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

New Hampshire Union Leader Publishes WLF Op-Ed on State’s MTBE Lawsuit

scalesNew Hampshire likes to be first. It boasts America’s first modern state-run lottery, the first ski school, and even the world’s first paintball game.  And Dixville Notch, NH residents enter the first votes in each presidential election.

Thanks to a recent $236 million verdict in a state-sponsored lawsuit, New Hampshire may be gunning for first in the hearts and minds of America’s plaintiffs’ bar too—a distinction, Washington Legal Foundation’s General Counsel Mark Chenoweth argues in a June 11 New Hampshire Union Leader op-ed, that the state should not proudly embrace.

New Hampshire hired private, contingent-fee attorneys to sue oil companies for groundwater contamination. As Mark explains:

They alleged that leaking underground storage tanks contaminated local groundwater with the chemical MTBE. But rather than sue gas stations that owned the leaking tanks (and violated EPA rules), the state’s hired guns went after deep-pocketed oil companies (that were following EPA rules). The lawyers calculated that they could win a large payday, regardless of those companies’ actual responsibility, by putting deep pockets and pollution claims in front of a jury.

In compliance with a statutory mandate, EPA allowed the addition of MTBE to gasoline to improve air quality. Congress anticipated that leaks might occur, so it created a fund states could tap for clean-up. New Hampshire did not seek money from the fund, perhaps, the Union Leader op-ed notes, because the state would have to use those funds for groundwater clean-up. Not wanting to be limited, the state filed suit instead, even though it could not show physical harm to any person or destruction of any property.

New Hampshire now could have a $236 million slush fund courtesy of a jackpot justice verdict, and as Mark writes, “Attorney General Joseph Foster has staunchly opposed placing the money in a state-managed trust devoted to testing and clean-up.”

New Hampshire’s “success” has inspired neighboring Vermont to jump on the MTBE lawsuit bandwagon. Dallas law firm Baron & Budd and New York firm Weitz & Luxenberg will be joining up with New Hampshire’s local counsel, the Pawa Law Group, to represent Vermont and its litigious attorney-general, William Sorrell.

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

Will Fourth Circuit Decision to Unseal a CPSC Case Be a Boon to Asbestos Defendants?

4th CircuitThe U.S. Court of Appeals for the Fourth Circuit issued a decision on April 16 in a case called Company Doe v. Public Citizen that signals hope for asbestos defendants who are seeking to combat fraudulent claims in North Carolina. Those claims were brought in connection with a bankruptcy proceeding styled as In re: Garlock Sealing Technologies, LLC et al. (“Garlock”). How could an anonymous CPSC case from Maryland affect a gasket company’s asbestos bankruptcy from North Carolina? In a word: transparency. Both cases involve the ability of third parties to gain access to documents enmeshed in public litigation.

In issuing its ruling in Company Doe, the Fourth Circuit surely had no inkling that its words might cheer long-suffering asbestos defendants. However, that court’s insistence on transparency and public access to the judicial process bodes well for an asbestos case in which similar issues have been percolating. When the district court (and perhaps eventually the Fourth Circuit) hears motions from asbestos defendants and others about divulging sealed documents from the Garlock asbestos bankruptcy docket, the recent decision in Company Doe will surely loom large. There is no guaranty as to where the Fourth Circuit ultimately will come down on the sealing issues in Garlock. But it does appear that a new day is dawning, and—if the Court of Appeals acts consistently with its stated policy favoring public access in Company Doe—it just might prove to be the Day of Reckoning for fraudulent asbestos plaintiffs and their trial lawyer accomplices.

Company Doe Takes Two Steps Forward in District Court

Company Doe v. Public Citizen, No. 12-2209 (“Company Doe”), started when the U.S. Consumer Product Safety Commission received a “report of harm” and sought to post it on its new government-run product safety database website. [Full disclosure: I worked as legal counsel to CPSC Commissioner Anne Northup from 2009 through 2010, but left before this report of harm was received.] The report alleged that a company’s product was related to the death of an infant, but the company strongly objected that the report of harm was not accurate. When the company could not obtain satisfaction through direct negotiations with the Commission, it was forced to file suit against the CPSC in federal district court in Maryland (where the CPSC is located) to enjoin the Commission from posting the erroneous report of harm. 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

(Not) Inconceivable!: Florida Trial Judge Tosses Food Class Action on CAFA Grounds

Amy's KitchenIn a December 2013 post, Two More Food Labeling Class Action Rulings: Harbingers of the New Year?, we lauded Southern District of Florida Judge James Cohn for dismissing claims in a food-labeling class-action lawsuit based on the labeling of products that the plaintiff, Ms. Reilly, never actually purchased.

Judge Cohn issued two more opinions in Reilly v. Amy’s Kitchen, Inc. on March 7. After this one-two punch, the life of Reilly’s case may be no more.

In the first decision, Judge Cohn denied the plaintiff’s motion to reconsider his December 9 order that Reilly lacked standing to sue for alleged injuries caused by products she didn’t purchase. In the second, Judge Cohn dismissed the remaining claims for lack of subject matter jurisdiction. We’ll focus on the second ruling here.

Amy’s Kitchen argued in its motion to dismiss that Reilly’s dramatically thinner suit (from 60 claims to 3 after the December 9 order) failed to achieve the requisite amount in controversy of $5 million under the Class Action Fairness Act (CAFA). Unlike the plaintiffs in these food-labeling class actions, who likely could never produce proof of their purchases if asked, the defendants had very precise sales records. Amy’s Kitchen presented evidence that during the period of time Reilly alleges she was injured, it sold only $1,045,993 of the supposedly offending pizzas, veggie burgers, and enchiladas in Florida.

Vizzini

Vizzini

Judge Cohn agreed that because Reilly never had standing to sue for all 60 products, she could not meet the $5 million amount-in-controversy requirement from the outset.  The court held it could dismiss the suit for lack of subject matter jurisdiction”unless it appears to a ‘legal certainty’ that Plaintiff’s remaining claims meet CAFA’s $5 million jurisdictional minimum.” Reilly attempted to argue that the value of the injunctive relief she sought, combined with attorneys’ fees, could elevate the three claims to $5 million. Judge Cohn found such a possibility (as Wallace Shawn’s Vizzini in The Princess Bride liked to say) “inconceivable,” which falls quite short of “legal certainty.”

Judge Cohn dismissed Reilly’s claims without prejudice, but it seems unlikely an amended complaint will change the judge’s mind. Reilly will proceed with her appeal of the trial court’s December 9 standing decision to the U.S. Court of Appeals for the Eleventh Circuit, which, we expect, will be as unsuccessful as her motion to Judge Cohn for reconsideration.

Also published at WLF’s Forbes.com contributor page

Update: Ninth Circuit Agrees to Reconsider Class Action Fairness Act Circumvention Ruling En Banc

9thCirLast November in Eighth Circuit Ruling Deepens Circuit Split on Class Action Fairness Act Circumvention Tactic, we discussed the latest in a series of federal appeals court decisions involving plaintiffs’ lawyers’ efforts to keep their class action lawsuits in state court despite CAFA (the Class Action Fairness Act). In Atwell v. Boston Scientific, the Eighth Circuit rejected an attempt to strategically break large numbers of plaintiffs with identical claims into groups less than 100 with the unstated goal of consolidation for trial. The court specifically departed from an approach taken by another federal appeals court, the Ninth Circuit, which endorsed that tactic and allowed a class action to remain in state court.

We noted at the end of that November post that the defendants in that Ninth Circuit case, Romo v. Teva, had filed a motion with the court for a rehearing en banc.  Washington Legal Foundation supported that request with an amicus brief.

Yesterday, the Ninth Circuit issued an order granting the Romo defendants’ request, and vacating the three-judge panel’s ruling. The en banc panel will hear oral arguments on the case June 16. In the meantime, plaintiffs can no longer cite to the Ninth Circuit’s September 2013 decision as precedent for their CAFA circumvention tactics, leaving the Eighth’s Circuit’s Atwell ruling as the most recent appellate statement on the matter.

Read WLF’s press release on the Ninth Circuit’s order here.

Food Court Delivers Plaintiffs’-Lawyer Consortium Mixed Results in Four January Rulings

food-courtCross-posted at WLF’s Forbes.com contributor site

Last July in a Legal Pulse post entitled “Who’s Filling the Food Court with Lawsuits: Consumers or Lawyers?,” we noted the extensive involvement in food “mislabeling” class actions of a consortium of plaintiffs’ lawyers, some of whom had been active in tobacco litigation. Led by the law firm Pratt & Associates, the group filed 24 class actions in the Northern District of California in less than two months in 2012. We’ve now identified a total of 34 cases the consortium has brought to the Food Court.

In that post we offered a chart tracking the current status of the consortium’s cases.  Our updated chart is available here. Kindly let us know if we missed any.

Northern District of California judges have been busy this month on the group’s cases, issuing four substantive rulings.

Gustavson v. Wrigley Sales Co. Judge Koh’s order in this case is the only complete victory of the four for plaintiffs or defendants. After rejecting Wrigley’s motion to dismiss on preemption grounds last September, Judge Koh reversed herself on that issue in this January 7 decision. What changed? Wrigley cited FDA commentary on a 1993 nutrient content labeling rule which supported the company’s use of the term “sugar free” on its gum. The plaintiff’s suit would require placement of certain FDA-required qualifying language on the gum label in a manner different from what FDA rules allow, so Judge Koh held the claim expressly preempted. She dismissed Gustavson’s claims with prejudice. Continue reading

Dispelling the Myths of Asbestos Litigation: Bankruptcy Judge Finds that Misrepresentations Inflated Settlement Values

faulkFeatured Expert Column

by Richard O. Faulk, Hollingsworth LLP

There was a “shot heard ‘round the world” in asbestos litigation on January 9, 2014.  On that day, U.S. Bankruptcy Court Judge George Hodges for the Western District of North Carolina issued an important order finding that a “startling pattern of misrepresentation” and withholding of exposure evidence in asbestos lawsuits resulted in unfairly “inflated” recoveries.  See In Re Garlock Sealing Technologies, LLC, et al., No. 10-3167 (W.D.N.C., Jan. 9, 2014). With those findings, Judge Hodges firmly rejected the exaggerated claim values urged by plaintiffs’ counsel in a major Chapter 11 bankruptcy, and estimated the debtors’ liability at $125 million, approximately $1 billion less the amount asserted by the claimants.

This order will surely influence asbestos litigation throughout the United States.  Defendants in pending cases will press for full disclosure of settlements made with the bankruptcy trusts of insolvent companies – and Congress and state legislators will continue their quest for reforms to ensure complete disclosure of settlements to preclude exaggerated recoveries against peripheral defendants.  The House of Representatives has already passed H.R. 982 (the “FACT” Act), which requires asbestos trusts to publish claimants’ names and the nature of their claims  States such as Ohio and Oklahoma, have passed similar bills, and another is close to passage in Wisconsin.

But the path to reform has been long and incredibly costly. For many years, plaintiffs’ lawyers resisted disclosure of claims and settlements with the bankruptcy trusts. They resisted even though the claims might contain useful evidence of exposure to the bankrupt parties’ products, and although settlements might be used as credits or offsets against the solvent defendants’ liability. Without a meaningful way to offset insolvent companies’ settlements, defendants faced a “Hobson’s choice.” They could accept inflated settlement values – or risk judgments inflated by their inability to obtain offsets.  America’s courts, which expanded asbestos liability when “necessity” moved them to “change and invent,” see., e.g., Jenkins v. Raymark Industries,  782 F.2d 468, 473 (5th Cir. 1986), were largely nonresponsive to the injustice of this situation – as though the common law restrained change, rather than enabled adaptation and flexibility. See generally, Richard O. Faulk, Dispelling the Myths of Asbestos Litigation: Solutions for Common Law Courts, 44 S. Tex. L. Rev. 945 (2003). Inevitably, more defendants joined their insolvent brethren in bankruptcy – where claims and settlements were cloaked in mythical secrecy. Continue reading

Court Ruling Recalls Injudicious Average Wholesale Price Litigation Crusade

Cross-posted by Forbes.com at WLF’s contributor site

A little over a decade ago, federal regulators and state attorneys general initiated a litigation campaign to alter how government health care programs reimbursed doctors for prescription drugs. Like most “regulation by litigation” efforts, this campaign seized upon laws of broad application such as the False Claims Act (FCA) and encouraged private lawsuits of questionable merit. Government enforcers have long since moved on to other crusades, but as a federal court decision last month reflects, some private suits still drag on, burdening American businesses with needless legal expenses.

AWP. In the early 2000s, the federal government reimbursed health care providers based in part on a drug’s average wholesale price, or “AWP.” Some likened AWP to the sticker price, or MSRP, of a new car: an inflated number which almost no one actually paid. Everyone involved in health care was aware of the illusory nature of AWP, and federal and state regulators urged legislative change, but Congress resisted reform. So unelected officials and their brethren in the plaintiffs’ bar sought to impose change. As this 2002 WLF Working Paper explains, they devised legal theories which branded AWP as an overcharging scheme, and accused drug makers, price publishers, and other entities such as pharmacy benefit managers (PBMs) of perpetrating a fraud. State attorneys general filed billion-dollar fraud actions and plaintiffs’ lawyers teamed up with “whistleblowers” to file qui tam suits under the FCA.

The ensuing litigation crusade provided moderate returns at best to the plaintiffs’ lawyers and state AGs who jumped on board. For instance, in 2009, the Alabama Supreme Court dashed the state’s (and its contingent-fee lawyers’) dreams of a huge payday, dismissing two AWP cases, finding no fraud existed. Continue reading