimes, it’s just been a long time since they’ve actually looked at remedies law; and sometimes they have a weak case but this hook would allow a sympathetic judge to deny a motion to dismiss.  Regardless, Sheley and Frank’s analysis of prospective injunctive relief will provide several powerful arguments against these kinds of class actions.

CFPB’s Proposed Arbitration Rule Prompts Thousands of Comments

Posted in Uncategorized

Charlotte litigation and regulatory partner Joshua Davey provides an update on the many varied comments submitted to the Consumer Financial Protection Bureau in response to the new rule it proposed in May prohibiting class action waivers in arbitration clauses.

Hat tip to our sibling blog, Subject to Inquiry, for such timely coverage.

Week in Review: Proposed Rule Changes and Another Data-Breach Decision

Posted in Uncategorized

Today’s round-up takes a look at the potential impact on class-action litigation of some recently proposed amendments to the Federal Rules of Civil Procedure, and continues our exploration of what type of injury it takes to sustain a data-breach class action.

Proposed Guidance for Determining Whether Class Action Settlements are “Fair, Reasonable, and Adequate”:  The Committee on Rules of Practice and Procedure of the Judicial Conference of the United States focused on class actions in its latest round of proposed amendments to the Federal Rules of Civil Procedure.   Most notably, the Committee proposed a list of factors for courts to consider when determining whether to approve a class settlement.  Rule 23(e)(2)’s “fair, reasonable, and adequate” standard would still govern, but the revised rules would direct courts to consider four targeted questions: whether class counsel and the class representative adequately represented the class, whether the settlement was negotiated at arm’s length, whether the relief afforded to the class is adequate, and whether class members are treated equitably relative to each other.    In a nod to modern methods of communication, the Committee also proposed an amendment to Rule 23(c)(2) to permit email notification of opt-out rights to class members for classes certified under Rule 23(b)(3).

For Data-Breach Class Actions, the Spoils of the Heist Matter:   A case could be made that 2016 is the year of the data-breach class action—we’ve certainly devoted substantial attention to the subject here.  This month’s ruling in Attias v. Carefirst, Inc. adds another weapon to defense practitioners’ arsenal on the issue of whether a data breach alone is a sufficient injury to support a claim.  The U.S. District Court for the District of Columbia granted the defendant health insurer’s motion to dismiss on the grounds that the complaint failed to allege any concrete harm caused by a June 2014  data breach compromising the personal information of over a million policyholders.  Notably, the complaint did not allege the data stolen in the breach included social security, credit card, or financial account numbers.  The court thus held the plaintiffs had failed to identify a “substantial risk” that the stolen data would be misused in a harmful manner, and deemed their argument that they faced an increased risk of future identity theft “too speculative” to support federal standing.

Ninth Circuit to Take a Close Look at Denial of Certification based on Inadequacy of Class Counsel:  Rule 23(a)’s adequacy requirement is dual-pronged—while most adequacy-based attacks on certification focus on the class representatives themselves, Rule 23(a)(4) also demands adequate representation by class counsel.  The Ninth Circuit Court of Appeals recently granted permission for a Rule 23(f) appeal of the district court’s order denying class certification on this basis.  The opinion permitting the appeal is expectedly brief, but includes a notable instruction to the parties:  “In addition to all the other issues the parties may wish to raise in this appeal, the parties shall brief the issue of whether the district court should have considered less drastic alternatives before denying class certification based on concerns with the vigor of class counsel’s representation.”   The appellate briefing and the Ninth Circuit’s ultimate decision will likely provide a temperature check on how high (or, rather, low) the bar is set for denying certification based on inadequate representation of counsel.

Some Hurdles to Pursuing False Advertising Claims on a Class-wide Basis:  Speaking of temperature checks, Nest Labs Inc. recently defeated a bid for class certification for claims arising out of representations of increased energy savings made in connection with the sale of Wi-Fi-enabled thermostats.  The U.S. District Court for the Northern District of California held the plaintiff could not show commonality because many putative class members were subject to an arbitration clause and class action waiver, and many others purchased thermostats in packaging that did not contain the purported misrepresentations.  The court also held the named plaintiff was neither a typical nor adequate class representative because he disabled many of the thermostat’s energy-saving features, and prior to doing so, often reaped energy savings consistent with the defendant’s representations.  The court also denied certification on the grounds that common issues did not predominate under Rule 23(b), noting that the plaintiff sought to certify a nationwide class, and the consumer protection statues of the 50 states varied significantly.

Class Decertification: Delayed Gratification or Justice Denied?

Posted in Certification

Ah, class decertification in district court…the rarely glimpsed, late-harvest victory that comparatively few class action defense counsel can claim to have tasted. U.S. District Judge Charles Breyer of the Northern District of California recently delivered one such victory for the 2016 vintage, decertifying a plaintiff class he originally certified in 2012 in a wage-and-hour litigation against auto parts retailer AutoZone, Inc.  In the course of reaching that decision, Judge Breyer’s 49-page order also offers further insights into how the Supreme Court’s decisions in Tyson Foods v. Bouaphakeo, Comcast Corp. v. Behrend, and Wal-Mart Stores, Inc. v. Dukes are shaping class action litigation in the district courts.

“Gimme a Break”

The erstwhile class—current and former employees at AutoZone’s California retail stores during a seven-year period—claimed that AutoZone’s written rest break policy did not comply with California law, and that rest breaks were not authorized, permitted, and/or compensated appropriately. At class certification, Judge Breyer expressed doubts about the plaintiffs’ ability to prove their case, and the case’s manageability, in the absence of written records of when individual employees took (or, more to the point, did not take) breaks.  The plaintiffs overcame such doubts, and secured class certification, by representing that the defendant had a uniform rest break policy in effect throughout the class period, and had conducted audits of employee rest breaks.  The plaintiffs speculated that there could be records of breaks that they had not yet obtained in discovery.

Fast forward through three and a half more years of litigation, including extensive discovery. What did the plaintiffs have to show for it?  First, the court found that, contrary to the plaintiffs’ representations about a uniform policy, the defendant actually had a lawful written rest break policy for three years of the class period.  Second, in the words of the court:  the plaintiffs found “no audit records or any other time records of when class members took rest breaks” (emphasis in original).  Plaintiffs’ solution?  A survey of class members’ recollections of whether they had been authorized and permitted to take rest breaks during work shifts of various durations.

It’s All in the Numbers

Sound familiar? For readers of this blog, it should:  the Supreme Court’s Tyson decision turned on whether a plaintiff class, in the absence of company records of time spent “donning and doffing” protective equipment, could instead rely on “representative” statistical evidence to establish class-wide liability and damages.  In the context of that case, Justice Kennedy’s opinion for a six-Justice majority concluded that they could.

Judge Breyer, however, reached a different conclusion, criticizing the survey’s “woefully low response rate,” potential sample biases, imprecision, and ultimate reliance on recollections of “very specific”—and mundane—“events that occurred between three and a half and eleven years ago.” Excluding the survey under Daubert, and noting that there was, in fact, no uniform policy throughout the class period, the court concluded that individual questions would overwhelm any common questions, and the case would devolve into an unmanageable “nightmare” of 20,000 mini-trials.  Class decertified.

Is Justice Delayed Justice Denied?

As sweet as a decertification victory might taste to a defendant, one cannot help but also taste the bitterness that comes with the hours, months, years—and dollars—spent establishing that a plaintiff class simply doesn’t have an evidentiary leg to stand on. This case seems to underline the need for early and comprehensive class discovery, and for careful, good-faith evaluation of that discovery by both plaintiffs and defendants, so that courts can reach the right result the first time around.

The Issues with Issue Certification

Posted in Scholarship

Rule 23(c)(4) has been been placed under a microscope in the past few years, largely because of the judicial response to the Supreme Court’s Comcast Corp. v. Behrend opinion, and the Rules Advisory Committee’s subsequent consideration of possible amendments to the Rule.

In the course of that attention, two articles have come out that illustrate the contours of the debate over the proper scope of issue certification. They are particularly instructive when you look at them together.

First, in 2015, Professor Joseph A. Seiner published an article on the use of 23(c)(4) in labor class actions specifically, titled “The Issue Class.” Professor Seiner’s main argument is that issue class actions would work particularly well for Title VII class actions, especially in the wake of Wal-Mart Stores, Inc. v. Dukes. As he writes:

The efficiencies and flexibility that Rule 23(c)(4) provides are particularly fitting in the employment discrimination context. Again, the issue class is particularly appropriate where there are common facts among the litigants but individual differences as to the degree of harm that has been suffered. Systemic employment discrimination claims frequently involve this exact scenario, providing a common set of facts that give rise to the company’s wrongdoing. Further, the employer’s discrimination often impacts plaintiffs to varying degrees, both financially and emotionally. Thus, the common set of facts combined with the varying level of harm make the issue class a particularly useful tool for employment discrimination litigants.

(Emphasis added.)  What’s interesting about this article is that, while it touts the advantages for employment discrimination plaintiffs, it does not consider exactly how the issue certification would be tried. Specifically,

  • There’s no consideration of what the notice to the employment discrimination class would look like.
  • There is no discussion of how the trial would look—either the initial issue trial, or the subsequent proceedings.
  • While Professor Seiner alludes to settlements (primarily to observe that issue-class settlements would likely be smaller, and therefore more palatable to defendants), he does not consider how or whether a court would certify an issue-class settlement under Rule 23(e).

These are some of the same questions that Professor Laura Hines asks in her 2016 article “Codifying the Class Action.” Professor Hines (who has written extensively on the problems posed by Rule 23(c)(4)), focuses her article on the Advisory Committee’s recent refusal to amend Rule 23 to clarify the standards for issue certification. After criticizing the Advisory Committee’s argument that the various appellate circuits substantially agree on the need for some form of issue certification, she focuses on what a revised Rule could or should look like.

Her primary argument is that, rather than adopting a multi-factor test, any Rule language should require the issue to be certified to “materially advance” the litigation. After that, however, she gets into the nitty gritty, advocating for four specific amendments:

  • Rule 23(c)(2) should be amended to provide guidance on how to notify class members that they are part of a class for purposes of determining a single issue, rather than the entire litigation, and what their rights are going forward.
  • The Committee would need to clarify whether any ruling concerning the certified issue would be an appealable final judgment under Rule 23(c)(3).
  • Rule 23(e) would need revision to clarify when an issue class could be certified for settlement purposes without creating intra-class conflicts.
  • Rule 23(h) would need amendment to determine how attorneys’ fees would be calculated.

As Professor Hines writes,

The remaining amendments to Rule 23(c)(2) and (3), (e) and (h) may not prove overly complicated, but the matter of the constitutional reach of an issue class action settlement that encompasses aspects of plaintiffs’ claims over which the court has not exercised jurisdiction is significantly problematic such that the Committee should give it close consideration and consult constitutional scholars to resolve.

These two articles demonstrate the two sides of the issue certification debate. One is focused solely on the advantages of the device, without considering how the certification would play out through the remainder of the lawsuit. The other tries to think through the logistics of a certification of a single issue, and concludes that it is rarely, if every appropriate.

From a practical standpoint, they also suggest an approach for defendants hoping to resist a proposal to certify an issues class: just as strong class certification oppositions ask the court to think through the entire class trial, a defendant can ask the court to think through what certifying an issues class really entails, from issuing notice to determining the preclusive effect of any judgment.

[Incidentally, for more on this topic, you can check out Strafford’s webinar on August 25. For the third year in a row, I will be joining plaintiff’s attorney Russell Jackson and Seyfarth Shaw’s Rebecca Bjork to talk about Rule 23(c)(4).]

A Look Back at Some Recent Highlights

Posted in Uncategorized

One of our long-standing objectives for this blog is to provide in-depth analysis of recent court rulings and developing trends that impact class action practice.  That remains a driving tenet.  In an effort to expand our coverage, we are phasing in a regular Monday column that provides more succinct updates on recent decisions.  These short-form recaps will supplement, rather than replace, our traditional deep-dive posts.

Without further ado, here’s a look back at a few notable recent decisions:

Hybrid Certification under Rule 23(b):  The District Court for the District of Columbia applied a hybrid approach to Rule 23(b) certification when allowing a group of tax preparers to proceed as a class in pursuing their claims against the IRS based on allegedly excessive fees.  The court held that the plaintiffs’ claim for a judgment declaring that the IRS lacked authority to charge a fee for the issuance or renewal of a tax identification number should be certified under Rule 23(b)(2), and that the plaintiffs’ claim for restitution of fees paid should be certified under Rule 23(b)(3).  The court had previously held that the plaintiffs’ attempt to recover these fees was a claim for monetary damages barred by sovereign immunity, but reversed course last week, holding that the relief plaintiffs sought was more properly construed as a claim for restitution that fell under the limited waiver of sovereign immunity contained in the Administrative Procedure Act.  The court held that class-wide issues predominated with regard to the restitution claim because the question of whether the fees were excessive or authorized “will be answered in the same way for every class member.”

Potential Injury Not Enough:  The Massachusetts Supreme Court reversed a state Superior Court order granting the plaintiffs’ motion for class certification on claims that a power company was not adequately prepared for winter storms.  The Superior Court had granted certification based on the theory that the putative class had paid for a level of emergency preparedness prior to an anticipated 2008 storm that the power company failed to provide.  The Supreme Court reversed, noting that the plaintiffs failed to allege that they actually lost power during the relevant time period, and a claim of “economic injury based on a potential inadequacy in emergency protection does not support class certification.”

Looking at Market Conditions when Enforcing Arbitration Provisions:  The push by the plaintiffs’ bar to encourage courts to retain jurisdiction in class actions rather than deferring to arbitration provisions containing class-action waivers is well-documented.  Whether it will result in a substantial change in courts’ interpretation of these clauses remains to be seen.  A California Superior Court judge’s decision last week in a proposed class action alleging overpricing in the field of online food delivery suggests that class action waivers are still alive and well.  The court granted the defendant’s motion to compel arbitration, reasoning that including the clause in the company’s online terms and conditions amounted to a clear disclosure, and that the number of competitors operating in the field meant the consumer had a meaningful choice to accept or not.

A Percentage-Based Approach to Fees:  The California Supreme Court upheld a trial court’s approval of a $19 million settlement in a class action employment lawsuit that allocated one third of that recovery to attorney fees.  The Court rejected an objecting class member’s contention that this method of fee calculation was improper, holding that in those cases where an attorney fee is awarded out of a common fund, a fee calculated as a percentage of that common fund is not per se unreasonable—particularly when the court uses the lodestar-multiplier method as a crosscheck on the reasonableness of that percentage calculation.  The court’s opinion includes a helpful historical review of the several methods for calculating attorneys’ fees in class actions that courts have used through the years.

In On the Act: First Antitrust Class Action Launched in the UK

Posted in Uncategorized

Brussels Antitrust/Competition partner (and English lawyer) Matthew Hall brings us this report on the first antitrust class action filed under new procedures in the UK.

Much ink and conference time have been spent discussing it, but now we have a real example of an antitrust class action in the UK.  This is the first under the 2015 rules allowing such claims, Schedule 8 of the Consumer Rights Act 2015.

The UK Competition Appeal Tribunal (CAT) confirmed on June 21 that the case had been started when it published a “notice of an application to commence collective proceedings under section 47B of the [UK] Competition Act 1998.”  This application represents the first step in the process.  Under it, the proposed class representative is seeking an order permitting her to act as the class representative, determining that the case is suitable to be heard as a class action, and deciding that it should be opt-out (as opposed to opt-in).  Another key issue at this initial stage will be whether the proposed representative has adequate financing to bring the claim.

It was widely assumed that the first such case would be based on a cartel fining decision from an antitrust regulator (likely the UK Competition and Markets Authority (CMA) or the European Commission).  Instead, the case rests on a 2014 decision by the CMA’s predecessor, the Office of Fair Trading, finding the potential defendant in this class case, Pride Mobility Products Limited, to have engaged in a type of online resale price maintenance (RPM) in relation to mobility scooters.

The benefit for the class in basing the claim on this regulatory decision is that it does not have to prove liability for an infringement of competition law; that has already been established.  Nevertheless, as an aside, it’s notable that that decision itself was somewhat controversial (or at least cutting-edge at the time) since it equated a ban on advertising online prices below Pride’s recommended retail prices with RPM.  The CMA, however, has not been deterred, and subsequently several cases have been decided on the same lines.

A bellwether for UK antitrust class actions.  The CAT’s view on the Pride case will be very closely watched and it is likely significantly to impact whether future claims under the class procedure are brought.  A previous type of class procedure, replaced by the 2015 rules, allowed for a “specified body” to bring a consumer claim on behalf of two or more individuals to seek monetary damages for an infringement of competition law.  Only one such body was ever specified, and it only ever brought one claim, relating to price fixing of replica football/soccer kits.  The procedure was widely seen as a failure.

How closely will class actions in the UK parallel those in the United States?  The UK’s new class procedures were expressly designed to address the shortcomings of the prior regime and produce a significant number of class action cases, but there was intense debate in the period up to adoption.  Therefore, safeguards were included to stop what are seen as the excesses of the U.S. class action system (including the bringing of unmeritorious claims, the availability of treble damages, and the use of contingency fee arrangements by lawyers).  Hence, the CAT will now in this first stage of the case very closely scrutinise the various points mentioned above (suitability of the representative and of the case for class treatment, etc.).  Nevertheless, U.S. practice and arguments, where there are parallels, are likely to figure strongly.

What about the money?  The allegation is that up to 34,000 Pride customers, who bought mobility scooters between 2010 and 2012, may each be entitled to around a £200 refund, or even more in specific cases. The potential claim has been valued at up to a total of £7.7 million, including interest.

It’s not known on what financial basis the lawyers are acting.  However, under the regime, lawyers cannot use DBAs (damages based, or contingency, agreements).  This means that third party funding (which is allowed) is likely to play a significant role, with conditional fee arrangements being put in place.  The UK’s normal “loser pays costs” rule does apply, so an unsuccessful claimant will be liable for the defendant’s costs.  After the event (ATE) insurance can be used, but the premiums cannot be recovered from the losing party.

Small business fast-track claims are playing out at the same time, on a smaller stage.  Although high profile, this class action case is not the only cutting-edge development in competition litigation currently before the CAT.  The Consumer Rights Act 2015 introduced other changes, one of which was the introduction of fast-track B2B claims, aimed at making it easier for small and medium-sized businesses to make competition law challenges before the CAT.  The first two of these settled at an early stage, but the third (the Socrates case) is currently proceeding.

A big issue in the fast-track procedure is the ability of the CAT to cap recoverable costs against the loser.  The CAT has taken a view on that issue already in the Socrates case and has set the cap on the claimant’s recoverable costs (against the defendant) at £200,000 and the cap on the defendant’s recoverable costs from the claimant at £350,000 (both sides can spend more if they wish, but could not recover it from the other).  For most companies at the smaller end of the “small and medium enterprises” scale in the UK, this level of cost risk is very high indeed, and is likely to discourage many from making use of the procedure. The CAT may have to rethink these levels if it wants more claims to be made.