Monthly Archives: February 2018

United States Supreme Court Questions Whether A Rule 23(b)(2) Class Can Challenge the Failure to Provide Noncitizens Bail Hearings

View David Wright's Complete Bio at robinsonbradshaw.comThe United States Supreme Court, in a 5-3 decision authored by Justice Alito, reversed a Ninth Circuit case concluding that detained aliens have a statutory right to periodic bond hearings during the course of their extended detention.  See Jennings v. Rodriguez,  ____ U.S. ____, No. 15-1204 (U.S. Feb. 27, 2018).  The Court found that the Ninth Circuit’s statutory interpretation in favor of detained noncitizens was “implausible.”  In pedagogical fashion, Justice Alito explained that the Ninth Circuit had turned the doctrine of “constitutional avoidance” on its head:  “Spotting a constitutional issue does not give a court the authority to rewrite a statute as it pleases.”  We don’t take sides, in this space, about the merits of this issue, but thought the Court’s observations about class certification were worth a mention.

The class certification rulings in Jennings have a storied history.  In June 2007, the named plaintiff filed a motion for class certification, which the district court denied in a two-sentence order.  Rodriguez appealed this order to the Ninth Circuit.  The appellate panel, noting the dearth of reasoning by the district judge, decided to “evaluate for [themselves] whether the class should be certified.”  The Ninth Circuit, without having the benefit of Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011), brushed aside the Rule 23(a) commonality challenge, focused on the utility of answering “comprehensively in a class setting” the constitutionality of class members’ detention, and proposed establishment of subclasses to deal with differing statutory schemes applicable to the class.  On remand, the district court certified a class under Rule 23(b)(2), and established four subclasses.  The Ninth Circuit, on interlocutory review of that ruling, sustained certification of three of the four subclasses.

In its opinion, the Supreme Court questioned whether the provisions of 8 U.S.C. § 1252(f)(1) precluded the lower courts from granting injunctive relief, citing the Supreme Court’s decision in Reno v. American–Arab Anti-Discrimination Comm., 525 U.S. 471 (1999) (Section 1252(f)(1) “prohibits federal courts from granting classwide injunctive relief” against the operation of §§ 1221-1232 of Title 8 of the U.S. Code).  Rule 23(b)(2) applies only when final injunctive relief or corresponding declaratory relief is appropriate for the class as a whole, as Justice Alito emphasized in his own italics. The majority also directed the Ninth Circuit to “consider whether a Rule 23(b)(2) class action continues to be the appropriate vehicle” in light of the Wal-Mart decision, noting that – in Wal-Mart – the Court held that “Rule 23(b)(2) applies only when a single injunction or declaratory judgment would provide relief to each member of the class.”  Because the Ninth Circuit had already concluded that some of the class members “may not be entitled to bond hearings,” the Supreme Court observed that “it may no longer be true” that the complained-of “conduct is such that it can be enjoined or declared unlawful only as to all of the class members or as to none of them.”  The Court also expressed doubt as to whether due process claims could be resolved on a class-wide basis, given prior holdings that “due process is flexible” and “calls for such procedural protections as the particular situation demands.”

Justice Breyer, in dissent, took issue with the suggestion that Wal-Mart precluded class certification.  He observed that every class member was after the same thing, a bail hearing, “and the differences in situation among members of the class are not relevant to their entitlement to a bail hearing.”

The Ninth Circuit’s track record at the Supreme Court is well known.  And the import of the majority’s instructions regarding the appropriateness of class certification here is fairly plain, at least to us.  But whether and to what extent the lower courts will “take a hint” remains to be seen.

Business Court Approves Disclosure-Only Settlement, But Postpones Consideration of Attorneys’ Fees Request

View Mark Hiller’s Complete Bio at robinsonbradshaw.comThose who follow class action law probably will be familiar with In re Trulia (2016), the seminal decision of the Delaware Court of Chancery that put the brakes on disclosure-only settlements.  Before Trulia, these controversial settlements were ubiquitous in deal litigation, in which shareholders of a company file a class action lawsuit seeking to stop the company from engaging in a merger or acquisition on the ground the company failed to disclose sufficient information about the transaction.  Under a typical disclosure-only settlement, the company agrees to supplement its disclosures and pay the (often hefty) fees of class counsel.  In return, the company obtains a release from the shareholder class, and the deal can proceed.

That changed with Trulia.  The court lamented that disclosure-only settlements are often raw deals for shareholders, who release potentially valuable claims in exchange for no monetary compensation, but only additional disclosures that may be insignificant.  Compounding the problem is that, because both class counsel and the company are aligned in supporting the settlement, the court is on its own to determine whether the settlement is fair and reasonable to absent shareholders.  True, the Trulia court noted, courts face that task any time they evaluate a proposed class action settlement that has no objectors.  But the court said the task is especially difficult in deal litigation, because disclosure-only settlements are usually reached quickly, before there has been any significant discovery into the potential value of the shareholders’ soon-to-be-released claims.  The Trulia court drew a line in the sand, holding that Delaware law looks with “disfavor” on these settlements and would allow them only if the supplemental disclosures were “plainly material” and the shareholder releases were “narrowly circumscribed.”

Court watchers viewed Trulia as the death knell to deal litigation in Delaware and have wondered whether the plaintiffs’ bar would migrate to other jurisdictions that might be more hospitable.  That is why the Business Court’s recent approval of a disclosure-only settlement in the Krispy Kreme shareholder litigation provides a significant data point.  The litigation arose from a shareholder challenge to Krispy Kreme’s proposed acquisition by another company.  The settlement called for supplemental disclosures and payment of class counsel’s fees, in return for a shareholder release.

Chief Judge Gale analyzed Trulia and discussed the standard North Carolina law should apply to review the reasonableness of disclosure-only settlements.  Judge Gale said he is “fully in accord with Trulia’s enhanced scrutiny to determine whether the release is narrowly circumscribed.”  At the same time, however, he said that “[a]s the scope of the release narrows,” the “Court’s inquiry as to the materiality of supplemental disclosures and their adequacy to support the release tends to a more traditional settlement inquiry where the judgment of competent counsel is accorded significant weight.”  Here is how he summarized the test:

In sum, the Court must examine the materiality of any supplemental disclosures and find that they provide reasonable consideration for the class release. But where there is little or no opposition by class members, the Court is reluctant to set aside a fair arm’s length settlement negotiated between competent counsel if the disclosures are not plainly immaterial and the release is reasonable. The Court is less reluctant to exercise a more searching inquiry when deciding upon a fee request that does not depend on the validity of the settlement.

Judge Gale then applied this test and concluded that the release at issue was reasonable in view of Krispy Kreme’s supplemental disclosures. He focused mainly on the company’s disclosures about the discounted cash flow (DCF) analysis performed by its financial advisor. In a nutshell, the proxy statements had disclosed that the DCF estimate was based on certain projected free cash flows, but did not disclose the cash flows themselves. As it turned out, the cash flows described in the proxy statements differed somewhat from the cash flows the financial advisor used in its actual calculation. As Judge Gale noted, “[c]ounsel acknowledged that while the differences may be slight in any particular year, the differences over time have greater significance.” Judge Gale concluded from this that the company’s supplemental disclosures, which contained cash flow information not found in the proxy statements, were material and supported the shareholder release, which was “not significantly broader than the effect of the Shareholder Vote” approving the merger.

As to the question of attorneys’ fees, Judge Gale deferred ruling on that issue. One shareholder had filed an objection opposing the award of fees but not otherwise opposing the settlement. Judge Gale concluded that he could “uncouple” the fee request from the rest of the settlement because the settlement expressly said that its approval was not dependent on a fee award. This uncoupling would have the benefit of allowing the company to advocate on the fee question without fear of jeopardizing the settlement and release.1

Takeaway

Time will tell whether deal litigation and the accompanying disclosure-only settlements, which now are disfavored in Delaware, will find a home in North Carolina. Nominally, Judge Gale’s formulation of the standard for reviewing these settlements—which favors approval so long as the disclosures are not “plainly immaterial”—seems more deferential than Trulia’s—which requires the disclosures to be “plainly material” (my emphasis). But at least arguably, the Krispy Kreme disclosures might have satisfied the Trulia standard too. And, settlement approval was facilitated by the fact that Judge Gale was able to reserve decision on the request for fees; had he been forced to rule on the reasonableness of the fees and supplemental disclosures together, he may have shown greater skepticism of the settlement. Regardless, Judge Gale’s approval of the Krispy Kreme settlement shows that North Carolina law has, at minimum, not sworn off approval of disclosure-only settlements.

___________________________________

1 Judge Gale noted that the Court of Chancery has approved of a “mootness dismissal” procedure that allows the court to evaluate the fee request independent of the substantive settlement. Under that procedure, the “selling company issues supplemental disclosures, the class representative dismisses the class action with a release that binds only the named plaintiff, and class counsel applies for a fee award based on efforts to secure the supplemental disclosures.” Judge Gale explained that North Carolina law “has not expressly adopted such a process or procedure,” and he found it unnecessary to decide whether to recognize the procedure in this case.

Recent Filings – January 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 January filings:

Sciabacucchi v. Snyder’s-Lance, Inc., et al., No. 3:18-cv-00049 (W.D.N.C. January 29, 2018) (previously reported similar action as Shaev Profit Sharing Account v. Snyder’s-Lance, Inc., et al., No. 3:18-cv-00039 (W.D.N.C. January 25, 2018) wherein shareholders allege financial harm from issuance of a false proxy statement for a proposed merger transaction between Snyder’s-Lance and Campbell Soup Company)

Shaev Profit Sharing Account v. Snyder’s-Lance, Inc., et al., No. 3:18-cv-00039 (W.D.N.C. January 25, 2018) (putative class action brought by shareholders who claim financial harm under federal securities laws against Synder’s-Lance and Campbell Soup Company for alleged issuance of a false and misleading proxy statement for a proposed merger transaction between the entities on or about December 2017)

Vaitkuvienė v. Syneos Health, Inc., et al., No. 5:18-cv-00029 (E.D.N.C. January 25, 2018) (putative class action brought by shareholders under federal securities laws against defendant INC, a publicly traded clinical research organization, for allegedly issuing false press releases, artificially inflating the stock price, and deceiving investors about the company’s prospects and business relating to a potential acquisition by INC of inVentive Health, Inc. on or about May 10, 2017)

Lightsey, et al. v. Toshiba Corp., No. 9:18-cv-00190 (D.S.C. January 23, 2018) (previously reported similar action brought by customers of SCANA:  this putative class action removed from South Carolina state court to federal court is brought by South Carolina consumers of electricity against Toshiba Corporation which allegedly gave guaranty regarding the costs passed on to customers of two nuclear power projects to be built by S.C. Electric & Gas Company but the projects were abandoned and Toshiba has failed to make payment or agreed to pay those customers who were financially harmed)

Mattson v. Ceres Marine Terminals Inc., No. 2:18-cv-00192 (D.S.C. January 23, 2018) (putative collective and class action brought under federal and state wage and hour laws by employees who load and unload cargo for Ceres Marine Terminals, Inc., a stevedoring and terminal operating company, alleging they were misclassified as exempt and not paid overtime compensation for hours worked)

Rowland v. Mid-America Apartments, LP d/b/a Colonial Grand at Research Park, et al., No. 1:18-cv-00043 (M.D.N.C. January 22, 2018) (putative class action removed from North Carolina state court to federal court brought under the North Carolina Debt Collection Act alleging defendants, which are apartment complexes, send tenants who are late with their rent payment past the 9th day of the month letters with premature threat of eviction, court action, attorneys’ fees, sheriff fees, etc.)

Erdogan, et al. v. Preserve at Charleston Park Homeowners Ass’n., Inc., et al., No. 2:18-cv-00084 (D.S.C. January 9, 2018) (putative class action alleging certain homeowners associations and law firms across South Carolina have violated the Fair Debt Collection Practices Act and state law by assessing and foreclosing on liens against individual homeowners for unpaid dues or assessments)

Erekson, et al. v. Clarkson & Hale, LLC, No. 3:18-cv-00032 (D.S.C. January 4, 2018) (putative class action alleging defendant law firm’s debt collection letters failed to explain plaintiffs’ rights to dispute the debt and request verification in violation of the Fair Debt Collection Practices Act)

Church, et al. v. Hotels.com L.P., et al., No. 2:18-cv-00018 (D.S.C. January 3, 2018) (putative collective and class action brought against hotel booking websites by users of these websites alleging defendants are unlawfully collecting and retaining overcharges of taxes and fees)

Alston, et al. v. Midland Credit Mgmt., Inc., No. 8:18-cv-00014 (D.S.C. January 3, 2018) (putative class action brought under the Fair Debt Collection Practices Act and state collection laws alleging defendant sent misleading and deceptive collection letters which failed to advise plaintiffs that any payment option on their revolving credit loans would restart the statute of limitations for a potential collection action)

Pier View Condominium Ass’n, Inc., et al. v. Johns Manville, Inc., No. 2:18-cv-00022 (D.S.C. January 2, 2018) (purported class action removed from South Carolina state court to federal court brought the homeowners association of Pier View Condominiums alleging Johns Manville manufactured and supplied defective roofing materials causing property damage, including water intrusion, and mishandled the warranty of the roofing system)

Conner, et al. v. Cleveland Cnty. Emergency Med. Servs., No. 1:18-cv-00002 (W.D.N.C. January 2, 2018) (putative collective and class action brought under federal and state wage and hour laws alleging that defendant failed to pay overtime to EMTs for all hours worked in excess of 40 hours per week)