All posts by David Wright

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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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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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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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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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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