Five Ways to Undo your Own Class-Action Settlement

zero dollars“This settlement is so unfair, it cannot be fixed.”

That statement marked the beginning of the end of a federal district court judge’s opinion, as well as the class-action settlement to which the opinion referred. U.S. District Court for the Northern District of California Judge William Alsup’s May 29 opinion in Daniels v. Aéropostale West, Inc. provides a tutorial on how not to win judicial approval of a class-action settlement.

Ms. Daniels alleged that she and other employees of the trendy apparel retailer Aéropostale were denied non-discretionary bonus pay (i.e., overtime) in violation of the federal Fair Labor Standards Act (FLSA). Judge Alsup conditionally certified the class in April 2013. Daniels provided notice to all employees in the class, and 594 opted into the suit. The parties filed a motion on April 24, 2014 seeking preliminary approval of a proposed settlement.

For reasons we will elaborate, Judge Alsup refused to grant approval. On June 12, the court entered an order decertifying Daniels, dismissing the claims, and extending the statute of limitations for 30 days so dismissed plaintiffs could pursue individual suits if they wish. The order noted that the parties agreed to the decertification, and that Aéropostale would make payment to any class member “who did not receive full payment for the overtime adjustment on any non-discretionary bonus earned during the collective action period.” The plaintiff’s lawyers agreed to provide notice of the action’s decertification at their own expense.

Lessons. In just 12 pages, Daniels offers litigants and their lawyers at least five lessons on how to undo your own class-action settlement.

Lesson #1: Be unresponsive to the court’s requests

In just the second paragraph of the opinion, Judge Alsup took the unusual step of noting the name and affiliation of all counsel of record in the case. This was not done to recognize their brilliant advocacy. As the rest of the opinion reveals, the lawyers, among other things, failed to provide the court with expert damage reports as required by federal procedural rules. After the parties filed their proposed settlement, the court had to ask twice for more information or corrections to the document. When pressed by Judge Alsup, Daniels’s lawyer could not state how much the plaintiff would ask the jury to reward. In addition, “Plaintiff’s counsel also failed to provide any specific information about overtime hours worked and non-discretionary bonuses paid.” Continue reading

Trolls and Trial Lawyers Should Curb Their Enthusiasm Over Patent Reform Timeout

patentLast week was quite a successful one in Washington for the plaintiffs’ bar. First, as WLF’s Rich Samp detailed in a May 22 Legal Pulse post, the Solicitor General of the U.S. opposed federal preemption of state failure-to-warn suits against medical device companies. Then, the following day, the Senate Judiciary Committee shelved legislation meant to curb abusive litigation and related activities by “patent-assertion entities” (PAEs), a.k.a. patent trolls.

But attorneys who represent PAEs, and the private businesses that may benefit from PAE activity, should temper their enthusiasm. The concept of “patent reform” will persist during Congress’s timeout. Various Executive Branch entities are working to shine a light on patent troll misbehavior, and the federal judiciary is gradually becoming less tolerant of patent litigation abuse. Consider the following examples of such non-legislative activity.

Federal Agencies. While the White House made the biggest splash on patent litigation last June with a Task Force on High-Tech Patent Issues report, far more impactful work regarding PAEs is being done at the Federal Trade Commission (FTC). For the past year, FTC has been conducting a formal “6(b)” study of PAEs. In a May 19 Federal Register notice, the Commission noted that it would be sending information requests to 25 PAEs as well as 15 wireless communication industry manufacturers and patent holding companies. Continue reading

Ninth Circuit “Unfriends” Privacy Class Action Despite Finding Statutory Standing

likefacebookLawsuits alleging harm from either a business’s failure to protect personal information from a data breach or from its allegedly unauthorized sharing of data with third parties were supposed to be the “next big thing” for the Litigation Industry. But, as we’ve noted on previously (here and here, for instance), few of these suits have made it past the motion-to-dismiss stage. Plaintiffs consistently fail to demonstrate that they suffered an injury-in-fact, which is a constitutional prerequisite known as “standing.”

Lawyers who work in the Litigation Industry are nothing if not persistent, as former Washington Attorney General Rob McKenna and his Orrick, Herrington & Sutcliffe LLP colleague Scott Laidlaw explained in a February WLF Legal Backgrounder, “Targeting Harm From A Breach: Plaintiffs’ Lawyers Get Creative In Data Privacy Suits.” For example, some class action attorneys sue under federal statutes, such as the Wiretap Act and the Stored Communications Act. Those laws purport to provide “statutory standing” to private individuals and thus relieve them of the need to establish constitutional standing.

But as the U.S. Court of Appeals for the Ninth Circuit reminded a class of plaintiffs last week, litigants with standing to sue still must  prove they have a claim. On May 9, the Ninth Circuit affirmed a district court’s dismissal of two separate class actions filed under the Wiretap and Stored Communications Acts against Facebook and Zynga Game Network.

In re: Zynga Privacy Litigation involved claims that Facebook and Zynga unlawfully disclosed the information contained in “referer headers” to third parties such as advertisers. Referer headers, the court explained, display “the user’s Facebook ID and the address of the Facebook webpage the user was viewing.”

The Ninth Circuit had to determine whether the record information contained in the referer header constituted the “contents” of a communication under the two federal laws. The court examined the plain language and design of the statutes and concluded that “the term ‘contents’ refers to the intended message conveyed by the communication, and does not include record information regarding the characteristics of the message that is generated.” That conclusion is consistent with the reasoning in similar cases from the First and Third Circuits. The plaintiffs argued that third parties could utilize information from a referer header and determine a person’s specific identity and access his or her Facebook content. The court responded that neither the Wiretap Act nor the Stored Communications Act “preclude[s] the disclosure of personally identifiable information; indeed they expressly allow it.” Continue reading

Conflict Minerals, COOL, and Compelled Commercial Speech at the D.C. Circuit

DC CircuitTwo decisions issued a little over two weeks apart by separate U.S. Court of Appeals for the D.C. Circuit three-judge panels have created significant uncertainty on a critically important First Amendment issue. The court’s forthcoming actions in these cases will have a major impact on government regulation and on regulated industries as diverse as livestock, food, tobacco, smartphones, and medical devices.

The issue in both cases before the court is when can government compel businesses to provide information about their products or themselves. The U.S. Supreme Court held in Zauderer v. Office of Disciplinary Counsel that government can constitutionally require disclosures of a “purely factual” nature which are “reasonably related to the State’s interest in preventing deception of consumers.” The Court has repeatedly reaffirmed Zauderer, most recently in the 2010 case Milavetz, Gallop & Milavetz, P.A. v. U.S., where Justice Sotomayor wrote for a unanimous Court that a low level of scrutiny applies only in cases where the compelled speech is “directed at misleading commercial speech” (italics in opinion).

COOLCountry of Origin Labeling Rule. On March 28, a three-judge panel of Senior Judge Williams, Chief Judge Garland, and Judge Srinivasan upheld the Department of Agriculture’s country-of-origin labeling (COOL) rule in American Meat Institute v. U.S. Dept. of Agriculture. AMI argued that the compelled origin disclosure impinged on its members’ First Amendment rights, and because the information was not meant to prevent deception, the court should review the rule under the heightened scrutiny of Central Hudson v. Public Service Commission, and not the “reasonableness” standard of Zauderer. In upholding the COOL rule, the panel concluded that Zauderer encompassed government interests beyond just preventing consumer confusion, and thus it applied the minimal scrutiny of Zauderer rather than Central Hudson.

That conclusion rejected years of D.C. Circuit precedent (including last year’s R.J. Reynolds Tobacco Co. v. FDA) and instead embraced rulings from the First and Second Circuits. The panel acknowledged in a footnote that “reasonable judges” may read Reynolds as limiting Zauderer review to deception, and suggested en banc review for American Meat Institute. On April 4, the D.C. Circuit sua sponte vacated the panel decision and ordered en banc review. Oral argument is set for May 19. Continue reading

The Federal Circuit Muddies Its Venue Transfer Jurisprudence

federal circuit Patent plaintiffs, especially those resembling “patent trolls,” routinely sue in plaintiff-friendly forums, such as the Eastern District of Texas, or in other forums thousands of miles away from a defendant’s home base. Plaintiffs use the attendant inconveniences as leverage when pursuing quick settlements. Such venue manipulation is an item of significant concern to repeat player defendants of patent lawsuits.

Congress considered and rejected venue reforms as part of the America Invents Act of 2011, which may be one reason such provisions are not included in current reform efforts on Capitol Hill. Another reason may be that over the last five years, the U.S. Court of Appeals for the Federal Circuit has built up a robust jurisprudence which gives defendants a fair chance at having lawsuits transferred to a more convenient forum. Our 2010 Legal Pulse post The Federal Circuit Messes with (the Eastern District of) Texas Yet Again examined a series of Federal Circuit rulings which together have provided predictable standards for judging venue transfer requests under 28 U.S.C. § 1404(a).

However, two Federal Circuit decisions issued on the same day—February 27—by the same panel of judges now threaten the prevailing clarity on patent litigation transfer of venue. In both cases, Judges Prost and Reyna affirmed the lower courts’ denial of defendants’ motions to transfer with Judge Newman twice dissenting. In re Apple Inc. originated in the Eastern District of Texas, while In re Barnes & Noble, Inc. was filed in the Western District of Tennessee. The plaintiff in In re Apple is a Luxembourg company with one employee which has a Plano, Texas subsidiary whose six employees manage the company’s patent portfolio. The plaintiff in In re Barnes & Noble registered to do business in Tennessee just before filing this suit (as well as 19 other identical suits in the same court) and is a one-employee company with a home office. Continue reading

Supreme Court Observations: AU Optronics Ruling Empowers State Attorney General-Trial Lawyer Alliance

supreme courtCross-posted at WLF’s Forbes.com contributor page

In its unanimous Mississippi ex rel. Hood v. AU Optronics ruling, the Supreme Court on Tuesday refused to interpret the Class Action Fairness Act (CAFA) so as to allow the “mass action” removal of a parens patriae suit in which the State of Mississippi was the only named plaintiff.  The decision marks only the second time that the high court has considered the 2005 statute, which Congress enacted to expand a defendant’s ability to remove to federal court a class action that did not satisfy the traditional requirements of diversity jurisdiction.  (Last term, a unanimous Court in Standard Fire Insurance Co. v. Knowles ruled in favor of removal in a case where the class representative attempted to avoid CAFA jurisdiction by stipulating to damages below the threshold amount in controversy).

Utilizing a “real-parties-in-interest” analysis, the U.S. Court of Appeals for the Fifth Circuit had agreed with the district court that the case constituted a “mass action” under CAFA.  But on the question of the applicability of CAFA’s “general public” exception, the appeals court reversed the district court, which had remanded the case back to state court on the basis that it was “asserted on behalf of the general public (and not on behalf of individual claimants or members of a purported class)” under 28 U.S.C §1332(d)(11)(B)(ii)(III).  Oddly, the Supreme Court didn’t bother weighing in on CAFA’s “general public” exception, holding instead that the suit failed even to meet the basic definition of a “mass action” because it did not involve 100 or more named plaintiffs.  The Court rejected the lower courts’ “real-parties-in-interest” approach in favor of a narrow reading of the statutory language.

As a result, state attorneys-general and their trial bar friends are now free to avoid federal court altogether by simply running their class and mass actions through an AG’s office as a parens patriae suit.  The trial lawyers will still receive their big contingent-fee awards, and they can continue to send AGs their out-of-state campaign contributions.  According to a recent report, for example, the Mississippi AG’s “plaintiffs’ firm contributors were all out of state, and they made no contributions to any other candidates for statewide office in Mississippi.”  In only two instances where contingent-fee law firms represented Mississippi in securities fraud class actions did the firms not make a previous contribution to the AG’s campaign.  They did so subsequently, however, according to the report.

If this staggering conflict of interest is ever to be reined in, the Court has left it up to Congress to do so.  That’s a shame, inasmuch as the Supreme Court should take a greater interest in cleaning up practices that treat courtrooms like cash registers and corrode the integrity of the judicial process.

Reform of Federal Civil Procedure Rules May Lead to Heightened Pleading Standard in Patent Suits

patentsCross-posted by Forbes.com at WLF’s contributor page

As the process of amending the Federal Rules of Civil Procedure (FRCP) enters a critical juncture, most discussion and attention (including here at The Legal Pulse) have deservedly focused on proposed changes to rules governing the pre-trial discovery process. However, one particular proposed change, overlooked for the most part, would require plaintiffs alleging patent infringement to provide more information in their initial complaints. The Advisory Committee on Civil Rules proposes to abrogate Rule 84 and along with it, the sample complaint forms to which the rule refers, including one relating to patent suits: Form 18.

What Is Form 18? This form has become well-known to patent litigants, especially accused infringers. The judiciary created Form 18 in 1938. It permits plaintiffs to provide a bare minimum of information: a jurisdictional statement, general assertion of patent ownership, a claim of infringement, and a request for relief. A complaint crafted in compliance with Form 18 would thus be in accord with another Federal Rule of Civil Procedure, Rule 8, which dictates pleading standards. In its 2007 Bell Atlantic v. Twombly and 2009 Ashcroft v. Iqbal rulings, the Supreme Court found that the then-existing interpretation of Rule 8—that some relief is “possible”—was incorrect and ruled that plaintiffs must demonstrate that its version of the events is “plausible.” The Court pointedly said that Rule 8 “demands more that an unadorned, the-defendant-unlawfully-harmed-me accusation.”

Form 18 Trumps Rule 8. Patent infringement complaints drafted in minimal conformance with Form 18 are decidedly “unadorned.” Defendants are denied fair notice of their alleged violation, a fault which is magnified exponentially in some patent litigation, such as suits brought by “patent-assertion entities.” As stated in a 2011 letter urging the Administrative Office of the U.S. Courts to address Form 18′s flaws:

[Its] limitations are immediately apparent when the template is used—as is frequently the case—to accuse an entire website or channel of commerce of infringing, in some unspecified manner, a method or software patent. Continue reading

Eleventh Circuit Stacks Deck Against Defendants in Never-Ending Engle Product Liability Litigation

11th CircuitCross-posted at WLF’s Forbes.com contributor page

In Walker v. R.J. Reynolds Tobacco Co., the U.S. Court of Appeals for the Eleventh Circuit has ruled that even though Florida state courts failed to require plaintiffs to establish from the trial record that a previously tried issue was actually decided in their favor, it would not intervene. The tobacco defendants had argued that the Due Process Clause of the U.S. Constitution bars state courts from departing from their normal procedural rules in such a radical manner.  They expected the appeals court to vindicate its earlier ruling in Brown v. R.J. Reynolds Tobacco Co., 611 F.3d 1324 (11th Cir. 2010). 

Walker arises in the aftermath of an abortive effort to try all product liability claims against tobacco manufacturers in a single class-action trial. The trial court initially certified a class consisting of all smokers nationwide who had suffered an illness due to smoking. The class was later limited to Florida smokers. Early phases of the trial had gone on for more than a year when an appeal of the class certification order finally reached the Florida Supreme Court.

The Court ruled in its 2006 Engle decision that continuing the case as a class action was “not feasible because individualized issues such as legal causation, comparative fault, and damages predominate.” In other words, the Court did not believe that a single jury could make meaningful factual determinations that would be applicable to each of the thousands of class members. But the Court left open the possibility that some of the factual findings already made by the class action jury could be used in the subsequent lawsuits brought by individual smokers. Continue reading

Two Cheers for Judicial Actions in Facebook, eBay Class Action Settlements

ebay_thumbfacebookCross-posted at WLF’s Forbes.com contributor site

Class action lawyers had a bit of a rough week in the U.S. District Court for the Northern District of California, a jurisdiction that has seen more than its fair share of class action lawsuits lately.

Fraley v. Facebook. We last discussed the fate of a class action lawsuit against Facebook and its “Sponsored Stories” program almost exactly a year ago. At that time, Judge Richard Seeborg had called into question some aspects of the proposed settlement, including the lawyers’ fee request and the proposed cy pres award.

The settlement has now been finalized. In his August 26 order, Judge Seeborg approved a $20 million settlement fund, from which class members can each claim $15.

Fraley’s lawyers sought fees amounting to 37.5% of the settlement (which equaled $950/hour for lead counsel and $350/hour for second-year associates). Facebook, to its credit, opposed the fee request.

The plaintiffs’ lawyers argued that Judge Seeborg’s ordered injunctive relief (increased transparency for the Sponsored Stories program) had a monetary value to the class members sufficient to justify a fee 12.5% higher than the “common” fee of 25%.  Judge Seeborg responded that “there is nothing to suggest, however, that any class member will see a single dollar more in his or her pocket as a result of any of the injunctive provisions.”  Continue reading

In Circuit Courts, SCOTUS’s Comcast Ruling Doesn’t Make it Through the Rinse Cycle

spin cycleCross-posted at WLF’s Forbes.com contributor site

Last year in Butler v. Sears, Roebuck & Co., the U.S. Court of Appeals for the Seventh Circuit overturned a district court’s denial of certification for a class of plaintiffs who alleged injury resulting from a mold-causing defect in Whirlpool-manufactured washing machines.  On appeal, Sears argued that plaintiffs failed to satisfy the requirement of predominance in class action litigation, but to no avail.  Announcing that “Predominance is a question of efficiency,” Judge Richard Posner (writing for the court) concluded that the class should be certified for the sake of efficiency—even though not every plaintiff actually encountered the alleged mold problem, and even though the suit implicated some twenty-seven different washer models.  Sears went on to petition the Supreme Court for certiorari.

Earlier this year, the Supreme Court decided Comcast Corp. v. Behrend, in which it held a class fails to meet the predominance standard under 23(b)(3) if the offered evidence does not show that damages are capable of measurement on a class-wide basis.  On the same day it decided Comcast, the Supreme Court granted review and vacated the panel opinion in Butler, remanding the case for reconsideration in light of Comcast.

But Judge Posner is evidently sticking to his guns. Concluding that the Supreme Court’s decision in Comcast did not “cut the ground out from under [the court’s earlier] decision,” Judge Posner this week authored a new opinion that, on the merits, is substantially indistinguishable from the first one. Continue reading