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

In 2007, four customers of Allstate Insurance Company sued it, alleging that it used outdated scoring algorithms to calculate their premiums, in violation of the Illinois Consumer Fraud Act.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

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

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

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

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

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

So what can defense lawyers use from this opinion?

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

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

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

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

E-discovery sanctions disproportionately affect defendants.

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

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

E-discovery sanctions are increasing.

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

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

Courts are particularly concerned with intentional conduct.

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

(Internal footnotes omitted.)

The primary offense is a failure to preserve evidence.

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

(Internal footnotes omitted)

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

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

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

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

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

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

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

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


 

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