The Supreme Court began its new Term on October 5, and already the Court is slated to hear several cases that could have major impacts on class-action litigation. Among the issues facing the Court are:
▪ whether a defendant can render a putative class action moot by offering the named plaintiff all the relief the plaintiff could recover individually if the plaintiff were to prevail, even if the plaintiff rejects the offer (Campbell-Ewald Company v. Gomez);
▪ whether a plaintiff has standing to bring a claim (including a class claim) where the plaintiff’s statutory rights were violated, but the plaintiff did not suffer any “real world” injury (Spokeo, Inc. v. Robins);
▪ whether a class may be certified under Federal Rule of Civil Procedure 23(b)(3) where the plaintiff relies on statistical evidence that assumes that each class member is identical to the average observed in a sample, and where some class members did not suffer any injuries at all (Tyson Foods, Inc. v. Bouaphakeo); and
▪ the extent to which courts may strike down arbitration agreements as unenforceable, thereby allowing plaintiffs to proceed in the courts through class actions (MHN Government Services, Inc. v. Zaborowski and DIRECTV, Inc. v. Imburgia).
In this post we describe what is at stake in each case. We will follow the cases throughout the Term and update you in future posts as they are decided or if the Supreme Court grants additional cases of interest.
Campbell-Ewald Company v. Gomez
Sometimes referred to as the “pick off” case, Campbell-Ewald Company v. Gomez addresses the following scenario: What happens if, before a class is certified, the defendant offers to pay the named plaintiff everything the plaintiff could recover individually if the plaintiff prevailed in the lawsuit, but the plaintiff rejects the offer? In particular, does the defendant’s unaccepted offer moot the plaintiff’s individual claim? And if so, does it also moot the class claim? These questions are highly consequential to the many class actions in which a plaintiff’s individual damages are a fraction of the defendant’s prospective litigation costs and class-wide liability, giving the defendant a strong incentive to “pick off” the named plaintiff with an offer of complete relief.
The case arises from a putative class action that the plaintiff filed under the Telephone Consumer Protection Act after he received an unwanted text message from a company hired to recruit for the U.S. Navy. The statute caps damages at $1,500 for each unsolicited message a defendant sends, but because of the large size of the putative class (some 100,000 individuals), the defendant’s potential liability in this case could stretch well into the nine figures. Before the plaintiff moved to certify the class, the defendant offered him $1,503 (just over the statutory cap for damages). The plaintiff rejected the offer, but the defendant argued that the offer nonetheless mooted both the plaintiff’s individual claim and the class claim. In the defendant’s view, because the plaintiff was being offered everything he could recover if he prevailed in the lawsuit, there was no longer any dispute to resolve, and hence no “case or controversy” under Article III of the U.S. Constitution.
The district court and Ninth Circuit rejected the defendant’s argument, and the Supreme Court heard oral argument on October 14. This is the second time in as many years that the Supreme Court has faced the question whether an offer of complete relief moots a plaintiff’s claim. In Genesis Healthcare Corporation v. Symczyk, 133 S. Ct. 1523 (2013), which involved a collective action under the Fair Labor Standards Act, a five-Justice majority (consisting of Chief Justice Roberts and Justices Scalia, Kennedy, Thomas, and Alito) declined to decide the issue, holding that it was not properly presented. Justice Kagan issued a heated dissent, joined by Justices Ginsburg, Breyer, and Sotomayor. She said that the Court should have reached the question and held that an unaccepted offer “will never” moot a plaintiff’s individual claim. On October 14, the Justices squared off again, with Justice Kagan peppering the defendant’s counsel with skeptical questions, and the Chief Justice and Justice Alito doing the same of the plaintiff’s counsel. Justice Breyer expressed interest in a possible middle ground: Whether, even if the defendant’s mere act of offering complete relief to a plaintiff does not moot the plaintiff’s claim, the claim would become moot if the defendant actually deposits with the court the amount of money representing complete relief.
(In addition to the knotty class action questions above, Campbell-Ewald also presents an entirely separate question relating to the somewhat obscure topic of derivative sovereign immunity. Although the Court expressed little interest in this issue at oral argument, it is possible that the Court could once again skirt the class action questions by holding that the defendant in Campbell-Ewald (a U.S. Navy contractor) is immune from suit.)
Spokeo, Inc. v. Robins
Like Campbell-Ewald, Spokeo, Inc. v. Robins also presents a question of constitutional standing: Whether Congress may confer Article III standing upon a plaintiff who suffers no concrete harm, and who therefore could not otherwise invoke the jurisdiction of a federal court, by authorizing a private right of action based on a bare violation of a federal statute.
The plaintiff in Spokeo alleged that the defendant, a website operator that provides users with personal information about other individuals, violated the Fair Credit Reporting Act (FCRA) by publishing false information about him and by failing to send certain required notices to third parties. The plaintiff brought an action on behalf of himself and a putative class of millions of members, putting the defendant’s prospective damages in the billions of dollars.
In his complaint, the plaintiff alleged that the defendant’s actions injured him by harming his employment prospects and by causing him related anxiety. The district court held that these asserted injuries were insufficient to confer standing on the plaintiff. The Ninth Circuit reversed, but on much broader grounds. It held that the defendant’s alleged violation of the statute was itself sufficient to confer standing, even if the plaintiff did not suffer the injuries alleged in his complaint, or any other injury beyond the statutory violation.
The defendant argues that such “injury in law” is insufficient to create standing, unless it is accompanied by a real-world “injury in fact.” The Supreme Court faced this same question three years ago in First American Financial Corporation v. Edwards, 132 S. Ct. 2536 (2012), but the Court dismissed that case as improvidently granted. (As is customary, the Court provided no explanation for why it dismissed the case.) The defendant in Spokeo argues that the issue has only grown in importance since then, as evidenced by the numerous FCRA class actions that have been filed, the large damages at stake, and the number of other federal statutes that, like FCRA, provide for statutory damages apart from actual damages. Oral argument took place on November 2.
Tyson Foods, Inc. v. Bouaphakeo
In Tyson Foods, Inc. v. Bouaphakeo, the Supreme Court will probe the scope of Rule 23(b)(3) class actions and its recent, high-profile decisions in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), and Comcast Corporation v. Behrend, 133 S. Ct. 1426 (2013). This case arises from an overtime pay dispute brought by employees at a meat-packing plant in Iowa. A jury awarded class-wide damages of some $3 million after finding that the defendant failed to pay the plaintiffs for time spent putting on (donning) and taking off (doffing) their work equipment, as well as for time spent walking to their work stations.
What landed the case in the Supreme Court is the method the plaintiffs used to prove class-wide liability and damages. The problem the plaintiffs faced was that the class members spent different amounts of time donning, doffing, and walking. As a result, they were entitled to different amounts of overtime pay, and in some cases, to none at all. The plaintiffs accounted for these differences by having one of their experts study a sample of employees and compute an “average” amount of time that plaintiffs spent donning, doffing, and walking. Another expert then calculated damages on a class-wide basis by assuming that every employee spent the average amount of donning, doffing, and walking time, even though any particular employee may have spent more or less time than the average. The plaintiffs’ expert acknowledged that this methodology resulted in there being at least 212 members in the class who did not suffer any damages because they were not entitled to overtime.
The defendant argues that the class should not have been certified because common questions of fact or law did not predominate over individual ones, as required by Rule 23(b)(3). The Court will hear oral argument on November 10, and it has granted cert on two issues: First, whether a class action may be certified under Rule 23(b)(3) where liability and damages will be determined with statistical techniques that presume all class members are identical to the average observed in a sample; and second, whether a class may be certified when it contains members who were not injured and thus have no legal right to damages. The Court has further agreed to hear these issues as they relate to the certification of collective actions under the Fair Labor Standards Act.
The Arbitration Cases: MHN Government Services, Inc. v. Zaborowski and DIRECTV, Inc. v. Imburgia
Finally, the Supreme Court will hear two cases dealing with the intersection of class actions and arbitration agreements. In both cases, California courts (one state, one federal) held that the defendant’s arbitration agreement was unenforceable, and thus that the plaintiffs’ class actions could proceed in court.
In MHN Government Services, Inc. v. Zaborowski, the Ninth Circuit held that certain provisions of the arbitration agreement were unconscionable under California law. Instead of severing those provisions, however, the court affirmed the district court’s decision not to enforce any part of the arbitration agreement.
In DIRECTV, Inc. v. Imburgia, the arbitration agreement prohibited class-wide arbitration, but further provided that if “the law of your state” would find this prohibition unenforceable, then the entire arbitration agreement is unenforceable. Prior to 2011, California case law treated such class-arbitration bans as unenforceable, but in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), the Supreme Court held the case law preempted by the Federal Arbitration Act. Nonetheless, in Imburgia, the California state court held that the words “the law of your state” refer to California law without regard to whether the law is invalid (which it is, in light of Concepcion). Accordingly, the court declined to enforce the arbitration agreement.
The defendants in Zaborowski and Imburgia argue that the decisions reflect a judicial hostility to arbitration agreements held by California state and federal courts. Oral argument in Zaborowski has not yet been scheduled. Oral argument in Imburgia took place on October 6. The Justices made little effort to hide their view that the California court misinterpreted the meaning of the words “law of your state.” (As Justice Kagan put it: “[The state court] probably got the answer wrong. Strike the ‘probably.’ Got the answer wrong.”) But the bulk of oral argument was spent on the threshold question whether the Supreme Court has authority to hear this case in the first place, since the meaning of the words “law of your state” is a matter of state law, and the Supreme Court reviews federal law. The plaintiffs suggested in their briefing that the Court therefore may wish to dismiss the case as improvidently granted, which, given the tenor of oral argument, may be the best outcome the plaintiffs can hope for.