All posts by David Wright

House Passes Fairness in Class Action Act of 2017

View David Wright's Complete Bio at robinsonbradshaw.comLargely following party lines, the House of Representatives on March 9, 2017, passed H.R. 985: Fairness in Class Action Act of 2017, which we highlighted in this space. One central feature of this bill, which we noted, is an appeal as of right of class certification decisions. This provision represents a radical departure from current practice, in which discretionary appeals are infrequently granted to the U.S. Courts of Appeal. A study done several years ago, which looked at seven years of filings, concluded that less than one quarter of such appeals are granted.

As we have explained here, the limited appellate review of class certification decisions have resulted in a variety of procedural gyrations designed to achieve automatic appellate review, particularly in consumer class actions. If this bill is passed by the Senate, no such legerdemain will be required. Going forward, the Courts of Appeal will be required to review class certification decisions.

To be sure, one consequence of an appeal of right for class certification decisions will be the lengthening of class litigation, and with it the consequent expense. But, in purely financial terms, a federal district judge makes no decision that comes close to having the consequences of a decision to certify a class. Should millions of dollars rest on one judge’s determination with no real opportunity for review? The House said “no.” Let’s see whether the Senate agrees.

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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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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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Business Court Warns of Enhanced Scrutiny for Disclosure-Only Merger Settlements

View David Wright's Complete Bio at robinsonbradshaw.com We have previously commented about “disclosure only” settlements in class action merger cases, and the increasing scrutiny provided to them by courts here and in Delaware. Judge Bledsoe entered the fray yesterday, approving a settlement of litigation involving the merger of Yadkin Financial Corporation and NewBridge Bancorp in a 44-page order. In a stark preamble to his findings, Judge Bledsoe gave warning that the Business Court would likely be joining their brethren in Delaware in strictly reviewing such settlements in the future. The Court characterized such a shift as a “marked departure from [the Business Court’s] past practices in connection with the consideration of such motions,” and therefore “decline[d] to apply enhanced scrutiny to its consideration of the Motions” in the case before it.

But that reprieve is likely short-lived. In the next sentence, Judge Bledsoe “expressly advises the practicing bar that judges of the North Carolina Business Court, including the undersigned, may be prepared to apply enhanced scrutiny of the sort exercised in In re Trulia Stockholder Litigation, to the approval of disclosure-based settlements and attendant motions for attorneys’ fees hereafter.” We characterized this Delaware authority as “sound[ing] a trumpet of skepticism concerning ‘disclosure only’ settlements.”

The Settlement Agreement reviewed by the Business Court in the NewBridge Bancorp case provided that the Defendants would not object to a fee petition up to $300,000, and—to a penny—that’s what Plaintiffs’ counsel sought in the case. In this space, we have observed that the entry into a disclosure-only settlement “is a ‘kumbayah’ occasion for plaintiffs’ and defense counsel,” and Judge Bledsoe reiterates this point, albeit it in a less colloquial manner, agreeing with the Delaware courts that “the trial court’s assessment typically occurs, as it does here, without the benefit of an adversarial process.”

The Court, after reviewing applicable authority, cut the requested fee award from $300,000 to about $160,000. There were two principal reasons for the reduction. First, the Court concluded that “collectively, the Supplemental Disclosures were only of marginal benefit to the Class.” Indeed, the Court found no “substantial evidence that any of the Supplemental Disclosures were significant to a reasonable shareholder’s decision in voting on the Proposed Transaction.” Second, the Court observed that the average hourly rate charged by Plaintiffs’ counsel was “above the hourly rate customarily charged in North Carolina for similar services” and that “the demands of the Consolidated Action did not require Plaintiffs to retain counsel from outside North Carolina in order to prosecute” the case.

The Court, in contrast to Delaware decisions like Trulia, did not closely scrutinize the claims released by class members as part of the settlement. Judge Bledsoe, in two footnotes, indicated that future requests for approval of disclosure-based settlements will involve such consideration. He stated that the scope of the release needs to be an express factor in the Court’s analysis in future cases, but that the Court was “reluctant to set aside the settlement in light of the approval of prior similar settlements by the Business Court.” In this regard, Judge Bledsoe’s Newbridge Bancorp decision is similar to the Chancery Court’s ruling in In re Riverbed Technology, Inc. Stockholders Litigation, where Chancellor Glasscock explained that, “given the past practice of this Court in examining settlements of this type, the parties in good faith negotiated a remedy—additional disclosures—that has been consummated, with the reasonable expectation that the very broad, but hardly unprecedented, release negotiated in return would be approved by this Court.”

In Delaware, the Chancery Court—having apparently concluded that counsel and the parties were sufficiently on notice following its warning in Riverbed—refused to approve a settlement outright in Trulia, just four months later. Merger challenges in Delaware have significantly declined in the months since that decision.

The effect of Judge Bledsoe’s decision on merger litigation in North Carolina remains to be seen, but this admonition from the Business Court must be reckoned with by shareholders considering class filings in future North Carolina merger litigation.

(Adam Doerr and Tommy Holderness of our firm represented the members of the NewBridge Bancorp Board of Directors in this litigation.)

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