Class Action Countermeasures : Class Action Lawyers & Attorneys : McGuireWoods Law Firm : Complex Litigation, Mass Torts

 Plaintiffs filed a class action complaint against defendant Tournament One Corp. in Nevada state court. Tournament One removed the case to federal court, and immediately filed a Motion to Compel Arbitration and a Motion to Dismiss, or, in the alternative, to stay the case pending the arbitration motion.

In the resulting opinion, Kidneigh v. Tournament One Corp., 2013 U.S. Dist. LEXIS 62217 (D. Nev. May 1, 2013), The trial court stressed that the Rules of Civil Procedure do not allow for automatic stays of discovery just because a dispositive motion is pending. But, observing that "discovery is expensive," it granted the motion to stay. As it reasoned:

With Rule 1 as its prime directive, this court must decide whether it is more just to speed the parties along in discovery while a dispositive motion is pending or to delay discovery to accomplish the inexpensive determination of the case.
The Court finds that the Defendant has made the strong showing necessary to support the requested stay. The issues before the Court in the pending dispositive motion do not require further discovery and are potentially dispositive of the entire case.

Rule 1, of course, requires courts to interpret the Rules of Civil Procedure "to secure the just, speedy, and inexpensive determination of every action and proceeding."

There are two takeaways from this case: first, when moving to stay, make sure the underlying dispositive motion is as close to a slam dunk as possible. Second, in class actions, which involve huge expenditures of time and effort in discovery, never underestimate the power of invoking Rule 1.

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Amber Pieloor filed a class action against her bank, the Gate City Bank of North Dakota. She accused the bank of re-sequencing a number of her financial transactions. Re-sequencing occurs when a bank records transactions in an order other than that in which they were received. Accusing banks of re-sequencing has become common; and it appears that some banks, in fact, have re-sequenced debits--charging the largest ones first before moving on to smaller debits--in order to maximize the number of overdraw fees they can charge.

There were two problems with Ms. Pieloor's complaint. First, she was not arguing that her bank had resequenced just withdrawals or debits, but that it had resequenced everything.

Second, Gate City Bank had not engaged in any resequencing. It simply wasn't its policy. Moreover, the allegations in Ms. Pieloor's complaint were confusing and ambiguous. In a situation like that, what is a defendant to do?

Gate City chose to answer the complaint, rather than move to dismiss. And then it moved the real fight to the Rule 26 Scheduling Order. Where possible, parties are supposed to file an agreed order, but the plaintiff's theory of the case was so different from the defendant's here that it made sense to have the court decide on how discovery would proceed instead.

And so the District of North Dakota was faced with two separate arguments. Ms. Pieloor's attorneys argued that her class allegations, combined with the other class actions out there, represented a lot of smoke. And where there's smoke, there must be fire. So it made sense to just move on with classwide discovery.

Gate City, on the other hand, argued that it simply didn't resequence. And any quick check of the facts would reveal that. So that's what it advocated: limited discovery into Ms. Pieloor's claims, followed by a summary judgment motion. If she could prove what she was saying happened to her, then class discovery could begin. If not, why spend the money?

The court, in a remarkably thoughtful and nuanced decision (which you can find at Pieloor v. Gate City Bank, 2012 U.S. Dist. LEXIS 148702 (D.N.D. Oct. 15, 2012), or here), largely agreed with the defendant. It ordered:

(1) a preliminary inquiry into whether class proponent(s) can make a sufficient showing that Gate City engaged in re-sequencing of transactions for any of the named plaintiffs in the manner and for the types of transactions alleged in the complaint; and (2) initial discovery that is limited to these issues.

The court set forth a number of reasons justifying its ruling, but two stand out. First, wide-ranging discovery would be needlessly costly.

[T]he savings from the avoided costs of immediate, full-blown class and merits discovery would likely be substantial.

(Emphasis added.)  And second,

if upon preliminary inquiry it is determined that Gate City engaged in some re-sequencing, a significant part of the hard work will have been done with respect to class certification, since it is likely the same types of transactions will have been handled in the same manner for other customers given the nature of the subject matter.

(Emphasis added.  ) The court did not simply adopt the defendant's arguments, however. It also allowed Ms. Pieloor time to identify other potential class representatives, and allowed discovery into their allegations as well, ensuring that discovery would not be limited to a single, flukish claim.

So, what can defendants use in this opinion? Quite a bit. Most class action defense lawyers have run up against the problem of the plaintiff who is just plain wrong. It's frustrating, because the traditional understanding of class-action litigation postpones merits inquiries until after certification, meaning that a deluded theory of the case may survive through months of costly discovery before it gets tested. The Pieloor case offers an alternative strategy: answer the complaint, and bifurcate discovery in order to test the bad theory first.

It's a risky strategy, but the Pieloor opinion shows it can work, with the right preparation and the right judge. The right preparation is crucial: Gate City provided a detailed answer with an account of its actual sequencing policies, rather than waiting to dole that information out in discovery.

But if the strategy is higher risk, it's also higher reward. Instead of facing crushingly expensive e-discovery in the coming months, Gate City is testing whether the plaintiff has a claim at all. And that's the best possible outcome for all parties concerned, because it serves the "just, speedy, and inexpensive determination" of the case.

Hat tip to colleague Brad Kutrow for pointing me toward the opinion.

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In 2007, four customers of Allstate Insurance Company sued it, alleging that it used outdated scoring algorithms to calculate their premiums, in violation of the Illinois Consumer Fraud Act.  They were later joined by another 19 named plaintiffs. Three years later, in 2010, the judge in the case denied certification and dismissed twelve of the named plaintiffs (leaving eleven total). Seven months later, the remaining eleven named plaintiffs voluntarily dismissed their claims with prejudice.

All in all, not bad for Allstate, right? Well, that depends. It had not been found liable, but it did incur more than $980,000 in costs defending the suit. Since it was a prevailing party, it sought costs under 28 U.S.C. § 1920 and Fed. R. Civ. P. 54(d)(1). (When dismissing, the plaintiffs stipulated that Allstate could seek costs.)

In the case, Johnson v. Allstate Ins. Co., No. 07-cv-0781-SCW, 2012 U.S. Dist. LEXIS 148282 (S.D. Ill. Oct. 16, 2012), Allstate asked for three categories of costs--the most expensive by far was its itemization for "exemplification and costs of making copies of any materials where the copies are necessarily obtained for use in the case," which tracks the language of section 1920.

So, relying on two recent cases, Race Tires Am., Inc. v. Hoosier Racing Tire Corp., 674 F.3d 158 (3d Cir. 2012), and Hecker v. Deere & Co, 556 F.3d 575 (7th Cir. 2009), the court went through the various costs that the defendant had listed out, including:

• Creation of Litigation Database, processing of ESI, extraction of metadata, & rendering ESI word searchable
• Deduplication of ESI
• Creation of TIFF images
• Electronic data hosting
• Preparation of productions of ESI
• Creation of hard copy productions (what we lawyers often call "blowbacks"
• Photocopies
• Graphics used at hearings

The court found that most of these costs could not be recovered, primarily because they did not constitute "making copies" as contemplated in the statute. It did find that rendering word-searchable, creation of TIFF images, blowbacks, and actual photocopying, fell under the definition of "making copies." Although it did pass through approximately $22,000 to the named plaintiffs, to be divided up into pro rata shares. Otherwise, however, Allstate was responsible for its own costs.

So what can defense lawyers use from this opinion?

(1) Costs can be shifted under certain circumstances, but the rule is largely not equipped to deal with the modern realities of e-discovery.
(2) On the other hand, for those times that a defendant needs to show that mere discovery is excessively costly, they now have a line-item by line-item account to show the court.

[Disclosure, I worked on Hecker v. Deere & Co. during my time at OMM. I had left the firm by the time of this appeal.]
 

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The facts underlying the allegations in Boeynaems v. L.A. Fitness Int'l, LLC, 2012 U.S. Dist. LEXIS 115272 (E.D. Pa. Aug. 16, 2012) are hardly remarkable. The plaintiffs allege that they signed up for gym memberships at a chain gym with no problem, but encountered serious difficulties when they later tried to cancel, a fact pattern that was old when it appeared on 1990s sitcoms NewsRadio and Friends.

And the fact pattern leading to plaintiffs' motion to compel documents that forms the basis of this opinion is unremarkable as well. The plaintiffs sought sweeping discovery. The defendants, seeking to limit the enormous costs discovery now imposes in class actions, produced what they could, and stood their ground on the remainder. The plaintiffs then moved to compel.

It's what happened next that makes the case worth looking at. Judge Michael Baylson, after summarizing the policies underlying Rule 23, and the discovery disputes in the case, took particular note of the difficulties raised by the asymmetric nature of discovery in class actions:

The fact that Defendant has more documents than Plaintiffs does not necessarily mean that Defendant's production should be limited. However, as in this case, where the cost of producing documents is very significant, the Court has the power to allocate the cost of discovery, and doing so is fair. If Plaintiffs' counsel has confidence in the merits of its case, they should not object to making an investment in the cost of securing documents from Defendant and sharing costs with Defendant.

Judge Baylson is not the first judge to note that asymmetric discovery in class actions imposes asymmetric costs. [http://www.classactioncountermeasures.com/2010/11/articles/discovery/using-the-all-writs-act-to-block-copycat-class-actions/index.html] But he may be one of the first to take action in case management. He noted that significant discovery had already taken place at the time of the motion. As a result, he held:

"The Court is persuaded, it appearing that Defendant has borne all of the costs of complying with Plaintiffs' discovery to date, that the cost burdens must now shift to Plaintiffs, if Plaintiffs believe that they need additional discovery. In other words, given the large amount of information Defendant has already provided, Plaintiffs need to assess the value of additional discovery for their class action motion. If Plaintiffs conclude that additional discovery is not only relevant, but important to proving that a class should be certified, then Plaintiffs should pay for that additional discovery from this date forward, at least until the class action determination is made.

The Court is firmly of the view that discovery burdens should not force either party to succumb to a settlement that is based on the cost of litigation rather than the merits of the case."

(Emphasis added.)  For defense lawyers and their clients, this is a heartening opinion that opens up a new tactic in the ongoing battle against limiting discovery costs in cases of questionable merit. In addition to reminding the court of the high costs of allowing a questionable suit to proceed and heading off fishing expeditions with properly-crafted objections, the defendant can now ask the court to order the plaintiff to share in the costs of discovery. If the plaintiff is convinced of the merits of her claim, she should be happy to do so. If not, that's valuable information as well.

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Typicality tends to be a useful, if not always used, way of framing various class action issues. Its primary purpose is to ensure that the class action is really a representative lawsuit rather than just an individual case with pretensions. Given the rulings on typicality so far, it's worth asking how defendants might argue it more effectively.

Ten Cases to Bring You Up to Speed:

• Randall v. Rolls-Royce Corp., 637 F.3d 818, 821 (7th Cir. 2011).
• Daffin v. Ford Motor Co., 458 F.3d 549 (6th Cir. 2006).
• Deiter v. Microsoft Corp., 436 F.3d 461, 466–67 (4th Cir. 2006).
• Beck v. Maximus, Inc.,457 F.3d 291, 296 (3d Cir. 2006).
• Sprague v. Gen. Motors Corp., 133 F.3d 388, 399 (6th Cir.1998).
• Peviani v. Natural Balance Inc., 2011 WL 1648952 (S.D. Cal. May 2, 2011).
• Noel v. Hudd Distribution Services, Inc., 2011 U.S. Dist. LEXIS 21480 (D.S.C. March 2, 2011).
• Schilling v. Kenton County, 2011 U.S. Dist. LEXIS 8050 (E.D. Ky. Jan. 27, 2011).
  
• Wiener v. Dannon Co., 255 F.R.D. 658 (C.D. Cal. 2009).
• In re Welding Fumes Prods. Liability Litig., 245 F.R.D. 279, 304 (N.D. Ohio 2007).

Further Reading:

• There really hasn't been any scholarship that focuses on the typicality requirement in class actions.

Questions to Consider:

• Why hasn't there been any scholarship that focuses on the typicality requirement in class actions?
• A number of courts have held that "factual differences" between claims does not mean typicality does not exist. If that is the case, how dissimilar must a claim be before the typicality is lacking?
• Given the adequacy and commonality requirements, is typicality a necessary finding?

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 One of the tough things about defending class actions is the fact that discovery is asymmetrical. Some plaintiffs use the fact that corporate defendants generate huge numbers of documents to inflict significant costs on the defense by serving large numbers of marginal relevance to any class claims.

So, when plaintiffs withhold actually relevant information, that tends to add insult to injury.

That's what happened in Barnes v. Equinox Group, 2012 U.S. Dist. LEXIS 82688 (N.D. Cal. 2012). During the discovery phase of Barnes, the defendant took nine depositions: those of the two named plaintiffs, the plaintiffs' expert, and six declarants that the plaintiffs had identified. (As most federal litigators are aware, each side in a lawsuit is limited to ten depositions by FRCP 30.)

When the plaintiffs filed their motion for class certification, they added 20 declarants that they had not previously disclosed to be witnesses in the case. (Most of the declarants were also represented by class counsel.) The plaintiffs opposed any further depositions, so the defendant moved for leave to take further depositions.

The court began by recognizing that

putative class action matters can be sufficiently complex to warrant more than ten depositions.

The plaintiffs argued that further depositions were unnecessary because the defendant had already taken several depositions, and because it could rely on information in its own possession. The court did not accept those arguments:

As a threshold matter, the court finds that by relying on these declarants, Barnes effectively concedes that their testimony is relevant to its Motion for Class Certification. Thus, the court will address each of the Rule 26(B)(2) factors in turn. First, the court finds that additional depositions are not unreasonably cumulative or duplicative. To be sure, deposing nine more declarants is likely to be somewhat duplicative and cumulative. The court does not, however, consider Equinox's request to be unreasonably so because Barnes decided that such a large number of declarations were sufficiently important to submit in support of his Motion for Class Certification.

(Emphases in original.)  So, what can defense counsel take from this opinion? Make sure you assert your discovery rights. Where the plaintiff tries surprise declarants, the court will likely let you take the depositions you need.  More importantly, if the plaintiff makes a witness relevant by relying on them, that makes the witness relevant to the case.

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 I hope everyone had a good Memorial Day weekend. This week, we take a brief look at a number of opinions that were decided last week, none of which are revolutionary, but all of which are useful to defendants at some stage of the class action. Think of it like a Memorial Day barbecue, a little something for each course.

Discovery. Both plaintiffs and defendants like to serve contention interrogatories, and both also like to give vague answers. It's part of the chess game that is pretrial discovery, and it can be frustrating to both observers and participants. In Fulghum v. Embarq Corp., 2012 U.S. Dist. LEXIS 72643 (D. Kan. May 24, 2012), the court decided it had had enough of the squabbling over identifying which documents could identify the class:

The interrogatory asked Plaintiffs--not Defendants--to identify the group of retirees who fell within the applicable plan documents. Plaintiffs, therefore, would have that information. Furthermore, if the process is as simple and mechanical as Plaintiffs contend, the Court questions why Plaintiff did not perform the analysis. Plaintiffs do not offer any reasons why Judge O'Hara's ruling is clearly erroneous, but instead assert that their answer was appropriate. Plaintiffs have spent more time arguing over the appropriateness of their interrogatory response than necessary to respond to the request.

(Emphasis added.)  Moral: while a little fencing is OK, you must answer your interrogatories with substance at some point.

Offer of judgment. A plaintiff files a FCRA class action. The defendant files an offer of judgment for $25,000, a comfortable amount more than the maximum statutory damages plus an attorneys' fee. Does that moot the class action? According to Sanchez v. Verified Person, Inc., 2012 U.S. Dist. LEXIS 70128 (W.D. Tenn. May 21, 2012), yes it does.

[I]f a named plaintiff's claim is mooted by an offer of judgment made before certification of the class or the filing of a class certification motion, dismissal of the action is required.

(Internal quotation marks omitted, emphasis added.)  The court found the rule unnecessarily harsh, but still applied it to dismiss the action. (The opinion includes an discussion of how the timing of an offer of judgment may affect its validity; the discussion is interesting because it gets so convoluted. This level of complication may be the beginning of a tip towards the Seventh Circuit's rule in Damasco v. Clearwire Corp.)

Certification. Consider this the entree in our little picnic of class-action rulings. Johnson v. Harley Davidson Motor Company Group, LLC, 2012 U.S. Dist. LEXIS 72048 (E.D. Cal. May 23, 2012) concerned an alleged defect that caused surfaces on certain motorcycles to heat to a temperature that might burn skin. The court found three problems with certifying a class: (1) There was no uniform design to the motorcycles, (2) There were

literally zero complaints about the allegedly excessive heat. Literally zero complaints suggest this is a public-policy-driven lawsuit instead of a client-driven lawsuit.

(Emphasis added, internal citation omitted.) The third problem was that (3) regulation by the National Highway Traffic Safety Administration was a superior remedy to a class action.

Notice. Everyone knows that Rule 23(b)(3) requires the "best notice practicable," and that that usually means individually-mailed notice. But what if the defendant sends the notice by bulk mail to nursing homes for distribution to residents there? Not good enough, says the Northern District of Oklahoma:

The mailing of Notice Packets in bulk to these 49 care facilities does not comport with due process because there is no evidence that the potential Class Members ever actually received their packets.

Childs v. United Life Ins. Co., 2012 U.S. Dist. LEXIS 70113 (N.D. Okla. May 21, 2012) (emphasis added).  The court took special care to explain its concerns, which primarily had to do with the structure of the proposed settlement. Because the plaintiffs were guaranteed a particular fee, their incentives were "decoupled" from maximizing the number of class members to respond; and because the defendants had a reversion clause, their incentive was to minimize the number of respondents.

Moral: the simpler the settlement, the better the odds of it getting through. If you can't make a simple settlement, it may be that it's not really a case worth settling.

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First of all, let me apologize for missing Tuesday's post: a combination of travel, jet lag, and one or two minor crises at home were just distracting enough that nothing went up. Since I'm still feeling the effects of each, today's post will be pretty light. Normal service should resume next week.

(And while I don't usually get into personal details on this blog, I will also note that I have a baby due sometime in the next month, so we'll see just how long that "normal service" will last.)

So, with that said, let me point you to a working paper that went up in the last few weeks on SSRN. Authored by Santa Clara Law Professor Eric Goldman, it's called "The Irony of Privacy Class Action Litigation."

Goldman's central argument is a simple one:

Most privacy advocates prefer business practices that require consumers to “opt-in” rather than “opt-out,” i.e., consumers must affirmatively grant permission to a business’ collection or use of their data rather than take action to prevent such collection or use. From the perspective of privacy advocates, opt-outs misinterpret consumers’ silence as consent, and they make consumers act to preserve the status quo—which, due to consumer acquiescence to default settings, means that consumer opt-out rates are low.

Yet, class action lawsuits are typically opt-out, not opt-in, with those same downsides. Typically, if the class is certified, class members are automatically bound by the lawsuit’s outcome unless they opt-out. Thus, just like opt-outs in the commercial setting, consumers must affirmatively act if they do not agree with the lawsuit; and like commercial opt-outs, the class action mechanism treats silence as consent.

(Internal footnotes omitted, emphasis added.)

As a paper, it's a little slight (though as a blog post, it would be fantastic). For an article, it probably just needs a little more development of the privacy class action, and probably a discussion of the tensions between classwide discovery and privacy litigation.  (After all, do you want your data being turned over to plaintiffs' lawyers?)  In fact, I'm a little surprised that Goldman didn't reference Jeff Kosseff's great student note on this topic.

Depth aside, Goldman's produced an excellent quick look at one of the central tensions facing plaintiffs' lawyers who bring privacy class actions. Anyone defending a privacy class action would be well-advised to check it out.

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 Earlier today, I had the distinct pleasure of presenting at the CLE International Class Action conference in Los Angeles with an old friend of mine, plaintiff's lawyer Garrett Wotkyns of Schneider Wallace.   The topic was The Gauntlet: Early Challenges to Class Certification, which regular readers will know is a topic near and dear to my heart.  (Cue joke about defense lawyers' hearts.)

The slides, which contain only a few in-jokes and as many obscure Clint Eastwood references as we could cram in, are available for download here.  

Many thanks to the nice folks at CLE International for inviting me to talk.  I had a lot of fun.

UPDATE - Broken link is fixed.  My apologies for any inconvenience.

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 I've written before about the uses to which defense counsel can put a well-taken named plaintiff deposition. And, once again, an opinion has come along that showcases just how important the named plaintiff deposition is as a weapon to defeat class certification.

The case, Burns v. Bayer Corp., 2012 U.S. Dist. LEXIS 33183 (S.D. Ill. Mar. 13, 2012), is part of the Yaz multi-district litigation (which previously yielded an extremely useful motion to strike opinion). Yaz is an oral contraceptive, and the FDA has also approved it for use in treating acne and premenstrual dysphoric disorder. It has not yet approved the use of Yaz for alleviating less severe premenstrual symptoms (e.g., "that time of the month"), although some doctors have prescribed it for that purpose. The majority of the Yaz MDL cases have alleged that Yaz has some nasty side effects.

Unlike those cases, the Burns case--which was brought only under California law--attacked Yaz's advertising. Ms. Burns sought to represent a class of

All consumers residing in the State of California who were exposed to Defendant's Ads and purchased their prescription for YAZ for the first time, during the period of time between August 20, 2007 and January 26, 2009.

(Emphasis in original.) And her allegations--which included a claim under California's False Advertising Law--accused Bayer of selling Yaz at an unfair premium by marketing it as a PMS palliative for women using contraceptives. Given California's pro-plaintiff consumer laws, I'd guess that plaintiffs thought they had a strong case for class certification. The false advertising law, for example, does not require evidence of reliance, which would significantly reduce the number of individualized issues plaintiffs might face in proving their claims.

Despite these natural advantages to the case as plaintiffs' counsel pled it, the court denied certification. And its reasons relied heavily on the deposition of the named plaintiff.

First, the court decided that the class was not ascertainable, even though plaintiffs offered an "objective" method of determining membership by asking each class member whether she had seen one of the advertisements, and whether she had bought Yaz.

[T]here is no objective way to determine who saw the complained of television advertisements. Instead, class membership would depend on the subjective and often unreliable vagaries of human memory. The record in the instant case exemplifies the problems that would arise in assessing actual exposure. The putative class representative, Frances Burns, initially claimed that prior to obtaining a prescription for YAZ in January 2008, she viewed the "Balloons" and "Not Gonna Take It" television advertisements. However, during her deposition, Ms. Burns testified that she couldn't "recall specifically" which television advertisements she viewed or exactly when she viewed them. Further, Ms. Burns' description of the advertisements she viewed prior to January 2008, indicates that she never saw the "Balloons" advertisement.

(Citations omitted, emphasis added.)

Second, the court found that the named plaintiff's deposition testimony indicated that she was not typical of the class as her counsel had defined it.

Plaintiff's UCL and FAL claims do not require a showing of reliance. Rather, plaintiff must show that the fraudulent conduct was "likely to deceive" a reasonable consumer. This standard is subject to common proof if the actionable conduct was both uniform and material. Thus, materiality is a relevant factor in the Court's class certification analysis. In the instant case, plaintiff claims that she suffered from and sought treatment for premenstrual symptoms. The putative class, however, includes women who did not suffer from PMS or premenstrual symptoms, who did not require treatment for PMS or premenstrual symptoms, and/or who took oral contraceptives for the sole purpose of birth control. For these plaintiffs, the subject of the allegedly fraudulent advertisement campaign would not have been material. Plaintiff's claims are not typical of these putative class members.

(Citations omitted, emphases added.)

And finally, the court looked closely at the Ms. Burns's deposition testimony about how she became involved in the case.

The plaintiff and proposed class representative, Frances Burns, is a citizen of California. Ms. Burns is a "good friend" of and works with Aimee Lambert, the wife of Richard Lambert, one of the class attorneys. Ms. Burns became involved in this litigation after having a conversation with Ms. Lambert. During that conversation, Ms. Lambert told Ms. Burns about this litigation and informed her that her husband was having difficulty locating a suitable class representative.

(Citations omitted, emphasis added.) The court found that this "good" friendship with counsel's wife meant Ms. Burns could not serve as an independent representative of the proposed class.

In the instant case, the disputed relationship does not rise to the level of a familial relationship and Ms. Burns and class counsel are not direct business associates. Nonetheless, the close relationship between Ms. Burns and counsel's wife raises serious concerns as to Ms. Burns's adequacy to represent the instant class. Given that the potential recovery for plaintiffs is minimal compared to the potentially high amount of attorneys' fees that may be awarded, Ms. Burns may be more concerned with helping to maximize the monetary return of her "good friend" and co-worker (counsel's wife) than with her duty to zealously advocate on behalf of the class' interests. This is the type of situation that creates a conflict of interest. Considering this, the Court finds that Ms. Burns is not sufficiently independent of class counsel and does not satisfy the adequacy of representation prong.

(Citations omitted, emphasis added.) 

The court also engaged in a lengthy and thorough analysis of the elements of each California claim to show that individual issues predominated over common ones. However, since it had found that the class was not properly defined, and that the named plaintiff was neither typical nor adequate, these findings were not strictly necessary to its denial. (On the other hand, they do strengthen its opinion, and ensure compliance with Rule 23(c)(1)(B).)

The lesson for defense counsel here is a simple, but very compelling one. Pay close attention to the deposition of the named plaintiff, in particular, what she heard, what she thought, and how she knows class counsel. In this case, the deposition of Ms. Burns was the best evidence Bayer had to defeat certification.

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As you may know, most bloggers have some kind of service that provides a statistical analysis of their site. In addition to telling us how many of you visit, and what you read, and whether you come back, these services also tell us what searches bring (some of) you here. And, over the last year and change, there are certain searches that have recurred enough that I consider them "frequently asked questions." Here are four, with brief answers:

What is the definition of "bet the company" litigation? This is--at least to me--a surprisingly common question. My own working definition is:

litigation where the stakes are so high that a verdict against the company would have serious financial repercussions, including bankruptcy.

Class actions, which transform small-dollar individual claims into multi-million dollar aggregate claims, are often considered to be "bet the company" litigation. Particular kinds of class actions (like those brought under FACTA have been so lopsided in the potential risks, that they have spawned a subspecies of superiority argument sometimes called the "annihilation defense," which argue that when the likely result of a class action would be annihilate the company, it's not superior to other forms of litigation.

What are good standard class action interrogatories? Well, this will depend on the specific case. However, I would say that the best class action interrogatories unearth individualized facts about the class members' claims. So they may include:

• What events gave rise to plaintiff's claim (such as the purchase of a product, the various days that an employee worked overtime).
• When and where those events took place.
• Who witnessed the events.

(For more discussion of class-action interrogatories that work on both sides, see The Class Action Playbook.) I personally have a bias against contention interrogatories. ("List all facts and identify all evidence that support your claim that …") While these can be effective in a trial setting, they are much less so when the largest battle is over class certification. In that case, the opposing party can usually postpone providing a real answer until after class certification has already been briefed. This wouldn't be a problem if interrogatories were unlimited, but under the Federal Rules of Civil Procedure, they're not.

(There are some other specialized interrogatories often worth asking if one suspects some conflict of interest or other chicanery.  They include: "Identify any third party sources of funding." "Identify your confidential witnesses." "Identify any PR consultants your counsel has employed." And "identify the date you retained your counsel.)

How does one depose a class action plaintiff?
Much as one does for interrogatories, one asks for the individualized facts surrounding the plaintiff's claim. Among other questions, one can ask:

• the plaintiff to verify the accuracy of her interrogatory responses; 
• to describe any policies and procedures she claims are classwide; 
• to explain any factual inconsistencies in the discovery she has produced; 
• to identify when they first met plaintiffs' counsel; 
• whether they've ever been convicted of a felony; 
  (For more discussion of class-action deposition questions, see The Class Action Playbook.)

For an excellent list of deposition questions in one ADA class action, see Anotinentti v. Chipotle.  And, for more on deposition questions, you can also see the Class Action Playbook.

What is a defendant class? A defendant class is just what it sounds like, a class action where a plaintiff sues a number of defendants, represented by a single class representative. As one might imagine, while it is theoretically possible to organize a number of defendants into a class so that one may sue them more effectively, in practice, it is extremely difficult.

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Before we dive in today, I just want to apologize for not getting this post up yesterday. I'm in Boston, visiting my brand-new nephew, and so I've been a little preoccupied. So today's post will be a quick one.

Every defense counsel in class actions has faced having to negotiate a protective order with the other side. Plaintiffs, who often wish to release documents to the press for maximum PR leverage, or to share documents with other attorneys to bank favors, will often push for free document-sharing provisions. Defendants, by contrast, often want to make sure that their proprietary documents remain proprietary. As a result, they will seek protective orders that prohibit widespread sharing of documents. Occasionally, plaintiffs will seek a provision that allows them to provide documents if they are subpoenaed. After all, they can't stop another firm from subpoenaing them, can they?

Today's case, Murr v. Midland National Life Insurance Co., 2011 U.S. Dist. LEXIS 82486 (C.D. Cal. Jul. 28, 2011), shows why robust protective orders are important to defendants. In it, plaintiff William Murr (represented by Blood, Hurst & O'Reardon) filed a class action against Midland National Life Insurance in the Northern District of Iowa, challenging its annuity contracts. Midland had previously defended a similar lawsuit brought by Robbins Geller Rudman & Dowd LLP. Rather than fight over the relevance of specific documents to his case, Murr served a subpoena on Robbins Geller to just get the documents produced to it. Midland (note, not Robbins Geller) moved to quash the subpoena.

The court granted the motion to quash, and its reasoning is instructive. It held that Murr's request:

fails to take into account that his subpoena is unreasonably burdensome given that Murr may request the same documents being sought from Robbins Geller through discovery directed to Midland in the Murr Action, subject to normal discovery procedures and protections in place in his own action. Murr may request the documents directly from Midland without involving a third party that does not have the same interests as Midland in protecting the documents relating to its business practices and policyholders.

(Emphasis added.)  While the court does not disclose what the protective order with Robbins Geller looked like, Midland likely did not agree to a simple "hand over if subpoenaed" provision. And cases like this show why it's important for defendants to pay close attention to the provisions of protective orders. Given the opportunity, plaintiffs will simply subpoena each other to get information from previous lawsuits, whether or not it's strictly relevant to their new claims. Robust protective orders can guard a defendant's proprietary information, even from plaintiffs' more inventive attempts to circumvent them.

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Defendants face a dilemma when dealing with absent class members. On the one hand, they often have valuable information about a case, either as sources for variations that would defeat certification or as trial witnesses. On the other hand, plaintiffs will vigorously oppose any contact with absent class members, even if it is for a proper business purpose (like, say, responding to customer inquiries), as an improper attempt to either influence or harass members of the proposed class. So how should defendants handle taking discovery of absent class members?

Carefully. Today's case, Antoninetti v. Chipotle, Inc., 2011 U.S. Dist. LEXIS 54854 (S.D. Cal. May 23, 2011), was an ADA class action. The plaintiffs alleged that Chipotle denied them the ability to see their food being prepared because they were unable to stand (presumably the counters blocked their lines of sight). To support their class certification motion, the plaintiffs declarations from 41 witnesses, each of whom plaintiffs had identified as witnesses in their supplemental disclosures.

Chipotle sought to take the depositions of 20 of those witnesses. When the plaintiffs refused to allow the depositions, Chipotle sought an order from the court. The plaintiffs' opposition to that motion used all of the arguments traditionally used against discovery of absent class members:

Plaintiff contends this Court should not grant Chipotle leave to depose unnamed class members because: (1) Chipotle has failed to show the necessity of such discovery, (2) Chipotle has failed to show the relevance of such discovery, and (3) Chipotle's proposed deposition questions are designed to confuse, mislead and discourage class participation.

The court's decision to allow the depositions turned on the fact that, by signing declarations and agreeing to be witnesses, these absent class members had "injected themselves into the litigation on two fronts." The court also noted that taking discovery of absent class members who are customers is different than taking discovery of class members who are employees.

The Court notes that under certain circumstances depositions of absent class members could have a chilling effect on their willingness to be part of the class. However, that concern has little impact in this case for several reasons. First, the proposed deponents are not employees of Chipotle; rather, they are customers. Therefore, they are not under the pressure employees would face being deposed by their employer. Chipotle cannot directly or impliedly threaten the putative class members with loss or reduction of employment or some other adverse action affecting the work environment. Indeed, a case can be made that Chipotle is more dependent on the putative class members than they are dependent on Chipotle. In fact, part of Chipotle's motivation is to maintain or restore its corporate image with the demographic represented by the putative class members.

(Emphasis added.) Finally, the court pointed out that Chipotle had agreed to limit each deposition to an hour, and had submitted its proposed questions in advance for court approval. (The court very helpfully included those questions as an appendix to its opinion, providing budding defense lawyers with a list of questions that have passed muster in at least one case.)

The lesson defense lawyers can take from this case is a simple one: if you want to take the depositions of absent class members, be prepared to show why they're relevant to your class certification opposition, and be prepared to accept appropriate limits on the questions you ask.

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I've talked before about the problem of circularity in securities class actions. Briefly put:

[A] securities class action takes money from the firm, and pays it to the shareholders, minus costs and attorneys' fees. The hitch is that the firm is owned by the shareholders, which means that the attorneys have just taken money from the shareholders' property and handed it to them directly, while taking a one-third cut for themselves.

At the time, I pointed out that while the circularity critique may suggest that securities class-acton plaintiffs are inadequate the moment they bring a lawsuit, courts were unlikely to give that argument much credit. Villanova professor Richard Booth, however, has authored a working paper that refines the argument, and shows why securities class actions may actually cause adequacy problems in language most courts will understand. Booth notes that there are two kinds of investors: diversified investors that actively manage their portfolios in some way, and more passive "buy-and-hold" investors. diversified investors are far less likely to buy and hold investments. Instead, they tend to be "actively managed," trading investments based on a number of factors in an attempt to beat the returns the market offers. Most importantly, even a diversified investor with a stable strategy will buy and sell individual stocks as it rebalances its portfolio. As a result, a diversified investor--and many, if not most, investors are diversified--is just as likely to gain from a securities fraud (selling the stock when its value is still inflated) as it is to lose. Under those circumstances, as Booth describes it, securities class actions operate as a redundant insurance policy.

Moreover, because the diversified investor has shielded itself from any large individual loss that comes from a buy-and-hold strategy, they are more likely to prefer derivative lawsuits to class actions. Why? Because in a derivative class action, the vast majority of the money recovered goes back into the corporation, rather than out to the original buyers of the stock. Booth also points out that attorney fees tend to be lower in derivative actions, effectively reducing the "lawyer tax" on any recovery. Or, as Booth himself puts it:

Undiversified investors are likely to favor class actions. Diversified investors are likely to oppose class actions and favor derivative actions. Although undiversified investors would not object to a derivative action in principle, they might object because the derivative recovery would reduce the class recovery. In other words, each group opposes what the other favors. Investors who stand to gain more from a class action will want their representative plaintiff (and lawyer) to maximize their claim by downplaying or indeed ignoring any evidence of derivative claims. The remainder of investors will want a zealous derivative plaintiff (and lawyer) to maximize derivative claims.

(Emphasis added)  Booth's working paper suggests three strategies for the lawyer defending a securities class action:

• Aim discovery at the plaintiff's investment strategy. If the plaintiff in a securities class action actively manages its assets, then it is far less likely to have suffered a significant loss. If it pursued a buy-and-hold strategy for the stock, it may not be an adequate or typical representative of those investors who more actively manage their assets. (Many defense lawyers already ask about investment strategy as a matter of course, but a reminder never hurts.)
• Argue derivative actions are superior to class actions. I've discussed superiority in securities class actions before, but Booth's analysis reinforces the point: a securities class action may not be the best way of recovering investment losses. In fact, a derivative lawsuit--because it generates less in fees and puts the money back into the corporation itself--offers natural advantages over a class action.
• Argue adequacy. One of the strongest strands of adequacy doctrine is the discussion of intra-class conflict. If the defendant can generate evidence that shows that the named plaintiff does not actually represent the investment strategies of a significant percentage of the class--and in fact may be actively undermining others' investment strategies--that is strong evidence that an irreconcilable class conflict exists.

These tactics are hardly radical; in fact, they're based on common sense about how people actually invest. Unfortunately, as the circularity critique highlights, common sense is not always so common in the realm of securities class actions.

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The confidential witness is the bane of the securities defendant's existence. While there may be some legitimate reasons to keep a witness confidential, the words "Confidential Witness #1" can also hide problems with the plaintiffs' case, like sloppy research or outright misrepresentation.

How do we know this is the case? Well, many defendants have "Confidential" horror stories, but more importantly, these problems are sometimes revealed in the case proper. Case in point:City of Livonia Employees' Retirement System v. Boeing Co.  As the Northern District of Illinois puts it in its opinion, the case reads like an airport thriller.

At the center of this drama is the purported confidential source, who had a series of fateful conversations with plaintiffs' investigators and months later with defense counsel. The confidential source did not meet plaintiffs' counsel until he was recently deposed, months after plaintiffs' counsel used information purportedly provided by the confidential source to survive dismissal of this lawsuit. The confidential source now denies the information attributed to him in plaintiffs' pleadings and in their representations to the court. Plaintiffs assert their confidential source is presently lying, while the confidential source claims it is plaintiffs' investigators who are the liars.

The case was a traditional securities fraud case. The plaintiffs accused Boeing of lying to is investors about the delivery schedule for the 787 Dreamliner, a much-hyped and heavily-anticipated commercial jet model. In doing so, they relied heavily on information from "confidential witnesses."

The trial court had dismissed plaintiffs' amended complaint without prejudice, holding that there were not enough facts present to support a "strong inference" of scienter. In particular, it noted that

Plaintiffs' generalized reliance on confidential source information was insufficient to establish Boeing's scienter. Allegations by confidential sources are discounted, "usually steeply," because information from anonymous sources is not regarded as compelling or supportive of plausible inferences.

[Emphasis added.]  Nonetheless, the court offered the plaintiffs the chance to replead naming no more than one confidential source for their information about what Boeing knew and when it knew it. Plaintiffs' second amended complaint contained four paragraphs (139-42) that relied on confidential witness testimony. Boeing moved to dismiss this complaint as well, but the court denied its motion, relying heavily on the four new paragraphs.

So Boeing served discovery asking for the identity of the confidential witness. Then they interviewed him and took his deposition. And what they uncovered was--at least to the court--surprising:

[Former confidential witness] Singh has consistently denied that he was the source of the information attributed to him in the second amended complaint. Indeed, he denies he was employed by Boeing. Rather, he attests he worked for an outside contractor at Boeing starting in late August 2009, months after the events at issue in this suit; he denies personal knowledge of the 787-8 testing documents or their circulation to Boeing executives in April and May 2009; he claims he never met plaintiffs' counsel until his deposition on November 17, 2010; nor was he ever shown the allegations attributed to him in the second amended complaint until he met with defense counsel on November 2, 2010.

Deposition transcript in hand, Boeing filed for reconsideration on the grounds that plaintiffs had committed a fraud on the court. The plaintiffs opposed, arguing that their confidential witness was the liar, not their investigators. At this point, the trial court threw up its hands:

It matters not whether, as plaintiffs argue, Singh told their investigators the truth, but he is lying now for ulterior motives. The reality is that the informational basis for paragraphs 139-42 is at best unreliable and at worst fraudulent, whether it is Singh or plaintiffs' investigators who are lying.

Since the key four paragraphs weren't reliable, the court dismissed the second amended complaint, this time with prejudice.

So what can we learn from this case? First, always chase down the "confidential sources" on which the plaintiffs rely. Once the complaint has been filed, there is no reason for sources in a civil lawsuit to be confidential. Second, take the confidential witness's deposition. The confidential witness is a way for plaintiffs' counsel to sidestep the tighter restrictions of the PSLRA without having to do their actual homework. Deposing the witness keeps them accountable.

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E-discovery: a term that has evolved from an interesting sidenote to something that can strike fear into the hearts of the most hardened defense lawyers. The Wall Street Journal Law Blog covered this issue a few weeks ago, pointing to a recent study by several King & Spalding lawyers published in the Duke Law Journal: Sanctions for E-discovery Violations: By the Numbers. The article is an excellent source for cases involving e-discovery sanctions. While it doesn't specifically mention class actions, there is no question it applies to this field of litigation. Discovery is often a one-sided affair in class actions, and e-discovery sanctions give plaintiffs lawyers additional leverage in "litigating the litigation."

In particular, four of the study's findings have special relevance to class-action lawyers.

E-discovery sanctions disproportionately affect defendants.

Defendants are sanctioned for e-discovery violations nearly three times more often than plaintiffs. In our survey, defendants were sanctioned 175 times, plaintiffs were sanctioned fifty-three times, and third parties were sanctioned twice. The three-to-one ratio of defendant sanctions to plaintiff sanctions has generally held steady over the last ten years, even as the number of sanction cases and sanction awards has greatly increased.

This is not a surprising result. As Judge Posner recently noted, discovery (at least in class actions) tends to disproportionately affect defendants.

E-discovery sanctions are increasing.

[T]he number of e-discovery sanction cases and the number of e-discovery sanction awards more than tripled between 2003 and 2004, from nine to twenty-nine sanction cases, and from six to twenty-one sanction awards. The numbers continue to rise. Our analysis of pre-2010 cases indicates that there were more e-discovery sanction cases (ninety-seven) and more e-discovery sanction awards (forty-six) in 2009 than in any prior year. In fact, there were more e-discovery sanction cases in 2009 than in all years prior to 2005 combined.

One might have expected e-discovery sanctions to plateau at a certain point, once defendants learned enough about preservation and production to avoid possible sanctions. This result offers two possible inferences: either defendants are not done with their learning curve (avoiding sanctions), or plaintiffs are continuing to make progress on theirs (using e-discovery to litigate the litigation).

Courts are particularly concerned with intentional conduct.

No cases resulted in dismissal when the court characterized the misconduct as mere negligence. In two of the thirty-six dismissal cases, the court characterized the conduct as gross negligence.79 The remainder of the thirty-four cases involved some sort of willful conduct, with twenty involving bad faith.

(Internal footnotes omitted.)

The primary offense is a failure to preserve evidence.

The cases in which adverse jury instructions were issued included forty-three cases involving failure to preserve, four cases involving failure to produce, and five cases involving both. The defendant was sanctioned with an adverse jury instruction in forty-four cases, while the plaintiff was so sanctioned in only eight cases.

(Internal footnotes omitted)

Obviously, this study sounds a cautionary note for class-action defense lawyers. Given the propensity for courts to sanction defendants for not preserving evidence, defense lawyers need to exercise particular care at the beginning of class-action litigation to make sure their clients issue litigation holds, and have been complying with their records-retention policies.

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Plaintiffs in securities class actions often use "confidential witnesses" in their complaints to substantiate various allegations. The practice makes some sense at the complaint stage: it allows the plaintiff to plead fraud and loss causation with the specificity required by the PSLRA, without exposing potential witnesses to backlash from their employer should the case never proceed past the motion-to-dismiss stage. But once the motion to dismiss has been decided, is there any need for a plaintiff to keep confidential witnesses confidential?

In In re Netbank Securities Litigation, 259 F.R.D. 656 (N.D. Ga. 2009), the plaintiff alleged that Netbank had deceived some of its shareholders. The plaintiff survived a motion to dismiss, and the court certified a securities-fraud class. (It held that there was an efficient market in the securities traded, so the class was entitled to a presumption of reliance on the alleged misrepresentations.) But the really interesting part of this opinion is in its discussion of the motion to compel. The plaintiff had relied heavily on seven "confidential witnesses" in his complaint. So, in discovery, the defendants served interrogatories asking for their identities. And the plaintiff refused to reveal them. Once the defendants moved to compel, the court held that plaintiff had to provide the identities:

Mr. Brown first responds to Defendants' Motion to Compel by arguing it is without merit, as the list of 130 individuals he provided contains the confidential witnesses whose identification Defendants now seek. However, this argument is not persuasive. It is clearly established that Defendants may discover the facts upon which Plaintiffs base their allegations and such facts include names of witnesses from whom counsel obtained their information. The Reform Act, 15 U.S.C. § 78u-4(b)(1), dictates that in securities fraud cases, plaintiffs shoulder "the burden of identifying the sources for allegations pled on information and belief." Id. (citing 15 U.S.C. § 78u-4(b)(1)). That Mr. Brown has provided Defendants with a list of 130 individuals, arguing that Defendants can "conduct their own investigation[]" to determine the identities of the seven confidential witnesses among them, smacks of a needle-in-haystack search: time-consuming, wasteful and expensive.

(Emphasis added, internal citations and quotations omitted.) Nor did the court cotton to plaintiff's argument that public policy required shielding the identities of the confidential witnesses. As it pointed out, the discovery rules are liberal, and the plaintiff's argument that he had provided the identities among 123 other names undermined his argument against specifying further.

So what can defense lawyers learn from this case? In securities class actions with confidential witnesses, it is worth spending an interrogatory to learn their identities.

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Earlier this week, the Seventh Circuit, in an opinion by Judge Richard Posner, granted an injunction to Sears under the All Writs Act to block a class action that had been filed in federal court in California. The opinion, Thorogood v. Sears, Roebuck & Co., is noteworthy for a couple of reasons. First, it extends relief under the All Writs Act to defendants facing copycat class actions in other jurisdictions. Second, it does so in response to a plaintiff's attempt to leverage a settlement using the threat of class-action discovery.

Steven Thorogood, the nominal plaintiff here, filed a class action against Sears after he bought a Kenmore stainless-steel dryer, which, as it turned out, was not 100% stainless steel. Instead,

part of the front of the drum—a part the user would see only if he craned his head inside the drum—is made of a ceramic-coated “mild” steel, which is not stainless steel because it doesn’t contain chromium. Thorogood alleged that the “mild” steel in the drum rusted, and stained his clothes.

His lawyer, Clinton Krislov (who just ran for Illinois comptroller) convinced an Illinois federal trial court to certify a consumer-fraud class, but the Seventh Circuit reversed it on a Rule 23(f) appeal, finding that there were no common issues justifying certification. It later affirmed the denial of attorneys' fees after Sears made an offer of judgment to Thorogood personally. 

Undeterred, Krislov filed a copycat class action in California federal court (Murray). The California court originally ruled that it was barred by collateral estoppel, but after a few amendments to the complaint, it reversed its ruling and allowed discovery to begin. At that point, Krislov's co-counsel sent a letter to Sears telling it:

that discovery is proceeding and “will involve Plaintiff’s counsel delving into the full extent of Defendants’ alleged wrongdoing” in order to justify not only equitable relief but also punitive damages—which are potentially very large given the size of the class and the possible preclusive use of any judgments favorable to the plaintiffs in suits brought in other states. The letter continues: “as we progress through the various stages of this litigation, the cost of settlement will necessarily increase . . . . At this point, we may want to consider whether an appropriate olive branch for resolution can be mutually created on a class wide basis commensurate with the status of the case. If interested, please pick up the telephone and call me. In the meantime, Plaintiff will continue to diligently and timely prosecute this case to an appropriate result.” In other words, unless Sears settles now (implicitly for modest relief for the class and an agreement with class counsel to recommend to the judge generous fees for Krislov and Boling), it will incur the considerable cost of responding to class counsel’s distended project of “delving” and assume the risk of a very large adverse judgment.

(Emphasis added.)  Faced with the prospect of plaintiffs' counsel commencing invasive and expensive discovery to leverage a settlement, Sears requested an injunction from the Seventh Circuit. The court, in an opinion by Judge Richard Posner, granted the request. After noting the in terrorem effect of plaintiff's discovery threat, he observed that:

quite apart from the green light that such a ruling would give to extortionate class action practice, a denial of relief would make no sense in a case like this, in which the class (Thorogood’s) was certified, albeit later decertified at our direction. Class counsel had and took the opportunity to litigate the certification issue fully—so that to say that a ruling against certification could not be the basis of an injunction would be inconsistent with the doctrine of collateral estoppel itself. There is no denying that a final ruling against certification has collateral estoppel effect. And the basis of the injunction sought in this case is simply the need for enforcing collateral estoppel more effectively than by forcing the defendant to plead it as a defense in case after case.

This is not the first time the Seventh Circuit has granted relief to a class-action defendant under the All Writs Act. But this opinion is noteworthy for the strong language Judge Posner uses in criticizing plaintiff's conduct, and the plain language he uses in describing the dilemma Sears faced.  It's also noteworthy for its explicit suggestion that a class-action defendant may seek an injunction before it has to assert collateral estoppel in a new case.  

(Also noteworthy, at least for this blog, is that the court cited the Class Acton Playbook in its discussion of plaintiff's strategic use of discovery.)

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 Depositions are one of the most important parts of class discovery. (And for many lawyers, they're also the most fun.) Since so few class actions go to trial, a deposition of a named plaintiff is when the defense lawyer finally gets to act like a lawyer on TV, confronting the named plaintiff with evidence, poking holes in poorly-constructed stories or arguments. But how much of the named plaintiff deposition is mere theatrics and how much is useful for actually defeating certification? For an excellent example of well-deployed depositions, let's look at a recent FLSA case: Lugo v. Farmer's Pride, Inc., 2010 U.S. Dist. LEXIS 88139 (E.D. Pa. Aug. 25, 2010).

The substantive allegations in the case involve "doffing and donning" (a nickname for FLSA cases alleging that plaintiffs were not paid for time spent putting on and taking off work clothes. In this case, Farmer's Pride owned a chicken-processing plant in Pennsylvania. In order to work in various departments of the plant, workers had to wear various items of protective clothing, including smocks, hair and beard nets, safety glasses, hearing protection, and protective sleeves. (Failure to do so could result in disciplinary action.)

Farmer's Pride moved to decertify the collective action, arguing that "donning and doffing" practices varied by department within its plant, by individual worker's routines, and by compensation scheme (there were two different compensation schemes, one in place until 2007, one in place afterward). The plaintiffs argued that Farmer's Pride had overstated the differences.

But, because Farmer's Pride had relied heavily on deposition testimony from the named plaintiffs and other plant employees, the plaintiffs had a hard time convincing the court that these differences were inconsequential. How did Farmer's Pride use the depositions?

• It used them to question the plaintiffs' ability to testify on others' behalf (typicality). "Defendant also questions the ability of Marco or Caba to speak to the practices and experiences of other hourly production workers, identifying statements in prior deposition testimony by Marco that she did not have knowledge of these facts ( and noting Caba's admission at the evidentiary hearing that she was "not paying attention to what other people [were] doing." (Internal citations omitted.)
• It used them to question the named plaintiffs' credibility (adequacy). "Defendant contends that the inconsistencies present in Marco and Caba's testimony are indicative of a more pervasive problem in the testimony that both named and opt-in plaintiffs have offered over the course of this litigation. In support, defendant points to multiple instances where named or opt-in plaintiffs have provided inconsistent testimony or have admitted to inaccuracies in prior testimony or discovery responses." (Internal citations omitted.)
• And it used them to question plaintiffs' counsel's credibility (adequacy of counsel). "Defendant also offers the testimony of Hasaan Hargett, a former plaintiff in this lawsuit and current hourly production worker at defendant's plant, who detailed at the evidentiary hearing how the facts in the interrogatory response submitted on his behalf were inaccurate, despite the fact that he brought these inaccuracies to the attention of plaintiffs' counsel prior to submission. According to defendant, these numerous contradictions betray an attempt by plaintiffs to manufacture a level of similarity that is not in fact present, and undermine any notion that their testimony can be considered representative in this case."" (Internal citations omitted.)

The defendant's strategy worked; the Court found that the inconsistencies among the testimony of various class member meant that the named plaintiffs' testimony could not stand in for the testimony of other class (or collective action) members.  In its words:

[T]hough plaintiffs tout the testimony of these plaintiffs as representative, neither Marco nor Caba provided a reliable basis which would warrant the Court's acceptance of their own personal facts as applying to others; rather, the Court finds that the record as a whole does not support the conclusion that their particular experiences were shared by all plaintiffs, or reflected a common practice or policy of defendant. Lastly, as defendant has effectively demonstrated, the testimony offered by plaintiffs in general is plagued by inconsistencies that diminish its reliability and show the importance of cross-examination of each plaintiff.

(Internal quotations omitted, emphasis added.) What's the lesson we can learn from this case? No matter how redundant it may seem, be thorough in asking about each class member's experience. The more specifically class members testify about their own individual experiences, the more evident it will become that a class may not be appropriate.

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Back in July, I wrote about the treasure-trove of documents released when public-relations firm The Rendon Group was compelled to respond to a subpoena from Katrina-related litigation involving State Farm. This upcoming Friday, I'll be participating in a WLF-sponsored webinar on public-relations tactics in class actions. To provide some background for my remarks, I thought I'd go into a little more depth on the story of how the Rendon documents came to be produced. (For the full case, see 2010 U.S. DIST. LEXIS 60138)

The "complicated story" (the court's words) began when sisters Kerry and Cori Rigsby (both of whom were claims adjusters for a State Farm subcontractor) claimed to have found documents related to what they alleged were fraudulent denials of claims related to Hurricane Katrina. The Rigsby sisters, represented by then-lawer Richard Scruggs, filed a qui tam action in Mississippi; their documents also served as the foundation for class-action litigation filed against State Farm. Much of this litigation collapsed after the Rigsby sisters were disqualified from testifying and the Scruggs-founded Katrina Litigation Group was disqualified from prosecuting the cases, because of what federal trial Judge L.T. Senter, Jr. referred to as "ethical misconduct" and "conflicts of interest." The qui tam action remained, but the court winnowed it down to claims regarding a single denial of coverage.

At that point, State Farm filed a counterclaim for misappropriation of confidential documents, and served a subpoena on the Rendon Group seeking documents related to its use of the Rigsby documents. The Rendon Group moved to quash the subpeona, because it was overbroad and complying would violate the attorney-client privilege. The court granted the motion in part and denied it in part, reasoning:

TRG seeks to quash the subpoena duces tecum first on the grounds that the records may be protected by the attorney-client privilege. TRG cannot, however, assert this claim; no one is claiming that there was ever an attorney-client privilege between TRG and the Mississippi firms. The firms' clients were, one supposes, State Farm insureds who sued State Farm or who were once relators in the qui tam action. The Rigsby sisters were only the latter. Those persons might or might not have grounds to claim an attorney-client privilege for information in the possession of their lawyers that reflects a confidential communication between them for the purpose of seeking legal advice or securing legal services. Had such a claim been asserted by such persons, it would then be pertinent to explore whether the lawyers' transmittal of privileged information to a public relations firm was or was not a communication that vitiated or forfeited the privilege.

(Emphasis added, internal record citations omitted.)

Ultimately, the court compelled production of two categories of documents:

1. All documents concerning the Relators, Ms. Cori (Moran Rigsby) and Ms. Kerri Rigsby.

2. All documents concerning the False Claims Act action filed by the Relators.

What tactical insights can we derive from this case? For specifics, please tune in to the webcast on Friday. Until then, let's just say that--despite the many challenges they do face--defendants are not helpless in PR battles over class-action litigation.

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Since I first wrote about fighting fishing expeditions, Google has sent a number of readers to the blog looking for “fishing expeditions discovery” or “deny class certification discovery abuse.” (It also sent one reader looking for “botulism,” which I’m proud to say is not available here.) Clearly, fighting fishing expeditions in class actions is an important topic to defense lawyers. And the good news is, there’s more than one way to do so. For example, in addition to objecting to the relevance of some of plaintiff’s document requests or interrogatories, one can also object that the plaintiff is not entitled to class-related discovery if she cannot make a prima facie showing that her class will meet the requirements of Rule 23.

In Heerwagen v. Clear Channel Communications, an antitrust class action, the plaintiff alleged that Clear Channel’s charging of high prices for live concerts violated Section 2 of the Sherman Act, which prohibits monopolistic practices or attempts to monopolize a relevant market. After a three-day hearing, the trial court declined to certify a class. The plaintiff appealed, arguing among other things that the trial court had impermissibly limited the discovery she could take to demonstrate that classwide proof of her claims existed.

Starting from the premise that the decision to limit discovery is within the sound discretion of the trial court, the Second Circuit Court of Appeals reasoned that:

Limiting discovery in preparation for the class certification motion in order to reduce expense, the district court allowed plaintiff's deposition and the deposition of experts. Although Judge Sprizzo made comments suggesting improper bases for limiting discovery — including a categorical statement that he generally does not allow plaintiffs discovery on the issue of class certification and an unsupported claim that plaintiff's counsel here sought discovery "as some sort of settlement leverage" — we nonetheless cannot conclude that the decision to limit discovery here amounted to an abuse of the district court's broad discretion.

In addition to the discovery allowed, significant relevant information was apparently available in the public domain, as evidenced by the exhibits submitted in connection with plaintiff's motion for class certification. Moreover, plaintiff failed to make any showing, however preliminarily, that she could satisfy the predominance requirement of Rule 23(b)(3) or that she might be able to do so with additional discovery. See Mantolete v. Bolger, 767 F.2d 1416, 1424 (9th Cir.1985) ("Although in some cases a district court should allow discovery to aid the determination of whether a class action is maintainable, the plaintiff bears the burden of advancing a prima facie showing that the class action requirements of Fed.R.Civ.P. 23 are satisfied or that discovery is likely to produce substantiation of the class allegations.").

In other words, the Second Circuit ruled that, because the plaintiff bears the ultimate burden of proving that a class is certifiable under Rule 23, she also bears the burden of making a prima facie showing that her class is certifiable under Rule 23 in order to justify extensive discovery.

For cases where the defendant faces a class complaint that is facially deficient, but where the plaintiff hopes to use discovery to fish for a viable cause of action or leverage a settlement, objecting because the plaintiff cannot make a prima facie case for discovery can be effective. The plaintiff will no doubt fight this objection as hard as she can; but a fight about the propriety of a defective class action? That’s a fight the defense is ready to have.


 

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One reason that class actions are notable is that the discovery is particularly one-sided.  The plaintiff likely has few documents, and little to say in deposition about her claims. So the defense spends much of its time in discovery – there’s no better way to say it – playing defense: making sure that it has adequate strategies to address the vulnerabilities in any information it produces.

Plaintiffs’ lawyers consider the 30(b)(6) deposition one of their primary offensive tools. As a result, many defense lawyers treat the 30(b)(6) representative like the goalie in a hockey game: if he can prevent the other side from scoring any points, he’s done his job. But, under certain circumstances, the 30(b)(6) representative can play offense as well as defense. Since the defendant possesses most of the information, it has firsthand knowledge as to why a class action may not be the appropriate vehicle for a lawsuit. And the 30(b)(6) corporate representative deposition allows the corporation to select a corporate spokesperson to make the argument against certification.

How important is the 30(b)(6) deposition to the case against class certification? Potentially, it can be a game-changer. For example, in a 2008 opinion, the Southern District of Florida denied certification based on the testimony in several 30(b)(6) depositions. In Pop’s Pancakes, Inc. v. NuCO2, Inc., 251 F.R.D. 677, 686-87 (S.D. Fla. 2008), a class action filed by two restaurants against an equipment lessor claiming that it improperly hid fees in its beverage-equipment contracts, the district court found that the plaintiffs could not demonstrate that there were any common issues of law or fact justifying certification. What was the basis for this decision? The testimony of one of the corporate representatives, who said in his deposition that:

while there are generally four different contracts customers have with the Defendant, two of which are subject to the assessment of property taxes, that every month some customers switch from a contract where no equipment is leased, and thus, no property tax assessed to one where the customer leases the equipment from NUCO, [and] that there were various administrative processing fees charged based upon individual negotiations with the various customers, which can only be determined by reviewing the individual customer's agreement.

The lesson here is a simple one. The 30(b)(6) deponent is not just a goalie. Prepared properly, with the right facts behind him, he can score points, too. 

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It's no secret that discovery in class actions can be abused to serve goals that have nothing to do with the merits of the case. In some cases, plaintiffs will use the threat of extensive discovery to leverage settlements. In others, plaintiffs may use their proto-class status as excuse for a fishing expedition for new clients or causes of action. It may seem like there’s not much a defendant can do to combat these abuses, but a 30-year-old case – Oppenheimer Fund v. Sanders – offers one possible solution.

In Oppenheimer, the named plaintiffs sued Oppenheimer Fund for failing to disclose that it had invested in a set of overvalued “restricted” securities that had artificially inflated its earnings, and resulted in investment losses for the proposed class. As part of their discovery, the plaintiffs demanded a list of all class members, to be used as a starting point for the notice they would eventually have to send. The trial court originally ruled that Oppenheimer would have to pay 90% of the costs of compiling the class list.

At the same time as plaintiffs moved to certify a class, the Second Circuit reversed the trial court. So the plaintiffs deposed several of Oppenheimer’s employees, and then moved to redefine the class to include only those people who still held shares in the Oppenheimer Fund. Then, they proposed that notice be included in one of Oppenheimer’s regular mailings to its shareholders.

The procedural issues in the case grew even more complex, and eventually reached the Supreme Court. For our purposes, the Court made several statements worth remembering. First, it ruled that any orders compelling a defendant to assist in compiling information for class notice are governed by Rule 23(d), not the federal rules governing discovery. Second, it stated that while discovery under the federal rules is necessarily broad, it

like all matters of procedure, has ultimate and necessary boundaries.

More importantly, once it examined the conduct of discovery in the case, the Court also held that

Respondents’ attempt to obtain the class members’ named and addresses cannot be forced into the concept of “relevancy” described above.

(Emphasis added.) How is that useful for class-action defendants? Oppenheimer objections can be used to block plaintiffs’ attempts to use discovery to accomplish goals unrelated to the merits of the litigation. For example, plaintiffs do not have the right to:

• sidestep the burden of assembling notice; or
• get themselves a list of possible new clients

through discovery. And objections based on Oppenheimer can help protect the defendant from this particular abuse of the discovery process.
 

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Class-action defense guru John Beisner has published a new study on third-party litigation financing: “Selling Lawsuits, Buying Trouble: Third-Party Litigation Funding in the United States” (US Chamber Institute for Legal Reform, October 2009). Since it’s published by the US Chamber of Commerce, this is an advocacy piece, and one aimed more at policymakers than courts. (Beisner reaches one empirical conclusion: that allowing widespread third-party funding in Australia led to an increase in class-action filings there.)

While the policy arguments are certainly not dull, I’m more interested in the strategic implications of the piece for class-action lawyers.

And here’s the real question third-party financing raises: if plaintiff’s counsel (or the plaintiff) receives third-party litigation funding, have they compromised their adequacy as class representatives? Courts have held that a named plaintiff owes a fiduciary duty to the class; and so does the class counsel.  If either the named plaintiff or counsel is beholden to a third party who is underwriting the action, they may have compromised their ability to represent the class in an unbiased fashion.

In addition, class plaintiffs have long portrayed themselves as the underdog, a David taking on a corporate Goliath who needs judicial (rather than divine) intervention to prevail. If the plaintiff is backed by a large hedge fund, the fight is no longer David-versus-Goliath, but a clash of the titans, where neither side naturally requires sympathy.

This suggests a discovery tactic: why not spend an interrogatory asking about the plaintiff’s source of funding in class actions? Granted, the Federal rules make interrogatories a limited resource. And diving into a possible battle over work-product or the attorney-client privilege (colorable, but likely unsuccessful arguments the plaintiffs might assert) may appeal only to more combative defendants. But exposing a potential conflict of interest and nullifying plaintiffs’ traditional David-versus-Goliath rhetoric may be well worth the effort.

[Disclosure: I used to work with Beisner and his co-author Jessica Miller at O’Melveny & Myers LLP, and, on occasion, helped them research previous articles.]

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