As the new year begins, this is a good time to recap two of the major Supreme Court decisions from the past year impacting class action law, and to look ahead to a couple big decisions on the horizon.
Arbitration and Class Actions
First, in Epic Systems Corporation v. Lewis, the Court confirmed that class action waivers in arbitration agreements are enforceable in employment contracts, even where the employee is covered by the National Labor Relations Act (NLRA). Within a year after the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion, which held that the Federal Arbitration Act (FAA) overrode any state law prohibiting class action waivers, the National Labor Relations Board ruled that class action waivers in employer arbitration agreements were not enforceable because such waivers limited employees’ rights under the NLRA to engage in “concerted activities.” Federal courts consistently disagreed with the Board’s reasoning until the Seventh Circuit’s decision adopting it in Epic Systems. The Ninth Circuit and Sixth Circuit followed suit shortly thereafter, creating a circuit split with the Second, Fifth and Eighth Circuits on one side and the Sixth, Seventh and Ninth Circuits on the other. On May 21, 2018, the Supreme Court ended the split, holding that the NLRA did not override the FAA’s clear instruction that arbitration agreements must be enforced as written. Relying on Concepcion, the Court further explained that the savings clause in the FAA permits courts to invalidate arbitration agreements only on the basis of contract defenses such as fraud and duress, not on the basis of defenses that apply only to arbitration. The Court held that challenges to an agreement because it requires individualized arbitration attacks arbitration, not the contract itself, and therefore, was not a basis to invalidate the arbitration provision under the FAA.
Class Actions and Tolling
On June 11, 2018, the Supreme Court issued another major decision affecting the class action jurisprudence. In China Agritech v. Resh, the Court held that American Pipe tolling did not apply to successive class actions, instead limiting the prior holding to a putative class members’ ability to bring an individual suit after class certification has been denied. Under American Pipe, the timely filing of a class action tolls the applicable statute of limitations for all persons encompassed by the class complaint. If class certification is later denied, those would-be members can intervene in the still-pending action. Later, in Crown, Cork & Seal Co. v. Parker, the Court extended American Pipe tolling to allow for the putative class members to bring an individual suit rather than join the original lawsuit in which certification was sought. The plaintiff (and the Ninth Circuit) in China Agritech attempted to take Crown, Cork & Seal Co. one step further by filing a new class action after class certification had been denied in two prior cases. The Supreme Court, in its decision in China Agritech, held this went too far. The Court explained that the justification for American Pipe tolling – the efficiency and economy of avoiding multiple individual actions that may be swept up into a class while the certification issue is being decided – does not apply to successive class actions. Instead, the Court reasoned, efficiency favors early assertion of competing class representative claims. Otherwise, allowing tolling for successive class suits could allow plaintiffs “limitless bites at the apple.”
Looking ahead to 2019, one key issue the Supreme Court may take up is whether cy pres settlements that award substantial relief to a fund that benefits the general public but little or none to actual class members meet the “fair, reasonable, and adequate” threshold set for settlements under Rule 23(e)(2) of the Federal Rules of Civil Procedure. The named plaintiffs in Frank v. Gaos, currently on appeal to the Supreme Court, alleged that Google improperly disclosed private information regarding their searches to third parties, and ultimately entered into a settlement agreement that awarded over $2 million to class counsel, $5,000 to the named plaintiffs, and $6 million to several privacy advocacy groups – but no payment to the estimated 129 million class members. The Ninth Circuit approved the settlement, breaking with the decisions of several circuits that have held class members must be compensated prior to allocating funds to other uses, and the Supreme Court granted certiorari. The reason the Supreme Court may not resolve this split? Following oral argument, the Supreme Court requested supplemental briefing on the issue of whether any named plaintiff had standing under Spokeo to assert the claims in the first place.
Nationwide Class Settlements
Another issue impacting class action settlements that has not wound its way up to the Supreme Court yet, but may in 2019, is whether and when the differences in the state laws that govern the respective claims of class members across the country preclude nationwide certification—and thus a nationwide settlement. Before the Supreme Court can step into the fold, an 11-judge panel of the Ninth Circuit will issue a ruling following its en banc review of the prior decision of a three-judge panel to decertify the settlement based on these state law variances. The case, In re Hyundai and Kia Fuel Economy Litigation, arises out of allegations of automakers marketing artificially high fuel estimates for certain vehicles. The complaint alleged violations of California consumer protection laws, and certain objectors contended their claims must be construed under the consumer protection laws of their state of residence. Advocacy groups on both the consumer and defense side of the class action bar have expressed support for allowing settlement on a nationwide basis under these circumstances, but only time will tell if that is sufficient to turn the tide back to approval.
If you are interested in learning more, please join us on January 29, 2019 for our webinar, Class Action — A Look Forward to 2019, where we will examine the significant class action decisions and rule changes of 2018 and make predictions regarding what 2019 may bring.