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

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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 Last week, there were two appellate opinions, one from the Seventh Circuit and one from the Tenth, that are worth some attention. They're worth discussing together as well, because while only one is really helpful for defendants, both discuss different conceptions of how to argue comity in class actions.

The first is Smentek v. Dart (7th Cir. 2012). Smentek was a class action filed on behalf of Illinois prisoners who had been denied dental care in violation of the due process clause. It was the third of its kind. How did that happen? In the first two class actions, various trial judges of the Northern District of Illinois had denied certification. Not so the third, who granted it. As Judge Posner noted in the Seventh Circuit's opinion:

We don't understand why all three cases were not assigned to the same judge. Besides the usual advantages of consolidation, it would have avoided the problem that has precipitated the appeal in this case, because a single judge would not be of different minds about three identical lawsuits.

Given the Supreme Court's opinion last year in Smith v. Bayer Corp., the defendant could not ask for an injunction preventing any further class actions from being filed, nor could it argue that a new class action was barred by collateral estoppel. But it could, as the Court had directed, ask the new court to, in the interest of judicial comity, deny certification. Foolproof strategy, right?

As it turns out, not in the Seventh Circuit. The trial court did not take comity into account. Nor, according to Judge Posner, should it have.

The version of comity announced in dictum in Smith v. Bayer Corp. is novel. It does not involve the mutual respect of sovereigns or quasi-sovereigns and it does not appear to be limited to cases in which parallel suits are pending in different courts (or before different judges) of the same sovereign. … The Supreme Court's opinion cites no authority for the extension of the doctrine of comity to mere disagreement between federal judges, and despite the reference to expecting "federal courts to apply principles of comity to each other's class certification decisions" (emphasis added), the Court seems really to have been thinking about cases involving federal-state comity, of which Smith v. Bayer Corp. was one.

(Emphasis added.)  The primary problem Judge Posner saw was that, to provide the doctrine with any preclusive effect would simply render it collateral estoppel by another name, an avenue that the Supreme Court had already closed off.

True, the effect of the doctrine of comity, when it is successfully invoked, is preclusive. But unlike res judicata, it is a doctrine that does not require but merely permits preclusion, except (as we're about to see) when it governs choice of forum. The mandatory comity for which the defendants in our case contend is just another name for collateral estoppel.

Judge Posner, no fan of repetitive class actions (remember, he authored several opinions disapproving of it in Thorogood v. Sears, Roebuck & Co.), conceded that this left open a distinct issue of judge-shopping, one that his colleague Judge Easterbrook had identified long ago in In re Bridgestone/Firestone. In Posner's words:

Not that there isn't a serious problem of judge shopping in the disordered realm of class action litigation, a problem well illustrated by this case and its two predecessors taken all together. Without a rule of preclusion, class action lawyers can do what the lawyer here (and the lawyer in Thorogood) did: keep bringing identical class actions with new class representatives until they draw a judge who is willing to certify the class.

So, at this point, it appears that the Supreme Court's admonition to respect previous denials of certification is of persuasive value only, which means that it is helpful only so long as the court is not inclined to certify a class in the first place, which is to say not helpful at all. At least Judge Posner's opinion spells out the problem in stark terms, of which one might hope other courts will take notice.  

The second case is Winzler v. Toyota Motor Sales U.S.A., Inc. (10th Cir. 2012). In this case, the plaintiff sued for an injunction requiring essentially requiring a recall of Toyota Corollas that allegedly stalled without warning. After she filed the complaint, Toyota moved to dismiss because the plaintiff had not suffered a stalling incident herself, and therefore had not incurred any injury. ("No-injury" class actions are common in products liability.) The trial court granted the motion.  Toyota also noted that a NHTSA investigation was underway. By the time the plaintiff filed her appeal, Toyota had announced a recall, and it had argued to the Tenth Circuit that the recall mooted the plaintiff's claims.  (This particular formulation of mootness is referred to as "prudential mootness.")

The Tenth Circuit found merit in Toyota's position. Like Judge Easterbrook did in Aqua Dots, the Tenth Circuit expressed concern about the fact that suing on top of a recall would add transaction costs that would benefit only the plaintiffs' lawyers.

Our intervention would, as well, surely add new transaction costs for Toyota and perhaps reduce the incentive manufacturers have to initiate recalls (as Toyota did here), all while offering not even a sliver of additional relief for Ms. Winzler and members of the class she seeks to represent. Perhaps the lawyers would benefit if this would-be class action labored on through certification, summary judgment, and beyond. But it's hard to see how anyone else could.

But the Tenth Circuit was not just concerned that suing when an administrative recall was available would add transaction costs. It also worried that initiating a redundant action through the courts would undermine the comity between branches of government:

To hold otherwise -- to allow a case to proceed simply because there happen to be differences between the remedial process a coordinate branch has selected and those we might choose - would not only require us to ignore the reality that there's often no one single right way to go about providing equitable relief to an injured party. It would also require us to ignore the reality that there are nearly always (if not always) some differences between Executive, Legislative and Judicial remedial procedures given how differently the three branches operate: by regulation, legislation, and decree. To presume deficiency from difference would no doubt go a long way, as well, toward spelling the end of prudential mootness doctrine and the comity it is supposed to afford our coordinate branches.

At that point, it affirmed the lower court's dismissal of the case.

So, what can we draw from these two different treatments of the concept of "comity"? Comity as a standalone concept is not a particularly helpful one: as Judge Posner points out, the doctrine of comity really only applies to separate sovereigns. However, comity also has a looser meaning, one that asks courts to respect other governmental bodies, even if they stem from the same sovereign power. And here, comity is at the very least a useful rhetorical device. It reminds the court that it is not the only available means of relief; and that some litigation is simply a waste of time and money. Of course, since comity is not mandatory, what a court chooses to do with that information remains entirely up to it.

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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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