Tag Archives: Class Representatives

Is an Institutional Investor Subject to the PSLRA’s “Professional Plaintiff” Bar?

View David Wright's Complete Bio at robinsonbradshaw.comThe Private Securities Litigation Reform Act (“PSLRA”) establishes special rules in securities class actions. One such rule, found in 15 U.S.C. Sect. 78u-4(a)(3)(B)(vi) and known as the “Five-in-Three Provision,” prevents a “person” from serving as a lead plaintiff in “more than 5 securities class actions” during any three-year period. Does that rule, though, apply to institutional investors? The plain words of the statute certainly suggest so—it is difficult to argue that an institutional investor is not a “person,” and had Congress wanted to exclude institutional investors from this prohibition, it could easily have done so. The Arkansas Teacher Retirement System, an active lead plaintiff, lost this issue in the Eastern District of Virginia last fall, when Judge Ellis found that the statutory language was clear. See Knurr v. Orbitral ATK, Inc., No. 1:16-cv-1031, 2016 WL 661157 (E.D. Va. Nov. 10, 2016) (noting that “it is doubtful that Congress would have hidden a major exemption in a single word,” echoing Justice Scalia’s phrase that “Congress . . . does not . . . hide elephants in mouseholes”).

But, as Judge Ellis also acknowledged, “one purpose of the [PSLRA] is to encourage institutional investors to serve as lead plaintiff.” And the House Conference Report pertaining to the PSLRA states that “institutional investors seeking to serve as lead plaintiff may need to exceed [the limit of lead plaintiffs] and do not represent the type of professional plaintiff this legislation seeks to restrict.” H.R. Conf. Rep. 104-369, at 35 (1995). So how to square this tension?

Recently, in Ollila v. Babcock & Wilcox Enterprises, Inc., No. 3:17-cv-109 (W.D.N.C. May 25, 2017), Judge Cogburn acknowledged these competing lines of authority but ultimately side-stepped the issue. Arkansas Teacher Retirement System, which had lost its argument to serve as lead plaintiff in Knurr, had better success with Judge Cogburn. Judge Cogburn found Knurr “persuasive,” but found “similarly persuasive” “the number of other district court cases that have held that institutional investors are not subject to the ‘five-in-three’ limitation.” Indeed, Judge Cogburn cited case law emphasizing that “the ‘majority’ view is that institutional investors are not subject to the professional plaintiff ‘three-in-five’ bar.”

Ultimately, Judge Cogburn took refuge in a section of the PSLRA that permits the court to override the “professional plaintiff limitation.” See 15 U.S.C. Sect. 78u-4(a)(3)(B)(vi). The putative financial losses of ATRS, which exceeded $5 million in the case, “dwarf[ed] those alleged by the competing institutional plaintiff,” leading the court to exercise its discretion to appoint ATRS as lead plaintiff even in the face of its activism in shareholder class actions across the country.

It remains to be seen whether the textual argument of Judge Ellis will ultimately hold sway in the Fourth Circuit.

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Is a Class Representative Adequate if He Waives Viable Claims in Order to Preserve Commonality?

View David Wright's Complete Bio at robinsonbradshaw.comClass actions don’t work if the class representative has a conflict with the class he or she purportedly represents. As the United States Supreme Court noted over 70 years ago, “a selection of representatives for purposes of litigation, whose substantial interests are not necessarily or even probably the same as those whom they are deemed to represent, does not afford that protection to absent parties which due process requires.” Hansberry v. Lee, 311 U.S. 32, 45 (1940). A decision this week from Judge Higginson out of the Fifth Circuit provides an interesting commentary on this subject in the context of a consumer class action.

In Slade v. Progressive Insurance Co., No. 15-30010 (5th Cir. May 9, 2017), plaintiffs claimed that Progressive Insurance shorted its insureds when paying for vehicle losses. Progressive used something called “WorkCenter Total Loss” to calculate the base value of total loss vehicles. Plaintiffs said that “lawful sources” – such as the NADA Guidebook or the Kelly Blue Book – had higher values and therefore resulted in plaintiffs “receiving lower payouts on their insurance claims.”

The Fifth Circuit treated with dispatch a couple of aspects of the district court’s class certification decision. First, the Court held that the damages theory was in fact “class wide,” and therefore consistent with Comcast v. Behrend, 133 S. Ct. 1426 (2013). Second, the district court had inexplicably certified a fraud class. As the Court of Appeals observed, “[t]his court has held consistently that a ‘fraud class action cannot be certified when individual reliance will be an issue.’”

But the bulk of Judge Higginson’s opinion discusses a more complicated issue. The insurance company used two basic factors to determine a vehicle’s value. First, it used a “base value” based on the WorkCenter Total Loss calculation. Second, it used a “condition adjustment,” recognizing that the value of the automobile in question might have either a higher or lower value based on its particular condition. The former sounds like a class-wide issue, but the latter looks to be quite individualistic.

Recognizing this dilemma, the named plaintiffs decided not to challenge the “condition adjustment.” As the Court of Appeals observed, “Plaintiffs’ class certification motion may have run into predominance problems because condition adjustments appear to be highly individualized.” But this waiver, the Fifth Circuit noted, comes with a potential cost. Although the plaintiffs’ waiver solved the predominance problems, it raised questions about the adequacy of the class representatives. “When the class representative proposes waiving some of the class’s claims, the decision risks creating an irreconcilable conflict with the class.” As the Court observed, citing a Seventh Circuit opinion, “A representative can’t throw away what would be a major component of the class’s recovery.”

But simply because a class plaintiff decides, as a strategic matter, to waive a claim does not necessarily mean she is inadequate. The court must inquire into, at least, “(1) the risk that unnamed class members will forfeit their right to pursue the waived claim in future litigation”; (2) the value of the waived claim; and (3) the strategic value of the waiver, which can include the value of proceeding as a class (if the waiver is key to certification).” In its opinion, the Fifth Circuit directed the district court to undertaken this analysis on remand. A central aspect of this inquiry is the res judicata effect of the waiver, which the Fifth Circuit said was “uncertain here.” Indeed, the Court observed that “courts have inconsistently applied claim preclusion to class actions.”

The Court of Appeals provided a bit of a road-map to the district court, identifying – as possible options on remand –

  • declining to certify the class because of preclusion risks
  • certifying the class, but tailoring the notice and opt-out procedure to alert the class to the risk of preclusion
  • concluding that the benefits of proceeding as a class outweigh any preclusion risks or
  • defining the class in a way to exclude individuals who have a quarrel with the condition adjustment.

Stay tuned, and consider carefully how class representatives and courts resolve the tension between waiving the claims of absent class members and strategically limiting the class to claims that can actually be certified.

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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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Dish Network Hopes for a New Trial of Telemarketing Class Action Lawsuit after $20.5 Million Jury Verdict

View Amanda Pickens’ Complete Bio at robinsonbradshaw.comDish Network has asked the Middle District of North Carolina for a new trial in its telemarketing class action lawsuit after a jury found Dish liable for violations of the Telephone Consumer Protection Act. After a five-day trial ending on January 19th, a jury awarded damages to the class of $20.5 million.

The lawsuit was filed in 2014 by lead plaintiff Thomas Krakauer alleging Satellite Systems Network, an authorized Dish dealer, called him multiple times between 2009 and 2011 despite being listed on the Do Not Call registry. In September 2015, Judge Catherine Eagles certified two classes, both consisting of persons on the Do Not Call registry who received telemarketing calls from Dish or Satellite System Network between 2010 and 2011.

After the United States Supreme Court decided Spokeo Inc. v. Robins, Dish filed a motion to dismiss or, in the alternative, to decertify the class. We highlighted the issues before the Spokeo Court in our previous blog post. In Spokeo, the United States Supreme Court vacated and remanded a decision allowing a consumer who suffered no concrete harm to sue Spokeo Inc. for procedural violations of the Fair Credit Reporting Act. But the Supreme Court left the opportunity open for plaintiffs in other cases to rely on procedural violations entailing a risk of “concrete injury” to establish standing. The Supreme Court found that the Ninth Circuit’s standing analysis was incomplete because it failed to consider both requirements of an injury-in-fact, that the injury be both concrete and particularized. The Ninth Circuit’s opinion concerned only the particularization of the injury-in-fact.

In August 2016, in a six-page opinion, Judge Eagles denied Dish’s motion to dismiss and to decertify the class based on Spokeo. Judge Eagles noted that although Spokeo “clarified the meaning of a concrete injury,” it did not fundamentally change the doctrine of standing. She found that now “a concrete injury ‘must exist,’ but it can be intangible.” Judge Eagles held that the telemarketing calls made in violation of the Telephone Consumer Protection Act were more than bare procedural violations; the calls “form[ed] concrete injuries because unwanted telemarketing calls are a disruptive and annoying invasion of privacy.” Dish sought an interlocutory appeal of this decision, which was also denied.

Now, after a five-day trial and a $20.5 million jury verdict, Dish is hoping for a new trial. Dish claims, among other things, that the verdict violates Dish’s due process rights because Judge Eagles allowed the jury to impose aggregate damages, rather than allowing Dish to defend each individual claim of an improper phone call. The jury calculated damages by assigning $400.00 per call to the 51,119 distinct phones calls, totaling approximately $20.5 million. Plaintiffs’ response to Dish’s motion for a new trial is due March 28th. If Dish’s motion for a new trial is denied, Dish will likely appeal these issues to the Fourth Circuit. Stay tuned for further developments.

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Seventh Circuit Weighs in on Offers of Judgment

View David Wright's Complete Bio at robinsonbradshaw.comIn this space, we concentrate on class action decisions in the Carolinas, as well as Fourth Circuit and United States Supreme Court precedent. Occasionally, though, we venture beyond these jurisdictions to highlight issues of particular note, including those where courts are divided. We’ve previously reported here how offers of judgment interact with mootness. In Campbell-Ewald Co. v. Gomez, the United States Supreme Court held that an unaccepted settlement offer, even if it offers all relief sought in the case, does not render a case moot when the affected party seeks relief on behalf of a class. Last Friday, the Seventh Circuit considered a question not resolved by Gomez: What happens when the named representative accepts a Rule 68 offer of judgment? Can he still appeal the denial of class certification? Like the question of appellate standing upon which the Supreme Court accepted certiorari in Microsoft, the answer is significant.

In Wright v. Calumet City, Illinois, No. 14-cv-10351 (7th Cir. Feb. 17, 2017), the Seventh Circuit acknowledged a split of authority on this question: “Where the Rule 68 offer is accepted but by its terms exempts the class certification issue, courts are divided as to whether the plaintiff retains a concrete interest sufficient to meet the case or controversy requirement of Article III.” The Seventh Circuit noted that Wright’s claim to standing was particularly strained because he accepted the Rule 68 offer without reservation, and he preserved no interest in receiving an incentive award. Wright argued that he had a sufficient interest in the case because his offer of judgment did not include attorney’s fees for the class claim (as opposed to his individual claim), but – as the Seventh Circuit observed – Lewis v. Continental Bank Corp.,  494 U.S. 472, 480 (1990) holds that “an interest in attorneys’ fees is, of course, insufficient to create an Article III case or controversy where none exists.” The court noted that there is some tension between Lewis and Deposit Guaranty National Bank v. Roper, 445 U.S. 326 (1980), in which the Supreme Court allowed plaintiffs, whose individual claims had been satisfied, to appeal the denial of class certification based on their asserted interest in shifting attorney’s fees to the class members. But the court distinguished Wright’s case from Roper on the ground that Wright had accepted the Rule 68 offer “as satisfaction of all of the relief that he sought in the district court.” In Roper, by contrast, the district court entered judgment for the plaintiffs in the amount tendered by the defendant, even though the plaintiffs had refused that offer. Thus, even under Roper, Wright’s claims are moot.

There will likely be more permutations on the Rule 68/mootness issues, so stay tuned.

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