Cy Pres Settlements Under Attack Again

View David Wright's Complete Bio at robinsonbradshaw.comA good while ago, we reported in this space, about so-called “cy pres” settlements. We highlighted the Chief Justice’s cautionary comments about this practice – under which third parties, not class members, are compensated by defendants. See Marek v. Lane, 134 S.Ct. 8 (2013). After the Ninth Circuit recently approved a cy pres settlement, In Re Google Referrer Header Privacy Litigat., 869 F.3d 737 (9th Cir. 2017), which awarded plaintiffs’ counsel $3.5 million, and six nonprofits/educational institutions another $5.3 million – all while awarding class members the proverbial goose egg – two objectors filed a cert petition. The objectors are backed by the Competitive Enterprise Institute’s Center for Class Action Fairness. The case, which grew out of a challenge to Google’s transmission of a user’s search terms through a “referral header,” proved beneficial for the alma maters of class counsel, which received nearly half of the settlement fund. That proved too much for one of the judges on the Ninth Circuit, who commented in dissent on the “unseemly occurrence of cy pres funds being doled out to interested parties’ alma maters,” here Stanford, Harvard and Chicago-Kent College of Law.

The Center for Class Action Fairness argues the case “presents an ideal and timely opportunity for the Court to resolve a deep circuit split over the use of cy pres awards in class action settlements and provide much-needed guidance to the lower courts on a recurring issue of substantial importance.” The petition argues that, absent resolution of this issue by the Supreme Court, counsel will “flock[] to the Ninth Circuit” to achieve “collusive settlements.” Specifically, the Center argues, that – under the Ninth Circuit decision – only cy pres settlements will occur in consumer class actions because it will not be “feasible” under the Ninth Circuit’s standard to compensate all consumers in a large class action. The Center is unsparing in its advocacy, arguing that “[t]he availability of cy pres relief only accentuates the[] pathologies of the class action procedure that provide substantial benefits to defendants and class counsel, at the expense of class members.”

It is unclear whether this will be one of the few petitions acted upon by the Court during this term, and there is no shortage of issues which need nationwide judicial resolution. But when the litigants don’t receive a dime, have to release their claims, and the only persons who benefit are lawyers and their favorite law schools, something seems awry. Stay tuned.

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Recent Filings – December Digest

View Amanda Pickens Nitto’s 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 December filings:

Hicks, et al. v. Houston Baptist University, No. 5:17-cv-00629 (E.D.N.C. December 20, 2017) (putative class action brought under the Telephone Consumer Protection Act against Houston Baptist University for alleged solicitation of consumers for college classes via telephone calls using an automated telephone dialing system)

Martinez, et al. v. Alpha Technologies Services, Inc., et al., No. 5:17-cv-00628 (E.D.N.C. December 20, 2017) (putative collective and class action brought under federal and state wage and hour laws by plaintiffs who were employed to build a solar farm in Hope Mills, N.C., alleging defendants misclassified them as independent contractors, did not pay overtime compensation, made unlawful wage deductions and violated other wage and hour laws)

TJF Services, Inc., et al. v. Transportation Media, Inc., d/b/a Bench Craft Company, No. 5:17-cv-00626 (E.D.N.C. December 19, 2017) (putative class action alleging a sports advertising agency violated the N.C. Unfair and Deceptive Trade Practices Act by accepting payments from small businesses for ads which were never placed in golf course guides and subsequently charging the businesses’ credit cards without authorization)

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Placeholder Class Cert Motions No Longer Needed

View David Wright's Complete Bio at robinsonbradshaw.comWe have commented before in this space about using offers of judgment to “pick off” the named plaintiff in a class action case, a tactic the Supreme Court addressed in Campbell-Ewald v. Gomez, 136 S. Ct. 663 (2016). There, the Supreme Court held that an unaccepted offer of judgment does not moot the case, at least where the defendant hasn’t actually deposited the money comprising the offer in an account payable to the plaintiff. The unsettled jurisprudence in this area has led to some strange procedural wrangling in the lower federal courts.

Judge Conrad dealt with one such maneuver – a so-called “placeholder motion for class certification” – in a recent decision. In RJR Chiropractic Center, Inc. v. BSN Medical, Inc., No. 3:16-cv-00842 (W.D.N.C. Oct. 11, 2017), the Court commented on plaintiffs’ filing of “vague placeholder motions to certify class simultaneously with their complaint,” in an effort to “beat defendants to the punch.” Id. at 4. The court took a dim view of this gambit, concluding that it was an “obsolete procedural tactic” in light of Campbell-Ewald Co.. Id. at 5. Because the complaint “faces no threat of becoming moot if [defendant unsuccessfully] attempts to pick-off [the plaintiff],” the Court was “left with a pending motion filled with vague allegations that is of no utility to either party.” Id. The placeholder motion, in the Court’s view, could not survive the “rigorous gambit of Rule 23,” “having been filed prior to any discovery” and containing no evidence supporting its contentions. Id. at 6.

Other permutations to Rule 68 lie in store, to be sure, but the “placeholder motion,” doesn’t seem to be in vogue any longer, at least in the Western District.

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Recent Filings – November Digest

View Amanda Pickens Nitto’s 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 November’s filings:

Fox, et al. v. SCANA Corporation, et al.; No. 3:17-cv-03063 (D.S.C. November 10, 2017) (previously reported similar action brought by customers of SCANA: this putative class action is brought under federal securities laws by holders of securities of SCANA who allege defendant released false and misleading documents and statements regarding a nuclear construction project in Fairfield County thereby causing them financial harm)

Ridgeway, et al. v. Planet Pizza 2016, Inc., et al.; No. 3:17-cv-03064 (D.S.C. November 10, 2017) (putative collective and class action brought by employees of Planet Pizza 2016 under federal and state wage and hours laws alleging defendant took improper tip credits, failed to pay wages promised, failed to pay overtime compensation and generally violated these and other rights under wage and hour laws)

Williamson, et al. v. South Shor, Inc. d/b/a The Peddler Steakhouse, et al., No. 4:17-cv-03026 (D.S.C. November 7, 2017) (putative collective and class action brought under federal and state wage and hour laws brought by servers at The Peddler Steakhouse, alleging defendant improperly applied a “tip credit” to servers’ wages, has required servers to give a percentage of their tips back to the restaurant, and generally has maintained a policy and practice of underpaying servers)

Knothe v. Toyota Motor Sales, U.S.A., Inc., No. 2:17-cv-02987 (D.S.C. November 3, 2017) (putative class action brought by owners of automobiles with alleged defective dashboards who state Toyota was dismissed from previous related federal litigation in South Carolina based on a promise of voluntary and comprehensive warranty coverage, but Toyota did not commence the program with adequate parts and additionally permitted such service at only authorized dealers thereby leaving owners without relief)

Miriyala, et al. v. Novan, Inc., et al., No. 1:17-cv-00999 (M.D.N.C. November 3, 2017) (putative class action brought under federal securities laws by purchasers of stock of Novan, a clinical-stage drug development company, alleging defendant made materially false and misleading statements in offering documents regarding various trials during the fall of 2016 and winter of 2017 thereby causing shareholders to have significant damages)

Allman, et al. v. Taishan Gypsum Co., Ltd. f/k/a Shandong Taihe Dongxin Co., Ltd., et al., No. 2:17-cv-00051 (E.D.N.C. November 2, 2017) (putative class action brought by purchasers of drywall manufactured and distributed by defendants, alleging sulfur compounds exited the drywall and caused damage to personal property such as blackening and break down of air conditioning, faucets, wiring and other metal surfaces)

Koepplinger, et al. v. Seterus, Inc., No. 1:17-cv-00995 (M.D.N.C. November 2, 2017) (putative class action brought under federal and state consumer protection laws by mortgage borrowers against Seterus, a debt collection agency, alleging Seterus sent form letters claiming borrowers were in default on their mortgages and failure to pay all arrearages would result in immediate acceleration of their loan)

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Court Denies Attempt to Recast ERISA Class Action as a Derivative Claim

View David Wright's Complete Bio at robinsonbradshaw.comAccording to the Company website, “Piggly Wiggly has been bringing home the bacon for millions of American families for over 100 years.” But a putative class of former employees of Piggly Wiggly filed a class action complaint in the District of South Carolina, asserting various claims under ERISA pertaining to the Company’s employee stock ownership plan. The claims include allegations pertaining to excessive compensation, “gross mismanagement,” concealing of financial losses from participants, and various “insider dealings.” Spires v. Schools, No. 2:16-616 (D.S.C. 2016). The scheme culminated, according to Plaintiffs, in the sale of substantially all assets to C&W Wholesale Grocers, Inc. The case was filed under Rule 23 as a class action, not under Rule 23.1 as a derivative action.

Eighteen months into the case, and after the district court had trimmed the complaint, Plaintiffs attempted to switch gears, moving to proceed without class certification and instead as a derivative action under ERISA Section 502(a). But Judge Gergel would have none of it in a decision rendered on November 17. After first observing that a benefit plan may not have standing under ERISA to assert claims for a breach of fiduciary duty, the Court held that “allowing a class action to proceed as a derivative action would unfairly shift to Defendants the burden of proving or disproving the adequacy of the named Plaintiffs as representatives” of the class. The Court observed that the “complaint has nearly one hundred references to ‘class,’ ‘class members’ and the ‘class period.’” According to the Court, plaintiffs did not “even attempt to show cause why, having chosen to file a class action, they nonetheless should be excused from ‘jump[ing] through the procedural hoops’ of prosecuting a class action.”

The case serves as a good reminder of the “stickiness” of filing under Rule 23. After you do that, it isn’t so easy to extricate yourself.

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