Tag Archives: Appeal

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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Fourth Circuit Uses Spokeo to Spike $11.7 Million Class Action Judgment

View John Wester's Complete Bio at robinsonbradshaw.comStanding to sue, a venerable piece of American jurisprudence for sure, continues to draw attention in recent class action cases, including in the Fourth Circuit. In its second decision this year evaluating last term’s Supreme Court decision, Spokeo v. Robins, 136 S. Ct. 1540 (2016), a unanimous panel of the Fourth Circuit found insufficient “an informational injury” the lead plaintiff advanced under the Fair Credit Reporting Act—the same statute under review in Spokeo.  Dreher v. Experian Information Solutions, Inc., 856 F. 3d 337 (4th Cir. May 11, 2017). See also Beck v. McDonald, 848 F. 3d. 262 (4th Cir. 2017) (affirming the dismissal of a class action lawsuit for lack of subject-matter jurisdiction based on the plaintiffs’ failure to establish a non-speculative, imminent injury-in-fact under the federal Privacy Act for purposes of Article III standing).

Dreher presented a high-stakes controversy—the trial court had certified a class of 69,000 members and had awarded $11,700,000 in damages. The lead plaintiff, pursuing a security clearance for government employment, had tried to expunge an inaccurate credit card debt in a credit report an Experian affiliate maintained on him.  The affiliate listing his bad debt in error went into receivership but continued to list Dreher’s debt.  Some 15 months elapsed between Dreher’s starting efforts and the deletion of the inaccurate credit information from his report, but this delay did not affect Dreher’s security clearance.  The government granted his clearance in eight days.

Dreher persuaded the trial court that Experian and its affiliate had willfully violated the FCRA by failing to provide “the sources” of Dreher’s credit report. “When a consumer reporting agency fails to disclose those sources, it violates [the statutory] right, thus creating a sufficient injury-in-fact for constitutional standing.” Dreher, 71 F. Supp. 3d 572, 574 (E. D. Va. 2014). Notably for the Fourth Circuit, the trial court—declining to analyze whether Dreher’s injury was specific and concrete—ruled that “any violation of the statute sufficed to create an Article III injury-in-fact.” 856 F. 3d at 342 (emphasis in original).

Reminding that the burden to establish all of the Spokeo elements of standing falls on the plaintiff, the Fourth Circuit concluded that Dreher “stumbles on the first of the[ ] requirements: injury in fact.” Id. at 343. The court then provided details that will be instructive for future analyses of class action standing:

To establish injury in fact, “a plaintiff must show that he or she suffered ‘an invasion of a legally protected interest’ that is ‘concrete and particularized.’” Spokeo, 136 S. Ct. at 1548 … The Supreme Court vacated the Ninth Circuit’s decision because that court “failed to fully appreciate the distinction between concreteness and particularization.” Spokeo, 136 S. Ct. at 1550.  The Court found that in analyzing the “particular and concrete” aspect of the standing requirement, the Ninth Circuit “elided” the “independent requirement” of concreteness.  Id. at 1548. … A concrete injury is “de facto,” meaning that “it must actually exist” and is “real, and not abstract.” Id. at 343, 344.

Acknowledging that an intangible injury can be concrete, the Fourth Circuit specified that one cannot “allege a bare procedural violation, divorced from any concrete harm, and satisfy the injury-in-fact requirement.” 856 F. 3d at 344 (quoting Spokeo, 136 S.Ct. at 1548).

Applying these principles, the Fourth Circuit unpacked Dreher’s claim that he suffered a “cognizable informational injury” because Experian, a consumer reporting agency, denied him clear and accurate disclosure of the source of the entity reporting his credit. Dreher failed to show how his having the right information – accurate identification of the entity with whom he was corresponding—“would have made any difference at all in the ‘fairness or accuracy’ of his credit report, or that it would have made the credit resolution process more efficient.” Id. at 346.  Granted there is “value in knowing who it is you’re dealing with,” id., but a consumer’s speaking to an employee without knowing the employee works for a different affiliate of Experian did not create a “real world harm” Congress was seeking to prevent through the FCRA. Dreher did not show a concrete and adverse effect from the violation of the statute, a clear requirement for standing under Spokeo.

Looking at the national scene, we see a real increase in the spokes on the Spokeo wheel. Dreher joins the Seventh and Eight Circuits which have ruled, three times since Spokeo, that procedural, technical violations of statutory rights will not sustain Article III standing. In contrast, rulings by three other circuits, the Third, Ninth, and Eleventh, all this year, evaluating violations of the FCRA, Telephone Consumer Protection Act, Fair Debt Collection Practices Act, and Video Privacy Protection Act, have upheld Article III standing based on technical violations of the statutes.

With six circuits now reporting, when the Supreme Court will return to this field looms as a more urgent question.

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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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Pending Bill Would Permit Interlocutory Appeals of Class Certification Decisions Directly to NC Supreme Court

View Adam Doerr's Complete Bio at robinsonbradshaw.comGovernor Cooper vetoed House Bill 239 on April 21, rejecting the General Assembly’s effort to reduce the number of judges on the North Carolina Court of Appeals from 15 to 12. The bill has been quite controversial, and four former North Carolina Supreme Court justices have said it would “seriously harm our judicial system.”  Although the bill does not speak in partisan terms, its practical effect would be to prevent Governor Cooper from appointing three (or perhaps two) new judges to the Court of Appeals to replace Republican judges who will reach the mandatory retirement age during his term.1

Mostly overlooked in the public and legislative debate is a major change to appeals in class actions. The bill contains a provision that allows for an appeal of right from “Any trial court’s decision regarding class action certification under G.S. 1A-1, Rule 23.”

As we explained in our analysis of the Supreme Court’s decision in Fisher, North Carolina currently takes an unusual approach to appeals in class actions. An order denying class certification is immediately appealable because the courts have held that it affects a substantial right under N.C. Gen. Stat. 7A-27. An order granting class certification, by contrast, is generally not immediately appealable. Although the appellate courts have sometimes permitted such appeals, including in Fisher, the courts have avoided stating that orders granting class certification affect a substantial right. In Fisher, for example, the Court held that “that the subject matter of this case implicates the public interest to such a degree that invocation of our supervisory authority is appropriate.”

Our firm’s amicus brief for the NC Chamber in Fisher advocated for a ruling that an order granting class certification could affect a substantial right, permitting interlocutory review. The rationale for this approach is that an order granting class certification is often dispositive because defendants face enormous pressure to settle. Indeed, we have not identified a single post-judgment appeal of an order granting class certification against a private party since North Carolina’s enactment of Rule 23 in 1967.

The substantial rights approach, if adopted, would have been similar to the rule in federal courts, where Rule 23(f) provides that a “court of appeals may permit an appeal from an order granting or denying class-action certification.” To obtain review, the party seeking to appeal must file a petition requesting permission to appeal. Such appeals are infrequently granted; published studies estimate that appellate courts grant less than one in four Rule 23(f) petitions.2

This legislation would go further than the federal approach, and further than the law in other states with which we are familiar, in three important ways. First, appeals under this statute would not be discretionary, in contrast to federal Rule 23. All orders would be appealable, regardless of whether the appellate court thought that interlocutory review was appropriate.

Second, appeals would go directly to the North Carolina Supreme Court, bypassing the Court of Appeals. There are currently only two kinds of appeals that go directly to the Supreme Court: a death penalty conviction and decisions from the North Carolina Business Court. N.C. Gen. Stat. 7A-27(a).  And interlocutory appeals from the Business Court are limited to orders that affect a substantial right, effectively determine or discontinue the action, or grant or refuse a new trial.

Third, House Bill 239 would permit an appeal of “[a]ny trial court’s decision regarding class action certification.” Note the contrast with federal Rule 23(f), which permits appeal from an “order granting or denying class-action certification.” A “decision regarding” class action certification could be significantly broader. For example, is an order denying a motion for decertification a “decision regarding class action certification” that would allow an interlocutory appeal? How about a motion to strike class allegations? Even in federal court, with Rule 23(f)’s more limited language and the appellate court’s discretion as a check, there is litigation over the scope of the right to appeal.3 Here, given the breadth of the language and the Supreme Court’s lack of discretion to reject an appeal, there is significant potential for extensive litigation over the scope of the right to appeal, repetitive appeals, and gamesmanship.

House Bill 239 now goes back to the General Assembly. If it overrides Governor Cooper’s veto, as it did with a recent bill applying party labels to elections of District and Superior Court judges, major changes are coming to class action litigation in North Carolina state courts.

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1 One of the Republican judges, Judge McCollough, announced his retirement on April 24, just over a month early. If he had waited until reaching his mandatory retirement on May 28, the legislature might have overridden the Governor’s veto and the law would have prevented appointment of a successor. As Judge McCullough told the Raleigh News & Observer, he did not want his legacy to be an “impairment to the appeals court” by reducing its size. Governor Cooper has appointed Charlotte attorney John Arrowwood to fill the seat.

2 We have found that existing research misses a significant number of 23(f) petitions in the Fourth Circuit. These petitions are difficult to research, as the orders are generally not published and require significant effort in PACER to uncover. We plan to share the results of our own research on this issue in a future post.

3 Compare In re Complaint of Ingram Barge Co., 517 F.3d 246, 247 (5th Cir. 2008) (refusing to hear a 23(f) petition from an order granting a motion to strike class action allegations because it was not an order “granting or denying” certification) with In re Bemis Co., Inc., 279 F.3d 419, 421 (7th Cir. 2002) (accepting review of an order granting a motion to strike class allegations because it was the “functional equivalent of denying a motion to certify a case as a class action, a denial that Rule 23(f) makes appealable (at our discretion).”).

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