Eighth Circuit Creates New Class Action Fairness Act Requirement, Sends Case to State Court

Cruz-Alvarez_FFeatured Expert Contributor – Civil Justice/Class Actions

Frank Cruz-Alvarez, Shook, Hardy & Bacon, L.L.P. (co-authored with Talia Zucker, Shook, Hardy & Bacon, L.L.P.)

On April 4, 2014, the U.S. Court of Appeals for the Eighth Circuit breathed new life into a proposed consumer class action lawsuit that was previously—and properly—dismissed with prejudice by the U.S. District Court for the District of Minnesota.     Instead of affirming the district court’s decision, the Eighth Circuit, in an attempt to save the lawsuit, reversed and remanded Melvin Wallace v. ConAgra Foods, Inc., — F.3d —-, 2014 WL 1356860 (8th Cir. Apr. 4, 2014), to the Minnesota state court where it originated. In doing so, the court’s ruling, either by design or by accident, undermined the framework and legislative purpose of the Class Action Fairness Act (“CAFA”).

The case originated in May of 2012, when a group of consumers purporting to represent a putative class sued ConAgra Foods, alleging that some of the company’s Hebrew National beef products are not 100% kosher, as the label claims. 2014 WL 1356860 at *1.ConAgra manufactures Hebrew National meat products using beef slaughtered by AER Services, Inc. (AER). Id. The slaughtering takes place in the facilities of American Foods Group, LLC (AFG), which sells kosher meat to ConAgra and any remaining meat to third parties. Id. AER employs the religious slaughterers, and a third party kosher certification entity named Triangle K, Inc., monitors whether AER, AFG, and ConAgra comply with the kosher rules. Id.

ConAgra promotes the kosher requirements as a reason to purchase Hebrew National products, which cost more than similar non-kosher products. Id. The consumers claim, however, that manufacturing quotas—not kosher rules—is the deciding factor in whether certain meat is certified as kosher; and with a quota of 70% for kosher meat, the kosher inspection process has become defective and unreliable. Id. at *2. Consequently, the consumers maintain they have been misled into paying an “unjustified premium for Hebrew National’s ostensibly kosher beef.” Id. at *1. 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

New Corporate Survey Illustrates Burdens Of Document Preservation And Benefits Of Proposed Reform

computerpileWith the conclusion of the Federal Rules Advisory Committee’s public comment period last month, the first leg of what The Legal Pulse has described as the long and winding road to reform of the federal rules for discovery is now over. We have at last reached the “end of the beginning,” to borrow Churchill’s phrase.

Comments contributed by the business community conveyed the consistent message that the current rules encourage over-preserving documents, a practice that ill-serves the interests of justice. The committee record is replete with anecdotes demonstrating this point, but it had lacked aggregate data until recently. Enter a Preservation Costs Survey conducted by Professor William Hubbard (my former contemporary at the University of Chicago Law School who has returned to teach there now), which thoroughly documents systematic over-preservation of electronic materials and its profound costs. A summary of Professor Hubbard’s findings is available here.

Business Defendants’ Stories. In its comment to the Advisory Committee, 307,000-employee General Electric noted that in order to preserve information contained in emails alone, it is “faced with a universe of approximately 4,770 terabytes” of data. (Just 10 terabytes, by comparison, is roughly enough storage for the Library of Congress’s entire book collection.)  The comment cited one example from 2011 in an instance where litigation had not yet been filed. GE incurred “fees of $5.4 million to collect and preserve 3.8 million documents totaling 16 million pages.” The company also reported it must spend over $100,000 a year to simply maintain those documents.

Pfizer explained in its comment that it currently has over 300 active legal holds in place impacting over 80,000 employees. It preserves 5 billion emails, and expects that amount to grow by 1 billion per year. Allstate reported that in the past 5 years it has spent over $17 million on e-discovery costs alone.

Ford provided several case studies in its comment, including one arising from a suit in Montana. There, Ford’s legal staff invested more than 800 hours and paid outside lawyers $2 million to produce nine computer hard drives containing 360 gigabytes of documents and 1,200 witness transcripts from past lawsuits. The plaintiff was unsatisfied with Ford’s production and filed a motion for sanctions, which the court denied. In the end, the plaintiff sought to introduce one document from the massive trove it requested from Ford. Continue reading

Courts Endorse Businesses’ Using Forum-Selection Clauses As Litigation Management Tools

Guest Commentary

by Ross Coker*

Since its debut in the early 2000s, Google has grown at a startlingly rapid pace, becoming not only a global behemoth in the online search engine and advertising markets, but expanding its reach through smartphones, computer operating systems, and more.  Just this month, Google surpassed ExxonMobil as the world’s second largest company by market capitalization.

In the United States, such success inevitably makes one a target of class-action lawsuits.  To avoid being dragged into one of the country’s notorious Judicial Hellholes,® companies like Google include venue and forum selection clauses in their consumer contracts.  In addition to avoiding plaintiff-friendly jurisdictions, such clauses allow companies to resolve legal disputes close to “home” in a manner that minimizes disruption to conducting business.

A recent federal district court ruling, Rudgayzer et al. v. Google Inc., reflects the importance and effectiveness of these forum-selection clauses and clarifies their strategic underpinning.  Rudgayzer filed suit in the Eastern District of New York (EDNY) alleging improper notice after Google settled another class action suit involving the now-defunct “Buzz” product.  The judge dismissed Rudgayzer’s suit because the plaintiff had assented to Google’s consumer contract, which contained the forum-selection clause.

Santa Clara County, CA

Santa Clara County, CA

In order to reach that conclusion, the court had to first determine whether the clause could be enforced.  The court noted that the federal circuits are split on the legal standard to apply in this situation.  The Second Circuit, whose precedents bind the EDNY, permits dismissal under Federal Rule of Civil Procedure 12(b)(3) if the consumer was made aware of the forum-selection clause, the clause is mandatory by the terms of the contract, and state contract law permits the imposition of such a clause.  The plaintiff can escape the clause only if it can show that the transfer of its case would be “unreasonable or unjust.”  Continue reading

With Bauman v. DaimlerChrysler, High Court May Have Put Brakes on Forum Shopping

220px-Ruth_Bader_Ginsburg_official_SCOTUS_portraitCross-posted from WLF’s Forbes.com contributor site

The Supreme Court’s decision last month in Daimler AG v. Bauman has been viewed by many as having its principal impact on lawsuits involving overseas events.  There is no question that the decision evinces the Court’s reluctance to permit federal courts to exercise jurisdiction over controversies arising within other nations.  But to focus exclusively on this aspect of Daimler overlooks its potential bombshell consequences for domestic tort litigation; it could result in major upheavals in standard operating procedures for much of the plaintiffs’ bar.  Indeed, Daimler may even conceivably spell the end of most nationwide class action lawsuits.

The plaintiffs in Daimler were 22 residents of Argentina who claim to have suffered human rights abuses at the hands of Argentina’s military rulers more than 30 years ago.  The plaintiffs alleged that Mercedes-Benz Argentina, a subsidiary of Daimler, aided and abetted those human rights abuses.  Daimler is a German corporation whose cars are sold world-wide.  It sells its cars here through its American subsidiary, Mercedes-Benz USA (MBUSA).  MBUSA is a Delaware corporation with a principal place of business in New Jersey, and it distributes Daimler-manufactured cars to independent dealerships throughout the U.S., including many in California.

The plaintiffs filed suit in a federal district court in California against Daimler, claiming that it should be held responsible for the alleged misdeeds of its Argentine subsidiary.  They asserted personal jurisdiction over Daimler on the basis of MBUSA’s contacts with California, although they conceded that none of the events giving rise to their claim occurred in California.  The Ninth Circuit upheld the assertion of personal jurisdiction; it held that MBUSA did sufficient business in California to be answerable for any lawsuit filed against it within the state and that Daimler was similarly answerable because MBUSA was Daimler’s agent for jurisdictional purposes. Continue reading

Supreme Court Observations: Bauman v. DaimlerChrysler

dchildreGuest Commentary

by Donald Earl Childress III, Associate Professor of Law, Pepperdine University School of Law

On January 14, 2014, the Supreme Court handed down its decision in Bauman v. DaimlerChrysler. N1 Writing for all members of the Court except Justice Sotomayor (who concurred only in the judgment), Justice Ginsburg explained (following her opinion for a unanimous court in Goodyear) N2 that general jurisdiction is only available over a corporate defendant in the place of its incorporation, the place of its principal place of business, or, “in an exceptional case,” in another forum where it is “essentially at home.”  N3  Since none of these affiliations applied to the relationship between Daimler and California, the Court held that Daimler could not be sued in California for injuries allegedly caused by a subsidiary of Daimler in Argentina.  The Court sidestepped the precise issue it was asked to decide by Daimler in its certiorari petition (an issue written about in the Washington Legal Foundation’s On the Merits publication here):  whether a subsidiary’s contacts can be imputed to a parent corporation to establish general personal jurisdiction.  N4  If the Court did not decide the precise issue it was asked to decide, then what did it decide?

The Court’s Ruling

In Bauman, the Supreme Court held that Daimler was not subject to general jurisdiction in California for injuries allegedly caused by a subsidiary of Daimler in Argentina.  Before reaching this conclusion, the Court made several points designed perhaps to send not-so-subtle hints to lower courts.  Continue reading

As Comment Deadline Nears, WLF Advisory Board Member Speaks Out on Proposed Discovery Rule Amendments

longandwindingWhen we noted the beginning of the comment period for the Federal Rules Advisory Committee’s proposed amendments to the Federal Rules of Civil Procedure governing the discovery process with a post last August, the February 15 deadline seemed eons away.

But in mere two weeks, that stretch of the long-and-winding road that is Federal Rules reform will have come and gone. Along the way, WLF has been privileged to testify before the Advisory Committee last November and was the first public interest organization to file public comments with it last October. In order to inform the discussion and explain why the Rules reform effort is so vitally important, WLF published a “Conversations With” paper earlier this month featuring former Attorney General Dick Thornburgh, University of Denver’s (and former Colorado Supreme Court Justice) Rebecca Kourlis, and Goldberg Segalla LLP partner John Jablonski.

In a recent Corporate Counsel magazine, GlaxoSmithKline General Counsel Dan Troy authored a must-read article on e-discovery reform, “Changing Federal Rules to Reduce Discovery Costs.” WLF is honored to have Dan as a member of our Legal Policy Advisory Board. He brought the emerging effort to reform the Federal Rules to our and the public’s attention four years ago by authoring a WLF Legal Backgrounder along with GSK Assistant General Counsel John O’Tuel entitled A Toolkit For Change: How The Federal Civil Rules Advisory Committee Can Fix A Civil Justice System “In Serious Need Of Repair”.  In his Corporate Counsel article, Dan focused on the extreme costs of document preservation in the digital age, and the need to not only adopt proposed amendments to Rule 37(e), but also further strengthen the standard for imposing sanctions for “spoliation.”  In terms of the preservation burden, he wrote:

As just one example of the amounts of data at issue, my own company, GlaxoSmithKline, has preserved 57.6 percent of its company email, amounting to 203 terabytes of information. This would be 20 times the amount of the printed collections of the Library of Congress.

FDA Proposed Rule on Generic Drug Preemption May Violate Its Statute

FDALast Friday just prior to the Veterans’ Day weekend, the Food and Drug Administration (FDA) issued a highly anticipated notice of proposed rulemaking which addresses the U.S. Supreme Court’s 2012 decision, PLIVA v. Mensing. The proposal, Supplemental Applications Proposing Labeling Changes for Approved Drugs and Biological Products, was introduced by Dr. Janet Woodcock, director of FDA’s Center for Drug Evaluation and Research, in an FDA Voice blog post. The proposal, according to her, is “intended to improve the communication of important drug safety information about generic drugs to both prescribers and patients.”

As emphasized in a New York Times story about the proposal, “The rule would also pave the way for lawsuits from patients who could now claim that generic companies did not sufficiently warn them of a drug’s dangers.”

As WLF’s Rich Samp argued here last August in Can FDA Lawfully Overrule SCOTUS Generic Drug Preemption Decision Through Regulation?, WLF doubts that FDA has the authority under federal law to take such an action. We look forward to participating in the regulatory process and the accompanying debate that will intensify now that FDA has formally proposed the rule.

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

WLF Urges Federal Judicial Advisory Committee to Improve and Adopt Proposed Procedural Rules Amendments

longandwindingAs we discussed in an August 15 post, the long and winding road to amending the Federal Rules of Civil Procedure began that day when an Advisory Committee on Civil Rules of the Judicial Conference of the United States began taking comments on its proposal. The amendments focus most prominently on changing what documents are “discoverable” and how judges determine sanctiosn for parties who allegedly fail to preserve documents.

In a WLF Counsel’s Advisory published last week, GlaxoSmithKline Assistant General Counsel Leah Lorber urged interested parties to file comments with the Advisory Committee, which are due by February 15, 2014.

Yesterday, Washington Legal Foundation filed its formal comments with the Advisory Committee.  WLF Senior Litigation Counsel Cory Andrews has requested an opportunity to testify before the Committee during its hearing in Washington, D.C. on November 7.

Our comments frame the challenges the discovery process pose today for those who are subject to and must manage civil litigation:

The potency of discovery as a leverage weapon has intensified in the past two decades with the explosion of electronic data. The nature of such data, which can be easily and unintentionally deleted, has also given rise to so-called spoliation claims, where one litigant accuses the other of document destruction and urges courts to sanction the alleged offender. The outside costs of litigation for American businesses over the past decade have steadily grown. These costs are disproportionately high in the United States versus the rest of the world.

The comments specifically call on the Advisory Committee to:

  • Amend proposed Rule 37(e) to eliminate a stated exception that can swallow the Rule; alter the conduct trigger for sanctions from “willful or in bad faith” to “willful and in bad faith”; move the list of factors to be assessed when evaluating conduct from the Rule to the Committee Note; clarify the standard for when parties must preserve documents; and clarify the prejudice standard that judges will use to impose “curative measures” under the Rule.
  • Require that under proposed Rule 26(b)(1), the scope of discovery be “any non-privileged matter that is relevant
    and material to any party’s claim or defense.”
  • For Rules governing the presumptive numerical limits on discovery devices (depositions, interrogatories, etc.), consider limiting discovery to five “custodians” in the first instance, chosen by the requesting party, and then five more in the second instance; any further discovery would require a showing of good cause.
  • Eliminate, as proposed, Rule 84, which through sample forms such as Form 18 used for patent litigation, elevate antiquated requirements over current Supreme Court precedents on pleading standards. In addition, the Committee should add a Committee Note for the Rule on pleading standards, Rule 8, to acknowledge those recent Court precedents.