Ninth Circuit Limits CAFA’s “Single Local Event” Exception and Broadens Removal of Mass Actions

Cruz-Alvarez_FFeatured Expert Contributor – Civil Justice/Class Actions

Frank Cruz-Alvarez, Shook, Hardy & Bacon, L.L.P. (co-authored with Rachel A. Canfield, an associate with the firm)

On April 27, 2015, the U.S. Court of Appeals for the Ninth Circuit issued a 2-1 decision in Allen v. Boeing, reaffirming the court’s prior interpretation of the Class Action Fairness Act of 2005’s (CAFA’s) “single local event” exception, which it previously reviewed in Nevada v. Bank of America Corp.

CAFA expands federal jurisdiction over certain mass actions that fall within its purview. CAFA defines such actions as any civil action in which “monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiff’s claims involve common questions of law or fact.”1

CAFA, however, enumerates a number of exceptions which exclude an action from enjoying CAFA mass action jurisdiction and require remand to state court. Pursuant to the single local event exception, civil actions in which “all of the claims in the action arise from an event or occurrence in the State in which the action was filed, and that allegedly result in injuries in that State or States contiguous to that State” are excluded from CAFA’s mass action jurisdiction.2 In Allen, the Ninth Circuit was called upon to interpret the breadth of this exception. Continue reading

Supreme Court Has Opportunity to Halt Lawsuits by Uninjured Plaintiffs

supreme courtFederal courts have been inundated in recent years by suits filed by plaintiffs who have suffered no injury but who allege that a federal statute provides them with “standing” to sue for alleged violations of federal law. Such lawsuits can be extremely lucrative for the plaintiffs’ bar when the statute provides for an award of statutory damages (typically, $100 to $1,000) for each violation; by filing their suits as nationwide class actions, attorneys can often plausibly seek to recover billions of dollars. The Supreme Court may soon make it much more difficult for such suits to survive a motion to dismiss. The Court on Friday will consider whether to grant review in Spokeo v. Robins, a case that squarely addresses whether plaintiffs can assert Article III standing where their only “injury” is the affront to their sensibilities caused by the belief that someone is not complying federal law. The Court has indicated a strong interest in addressing the issue; Spokeo is an appropriate vehicle for doing so and ought to be granted.

The U.S. Solicitor General recently filed a brief recommending that the Court not hear Spokeo. That brief may, ironically, increase the likelihood that the Court will agree to hear the case, because the Solicitor General very pointedly declined to endorse the appeals court’s rationale for concluding that the plaintiff has standing.

Spokeo involves claims filed under the Fair Credit Reporting Act (FCRA), one of dozens of federal statutes that offer a bounty (in the form of statutory damages) to those who demonstrate a violation of a federal statute. Spokeo, Inc. operates a “people search engine”—it aggregates publicly available information from phone books, social networks, and other sources into a database that is searchable via the Internet, and displays the results of searches in an easy-to-read format. It has always emphasized that it does not verify or evaluate any piece of data and does not guarantee the accuracy of information offered. Continue reading

WLF Web Seminar Explores New General Personal Jurisdiction Arguments under SCOTUS’s “Bauman” Ruling

Litigating away from “Home”: General Personal Jurisdiction One Year after the Supreme Court’s Daimler AG v. Bauman Decision

Mr. Beck utilized a PowerPoint slide presentation. The archive of the program, which includes a viewable version of the slides, is available at WLF’s website here.  If you would prefer to watch the video above, a PDF of the slides are available here.

Related materials on Daimler AG v. Bauman and its application in civil litigation:

Supreme Court Observations: “Dart Cherokee” Eliminates the Presumption against Removal of Class Actions

supreme court*Joining WLF’s Richard Samp as a guest commentator on this post is M.C. Sungaila, a partner with Snell & Wilmer LLP. Ms. Sungaila acted as counsel to the International Association of Defense Counsel and the Federation of Defense and Corporate Counsel, both of which joined WLF in its amicus brief in Dart Cherokee.

The Supreme Court’s ruling Monday, December 15 in Dart Cherokee Basin Operating Co. v. Owens, overturning a Tenth Circuit removal jurisdiction decision, was hardly surprising. After all, the Tenth Circuit’s restrictive interpretation of the federal removal statute, 28 U.S.C. § 1446(a)—that a defendant forfeits its removal rights unless the removal petition attaches documentary evidence supporting the jurisdictional allegations—conflicted with decisions from every other federal courts of appeal that has addressed the issue and elicited no supporting comments from the justices during October’s oral argument. Of far more lasting significance was Dart Cherokee’s rejection of a presumption against removal, in class-action cases and perhaps in other removal cases as well. That presumption had been adopted by 10 of the 11 regional courts of appeals and has been cited by countless district courts as the basis for remanding cases to state court. Organizations with which we are affiliated—the Washington Legal Foundation, the International Association of Defense Counsel, and the Federation of Defense and Corporate Counsel—are justly proud of having filed a brief that focused attention on the presumption-against-removal issue, an issue largely ignored by the parties.

Background. Dart Cherokee involved a class-action claim that an oil company breached a contract by underpaying royalties allegedly owed to lessors from production of oil wells located in Kansas. The oil company removed the case to federal district court, asserting jurisdiction under the Class Action Fairness Act (CAFA). CAFA permits removal of class actions even in the absence of complete diversity of citizenship, so long as the amount in controversy exceeds $5 million. The plaintiffs filed a motion to remand, asserting that the removal petition inadequately demonstrated the amount in controversy.

The district court agreed and ordered a remand. It did so despite acknowledging that the oil company’s response to the motion adequately demonstrated that the amount in controversy exceeded $5,000,000 and that the plaintiffs conceded as much. The court concluded that under Tenth Circuit case law, evidence supporting federal removal jurisdiction must be included within the removal petition itself and not added later. The court explained that its decision to remand was “guided by the strong presumption against removal.” It noted that the Tenth Circuit “narrowly construes removal statutes, and all doubts must be resolved in favor of remand.” Continue reading

Ninth Circuit Thwarts Plaintiffs’ Efforts to Evade Removal Under CAFA

Cruz-Alvarez_FFeatured Expert Contributor – Civil Justice/Class Actions

Frank Cruz-Alvarez, Shook, Hardy & Bacon, L.L.P. with Rachel A. Canfield,  Shook, Hardy & Bacon, L.L.P.

Addressing a question of first impression, the U.S. Court of Appeals for the Ninth Circuit Court of Appeals, sitting en banc, weighed into an issue that has split the circuit courts involving the invocation of federal mass-action jurisdiction. Corber v. Xanodyne Pharmaceuticals, Inc.¸ Nos.13-56306 & 13-56310, — F.3d —-, 2014 WL 6436154 (9th Cir. Nov. 18, 2014). This is just one in a series of recent federal decisions limiting plaintiffs’ efforts to avoid federal class or mass action jurisdiction.

To prevent class-action abuse, the Class Action Fairness Act of 2005 (“CAFA”) expands federal jurisdiction over certain class or mass actions that fall within its purview. Corber, 2014 WL 6436154, at *11. In pertinent part, CAFA defines mass actions as any civil action in which “monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiff’s claims involve common questions of law or fact.” 28 U.S.C. § 1332(d)(11)(B)(i).

Treated as companion cases, Romo v. Teva Pharmaceuticals USA, Inc., and Corber v. Xanodyne Pharmaceuticals, Inc., were two of twenty-six cases pending before the district court, and more than forty actions filed in California state courts, alleging injuries due to the ingestion of an ingredient found in certain pain relief drugs. Corber, 2014 WL 6436154, at *7. A number of the actions were brought by one group of plaintiffs’ attorneys who sought to obtain coordination of the actions pursuant to section 404 of the California Code of Civil Procedure, which permits coordination of civil actions containing a common question of fact or law if one judge hearing all of the actions for all purposes will promote the ends of justice. Id. at *8-9. In an attempt to obtain coordination in state court and evade federal jurisdiction, these plaintiffs’ attorneys superficially segmented the cases to involve fewer than 100 plaintiffs and crafted the petitions for coordination absent an express proposal that the actions be jointly tried. Continue reading

Seventh Circuit Continues Scrutiny of Class Action Settlements and Cy Pres

US-CourtOfAppeals-7thCircuit-SealThe U.S. Court of Appeals for the Seventh Circuit has, for better and worse, been at the forefront of federal class action jurisprudence recently. On the “better” side of the ledger, the appeals court has closely scrutinized and rejected a number of class action settlements in 2014. Its most recent rejection, Pearson v. NBTY, also dealt a serious blow to the  use of the controversial cy pres device in such settlements.

Judge Richard Posner regularly lands on Seventh Circuit panels involving class actions, where has been highly skeptical of class action settlements. In a June 2 opinion, Eubank v. Pella, he labeled the class action settlement “inequitable” and “even scandalous.” In another Posner-authored opinion, Redmand v. RadioShack, the Seventh Circuit on September 19 reversed a lower court’s approval of a coupon settlement. The court was especially troubled that the settling parties attempted to consider sums not available to the class members, such as “administrative costs,” when calculating the attorneys’ fees. As Reed Smith Counsel James Back and Rebecca Weil argued last month in a WLF Working Paper, such reasoning could be applied similarly to cy pres awards, the value of which settling parties seek to include when calculating fees.

The settling parties in Pearson v. NBTY, a consumer class action involving marketing claims for glucosamine pills, attempted to include a $1.13 million cy pres donation to the Orthopedic Research and Education Foundation when calculating attorneys’ fees. The trial judge refused to consider that amount as a “benefit” to the class when totaling the value of the settlement to be $20.2 million. The judge awarded the plaintiffs’ lawyers $1.93 million in fees.

The Center for Class Action Fairness objected to the settlement and on November 19, the Seventh Circuit, led by none other than Judge Posner, reversed the lower court. Judge Posner agreed with little of what the lower court determined, but he found the trial judge’s refusal to consider the cy pres amount in calculating the class benefit correct “for the obvious reason that the recipient of that award was not a member of the class.”

Separately, the court found that the cy pres award was itself improper. Judge Posner stated that while the recipient “seems perfectly reputable,” beneficiaries of cy pres are “entitled to receive money intended to compensate victims of consumer fraud only if it’s infeasible to provide that compensation to the victims—which has not been demonstrated” (our emphasis). Prior to reaching that conclusion, the opinion criticized the parties for seemingly “structur[ing] the claims process with an eye towards discouraging the filings of claims.” Less than one-quarter of one percent of the 4.72 million consumers notified sought the menial refund offered in NBTY. Judge Posner remarked that the claims process could have been simplified or “Rexall could have mailed $3 checks to all 4.72 million postcard recipients.”

The opinion contains several other positive statements and conclusions that district court judges and other circuit courts should find compelling, such as Judge Posner’s suggestion that “It might make sense for the district judge in a large class action suit like this to appoint an independent auditor, on the authority of Fed. R. Evid. 706, to estimate the reasonableness of class counsel’s billing rate.” But the double-blow to the cy pres device—that courts cannot consider it when calculating the settlement’s class benefit, and that the parties must prove that it is infeasible to provide the funds earmarked for the charity to the class members themselves—will likely be ruling’s most lasting achievement.

In the aforementioned WLF Working Paper, the authors asked, “Is the end near for a legal remedy with no basis in law?” With Judge Posner’s NBTY opinion exposing several more chinks in the doctrine’s already weakened armor, perhaps it is.

But we think it’s also important to take Judge Posner’s reasoning that cy pres is inappropriate in cases where money can’t feasibly be rewarded to plaintiffs to its logical endpoint: If plaintiffs cannot feasibly be located, why should a case be certified as a class action in the first place?

Also published by Forbes.com at WLF’s contributor page

After “Smelly Washer” Trial Win, Challenges Await Whirlpool in Related Cases

WhirlpoolWhirlpool Corp. had major reason to celebrate last week; a federal jury rejected class-action claims that “Duet” front-load washing machines sold in Ohio between 2001 and 2009 were defective because of their alleged tendency to develop a moldy smell. This “smelly washer” case has drawn significant media attention in recent years after it twice reached the U.S. Supreme Court on the issue of whether the case should be certified as a class action. The High Court in 2013 vacated a U.S. Court of Appeals for the Sixth Circuit decision certifying a class of more than 100,000 Ohio consumers; but after the Sixth Circuit reaffirmed its decision on remand, the Supreme Court denied review this past February—thus setting the stage for the three-week trial that just ended last Thursday. But if history is any guide, plaintiffs’ lawyers will not willingly accept that the verdict binds all the absent class members (only two class members actually participated in the trial).

Indeed, the ongoing challenge Whirlpool faces underscores why plaintiff classes should rarely, if ever, be certified in consumer product defect cases. Federal Rule of Civil Procedure 23 states that suits seeking monetary damages are not appropriate for class action treatment unless common issues of fact and law “predominate” over individual issues of fact and law. As the Washington Legal Foundation explained in the brief it filed when this case was before the Supreme Court, individual issues (e.g., whether an individual plaintiff’s product was defective and whether that defect caused injury) will almost always overwhelm common issues of fact in the typical consumer product suit. Moreover, Rule 23 requires that the named plaintiffs demonstrate that they can adequately represent the interests of absent class members; if representation is inadequate (e.g., if their interests diverge from those of absent class members), due process case law dictates that absent class members are not bound by any judgment adverse to the class. Thus, the defendant in a certified consumer-product class action often faces a heads-you-win-tails-I lose dilemma: if a company goes to trial and loses to the class, it faces a massive liability award, but if it prevails at trial, absent class members are likely to resist any res judicata claim. Continue reading