Archives: United States Supreme Court

Can a Class Action Proceed when the Named Plaintiff’s Claim Becomes Moot? A Recent View from the North Carolina Business Court

View Mark Hiller’s Complete Bio at robinsonbradshaw.comIn this post we talk about two of our favorite things (relatively speaking): class actions and mootness.  We last looked at these issues when covering the U.S. Supreme Court’s decision in Campbell-Ewald Company v. Gomez, 136 S. Ct. 663 (2016).  There, the Court rejected the defendant’s attempt to “pick off” the named plaintiff in a class action case.  The defendant had made a Rule 68 offer to settle the case for the full value of the plaintiff’s claim.  The plaintiff declined, but the defendant argued that its offer nonetheless mooted the claim.  The Supreme Court rejected that argument, holding that an unaccepted Rule 68 offer does not moot a claim—at least if the defendant does not deposit the Rule 68 money with the court.

But what if the named plaintiff’s claim does become moot?  Can the case stay alive based on the claims of the class?  The Supreme Court has been wrestling with that question for decades, and the answer turns in large part on timing—when did the named plaintiff’s claim become moot?  If it became moot after the class was certified, then the class action is not rendered moot because, at that point, the class has acquired a legal status independent of the plaintiff’s.  See Sosna v. Iowa, 419 U.S. 393 (1975).  The same rule applies if the named plaintiff’s claim became moot after the trial court denied class certification.  If the denial is later reversed, the reversal will relate back to the time of the trial court’s erroneous certification decision.  See U.S. Parole Comm’n v. Geraghty, 445 U.S. 388 (1980).  In both of these situations, the named plaintiff had a live claim at the time the trial court ruled on certification.

That leaves open a third scenario: a named plaintiff whose claim becomes moot before the trial court makes any certification ruling.  What then?  Chief Judge Gale of the North Carolina Business Court faced this question in the recent case of Chambers v. Moses H. Cone Memorial Hospital.  To simplify the facts and procedural history, the plaintiff received emergency treatment at a hospital and then objected to the amount of the bill he received.  The plaintiff claimed that the hospital charged uninsured patients, like himself, more for emergency services than the hospital charged its insured patients.  He brought a class action complaint on behalf of himself and other uninsured patients who received emergency services at the hospital.  His initial complaint alleged common law claims and sought damages.  But he later amended the complaint to seek only a declaratory judgment that the hospital may collect only “reasonable payments” for its emergency services, rather than the “regular rates” the hospital charged in its form contract.

Judge Gale first held that the plaintiff’s declaratory judgment claim was moot because the hospital was not seeking to recover the unpaid amount of the plaintiff’s bill.  (The hospital had been seeking to do so earlier in the case, but the hospital dismissed its counterclaims with prejudice after the plaintiff dropped his damages claims.)

That left the more difficult question: Even though the plaintiff no longer had a live claim, could the case continue based on the claim of the putative class?  Judge Gale began by noting that the case did not come within the holdings of Sosna or Geraghty because the court had not ruled on certification at the time the plaintiff’s claim became moot.  (It appears the plaintiff had not yet filed a certification motion.)

Judge Gale then addressed whether the putative class claim could proceed based on an exception to the mootness doctrine for claims that are “so inherently transitory that the trial court will not have even enough time to rule on a motion for class certification before the proposed representative’s individual interest expires.”  Judge Gale explained that the classic example of an “inherently transitory” claim was one that inevitably becomes moot with the passage of time, such as a challenge to pretrial detention.  In those cases, dismissing a case as moot would mean that no plaintiff could challenge the defendant’s conduct, because any plaintiff’s individual claim would become moot before the case could be fully litigated.  Judge Gale said that the plaintiff’s claim—challenging the hospital’s emergency-services rates for uninsured patients—doesn’t fit into that passage-of-time category for “inherently transitory” claims.

But that left another possibility—one that circles us back to Campbell-Ewald: Can a claim be “inherently transitory” when the claim becomes moot, not because it is time-sensitive, but because the defendant has “picked off” the claim by offering to pay its full amount before the trial court makes a decision on certification?  Judge Gale noted that the Ninth Circuit has applied the “inherently transitory” exception in this scenario (as have several other federal circuit courts).  But ultimately, Judge Gale did not have to decide whether to follow this interpretation of the “inherently transitory” exception, because he concluded that there was no evidence showing that the hospital tried to pick off the plaintiff’s claim.  To the contrary, Judge Gale stated, the plaintiff’s claim became moot only when the plaintiff decided to dismiss his claims seeking damages.  Judge Gale agreed with the hospital that, had the plaintiff maintained those claims, then the hospital’s dismissal of its counterclaims “would not have mooted [plaintiff’s] declaratory claim.”

Conclusions

So, what to take away from all this?

First, class action law is complicated, especially when mootness is thrown into the mix.

Second, the law is pretty clear that a class action is not rendered moot when the named plaintiff has a live claim at the time the trial court decides whether to certify the class.

Third, the law is less clear whether the class action is rendered moot when the named plaintiff’s claim becomes moot before the trial court makes a certification decision.  In that scenario, the issues will likely focus on whether the case fits into exceptions to the mootness doctrine, such as the “inherently transitory” exception discussed above.

Fourth, there will likely be continued developments in the law as to whether a defendant’s effort to pick off a named plaintiff succeeds in mooting the plaintiff’s claim, and if so, whether that effort satisfies the “inherently transitory” exception such that a live case or controversy still exists.

We’ll keep you updated as the law develops.

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Judge Gorsuch’s Class Action Opinions After Shook

View Susan Huber's Complete Bio at robinsonbradshaw.com View Kevin Crandall’s’s Complete Bio at robinsonbradshaw.comToday we continue our analysis of Judge Gorsuch’s class action opinions from the Tenth Circuit in an effort to better understand how he may rule if confirmed for the Supreme Court. Last week, we examined Judge Gorsuch’s decision in Shook v. Board of County Commissioners, and we will take up his remaining class action opinions below.

McClendon v. City of Albuquerque, 630 F.3d 1288 (10th Cir. 2011)

In McClendon v. City of Albuquerque, decided three years after Shook, Judge Gorsuch again demonstrates judicial restraint. In McClendon, prisoners brought a class action against the City of Albuquerque, Bernalillo County, and various individuals involved in operating the Bernalillo County Detention Center. The parties entered into a pair of settlement agreements in 2005, but four years later the district court issued an order withdrawing its approval of the settlement and giving the plaintiffs permission to rescind those agreements after it found that the County misrepresented certain facts during settlement negotiations. The Tenth Circuit held that the order was not a “final decision,” subject to appeal under 28 U.S.C. § 1291. A final decision, Judge Gorsuch reasoned, dissociates the court from the case and ends the litigation on the merits, while the order withdrawing a settlement approval does “[j]ust the opposite: the order ensures litigation on the merits will continue in the district court.”

Judge Gorsuch empathized with the defendants’ desire for an appeal that might avoid further litigation in a previously settled case that was already fifteen years old: “the delays and costs associated with civil litigation in modern America are substantial and worrisome, and even the most hard-boiled litigator may raise an eyebrow at a case lasting as long as this one.” But neither the utility of the appeal nor the advanced age of the case swayed Judge Gorsuch to take an appeal beyond the bounds of the express authority in § 1291: “Congress’s direction demands our respect, not our rewriting.” Judge Gorsuch concluded his opinion by emphasizing the importance of judicial restraint:

[O]ne thing we may never do is disregard the bounds of our legal authority and assert § 1291 jurisdiction over an appeal where it doesn’t exist. To do so in this case would compound any error the defendants imagine with an impropriety of our own, making matters worse not better. It is, after all, a “central principle of a free society that courts,” no less than the other branches of government, “have finite bounds of authority.” . . . We must respect that principle and those bounds no less when it is hard to do so than when it is easy.

Hammond v. Stamps.com, Inc., 844 F.3d 909 (10th Cir. 2016)

The Tenth Circuit’s holding in Hammond v. Stamps.com, Inc.—that the minimum amount in controversy under the Class Action Fairness Act need only be legally possible and not factually probable—is hardly noteworthy, as it falls squarely in line with the law from other Courts of Appeals. But in Judge Gorsuch’s opinion, his most recent in the class action arena, we see the hallmarks of conservative jurisprudence: interpreting statutory text (here, “in controversy”) with its “traditional meaning”; citation to the Federal Judiciary Act of 1789; and a nod toward the late Justice Antonin Scalia’s textualist approach with a citation to his book, Reading Law. Indeed, it is only after a three-page textual and historical deep dive that Judge Gorsuch cites in the final paragraph of the opinion the “several courts [that] have held as we do today.”

For those of you who yearn to know the facts of the case, Elizabeth Hammond brought a putative class action in New Mexico state court, alleging that Stamps.com engaged in misleading and unlawful trade practices by insufficiently disclosing its subscription fees to customers. She alleged that “hundreds or thousands of persons” called to cancel their Stamps.com subscriptions as a result of Stamps.com alleged wrongdoing, and each class member would “likely” receive $31.98 in damages (the cost of subscribing for two months) or $300 in statutory damages. Stamps.com presented uncontested evidence that 312,680 customers had cancelled their subscriptions during the likely class period, and the company removed the case to federal court because the amount in controversy well exceeded the $5 million threshold for the Class Action Fairness Act. The trial court granted Ms. Hammond’s motion to remand, ruling that the company had not met its burden of establishing the minimum amount in controversy because it failed to exclude from its calculations those customers who cancelled their subscriptions for reasons unrelated to the allegations in the complaint, or as Judge Gorsuch put it, “without proof from Stamps.com establishing how many of its customers were actually deceived, the district court thought the company couldn’t satisfy the $5 million ‘in controversy’ requirement.” The Tenth Circuit vacated and remanded the district court’s remand order, ruling that federal jurisdiction was proper under CAFA: the proponent of jurisdiction should not have to “argue against himself, task[ed] with the job of proving his own likely liability in a sufficient number of individual cases simply to get a foot in the door of the federal courthouse.”

BP America, Inc. v. Oklahoma ex rel. Edmondson, 613 F.3d 1029 (10th Cir. 2010)

In an earlier CAFA jurisdictional decision, the Tenth Circuit in BP America granted discretionary leave for the propane gas distributor to appeal an order remanding the case to Oklahoma state court. The merits of the jurisdictional question—whether the Attorney General’s lawsuit, brought on behalf of the state and not any individual consumers, constitutes a “mass action” involving monetary relief to 100 or more people under CAFA—were not at issue at this preliminary stage of the appeal.

Judge Gorsuch’s opinion adopts multiple factors to consider in deciding whether to grant discretionary leave to appeal under CAFA § 1453, including whether the appeal presents an important, unsettled, or at least “fairly debatable” CAFA-related question and a weighing of the relative harms to the parties should an appeal be refused or entertained.

Heller v. Quovadx, Inc., 245 F. App’x 839 (10th Cir. 2007)

Although it actually predates Shook, the unpublished decision of Heller v. Quovadx, Inc., is worth noting, if only to highlight the wry humor employed by Judge Gorsuch in dismissing a non-class member’s argument that denying him standing to object to a settlement would violate his Fifth Amendment rights. In addition to the fact that the non-class member presented “no evidence or relevant legal argument to support his contentions,” he also “spen[t] the bulk of his brief noting the inefficiencies and burdens of paper-based litigation.” Perhaps a sentiment with which class action lawyers and judges can relate all too well.

Substantively, the Tenth Circuit affirmed the district court’s determination that the non-class member lacked standing to object to the proposed settlement. Non-class members opposed to a proposed settlement cannot object directly and instead must seek to intervene under Rule 24.

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How Will Justice Gorsuch Rule in Class Actions? A Look at Shook and Judicial Restraint

View John Wester's Complete Bio at robinsonbradshaw.comThe nomination of Tenth Circuit Judge Neil M. Gorsuch for the Supreme Court has jurists and reporters forecasting how, if confirmed, he will rule in cases raising “hot” Constitutional issues. The “hot” question for those of us who litigate class actions is how Justice Gorsuch would engage the next landmark class action, especially since he would replace Justice Antonin Scalia on the Court, author of two of the most significant class action opinions in recent years, Comcast Corp. v. Behrend and Wal-Mart Stores v. Dukes.

We will be examining some of Judge Gorsuch’s opinions in an attempt to answer this question, beginning with the 2008 opinion he wrote for a unanimous panel of the Tenth Circuit, denying class certification, in Shook v. Board of County Commissioners, 543 F. 3d 557. The linchpin of the outcome in Shook was adherence to the abuse of discretion standard of review. Indeed, twice in his opinion, Judge Gorsuch observes that, were the court evaluating whether to certify the class in the first instance, it may well have allowed a class action to proceed. For example, he observed:

In this case, we believe the district court’s decision fell within the boundaries set out by Rule 23(b)(2), governing case law, and the facts as alleged. While we very well may have made a different decision had the issue been presented to us as an initial matter, and while other district courts perhaps could have chosen, or could choose, to certify similar classes, we cannot say the district court’s assessment was beyond the pale.

What comes through as a lodestar for Judge Gorsuch’s reasoning is his vigilance for honoring the rubric of Rule 23, separate from a merits analysis. Shook is a suit alleging violations of the Prison Litigation Reform Act. The 2008 opinion marked a return trip to the Tenth Circuit for the parties. In the first ruling denying class relief, the district court had “conflated” an analysis of the merits of the relief available to the plaintiffs with threshold class certification requirements of Rule 23. Judge Gorsuch was specific in describing this error: “the court focused entirely on the PLRA, reasoning that the relief plaintiffs sought was beyond its jurisdictional competence after the passage of the PLRA and that class certification is properly denied when the court lacks the authority to order the prospective remedy requested.” On remand, the district court repeated the outcome on class certification, denying it again, but, as Judge Gorsuch described the second round: “[the district court] did so this time with reference to Rule 23’s strictures. We find that the district court’s analysis of the Rule 23 framework is free of the legal errors we identified in its first effort.”

Judge Gorsuch’s opinion in Shook reflects careful scholarship—drawing support from leading Supreme Court class action precedent, from decisions by five other circuit courts, and from five law review articles—all evaluating detailed features of Rule 23—to explain why the present case, under an abuse of discretion standard, should remain in the “certification denied” column: “It is precisely these features that distinguish our case from the many and diverse civil rights cases whose certifications we have upheld and will continue to uphold.” His approach in Shook fits the overall reputation for scholarship, judicial restraint, and “rules-following” that Judge Gorsuch has earned during his judicial service.

Taking into account this reputation and his reasoning in Shook, those who labor in class action cases might wonder how far will Justice Gorsuch’s deference to trial court discretion run when the next Wal-Mart-themed case reaches the Supreme Court. Recognizing that the record for each case is distinctive, the trial court ruling in Wal-Mart stood on a significant volume of evidence—statistical and anecdotal—pointing to gender discrimination. As Justice Ginsburg observed in dissent, focusing on the commonality requirement:

The District Court’s identification of a common question, whether Wal-Mart’s pay and promotions policies gave rise to unlawful discrimination, was hardly infirm. The practice of delegating to supervisors large discretion to make personnel decisions, uncontrolled by formal standards, has long been known to have the potential to produce disparate effects. Managers, like all humankind, may be prey to biases of which they are unaware. The risk of discrimination is heightened when those managers are predominantly of one sex, and are steeped in a corporate culture that perpetuates gender stereotypes.

Would Judge Gorsuch’s adherence to abuse of discretion standard of review and his recognition that trial judges operate within a range of acceptable determinations lead to his siding with Justice Ginsburg’s dissenting view? Or, was Judge Gorsuch’s application of the abuse of discretion standard in Shook influenced by its context, an appeal arising from the district court’s denial of certification? Perhaps we’ll learn the answer with the next Supreme Court class action that pits judicial restraint against an inclination toward denial of certification.

We will continue our analysis of Judge Gorsuch’s class action opinions in future posts.

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Oral Argument in Class Action Waiver Cases Postponed to October

View David Wright's Complete Bio at robinsonbradshaw.comLast week, we observed that the Supreme Court appeared to be waiting for a ninth justice to decide in an important case involving appealability of class action certification decisions. A news report today* indicates that the Supreme Court has also pushed out arguments concerning the enforceability of class action waivers. As we recently reported in this space, the Court had agreed in three cases to decide whether the NLRA prohibits employers from requiring non-management employees covered by the NLRA to arbitrate their work-related claims individually. For employers, particularly those with a nationwide workforce, this remains one of the few tools available to stave off expensive and risky class litigation from employees. The Court apparently will not hear argument in these cases until the 2017 term, which begins in October. We will be watching the Supreme Court for further developments.

*You may have to register to access the linked article at Law360.

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Important Class Action Apparently Awaits the Ninth Justice

View David Wright's Complete Bio at robinsonbradshaw.com
About a year ago, the United States Supreme Court granted Microsoft’s petition to review this question: “Whether 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.” Briefing in the case was completed last June, but the case has yet to appear in the calendar of the fourth sitting of the Supreme Court’s term, which began January 9, 2017. Although the reasons for the delay aren’t pellucid, this is an important case and likely is being held for a time when a full complement of the Court can decide the question.

The case comes from the Ninth Circuit, which held that 28 U.S.C. Section 1291 provided jurisdiction to review the trial court’s decision to strike class allegations, even though the named plaintiffs had dismissed their claims with prejudice. The district court found that the underlying claims, which alleged that a “design defect in the Xbox console gouges game discs,” could not proceed as a class because individual issues predominated. The plaintiffs sought interlocutory review under Rule 23(f), but the Ninth Circuit declined to take the appeal. Under the Supreme Court’s unanimous decision in Coopers & Lybrand v. Livesay, 437 U.S. 463, 466 (1978), this meant the plaintiffs would need to wait until after final judgment in the case before they would be able to obtain review of the class determination. But litigation is expensive, and trying a case about a few game discs—as opposed to millions of them—is not normally an attractive proposition for plaintiffs’ counsel. In most cases, of course, plaintiffs are loath to dismissing their claims as a condition to obtaining review for class claims, but in consumer litigation—where the individual stakes are quite small—this is not so. So the plaintiffs dismissed their claims with prejudice and filed a notice of appeal with the Ninth Circuit. This allowed them to do what Livesay seemed to prohibit—obtain an immediate appeal.

Relying on previous precedent in the circuit, however, the Ninth Circuit held that “a dismissal of an action with prejudice, even when such dismissal is the product of a stipulation, is a sufficiently adverse—and thus appealable—final decision.” Reaching the merits, the Ninth Circuit reversed the trial court and remanded to allow the class claims to go forward.

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. And appellate courts don’t generally review class certification decisions on an interlocutory basis; one study indicates that less than one-quarter of such petitions are granted. Defendants are thus whipsawed: they can’t obtain interlocutory review of an adverse class certification decision and they can’t afford to take the risk of a class verdict. Put simply, they are at the mercy of a single trial judge and the stakes are enormous. As the Supreme Court has observed, class actions present a significant risk of “in terrorem settlements,” because defendants “[f]aced with even a small chance of a devastating loss . . . will be pressured into settling questionable claims.” AT&T Mobility LLC v. Concepcion, m 131 S. Ct. 1740, 1752 (2011).

But plaintiffs will have an enhanced ability to achieve appellate review if the Ninth Circuit decision is affirmed. Plaintiffs can also try a Rule 23(f) appeal, as they did in Baker. But if they lose, the named plaintiffs can dismiss their claims with prejudice and achieve immediate review of class certification as a matter of right. On its face, this inequality seems to be exactly what the Supreme Court wanted to avoid in Livesay when it refused to recognize the “death knell” doctrine embraced by numerous courts of appeals. There, the Court noted that the doctrine “operates only in favor of plaintiffs even though the class issue—whether to certify, and if so, how large the class should be—will often be of critical importance to defendants as well.”

As evidenced by the amount of amicus participation in this case, this decision is an important one and has significant stakes for consumers and businesses. Our guess is that the current justices are split 4 to 4 on this one, so stay tuned for the outcome of the confirmation process. Judge Gorsuch, for his part, seems to have a conservative view of the finality doctrine. See McClendon v. City of Albuquerque, 630 F.3d 1288 (10th Cir. 2011) (no appellate jurisdiction to consider district court’s order withdrawing approval of a class action settlement, observing that “[s]uch an order simply presses the reset button and marks the case for renewed litigation”).

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