Tag Archives: Class Representatives

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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Congress Considering Major Class Action Reform Legislation

View Adam Doerr's Complete Bio at robinsonbradshaw.comRep. Bob Goodlatte (R-Va.), the Chairman of the House Judiciary Committee, recently introduced a bill that would make significant changes to federal class action litigation. The Fairness in Class Action Litigation Act of 2017 (H.R. 985) states that it is intended to allow prompt recoveries to plaintiffs with legitimate claims and “diminish abuses in class action and mass tort litigation that are undermining the integrity of the U.S. legal system.”

In its current form, the draft bill would likely eclipse the 2005 passage of the Class Action Fairness Act as the most significant legislation on class actions in decades. Rep. Goodlatte has introduced similar legislation in previous years, but passage is considerably enhanced with unified Republican control of the House, Senate, and Presidency. Among other changes, the bill would enact the following:

  • Prevent certification of a class seeking monetary relief unless the plaintiff “affirmatively demonstrates that each proposed class member suffered the same type and scope of injury as the named class representative or representatives.” (§ 1716) In other words, classes could not include individuals who have not suffered damage, or where damage is not yet clear.
  • Require class counsel to describe how the named plaintiff agreed to be included in the complaint, identify any other class action where the named plaintiff had a similar role, and disclose any family or employment relationship between class counsel and the named plaintiff (in which case certification must be denied). (§ 1717)
  • Require the party seeking certification to show a “reliable and administratively feasible mechanism” for (a) determining whether class members fall within the class definition and (b) distributing monetary relief to “a substantial majority of class members.” (§ 1718(a)). This provision appears to be an effort to impose a formal ascertainability requirement on class certification, as the Fourth Circuit has done in some cases.
  • Make significant changes to attorneys’ fees, including (1) preventing any payment or even determination of fees to class counsel until the distribution of monetary recovery to class members is complete, (2) limiting fee awards to “a reasonable percentage of any payments directly distributed to and received by class members,” and (3) limiting the payment of attorney’s fees based on equitable relief to “a reasonable percentage of the value of the equitable relief.” (§ 1718(b)).
  • Require courts to report, and the Federal Judicial Center to track, disbursements to class members. The Federal Judicial Center would prepare an annual report summarizing how funds paid by defendants in class actions have been distributed, including the largest and smallest amounts paid to any class member and payments to class counsel. (§ 1719) Alison Frankel of Reuters, who writes often and well on class actions, referred to this as “most intriguing idea in House Republicans’ bill to gut class actions.”
  • Bar certification of issue classes (§ 1720), an issue we have previously covered in both a district court case regarding the relationship between predominance and issue certification and when the Supreme Court declined to resolve a circuit split over issue certification.
  • Stay discovery while preliminary motions are pending. (§ 1721) (Interestingly, this provision formally recognizes a “motion to strike class allegations,” a motion that is not currently listed by name under Rule 23, although such motions may be permitted under Rule 23(d)(1)(D), which allows the Court to enter an order to “require that the pleadings be amended to eliminate allegations about representation of absent persons.”)
  • Provide for appellate review of orders granting or denying class certification as a matter of right. (§ 1722) This would be a significant departure from current practice under Rule 23(f), which gives Courts of Appeal substantial discretion in deciding whether to permit such interlocutory appeals.

The bill would also allow more personal injury cases to stay in federal court by changing the diversity jurisdiction analysis in multiple plaintiff cases, and it would make significant changes to multidistrict litigation practice, including barring the transferee judge from conducting a trial unless all parties consent.

The draft legislation is already generating controversy, and this will significantly increase as it advances. In particular, basing attorney’s fee awards on a percentage of the “value of the equitable relief” will be hotly debated. Equitable relief is, by nature, difficult or impossible to value in financial terms. The Washington Lawyers’ Committee for Civil Rights has already registered its opposition, noting the difficulty of putting a value on a class relief protecting disabled individuals from abusive conditions or providing them access to treatment, transportation, and community services.

The bill was introduced on February 9. On February 15, following a series of failed attempts by Democrats to introduce amendments, the Judiciary Committee voted on party lines (19-12) to forward to the bill to the full House. We’ll continue to track this legislation and bring you significant updates.

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U.S. Supreme Court Rebukes California Court for Failing to Enforce an Arbitration Agreement with a Class-Arbitration Waiver

View Mark Hiller’s Complete Bio at RBH.com On Monday, the Supreme Court held in DIRECTV, Inc. v. Imburgia that a California appellate court erred by declining to enforce an arbitration agreement that prohibits arbitration on a class-wide basis. The decision is the latest in a steady line from the Supreme Court chastising lower courts for failing to give effect to arbitration agreements. Perhaps most interesting, the opinion is written by Justice Breyer, who recently authored a dissent arguing that the Supreme Court has expanded the Federal Arbitration Act (FAA) too far. In the Imburgia opinion, Justice Breyer acknowledges his prior dissent but makes clear that the Court’s decisions are the law of the land: While “[l]ower court judges are certainly free to note their disagreement” with Supreme Court precedent, “the judges of every State must follow it.”

We recently previewed Imburgia on this blog. The plaintiffs brought a putative class action in California state court alleging that the defendant, DIRECTV, violated California consumer-protective legislation by imposing large early-termination fees. The DIRECTV service agreement contains a provision requiring consumers to arbitrate their disputes with DIRECTV individually and not on a class-wide basis. The agreement further provides, however, that if the “law of your state” makes the waiver of class arbitration unenforceable, then the entire arbitration provision is unenforceable, thus permitting consumers to litigate their disputes with DIRECTV in court.

When the plaintiffs filed their lawsuit in 2008, existing California law held that class-arbitration waivers like the one in DIRECTV’s service agreement were unenforceable. Therefore, per the terms of the service agreement, the entire arbitration provision was unenforceable. In 2011, however, the U.S. Supreme Court held in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), that the California law is preempted by the FAA. In light of Concepcion, DIRECTV moved to stop the litigation and compel arbitration on an individual basis.

The California trial court denied DIRECTV’s motion, and the California Court of Appeal affirmed. The Court of Appeal focused on the provision of the service agreement making the arbitration agreement unenforceable if the “law of your state” makes the waiver of class arbitration unenforceable. The court acknowledged that, after Concepcion, California law does not prohibit DIRECTV’s class arbitration waiver. But, applying California contract law, the court interpreted the words “law of your state” to mean California law without regard to whether that law is preempted. Because pre-Concepcion California law made DIRECTV’s class-arbitration waiver unenforceable, the court held that the entire arbitration agreement is unenforceable.

The U.S. Supreme Court reversed, holding that the arbitration agreement must be enforced. The Court began its analysis by conceding that the parties to the agreement were free to define the words “law of your state” however they like, including, “[i]n principle,” “by the law of Tibet, the law of pre-revolutionary Russia, or (as is relevant here) the law of California . . . irrespective of that [law’s] invalidation in Concepcion.” The Court further acknowledged that because the meaning of “law of your state” is a question of state law, and the Supreme Court reviews only federal law issues, the Court will accept the Court of Appeal’s interpretation of those words. Nonetheless, the Court stated, the FAA prohibits courts from discriminating against arbitration agreements by applying state law principles to such agreements in a manner different from how courts would apply those principles to other agreements. The Court concluded that the Court of Appeal’s interpretation of the words “law of your state” is unique to arbitration contracts and therefore is preempted by the FAA.

The Court gave several reasons for its conclusion. First, the Court said that the phrase “law of your state” unambiguously means valid state law. Second, consistent with this, California case law provides that references to California law incorporate retroactive legislative changes to that law. Third, “nothing in the Court of Appeal’s reasoning suggests that a California court would reach the same interpretation of ‘law of your state’ in any context other than arbitration.” Fourth, the language the Court of Appeals used when discussing California interpretive principles focused on arbitration. Fifth, the Court of Appeal’s reasoning implies that preempted state law maintains legal force—a view the Supreme Court said is unlikely to be accepted by courts or outside of the arbitration context. And finally, “there is no other principle invoked by the Court of Appeal that suggests that California courts would reach the same interpretation of the words ‘law of your state’ in other contexts.”

Justice Ginsburg wrote a heated dissent, which Justice Sotomayor joined. Much of the dissent—which, at 14 pages, is three pages longer than the majority opinion—focuses on what Justice Ginsburg believes is the Court’s improper expansion of the FAA. She opens her dissent by stating that “[i]t has become routine, in a large part due to this Court’s decisions, for powerful economic enterprises to write into their form contracts with consumers and employees no-class-action arbitration clauses.” The Court’s decisions, she states, “have predictably resulted in the deprivation of consumers’ rights to seek redress for losses, and, turning the coin, they have insulated powerful economic interests from liability for violations of consumer-protection laws.” With respect to this case, Justice Ginsburg says it is clear that when DIRECTV originally drafted the service agreement, DIRECTV meant the words “law of your state” to mean state law without regard to federal preemption. And, to the extent “law of your state” is ambiguous, Justice Ginsburg says that the ambiguity should be resolved against DIRECTV because DIRECTV could have avoided the ambiguity through more precise drafting. According to Justice Ginsburg, the Court reaches its holding by substituting its interpretation of “law of your state” for the Court of Appeal’s. Justice Ginsburg says that, in doing so, the Court’s decision “steps beyond” its precedents and is a “dangerous first.”

As noted, it seems meaningful that Justice Breyer, in particular, authored the majority opinion. He was the lead dissenter in Concepcion, where he, joined by Justices Ginsburg, Sotomayor, and Kagan, argued that “the Court is wrong” to hold that the FAA preempts California’s prohibition on certain class-action arbitration waivers. Now, in Imburgia, Justices Breyer and Kagan have moved to the majority, while Justices Ginsburg and Sotomayor remain as dissenters. In the Imburgia opinion, Justice Breyer acknowledges his prior dissent but emphasizes that Concepcion is controlling law: “The fact that Concepcion was a closely divided case, resulting in a decision from which four Justices dissented, has no bearing on [the] undisputed obligation” that “the judges of every State must follow it.” This portion of the opinion reads almost like a personal note to lower court judges who may hesitate to enforce arbitration clauses with class action waivers. The most lasting effect of Imburgia, therefore, may be to chasten such judges from resisting Concepcion.

Finally, Justice Thomas wrote a brief dissent reaffirming his view that the FAA does not apply to proceedings in state courts.

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