Named Plaintiffs Can’t Voluntarily Dismiss Individual Claims in Order to Appeal Class Certification Denial

View David Wright's Complete Bio at robinsonbradshaw.comEarlier this year, we hazarded a guess that the Supreme Court was split 4-4 regarding a Ninth Circuit decision holding that a named plaintiff could achieve appellate review of a decision denying class certification by voluntarily dismissing his individual claims. It turns out, based upon the Supreme Court’s decision in Microsoft Corp. v. Baker [], that the internal debate was not so much over whether the Ninth Circuit erred in allowing the appeal, but whether that error had both statutory and constitutional implications. The Supreme Court had accepted certiorari to review “[w]hether 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.” With Justice Gorsuch on the sidelines, the Court unanimously held that the named plaintiffs’ gamesmanship did not allow appellate review, but the justices differed in their reasons for that outcome.

Five members of the Court, led by Justice Ginsburg, concluded that such an appeal was inconsistent with F.R. App. P. 23(f). The majority reasoned that “[r]espondents’ voluntary-dismissal tactic . . . invites protracted litigation and piecemeal appeals,” and would – essentially – turn Rule 23(f)’s “discretionary regime” into a license for plaintiffs to force an interlocutory appeal of a ruling denying class certification. This, the Court noted, would upset “Rule 23(f)’s careful calibration” and “Congress[’] final decision rule would end up a pretty puny one.”

In our previous post, we sounded an alarm about the “one way street” that was a feature of the Ninth Circuit’s decision, noting that “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.” Justice Ginsburg agreed with us on this point, observing in her opinion for the majority that “[t]he one-sidedness of respondents’ voluntary-dismissal device ‘reinforce[s] our conclusion [of no jurisdiction],” and that “the ‘class issue’ may be just as important to defendants.”

Although the majority founded its decision on 28 U.S.C. Section 1291, thereby avoiding the Article III issue, Justice Thomas, joined by Justice Alito and the Chief Justice, wrote a concurring opinion that took the constitutional issue head on. The concurrence argued that there was no Article III “case or controversy” following the named plaintiffs’ dismissal of their claims. Justice Thomas noted that “it has long been the rule that a party may not appeal from the voluntary dismissal of a claim,” and that the parties were “no longer adverse to each other on any claims” after that dismissal. A favorable ruling on class certification could not, the concurring opinion explained, “revive [the named plaintiffs’] individual claims.”

With deference to the Ninth Circuit jurists who proceeded to adjudicate the appeal in Baker, this was not a particularly hard case. In Coopers & Lybrand v. Livesay, 437 U.S. 463 (1978), the Supreme Court unanimously rejected the so-called “death-knell” doctrine, which had permitted plaintiffs to appeal as of right a district court order denying a motion for class certification. Given that decision, and the fact that Rule 23(f) appellate jurisdiction is discretionary, not mandatory, it is difficult to see how a voluntary dismissal gambit could ultimately succeed. Unfortunately now for Xbox gamers, they will have to litigate their ‘disc gouging’ claims one by one . . . .

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Recent Filings – May Digest

View Amanda Pickens’ Complete Bio at robinsonbradshaw.comNot every class action court filing in North and South Carolina becomes a full-length post on our blog. Here is a recap of May’s filings:

Kasprzyk, et al. v. Hilton Grand Vacations Company, LLC, et al., No. 4:17-cv-01393 (D.S.C. May 26, 2017) (purported collective and class action brought under FLSA alleging defendants deducted wages, straight time and overtime pay from commissions earned.)

Berg, et al. v. Span-America Medical Systems, Inc., et al., No. 6:17-cv-01399 (D.S.C. May 26, 2017) (putative class action alleging defendants, who entered into an agreement and plan of merger in early May 2017, filed a solicitation statement that contained false and misleading information and omitted material information thereby violating federal securities laws.)

Giles, et al. v. BNC Bancorp, et al., No. 1:17-cv-00482 (M.D.N.C. May 25, 2017) (putative class action on behalf of shareholders of defendant BNC Bancorp, a publicly traded bank holding company, and its officers and directors, asserting securities violations for failing to disclose material information through incomplete and misleading proxy statements in advance of a proposed merger with Pinnacle Financial Partners, Inc.)

Pill, et al. v. Span-America Medical Systems, Inc., No. 6:17-cv-01375 (D.S.C. May 25, 2017) (putative class action alleging defendants Span-America Medical Systems and Savaris (SC), Inc., who manufacture various products for the medical market, entered into a flawed sales process in early May 2017 which favored Salvaria at the expense of Span’s shareholders, thereby alleging violation of federal and state securities laws.)

Porter, et al. v. Span-America Medical Systems, Inc., No. 6:17-cv-01357 (D.S.C. May 25, 2017) (putative class action alleging defendants entered into an agreement/plan of merger in early May 2017 which is materially deficient regarding financial projections and potential conflicts of interest regarding various managers and directors in violation of federal and state securities laws.)

Gagliastre, et al. v. Capt. George’s Seafood Restaurants, LP, et al., No. 4:17-cv-01308 (D.S.C. May 19, 2017) (putative class action and collective action alleging defendants, who own seafood buffet restaurants, misappropriated tips, required servers to work off the clock and otherwise failed to pay overtime compensation to employees under FLSA and state wage and hour laws.)

Salvo, et al. v. NightCap Inc. Food & Spirits, et al., No. 2:17-cv-01266 (D.S.C. May 17, 2017) (putative class action and collective action brought by servers, bartenders and other “tipped workers” alleging defendants failed to pay compensation due under FLSA and state wage and hour laws seeking to recover minimum wages, unlawful deductions and other wages due to employees.)

Christian, et al. v. TOWERCOMM, LLC, No. 5:17-cv-00223 (E.D.N.C. May 9, 2017) (putative class action and collective action brought by employees of defendant who were tower technicians performing maintenance, repair and installation and allege they were not paid overtime compensation that was due under FLSA and state wage and hour laws.)

Walton v. Maury Cobb & Associates, LLC, et al., No. 5:17-cv-00209 (E.D.N.C. May 2, 2017) (putative class action brought under federal consumer protection laws on behalf of consumers residing in North Carolina alleging defendants sent collection letters with original creditor information which was false and/or misleading.)

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Is an Institutional Investor Subject to the PSLRA’s “Professional Plaintiff” Bar?

View David Wright's Complete Bio at robinsonbradshaw.comThe Private Securities Litigation Reform Act (“PSLRA”) establishes special rules in securities class actions. One such rule, found in 15 U.S.C. Sect. 78u-4(a)(3)(B)(vi) and known as the “Five-in-Three Provision,” prevents a “person” from serving as a lead plaintiff in “more than 5 securities class actions” during any three-year period. Does that rule, though, apply to institutional investors? The plain words of the statute certainly suggest so—it is difficult to argue that an institutional investor is not a “person,” and had Congress wanted to exclude institutional investors from this prohibition, it could easily have done so. The Arkansas Teacher Retirement System, an active lead plaintiff, lost this issue in the Eastern District of Virginia last fall, when Judge Ellis found that the statutory language was clear. See Knurr v. Orbitral ATK, Inc., No. 1:16-cv-1031, 2016 WL 661157 (E.D. Va. Nov. 10, 2016) (noting that “it is doubtful that Congress would have hidden a major exemption in a single word,” echoing Justice Scalia’s phrase that “Congress . . . does not . . . hide elephants in mouseholes”).

But, as Judge Ellis also acknowledged, “one purpose of the [PSLRA] is to encourage institutional investors to serve as lead plaintiff.” And the House Conference Report pertaining to the PSLRA states that “institutional investors seeking to serve as lead plaintiff may need to exceed [the limit of lead plaintiffs] and do not represent the type of professional plaintiff this legislation seeks to restrict.” H.R. Conf. Rep. 104-369, at 35 (1995). So how to square this tension?

Recently, in Ollila v. Babcock & Wilcox Enterprises, Inc., No. 3:17-cv-109 (W.D.N.C. May 25, 2017), Judge Cogburn acknowledged these competing lines of authority but ultimately side-stepped the issue. Arkansas Teacher Retirement System, which had lost its argument to serve as lead plaintiff in Knurr, had better success with Judge Cogburn. Judge Cogburn found Knurr “persuasive,” but found “similarly persuasive” “the number of other district court cases that have held that institutional investors are not subject to the ‘five-in-three’ limitation.” Indeed, Judge Cogburn cited case law emphasizing that “the ‘majority’ view is that institutional investors are not subject to the professional plaintiff ‘three-in-five’ bar.”

Ultimately, Judge Cogburn took refuge in a section of the PSLRA that permits the court to override the “professional plaintiff limitation.” See 15 U.S.C. Sect. 78u-4(a)(3)(B)(vi). The putative financial losses of ATRS, which exceeded $5 million in the case, “dwarf[ed] those alleged by the competing institutional plaintiff,” leading the court to exercise its discretion to appoint ATRS as lead plaintiff even in the face of its activism in shareholder class actions across the country.

It remains to be seen whether the textual argument of Judge Ellis will ultimately hold sway in the Fourth Circuit.

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Follow Up – Dish Network Denied New Trial and Slapped with Trebled Damages of $61 Million

View Amanda Pickens’ Complete Bio at robinsonbradshaw.com Today we provide you with an update on a previous blog post addressing Dish Network’s plea for a new trial after a jury awarded damages of $20.5 Million in a telemarketing class action lawsuit. After a five-day trial in January, a jury awarded damages by assigning $400.00 to each of the 51,119 distinct phone calls made in violation of the Telephone Consumer Protection Act (the “TCPA”).

Although Dish hoped for a new trial, Judge Eagles issued a text order denying Dish’s Motion for Judgment as a Matter of Law and Motion for a New Trial on May 16, 2017.

After the jury verdict, both parties submitted written closing arguments to the Court on whether Dish willfully violated the TCPA. Dish argued the Plaintiffs should not be entitled to treble damages because Dish complied with TCPA, had a business interest in preventing unwanted telemarketing calls, believed Satellite Systems Network (“SSN,” Dish’s terminated marketing retailer) complied with the TCPA, instructed SSN to scrub its call list against the National Do-Not-Call Registry and not to call the named plaintiff, received almost no complaints during the class period, and had no actual knowledge that SSN was not adhering to the applicable telemarketing laws during the class period.

In an order issued yesterday, Judge Eagles rejected Dish’s arguments and awarded treble damages, stating Dish “did nothing to monitor, much less enforce” SSN’s compliance with telemarketing laws, and it “repeatedly looked the other way” when it learned of SSN’s noncompliance.

Specifically, Judge Eagles found that Dish’s contracts with SSN gave it “virtually unlimited rights” to monitor and control SSN’s telemarketing efforts. And, although Dish was committed to monitoring SSN’s compliance on paper, in reality, it ignored SSN’s violations of telemarketing laws. When SSN received a customer complaint, it would send the complaint to Dish and wait for instruction. Dish disclaimed responsibility for any customer complaint and shifted blame to SSN, while making no effort to determine whether SSN was actually complying with the TCPA. According to the opinion, Dish also ignored several customer complaints about SSN between 2004 and 2010, and it was aware of three lawsuits against the telemarketer resulting in injunctive relief and monetary damages. Despite having actual knowledge of customer complaints and lawsuits, Dish continued its relationship with SSN, allowing SSN to market and sell Dish’s products. Dish did not restrict SSN’s authority to act on its behalf, and it never conducted an investigation to determine if SSN had solved its compliance problems.

The Court held Dish responsible for any willful or knowing violations of the TCPA by SSN because the jury found (and the Court agreed) that SSN was acting within the scope of its authority from Dish. The Court further held that even if Dish were not responsible for SSN’s violations, the result would be the same, because Dish willfully violated the TCPA. According to the opinion, Dish knew SSN had committed many TCPA violations, but it did nothing. Dish received numerous customer complaints about SSN, and it knew of three lawsuits alleging violations of the TCPA. Dish knew SSN was not scrubbing its call list against the Do-Not-Call Registry, yet Dish made no effort to monitor SSN’s compliance with telemarketing laws. Ultimately, the Court held Dish “simply did not care whether SSN complied with the law or not.”

Judge Eagles concluded treble damages were appropriate in this case to deter Dish from future violations and to give appropriate weight to the scope of the TCPA violations. The Court trebled the jury’s award of $400.00 per call to $1,200 per call, totaling approximately $61 Million in damages.

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Is a Class Representative Adequate if He Waives Viable Claims in Order to Preserve Commonality?

View David Wright's Complete Bio at robinsonbradshaw.comClass actions don’t work if the class representative has a conflict with the class he or she purportedly represents. As the United States Supreme Court noted over 70 years ago, “a selection of representatives for purposes of litigation, whose substantial interests are not necessarily or even probably the same as those whom they are deemed to represent, does not afford that protection to absent parties which due process requires.” Hansberry v. Lee, 311 U.S. 32, 45 (1940). A decision this week from Judge Higginson out of the Fifth Circuit provides an interesting commentary on this subject in the context of a consumer class action.

In Slade v. Progressive Insurance Co., No. 15-30010 (5th Cir. May 9, 2017), plaintiffs claimed that Progressive Insurance shorted its insureds when paying for vehicle losses. Progressive used something called “WorkCenter Total Loss” to calculate the base value of total loss vehicles. Plaintiffs said that “lawful sources” – such as the NADA Guidebook or the Kelly Blue Book – had higher values and therefore resulted in plaintiffs “receiving lower payouts on their insurance claims.”

The Fifth Circuit treated with dispatch a couple of aspects of the district court’s class certification decision. First, the Court held that the damages theory was in fact “class wide,” and therefore consistent with Comcast v. Behrend, 133 S. Ct. 1426 (2013). Second, the district court had inexplicably certified a fraud class. As the Court of Appeals observed, “[t]his court has held consistently that a ‘fraud class action cannot be certified when individual reliance will be an issue.’”

But the bulk of Judge Higginson’s opinion discusses a more complicated issue. The insurance company used two basic factors to determine a vehicle’s value. First, it used a “base value” based on the WorkCenter Total Loss calculation. Second, it used a “condition adjustment,” recognizing that the value of the automobile in question might have either a higher or lower value based on its particular condition. The former sounds like a class-wide issue, but the latter looks to be quite individualistic.

Recognizing this dilemma, the named plaintiffs decided not to challenge the “condition adjustment.” As the Court of Appeals observed, “Plaintiffs’ class certification motion may have run into predominance problems because condition adjustments appear to be highly individualized.” But this waiver, the Fifth Circuit noted, comes with a potential cost. Although the plaintiffs’ waiver solved the predominance problems, it raised questions about the adequacy of the class representatives. “When the class representative proposes waiving some of the class’s claims, the decision risks creating an irreconcilable conflict with the class.” As the Court observed, citing a Seventh Circuit opinion, “A representative can’t throw away what would be a major component of the class’s recovery.”

But simply because a class plaintiff decides, as a strategic matter, to waive a claim does not necessarily mean she is inadequate. The court must inquire into, at least, “(1) the risk that unnamed class members will forfeit their right to pursue the waived claim in future litigation”; (2) the value of the waived claim; and (3) the strategic value of the waiver, which can include the value of proceeding as a class (if the waiver is key to certification).” In its opinion, the Fifth Circuit directed the district court to undertaken this analysis on remand. A central aspect of this inquiry is the res judicata effect of the waiver, which the Fifth Circuit said was “uncertain here.” Indeed, the Court observed that “courts have inconsistently applied claim preclusion to class actions.”

The Court of Appeals provided a bit of a road-map to the district court, identifying – as possible options on remand –

  • declining to certify the class because of preclusion risks
  • certifying the class, but tailoring the notice and opt-out procedure to alert the class to the risk of preclusion
  • concluding that the benefits of proceeding as a class outweigh any preclusion risks or
  • defining the class in a way to exclude individuals who have a quarrel with the condition adjustment.

Stay tuned, and consider carefully how class representatives and courts resolve the tension between waiving the claims of absent class members and strategically limiting the class to claims that can actually be certified.

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