Monthly Archives: February 2017

Seventh Circuit Weighs in on Offers of Judgment

View David Wright's Complete Bio at robinsonbradshaw.comIn this space, we concentrate on class action decisions in the Carolinas, as well as Fourth Circuit and United States Supreme Court precedent. Occasionally, though, we venture beyond these jurisdictions to highlight issues of particular note, including those where courts are divided. We’ve previously reported here how offers of judgment interact with mootness. In Campbell-Ewald Co. v. Gomez, the United States Supreme Court held that an unaccepted settlement offer, even if it offers all relief sought in the case, does not render a case moot when the affected party seeks relief on behalf of a class. Last Friday, the Seventh Circuit considered a question not resolved by Gomez: What happens when the named representative accepts a Rule 68 offer of judgment? Can he still appeal the denial of class certification? Like the question of appellate standing upon which the Supreme Court accepted certiorari in Microsoft, the answer is significant.

In Wright v. Calumet City, Illinois, No. 14-cv-10351 (7th Cir. Feb. 17, 2017), the Seventh Circuit acknowledged a split of authority on this question: “Where the Rule 68 offer is accepted but by its terms exempts the class certification issue, courts are divided as to whether the plaintiff retains a concrete interest sufficient to meet the case or controversy requirement of Article III.” The Seventh Circuit noted that Wright’s claim to standing was particularly strained because he accepted the Rule 68 offer without reservation, and he preserved no interest in receiving an incentive award. Wright argued that he had a sufficient interest in the case because his offer of judgment did not include attorney’s fees for the class claim (as opposed to his individual claim), but – as the Seventh Circuit observed – Lewis v. Continental Bank Corp.,  494 U.S. 472, 480 (1990) holds that “an interest in attorneys’ fees is, of course, insufficient to create an Article III case or controversy where none exists.” The court noted that there is some tension between Lewis and Deposit Guaranty National Bank v. Roper, 445 U.S. 326 (1980), in which the Supreme Court allowed plaintiffs, whose individual claims had been satisfied, to appeal the denial of class certification based on their asserted interest in shifting attorney’s fees to the class members. But the court distinguished Wright’s case from Roper on the ground that Wright had accepted the Rule 68 offer “as satisfaction of all of the relief that he sought in the district court.” In Roper, by contrast, the district court entered judgment for the plaintiffs in the amount tendered by the defendant, even though the plaintiffs had refused that offer. Thus, even under Roper, Wright’s claims are moot.

There will likely be more permutations on the Rule 68/mootness issues, so stay tuned.

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Congress Considering Major Class Action Reform Legislation

View Adam Doerr's Complete Bio at robinsonbradshaw.comRep. Bob Goodlatte (R-Va.), the Chairman of the House Judiciary Committee, recently introduced a bill that would make significant changes to federal class action litigation. The Fairness in Class Action Litigation Act of 2017 (H.R. 985) states that it is intended to allow prompt recoveries to plaintiffs with legitimate claims and “diminish abuses in class action and mass tort litigation that are undermining the integrity of the U.S. legal system.”

In its current form, the draft bill would likely eclipse the 2005 passage of the Class Action Fairness Act as the most significant legislation on class actions in decades. Rep. Goodlatte has introduced similar legislation in previous years, but passage is considerably enhanced with unified Republican control of the House, Senate, and Presidency. Among other changes, the bill would enact the following:

  • Prevent certification of a class seeking monetary relief unless the plaintiff “affirmatively demonstrates that each proposed class member suffered the same type and scope of injury as the named class representative or representatives.” (§ 1716) In other words, classes could not include individuals who have not suffered damage, or where damage is not yet clear.
  • Require class counsel to describe how the named plaintiff agreed to be included in the complaint, identify any other class action where the named plaintiff had a similar role, and disclose any family or employment relationship between class counsel and the named plaintiff (in which case certification must be denied). (§ 1717)
  • Require the party seeking certification to show a “reliable and administratively feasible mechanism” for (a) determining whether class members fall within the class definition and (b) distributing monetary relief to “a substantial majority of class members.” (§ 1718(a)). This provision appears to be an effort to impose a formal ascertainability requirement on class certification, as the Fourth Circuit has done in some cases.
  • Make significant changes to attorneys’ fees, including (1) preventing any payment or even determination of fees to class counsel until the distribution of monetary recovery to class members is complete, (2) limiting fee awards to “a reasonable percentage of any payments directly distributed to and received by class members,” and (3) limiting the payment of attorney’s fees based on equitable relief to “a reasonable percentage of the value of the equitable relief.” (§ 1718(b)).
  • Require courts to report, and the Federal Judicial Center to track, disbursements to class members. The Federal Judicial Center would prepare an annual report summarizing how funds paid by defendants in class actions have been distributed, including the largest and smallest amounts paid to any class member and payments to class counsel. (§ 1719) Alison Frankel of Reuters, who writes often and well on class actions, referred to this as “most intriguing idea in House Republicans’ bill to gut class actions.”
  • Bar certification of issue classes (§ 1720), an issue we have previously covered in both a district court case regarding the relationship between predominance and issue certification and when the Supreme Court declined to resolve a circuit split over issue certification.
  • Stay discovery while preliminary motions are pending. (§ 1721) (Interestingly, this provision formally recognizes a “motion to strike class allegations,” a motion that is not currently listed by name under Rule 23, although such motions may be permitted under Rule 23(d)(1)(D), which allows the Court to enter an order to “require that the pleadings be amended to eliminate allegations about representation of absent persons.”)
  • Provide for appellate review of orders granting or denying class certification as a matter of right. (§ 1722) This would be a significant departure from current practice under Rule 23(f), which gives Courts of Appeal substantial discretion in deciding whether to permit such interlocutory appeals.

The bill would also allow more personal injury cases to stay in federal court by changing the diversity jurisdiction analysis in multiple plaintiff cases, and it would make significant changes to multidistrict litigation practice, including barring the transferee judge from conducting a trial unless all parties consent.

The draft legislation is already generating controversy, and this will significantly increase as it advances. In particular, basing attorney’s fee awards on a percentage of the “value of the equitable relief” will be hotly debated. Equitable relief is, by nature, difficult or impossible to value in financial terms. The Washington Lawyers’ Committee for Civil Rights has already registered its opposition, noting the difficulty of putting a value on a class relief protecting disabled individuals from abusive conditions or providing them access to treatment, transportation, and community services.

The bill was introduced on February 9. On February 15, following a series of failed attempts by Democrats to introduce amendments, the Judiciary Committee voted on party lines (19-12) to forward to the bill to the full House. We’ll continue to track this legislation and bring you significant updates.

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Oral Argument in Class Action Waiver Cases Postponed to October

View David Wright's Complete Bio at robinsonbradshaw.comLast week, we observed that the Supreme Court appeared to be waiting for a ninth justice to decide in an important case involving appealability of class action certification decisions. A news report today* indicates that the Supreme Court has also pushed out arguments concerning the enforceability of class action waivers. As we recently reported in this space, the Court had agreed in three cases to decide whether the NLRA prohibits employers from requiring non-management employees covered by the NLRA to arbitrate their work-related claims individually. For employers, particularly those with a nationwide workforce, this remains one of the few tools available to stave off expensive and risky class litigation from employees. The Court apparently will not hear argument in these cases until the 2017 term, which begins in October. We will be watching the Supreme Court for further developments.

*You may have to register to access the linked article at Law360.

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Important Class Action Apparently Awaits the Ninth Justice

View David Wright's Complete Bio at robinsonbradshaw.com
About a year ago, the United States Supreme Court granted Microsoft’s petition to review this question: “Whether a federal court of appeals has jurisdiction under both Article III and 28 U.S.C. Section 1291 to review an order denying class certification after the named plaintiffs voluntarily dismiss their individual claims with prejudice.” Briefing in the case was completed last June, but the case has yet to appear in the calendar of the fourth sitting of the Supreme Court’s term, which began January 9, 2017. Although the reasons for the delay aren’t pellucid, this is an important case and likely is being held for a time when a full complement of the Court can decide the question.

The case comes from the Ninth Circuit, which held that 28 U.S.C. Section 1291 provided jurisdiction to review the trial court’s decision to strike class allegations, even though the named plaintiffs had dismissed their claims with prejudice. The district court found that the underlying claims, which alleged that a “design defect in the Xbox console gouges game discs,” could not proceed as a class because individual issues predominated. The plaintiffs sought interlocutory review under Rule 23(f), but the Ninth Circuit declined to take the appeal. Under the Supreme Court’s unanimous decision in Coopers & Lybrand v. Livesay, 437 U.S. 463, 466 (1978), this meant the plaintiffs would need to wait until after final judgment in the case before they would be able to obtain review of the class determination. But litigation is expensive, and trying a case about a few game discs—as opposed to millions of them—is not normally an attractive proposition for plaintiffs’ counsel. In most cases, of course, plaintiffs are loath to dismissing their claims as a condition to obtaining review for class claims, but in consumer litigation—where the individual stakes are quite small—this is not so. So the plaintiffs dismissed their claims with prejudice and filed a notice of appeal with the Ninth Circuit. This allowed them to do what Livesay seemed to prohibit—obtain an immediate appeal.

Relying on previous precedent in the circuit, however, the Ninth Circuit held that “a dismissal of an action with prejudice, even when such dismissal is the product of a stipulation, is a sufficiently adverse—and thus appealable—final decision.” Reaching the merits, the Ninth Circuit reversed the trial court and remanded to allow the class claims to go forward.

This option—if allowed by the Supreme Court—works only for plaintiffs in class action cases, not defendants. If defendants suffer an adverse class certification ruling, and the appellate court does not exercise its discretion to accept the interlocutory appeal, defendants must litigate the case to judgment before obtaining review of the class determination. And appellate courts don’t generally review class certification decisions on an interlocutory basis; one study indicates that less than one-quarter of such petitions are granted. Defendants are thus whipsawed: they can’t obtain interlocutory review of an adverse class certification decision and they can’t afford to take the risk of a class verdict. Put simply, they are at the mercy of a single trial judge and the stakes are enormous. As the Supreme Court has observed, class actions present a significant risk of “in terrorem settlements,” because defendants “[f]aced with even a small chance of a devastating loss . . . will be pressured into settling questionable claims.” AT&T Mobility LLC v. Concepcion, m 131 S. Ct. 1740, 1752 (2011).

But plaintiffs will have an enhanced ability to achieve appellate review if the Ninth Circuit decision is affirmed. Plaintiffs can also try a Rule 23(f) appeal, as they did in Baker. But if they lose, the named plaintiffs can dismiss their claims with prejudice and achieve immediate review of class certification as a matter of right. On its face, this inequality seems to be exactly what the Supreme Court wanted to avoid in Livesay when it refused to recognize the “death knell” doctrine embraced by numerous courts of appeals. There, the Court noted that the doctrine “operates only in favor of plaintiffs even though the class issue—whether to certify, and if so, how large the class should be—will often be of critical importance to defendants as well.”

As evidenced by the amount of amicus participation in this case, this decision is an important one and has significant stakes for consumers and businesses. Our guess is that the current justices are split 4 to 4 on this one, so stay tuned for the outcome of the confirmation process. Judge Gorsuch, for his part, seems to have a conservative view of the finality doctrine. See McClendon v. City of Albuquerque, 630 F.3d 1288 (10th Cir. 2011) (no appellate jurisdiction to consider district court’s order withdrawing approval of a class action settlement, observing that “[s]uch an order simply presses the reset button and marks the case for renewed litigation”).

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