Monthly Archives: August 2017

The Case of the $5 Footlong*

View Adam Doerr's Complete Bio at robinsonbradshaw.comFor what appears to have been a frivolous lawsuit, In re: Subway Footlong Sandwich Marketing and Sales Practices Litigation generated an interesting opinion from the Seventh Circuit full of class-action issues. The case originated when an Australian teenager posted a photo of an 11-inch Subway sandwich, with a tape measure, on his Facebook page. Coming in the midst of Subway’s $5 FootlongsTM campaign, the picture went viral, and class-action cases were soon pending.

After early discovery showed that most “footlongs” were, in fact, 12 inches long, plaintiffs’ counsel ran into a series of problems with their damages class under Rule 23(b)(3), including:

    • commonality (“The overwhelming majority of Subway’s sandwiches lived up to their advertised length, so individual hearings would be needed to identify which purchasers actually received undersized sandwiches. But sandwich measuring by Subway customers had been a fleeting social-media meme; most people consumed their sandwiches without first measuring them”);
    • materiality under state consumer protection laws (“Individualized hearings would be necessary to identify which customers, if any, deemed the minor variation in bread length material to the decision to purchase”); and
    • damages (“[A]ll of Subway’s raw dough sticks weigh exactly the same, so the rare sandwich roll that fails to bake to a full 12 inches actually contains no less bread…. As for other sandwich ingredients, class members could be as profligate or as temperate as they pleased: Subway’s ‘sandwich artists’ add toppings at the customer’s request.”)

The plaintiffs shifted strategy, moving from a damages class to a Rule 23(b)(2) class for injunctive relief. Following mediation, the case settled for a series of “procedures designed to achieve better bread-length uniformity,” including bread oven inspections and use of a “tool” (perhaps a ruler?) to measure compliance. To deal with deficient rolls that slipped past the watchful eyes of the inspectors, a poster would be prominently displayed at each restaurant: “Due to natural variations in the bread baking process, the size and shape of bread may vary.”

The settlement provided for $520,000 in fees for plaintiffs’ attorneys, enough for nearly 20 miles of sandwiches, and incentive payments of $500 each for the class representatives. But one class member—Theodore Frank—objected. He argued that the settlement was worthless to the class of Subway customers, who still faced a non-neglible (and relatively meaningless) risk of a short sandwich despite the large payment to class counsel. The attorneys for the class responded that if Subway continued to sell sandwiches less than 12 inches long, failure to comply with the settlement could be punished by contempt. The Seventh Circuit was not persuaded: “Contempt as a remedy to enforce a worthless settlement is itself worthless. Zero plus zero equals zero.”

That the Seventh Circuit even heard an appeal from a settlement approved by the district court also reveals an interesting dynamic in class-action settlements. Class members generally have the right to object to a proposed class-action settlement, and they can attempt to appeal a settlement approved over their objections. Class member objections often involve the fees to be paid to the plaintiffs’ attorneys, especially when the settlement appears to benefit attorneys more than the members of the class. Mr. Frank, the objector in the Subway case, is an attorney who has objected to dozens of class-action settlements as the director of the Center for Class Action Fairness, a nonprofit that describes itself as challenging unfair class-action procedures.1 Interestingly, although Mr. Frank is generally a nonprofit objector, in 2015 he was involved in a situation he described as “lurid” and “Grishamesque” when his $250,000 consulting agreement with a professional serial objector (an attorney who objects to class-action settlements in hopes of being paid to drop the objection by the lead attorneys) became public, as reported by Alison Frankel at Reuters.

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1 The Center for Class Action Fairness is part of the Competitive Enterprise Institute, a conservative organization that advocates for issues including tort reform. Critics of these tort reform efforts contend that by selectively focusing on unrepresentative cases, like litigation over the length of a Subway sandwich, tort reformers are attempting to paint a distorted picture of the legal system that ignores the important role that class actions play in protecting consumers and enforcing civil rights.

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Fourth Circuit Provides Guidance Concerning Proof of the Amount in Controversy under CAFA

View David Wright's Complete Bio at robinsonbradshaw.comWe don’t often get appellate guidance after a federal trial judge remands a case to state court following removal because 28 U.S.C. Sect. 1447(d) generally makes such a ruling unreviewable. But the Class Action Fairness Act (“CAFA”), 28 U.S.C. Sect. 1332(d), permits a court of appeals to accept an appeal of a remand from a class action. The Fourth Circuit exercised this right in Scott v. Cricket Communications, LLC, No. 16-2300 (4th Cir. July 28, 2017), in order to provide some guidance about the quantum and quality of proof required to prove the amount in controversy under CAFA.

Let’s face it. When a plaintiff files a putative class action in state court, he does so because he believes that jurisdiction will be more favorable than a federal forum. In order to defeat removal under CAFA, therefore, the plaintiff must figure out a way to stay under the $5,000,000 CAFA controversy limit. Only an ill-advised plaintiff would file a class action in state court in which he alleges specifically that the class is entitled to receive over $5,000,000. Indeed, as Judge Duncan points out in Cricket Communications, a “removing defendant is somewhat constrained by the plaintiff,” because “[a]fter all, as ‘masters of their complaint’ plaintiffs are free to purposely omit information that would allow a defendant to allege the amount in controversy with pinpoint precision.”

Michael Scott, the sole named plaintiff in the Cricket Communications case, filed his suit in state court after purchasing two Samsung Galaxy phones from Cricket for “hundreds of dollars each.” He alleged he—and others like him—got a raw deal because Cricket had begun to shut down its Code Division Multiple Access (CDMA) technology, thereby rendering his phones “useless and worthless.” He defined the class to include Maryland citizens who—for a nine-month period—purchased a CDMA mobile telephone from Cricket that was locked for use only on Cricket’s (defunct) CDMA network.

When it removed the case, Cricket provided a declaration from an individual who attested that during the relevant period, Cricket customers in Maryland purchased at least 50,000 phones. A supplemental affidavit from Cricket, filed after the motion to remand, clarified that over 47,000 of these phones, associated with billing addresses in Maryland, were “locked into” Cricket’s CDMA network. Accepting the complaint’s reference to each phone being worth “hundreds of dollars” meant, according to Cricket, that the amount in controversy was north of $9,000,000.

The district court, however, remanded the case. The district court observed that the class consisted only of Maryland citizens. Cricket’s removal affidavit was overinclusive, it felt, because some portion of the 47,000 phones sold to customers in Maryland were likely sold to non-citizens. Accordingly, the court found the evidence by Cricket was not “sufficiently tailored to Scott’s narrowly defined class.”

On appeal, the Fourth Circuit agreed that Cricket bore the burden of demonstrating that removal jurisdiction was proper: “When a plaintiff’s complaint leaves the amount of damages unspecified, the defendant must provide evidence to show . . . what the stakes of litigation . . . are given the plaintiff’s actual demands.” And since the class was limited to Maryland citizens, it was Cricket’s job to provide proof that at least 100 Maryland citizens purchased more than $5,000,000 of locked phones from Cricket. The panel agreed that citizenship, as the district court had observed, was different from residence.

Also like the district court, the Fourth Circuit agreed that the initial statement by Cricket that it sold at least 50,000 CDMA mobile phones in Maryland “suffices to allege jurisdiction under CAFA.” But once Scott challenged these allegations through a motion to remand, Cricket was required to prove the jurisdictional amount by a preponderance of the evidence. The appellate court, however, disagreed with the way in which the district court assessed whether the removing defendant had satisfied its burden.

Of necessity, Judge Duncan observed, a defendant must to some extent rely on “reasonable estimates, inferences and deductions.” The “key inquiry,” according to the court, is “not what the plaintiff will recover” but “an estimate of the amount that will be put at issue in the course of the litigation.” The panel found that “[a] removing defendant can use overinclusive evidence to establish the amount in controversy so long as the evidence shows it is more likely than not that ‘a fact finder might legally conclude that’ damages will exceed the jurisdictional amount.”

Because the district court applied, in the Fourth Circuit’s judgment, the wrong legal standard in reviewing this evidence, the court of appeals remanded, emphasizing that Cricket must provide enough facts “to allow a court to determine—not speculate—that it is more likely than not” that the $5,000,000 amount in controversy has been satisfied. Although Cricket, the court said, need not make a “definitive determination of domicile,” it needed to provide more evidence to allow a determination about domicile of the class members.

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Recent Filings – July 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 July’s filings:

Prince, et al. v. Perfect Delivery, Inc., et al.; No. 8:17-cv-01950 (D.S.C. July 24, 2017) (purported collective and class action brought by delivery drivers against defendants, which operate Papa John’s franchises in North and South Carolina, alleging defendants used flawed methods to determine reimbursement rates for the drivers who used their own vehicles for delivery, thereby causing their wages to fall below federal minimum wage standards under FLSA.)

Prescott, et al. v. Morgreen Solar Solutions, LLC, et al.; No. 5:17-cv-00365 (E.D.N.C. July 21, 2017) (purported collective and class action brought by employees who allege they were misclassified by defendants as independent contractors and were thereby not properly compensated under federal and state wage and hour laws for time worked including failure to pay minimum wage and overtime compensation.)

Prescott, et al. v. Morgreen Solar Solutions, LLC, et al.; No. 5:17-cv-00365 (E.D.N.C. July 21, 2017) (purported collective and class action brought by employees who allege they were misclassified by defendants as independent contractors and defendants thereby failed to pay minimum wage and overtime compensation for time worked under federal and state wage and hour laws.)

Parshall, et al. v. ASB Bancorp, Inc., et al.; No. 1:17-cv-00194 (W.D.N.C. July 19, 2017) (purported class action brought by shareholders of ASB Bancorp, Inc. against it and its board of directors alleging a false and misleading registration statement was filed regarding a proposed merger with First Bancorp and seeking to enjoin defendants from closing the transaction, or, if consummated, rescinding it or setting it aside.)

Jones, et al. v. Chicago Bridge & Iron Company; No. 3:17-cv-00424 (W.D.N.C. July 18, 2017) (purported collective and class action brought under federal and state wage and hour laws by employees who were assigned to work under the “9/80” pay plan but were allegedly denied overtime compensation and other lawful pay due under that plan.)

Bushansky, et al. Capital Bank Financial Corp., et al.; No. 3:17-cv-00422 (W.D.N.C. July 17, 2017) (one of three putative class action lawsuits brought by shareholders of Capital Bank Financial Corp. under federal securities laws against the Bank and its board of directors alleging defendants failed to disclose material information related to its proposed merger with First Horizon National Corporation and seeking to enjoin the upcoming shareholder vote. The other two cases are: Parshall v. Capital Bank Financial Corp., et al.; No. 3:17-cv-00428 (W.D.N.C. July 19, 2017) and McNamara v. Capital Bank Financial Corp., et al.; No. 3:17-cv-00439 (W.D.N.C. July 25, 2017).)

Rubin, et al. v. ABS Bancorp, Inc.; No. 1:17-cv-00185 (W.D.N.C. July 14, 2017) (putative class action brought by shareholders of ASB Bancorp, Inc. under federal securities laws alleging defendants failed to provide a full disclosure of material information relating to a proposed merger with First Bancorp. and are attempting to enjoin an upcoming shareholder vote.)

Matthews, et al. v. Hyatt Corporation; No. 3:17-cv-00413 (W.D.N.C. July 14, 2017) (purported collective and class action brought by hourly at-home call center employees under federal and state wage and hour laws alleging defendant failed to pay pre-shift, mid-shift and post-shift time the employees spent conducting required tasks for their jobs.)

 

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