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

Rule 68 offers of judgment have been controversial in class action practice for quite some time. Proponents of the tactic believe that it offers a valuable means of limiting frivolous lawsuits: where there are really only a few affected claimants, an offer of judgment can force them to face up to the costs of meritless class allegations. Opponents believe that corporate defendants would rather buy off potential claimants one by one than face a class-action lawsuit. Circuit courts of appeal had split on whether the tactic could actually moot a class action.

Genesis Healthcare Corp. v. Symczyk, in which a nurse appealed the dismissal of her FLSA collective action after the defendant made an offer of judgment and then moved to dismiss her case as moot, seemed to offer a solution to the longstanding question of whether the offer of judgment is a valid defense tactic in class actions. In the opinion that came out last week, Justice Thomas, writing for a 5-Justice majority, allowed the tactic in the case before the Court, but seemingly limited it for the time being. Specifically, he held that

In the absence of any claimant's opting in [to the proposed collective action], respondent's suit became moot when her individual claim became moot, because she lacked any personal interest in representing others in this action.

If you believe that reasoning sounds like the Court did not intend its opinion to reach Rule 23 class actions, you are correct. The Court immediately rejected any attempt to use Rule 23 cases to support a wider ruling in Symczyk:

But these cases are inapposite, both because Rule 23 actions are fundamentally different from collective actions under the FLSA, see Hoffmann-La Roche Inc., 493 U. S., at 177-178, 110 S. Ct. 482, 107 L. Ed. 2d 480 (SCALIA, J., dissenting), and because these cases are, by their own terms, inapplicable to these facts.

(Emphasis added.) The Court did, however, include some language that suggests it might find Rule 68 offers of judgment appropriate when made to Rule 23 named plaintiffs. First, it pointed out that settling a collective action early does not deprive additional claimants of any rights to bring lawsuits:

While settlement may have the collateral effect of foreclosing unjoined claimants from having their rights vindicated in respondent's suit, such putative plaintiffs remain free to vindicate their rights in their own suits.

Second, Justice Thomas responded to Symczyk's argument that "picking off" a named plaintiff in a collective action would frustrate the efficiency justifications for a collective action, as they had been articulated for class actions in Depsoit Guaranty National Bank v. Roper. In general, he rejected the argument on its logic, but he also include a footnote that implied Roper may no longer be good law:

Because Roper is distinguishable on the facts, we need not consider its continuing validity in light of our subsequent decision in Lewis v. Continental Bank Corp., 494 U. S. 472, 110 S. Ct. 1249, 108 L. Ed. 2d 400 (1990).

That footnote sounds like an invitation to revisit the issue. Based on Justice Kagan's spirited dissent, it will likely be another contentious debate.

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 Two plaintiffs' firms filed nearly identical class actions against a dietary supplement company, alleging that one of its weight loss supplement didn't work. The cases were filed within two weeks of each other, one in federal court (Branca v. Iovate Health Sciences USA, Inc.), and one in California state court (Garcia v. Iovate Health Sciences USA, Inc.). Shortly thereafter, the defendant filed a motion to stay in the federal case, because it had settled the case in state court.

So far, this was all just run-of-the-mill procedural maneuvering. So why make it the subject of a blog post? As the court explained:

Why not stay this case, if one that's virtually identical to it, and would resolve all of the claims, has reached a preliminary settlement that is now awaiting court approval? The real reason, according to Branca, is that the Garcia settlement is collusive, or at least looks really bad.

(Italics in original; bold emphasis added.)  The part that "look[ed] really bad" was that the firm representing the defendant had been about to engage in mediation with opposing counsel when the Garcia case was filed. The opinion implies (but does not state outright) that the quick settlement in the Garcia case might be the result of a reverse auction.

The Court has read the parties' briefs and given considerable thought to them. Here's the basic problem: No matter how hard Iovate tries to argue that a stay is warranted under Landis v. North American Co., 299 U.S. 248, 254, 57 S. Ct. 163, 81 L. Ed. 153 (1936), and no matter how hard Branca tries to argue back that a stay isn't warranted under Colorado River Conservation Dist. v. United States, 424 U.S. 800, 96 S. Ct. 1236, 47 L. Ed. 2d 483 (1976), the real fight here is for control of a class action between two warring plaintiffs' firms. That fight, moreover, is inseparable from the ostensibly disinterested legal arguments they make for the Court staying or not staying this case.

But, having identified the real stakes of the motion to stay, the court decided to grant it anyway.

The Court's view is that if there's something procedurally or substantively unsavory about the Garcia settlement, even though it appears to be the result of vigorous bargaining before an experienced mediator, Judge de Bellefeuille should be the judge to say so. Garcia is her case. But until Judge de Bellefeuille makes that call, and meaningfully stalls the progress of the Garcia settlement, the Court is inclined to exercise its discretionary power under Landis to stay this case in the interest of judicial economy.

The case is notable because it's not often that a court will pull back the curtain to expose the real interests behind a mundane procedural motion. That kind of realism is always worth a second look. And the takeaway for defense lawyers is one that always bears repeating: don't be afraid of telling the court what's really going on. Courts are often more willing to wave aside legal fictions than we might think.

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Two years ago, I wrote about the difficulties defendants face when securities plaintiffs invoke confidential witnesses in their complaints. The case that prompted that discussion, City of Livonia Employee Retirement System v. Boeing Corp., now has a sequel. As it turns out, both parties appealed the opinion below: the plaintiffs because the court below had dismissed their case with prejudice, and the defendants because the court had not imposed sanctions consistent with the PSLRA.

Judge Posner wrote the opinion for the three-judge panel. He began with a brief (and very informative) summary of the relevant provisions of the PSLRA. In relaying the background of the case, Judge Posner specifically addressed the credibility of confidential witnesses head-on:

Allegations concerning--in the first amended complaint merely implying--unnamed confidential sources of damaging information require a heavy discount. The sources may be ill-informed, may be acting from spite rather than knowledge, may be misrepresented, may even be nonexistent--a gimmick for obtaining discovery costly to the defendants and maybe forcing settlement or inducing more favorable settlement terms.

(Emphasis added.)  In this case, since the plaintiffs acknowledged at oral argument that they would not be relying on their formerly confidential witness, he quickly affirmed the dismissal with prejudice.

Then he moved on to sanctions, where he had some more severe things to say about the various amended complaints:

The plaintiffs' lawyers had made confident assurances in their complaints about a confidential source--their only barrier to dismissal of their suit--even though none of the lawyers had spoken to the source and their investigator had acknowledged that she couldn't verify what (according to her) he had told her. She had qualms: the names the source had given her of persons to whom he reported in the Boeing chain of command were inconsistent with what she was able to learn about the chain. This should have been a red flag to the plaintiffs' lawyers. Their failure to inquire further puts one in mind of ostrich tactics--of failing to inquire for fear that the inquiry might reveal stronger evidence of their scienter regarding the authenticity of the confidential source than the flimsy evidence of scienter they were able to marshal against Boeing. Representations in a filing in a federal district court that are not grounded in an "inquiry reasonable under the circumstances" or that are unlikely to "have evidentiary support after a reasonable opportunity for further investigation or discovery" violate Rules 11(b) and 11(b)(3).

(Italics in original; bold added.) So the opinion affirmed the dismissal, and remanded the case the district court for a finding of whether sanctions were appropriate in this case, and, if so, how much.

There are two key takeaways here for defense lawyers. The first, as I wrote the last time I discussed Livonia, is that it is always worth probing deeply into the pleadings, especially in securities cases where there are heightened pleading standards. The second is a more general lesson for all lawyers: once you've been caught cutting corners, don't push your luck with an appeal.

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Back in January, NERA Economic Consulting published yet another interesting paper, entitled Dynamic Litigation Analysis: Predicting Securities Class Action Settlements as a Case Evolves, by Dr. Ronald Miller.

Using the data NERA has collected on securities class actions over 20 years, Dr. Miller comes to some interesting conclusions about motions practice in securities cases. Most notably:

• Few securities class actions are resolved at the summary judgment stage.
• The filing of a motion to dismiss has little effect on settlement value of securities cases, but the granting of dismissal can reduce the value of a settlement by up to 40%. (Why not 100%? Presumably because class actions that settle after a successful motion to dismiss involved multiple lawsuits, or some other threat of recurrent litigation.)
• The resolution of a motion for class certification (either pro or con) does not have a statistically significant effect on settlement value, but the mere filing of the certification motion drives up settlement value by about 33%.

These findings reinforce an intuition (backed by experience) that many securities class action lawyers share: unlike in other class actions where certification is the real battle, in securities class actions, the real fight is the motion to dismiss.

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Yesterday, the Supreme Court issued its opinion in Standard Fire Insurance v. Knowles.  The question the Court faced in this case was whether a plaintiff may avoid removal of a class action under CAFA by stipulating that the case is worth less than $5 million, the statutory amount-in-controversy requirement.

The Knowles opinion--which was unanimous--provides a straightforward answer. As Justice Breyer put it:

As applied here, the statute tells the District Court to determine whether it has jurisdiction by adding up the value of the claim of each person who falls within the definition of Knowles’ proposed class and determine whether the resulting sum exceeds $5 million. If so, there is jurisdiction and the court may proceed with the case. The District Court in this case found that resulting sum would have exceeded $5 million but for the stipulation. And we must decide whether the stipulation makes a critical difference.

In our view, it does not. Our reason is a simple one: Stipulations must be binding. … The stipulation Knowles proffered to the District Court, however, does not speak for those he purports to represent.

That is because a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified.

(Emphasis added) In other words, until a class is certified, a named plaintiff is just an individual plaintiff, not the head of some mystical entity known as a class.

Knowles, combined with a few other cases, like Bayer and Shady Grove, shows that the Supreme Court is slowly coming to a coherent vision of what a class action is. That vision is helpful for defendants, less so for current plaintiffs. The Supreme Court is envisioning the class action as a procedural aggregation device, rather than a corporate deterrent or a trust-like entity. This is good news for defendants, who have traditionally argued that the class action is a rule-based joinder device that should not confer any special treatment onto the named plaintiff.

Disclosure: I was on a team that assisted Ted Frank of the CCAF in filing its amicus brief in this case. 

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Blue Coat Systems, Inc. was a web security firm that, in 2008, tried to break into the growing field of wide-area network optimization by acquiring a company called Packeteer, Inc. The move was supposed to secure long-term growth, but arguably had the opposite effect.

On May 27, 2010, Blue Coat issued some financial results and held a conference call with industry analysts. While Blue Coat had met its its previous financial projections, its forward- looking guidance was not as optimistic as in previous calls. The analysts (and their readers) apparently worried, because the next day Blue Coat shares lost a quarter of their value after unusually heavy trading. (In other words, investors stampeded to sell the stock.)

And, as sure as the elimination of redundant data transfers follows deduplication, that drop in value was followed by a class action complaint. The problem, in this case, was that Blue Coat had hit its financial projections; it had just reported a less-rosy future than it had described before.

The plaintiffs responded to that dilemma by contending that:

an inference can be drawn that Blue Coat had intentionally misled the market by making unduly positive statements about its business and prospects, with knowledge that actual conditions were less favorable.

The defendants moved to dismiss, posing the question: can you bring a securities class action based only on forward-looking statements? According to the Northern District of California in Scandlon v. Blue Coat Sys., Inc., No. C-11-4293, 2013 U.S. Dist. LEXIS 10433 (N.D. Cal. Jan. 25, 2013), the answer seems to be "no."

The court specifically held that the plaintiffs had not pled sufficient factual allegations to meet the heightened standards of the PSLRA. But, as a quick look at the three deficiencies the court identified shows, most attempts to sue only on forward-looking statements would founder on the same problems:

Falsity - The court found it difficult to determine exactly what statements the plaintiffs claimed were misrepresentations. This was complicated by the facts that a number of the statements the plaintiffs pointed to were non-actionable "puffery," and that

Businesses are entitled, however, to synthesize and analyze the available information, and to reach judgments as to how "rosy" things are or are not. Not every detail that informs the overall opinions expressed must be disclosed to avoid committing fraud, even if some of the judgments subsequently turn out to have been wrong.

Scienter - The PSLRA requires a specific allegation that the defendants had the state of mind to commit fraud. Here, the court noted that the plaintiffs had pled themselves into a corner. To justify their focus on forward-looking statements, the plaintiffs had stressed the theme that management had made a bad decision by buying Packeteer. But alleging that management might not be competent businessmen was inconsistent with an inference of scienter:

In essence, plaintiff is alleging that Blue Coat made bad business judgments and poorly executed its changes in strategy after the Packeteer acquisition. While plaintiff is trying to argue that Blue Coat management had become aware of such shortcomings by the time it was making the generally positive public statements in issue, an equally plausible inference is that to the extent any statements were unduly positive, that was merely another aspect of management's failure to understand and respond well to business conditions. 

Loss causation - As the court succinctly pointed out, if the plaintiffs could not allege that any of Blue Coat's statements were false, there was no way they could demonstrate that a false statement caused their financial loss.

So what is the takeaway here? The most effective motions to dismiss are the ones that really test whether the plaintiffs' allegations hang together as a whole. If a court can't reconcile the plaintiffs' theory of the case, it's not going to go forward, especially when it has to meet a heightened standard of pleading like Rule 9(b) or the PSLRA.

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This term, the Supreme Court will review several class action cases. In one of those, Genesis HealthCare Corp. v. Symczyk (technically, an FLSA collective action, but a ruling either way will likely have wider significance) it will decide whether a defendant can moot a class action by offering full relief to a class representative. The case has received a lot of attention, in no small part because plaintiffs are worried about the practice of "picking off" named plaintiffs. On the other side, defendants would like to preserve one of the best tools they have for avoiding nuisance suits.

Last week, in Physicians Healthsource, Inc. v. Allscripts-Misy's Healthcare Solutions, Inc., 2012 U.S. Dist. LEXIS 169381 (N.D. Ill. Nov. 29, 2012), a magistrate judge for the Northern District of Illinois decided a motion to dismiss/deny certification in a TCPA "junk fax" case.  Physicians Healthsource addresses the same mootness issue at the heart of Symczyk, but the procedural posture shows just how far we have allowed the mootness debate to move from the real issues that motivate each side.

The opinion is complicated reading, because the posture is unusual. But here it is in a nutshell. The plaintiff filed a TCPA complaint and with it, a "bare-bones, boiler plate Motion for Class Certification." (We'll get to why in a moment.) But the plaintiff did not notice the motion for presentment (a local requirement). That same day, the defendant offered the plaintiff $1,500, a consent to an injunction, and costs--the maximum it could receive for the TCPA claims in its complaint. Then the defendant moved to dismiss the complaint as moot (and to deny the motion for certification), because in the Seventh Circuit, a defendant's offer of complete relief can moot a class action.

The plaintiff responded that it had filed a Motion for Certification, which the Seventh Circuit had said can prevent the mooting of a class action complaint. The defendant then pointed out that the plaintiff had not noticed the motion for presentment within 14 days of filing it as required by Local Rule 5.3(b), which meant that the motion for certification wasn't valid.

For those following along, at this point the fate of the class action hinges entirely on whether the plaintiff had filed a notice of presentment in accordance with the local rules.

The magistrate judge found that the plaintiff had not noticed the motion, and then pointed out that "deadlines count" and that

the Seventh Circuit has repeatedly warned that ignoring deadlines is the surest way to lose a case.

But it then decided that, since it had the discretion to not dismiss under Local Rule 78.2, it would decline to do so in this case. Why?

Excusing the plaintiff's noncompliance with the Local Rule's presentment schedule in this case is consistent with Damasco's requirement that to avoid the "buy-off" problem, a plaintiff must file with his complaint a motion for class certification and its directive that a court should "wait until 'an early practicable time' before ruling on a motion to certify a class."

There are a few easy lessons from this little motions drama:

1. Plaintiffs adapt to changing circumstances. Faced with clear guidance about the possibility of mootness, plaintiffs don't file better-researched complaints, they file pro forma class certification motions and ask the court to decide them later.
2. Courts adapt to changing circumstances. Faced with that same clear guidance, courts are willing to let plaintiffs file placeholder motions and grant requests to defer decision. And they're willing to waive local deadlines to keep class actions alive when they think it necessary.

But the very existence of this opinion speaks to some of the larger strategic dilemmas that face class action lawyers on both sides, and one of the largest unresolved debates in class action jurisprudence. The strategic dilemmas on each side stem from two questions:

(1) Why don't plaintiffs just have named plaintiffs waiting in the wings? After all, we know class actions are really brought by the lawyers, so why not just recruit 10 plaintiffs instead of one, and refile the case as soon as the first plaintiff gets picked off? If there really is a widespread problem, this would seem to be a simple answer rather than filing a motion and then asking the court not to decide it until you can support it with facts.

and

(2) Why don't defendants just settle the entire case? If there's a real problem, then they must know they will be facing more litigants. Why not settle early before incurring lots of litigation costs?

The answer to (1) is that, since the real benefit of class action litigation tends to flow to the class lawyers, finding adequate named plaintiffs is really hard.  That's one reason incentive awards are so popular.  And this is particularly true for statutory violations like the TCPA, where many class members may not know (or care) that the violation occurred.

So plaintiffs' counsel will fight hard to hold on to their plaintiffs, because if they lose one, they may not be able to find another. But, if there really are classwide problems--especially ones that require an injunction the defendant will readily agree to--why isn't the defendant just giving in?

The answer to (2) is that frequently, it is not clear that there really is a large problem. Many plaintiffs lawyers file class actions when there is little (or no) evidence that their client's individual complaint is really a classwide one, either because there aren't enough people who "suffered" or because the named plaintiff is unique in her complaint. (In Rule 23 terms, it lacks numerosity or typicality.)

So the mere act of filing a class action does not mean that there is really a classwide problem; instead one could be facing an overambitious plaintiff's lawyer or an unusually hacked-off customer. Under those circumstances, a defendant may be willing to make someone who actually cares enough to complain whole, but not want to pay millions of dollars in attorney fees for a plaintiffs' lawyer to act as a surrogate (and often redundant) customer service department.

The specific twists and turns that led to this outcome are unlikely to come up before the Court in Symczyk. (Indeed, neither the petitioner nor the respondent relied on Damasco, the Seventh Circuit case which created the need to concurrently file a complaint and a class certification motion.) But the underlying dilemma--what to do about cases where the plaintiffs' lawyer has an incentive to file a case even when he can't find a class member who cares about the supposed "harm"--will remain. Until courts can figure out better ways to fit the class action device to true collective harms (and the Supreme Court's 2011 term--in both its pro-plaintiff and pro-defendant rulings--was a great start toward that), they are likely to see many more cases Physicians Healthsource.
 

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 Professor Myriam Gilles holds the distinction of having called the arbitration issue earlier than almost any other academic.  So when she writes a follow-up, it's well worth paying attention. That follow up is here, in her latest working paper, Killing Them with Kindness: Examining "Consumer-Friendly" Arbitration Clauses after AT&T Mobility vs. Concepcion. And her findings indicate that corporate defendants are issuing "consumer-friendly" arbitration clauses. (Though, as she points out, few are as generous as the AT&T clause that "won" in Concepcion.)

Professor Gilles is primarily concerned with the popular plaintiff argument that arbitration clauses should not be enforced when they might prevent a "vindication" of consumers' rights. She argues that there are four basic judicial responses to arbitration clauses: "liberal pragmatism" (any arbitration agreement that prevents a vindication of rights should fail), "practical formalism" (Concepcion has promoted a "race to the top" on arbitration clauses, and that's a good thing), "FAA absolutism" (there is no vindication of rights exception), and "conservative instrumentalism" (the vindication of rights exception should not swallow Concepcion).

[T]he view that I perceive as becoming dominant in the post-Concepcion world is “practical formalism,” under which most claimants seeking to make the vindication of rights showing are likely to fail, as consumer-friendly arbitration clauses proliferate across the corporate landscape. Justice Scalia in Concepcion offered up the observation that the claimants in that case could have vindicated their rights under the bilateral arbitration clause at issue, principally because “the arbitration agreement provides that AT&T will pay claimants a minimum of $7,500 and twice their attorney’s fees if they obtain an arbitration award greater than AT&T’s last settlement offer.” Since that time, numerous lower courts have rejected challenges to arbitration clauses and class action waivers based upon the observation that the clause at issue would in fact allow the vindication of rights – at least, when measured against the yardstick of Concepcion

(Unitalicized emphasis added, internal footnote omitted.)

What makes this working paper especially useful is that Professor Gilles doesn't just provide a taxonomy of different court's approaches, she actually looks at a number of clauses offered for popular customer services like Chase Bank, Groupon, and Xbox Live.  Her findings:

A few conclusions are worth noting at the forefront. First, all the clauses I examined contained class action waivers. While this is not surprising, it represents a clear increase in the popularity of these provisions over the past decade. Second, nearly all the clauses had been amended in the aftermath of Concepcion. Indeed, I could find few arbitration clauses that hadn’t been amended in 2011-2012, and presumably, many of these changes reflect the addition of pro- consumer provisions. Third, fewer companies than I had expected have copied the more generous aspects of AT&T’s clause – i.e., provisions offering automatic cost-shifting, bounties, premiums and doubling of attorneys’ fees. Of the 37 arbitration clauses examined, only 6 companies offered anything close to AT&T’s set of incentives, and none were quite as generous."

(Emphasis added, internal footnote omitted.)  In general, Professor Gilles's findings indicate that what companies have done in the wake of Concepcion is to amend their arbitration clauses, make an educated guess as to what level of "pro-consumer" terms would survive any court challenge, and then further amend upwards after losing court battles. And that's certainly useful information for any in-house counsel looking to minimize their class-action risk.

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 Daniel Villalpando sued three companies--Exel Direct, Inc., Deutsche Post DHL, and DHL Express (USA), Inc.---in California state court for underpaying him and drivers like him by misclassifying them as independent contractors. The defendants removed the case to the Northern District of California under the auspices of the Class Action Fairness Act. Mr. Villalpando moved to remand the case, citing the home state exception (which keeps cases where two thirds of the class members and the primary defendants are from the same state in state court) and the local controversy exception (which allows remand where the nature of the controversy is confined to a single state). The defendants opposed, pointing out that Deutsche Post DHL was based in Germany, not California. Mr. Villalpando countered that Deutsche Post DHL was not a "primary defendant." Similarly, he argued that the local controversy applied because of California's "unique set of laws" governing employment relationships.

In its opinion in Villalpando v. Exel Direct, Inc., 2012 U.S. Dist. LEXIS 160631 (N.D. Cal. Nov. 8, 2012), the court found in favor of the Defendants on both arguments. Mr. Villalpando had asserted the same claims against all three defendants, so if one of them was "primary," all of them were. And, since the defendants were vulnerable to the same kind of claims in other states, the controversy was not "truly local."

So what can defense lawyers learn from this, aside from the intricacies of the home state and local controversy exceptions? The complaint still matters. The defendants' arguments, and the court's analysis, were all based on what Mr. Villalpando had actually pled. He was the one who identified all three companies in each claim. And he was the one who invoked the specific, not-that-unique California laws. When the plaintiffs' arguments diverge from their pleadings, it is still worthwhile to point out what they pled when they had the time and the inclination.

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I haven't commented much about the Supreme Court's class action docket so far, largely because this year I was more focused on--in my own small way--trying to influence what it would be.  But now that my particular efforts are done, I thought I would focus on each of the cases before the Court this Term.  I don't feel comfortable talking much about Standard Fire Ins. Co. v. Knowles, which addresses plaintiffs' use of stipulations that limit class recovery to less than CAFA's $5 million amount-in-controversy threshold, since I was on a team that assisted Ted Frank of the CCAF in filing its amicus brief.  

However, several law students alerted me to a pair of student notes touch on the issues in the case, and there's no reason I can't share those with you.  

First up, Front-End Fiduciaries: Pre-Certification Duties and Class Conflict by Nick Landsman-Roos of Stanford Law School.  Landsman-Roos provides a good overall discussion of fiduciary duty, with a focus on binding stipulations.  His primary argument: 

When an action potentially prejudices or does prejudice a substantive legal right of ab- sent class members, an attorney should have an opportunity to offer a good faith defense—that the course of conduct was undertaken in a good faith belief that it would maximize the class’s recovery. That defense, in turn, can be evaluated in terms of whether it is legitimate, genuine, or pre-textual.

(Emphasis added.)

Next, An Illusion of Sacrifice: The Incompatibility of Binding Stipulations in CAFA Cases by Ryan S. Killian of Pepperdine Law School.  Killian takes a hard-line stance against binding stipulations:

For reasons theoretical, legal, and practical, the right answer is the most extreme. Judges should impose a per se rule against giving effect to any purported binding stipulations. The theoretical reasons for such a rule have their basis primarily in agency theory. The legal reasons flow naturally from considerations of due process and the obligatory rigorous inquiry into Rule 23(a)(4)’s adequacy requirement. The practical reasons stem from considerations of complex litigation and efficiency.

(Emphasis added.  Internal footnote omitted.)

As good student notes should, these both provide all the background one needs to follow along on the Knowles argument.

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A busy travel and work schedule this week means that today, I'm just going to point you to three cases with lessons class-action lawyers should be aware of.  So, when defending your class actions, don't forget:

• When removing under CAFA, pay attention to continuing damages.  In Leslie v. Conesco Life Ins. Co., 2012 U.S. Dist. LEXIS 130508 (S.D. Fla. Sep. 13, 2012), the Southern District of Florida was willing to count continuing damages up through the projected trial date in determining whether the plaintiff met the $5 million amount-in-controversy requirement. 

• Plaintiffs must prove arbitration would be too expensive.  In Lowry v. JP Morgan Chase Bank, N.A., 2012 U.S. Dist. LEXIS 128907 (N.D. Ohio Sep. 11, 2012), the plaintiffs offered an estimate from an economist to argue that they could only vindicate their rights through a class action, but the court found the proffer "insufficient," and compelled arbitration.  

• Sometimes, you can sway a court to stay litigation by describing the costs involved in proceeding.  In Blixseth v. Cushman & Wakefield of Colorado, Inc., 2012 U.S. Dist. LEXIS 128977 (D. Colo. Sep. 11, 2012), the defendants faced the usual problem: they had moved to dismiss the case, but the plaintiff wanted to push ahead with expensive discovery.  When the defendants moved to stay discovery, the court noted that the plaintiff offered no good reason other than "public interest" to proceed, but also observed that "Plaintiff's 85-page complaint alleges nine causes of action and, based on the allegations, the case will likely involve discovery of thousands of documents."  So it granted the motion to stay.  

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 Back in 1990, Kenneth Carter was in an automobile accident with an underinsured motorist, one serious enough to exhaust the other party's limited bodily injury coverage. Carter's policy allowed him to stack coverage, meaning he probably had $150,000 coming to him. But his insurer didn't tell him that, instead allowing him to believe that he only had $50,000 in coverage. So Carter sued his Allstate, his insurer, and made a settlement demand for $250,000. (His counsel represented a few other claimants with similar allegations, and made individual settlement demands of up to $6 million for them.) Allstate tried to remove the case to federal court, but because Carter had joined a local defendant, the case was remanded. After remand, Carter amended his complaint to add class action allegations.

At that point, Allstate removed the lawsuit again under the auspices of the Class Action Fairness Act. And then it moved to strike the class allegations, because it had already faced--and defeated at certification--a class action his lawyers had previously filed alleging similar facts. Allstate did not argue preclusion or comity; instead it made the common-sense argument that the same flaws that had doomed the previous class action were present in Carter's complaint.

At this point, Carter's counsel tried something that probably seemed inspired in the moment: they conceded the motion to strike. They then moved to remand the case again, arguing that the court lacked jurisdiction over Carter's claim for one of four reasons: (1) the amount in controversy was not sufficient; (2) with amendment, his proposed class action was a local controversy because of the claims against the local defendant, (3) the striking of his class allegations should be considered an exception to the "time of removal" rule for jurisdiction, and--requiring particular chutzpah--(4) the striking of his class allegations demonstrated they were frivolous, and therefore his lawsuit was not a real class action for CAFA purposes.

The court, in Carter v. Allstate Ins. Co., 2012 U.S. Dist. LEXIS 117288 (N.D. W. Va. Aug. 21, 2012), rejected each of these arguments. It found that (1) the proposed class action was more expansive than the previous class action that the lawyers had brought in federal court, and therefore would likely meet the $5 million amount in controversy; (2) the defendant claims adjuster had likely not administered every class member's claims, and therefore the claims against her were not a "significant basis" for the class action; and (3) (and (4)) that there was no reason to depart from the normal rule that jurisdiction is determined from the time of removal.

The lesson here is a subtler one than usual. GIven the gantlet they often must run, plaintiffs are often intensely tactical rather than strategic in their thinking. It doesn't matter as much if they have a coherent long-term goal if they can't get past the next motion. (This could be one reason why otherwise-helpful plaintiff's lawyer Max Kennerly always insists that writing kitchen-sink briefs is a good idea.) That can put plaintiffs at a disadvantage against defendants, because unless tactics are part of a larger coherent strategy, it doesn't matter how brilliant they are. At some point, the court's need for a consistent story will catch up with the plaintiffs. And once a party is exposed as acting purely tactically, it lacks the ethos to convince the court in more difficult arguments that may arise. Good strategy is coherent, and that coherency alone will sometimes help one to win.

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 At its height, the mass-tort litigation against Merck for its drug Vioxx received a great deal of press attention. And, when Merck settled with most of the plaintiffs, its decision to only settle with attorneys who were willing to resolve their entire inventory of Vioxx cases generated controversy among the legal commentariat. 

Last week, one set of plaintiffs' lawyers placed an unusual coda onto the Vioxx litigation. They filed a class action challenging the Vioxx settlement, Weeks v. Merck & Co., 2012 U.S. Dist. LEXIS 78954 (E.D. La. Jun. 6, 2012).. (They did so on behalf of a plaintiff who had already unsuccessfully sought to rescind his settlement.) But these new "Vioxx plaintiffs" made a key mistake early in. They defined their class as:

all litigants who had personal-injury actions pending in any jurisdiction of the United States alleging damages as a result of ingestion of Vioxx, subject to the 'all in' provisions of the MSA [who] consented to ... the terms of the MSA for fear of losing their retained counsel.

(Emphasis added.)  Merck moved to strike the class allegations, because the class definition would require an individualized inquiry into each member's state of mind. The court agreed.

ascertaining the class cannot be done by any objective method or without impinging on the merits of any particular class member's claim. In every instance, the Court would have to examine the specific circumstances of a purported class member's attorney-client relationship and individualized decision to enroll in the MSA. Each inquiry would involve whether that particular claimant was coerced, which is a primary factual dispute between the parties ...

The plaintiffs tried to recoup by arguing that the definition fit everyone who had settled with Merck. The court, however, noted that

Plaintiffs' argument simply shifts the inherent subjectivity to the definition of the harm rather than resolving it.

What did it mean by that statement? It meant that determining the legitimacy of an individual litigation settlement was an inherently individualized (and subjective) inquiry. The court noted the issues that would rapidly become enmeshed in this class action when it described the different harms that the plaintiffs had alleged. The plaintiffs claimed that either they had been forced to take bad settlements because of the threat of losing counsel, or they had taken bad deals because they had been advised by attorneys with serious conflicts of interest. But each of these harms would still require some inquiry into state of mind--either the plaintiff's, to establish fear of coercion, or the attorney's, for conflict of interest.

The court's decision revealed an important point to remember about ascertainability. If there are problems with the class definition, it is usually because there are larger problems with the class. Changing the definition will not change the underlying problem.

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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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 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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 Last week, the District of Montana ruled on the defendants' motion to dismiss in Pfau v. Mortenson (the infamous "Three Cups of Tea" class action). The lawsuit alleged that author Greg Mortenson had made up aspects of his biography in writing and marketing his bestselling memoir Three Cups of Tea.  The plaintiffs--a pair of Montana lawmakers--specifically claimed that Mortenson and his publisher had engaged in a criminal enterprise (a term of art for RICO claims) to market his book as nonfiction despite the falsehoods it allegedly contained.

When the complaint was filed, I wrote about how the lawsuit had a slim chance of getting certified as a class action. That chance has now gone from "slim" to "none": the trial court dismissed the complaint without leave to amend. And its opinion is instructive reading for class-action defense lawyers.

I'm going to presume that most of my readers are familiar with motions to dismiss, and so will not dwell on the court's discussion of Iqbal (which discusses the "plausibility" requirement in federal pleading) or Rule 9(b) (which requires a heightened pleading standard for fraud-based claims). Instead, I'll just note that the opinion largely turns on the fact that the plaintiffs did not meet their pleading burden in either case. As the court put it when dismissing plaintiffs' RICO claims:

The RICO claims are fraught with shortcomings, including failure to satisfy causal elements, failure to specify the roles of the Defendants, not adequately pleading enterprise theories, and failure to specify an actionable, identifiable racketeering activity. Failure to adequately address the causal elements is the ultimate and fatal flaw. The Complaint does not state, nor is it possible to ascertain, whether Plaintiffs would have purchased the Books if: (1) the Books were labeled or marketed as fiction; or (2) the readers knew portions of the Books, as claimed, were fabricated. Plaintiffs' overly broad statements that they paid approximately $15 for the Books because they were represented as true does not suffice. Additionally, Plaintiffs fail to allege when they purchased the Books, which is crucial in analyzing this case. In fact, Plaintiffs never allege they visited CAI's website or saw or heard any statements made by it before purchasing the Books.

(Emphases added; internal footnote omitted.)  The opinion also points out that the plaintiffs did not differentiate among the defendants in making their allegations. (Courts generally frown on "group pleading" of fraud or RICO claims.)

Nor was the court impressed by plaintiffs' fraud-related claims.  In particular, it pointed out that the plaintiffs could not point to any specific misrepresentation on which they relied.  (The plaintiffs had alleged that they were misled by the book's characterization as "nonfiction."  They did not specify who made that representation, or how they relied on it.)

The fraud pleadings in point of fact are weakened by incorporation of the flawed RICO allegations. Moreover, the Complaint fails to specify what representation the Plaintiffs relied upon or the materiality of that representation. Plaintiffs are not entitled to rely on general allegations of purported lies within the Books' content. At a minimum, Plaintiffs must show that they relied on some particular statement by the Defendants made outside the text of the Books.

(Internal footnote omitted.) The plaintiffs had also asserted breach-of-contract and unjust enrichment claims. The court denied these for lack of privity. (Since the plaintiffs bought the book from retailers, there was no privity of contract between them and the publisher, or them and the author.)

What's the takeaway here? Don't forget about the merits arguments. While I talk a lot about how plaintiffs often don't consider whether classes are actually certifiable, they often stretch legal theories far beyond what they're intended as well. In particular, plaintiffs asserting class actions based on public outrage often find themselves in a precarious position: if they are too specific in their allegations, it becomes clear that they do not have a certifiable class. If they rely on vague allegations to mask the obvious certification problems, then they can not prevail on the merits. Plaintiffs (and scholars sympathetic to them) will likely say this is evidence that Rule 23 is not working properly. I'd say the opposite. The class action is not a one-size-fits all device, and its primary purpose is not to leverage quick settlements. The class action is designed to allow a trial of aggregated claims; it works for some kinds of cases, and not others. Recognizing where it will not does not diminish its usefulness.

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In Wal-Mart Stores, Inc. v. Dukes, Justice Scalia registered his disapproval of using statistics to litigate liability in a class action, writing

The Court of Appeals believed that it was possible to replace such proceedings with Trial by Formula. A sample set of the class members would be selected, as to whom liability for sex discrimination and the backpay owing as a result would be determined in depositions supervised by a master. The percentage of claims determined to be valid would then be applied to the entire remaining class, and the number of (presumptively) valid claims thus derived would be multiplied by the average backpay award in the sample set to arrive at the entire class recovery -- without further individualized proceedings. We disapprove that novel project.

(Emphases added, internal citation omitted.) Several months later, Connecticut Law Professor Alexndra Lahav wrote a spirited defense of the practice of "Trial by Formula," in the Texas Law Review, titled, aptly enough, "The Case for Trial by Formula."

I would love to say that Professor Lahav's argument is sound as far as it goes, but it goes a little too far. What do I mean by that?

For the most part, Professor Lahav argues that "Trial by Formula" (which she takes to mean statistical sampling in litigation) is an excellent way of ensuring equality of outcome in mass tort litigation. As she writes:

The problem with this understanding of injury valuation is that the tort system does not approximate the actual damages suffered by the plaintiff. The tort system is an institution that is supposed to monetize injuries, yet injuries are not readily monetizable. What the tort system does is assign a value to the damages suffered by the plaintiff. The amount of money damages the system assigns to injuries is contextual and cultural. This means that tort values are comparative; the value assigned to a given injury is dependent on values assigned to other injuries. The cultural contingency of tort damages is the reason that the amounts awarded in tort cases are sometimes controversial. This is also the reason that critics of the tort system are able to say that the system is unpredictable. The problem of valuing injury is not limited to the trial context. In settlement, even if one is able to accurately discount the amount of damages by the probability of the defendant being found liable, the damages assigned to a plaintiff (the amount that is to be discounted) will still be contested.

(Emphasis in original.) To ensure an accurate valuation of damages, Professor Lahav argues that courts should be more rigorous in their statistical methods, an argument that I (and most lawyers) would have no problem with.

To the extent that Professor Lahav argues that statistical sampling may help to smooth out the variations in damages awards, I think she has a strong case. And while I can certainly see where there are sound strategic arguments on the other side (who chooses the sample? for example), she has at least helped to frame an issue that both plaintiffs and defendants might agree on. (And, in many cases, they do. This is why matrix settlements have become popular in mass torts.)

The problem with her argument is that--at least implicitly--she does not confine herself to using statistical sampling to measure damages. Instead, she appears to also want to use it to determine liability. She tips her hand in two places. The first is in her discussion of several class actions that used statistical techniques, not just to determine the amount of damages, but also to determine the fact of injury for different plaintiffs:

In the late 1990’s, a few trial courts experimented with binding statistical adjudication procedures. In Hilao v. Marcos, a federal court used statistical methods to adjudicate a class action brought on behalf of persons who suffered human rights abuses under the regime of Ferdinand Marcos in the Philippines. A special master conducted on-site depositions in the Philippines, and based on these he recommended a recovery schedule to a jury, which then adopted his recommendations (for the most part). The Ninth Circuit upheld this procedure. Around the same time, a U.S. District Court judge in Texas tried 160 asbestos cases and was prepared to use these verdicts to extrapolate to the remainder of asbestos cases consolidated before him. The Fifth Circuit quashed his efforts, holding that the extrapolation of the results of the sample verdicts violated the defendant’s due process right and the Seventh Amendment. No trial court has followed in the footsteps of these innovators and the appellate courts continue to express hostility to mandatory statistical adjudication of this type.

(Emphasis added, footnotes omitted.) The second place is more explicit, when she discusses how one might use statistical sampling to root out fraudulent claims:

Trial by Formula has the potential to resolve many other problems that plague modern litigation. For example, commentators have repeatedly lamented patterns of baseless claiming in mass tort litigation. Sampling offers a way of addressing the phenomenon of fraudulent claims and creating incentives to curb them.

(Emphasis added, footnotes omitted.) In both of these cases, the problem that the courts (and the plaintiffs) have worried about is not the statistical determination of damages once liability has been established, it is the statistical determination of liability itself. This is the same issue that Justice Scalia had in the Dukes case. To repeat his specific issue (as opposed to the summation):

A sample set of the class members would be selected, as to whom liability for sex discrimination and the backpay owing as a result would be determined in depositions supervised by a master. The percentage of claims determined to be valid would then be applied to the entire remaining class ...

It isn't the use of statistical sampling to determine damages that defendants (or the Court) worries about. It's the use of sampling to determine liability that causes problems, because statistical sampling cannot tell which plaintiffs are actually entitled to relief and which are not. Professor Lahav argues that "Trial by Formula" works because we want equality of outcome--treating like cases alike. But no defendant--or anyone else concerned with due process--wants unlike cases treated alike, particularly when the difference between the cases is that in one the defendant is actually liable and in the other it is not. That's the bridge too far, and that is the one that Professor Lahav and others either don't notice--or won't admit--they are crossing.

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For the tech savvy, virtual money is all the rage. It's been the subject of a few science fiction/crime mashups by bestselling authors like Neal Stephenson and Charlie Stross. It even provides a thriving trade in various online games, one that has proved to be worth a fair amount of of real-world money. And now, it's entered the world of class action practice.

The case, Abreu v Slide Inc (ND Cal 2012), involved an internet game (which Google eventually bought) called SuperPoke! Pets. The game allowed users to adopt and care for a virtual pet. By playing with the pets, users earned virtual currency that could be used to buy virtual goods for the pets. But, if the users were willing to spend actual money, they could also buy "gold," which could be used to buy premium goods; they could also buy and sell certain goods on a "robust secondary market."  And boy did players spend; in fact, the named plaintiff alleged that she spent more than $1,000 on her virtual pets during the time she played.

So, how does virtual gold translate into a real lawsuit? In June 2011, SuperPoke! Pets announced it was discontinuing its gold, and then in September 2011, it announced it would take the game offline in 2012.  So the plaintiff sued in California State Court, alleging that SuperPoke! Pets had violated California's consumer fraud act, and seeking

to recover the full value of users’ in-game purchases of both money and virtual goods, as well as “other investments” allegedly lost as a result of the game’s termination.

SuperPoke! Pets removed the case to the Northern District of California, where it landed on the docket of blog-favorite Judge William Alsup. As part of its notice of removal, it appended an affidavit showing that users had spent more than $6,116,000 buying gold between October 2010 and June 2011.

The plaintiff moved to remand, arguing that SuperPoke! Pets had not met its burden of showing the amount in controversy because they had not provided business records, and had not covered the entire class period. (The plaintiff also, contrary to the allegations in her complaint, argued that SuperPoke! Pets had not considered any refunds they might have offered.) Judge Alsup was having none of it.

Defendants’ submissions, coupled with the allegations in the complaint, plainly show the amount in controversy exceeds five million dollars. Plaintiff’s complaint seeks to recover the actual value of SPP users’ “investments and property” in “gold” and virtual goods as well as money spent on VIP status subscriptions. The complaint alleges users spent “hundreds or even thousands of dollars on the game." Thus plaintiff has put at issue the full amount of user spending on SPP. The Michalek declaration shows user spending exceeded the jurisdictional amount on just one portion of the game (“gold” purchases), and in just the nine months preceding the game’s termination. According to the complaint, user purchases of “gold” and premium virtual goods began well before October 2010.

Plaintiff faults defendants for failing to produce actual business records to show the amount of damages. Defendants are not required, however, to prove plaintiff’s damages allegations. They need only show that the amount put at issue by plaintiff exceeds the jurisdictional amount.

(Emphasis added, internal citations omitted.)

Virtual gold, but real jurisdiction.

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This week, we'll take a look at an often-overlooked facet of class-action practice: venue.

In Gresser v. Wells Fargo Bank, 2012 U.S. Dist. LEXIS 44074, (N.D. Cal. Mar. 29, 2012), Anne Gresser, a Florida resident, sued Wells Fargo on behalf of a class of corporate bondholders. She did not bring the case in Florida, where she lived, in Maryland, where most of the witnesses were, or in South Dakota, the defendant's principal place of business. Instead, she sued in the Northern District of California, San Francisco, where the defendant was incorporated. (Not coincidentally, it was also where plaintiff's counsel resided.)

So the defendant moved (under 28 USC §1404(a)) to transfer venue to Maryland, where most of the witnesses (and almost half of the bondholders) resided, and whose law governed the notes at issue. Plaintiff (more specifically, her counsel) opposed the motion, relying on the plaintiff's prerogative to bring the lawsuit where she chose.

The court articulated the standard for a change-of-venue motion:

Determining whether an action should be transferred pursuant to § 1404(a) is a two-step process. The transferor court must first determine whether the action "might have been brought" in the transferee court, and then the court must make an "individualized, case-by-case consideration of convenience and fairness." The burden is on the defendant to show that transfer is appropriate.

(Internal citations omitted.) But, as the court went through each of the factors (noting, among other things, that almost none of the events at issue happened in San Francisco), it pointed out an important exception to this standard for class actions:

"If the operative facts have not occurred within the forum of original selection and that forum has no particular interest in the parties or the subject matter, [a] plaintiff's choice is only entitled to minimal consideration." Id. Further, in class actions, a plaintiff's choice of forum is often accorded less weight. See Lou v. Belzberg, 834 F.2d 730, 739 (9th Cir.1987) [("Although great weight is generally accorded plaintiff's choice of forum ... when an individual ... represents a class, the named plaintiff's choice of forum is given less weight."). Nonetheless, even in a class action,

"[i]n judging the weight to be accorded [plaintiff's] choice of forum, consideration must be given to the extent of both [plaintiff's] and the [defendants'] contacts with the forum, including those relating to [plaintiff's] cause of action.... If the operative facts have not occurred within the forum and the forum has no interest in the parties or subject matter, [plaintiff's] choice is entitled to only minimal consideration."

Lou, 834 F.2d at 739 (citations omitted); see also Foster v. Nationwide Mut. Ins. Co., 2007 WL 4410408, at *3 (N.D. Cal. Dec. 14, 2007) (giving no deference to a plaintiff's choice of forum in a putative class action case where the operative facts did not occur within the chosen forum, the named plaintiff did not reside in the chosen forum, and there was an inference of forum shopping).

The fact that this case is a putative class action lessens the weight given to Plaintiff's choice of forum. Further, Plaintiff purports to represent a nationwide class, which does not necessarily justify filing suit in California rather than any other state. In fact, there is evidence that 45% of the Series 3 Note holders are in Maryland, as compared to 0.3% in California."

(Emphases added.) The court also noted that the plaintiff appeared to have maintained a Maryland address until 2010. As a result, the court decided that Maryland was in fact a more appropriate venue than San Francisco, and transferred the case.

What's the takeaway here for class action defendants? Challenge venue when appropriate, but particularly when it appears that the choice of venue favors no one but the lawyers suing you.

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Years ago, back when I was a mid-level associate at another law firm, I woke up one day to discover that I had just inherited not one, not ten, but somewhere around 50 active class actions. (Without going into detail, it was a portfolio of TCPA class actions for an insurance firm.) This was, of course, a great opportunity to get up to speed on various jurisdictions and how they treated class action law. (And it provided a strong foundation for the Class Action Playbook.) But it also intensified a worry I think many lawyers share:

How the heck was I going to keep track of all of these cases?

After all, each of these cases was for a different insured client; each involved different facts, different documents, different plaintiffs' counsel; many were in different jurisdictions governed by different laws; and each was moving forward rapidly, with a different set of deadlines. I went into law because I perceived my strengths to be in writing, speaking, and arguing. Making the trains run on time was decidedly not my forte.

But I needed to do something. So, motivated by necessity and no small bit of panic, I developed a method of running fifty cases at once, while still staying on top of the other various cases I had with other partners. Without realizing it, I wound up duplicating some of the principles David Allen uses in Getting Things Done. (More on this next week.) Most importantly, I decided I needed to write down everything that was happening in each case I had.

My first version of this case management technique was just a Word document, into which I dumped everything connected with a given case. The memo was reverse chronological--recent stuff went at the top. If I needed to find something, I just searched within the document, and prayed I'd written it down. It worked surprisingly well.

It worked well enough that I got a reputation on certain cases as being the person who actually knew what was going on. Which, of course, meant I fielded more phone calls. So my next version tried to accommodate the most common questions I would get. It was also very primitive: just a list of deadlines at the top of the memo (because everyone wants to know if we've missed a deadline), with other important facts coming underneath. More important facts gravitated towards the top of the document.  This version worked even better.

Then one day a partner with whom I worked closely on a number of matters (but not the insurance ones) called me into his office. "I notice that every time I call to talk to you about a case, I hear you tapping on your keyboard," he said. "If you've got a cheat sheet, I'd love to see it." I showed him what I had, and the two of us (joined by his administrative assistant) spent a week consciously designing a template that could work for any number of cases, and provide all of the information any member of our class-action litigation teams might require.

Here is the version I use now. I'm attaching it because, among other things, it's actually in use at several law firms now, so it's not like I'm revealing a closely-guarded trade secret. Ideally, most lawyers who run complex cases have something like this they use anyway. (That said, I know quite a few who still don't.)

Of course, there is no one right way to manage a class action. But this method provides a number of advantages:

• It provides one-stop shopping for case information.  Sure, deadlines will also be in the calendar, and contacts will also be in your contacts.  But sometimes you need to search for something in a given case, rather than page through weeks of Microsoft Outlook.
• It's a nice compromise between the high-tech solution many associates (and clients) may crave (you can host it online with instantaneous updating), and the memo-in-a-binder method many older partners actually require.
• If you have a document management system, the memo can function as a wiki for the case, since anyone can edit it. In fact, at my first firm, we referred to the memos as "wikis."  (But do not, I repeat, do not save a new version each time.)
• If you have a document management system, you can "link" popular documents with more information by including their document numbers.
• It's trivial to update on a regular basis. (Deadline shifts? Type in the new one, or mark it on a paper copy and hand it to your admin.)
• Whenever a client asks you how a case is going, you can send them your latest version.

In the last decade, lawyers have become more focused on productivity. We've learned about knowledge management and project management, and we've handed over a fair amount of our own earnings to management consultants who can tell us ways to be more productive and more efficient in managing our complex cases. And yet, much of the stuff we pay to learn are just new ways of shuffling around the same old organizational concepts. It's always been true that a good litigator needs to be organized enough to keep track of her cases. This is a pretty simple tool to do just that, and yet it's surprising just how many lawyers don't use something like it.

If you're working a number of complex cases for a large client, can you afford not to have some method like this? And if you're a client with a number of complex cases, can you afford a lawyer who doesn't?

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This week's case is the first known follow-up to the Sixth Circuit's Pilgrim opinion, Rikos v. Proctor & Gamble Co., 2012 U.S. Dist. LEXIS 25104, (S.D. Ohio 2012). In Rikos, the plaintiff sued Proctor & Gamble for allegedly misrepresenting the ability of its product Align to aid in digestion. The plaintiff filed in the Southern District of California, and asserted claims on behalf of a nationwide class.

Proctor & Gamble promptly transferred the case to the Southern District of Ohio. Then it moved to dismiss. (The court granted the motion to dismiss claims for injunctive relief, denied it for the remainder.) After that, Proctor & Gamble strike the class allegations, arguing that the class definition was overboard, and that individual factual and legal issues would predominate over any common issues.. As the court there noted,

Either party may freely move for resolution of the class-certification question at any stage of the proceedings, and the class action allegations may be stricken prior to a motion for class certification where the complaint itself demonstrates that the requirements for maintaining a class action cannot be met.

The court's analysis was straightforward. It held that the plaintiff could not constitutionally apply California law to the entire class. After conducting a choice of law analysis, it found that individual legal issues would predominate in each of the plaintiff's claims.

While it is true that discovery may define the class more precisely, the fact remains that a nationwide class consisting of all purchasers of Align will inevitably include non-California residents who law analysis, individual questions of law will purchased the product outside of California. Accordingly, the Court finds that a nationwide class may not be certified for Plaintiff's claims listed in Count I and Count II of the complaint ...

[Also,] each class member's express warranty claim should be governed by the laws of the jurisdiction in which the transaction took place. Accordingly, individual questions of law predominate"

So Pilgrim is clearly alive and well in the Sixth Circuit. That said, the most important takeaway in this case is that the defense gave a vigorous opposition from the very first. It moved to dismiss. It moved to change venue. And it moved to strike class allegations. Not every motion was successful, but combined, they got rid of a potentially bothersome case before the enormous expense of discovery. These are great ways of keeping costs down, and clients happy.

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Those who argue that AT&T v. Concepcion killed the class action must be having an interesting January. Two of the more significant cases so far this year--Compucredit Corp. v. Greenwood (2012) and D.R. Horton, Inc. v. Cuda (NLRB 2012), have involved similar questions about when a defendant can move to compel arbitration in a class action.

But wait, I hear you ask. Didn't Concepcion decide that issue last year? Well, like with most legal questions, the answer is yes and no. Concepcion held that general statements about state unconscionability law cannot trump the dictates of the Federal Arbitration Act. But it left open the question of whether a federal statute could supplant § 2 of the FAA. Both of these lawsuits test that opening: CompuCredit involves the Credit Repair Organizations Act (CROA), and D.R. Horton involves the Fair Labor Standards Act (FLSA).

In CompuCredit, the plaintiffs alleged that the defendant had misrepresented its ability to rebuild card-users' credit, as well as the effective credit limits on its accounts. CompuCredit had moved to compel arbitration, but the district court had denied the motion, and the Ninth Circuit had affirmed.

The Ninth Circuit adopted the following line of reasoning, urged upon us by respondents here: The disclosure provision gives consumers the "right to sue," which "clearly involves the right to bring an action in a court of law." Because the nonwaiver provision prohibits the waiver of "any right of the consumer under this subchapter," the arbitration agreement— which waived the right to bring an action in a court of law— cannot be enforced. 

The flaw in this argument is its premise: that the disclosure provision provides consumers with a right to bring an action in a court of law. It does not.

(Internal citations omitted.) The plaintiffs also relied on the fact that the CROA contained a number of references to lawsuits, and specifically to class actions. They argued that these mentions demonstrated Congress intended to allow a right to a class action in this case. The Court disagreed:

These references cannot do the heavy lifting that respondents assign them. It is utterly commonplace for statutes that create civil causes of action to describe the details of those causes of action, including the relief available, in the context of a court suit. If the mere formulation of the cause of action in this standard fashion were sufficient to establish the "contrary congressional command" overriding the FAA, valid arbitration agreements covering federal causes of action would be rare indeed. But that is not the law.

(Emphasis added, internal citation omitted.)

By contrast, in D.R. Horton, the NLRB held that the right to bring a class or collective action cannot be waived by an arbitration clause. Is that consistent with CompuCredit?

Probably. D.R. Horton involved allegations that the defendant had misclassified building superintendents as exempt from the FLSA. The plaintiff, Michael Cuda, filed a classwide arbitration, and D.R. Horton moved to dismiss, because its arbitration clause did not allow for collective action. Accepting the defendant's logic, the judge dismissed the claim.

The NLRB reversed, explaining:

Section 7 of the NLRA vests employees with a substantive right to engage in specified forms of associational activity. It provides in relevant part that employees shall have the right "to engage in … concerted activities for the purpose of collective bargaining or other mutual aid or protection …"

And it went on to observe that

The Board has long held, with uniform judicial approval, that the NLRA protects employees' ability to join together to pursue workplace grievances, including through litigation.

Section 7 does not specifically mention class actions. But the NLRB decided that, because it did specifically allow for concerted action to protect employees, that class-action litigation fell within the scope of the statute as drafted.

These forms of collective efforts [including class actions] to redress workplace wrongs or improve workplace conditions are at the core of what Congress intended to protect by adopting the broad language of Section 7. Such conduct is not peripheral but central to the Act's purpose.

(Emphasis added.) In other words, the NLRA specifically stated that the parties had a right to use collective action (which had been interpreted to include class actions) to improve their working conditions. The substantive right to use a class action came from the statute itself.

So what can defense lawyers take from this? So long as the federal statute at issue does not specifically provide a right to bring a class actions, it will still be worth including arbitration clauses where appropriate, and moving to enforce those clauses.

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A few years ago, I attended an oral argument with a colleague. (He was there to argue a substantive motion in our case, I was there to take on the class-related issues.) It turned out we were in front of a hot bench that day: the judge clearly had formed several opinions of the case, and was not shy about peppering both plaintiff and defense counsel with questions--some seemingly out of left field--that forced each to justify his case. His approach clearly shook both sides a little. As we left without a decision on our motions, my colleague shook his head: "I just don't know what he was thinking," he said.

It's a common challenge among lawyers: what is my judge thinking? And it's a vital one; after all, if we know what a judge is thinking, we can better persuade him to rule in our favor. But most judges, while they reveal some of their thought processes during oral arguments and in orders, seem more opaque during the briefing process that takes up so many lawyers' time.

In his 2008 book How Judges Think, Judge Richard Posner of the Seventh Circuit Court of Appeals pulls back the curtain to give people a glimpse of--if not what a given judge is thinking, at least how he gets there. Why listen to Judge Posner? Leaving aside his long and accomplished record, he's a judge, and he consorts with other judges. And, as an appellate judge, his job is to second-guess trial judges. If anyone has an inside track on how judges think, it's probably him. How Judges Think has obvious benefit for lawyers. If you know how they think, you know how to best pitch your arguments.

So, what are Posner's main points?

Judges are not law professors, but they are part-time legislators. Given the way the common law works, particularly in the United States, judges frequently find themselves making what one might consider "legislative decisions" when deciding cases. (For example, when a judge distinguishes a previous case, he's usually providing a new rule, however specialized. To take an ancient example, the common law used to take any threatening gesture to be an assault, until someone put his hand on his sword--a threatening gesture--and growled that if it weren't the day the judges were in town, there would be trouble--seriously undermining the threat. New facts, new rule: saying you won't commit assault negates a threatening gesture.)

Judges engage in this kind of rule making without the benefit of specialized knowledge. Heavy caseloads mean don't have time to be experts in the various subjects that come before them, even--some of the time--the substantive law. (This is not a slam on judges' intellectual abilities at all. Mastering a specific legal discipline takes time and focus. Federal trial judges often have to pivot in the course of only a few hours between criminal sentencing, deciding a motion to dismiss a complex intellectual property case, and mediating a dispute involving the proper bounds of bifurcation of class discovery. That requires a lot of brainpower, but it does not allow the time for specialization.) As Judge Posner puts it:

No judge of [a federal court of appeals] can be an expert in more than a small fraction of the fields of law that generate the appeals he must decide, or can devote enough time to an individual case to make himself, if only for the moment (knowledge obtained by cramming is quickly forgotten), an expert in the field out of which the case arises.

Moreover, while professors worry about originality, judges worry about productivity. Or, as Walter Dellinger used to tell young lawyers:

A law professor's job is to say "Look at this; no one's ever argued this before." A lawyer's job is to take the same argument and say "Do this; it's how we've always done it."

In general, Judge Posner's chapter on legal academia ("Judges Are Not Law Professors") is well worth a read. He makes a lot of the same criticisms of academia that other judges have, but his dual role as prolific judge and prolific scholar gives those critiques some added oomph.

Judges have different external constraints from most of us. Article III judges are appointed for life, guaranteed a generous pension, and extremely difficult to remove once installed. (Leaving aside the political difficulty involved in impeachment, it is difficult to measure judicial output in a politically neutral fashion.) So they don't worry about getting fired, or making lots more money. (Though they would really like their cost-of-living adjustments.)

So what do judges worry about? They worry about handling their current cases as well as they can, clearing their backlog, and not getting reversed.

So backlog pressure keeps him working hard and reversal threat keeps him working carefully -- though an alternative strategy is to push the parties to settle, since settlements reduce backlog without risk of reversal.

(Here, Judge Rosenthal may disagree with Judge Posner; she thinks judges aren't as concerned about settlement anymore.)

Judges are people, but they have an extra set of internal constraints. What does this mean? It means that, like other people, judges ultimately can't outrun their prejudices.

A judge's personal background characteristics, such as race and sex, and his personal and professional experiences are among the nonpolitical, nonlegalist factors that have been found to influence his decisions.

In particular, given the grinding politics of the appointment process, judges are unlikely to be apolitical.

So, apart from the play of unconscious influences, we cannot expect federal judges to be complete political eunuchs, their decisions never influenced by politics because they have no politics. Such political neuters are unlikely to be appointed.

(Elected judges are more clearly affected by politics, for what should be obvious reasons.) According to Judge Posner, judges mostly use these intuitions as "tiebreakers." In other words, it's unlikely a lawyer can get a judge to ignore material facts or law, but in close cases different judges will lean in different ways.

That said, judges do face one important set of internal constraints. According to Judge Posner, judges are united in their use of "legal reasoning"--in particular analogy and distinction--keeps them from going too far afield. So does their sense of "common sense," which Posner explains as a healthy aversion to appellate reversal or legislative reprisal. (He doesn' mean judicial pay cuts, he means legislative responses like the Lily Ledbetter Act that functionally reverse a court ruling.)

So, based on all of this explanation, what specific practical advice can the class-action lawyer take?

• Don't be afraid to argue policy. Judge Posner refers to these policy arguments as "legislative facts," arguments about the effects that any common-law rule making will have. While they're especially persuasive to appellate judges, trial judges care about them too, especially during pretrial motions. And these kinds of "legislative facts" are particularly important in class-action litigation, where even small legal rulings have the potential to affect thousands (if not millions) of putative class members.
• Keep it simple. Judges aren't stupid, but they are pressed for time. The more a lawyer can help them master the material in front of them, the more persuasive that lawyer will be. (This is one of the reasons why--despite some lawyers' arguments otherwise--it's rarely a good idea to write "kitchen-sink" briefs.) This is particularly true in class-action litigation, which often overlays a complex procedure over complex substantive legal principles.
• Where possible, play to the judge's priors. After all, you don't always know where the close calls will be, and you want to get the benefit of the doubt in those places.

How Judges Think is well worth the read. And--along with Economic Analysis of Law--it's destined to be one of Judge Posner's most influential books. This is a book that should be on every practicing lawyer's shelf.

[Disclosures: When I was a student long ago, I worked on a number of Judge Posner's books. Also, despite the quotation marks, Professor Dellinger's statement is my best reconstruction rather than a direct quote.]

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 In 2004, five women applied to be paramedics with the Chicago fire department, a demanding job with a demanding application process. While they were otherwise qualified, these five women, for whatever reason, did not pass the city's physical ability test. After they were removed from the city's eligibility list, they sued the city in Ernst v. City of Chicago (2012 U.S. Dist. LEXIS 1003 (N.D. Ill. Jan. 5, 2012)), alleging that the test violated Title VII.

If that were the whole story, there would be no reason for me to write about it. But in 2011, three years after they filed their original lawsuit and almost a year after fact discovery had closed, the plaintiffs sought to amend their lawsuit to turn it into a class action.

Why did they wait so long? It's hard to say. It could be that it took a year for their lawyers to process the discovery received and notice classwide patterns (unlikely, Title VII cases that challenge policies or tests are common candidates for class-action treatment). It could be that their lawyers just hadn't thought of it (also unlikely, since the court repeatedly praised their performance in the case). Or it could be that adding class allegations was a negotiating tactic to bring a three-year lawsuit to some kind of resolution. The court itself was flummoxed, finding nothing that could "persuasively account for the extended delay."

Whatever the reason, the City of Chicago opposed the amendment, arguing that the delay was prejudicial, in no small part because it would have to reopen discovery. The plaintiffs pooh-poohed the alleged prejudice, and argued that the City could not seek discovery of absent class members in any case. They also argued that, because they were challenging a City policy, it was already on notice that the case was a good candidate for class treatment.

The court disagreed. It observed that, given the lead plaintiff's attorney's exemplary conduct of the case to that point, there was no way she could have missed the possibility the case could make a class action, meaning that the delay was particularly inexcusable. It also pointed out that the defendants might well be entitled to discovery from other class members on a showing of good cause. And it observed that

it cannot be denied that the transformation of the case into a class action would raise entirely new issues of certification, notice, and the other complex issues that are a part of class actions and this after the individual claims have already moved three years closer to ultimate resolution of the case.

Then, in a conclusion that quoted both Henry VI Part I ("Defer no time, delays have dangerous ends") and Twelfth Night ("In delays there lies no plenty"), the court denied the motion to amend.

Motions to amend are usually easy for plaintiffs to win, so the fact that they lost in this case should offer a few lessons for class-action litigators. Here are a few:

1. Long delays can in fact be prejudicial; a fact worth remembering when plaintiffs make eleventh-hour amendments.
2. Class actions are big and complicated. Reminding the court of that fact--even during "easy" motions--almost always helps the defendant.
3. The better you are at prosecuting (or defending) your case, the more the court will come to expect from you.
4. If nothing else, it never hurts to brush up your Shakespeare.

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BNA's Class Action Litigation Report has published an article by yours truly that adapts this post about arbitration post-Concepcion and tries to add a little more scholarly rigor.  

They've also graciously allowed me to make it available here, where you can find it suitable for downloading, printing, and stuffing in the stocking of your favorite class-action defense lawyer.  (It makes great kindling to go with the coal.)

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Like many cell-phone users, Jerome Damasco received an an unsolicited text message on his phone. Unlike many cell-phone users, he decided to make a federal case of it. So he filed a class action in federal court, alleging that Clearwire (the advertiser) had violated the Telephone Consumer Protection Act.

Faced with the complaint, Clearwire offered Damasco the full damages he sought as an individual. (It also offered to make the same payment to ten other unnamed individuals, suggesting that this may have been a technical glitch rather than a knowing TCPA violation.) It warned Damasco that it considered this offer to moot his claims, and it moved to dismiss because Damasco no longer had standing. A trial court for the Northern District of Illinois granted the motion.

Damasco appealed to the Seventh Circuit, which, in the recent opinion Damasco v. Clearwire Corp., affirmed the trial court.

The question of mootness is hotly contested in class actions. The plaintiff wants to be able to assert a classwide claim as early as possible, with as little up-front expense as possible. (Locating a class representative who cares enough to prosecute the litigation can be a significant up-front expense.) The defendant wants to be able to get rid of a case if it is clear to it that it is dealing with a small customer-relations problem instead of a systemic problem.

Unlike the Third Circuit, which has consistently held that offers to make the named plaintiff whole do not moot class actions, the Seventh characterized the fight over mootness as one where some courts interpret the standing doctrine as it … well … stands, and others impose a "new rule" that would prevent mooting an individual plaintiff's claim.

Those circuits, citing the flexible nature of the mootness doctrine and concerns about buy-offs, have fashioned a new rule that, absent undue delay, a plaintiff may move to certify a class and avoid mootness even after being offered complete relief.

And the Seventh Circuit has now gone on record saying that it does not follow this exception:

We believe that the exception created by these circuits is unnecessary. To allow a case, not certified as a class action and with no motion for class certification even pending, to continue in federal court when the sole plaintiff no longer maintains a personal stake defies the limits on federal jurisdiction expressed in Article III. See Juvenile Male, 131 S. Ct. at 2864; Lewis v. Cont'l Bank Corp., 494 U.S. 472, 477-78 (1990); Holstein, 29 F.3d at 1147. That the complaint identifies the suit as a class action is not enough by itself to keep the case in federal court. Even when a "complaint clearly and in great detail describes the suit as a class action suit," if the plaintiff does not seek class certification, then "dismissal of the plaintiff's claim terminates the suit."

(Emphasis added.)  The Seventh Circuit also considerd the traditional objection, that this would allow a defendant to "buy off" an individual named plaintiff. It found a simple solution to that problem.

A simple solution to the buy-off problem that Damasco identifies is available, and it does not require us to forge a new rule that runs afoul of Article III: Class-action plaintiffs can move to certify the class at the same time that they file their complaint. The pendency of that motion protects a putative class from attempts to buy off the named plaintiffs.Damasco argues that this solution would provoke plaintiffs to move for certification prematurely, before they have fully developed or discovered the facts necessary to obtain certification. But this objection is unpersuasive. If the parties have yet to fully develop the facts needed for certification, then they can also ask the district court to delay its ruling to provide time for additional discovery or investigation.

(Internal citations omitted.) Now, if I were a plaintiff, I might object here that what the Seventh Circuit has done is recommended that I violate Rule 11 by filing a motion for certification without a sufficient basis in law or fact. But I would be wrong to do so. After all, plaintiffs have to allege in their complaint that the case is appropriate for class treatment. If they have done that without a sufficient basis in law or fact, then they have already violated Rule 11.

The more interesting thing the Seventh Circuit has done here is to reframe the debate over standing in class actions. For the most part, legal doctrine treats an uncertified class as an individual case. But, in practice, courts do often assume that since a plaintiff has alleged a class action, there is something different about the case that justifies its continuation when an ordinary case might go off the rails. And there is no real justification in caselaw for doing so. Here, the Seventh Circuit has made that distinction more explicit: just saying a case is a class action does not make it so. A plaintiff must at the very least file a motion for certification to justify the special treatment courts afford a class action.

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Last week, the Sixth Circuit affirmed a trial court's decision striking class allegations where a proposed nationwide class would necessarily invoke the laws of fifty different jurisdictions. (Russell Jackson has an excellent writeup of the opinion here.) There is no question the opinion is a useful one for defendants. And, since it's the first appellate opinion on a motion to strike in decades, it may be time for an overview of where the motion to strike class allegations stands today.

In the past year, a large number of motions to strike have been filed. (I count at least 25 reported opinions on early challenges to the certifiability of classes.) How have those motions turned out?
Ten of those opinions denied the motion to strike outright as premature, without further analysis.

• Clerkin v. Mylife.com, Inc., 2011 U.S. Dist. LEXIS 96735 (N.D. Cal. 2011) ("Defendants fail to identify any authority permitting the use of a motion to dismiss for failure to state a claim to contest the suitability of class certification.").
• Eliason v. Gentek Building Prods., Inc., 2011 U.S. Dist. LEXIS 94032, *7 (N.D. Ohio Aug. 23, 2011) ("While raising possibly valid concerns, Defendants' arguments on class certification are premature. Whether the commonality requirement has been demonstrated cannot be determined until discovery has taken place and choice of law provisions applied.").
• Garcia v Lane Bryant, Inc., 2011 U.S. Dist. LEXIS 125484 (E.D. Cal. Oct. 31, 2011). (Grants motion to dismiss, denies MTS because "Although Defendants' motion is unopposed, dismissal of Plaintiffs' class allegations at this stage of the proceeding is premature. Although class allegations may be wholly insufficient[,] compliance with Rule 23 is not to be tested by a motion to dismiss for failure to state a claim.") (internal quotations omitted).
• Ginardi v. Frontier Gas Servs, LLC, 2011 U.S. Dist. LEXIS 89504, *11-12 (E.D. Ark. Aug. 10, 2011) ("Plaintiffs are correct that it is premature to strike the class action allegation.").
• Kas v. Mercedes-Benz USA, LLC, 2011 U.S. Dist. LEXIS 127581 (C.D. Cal. Oct. 31, 2011) ("Nevertheless, we will defer final decision pending a more robust briefing at the class certification stage.").
• Martin v. Ford Motor Co., 765 F. Supp. 2d 673 (E.D. Pa. 2011) ("Since the Motion to Strike filed by Defendant is premature, the merits of this argument will not be addressed at this stage of the case.").
• P.V. v. School Dist. of Philadelphia, 2011 U.S. Dist. LEXIS 125370 (E.D. Pa. Oct. 31, 2011) ("unless the parties have completed discovery and at least one party has moved for class certification, a court very rarely has the information necessary to conduct the 'rigorous analysis' inherent in the class certification decision.").
• Rivellio v. Penn State Fed. Credit Union, 2011 U.S. Dist. LEXIS 99668 (M.D. Pa. Sep. 6, 2011) ("The Court is not convinced that this case is one of the "rare few where the complaint itself demonstrates that the requirements for maintaining a class action cannot be met."").
• Rogers v. Capital One Servs., LLC, 2011 U.S. Dist. LEXIS 17064 (D. Conn. Feb. 19, 2011) ("a defendant may move to strike class allegations prior to class certification proceedings "if the inquiry would not mirror the class certification inquiry and if resolution of the motion is clear."").
• Vlachos v. Tobyhanna Army Depot Fed. Credit Union, 2011 U.S. Dist. LEXIS 69725 (M.D. Pa. Jun. 29, 2011) ("The Court will not address the merits of the argument because the motion to strike is premature at this stage, as the plaintiff has not yet moved for class certification.").

Three denied motions to strike on their merits, usually because the plaintiff had made sufficient allegations to support a class action.

• Alegations of commonality - NBL Flooring, Inc. v. Trumball Ins. Co., 2011 U.S. Dist. LEXIS 110518 (E.D. Pa. Sep. 27, 2011) ("These allegations speak to a blanket course of conduct that may apply to all insureds.").
• Denies because of plausible allegations - Perrin v. Papa John's Int'l, Inc., 2011 U.S. Dist. LEXIS 22957, *18-19 (E.D. Mo. Mar. 8, 2011) (""Plaintiff may or may not succeed in proving his claims with respect to other drivers, but at this stage of the case he has set forth sufficient facts to support a plausible allegation of an under-reimbursement [*19] large enough to support a claim that Defendants did not reasonably approximate the delivery drivers' expenses."")
• Plaintiff had standing - Ralston v. Mortg. Inv. Group, Inc., 2011 U.S. Dist. LEXIS 102945 (N.D. Cal. Sep. 12, 2011) ("The fact that some class members purchased their loans from originators other than MIG does not deprive Ralston of standing to assert claims on their behalf").

Two denied motions to strike as moot, since the courts granted concurrent motions that disposed of the case.

• Eldee-K Rental Props., LLC v. DirecTV, Inc., 2011 U.S. Dist. LEXIS 132981 (N.D. Cal. Nov. 17, 2011). Court granted concurrent motion to dismiss.
• Ass'n of N.J. Chiropractors v Aetna, Inc., 2011 U.S. Dist. LEXIS 67718 (D.N.J. Jun. 20, 2011). Denies as Court granted concurrent motion to compel arbitration.

And finally, the remainder of the courts have granted motions to strike. And they have done so for various reasons. Among them, they have ruled that

The class was not ascertainable.

• Bradley v. Mason, 2011 U.S. Dist. LEXIS 64877 (N.D. Ohio Jun. 20, 2011) ("First, the existence of the class must be pleaded and the limits of the class must be defined with some specificity.").
• Bauer v. Dean Morris, L.L.P., 2011 U.S. Dist. LEXIS 100399 (E.D. La. Sep. 7, 2011) - struck class allegations where merits-based class definition
• Schilling v. Kenton County, 2011 U.S. Dist. LEXIS 8050 (E.D. Ky. Jan. 27, 2011) ("Plaintiffs' proposed class definition is fatally flawed because the Court cannot determine its individual members without reviewing the evidence relative to each KCDC inmates' incarceration, which would amount to a merits-based inquiry of each individual's claim.").

Variations in state law precluded certifiable class.

• Pilgrim v. Universal Health Card, LLC, 2011 U.S. App. LEXIS 22715, *4 (6th Cir. 2011) ("the district court held, because each class member's claim would be governed by the law of the State in which he made the challenged purchase, and the differences between the consumer-protection laws of the many affected States would cast a long shadow over any common issues of fact plaintiffs might establish. That judgment is sound and far from an abuse of discretion …"). 
• Plaisance v. Bayer Corp., 275 F.R.D. 270 (S.D. Ill. 2011) [] ("In the instant case, defendants have identified numerous facial deficiencies in the class allegations; no amount of time or discovery can cure these deficiencies.").

From the pleadings, the class lacked commonality

• *Schilling v. Kenton County, 2011 U.S. Dist. LEXIS 8050 (E.D. Ky. Jan. 27, 2011) ("to resolve the legal issue presented the Court must delve into the specific facts of each inmate's incarceration and the medical needs relative to that inmate.")

From the pleadings, the class lacked typicality

• Schilling v. Kenton County, 2011 U.S. Dist. LEXIS 8050 (E.D. Ky. Jan. 27, 2011) ("The Sixth Circuit has held that where the plaintiffs' claims depends on each individual's unique interactions with the defendant, the typicality requirement is lacking. That is certainly the case here.") (internal citation omitted).
• Wright v. Family Dollar, Inc., 2010 U.S. Dist. LEXIS 126643 (N.D. Ill. Nov. 30, 2010) ("These defenses, unique as to plaintiff and any other manager in the putative class, prevent plaintiff from establishing typicality and therefore from showing that she will be able to maintain a class action.").

From the pleadings, the class lacked adequacy.

• Wright v. Family Dollar, Inc., 2010 U.S. Dist. LEXIS 126643 (N.D. Ill. Nov. 30, 2010) ("it is clear from the complaint that the putative class is permeated by conflicts of interest").

From the pleadings, the class lacked predominance.

• Bauer v. Dean Morris, L.L.P., 2011 U.S. Dist. LEXIS 100399 (E.D. La. Sep. 7, 2011) - (struck class allegations where individual issues concerning liability, affirmative defenses, and damages apparent from pleadings).
• Bevrotte v. Caesars Ent. Corp, 2011 U.S. Dist. LEXIS 114463 (E.D. La. Oct. 4, 2011) (individual issues of causation and damages would predominate; class not superior to individual litigation).

So, what can defense counsel take from this? First, the trend on motions to strike is becoming more favorable. More courts are willing to entertain these motions on their merits. (You may notice the majority of the denials come from only a few jurisdictions.) And the first appellate court to decide this issue has (correctly, I would argue) found that if the issue is a purely legal one or can be decided from the pleadings, then there is no reason to rule on it sooner rather than later.

Second, those courts that are granting motions to strike are granting them on various grounds. This is also good news, as it provides defendants with precedent for further motions to strike.

And finally, at least if one credits the opinions in Pilgirm and Plaisance, most plaintiffs don't seem to have any strong counter-arguments to a well-argued motion to strike. The best they can argue is that the motion is premature, and discovery is necessary for a rigorous analysis. And, in certain cases, that will be true. But in many more--like when plaintiffs propose nationwide classes that require applying the laws of fifty different states--there will be no discovery that will change the analysis a court must engage in.

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Today's case, Thatcher v. Hanover Insurance Group (8th Cir. 2011) is another short one that nonetheless raises important issues for class action defendants. Allen Thatcher (or, rather, his attorneys) filed a class-action complaint in Arkansas state court against his insurance company. He alleged that the defendants did not pay insureds properly under the terms of their insurance policies. (The specifics had to do with insurance for general contractors.) And he alleged the standard wide spectrum of claims: unjust enrichment, fraud, constructive fraud, and breach of contract.

It's what happened next that makes the case really interesting.  The defendants removed the case to federal court under CAFA.  And then:

Thatcher sought permission to voluntarily dismiss his case without prejudice [under Rule 41(a)(2)] so that he could refile an amended complaint in state court that would avoid federal jurisdiction. The district court granted Thatcher's voluntary motion to dismiss without prejudice.

Now, it's not surprising that a class-action plaintiff would want to stay in Arkansas state court. Arkansas class action law differs from federal law; most importantly, it does not require a "rigorous analysis" of whether a class action should be certified. What is surprising is that a plaintiff would be so brazen about forum-shopping.  And, since the Eighth Circuit has held that forum-shopping is not a valid reason to dismiss a complaint, it was also surprising that the trial court granted the motion.

Not surprisingly, the defendants appealed. And the Eighth Circuit pretty quickly reversed the voluntary dismissal in reviewing the remand.

In addressing whether a district court should allow voluntary dismissal, we have repeatedly stated that it is inappropriate for a plaintiff to use voluntary dismissal as an avenue for seeking a more favorable forum.

The Eighth Circuit also briefly took the trial court to task for not looking harder at what Thatcher's motives were, in part because his tactic, while good for his attorneys, was not nearly as good for the class he sought to represent:

Thatcher was dismissing so he could return to the more favorable state forum. Thatcher's expressed intent was to amend his complaint in order to avoid federal jurisdiction. ... This reading of Thatcher's purpose is supported by his failure to consider the effects of his actions on the putative class that he purportedly represents. In the original complaint, Thatcher included claims for unjust enrichment, fraud, constructive fraud, and breach of contract. In his motion to dismiss without prejudice, Thatcher set forth his intention to refile this matter in state court as a breach of contract claim only. Thatcher set forth no adequate reason why it would benefit the class to abandon these additional claims.

(Emphasis added.)  In other words, the Eighth Circuit was unimpressed with the fact that Thatcher (or more likely, his attorneys) were willing to jettison a number of causes of action specifically to keep the case out of federal court.

If I were a betting man, I'd say it's unlikely that a plaintiff will specifically ask to refine his claim to avoid federal jurisdiction. (And frankly, it's a little surprising that a plaintiff did this time.)

But more importantly, this opinion offers two important reminders for class action defense counsel. First, it is often worth raising whether the purpose for a plaintiff's tactic is a proper one. It actually does matter in the long run. Second, and as important, no matter how many times it draws comments about foxes and henhouses, it is always worth asking whether the plaintiffs' tactic is good for the proposed class. Too often, they're not. And far too often, the defendant is the only one sticking up for the absent class members.

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 Today's case, Katz v. Gerardi (10th Cir. 2011), involves a pair of securities class actions that were challenging a merger that had gone through (a currently burgeoning field for securities class action lawyers). The case involved a real estate investment trust (REIT), in which the two plaintiffs (Jack Katz and Infinity Clark Street Operating) were members. The REIT merged with another entity, and, as part of the merger, the two plaintiffs were bought out. Katz received cash for his shares; Infinity took shares in the new entity.

Then each of the plaintiffs sued, alleging that the merger's offer documents were false and misleading. Infinity filed a case in the District of Colorado, alleging breach of contract and fiduciary duty. (All of its claims were dismissed, except one that was stayed pending arbitration.) Katz filed his lawsuit in Illinois state court, claiming violation of securities laws. The defendants removed it to federal court (a story by itself), and the case was transferred to the District of Colorado. Once there, Katz amended his complaint and joined Infinity.

The defendants moved to dismiss, based on two theories. (1) Infinity could not assert federal securities-law claims because, since its previous lawsuit hadn't asserted them, it was splitting its claims; and (2) Katz could not assert federal securities claims because he was not a buyer of stock, but a seller. The district court dismissed the claims, and both plaintiffs appealed.  The Tenth Circuit affirmed.

Infinity had argued that it was not required to assert all of its claims in its first class action because the doctrine prohibiting claim-splitting (which derives from res judicata principles) required a final judgment. The Tenth Circuit disagreed.

Our precedent cannot be clearer: the test for claim splitting is not whether there is finality of judgment, but whether the first suit, assuming it were final, would preclude the second suit. This makes sense, given that the claim-splitting rule exists to allow district courts to manage their docket and dispense with duplicative litigation. If the party challenging a second suit on the basis of claim splitting had to wait until the first suit was final, the rule would be meaningless. The second, duplicative suit would forge ahead until the first suit became final, all the while wasting judicial resources.

(Emphases added.)  Katz's argument involved a more creative question, but one that goes to the heart of merger class actions. Was he a buyer or a seller of the stock? Katz had argued that he was a buyer, because the merger had effected a "fundamental change" in his shares, essentially forcing him to "buy" them before selling them. Judge Easterbrook of the Seventh Circuit (who heard the same argument in the fight over removal) had called this argument "word play designed to overcome the actual text of the securities laws." (Emphasis added.)  And the Tenth Circuit agreed.

The merger did not force him to purchase new securities, but only to sell his A-1 Units for cash or new units. Since Katz's 1933 Act claims only give standing to purchasers of securities, which Katz is not, his claims were properly dismissed.

So, what can defense lawyers use from this case? First and foremost, it provides an excellent definition of claim-splitting, one that applies not only to motions to dismiss, but also to arguments about adequacy and superiority when opposing certification.  And second, it offers a useful reminder that it's always best to argue that words mean what they seem to. If your argument requires claiming that black is white, you're not liable to win your case so much as get yourself killed at the next crosswalk.

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The Supreme Court decided AT&T Mobility LLC v. Concepcion back in April, a decision that many scholars (and lawyers) have bemoaned as killing the class action. The hyperbole about the death of class actions (or their rebirth as shambling undead corpses) isn't new, and it's likely not merited. At the very least, I don't seem to be any less busy.

So, what does the state of the arbitration in class actions look like, six months on? With roughly 120 published opinions reviewing motions to compel arbitration, it's possible to venture a few opinions.

Most of the immediate procedural mop-ups are now finished. (By "mop-ups," I mean motions to compel arbitration in cases that predated Concepcion. Much as after CAFA was passed, one finds a number of of cases discussing amendment and relation-back doctrines, now there are a number of cases discussing waiver and behavior inconsistent with arbitration, as defendants seek to invoke Concepcion in cases that have reached later stages of litigation.) But leaving aside these cases, the remaining issues should give a good indication of how class actions will proceed in a world where invoking arbitration is possible.

So what are the issues that remain?

The need for discovery on arbitration. Plaintiffs have argued that they need discovery to determine whether discovery is appropriate in this case. For the most part, courts have not accepted this argument.  See, e.g., Giles v. GE Money Bank, 2011 U.S. Dist. LEXIS 111018 (D. Nev. 2011) ("Whether the arbitration agreement is enforceable against Giles, is a straightforward matter of contract law.").  (A few have, however. See Hamby v. Power Toyota Irvine, 2011 U.S. Dist. LEXIS 77582 (S.D. Cal. Jul. 18, 2011).) Defendants seem to do best with this argument when they challenge plaintiffs to show exactly what discovery they need from the defendant. See Khan v. Orkin Exterminating Co., Inc., 2011 U.S. Dist. LEXIS 118486 (N.D. Cal. 2011) ("Aside from vague assertions regarding the need to conduct discovery, Plaintiff fails to articulate with any specificity what discovery he seeks to obtain."); Reeners v. Verizon Communications, Inc., 2011 U.S. Dist. LEXIS 76367 (M.D. Tenn. Jul. 14, 2011) ("Plaintiff has failed to carry his burden to show that he needs discovery to respond to Defendants' Motion."). Usually, the information the plaintiff wants is in his possession to begin with. The relative costs of arbitration and litigation, for example, are available from most arbitrators. (Although at least one court has held that Concepcion says the relative cost doesn't matter.  See Khan v. Orkin Exterminating Co., Inc., 2011 U.S. Dist. LEXIS 118486 (N.D. Cal. 2011)) Challenging plaintiffs often reveals that plaintiffs have made this argument as either (1) a delaying tactic, or (2) a method of imposing costs as early as possible in the litigation.

The "It's different here" argument. Sure, the Supreme Court overruled Discover Bank. But that was a California case. Connecticut law is different. (No, it's not. Ramirez v. Freescore, LLC, 2011 U.S. Dist. LEXIS 97374 (C.D. Cal. Aug. 30, 2011).) OK, well Florida law is different. (Not, it's not. Cruz v. Cingular Wireless, LLC, 2011 U.S. App. LEXIS 16811 (11th Cir. Aug. 11, 2011).) Delaware is. (No. Chavez v. Bank of Am., 2011 U.S. Dist. LEXIS 116630 (N.D. Cal. 2011).) How about Maryland? (No. Murphy v. DirecTV, Inc., 2011 U.S. Dist. LEXIS 87625 (C.D. Cal. 2011).) South Dakota or Illinois? (No. Tory v. First Premier Bank, 2011 U.S. Dist. LEXIS 110126 (N.D. Ill. Sep. 26, 2011). ) Utah? (No. Giles v. GE Money Bank, 2011 U.S. Dist. LEXIS 111018 (D. Nev. 2011).) There are 42 more states, not counting the District of Columbia, Puerto Rico, the American Virgin Islands, or Guam. But it's safe to say that this trend is moving in a single direction.

The exculpation argument. Here, plaintiffs argue that compelling arbitration would effectively exculpate the defendant, because it would not have to face liability for its alleged misconduct. So far, courts have not been persuaded by this argument; it veers too close to the underlying policies the Supreme Court found unpersuasive in Concepcion. Cruz v. Cingular Wireless, LLC, 2011 U.S. App. LEXIS 16811 (11th Cir. Aug. 11, 2011); Arellano v. T-Mobile USA, Inc., 2011 U.S. Dist. LEXIS 52142 (N.D. Cal. 2011).

The "vindication of rights" argument. This debate actually seems to give plaintiffs some play. It's similar to, but not quite the same as, the exculpation argument, since it's framed to focus on the plaintiff rather than the defendant. As a result, it has convinced a court in the Southern District of New York. Chen-Oster v. Goldman Sachs Group, Inc., 2011 U.S. Dist. LEXIS 73200 (S.D.N.Y. Jul. 7, 2011). Others, though, are not persuaded by the change in rhetoric. See D'Antuono v. Serv. Road Corp., 2011 U.S. Dist. LEXIS 57367 (D. Conn. 2011); Kaltwasser v. AT&T Mobility LLC, 2011 U.S. Dist. LEXIS 106783 (N.D. Cal. Sep. 20, 2011); Opalinski v. Robert Half Int'l, Inc., 2011 U.S. Dist. LEXIS 115534 (D.N.J. Oct. 6, 2011).

Piggybacking on another's arbitration agreement. Some defendants--such as bill collectors facing FDCPA class actions--have tried to invoke their client's arbitration agreements to shunt class actions to arbitration. The courts that have faced these cases have held that a third party may not invoke an arbitration agreement. Sakalowski v. Metron Servs., Inc., 2011 U.S. Dist. LEXIS 101652 (E.D. Mo. Sep. 8, 2011).  (The argument may turn out differently if the defendant is a named third-party beneficiary in the contract. See Chavez v. Bank of Am., 2011 U.S. Dist. LEXIS 116630 (N.D. Cal. 2011).)

Can arbitration clauses create predominance issues? The Northern District of California thinks so. It has held that, at least in one case,

Although it is not clear how many putative class members signed arbitration agreements, the evidence currently before the Court supports an inference that a significant number did, and that a significant portion of this litigation would be devoted to discovering which class members signed such agreements and enforcing those agreements, rather than to the resolution of plaintiffs' legal claims - which themselves are complex.

Pablo v. Servicemaster Global Holdings, Inc., 2011 U.S. Dist. LEXIS 87918, *6 (N.D. Cal. Aug. 9, 2011).

The "you asked for arbitration" ploy. In a much-publicized case, a set of plaintiffs sought arbitration against AT&T, which it opposed. Hypocritical, right? Well, probably not. The arbitration sought an injunction preventing AT&T's proposed merger with T-Mobile. AT&T argued that the injunction was outside the scope of its Customer Agreement (an argument supported by various state governments). The Southern District of New York held that injunctions against mergers are not covered by AT&T's Terms of Service with its wireless customers. AT&T Mobility LLC v. Gonnello, 2011 U.S. Dist. LEXIS 116420 (S.D.N.Y. Oct. 7, 2011).

In general, it's still too early to tell the overall effect of Concepcion on class action filings, since we don't yet have the data yet for the second half of 2011.  But it does appear that it's helping to corral class actions in credit card, cell phone, and labor cases where there were pre-existing contracts. What does that mean? Looking over the published cases, it appears that most of the class actions where arbitration was compelled addressed the kind of highly technical issues that are likely ginned up and tried out by plaintiffs' lawyers, regardless of their ultimate merit. Are we poorer off with those odd contract theories being decided by arbitrators rather than classwide settlements? I think the answer to that question is pretty clear.

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Today's opinion is a short one from the Seventh Circuit, but a very useful one for defendants nonetheless. Keeling v. Esurance Insurance Company was a class action filed against automobile insurer Esurance (created of the popular advertising icon Erin Esurance) that alleged that it sold a series worthless insurance policies in Illinois. Esurance removed to federal court, and a trial court in the Southern District of Illinois remanded, because the dispute did not meet the $5 million amount in controversy requirement. Since policies at issue had only collected 613,894 in premiums, the trial court reasoned it was "legally impossible" to meet the amount in controversy requirement.

Not so fast, said Judge Easterbrook. Once one took into account all of the relief the plaintiffs were asking for, $5 million was indeed a conceivable number. How did he get there?

First, Judge Easterbrook held that defendant may count the financial loss from complying with injunction as part of the amount in controversy.

The district court wrote that the cost to Esurance would be trivial: just reprint the forms. But this suit is about money, not ink. If the class is right and Esurance must either stop charging a premium or change the terms so that policyholders receive indemnity more frequently, it will suffer a financial loss.

(Emphasis added.)  Judge Easterbrook counted the financial loss from complying as roughly $1.4 million; meaning restitution plus injunction put $2 million at issue.

That's still $3 million short of the amount-in-controversy requirement, however. But the plaintiffs had also requested punitive damages. And Judge Easterbrook noted that Illinois courts had held punitive multipliers of up to 7x to be legitimate (although the Supreme Court preferred a multiplier closer to 4x). So, counting just a 5x multiplier would add in the additional $3 million.

We therefore do not think it "legally impossible" for the class to recover more than $3 million in punitive damages. Improbable, perhaps, but not impossible.

The takeaway of this opinion should be pretty clear: as a removing defendant, think through all of the costs you may incur.

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Readers of this blog know that I've been an early (and ardent) advocate of challenging poorly-conceived class actions as early as possible. And, during the last three to four years, the motion to strike class allegations has (with good reason) become a popular tactic among defense counsel. And, several months ago, we got one of the best examples of how well a good motion to strike can succeed, in Plaisance v. Bayer Corp., 2011 U.S. Dist. LEXIS 47795 (S.D. Ill. 2011).

In Plaisance, the plaintiff sued Bayer Corp., alleging that various people who had used the birth control Yaz or Yasmin had suffered from various "adverse cardiovascular events" (heart or blood problems). In the complaint, the plaintiff asserted claims for fraud, breach of warranty, and negligence, and sought certification of a nationwide "personal injury" class--a difficult proposal at the best of times, since personal injuries tend to vary widely from person to person, not to mention the fact that teasing out the cause of various personal injuries can also require a series of very detailed individualized inquiries.

Rather than wait until after lengthy (and expensive) discovery and motions practice to raise these points, Bayer moved to strike the class allegations. The plaintiff argued that Bayer's motion was premature, but she also responded substantively to its arguments.

The court, in a particularly thoughtful opinion, held that the motion to strike in this case was not premature:

In the instant case, defendants have identified numerous facial deficiencies in the class allegations; no amount of time or discovery can cure these deficiencies. Plaintiff's argument with regard to the filing of additional class actions in other states is unavailing for the same reason. After reviewing the parties' briefs and the allegations in the first amended complaint, it is obvious from the pleadings that no class action can be maintained. Accordingly, the Court properly proceeds with its ruling on defendants' motion to strike or dismiss plaintiff's class allegations. See Rule 23(c)(1)(A) (providing that the court, "[a]t an early practicable time ..., must determine by order whether to certify the action as a class action"); Rule 23(d)(1)(D) ("In conducting an action under this rule, the court may issue orders that ... require that the pleadings be amended to eliminate allegations about representation of absent persons and that the action proceed accordingly.").

(Emphases added.)  The court found two different facial problems with plaintiffs' proposed class action. First, the plaintiff's proposed class would require applying the disparate legal rules of fifty different jurisdictions.

In the instant case, under applicable choice of law rules, the merits of the putative class members' claims would be governed by the substantive law of each class member's home state. Accordingly, the laws of all fifty states plus the District of Columbia would be applicable to the putative nationwide class members' claims. Amongst the states, there are differences in the law of product liability as well as in the applicable theories of recovery and their subsidiary concepts. These differences, even if slight, are not insignificant. Indeed, "such differences have led [the Seventh Circuit] to hold that other warranty, fraud, or products-liability suits may not proceed as nationwide classes").

(Internal citations omitted.) As a result, the court held that the plaintiff could not maintain a nationwide class action based on her claims, because there was no way to reconcile the conflicting state laws. (The plaintiff did try to sidestep the problem by subclassing, but faced the additional obstacle that she did not have 49 other class representatives waiting in the wings.) This particular ruling makes a great deal of sense. There is no reason a court has to go beyond the pleadings to determine which states' laws will apply to plaintiffs' claims, or whether variations in state laws would preclude a nationwide class. There's no question a state-law variations analysis takes work, but there's no reason why that work had to wait until after discovery.

The court also that the complaint indicated a number of individualized factual inquiries would be necessary:

In the instant case, almost every element of the asserted claims will require highly individualized factual inquiries unique not only to each class member but also to each class member's prescribing physician. For example, as defendants' brief highlights, establishing causation will require (1) an examination of each class member's medical history, including pre-existing conditions and use of other medications; (2) an evaluation of potential alternate causes for the alleged injury; and (3) an assessment of individualized issues pertaining to each class member's prescriber, including how the doctor balances the risks and benefits of the medicine for that particular patient, the particular doctor's prescribing practices, the doctor's knowledge about the subject drug, and the doctor's sources of information with regard to the subject drug.

As the court pointed out, this didn't even begin to address the individualized reliance issues that come up in many fraud claims. But, given the elements of the plaintiff's causes of action, there was no way around these particular individualized inquiries.

Given these various problems with plaintiff's proposed class, the court granted Bayer's motion to strike. What can defense counsel learn from this? Challenge bad class complaints early. Bayer had some great natural advantages; among other things, there is a long paper trail establishing how difficult it is to bring classwide personal injury claims. But so long as the defects that a motion to strike challenges are purely legal (such as the variations in different states' laws), there is no reason why a defendant should have to wait until after a lengthy, expensive, and possibly unnecessary discovery period to challenge them.  

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 Sometimes, the most interesting cases, from both a strategic and an equities standpoint, are hidden in the weeds of a statute. For example, take the lengthily named case Graphic Communications Local 1B Health & Welfare Fund "A" v. CVS Caremark Corp., 636 F.3d 971 (2011).

In Graphic Communications, the plaintiffs originally sued the defendants in Minnesota state court, alleging a number of claims related to the pricing of generic drugs. (Exciting already, no?) The defendants removed the case under CAFA, and moved to dismiss. The court granted the motion without prejudice. So the plaintiffs filed an amended complaint that eliminated some of the grounds the defendants had used to invoke CAFA jurisdiction, and later moved to remand under CAFA's "local controversy" exception. (The local controversy exception applies to cases where more than two-thirds of the plaintiff class comes from the same state as one defendant, the principal conduct occurred in the state, and no related class actions have been filed in the previous three years.) At that point, reasoning that it did not have jurisdiction over the case anymore, the district court granted the remand, and the defendants appealed to the Eighth Circuit.

The defendants made several arguments on appeal, among them that the plaintiffs had not moved to remand in a timely fashion. (For reasons even the Eighth Circuit did not know, the plaintiffs waited more than 100 days before moving to remand, instead of the 30 required under the statute.)

The Eighth Circuit began by heading straight to the meat of the question. Looking at the text of CAFA, it noted that

The local controversy provision, which is set apart from the above jurisdictional requirements in the statute, inherently recognizes the district court has subject matter jurisdiction by directing the court to "decline to exercise" such jurisdiction when certain requirements are met. Thus, the local controversy provision operates as an abstention doctrine, which does not divest the district court of subject matter jurisdiction.

(Emphasis added, internal citation omitted.)

At that point, the court had to determine whether a "local controversy" was somehow a jurisdictional defect that did not involve subject matter jurisdiction. (If so, then the plaintiffs might not be bound by the 30-day time limit for filing remand motions.) After a lengthy discussion of the meaning of the term "defect" (which was not defined in the statute, and was susceptible to several meanings from context), the court determined that a "local controversy" is not a jurisdictional defect under CAFA.

But the court ruled that that did not necessarily mean that the plaintiffs' motion was timely. Noting that a remand motion is not necessarily authorized at any time, the court pointed out that it was entirely possible the appropriate time for moving to remand may even be shorter than the 30-day "defect" limit. (This conclusion makes sense; ruling the other way means that a plaintiff could amend a complaint to invoke a local controversy, but only move to remand after some adverse ruling from the federal trial court. It's unlikely the drafters of CAFA meant to give plaintiffs a "get out of federal court free" card like that.) So instead, the court held that

We recognize there may be similar considerations to take into account in this case, but, along with the central question of whether the more than 100 days it took for Plaintiffs to move to remand constitutes a "reasonable" time frame, we remand to the district court to make these determinations in the first instance.

So what can defendants learn from this case? Don't be afraid to argue the equities of a motion, even if (perhaps especially if) it appears to be highly technical. Like most humans, judges are sensitive to when people are trying to game a rule to reach an unintended result, and, like most humans, judges don't like it when that happens.

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 Sometimes, a case will come along that illustrates clearly a number of the different strategic choices that lawyers have to make when defending class actions. In Lightfoot v. District of Columbia, 2011 U.S. Dist. LEXIS 1983 (D.D.C. Jan. 10, 2011), a group of former District employees sued the District of Columbia, "challenging the policies and procedures that the District applied to terminate, suspend, and modify disability compensation benefits." (It appears they were largely represented by students at George Washington University, as well as lawyers from a prominent DC firm working pro bono.) Over the course of a decade of litigation (involving a number of dispositive motions, a certification hearing, and at least one trip to the DC Circuit Court of Appeals), the District of Columbia was able to whittle the case down to a single issue: whether the District had terminated disability benefits without proper notice.

Seven years before the current opinion, the trial court had certified a class of former District employees. It then ordered the parties to compile a list of the class members. The composition of the list (which at times included as many as 5,000 and as few as 500 members) became a large source of disagreement over the intervening five years, sparking discovery fights and at least one change in the class definition to exclude members who would be precluded from recovering by a recently-passed statute.

In 2007, the defendants moved to decertify the class. While the court denied the motion, it did order the parties to come up with a final class list, a process it admitted later "was a tortured one and consumed substantial time and resources of the parties and this Court." Once the list was completed, the plaintiffs filed a motion for summary judgment, which finally provided a clear picture of how they intended to prove their case. At that point, the defendants moved again to decertify the class, arguing that it was not bound together by common issues.

This time, the court agreed with the defendants. While it conceded that commonality was supposed to be a simple inquiry, it said that, in this case the inquiry had been complicated by plaintiffs' "amorphous" common issues. As the court put it:

Plaintiffs ... seek to conflate a wide variety of practices and impute them to the class as a whole by collecting them under a single, unilluminating umbrella of "systemic" failures. That is, lurking behind the rather vague and conclusory statement that Defendants had a "policy and practice of failing to provide members of the Plaintiff class Due Process" lies a wide variety of more discrete and particularized practices that could conceivably serve as the foundation for municipal liability.

...

This is because Plaintiffs have [the commonality inquiry] backwards. The question is not whether a constellation of disparate but equally suspect practices may be distilled from the varying experiences of the class; rather, Plaintiffs must first identify the "policy or custom" they contend violates the dictates of procedural due process and then establish that the "policy or custom" is common to the class.

(Emphasis added, internal citations omitted) There's certainly room to ask whether the district court could have reached some of these conclusions earlier. (And, at least for purposes of commonality, the Supreme Court's Dukes opinion might guide it going forward.) But the more important lesson here is that, if a defendant believes a class was wrongly certified, it makes sense to continue to challenge the certification ruling. Facts become clearer, laws and understandings of facts change.

So what can defendants learn from this case? There are actually three:

First, time is often on the side of the defense. The longer a class action takes, the longer a court has to acclimate itself to the various issues that make the case unworkable; also the more likely that external events (like the passage of a statute) will interfere with plaintiffs' original plan. But playing for time can come with heavy costs. It can involve complying with costly discovery, and engaging in extensive (and expensive) motions practice. Most defendants, particularly in the past few years, would prefer to resolve cases quickly than to wait around for something to happen that might help their case.

Second, motions practice is extremely helpful for class-action defendants. While plaintiffs will often argue that continued motions are designed to stall and harass, Lightfoot shows the real reason they're valuable to defendants: they continually expose the manageability problems in a class proposal that plaintiffs would prefer to gloss over until they've achieved a classwide settlement.

Finally, especially in the wake of Dukes, it is always worth challenging commonality. In the past, few class actions had progressed far enough for courts to see why commonality was an important requirement. But in the past few years, cases like this, Brown v. RJ Reynolds Co., and Dukes have painted vivid examples of the problems that occur when courts do not pay attention to commonality early in.

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Answers don't get much discussion in class-action strategy, because aside from making sure one's responses are accurate, what is there to say? There are only so many ways a party can say "Admit," "Deny," and "Don't know." The one place where the class-action answer can get tricky is in the assertion of affirmative defenses. What, you may be asking, can possibly go wrong there?

Well, take the case of Hofstetter v. Chase Home Finance, 2011 U.S. Dist. LEXIS 65764 (N.D. Cal. Jun. 21, 2011). The litigation involved the defendants' alleged practice of force-placing (buying for the borrower) required flood insurance in California.

Two months after the court certified a class (and eight months after the deadline for amending pleadings had passed), the defendants found out that some of the proposed class members were delinquent on their mortgage accounts, meaning that even if the defendants were liable to them the damages might be offset by the plaintiffs' own legitimate debts. So they sought leave to amend under Rule 15 to add two more affirmative defenses, setoff and recoupment. (For those keeping count, these were the defendants' 44th and 45th affirmative defenses.)

In addition to arguing the standard "Rule 15 allows liberal amendment" (undercut here by the deadline for amendments), the defendants also argued that they could not have included the two affirmative defenses until after certification because, while the defenses applied to some absent class members, they did not apply to the named plaintiff. Judge Alsup (yes, that Judge Alsup) was having none of their argument.

Although these defenses only became applicable after class certification, defendants were aware of the potential class since the complaint was filed. In March 2010, plaintiff filed a class action complaint ... It is inconceivable that defendants did not know that some unnamed members of the class might be delinquent on mortgage payments from the day the complaint was filed.

(Emphases in original.)

The takeaway from this case is pretty simple: assert every affirmative defense that might apply to a class member, even if it has nothing to do with the named plaintiff. There's little downside to doing so, and in a jurisdiction like the Northern District of California, there may be real consequences to not doing so.

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Earlier today, the Supreme Court issued its opinion in Smith v. Bayer Corp. In a unanimous opinion authored by Justice Kagan, it held that a federal court cannot enjoin a state court from re-litigating a class action that had been denied certification in federal court. In doing so, it barred a tactic that defense lawyers had been using for some time: invoking the Anti-Injunction Act to bar state-court relitigation of class actions. And defense lawyers sighed and began to slump their shoulders like Charlie Brown ...

... which, as it turns out, is not necessary. Because while the Court may have ruled that a federal court cannot enjoin a state court from retrying the class certification debate, its reasoning provides powerful arguments against doing so as a regular practice. 

First, the  Court based its decision in part on the fact that West Virginia's class-action law sharply departs from federal law. (In particular, West Virginia courts had criticized various parties for invoking federal cases as authority.) Most states, however, including Florida, Illinois, Maryland, Tennessee, and Texas, have held that, because their state-class action rules are modeled on Rule 23, federal authority is at least persuasive. As a result, plaintiffs will have to think twice before re-filing a class action in state court. (There are even better reasons for them to think twice, discussed below.)

Second, the Court held that Smith was not precluded from re-asserting his claim because he was not a party to the previous action. Given this understanding of class actions as joinder devices (as opposed to "entities"), the Court's result makes perfect sense. By the time the second case had been filed, it was clear that Smith was not a party to the first case. Only former named plaintiff George McCollins was. The Court's clear statement that absent members of an uncertified class are not parties has application in a number of other debates where plaintiffs' counsel try to convince courts to perform actions on behalf of an uncertified class.

In these circumstances, we cannot say that a properly conducted class action existed at any time in the litigation. Federal Rule 23 determines what is and is not a class action in federal court, where McCollins brought his suit. So in the absence of a certification under that Rule, the precondition for binding Smith was not met. Neither a proposed class action nor a rejected class action may bind nonparties.

It would appear, then, that in the rhetorical debate over whether a class action is an entity or a joinder device, the Court has come down clearly on the latter side. In general, that is good news for defendants.

Finally, the Court provided a strong rationale for why an injunction would not be necessary. And, in doing so, it sent lower courts a strong signal that it expects them to respect other courts' denials of certification:

And to the extent class actions raise special problems of relitigation, Congress has provided a remedy that does not involve departing from the usual rules of preclusion. In the Class Action Fairness Act of 2005 (CAFA), 28 U. S. C. §§1332(d), 1453 (2006 ed. and Supp. III), Congress enabled defendants to remove to federal court any sizable class action involving minimal diversity of citizenship. Once removal takes place, Federal Rule 23 governs certification. And federal courts may consolidate multiple overlapping suits against a single defendant in one court (as the Judicial Panel on Multi-District Litigation did for the many actions involving Baycol). See §1407. Finally, we would expect federal courts to apply principles of comity to each other’s class certification decisions when addressing a common dispute.

(Emphasis added.) In other words, if counsel did try the transparent tactic of filing a new, identical class action in state court, the defendant could remove it and then move to strike class allegations on comity grounds.

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Today's opinion, Doe v. Match.com, 2011 U.S. Dist. LEXIS 56567 (C.D. Cal. May 25, 2011), involves a plaintiff and a defendant who made the same mistake: prizing an immediate tactical move over the internal consistency of their positions. For the plaintiff, the inconsistency came from an attempt to turn an unquestionably horrific individual incident into a class action. For the defendant, it came from the desire to win each individual motion without considering the effect on its larger strategy.

The facts that the Jane Doe plaintiff alleged in her complaint are, without a doubt, horrific. Ms. Doe had subscribed to Match.com, a popular dating service. She met a man through the service who turned out to be a serial sexual predator (he had six prior convictions for sexual battery), who raped her. Doe pressed charges against her attacker and cancelled her subscription.

After canceling her account, Doe filed a lawsuit against Match.com. Instead of seeking damages for the horrible thing that happened to her, her lawyer made the case a class action that alleged Match.com's failure to screen for sexual predators put its other subscribers at risk. To support this story of customers in imminent danger, Doe's lawyer moved to enjoin Match.com from signing up any new subscribers until it implemented some kind of predator screening.

Match.com removed the case to federal court, where it defeated the plaintiff's motion for a temporary restraining order. During the hearing, Doe informed the court that she had cancelled her subscription. Based on that information, the court expressed doubts that Doe had actually suffered a cognizable injury that could be cured by future screening. (If she was no longer using the service, she was not in danger of meeting future predators through it.)

So, to protect the class-action part of her complaint, Ms. Doe subscribed for another six months. When Match.com moved to dismiss the case for lack of Article III standing, she argued that, since she was again a subscriber, she was in danger of meeting future predators.

The court, however, was not convinced by the tactic:

Here, Plaintiff has presented no evidence that she plans to use Defendant's services to meet other users. In fact, Plaintiff has stated that she only re-subscribed because "it came to my attention that I needed to be a member of Match to file a class action suit in Federal Court. . . ." Plaintiff's counsel also represents that Plaintiff has not answered any e-mails inquiring of her availability for dates since the alleged assault. Thus, the undisputed facts of the case at bar show a more tenuous likelihood of future injury than those in Lyons or Lujan.

...

Plaintiff's statements suggest that she does not intend to use Defendant's services for future dates, diminishing the possibility that she could suffer any injury caused by Defendant's failure to screen for sexual offenders.

(Emphasis added, internal citations omitted.)  The opinion sounds like a win for Match.com, except for one thing: because the case had not originally been filed in federal court, moving to dismiss on jurisdictional grounds (and Article III standing is a jurisdictional doctrine) did not eliminate the case. Instead of dismissing the case with prejudice, the district court simply remanded it to the Los Angeles Superior Court.

What can defense counsel learn from this case? Consistency is important for every party in litigation. Just as a court is unlikely to believe that someone who tactically re-subscribes to a service with no intention of using it is in danger of further harm, it's not likely to be sympathetic to a defendant who removes a case to federal court only to attack its right to be there once it arrives.

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A few weeks ago, I mentioned that the Supreme Court had begun to hand down its class-action cases for the term. I was wrong. It actually delivered another opinion a month ago that, despite sitting on my desktop, I had forgotten. And that's something I ought to correct.

The case, Matrixx Initiatives, Inc. v. Siracusano, arose out of an alleged securities fraud. According to the plaintiffs, Matrixx Initiatives, Inc. (in the person of three of its executives) withheld reports of a possible link between its cold remedy Zicam and a condition known as anosmia, or loss of the sense of smell. Specifically, the plaintiffs alleged that, starting in 1999, Matrixx had received calls from doctors who had reported "clusters" of patients who used Zicam and suffered anosmia. (Even under more rigorous conditions than self-reporting, cluster samples tend to lack the precision required for statistical significance.)

Matrixx convinced the district court to dismiss the complaint by arguing that clusters are not significant enough to reach the standard of materiality under § 10 of the Securities Exchange Act, and that the plaintiffs had not pled that the defendants had scienter under the PSLRA. The Second Circuit reversed, and Matrixx appealed to the Supreme Court.

The Court faced two questions, both of which arise primarily in securities class actions. First, does an omission of data that is not statistically significant count as material? Second, is recklessness enough to fulfill the PSLRA's scienter requirement?

It didn't struggle with either question. Justice Sotomayor wrote for a unanimous court. First, the Court held that data does not have to be statistically significant to be material.

As Matrixx itself concedes, medical experts rely on other evidence to establish an inference of causation. We note that courts frequently permit expert testimony on causation based on evidence other than statistical significance. We need not consider whether the expert testimony was properly admitted in those cases, and we do not attempt to define here what constitutes reliable evidence of causation. It suffices to note that, as these courts have recognized, "medical professionals and researchers do not limit the data they consider to the results of randomized clinical trials or to statistically significant evidence."

(Internal citations omitted.) Justice Sotomayor concluded that since

medical professionals and regulators act on the basis of evidence of causation that is not statistically significant, it stands to reason that in certain cases reasonable investors would as well.

The Court did try to set some limit on the materiality of any adverse events. It noted that adverse event reports are "daily events" for pharmaceutical manufacturers. So the real question was not whether there had been an adverse event report, but how a reasonable investor would treat the "total mix" of information at that time.

The Court also briefly discussed scienter. Given plaintiffs' allegations that Matrixx had hired a consultant and convened a "panel of physicians and scientists" to help it respond to the reports of anosmia,

[t]he inference that Matrixx acted recklessly (or intentionally, for that matter) is at least as compelling, if not more compelling, than the inference that it simply thought the reports did not indicate anything meaningful about adverse reactions.

So what does this ruling mean for defense lawyers? First, it should guarantee continued business. Efforts to limit its reach aside, the Court's ruling provides an opening for enterprising plaintiffs' counsel to file securities-fraud cases based on isolated events, so long as they argue that the events changed the total mix of information available to an investor. The ruling also means that lawyers will have to pay extra attention to how their clients conduct investor relations. The more aggressive the investor-relations strategies, the more likely plaintiffs will be able to paint a picture that the company thought a given event indicated something meaningful, leading to an inference of scienter.

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 For those who are not yet suffering Concepcion fatigue from the many many many blog posts on the topic, I have a brief post up at the OUPblog on its effect on consumers.  

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Today, the Supreme Court began to roll out its class-action opinions. And first up, it has decided AT&T Mobility LLC v. Concepcion. In a 5-4 opinion authored by Justice Scalia (Thomas concurring), the Court held that § 2 of the Federal Arbitration Act preempted California's Discover Bank rule, which "classif[ied] most collective-arbitration waivers in consumer contracts as unconscionable."

A number of sources are painting this as the end of the class-action as we know it. So, time to shut down the blog? Hardly. There are many, many class actions, even consumer class actions, that will survive this ruling. (Taco Bell, for example, does not rely on arbitration clauses when it sells its Enchirito. It's not clear whether one must sign a health waiver.)

So what exactly did the Court rule?

The overarching purpose of the FAA, evident in the text of §§ 2, 3, and 4, is to ensure the enforcement of arbitration agreements according to their terms so as to facilitate streamlined proceedings. Requiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.

To support this ruling, Justice Scalia's opinion explores exactly what procedures are required to bind absent class members to a classwide verdict. In particular,

First, the switch from bilateral to class arbitration sacrifices the principal advantage of arbitration—its informality—and makes the process slower, more costly, and more likely to generate procedural morass than final judgment.

...

Second, class arbitration requires procedural formality. The AAA’s rules governing class arbitrations mimic the Federal Rules of Civil Procedure for class litigation. And while parties can alter those procedures by contract, an alternative is not obvious. If procedures are too informal, absent class members would not be bound by the arbitration. For a class-action money judgment to bind absentees in litigation, class representatives must at all times adequately represent absent class members, and absent members must be afforded notice, an opportunity to be heard, and a right to opt out of the class. At least this amount of process would presumably be required for absent parties to be bound by the results of arbitration.

(Internal citations omitted.) In other words, the Supreme Court ruled that a classwide arbitration is likely to be ineffectual. For it to have the benefits of a class action, it must sacrifice the informality that makes arbitration appealing. For it to have the benefits of arbitration, it must sacrifice the protections we afford absent class members.

What does this mean for class-action lawyers going forward? There are a couple of consequences. First--and hardly surprising--we're likely to see more defendants that use form contracts build in arbitration provisions.

Second, we're likely to see plaintiffs' lawyers try some innovative challenges to arbitration provisions. The Supreme Court held that a blanket rule against arbitration provisions is preempted by the FAA, but left open the possibility that a court might find a specific arbitration provision unconscionable if it does not comply with other steps designed to ensure that contracts of adhesion respect consumers' rights. (See footnote 6 for the specific language.)

Third, the Court's discussion of the difference between arbitration and class actions--in particular its emphasis on the need for adequate representation to bind absent class members--gives defense lawyers further ammunition in challenging inadequate plaintiffs. (It may also provide a hint on how the Court may rule on the Rule 23(b)(2) issue in the other closely-watched class action on its docket.)

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Last year, a jury in New York City decided one of the few securities class actions ever to go to trial. Lest anyone think that a jury verdict is ever the end of a piece of complex litigation, the Southern District of New York released a post-trial opinion last week. The opinion is worth reading for several reasons--one of the best being that it contains one of the few accounts of how a securities class trial actually gets conducted. But, in addition, it also provides a look into how international securities class actions will be treated going forward.

Back in 2003, the defendants had moved to dismiss the original Vivendi complaint because--they argued--the federal court lacked subject-matter jurisdiction over "foreign-cubed" class actions. The trial court denied the motion to dismiss, citing the Second Circuit's well-settled "conduct and effects" test.

So the case proceeded through certification to trial, where the jury rendered a verdict against Vivendi.  Once the trial was conducted, the defendants moved for reconsideration of both the foreign plaintiffs' claims and the claims of various American buyers in light of the Supreme Court's decision in Morrison v. Australia National Bank, which prohibits "foreign-cubed" class actions. The plaintiffs opposed, arguing that due to some technicalities of SEC registration, all of Vivendi's shares had been "listed" on the New York Stock Exchange, even though many of those shares had not traded there. While the trial court sympathized with plaintiffs' position (it discussed in depth how the Supreme Court's opinion was not as clear as it could be), it found a "technical flaw" with their argument:

It is true that the registration of any shares under Section 12 of the Exchange Act extends registration to the entire class of securities. And when a foreign company registers ADRs with the SEC, it must also register the underlying ordinary shares, necessarily resulting in the registration with the SEC of all ordinary shares. But registration with the SEC is not the same as listing (registering) on an exchange. The sample NYSE listing application provided to the Court at argument indicates that only a discrete number of ordinary shares are listed; this being the number of ordinary shares needed to back-up the ADRs being listed. Thus while all ordinary shares of a foreign issuer are deemed to be registered with the SEC, a lesser fixed amount of shares are actually listed with the Exchange. And ordinary shares that are not listed on an exchange (for any purpose) would fall outside plaintiffs' literalist reading of the Morrison bright-line test as well as the underlying language of Section 10(b).

(Emphasis added.)  The court also found that

Though the Supreme Court in Morrison did not explicitly define the phrase "domestic transactions," there can be little doubt that the phrase was intended to be a reference to the location of the transaction, not to the location of the purchaser and that the Supreme Court clearly sought to bar claims based on purchases and sales of foreign securities on foreign exchanges, even though the purchasers were American.

(Emphasis in original.) As a result, it dismissed the claims of all class members--foreign or American--who bought ordinary shares. So what can we learn from this ruling?

* Plaintiffs will not take adverse Supreme Court rulings lying down.
* In a class trial, it is always worth preserving all issues, no matter how often one loses them.

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 Class-action lawyers are no strangers to conspiracy. It forms the basis of many antitrust claims, as well as providing plaintiffs with a way of leveraging evidence against a poorer defendant into a case against defendants with deeper pockets.

Defending conspiracy class actions can be frustrating: savvy plaintiffs will often use any evidence of parallel conduct as evidence of conspiracy, and any lack of evidence as evidence of a coverup. Or, they could until the Supreme Court rendered its decision in Bell Atlantic Co. v. Twombly (as well as its companion case, Ashcroft v. Iqbal.) These two cases have provoked plenty of discussion among legal bloggers and academics. But a two-year old working paper by Cass Sunstein and Adrian Vermuele on Conspiracy Theories provides some context to the Twombly/Iqbal debate.

Sunstein and Vermuele define a conspiracy theory as

an effort to explain some event or practice by reference to the machinations of powerful people, who have also managed to conceal their role.

(Emphasis in original.) The definition, as they concede, embraces conspiracy theories that have turned out to be true (like Watergate), as well as some that are purely benign (like Santa Claus). Sunstein and Vermuele are more interested in the false, harmful theories, which

have some distinctive features, above all because of their self-sealing quality; the very arguments that give rise to them, and account for their plausibility, make it more difficult for outsiders to rebut or even to question them.

(Emphasis added.)  More specifically:

Those who accept such theories believe that the agents of the conspiracy have unusual powers, so that apparently contrary evidence can usually be shown to be a product of the conspiracy itself. Conspiracy theories display the characteristic features of a “degenerating research program” in which contrary evidence is explained away by adding epicycles and resisting falsification of key tenets.

(Emphasis added.)  So what does this have to do with Twombly? In that case, the Supreme Court required the plaintiffs to plead a conspiracy that was "plausible," and to do so using specific facts. Doing so filters out the worst aspects of a self-sealing conspiracy theory. Because the plaintiff must plead specific facts, logical contradictions in her conspiracy theory will be clearer, and those can justify dismissal. So can pleading a conspiracy with no obvious benefit to the defendant.

* * *

Today marks the end of the first year of Class Action Countermeasures. From my perspective, this experiment in blogging has been a rousing success. The blog has has gained more readers than I expected, thanks to the generosity of the legal blogosphere.  I've gotten to virtually "meet" a number of really interesting class-action bloggers.  And I got to announce my first book, on class-action stratgegy. (It makes an excellent holiday gift!)

I'm hoping for another good year in 2011. The Supreme Court seems intent on keeping class-action practice interesting.  And, despite one tragic loss, there is a thriving, diverse set of academics studying Rule 23. I also have a new project to keep me scouring SSRN and law review sites: I've contracted to co-author another book (with an old friend, Andrew Deguire).  It has the working title Complex Negotiation Strategy: A Business and Law Perspective, and should be due out in late 2012/early 2013. The blog won't change, although I may venture more into some more general strategic discussions--including a few on negotiations--on Thursdays. (I will always bring it back to class-action practice, the blog title is there for a reason.)

Anyway, I wanted to thank those of you who've been reading so far. I hope you've found this even a tenth as much fun as I have.

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 I've written before about the the growing defense tactic of filing early challenges to class certification. Last week, Law360 reporter Leigh Kamping-Carder reported on the trend. (Subscription required.) While she interviews a plaintiff's attorney (who wonders if everyone went to the same seminar), the most interesting part is the interviews with defense attorneys about the strategic concerns involved in filing a motion to strike. 

"If you can resolve class issues before conducting discovery, that's tremendously advantageous to a defendant,' [Dykma Gossett PLLC attorney J. Kevin] Snyder said. "As a defense lawyer doing mostly defensive class actions, you're always looking for ways to save your clients money," he added.

On the other hand, the lawyers Kamping-Carder interviews also express concern about the disadvantages to moving early. Leaving aside the mixed success rate with motions to strike, they worry about what happens if the court denies the motion:

"Then you've basically just given the plaintiffs a road map of what you're going to say," as well as a month to take discovery to oppose your best arguments," [Venable LLP partner Daniel B.] Chammas said.

If the motion backfires and defendants lose, they have a court on record holding that the case should proceed as a class action, [Mannatt Phelps & Philips attorney Brad W.] Selling said."

In general, I would say that excessive caution about motions to strike class allegations is not necessary. If the defendant frames it properly, as a challenge to flaws that are apparent on the face of the complaint , then the effect of a denial are the same as a denial of a motion to dismiss. The defendant will not have given away its strongest fact-based arguments, and a denial of arguments based on plaintiff's allegations is not likely to hold that the plaintiff is entitled to certification as a matter of law. At the same time, the motion to strike gives the defendant a chance to prime the court to think about the difficulties involved in certifying a class. Like all of these lawyers advised, one should only move to strike class allegations when one has strong arguments; but assuming the defendant has not asserted weak arguments, the benefits of moving to strike class allegations largely outweigh the risks.

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As I've written before, it's rare for something to qualify as breaking news in the world of class action practice. This, however, qualifies. This afternoon, the three-judge panel that had ruled that the Class Action Fairness Act requires at least one class member to have suffered $75,000 in damages--thus turning itself into an outlying circuit on the question of class-action jurisdiction--reversed itself in a per curiam opinion:

On July 19, 2010, we issued an opinion in this case. Cappuccitti v. DirecTV, Inc., No. 09-14107, slip op. (11th Cir. July 19, 2010). We based our decision on our interpretation of the jurisdictional requirements of the Class Action Fairness Act of 2005 (“CAFA”), Pub. L. No. 109-2, 119 Stat. 4 (codified in scattered sections of 28 U.S.C.), which we have elsewhere called a “statutory labyrinth.” Lowery v. Ala. Power Co., 483 F.3d 1184, 1199 (11th Cir. 2007). Subsequent reflection has led us to conclude that our interpretation was incorrect. Specifically, CAFA’s text does not require at least one plaintiff in a class action to meet the amount in controversy requirement of 28 U.S.C. § 1332(a). Accordingly, we construe both parties’ petitions for rehearing en banc to include petitions for panel rehearing,1 vacate our earlier opinion, and replace it with this one.

(Emphasis added.)  The court then proceeded to address the arbitration provision that had actually been before it in the original case, finding that DirecTV's arbitration provision was not unconscionable.

The court erred. As Cappuccitti readily conceded in opposing DirecTV’s motion to compel arbitration, attorney’s fees and litigation expenses would be available to him if he prevailed on the theory that the early cancellation fee is invalid as “[u]nfair or deceptive” under O.C.G.A. § 10-1-393(a). The JAMS Rules provide for the award of attorney’s fees and litigation expenses if allowed by state law, and O.C.G.A. § 10-1-399(d) authorizes them.

In light of this, it is apparent that the district court’s order denying arbitration must be vacated and the case remanded for further proceedings consistent with this opinion.

With this ruling, the Eleventh Circuit has brought itself back into line with other federal courts on the question of which class actions qualify for federal jurisdiction under CAFA. 

We now return you to your (hopefully) class-action-free weekend.

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Geoffrey Miller is one of the few law professors out there who consistently investigates real empirical questions about class actions. He's published on the role of objectors in class-action settlements, the use of non-pecuniary relief, and even the effect of judicial review on settlement rates. So when Miller comes out with a policy proposal--as he does in a recent article in the University of Illinois Law Review, it's worth paying attention to what he says.

Miller starts from the premise that "something is wrong with settlements." (If one were glib, one could say that his critique proves that something is right with settlements. Nobody's pleased with them.) His proposed solution? The preliminary judgment. As Miller proposes it, at any point, a party could move the court to declare whether it believed the plaintiff could establish her case by a preponderance of the evidence currently available.

A preliminary judgment is simply a tentative assessment of the merits of a case or any part of a case, based on the same sorts of information that the courts already consider on motions for summary judgment. The difference between a preliminary judgment and a summary judgment is that the court, in a preliminary judgment, would not be limited to deciding issues with which no reasonable jury could disagree. Instead, the court would provide its own provisional judgment on the merits of the case based on the information provided by the parties. A preliminary judgment, once given, would convert into a final judgment after the expiration of a reasonable period of time - say, thirty days. Any party against whom a preliminary judgment is issued, however, would have the right to object prior to the expiration of the period (with or without explanation), in which case the judgment would be vacated and the case would proceed according to ordinary rules of procedure. Like other threshold rulings, the preliminary judgment would then have no preclusive effect in the continuing litigation.

(Internal footnote omitted.)  According to Miller, this "preliminary judgment" would offer more information to the parties than a ruling on other preliminary motions--presumably because it would apply the same decision rule that applies at trial. He also believes it would reduce litigation costs.

In reality, while the motion for preliminary judgment would likely prove another useful tool, there is no reason to believe that it would be immune from the strategic behavior prompted by other versions of preliminary motions. Preparing a motion for preliminary judgment would not be costless. Defendants would have strong incentives to file early preliminary judgment motions, much as they already do with other preliminary motions. (This analysis would hold true whether one believes that defense counsel file early motions to rid themselves of frivolous cases, to frame the remainder of the litigation, or simply to run up their hourly bills.)

The lesson Miller's analysis suggests is a simple one, and one that this blog has advocated for some time now: Challenge both certification and merits as early as possible. While this isn't quite the same as getting a "preliminary judgment," the same advantages Miller touts operate. Each side gets an early look at the merits of the case. If the case lacks merit, the court should recognize the strength of the defendant's arguments and dismiss it (or at least strike the class allegations). If the case has some merit, better the defendant learn that as early as possible.

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Followers of this blog have probably noted (and probably with some chagrin) that I rarely discuss just-released cases, because I'm more interested in what we can learn about the strategies in a case than breaking the latest legal news. This case, though, is different, because last week the Eleventh Circuit released an opinion on jurisdiction under the Class Acton Fairness Act (CAFA) that is baffling in large part because it ignores the ways in which parties actually litigate a class action.

In the recently-decided Cappuccitti v. DirecTV (11th Cir. Jul. 19, 2010), the Eleventh Circuit dismissed a class action for lack of subject-matter jurisdiction under CAFA.

As part of its reasoning, it held that at least one plaintiff must allege more than $75,000 in damages:

While § 1332(d) may have altered § 1332(a) to require only minimal diversity in CAFA actions, there is no evidence of congressional intent in § 1332(d) to obviate § 1332(a)’s $75,000 requirement as to at least one plaintiff.

(Citation omitted.) 

How did the court reach that conclusion?  Plaintiffs Renato Cappuccitti and David Ward sued DirecTV, Inc., claiming that DirecTV wrongfully charged its subscribers fees for cancelling their subscriptions prior to the subscriptions’ expiration. They brought suit in federal court under CAFA (both plaintiffs were Georgia residents, DirecTV is a California corporation, and the amount in controversy exceeds $5 million). DirecTV moved to dimiss and to compel arbitration. The district court refused to compel arbitration, and partially dismissed the plaintiffs' claims. DirecTV appealed the denial of arbitration.

The Eleventh Circuit never reached the arbitration question. Instead, it held that it lacked subject-matter jurisdiction over the case because neither of the plaintiffs had alleged a claim worth more than $75,000. As the opinion puts it:

in a CAFA action originally filed in federal court, at least one of the plaintiffs must allege an amount in controversy that satisfies the current congressional requirement for diversity jurisdiction provided in 28 U.S.C. § 1332(a). Such a conclusion is compelled by the language of § 1332 as well as the general principle that federal courts are tribunals of limited jurisdiction whose power to hear cases must be authorized by the Constitution and by Congress.

The Eleventh Circuit based its holding on a reading of several cases interpreting the "mass action" provisions of CAFA.  But it also worked from the assumption that its job is to reduce the number of class actions filed in federal court:

If we held that § 1332(a)’s $75,000 requirement for an individual defendant did not apply to § 1332(d)(2) cases, we would be expanding federal court jurisdiction beyond Congress’s authorization. We would essentially transform federal courts hearing originally-filed CAFA cases into small claims courts, where plaintiffs could bring five-dollar claims by alleging gargantuan class sizes to meet the $5,000,000 aggregate amount requirement. While Congress intended to expand federal jurisdiction over class actions when it enacted CAFA, surely this could not have been the result it intended.

This reasoning is puzzling, because the vast majority of federal class actions aggregate smaller claims. In fact, much of the federal court's Rule 23 jurisprudence is based on the benefits that derive from allowing plaintiffs to aggregate small-dollar claims. (It also ignores footnote 12 of the Supreme Court's Allapattah opinion, and its own opinion in Evans v. Walter Industries, Inc., each of which accept that the $5 million aggregate requirement replaced the $75,000 individual requirement.)

With the issuance of the Cappuccitti opinion, the Eleventh Circuit has made itself an outlier on CAFA jurisdiction.  (Placing it in opposition to the Second, Third, Fifth, Sixth, Seventh, Eighth, and Tenth, Circuits)  Given the odd result of the Cappuccitti opinion, it is likely that plaintiffs who wish to keep cases out of federal court will file them in Georgia, Florida, and Alabama.  Defendants should prepare themselves accordingly.  

UPDATE, 15 OCTOBER 2010 - The three-judge panel that decided this case subsequently reversed itself in a per curiam opinion.  

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Multi-district litigation is becoming more and more common in class actions, and has added another strategic dimension to the cases.

For plaintiffs it adds the question of which law firm should lead the consolidated litigation.
 And, as should be clear by now, that is no small question for plaintiffs.

But the other issue it complicates--for both sides--is forum-shopping. Forum-shopping tends to be unavoidable in class-action litigation.  For plaintiffs, forum-shopping usually involves choosing the best possible mix of favorable law, favorable judges, favorable demographics, and potential interference from other plaintiffs' firms. [For a fuller discussion of the factors plaintiffs consider in forum-shopping, be sure to check the Class Action Playbook, coming out in September.] For defendants, forum-shopping is often limited to the question of whether to remove a case or not.

But, once the question of consolidating multiple cases into multi-district litigation arises, those questions get reopened, and the field of possible choices expands to include any federal district court. While the Judicial Panel on Multidistrict Litigation (JPML) should only consolidate cases that share "common issues," few guidelines constrain where it may assign a consolidated case. Since the specific court chosen can have a material effect on how the case gets conducted, what factors does the JPML take into account?

Margaret Wilson (of Vanderbilt University) and Tracey George (of the Federal Judicial Center) have set out to answer that question. In their recent paper "Deciding Who Decides: Consolidating Multidistrict Litigation," they set out to test whether any factors about the case--or the panel--influenced the assignment of MDL cases. Their conclusion?

As the model shows only two factors are statistically significant in their relationship to the assignment of a case. Higher numbers of recommendations for a district and those districts currently represented on the Panel were more likely to receive a transfer.

(Emphasis added.)  Not only were the districts represented on the Panel more likely to receive the transferred case, it was the judges on the Panel who were most likely to oversee those cases.

Judges who take senior status are statistically less likely to be assigned the MDL, all else being equal. Judges who previously served as Chief Judge, however, and current JPML judges were all statistically significantly more likely to be assigned the MDL.

This result has a certain logic to it. Judges are likely to know the resources of their own districts, and may also be likely to decide they are best qualified to handle a multi-district case.

What are the implications of this finding? If a defense lawyer finds itself arguing before the JPML, it may make sense to argue for the most favorable district represented on the Panel as the best destination. At the very least, doing so may constitute a good backup plan.

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Last Thursday, in Morrison v. National Australia Bank (slip op.), the Supreme Court held 8-0 (Sotomayor, J. not participating) that “foreign-cubed” class actions (where the plaintiff, the defendant, and the sale of the security are all located outside the US) did not have sufficient ties to the United States to justify invoking US securities laws. The bulk of Justice Scalia’s majority opinion focused on the question of when one could presume that a law would apply outside the US. (The “presumption of extraterritoriality.”) As a statement of how the US will treat cases that may have international application, this is an important opinion. But, for most class-action practitioners, I think it will prove more just a footnote.

The thing is, Morrison seems to be a comparatively easy case. True “foreign-cubed” class actions—with no discernable connection to the US—are comparatively rare in US courts. In its opinion, the Court of Appeals for the Second Circuit noted that “[t]his is the first so-called ‘foreign-cubed’ securities class action to reach this Circuit,” and the Second Circuit is no stranger to securities class actions.  Even Morrison wasn’t a pure foreign-cubed case at first; it started as a hybrid involving both domestic and foreign-based classes. (The domestic plaintiff’s claims were dismissed under Rule 12(b)(6).) For most plaintiffs’ lawyers, filing a proposed class action involving a foreign plaintiff, a foreign defendant, and foreign conduct would be a long shot from the beginning: assuming the case were tried on the facts, there’s no strong hook to convince an American factfinder to care about the result. Or, as Justice Scalia put it:

Nothing suggests that this national public interest pertains to transactions conducted on foreign exchanges and markets.

So, is there any strategic advice defense lawyers can glean from this case? The case does provide some additional rhetorical cover for defendants. As we know, many class-action plaintiffs’ lawyers advertise themselves as private attorneys-general, whom the courts can rely on when the publicly-appointed cops are too busy or too ignorant to stop corporate wrongdoing. In this case, the Solicitor General (arguing on behalf of the petitioner) made that argument, claiming that unless its securities laws were given extraterritorial application, the US would become like the Barbary Coast, a home base for fearsome pirates. Justice Scalia dismissed this geographic metaphor with one of his own:

While there is no reason to believe that the United States has become the Barbary Coast for those perpetrating frauds on the foreign securities markets, some fear it has become the Shangri-La of class-action litigation for lawyers representing those allegedly cheated in foreign securities markets.

The geographic metaphor gets a little tortured, so to put it in classic movie terms: when a plaintiff invokes the cinematic image of the lone sheriff on a lawless frontier, it’s still worth asking whether he’ll be played by Gary Cooper or Orson Welles.

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 ... to provide a brief update on the Supreme Court's decision yesterday in Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., which held that, unless there is a specific contractual basis to do so, one party cannot force another to submit to classwide arbitration.  

Since the decision involves a firm client (which had retained a team headed by firm colleague Amy Manning), I'm going to refrain from the usual tactical analysis.  Instead, I'll simply reprint the firm's press release, and wish Amy and the rest of the McGuireWoods team congratulations on a job well done.  

Supreme Court Rules in Favor of McGuireWoods Client
in Landmark Class Action Arbitration Case

CHICAGO – McGuireWoods LLP announced that it has secured a victory before the U.S. Supreme Court on behalf of firm clients Jo Tankers B.V. and Jo Tankers Inc. In a 5-3 decision in Stolt-Nielsen S.A. et al v. AnimalFeeds International Corp., No. 08-1198, 559 U.S. ___ (2010), the court addressed the key question of whether parties can be compelled to submit to class arbitration where the arbitration clause is silent on the issue of class treatment. In the decision, the court held that “a party may not be compelled under the [Federal Arbitration Act] to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so."

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That’s the question posed by a student note coming out from the Hastings College of Law in July. And the answer, according to author Joshus Stadler, is “No.”

Stadler’s primary argument is that the class action has its roots in equity, and was conferred its current status by the Rules Enabling Act, which does not enlarge or constrict any substantive rights. Since the Seventh Amendment only allows for jury trials for causes of action that existed in common law at the time of its adoption (generally, 1791), and the class action was given its modern status as a procedural device under the Rules Enabling Act, Stadler argues that there is no Seventh Amendment guarantee for a jury trial in a class action.

Stadler’s argument has to overcome a few obstacles. (Most notably, the Seventh Amendment applies to “Suits at common law,” which implies substantive causes of action instead of procedural devices. One can file a class action asserting a common-law cause of action like breach of contract, but there is not – nor has there ever been – a suit for “class action” as a cause of action.) But if it is correct, it would have significant strategic ramifications for class-action defense lawyers. In many cases, class-action defendants have expressed valid concerns about placing a lawsuit with bet-the-company stakes into the hands of a single, twelve-person jury. In others, however, defendants have successfully defeated class certification by pointing out either the Seventh Amendment concerns implicated by a plaintiff’s proposed trial plan, or the difficulties that would arise from instructing a jury in the laws of the various states implicated by proposed class action. 

Stadler’s argument is worth a read for another reason. It’s the second time in the last year that someone has attacked the legitimacy of the class action device by looking at its roots in the Rules Enabling Act. (The first was Martin Redish’s discussion of whether the class action is constitutional in general.) Stadler may have been influenced by Redish (though his one cite to the professor is not to his class-action work). Regardless, it’s worth noting this trendlet in the legal academy: there may be an emerging generation of students who wind up questioning the legitimacy of the class action on constitutional rather than policy grounds.

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Debra Lynn Bassett recently published a discussion of the preclusive effect of class actions in the Brigham Young University Law Review. Her thesis is aimed at the theoretical justifications for allowing class actions to have preclusive effect, most of which she finds severely wanting. In general, her discussion does not have much practical use; it’s aimed instead at reforming class-action policy.

However, Lynn Bassett does highlight one important issuefor practitioners.

Despite the Court's insistence on "adequate representation" as a prerequisite, the actual meaning and scope of the term remains surprisingly elusive. Although it is clear that adequate representation may be challenged at any stage of a class action, and that adequate representation is a prerequisite both for class certification and for a binding judgment, the meaning of the term itself is unclear. Perhaps necessarily, most of the Supreme Court's guidance on adequate representation addresses failure-what is insufficient to constitute adequate representation. The Court has found adequate representation lacking in situations involving intraclass conflicts of interest, as illustrated in Hansberry, Amchem, and Ortiz. And the Court has found adequate representation lacking when courts have not rigorously scrutinized class actions to ensure that the protections of Rule 23 have been satisfied.

(Internal footnotes omitted.)

When a defendant first challenges a class action, there is a strong temptation to challenge adequacy of the named plaintiff. However, a class action can only have preclusive effect (either on the merits or in denying certification) if the class was adequately represented. Given Ms. Lynn Bassett’s analysis and recent opinions, it is clear that the defendant should be careful about challenging adequacy if it hopes to enjoy the preclusive effect of any later decisions in the case. In particular, should the defendant defeat certification in federal court, that decision is binding unless it depends on the plaintiffs’ lack of adequacy.

There are still strong reasons to challenge the adequacy of a named plaintiff in a particular case. (The strongest is that the named plaintiff would not serve as an adequate class representative, a particularly important problem if the defendant is considering settling.) However, it is important for the defendant to think through whether it plans on settling or fighting a class action as early as possible – doing so may dictate the specific responses the defendant makes in responding to a motion for certification.
 

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The Supreme Court issued an opinion in Shady Grove Orthopedic Associates v. Allstate Insurance Company yesterday.

The case stemmed from a class action that had been filed in New York state. The class action arose after a woman was injured in a car accident. She was treated by Shady Grove Orthopedic Associates (the plaintiff). To pay for the treatment, the woman assigned her insurance benefits to Sahdy Grove. Shady Grove submitted the claim, but Allstate paid it late, and did not pay the required 2% interest on the overdue benefits. So Shady Grove filed a class action on behalf of everyone to whom Allstate had refused interest on their benefits.

Allstate moved to dismiss the claim, invoking a New York statute (NY Civ. Prac. Law Ann. § 901(b)) that prohibited class actions for statutory penalties. Accepting this reasoning, the federal trial court dismissed the claim for lack of subject matter jurisdiction: since § 901(b) prohibited the class action, all that was before the court was a $500 claim, too little in controversy to allow for diversity jurisdiction. Shady Grove appealed, and, after the Second Circuit affirmed, appealed to the Supreme Court.

The majority (in an opinion by Justice Scalia) began from the premise that

Rule 23 provides a one-size-fits-all formula for deciding the class-action question.

Based on that premise (and an analysis of the consequences of allowing substantive state law to deprive federal plaintiffs of the benefit of the federal rules) the majority held the New York prohibition on penalty class actions could not prevent a New York plaintiff from bringing a class action in federal court.

The majority was careful to set out the limits of its holding:

Contrary to the dissent’s implication, we express no view as to whether state laws that set a ceiling on damages recoverable in a single suit, see App. A to Brief for Respondent, are pre-empted.

The majority was also realistic about the strategic consequences of the decision, specifically, that some plaintiffs might file class actions in federal court to get around state prohibitions of certain kinds of class actions.

We must acknowledge the reality that keeping the federal-court door open to class actions that cannot proceed in state court will produce forum shopping. That is unacceptable when it comes as the consequence of judge-made rules created to fill supposed ‘gaps in positive federal law. … But divergence from state law, with the attendant consequence of forum shopping, is the inevitable (indeed, one might say the intended) result of a uniform system of federal procedure.

But while this opinion represented a defeat for Allstate in the specific litigation, it did provide at least one tool for defense lawyers. In holding that a state law could not override Rule 23, the Supreme Court reaffirmed that the class action is a procedural device – not a substantive right, and that class members would still have to prove all of the elements of their claims as they would in an individual lawsuit.

A class action, no less than traditional joinder (of which it is a species), merely enables a federal court to adjudicate claims of multiple parties at once, instead of in separate suits. And like traditional joinder, it leaves the parties’ legal rights and duties intact and the rules of decision unchanged.

That analysis alone makes this a case that most class-action defendants will want to study.
 

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Certain kinds of class actions – those predicated on technical violations of a federal statute like the Fair Debt Collection Practices Act (“FDCPA”) – provide a steady revenue stream for some plaintiffs’ lawyers, while plaguing some defendants. It can be difficult to oppose certification of these suits, because technical statutory violations may not be associated with many variations in proof. It becomes easier to defend these suits when the plaintiffs don’t do the work of establishing that the violation actually occurred.

Take the case of DeKoven v. Plaza Associates, Nos. 09-2016 & 09-2249 (7th Cir. Mar. 17, 2010). In DeKoven, several plaintiffs sued Plaza Associates, a debt-collection agency, arguing that a settlement letter it had sent to various debtors was confusing, and likely to mislead the debtors into believing that the offer it contained was their last chance to settle their debts. If true, that allegation would constitute a violation of the FDCPA.

In order to demonstrate that the letter was confusing, the plaintiffs hired an expert to interview 160 shoppers in a suburban shopping mall outside Chicago. The expert showed the shoppers a “control letter” that the plaintiffs claimed was less confusing, and the letter that was actually sent.
The defendant, Plaza Associates, moved for summary judgment, arguing that the plaintiffs’ survey evidence suffered from a number of defects. The trial courts granted both motions, and the plaintiffs appealed.

The panel, in an opinion written by Judge Richard Posner, engaged in a thorough analysis of the survey the plaintiffs had submitted, and found it wanting. The panel’s problems with the survey included:

• “the control letter was no good”;
• the sample size was not representative of the population, but just convenient to the sampler;
• the plaintiffs omitted an option in the survey for “don’t know/not sure,” making the survey responses even more confusing;
• “we don’t think [the survey] proves anything.”

Noting that “[s]uits under the Fair Debt Collection Practices Act have repeatedly come to grief because of flaws in the surveys conducted by plaintiffs’ experts,” the Seventh Circuit affirmed the grants of summary judgment. The lesson here for the defendants is simple: don’t forget to challenge the plaintiffs’ classwide evidence. If the class is not susceptible to common proof, then any attempts to massage evidence to make it apply to the entire class may very well render it inadmissible.
 

[Disclosure: Back in law school, I used to do academic research for Judge Posner.]

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Vanderbilt law professor Richard Nagareda has written an essay for the DePaul Law Review entitled "1938 All Over Again?: Pre-trial as Trial in Complex Litigation."  For the most part, this essay is a 30,000-foot view of litigation that emphasizes “cost imposition” (academic-speak for the idea that each party might try to drive up the other party’s costs).

Professor Nagareda’s analysis is still preliminary in places. (For example, in order to make his story of a chronological evolution work, he claims that class-action law became “distinctive” in 2006 with the In re Initial Public Offering opinion, in which the Second Circuit, like the Seventh Circuit five years before, and the Supreme Court nineteen years before that, held that a court deciding a class-certification motion must conduct a “rigorous analysis.” Most practitioners I know would call the 2009 Vinole decision in the Ninth Circuit a more recent development that better fits his thesis.)  However, much as a good essayist should, Nagareda lays out a though-provoking story about how the law has changed over time. According to him:

• Pre-trial litigation has evolved to allow defendants to challenge (and the court to evaluate) the merits of a claim at earlier stages, much like the pre-1938 code-pleading regime under the Federal Rules of Civil Procedure.
• That evolution has included class actions, which courts examine now with more rigor than they used to.
• The increased rigor stems largely from concerns about costs. Parties care about the costs of litigation and the uncertainty associated with a jury trial; in class actions, plaintiffs will exploit these concerns for maximum settlement value.
• As a result, courts should consider resolving early dispositive motions in more nuanced ways than just a binary grant or denial.

Much of Nagareda’s argument may sound obvious to practitioners. Parties (and, increasingly, courts) care about the costs associated with pre-trial litigation. And courts often rely on partial rulings or accompanying opinions to signal to the parties their chances of prevailing on later motions (which, one might argue, provides robust pricing information). But the story Nagareda tells here is a good reminder to defendants: federal civil procedure has evolved to enable defendants to challenge meritless claims earlier and more often; there is every reason to take advantage of that opportunity.

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Class actions rarely go to trial, so it’s rare to learn anything from published decisions about how a class action gets tried. However, in Pierce v. County of Orange, the Ninth Circuit had to grapple with several evidentiary issues unique to class action. In Pierce, several prisoners in Orange County’s prison system filed a class action that challenged a number of prison practices, including an alleged deprivation of opportunities for exercise, limitation of prisoners’ access to common areas, and restrictions on their ability to practice religion. The cases were consolidated, certified for class treatment under Rules 23(b)(2) and (b)(3), and eventually tried in a six-day bench trial. (Was that too little time to try plaintiffs’ claims? The appellate court said no.)

The appellate court ruled on a few evidentiary issues that affect defendants.

• It affirmed the exclusion of survey evidence that the plaintiffs had collected. (However, in doing so, it ruled that since two other experts relied on the survey, the exclusion of the evidence was harmless.)
• It allowed the defendant to rely on the statements of absent class members to challenge the named plaintiffs’ testimony.
• It also upheld the decertification of the Rule 23(b)(3) damages class, leaving only the injunctive relief class.

The most interesting of these rulings from a strategic standpoint is the admission of the statements of absent class members. The defendants tried to enter the evidence as adverse party interest statements, an exception to the hearsay doctrine under Rule 801(d)(2). The plaintiffs argued that doing so was not allowable because the absent class members were not representatives of the class – so they could not be parties. The Ninth Circuit ultimately ruled that

For an absent member of a Rule 23(b)(2) class to be treated as a party-and, hence, as a party representative of the class as a whole-for Rule 801 purposes there must be some mechanism to ensure that he or she will represent the interests of the class.

…

On July 1, 2004, plaintiffs disclosed the identities of forty-five inmates they expected to have testify regarding prison conditions. At least eighteen of the twenty-four statements that the County sought to introduce under Rule 801(d)(2) were taken from detainees on that list. We are satisfied that, on the facts of this case, reliance on statements by detainees who had been disclosed by plaintiffs' counsel as potential witnesses adequately protected the class from the risk of having the class's interests undermined by unrepresentative class members.

So what’s the lesson for defendants? First, statements of absent class members at trial are likely hearsay, and need to be treated as such. But, if the defendant can get them admitted, absent-class-member statements can be powerful evidence against supposed classwide problems.

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Since the Supreme court set out its “plausible claim” pleading standard in Ashcroft v. Iqbal last year, there has been a flurry of commentary – in law reviews and online – about the wisdom and the policy implications of the decision and its immediate predecessor, Bell Atlantic v. Twombly. The latest entry into that debate comes from Professor Robin Effron of Brooklyn Law School, who has written an article on The Plaintiff Neutrality Principle: Pleading Complex Litigation in the Era of Twombly and Iqbal (forthcoming from the William and Mary Law Review).

Effron’s primary concern is that a broad application of Twombly and Iqbal might lead to full-fledged Rule 23 inquiry at the motion to dismiss. (This is unlikely. Even if a defendant preempts a plaintiff’s motion for class certification, a comprehensive motion to deny will still require some discovery record. Iqbal’s plausibility standard may enhance a motion to strike or deny certification applying a Rule 12(b)(6) standard, but there – like in a motion to dismiss – courts will likely allow well-pled complaints to survive unless they have insurmountable legal defects.)

The more interesting part of the paper from a tactical standpoint is Effron’s concern with costs. The cost of litigation was not an explicit concern in Iqbal, but it was in Twombly. As Effron describes:

The Court repeatedly referred to the costs of litigation, especially the purportedly high cost of discovery in antitrust class actions as a factor in turning an increasingly critical eye to the factual sufficiency of the pleadings. This aspect of the Twombly opinion suggests that courts are to look not only at the plausibility of the allegations in the complaint, but the relationship between the plausibility of the allegations and the cost of discovery. The higher the cost of litigation, in other words, the more plausibility the court ought to demand from a complaint.

(Emphasis in original.) This suggests at least one rhetorical tactic for the motion to dismiss. A defendant may wish to remind the court of the very high costs involved in allowing a class action to proceed past the motion to dismiss stage. Most courts are very aware that, should they dismiss a claim (or compel arbitration), they may deny a plaintiff access to the courts.  But, on the other side, when courts allow overly vague or outright implausible claims to proceed, they are authorizing an incredibly costly venture each time with little to no factual basis, which defies Rule 1's admonition to ensure a "just, speedy, and inexpensive determination of every action and proceeding." There is every reason for a defendant to remind the court of that issue when moving to dismiss complex litigation.
 

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For practitioners, clauses in consumer contracts that require consumers to arbitrate smaller claims rather than bring large-scale class actions have been a hot issue for several years. Defendants (and their counsel) like these clauses because, when they work, they can reduce a bet-your-company class action back to a manageable individual claim. Class-action plaintiffs (and their counsel) tend to dislike the clauses for the same reason.

In general, the debate surrounding class-action arbitration clauses centers on whether a given clause – which is usually part of a take-it-or-leave-it consumer contract – is unconscionable because the consumer had no chance to negotiate it. And while defendants can win this debate, they can lose it just as easily.

However, one federal district court case from 2007 shows how a defendant can craft an arbitration clause that may allow it to take advantage of this low-cost alternative to class actions, even in a generally pro-plaintiff jurisdiction like the Ninth Circuit, applying consumer-friendly law like Washington state’s. In Carideo v. Dell, Inc., the plaintiffs sued Dell alleging that it sold them defective laptops. Dell invoked its arbitration clause, which the trial court upheld.

The plaintiffs moved for reconsideration. In denying that motion, the trial court found that plaintiffs could still vindicate their claims in arbitration because:

• the individual amount in controversy was $1,300 to $1,700, large enough to justify a day in front of an arbitrator;
• the arbitration forum (the NAF) did not provide for confidential awards, which meant that later plaintiffs would benefit from these first arbitrations;
• there was enough freely-available evidence (including internet complaints) for the plaintiffs to make a persuasive factual case without expending lots of costs; and, most importantly
• Dell agreed to pay all of plaintiffs’ arbitration costs in excess of the initial $25 filing fee.

Since the end result was that arbitration would be less expensive (and less time-consuming) than bringing a suit in court, the court refused to find the arbitration clause substantively unconscionable. Nor, since the arbitration clause provided a genuine means of redress, did the court find the clause procedurally unconscionable, even though it noted the take-it-or-leave-it nature of the contract.

So what does this mean for defendants? For those that might consider arbitration clauses to reduce the risk from class actions, it may make sense to reduce the barriers to arbitrating the claims. There is at least some evidence that people prefer informal dispute resolution to litigation.  Assuming in general the products are sound, the potential liability from a handful of arbitrations – even including costs – is far less than the cost of litigating a class-action suit brought by an entrepreneurial plaintiff’s lawyer, or an extremely disgruntled consumer, even if the suit is dismissed early in. And, even if the case were to proceed as a class action, the presence of a realistic arbitration program available at the outset would be a strong argument that class litigation was not superior to individual litigation.
 

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Often, when a defendant receives a class-action complaint, its first reaction is to see whether or not there are grounds to dismiss the action. (For defendants in federal court, that impulse is particularly acute since the Supreme Court handed down its opinion in Ashcroft v. Iqbal, which demonstrates little tolerance for purposely vague pleadings.) If the motion to dismiss succeeds, then the action goes away. But even if a complaint survives a motion to dismiss, the defense may still have achieved a valuable victory by setting up the eventual denial of class certification.

Take the 2008 case of In re FEMA Trailer Formaldehyde Products Liability Litigation, 2008 WL 5423488 (E.D. La. Dec. 29, 2008), a proposed class action in multi-district litigation alleging that various manufacturing defendants had built emergency trailers for victims of the devastating 2005 Hurricanes Katrina and Rita that exposed them to unsafe levels of the chemical preservative formaldehyde. Plaintiffs alleged causes of action for negligence, strict liability, and breach of warranty. The defendants moved to dismiss several of the plaintiffs’ claims that were brought under varying state laws, a motion the trial court denied. Later, however, when ruling on class certification, the court referred back to its decision on the motion to dismiss in finding that the named plaintiffs were not typical of the proposed class, in part because of the legal variations among the claims of various class members. In doing so, the trial court specifically stated that these legal variations were 

evident in the Court’s Order and Reasons [on the Motion to Dismiss], wherein the Court analyzed these claims in considerable detail according to the laws of the applicable states.

Courts are rarely this explicit about how their rulings on motions to dismiss may inform their decisions whether to certify a class. But there is little doubt that proffering valid legal arguments, even when they do not prevail at the motion-to-dismiss stage, can influence the court’s thinking when it later decides whether to certify a class. (Psychologists and behavioral economists refer to this effect as “framing.”) Sifting through complicated choice-of-law analyses or individualized allegations about statutes of limitations can help convince a court that a full-fledged class trial of individualized claims will be more work than it can adequately manage. Plaintiffs – who control the choice of forum, the complaint, and often even media contacts – have a number of powerful framing tools at their disposal. There’s no reason for the defendant to ignore those tools in its kit.

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Class actions don't necessarily look like emotional contests from afar, but they can be. Plaintiffs' counsel is risking work and capital with no certain return on their investment. The defendant has been placed in high-stakes litigation based on what appear (to it) to be baseless allegations. As a result, it can be hard for each side not to take things personally. But how hard should a defendant hit back against unscrupulous plaintiffs' counsel? Especially if – from the defendant's standpoint – they all look unscrupulous?

I can't think of another question that begs so much for the answer "it depends." But there is at least one clear set of circumstances out there.

In Hamm v. TBC Corp., the defendant sought sanctions against plaintiff’s counsel for soliciting plaintiff’s counsel for a collective action under the Fair Labor Standards Act. (The FLSA, 29 U.S.C. § 216(b), authorizes “collective actions.” They’re similar to Rule 23 class actions, but plaintiffs opt in instead of opting out, and the process favors certification more than Rule 23.)

According to the Magistrate Judge’s summary of the sanctions hearing, an employee of a tire company got a call on his cell phone. The woman on the other end of the line identified herself as working for plaintiff’s counsel, said she got his number from another employee, and explained that her firm was suing the tire company for unpaid overtime earned when employees worked through their lunch breaks, and asked if he’d like to join the lawsuit. The employee declined the offer. (According to the court, he said the allegations were “bull****.”)

That was when the defendant filed its motion for sanctions. The court took the charges seriously enough to hold two hearings, one of which included live testimony from a number of witnesses. The defendants put on four employees, each of whom claimed he was called by the same woman, who turned out to be a paralegal at the plaintiff’s firm. Plaintiffs tried to explain the calls away as a misunderstanding. They assured the court that they had a strict no-solicitation policy, and said that the calls were really just their attempt to investigate the class claims before filing.

The court believed the defendants. It pointed out several inconsistencies in testimony, and noted that the Southern District of Florida accounted for 28.7% of all FLSA cases, which it considered powerful circumstantial evidence that the volume was attorney-driven. As a result, it ordered sanctions against the plaintiff’s firm.

Despite its success, this is not a tactic every defendant should try. The defendant here was fighting on extremely favorable terrain. Florida has a strict no-solicitation rule. Plaintiff’s counsel made some serious tactical blunders when briefing the case. And there was compelling circumstantial evidence that plaintiff’s counsel had violated this rule before.

So what's the lesson here?

1. If you're going to attack opposing counsel, make sure you are flawless on the law and the facts
2. If you are flawless on the law and the facts -- don't shy away from holding your opponent to the rules of the game

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One of the peculiar frustrations of class-action defense is that one occasionally encounters a case that, while it might survive a motion to dismiss, could never be certified as a class. Other times, the defendant discovers evidence early in a case that supports the same conclusion. In those cases, what can the lawyer do but grit her teeth and start in on (or keep pushing through) the long expensive process of discovery?

Well, she could file a motion to deny certification. In an appellate opinion handed down in July, the Ninth Circuit expressly held that a defendant can start the class certification briefing process instead of the plaintiff.

The case, Vinole v. Countrywide Home Loans, Inc., involved a wage-and-hour class action filed against Countrywide. The plaintiffs sought to represent a class of "External Home Loan Consultants" (semi-independent salespeople paid by commission), alleging they had been wrongfully denied the opportunity to earn overtime.

However, declarations from a number of Consultants showed that the time they spent working -- both in and out of the office -- varied greatly.  Armed with this strong evidence against certification, Countrywide decided to take the offensive. Three months before discovery closed, it filed a motion to deny certification.

The plaintiffs responded with an argument that has strong intuitive appeal. The question wasn't ripe yet; in fact, the motion was procedurally improper because they hadn't moved to certify a class. Turning the certification process on its head, plaintiffs argued, would lead litigants into "troubling new territory." (The plaintiffs weren't reckless. They also presented some evidence they would have used in their certification motion, although the court noted that they made a "strategic choice" to limit that evidence.)

While the plaintiffs' argument may have had strong intuitive appeal it ran up against the text of Rule 23.  The trial court held -- and the Ninth Circuit affirmed -- that:

Nothing in the plain language of Rule 23(c)(1)(A) either vests plaintiffs with the exclusive right to put the class certification issue before the district court or prohibits a defendant from seeking early resolution of the class certification question. The only requirement is that the certification question be resolved '[a]t an early practicable time.' The plain language of Rule 23(c)(1)(A) alone defeats Plaintiffs' argument that there is some sort of 'per se rule' that precludes defense motions to deny certification[.]

The Ninth Circuit also pointed out that while a motion to deny was unusual it was hardly new; cases stretching back to 1972 showed defendants moving either to strike class allegations, or deny certification. Having established the propriety of the motion to deny, the Ninth Circuit went on to affirm the denial of certification, based largely on those declarations.

What's the lesson we can learn from this case? In class actions, like in boxing, sometimes the best defense is a good offense.

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