Tag Archives: Consumer Protection

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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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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