Monthly Archives: September 2015

North Carolina Joins the Tsunami Wave of Volkswagen Litigation

View Amanda Pickens’ Complete Bio at RBH.com
Vinson v. Volkswagen Group of America, Inc., No. 1:15-cv-00213 (W.D.N.C. September 23, 2015), a case filed this Wednesday in the Western District of North Carolina, is one of at least twenty-five class actions filed against Volkswagen in courts across the country this week. In addition, at least 27 state attorneys general have launched a multi-state investigation into the German automaker’s 2.0-liter diesel vehicles.

The Plaintiffs in the WDNC case, as in the other actions, allege that Volkswagen intentionally defrauded the EPA and consumers by installing a “defeat device” on its diesel vehicles. The device can detect when an automobile is undergoing official emissions testing. The device switches on emissions controls during the testing to ensure the vehicle passes the emissions test. During normal usage of the cars, however, the emissions controls are turned off and the vehicles emit nitrogen oxide at levels up to 40 times the standard permitted under the Clean Air Act.

The flood of lawsuits began last week after Volkswagen acknowledged rigging emissions technology on its diesel vehicles to pass air-quality tests. During the launch of one of its newest vehicles, Volkswagen’s CEO, Michael Horn, admitted that Volkswagen “was dishonest with the EPA and the California Air Resources Board and with all of you” and “in my German words, we have totally screwed up.” According to German automaker, as many as 11 million cars worldwide may be affected.

The Judicial Panel on Multidistrict Litigation is likely to transfer these cases to a single judge for pretrial proceedings.

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NC Court of Appeals Approves Payments of Attorneys’ Fees in Class Action Settlements

View Mark Hiller’s Complete Bio at RBH.comCan a class action settlement agreement contain a fee-shifting provision that provides for a payment of attorneys’ fees? In a question of first impression, the North Carolina Court of Appeals said yes, subject to a trial court’s approval of the settlement at a fairness hearing.

In the long-running Ehrenhaus v. Baker case, the Plaintiff brought a class action challenging the merger of Wells Fargo and Wachovia. The parties ultimately entered into a settlement agreement that also provided for a payment of attorneys’ fees to Plaintiff’s counsel. The trial court approved the settlement, but two shareholders objected.

In Ehrenhaus I, the Court of Appeals affirmed the approval of the settlement but remanded the case for additional findings regarding the attorneys’ fees. The Court’s remand implicitly indicated that a defendant could agree to pay fees to plaintiffs’ counsel in settling a class action, subject to court approval. But some of the language in Ehrenhaus I had raised questions about the trial court’s authority regarding fees and how the American Rule—which generally requires litigants to bear their own expenses—applies (or does not apply) in class actions. On remand, after receiving additional evidence, the trial court issued an order approving the payment of attorneys’ fees to plaintiffs’ counsel, and the two objecting shareholders appealed again.

This Tuesday, in Ehrenhaus II, the Court of Appeals rejected this challenge to the trial court’s decision on fees. The Court began by laying out the law related to fee-shifting. Under the “American Rule,” the Court explained, “a successful litigant may not recover attorneys’ fees . . . unless such a recovery is expressly authorized by statute,” and here it was not. The Court then identified two exceptions to the American Rule in the class action context, but concluded that neither applied. First, under the “common fund doctrine,” a “litigant or a lawyer who recovers a common fund for the benefit of persons other than himself or his client is entitled to a reasonable attorneys’ fee from the fund as a whole.” The Court said that this doctrine did not apply here because Plaintiff’s lawsuit did not result in the establishment of a common fund. Second, under the “common benefit” doctrine, even if no common fund is created, “an award of attorneys’ fees to a litigant’s counsel is permissible when that litigant confers a common monetary benefit upon an ascertainable stockholder class in a shareholder action.” North Carolina, however, has declined to adopt the common fund doctrine.

Although neither the common fund nor common benefit exceptions to the American Rule applied, the Court of Appeals held that the award of attorneys’ fees was permissible. That is because, the Court held, “the award of attorneys’ fees in this case did not trigger the operation of the American Rule” because the fee award “was provided for in a voluntary settlement between the parties.” The Court explained that “our caselaw expressly recognizes the enforceability of settlement agreements providing for the payment of one party’s attorneys’ fees by the other party to the lawsuit.” That rule furthers the “well-established policy of encouraging the settlement of disputes between litigants and is therefore permissible despite a lack of explicit statutory authorization for such an award.”

The Court acknowledged that this was the first time the Court has addressed whether this rule applies in the class action context, which presents “unique” concerns because not all class members will participate in negotiating the settlement or be before the court. Hence, the Court noted, “the settlement of class actions—unlike settlements in ordinary civil actions—must be judicially approved” pursuant to North Carolina Rule of Civil Procedure 23(c), which requires the court to hold a hearing to determine whether the proposed settlement is fair, reasonable, and adequate. But the Court found no “persuasive argument as to why a trial court’s ability to evaluate the fairness and reasonableness of a class action settlement does not include the concomitant ability to determine whether a provision in such a settlement authorizing the payment of attorneys’ fees is likewise fair and reasonable.”

Accordingly, the Court held that “the parties to a class action may agree to a fee-shifting provision in a negotiated settlement that is—like all other aspects of the settlement—subject to the trial court’s approval in a fairness hearing. During the fairness hearing, the trial court must carefully assess the award of attorneys’ fees to ensure that it is fair and reasonable.”

The Ehrenhaus II decision also addresses an important appellate procedure question regarding Business Court appeals. For more on this issue, see Ehrenhaus Is Here To Stay from the N.C. Appellate Practice Blog.

(Robert Fuller and Adam Doerr of our firm represented the Defendants in this litigation.)

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Recent Filings – August Digest

View Amanda Pickens’ Complete Bio at RBH.com Not every class action court filing in North and South Carolina becomes a full-length post on our blog. Here is a recap of August’s filings:

Lijkel Dijkstra v. Harry Carenbauer, No. 15-1994 (4th Cir. August 27, 2015) (docketing appeal from Order and Final Judgement denying defendants’ motion to decertify a class of West Virginia consumers who obtained a mortgage through LendingTree and holding defendant consumer lending companies liable for engaging in the unauthorized practice of law by closing real estate loans without a licensed attorney or without the direct supervision of a licensed attorney).

Montgomery v. Lovin’ Oven Catering Suffolk, Inc., et. al., No. 15-CV-03214 (D.S.C. August 13, 2015) (asserting Fair Labor Standards Act collective action and class action under the South Carolina Payment of Wages Act brought by massage therapists alleging that defendant spa owner misclassified the massage therapists as independent contractors rather than employees, failed to pay minimum wage and overtime, and mishandled tips).

Thomason v. FGX International, Inc., No. 15-CV-03161 (D.S.C. August 11, 2015) (asserting Fair Labor Standards Act collective action and class action under the South Carolina Payment of Wages Act on behalf of merchandisers who visited retail stores to inspect defendant’s products alleging employment law violations, including nonpayment of overtime and reimbursement for work-related expenses).

Pruitt v. 3D Systems Corp., et. al., No. 15-CV-03138 (D.S.C. August 10, 2015) (putative class action on behalf of shareholders of 3D Systems Corporation, a publically traded company, asserting securities violations for providing allegedly false and/or misleading information about the company’s business in its press releases and securities filings).

Chad Pelino, et. al. v. Ward Manufacturing, LLC, No. 15-1877 (4th Cir. August 7, 2015) (docketing appeal from Order dismissing products liability and warranty claims against pipe manufacturer for its alleged defective piping and denying class certification on the basis that plaintiffs failed to show commonality and typicality among class members because the class representative and the unnamed class members did not have the same interests or the same injuries).

Fitzhenry v. USHEALTH Group, Inc. and USHEALTH Advisors, LLC, No. 15-CV-03062 (D.S.C. August 4, 2015) (putative class action alleging violations of the Telephone Consumer Protection Act against defendant health insurance company for its use of an automated telephone dialing system and pre-recorded telephone messages).

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Airline Price-Fixing Litigation Arrives in the MDNC

View Adam Doerr's Complete Bio at RBH.comCone v. American Airlines Group, Inc., a case filed this Thursday in the Middle District of North Carolina, is one of dozens of antitrust suits filed against the major U.S. airlines in courts across the country in recent weeks. With the addition of North Carolina, suits are now pending in at least seven states and the District of Columbia. Terry Maxon, who blogs about the airline business for the Dallas Morning News, has identified at least 75 such cases.

The Plaintiffs in the MDNC case, as in the other actions, allege that the major domestic airlines conspired to raise the price of airline tickets by limiting the routes and seats available to passengers. The basic theory is that the airlines unlawfully cooperated to maintain high ticket prices by artificially constraining capacity. According to the Plaintiffs, the combination of capacity constraints and declining fuel prices enabled the airlines to generate “record-breaking supracompetitive profits.”

The cases all arise from Civil Investigation Demands that the Department of Justice sent to the major domestic airlines (American, Delta, Southwest, and United) asking the airlines to produce communications with each other, Wall Street, and major shareholders about their future plans for passenger capacity. The flood of lawsuits began in July, when news of the investigation broke in stories like “US probing possible airline collusion that kept fares high”.

The Judicial Panel on Multidistrict Litigation is likely to transfer these cases to a single judge for pretrial proceedings. The panel will hear argument on motions to transfer for MDL proceedings on October 1, 2015.

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Court Certifies State Wage and Hour Claims Alongside FLSA Collective Claims

View David Wright's Complete Bio at RBH.com We have reported recently in this space on the certification of state wage and hour claims. Judge Gergel recently continued with this trend, certifying a class of Jamaican workers at the Kiawah Island Golf Resort who contend they weren’t paid enough by the Resort. See Moodie v. Kiawah Island Inn Co., LLC, No. 2:15-cv-1097 (D.S.C. Aug. 24, 2015). Defendants argued that the differences in class members were such that the court would have to certify six classes, but the Court rejected that notion, saying the argument stemmed from a “novel proposition that Plaintiffs must propose [a] separate class for every claim in the complaint.” Immediately following that, Judge Gergel gave a nod to “issue certification” in dicta, citing the language of Rule 23(c)(4) without wrestling with the difficulties looming in a surface analysis of that question, something which we have dealt with before here. The Court found that the legality of deductions made from the wages of the putative class was “central to the validity of each one of the claims,” and rejected the defense argument that a conflict arose by virtue of the representation of former employees by current employees. Citing Gunnells v. Healthplan Servs., Inc., Judge Gergel also rejected the argument that difficulties in determining damages resulted in a predominance problem for the class. In so holding, the Court did not grapple with the numerous cases post-Gunnells, including Comcast and its progeny that illustrate how individual damages issues can threaten the viability of class relief. In certifying the class, the Court paid particular attention to the difficulties associated with some 500 workers filing individual claims, noting that “class members are residents of a foreign country, likely to have limited financial resources, unfamiliar with the U.S. Court system, and have relatively small claims.”

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