Class Action Jurisprudence (Class Action Forum)


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Presented on June 13, 2013, at the 2013 Carlton Fields Class Action Forum in New York, NY. Download the full Class Action Survey at

"The 'Rigorous Analysis' Overlay On Current Class Action Jurisprudence" by D. Matthew Allen.

"Class Action Waivers: The World From Concepcion to Oxford" by M. Derek Harris.

"Other Recent Hot Topics in Class Action Jurisprudence – Removal, Coupon Settlements and Cy Pres Awards" by Amanda Arnold Sansone.

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Class Action Jurisprudence (Class Action Forum)

  1. 1. Class Action JurisprudenceD. Matthew AllenM. Derek HarrisAmanda Arnold Sansone
  2. 2. The “Rigorous Analysis”Overlay On Current ClassAction JurisprudenceD. Matthew Allen2
  3. 3. Rule 23(a) Requirements• Numerosity - the class is so numerous thatjoinder of all members is impracticable.– and• Commonality – there are questions of law or factcommon to the class.– and• Typicality – the claims of the representativeparties are typical of the claims of the class.– and• Adequacy – the representative parties will fairlyand adequately protect the interests of the class.3
  4. 4. Rule 23(b) Requirements• Rule 23(b)(1)(A) – separate actions will create incompatiblestandards for the defendant.– OR• Rule 23(b)(1)(B) – limited fund; individual adjudication wouldsubstantially impair the interests of other parties.– OR• Rule 23(b)(2) – injunctive/declaratory relief; the defendant hasacted or refused to act on grounds that apply generally to theclass.– OR• Rule 23(b)(3) – damages class; common questionspredominate and class action relief is superior to alternatives.4
  5. 5. Four Phases of Class Actions• Phase 1: The Innovative Phase (1966-early 1970s)• Phase 2: The Realistic Phase (mid-1970sto early 1980s)• Phase 3: The Formalistic Phase (early1980s to 1995)• Phase 4: The Rigorous Analysis Phase(1995 to present)5
  6. 6. Phase 1: Innovative Phase• 1966 to early 1970s• Judicial positive outlook toward the classdevice as:– Exciting and innovative tool to efficientlymanage and resolve complex cases– Empowering courts to do social justice6
  7. 7. Judicial Attitudes InThe Innovative Phase• “The complete overhaul of Rule 23 significantlyexpands the scope of class actions ... [T]he districtcourt unhampered by traditional classifications isgiven a large measure of discretion in balancingconflicting interests.” Siegel v. Chicken Delight• “The social desirability of consumer class actionswas to insure that a David plaintiff has a Goliathcapability against the Goliath propensities of hisadversary.” Katz v. Carte Blanche Corp. (3d Cir.;Aldisert, J. dissenting).7
  8. 8. Judicial Attitudes InThe Innovative Phase• “Class actions serve an important function inour judicial system. By establishing atechnique whereby the claims of manyindividuals can be resolved at the sametime, the class suit both eliminates thepossibility of repetitious litigation andprovides small claimants with a method ofobtaining redress for claims which wouldotherwise be too small to warrant individuallitigation.” Eisen v. Carlisle & Jacquelin (2dCir. 1974)8
  9. 9. The Innovative Phase• Any device which is workable only because it utilizesthe threat of unmanageable and expensive litigation tocompel settlement is not a rule of procedure – it is aform of legalized blackmail. If defendants whomaintain their innocence have no practical alternativebut to settle, they have been de facto deprived of theirconstitutional right to a trial on the merits. Thedistinctions between innocent and guilty defendantsand between those whose violations have workedgreat injury and those whose have done little if anyharm have become blurred, if not invisible. The onlysignificant issue becomes the size of the ransom to bepaid for total peace.– Milton Handler, 71 Colum. L. Rev. 1, 9 (1971).9
  10. 10. The Realistic Phase• Mid-1970s to early 1980s• Characterized by:– Cautions against certification based on legalpresumptions.– Repudiation of use of device for socialactivism purposes.– Emphasis on close application of factualrecord to elements of cause of action todetermine predominance.10
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  12. 12. The Formalism Phase• 1980s to 1995• Decisions characterized by formalisticappeal to legal principles:– The court cannot prejudge the merits.Commercial Tissue Prods. (N.D. Fla. 1998).– The court must accept the facts in the complaintas true. In re Potash Antitrust Litig. (D. Minn.1995).– Doubtful cases should be certified. CumberlandFarms (E.D. Pa. 1988).12
  13. 13. The Formalism Phase cont’d– Liability is the overriding issue over causation anddamages. In re Flat Glass Antitrust Litig. (W.D.Pa. 1999).– The parties’ interests are best served by resolvingdifferences in a single action. Commercial TissueProds. (N.D. Fla. 1998).– Plaintiff’s expert testimony should be givendeference. Carbon Dioxide Antitrust Litig. (M.D.Fla. 1993).– Presumptions that make it easier to provecommon elements are often used.13
  14. 14. The Rigorous Analysis Phase• 1995 to the present (in the federal system)• Repudiation of class certification of largeproduct liability or employmentdiscrimination cases:– In re Rhone Poulenc (7th Cir. 1995)– In re Am. Medical Systems (6th Cir. 1996)– Castano v. Am. Tobacco Co. (5th Cir. 1996)– Valentine v. Carter Wallace (9th Cir. 1996)– Jackson v. Motel 6 (11th Cir. 1997)14
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  25. 25. Class Action Waivers: The WorldFrom Concepcion to OxfordM. Derek Harris25
  26. 26. Class Action WaiversWhat are they?Class Action Waivers areoften found in arbitrationagreements. Companiesoften require that peoplesettle their issues througharbitration.Where are they found?– Consumer Contracts• Credit Card Agreements• Cell Phone Agreements• Service Agreements• Financing Agreements– Employment Agreements26
  28. 28. AT&T Mobility LLC v. Concepcion• On April 27, 2011, the U.S. Supreme Courtheld 5-4 that a state law requiring theavailability of classwide arbitrationinterferes with the “fundamental attributesof arbitration” and creates a schemeinconsistent with the Federal ArbitrationAct.28
  29. 29. History of Concepcion• Plaintiffs initiated a lawsuit in afederal district court inCalifornia seeking to recover$30 in taxes they werecharged for phones advertisedas free. Their suit wasconsolidated with a classaction.• The Plaintiffs’ wireless serviceagreement with AT&T includedan arbitration provision waivingthe right to proceed withdispute resolution throughclass arbitration.• AT&T filed a motion to compelarbitration, which the districtcourt denied.• The district court held the classaction waiver provision of thearbitration agreement wasunconscionable underCalifornia law, and thatCalifornias unconscionabilitylaw was not preempted by theFederal Arbitration Act.• The U.S. Court of Appeals forthe Ninth Circuit affirmedfinding the class action waiverwas unenforceable.• The U.S. Supreme Courtreversed and remanded thecase.29
  30. 30. Supreme Court RationaleJ. Scalia (Majority Opinion)• “When state law prohibits outright the arbitration of aparticular type of claim the analysis is straightforward:The conflicting rule is displaced by the FAA.”• “The overarching purpose of the FAA, evident in thetext of 2, 3, and 4, is to ensure the enforcement ofarbitration agreements according to their terms tofacilitate streamlined proceedings.”• The California state law on which the Ninth Circuit’sdecision was based “stands as an obstacle to theaccomplishment and execution of the full purposesand objectives of Congress,” therefore, it is preemptedby the FAA.30
  31. 31. Circuits Split After Concepcion• The Third Circuit, in Homa v. AmericanExpress Co., held that a class action waivermust be enforced even if a plaintiff showsthat a claim cannot be effectively prosecutedin an individual arbitration.• The Second Circuit has held that, even afterConcepcion, high costs of litigation and lowrecovery available for individual claims, mayrender a class action waiver provisionunenforceable.31
  32. 32. In re American ExpressMerchants’ Litigation• AmEx I (2d Cir. 2009)– Class action waiver held unenforceable because highcosts of litigating antitrust claims meant individualclaims would not be pursued and without a classaction plaintiffs would not have a remedy.• AmEx II (2d Cir. 2011)– Class action waiver unenforceable under FAAbecause enforcement would preclude vindication ofplaintiffs’ statutory rights.• AmEx III (2d Cir. 2011)– Class action waiver unenforceable because costs ofindividual arbitration would be prohibitive, whichwould prevent plaintiffs from pursuing antitrust claims.32
  33. 33. AmEx III Sets the Stage• In its Opinion in AmEx III, the Second Circuit notedthat Concepcion and other Supreme Court casesdid not address the issue presented in the AmExcases, which is:Whether a class-action arbitration waiver clause isenforceable even if the plaintiffs are able todemonstrate that the practical effect ofenforcement would be to preclude their ability tovindicate their federal statutory rights.• After the AmEx III ruling, American Express filedpetition for certiorari, which was accepted by theU.S. Supreme Court33
  34. 34. Supreme Court Set to Rule Again• On February 27, 2013, the U.S. SupremeCourt heard oral argument in AmericanExpress Co. v. Italian Colors Restaurant.• The Supreme Court has yet to issue itsOpinion34
  35. 35. Oxford Health Plans LLC v. Sutter• Supreme Court holds language authorizing a“civil action” in arbitration allowed thearbitrator to rule that the parties intended forclass arbitration to be maintained because aclass action is a “civil action.”• Indicates a retreat from Stolt-Nielsen wherethe Supreme Court held that parties cannotbe compelled to submit to class arbitrationunless they agree to it.35
  36. 36. Lessons Learned• In light of the recent Supreme Court decisionsenforcing class action waivers, companies shouldconsider implementing class action waiverprovisions into their contractual agreements withconsumers, employees, vendors, shareholders, and others.• Companies using or implementing class actionwaivers be to be sure to include clear prohibitionsof class arbitrations in their contracts. Otherwise, as the court noted in its decision, the “potentialfor those mistakes is the price of agreeing toarbitration.”36
  37. 37. Other Recent Hot Topics in Class ActionJurisprudence – Removal, CouponSettlements and Cy Pres AwardsAmanda Arnold Sansone37
  38. 38. Class Action Fairness Act of 2005(“CAFA”) - Original Jurisdiction• More than 100 members of class• Parties are minimally diverse• Matter in controversy for aggregate ofclaims of individuals exceeds the sum orvalue of $5 million38
  39. 39. Post-CAFA Removal of ClassActionsThe Standard Fire Insurance Company v.Knowles, -- S. Ct. --, 2013 WL 1104735(2013)• Arkansas citizen sues on behalf of Arkansasresidents with Arkansas-law-based claims inArkansas state court• With his complaint, Knowles served astipulation that the class would never acceptdamages exceeding $5 million• Standard Fire removed39
  40. 40. Post-CAFA Removal of ClassActions cont’d• District court remanded to state court because ofthe stipulation while also recognizing that the casewould otherwise meet the amount-in-controversythreshold• 8th Circuit declined motions to hear interlocutoryappeal, for rehearing and for rehearing en banc• Supreme Court accepted review due to a circuitsplit• Supreme Court held that Knowles and his counseldid not have authority to stipulate away damagesclaims of absent putative class members in a classthat has not been certified40
  41. 41. Removal Case(s) to WatchAbeid-Saba et al. v. Carnival Corp, et al. and Scimone et al v.Carnival Corp. (S.D. Fla.)• Both cases are actions of passengers of the Costa Concordiacruise ship• In February, 2013, the federal district judge remanded thesetwo cases to state court after Carnival tried to removebecause neither case separately met CAFA’s 100-plaintiffrequirement and counsel had not asked suits to be triedtogether• District judge said there was “no doubt” that these two suitswere structured this way to avoid removal, but that CAFApermits artful pleading to get around removal in mass actioncases• On May 21, 2013, the Eleventh Circuit granted Carnivalpermission to appeal so stay tuned41
  42. 42. Post-CAFA Settlement ofClass Actions• Congress concerned with couponsettlements• CAFA codified Congress’s intent toregulate coupon settlements• increased judicial scrutiny ( 1712(e))• series of specific rules governing award ofattorney’s fees in class actions containing couponsettlements ( 1712(a)-(d))42
  43. 43. In re HP Inkjet Printer Litigation(9th Cir. May 15, 2013)• District court noted that a weak case and approved thecoupon settlement• Class members to receive $5 million in online couponsonly redeemable at• Center for Class Action Fairness filed objections andthe district court approved over those objections• Class counsel submitted a $7 million lodestar butrequested an award of $2.3 million in fees and$600,000 in costs. District court awarded $1.5 millionin fees and $600,000 in costs (looked at lodestar andthen looked at settlement value as a cross check)43
  44. 44. In re HP Inkjet Printer Litigation(9th Cir. May 15, 2013) cont’d• Ninth Circuit reversed the district court because classmembers paid out in coupons, not cash, so feesshould be considered in light of redemption value ofcoupons instead of face value• Ninth Circuit also said that the parties invited errorbecause the coupons were not to be issued untilappeals are resolved so there is no redemption valuedata for the district court to consider• Stay tuned . . .44
  45. 45. The Controversy of Cy Pres Awards• An option for settlement funds that eithercannot be distributed or remain unclaimedfollowing distribution• Parties typically attempt to find the “nextbest use”• Wide range of organizations havebenefitted• Have been criticized by many courtsthough45
  46. 46. Dennis v. Kellogg Co. (Frosted Mini-Wheats Case)(9th Cir. 2012) (S.D. Cal May 3, 2013)• Kellogg’s advertisements suggested thattheir frosted mini-wheats were scientificallyproven to improve children’s cognitivefunctions for several hours after thechildren ate the cereal• Kellogg sued on grounds thatadvertisements were allegedly deceptive46
  47. 47. Dennis v. Kellogg Co. (Frosted Mini-Wheats Case)(9th Cir. 2012) (S.D. Cal May 3, 2013) cont’d• 1st Proposed Settlement– Negotiated by a mediator with JAMS– $2.75 million to be made available for claimsby class members with remainder donated tounspecified charities that feed the indigent– $5.5 million “worth” of donated food tocharities that feed the indigent– Class counsel sought $2 million fee– Ninth Circuit rejected settlement & fee47
  48. 48. Dennis v. Kellogg Co. (Frosted Mini-Wheats Case)(9th Cir. 2012) (S.D. Cal May 3, 2013) cont’d• 2nd Proposed Settlement:– May 3, 2013, district judge preliminarily approvednew settlement– Kellogg to establish a $4 million cash fund forclass members on a claims made basis– Remaining funds will be distributed equally toConsumers Union, Consumer Watchdog and theCenter for Science in the Public Interest– Attorney fees will be deducted from thesettlement fund and are capped at 25% of thefund plus costs– To be continued . . .48
  49. 49. Three Tips for Cy Pres Awards• Have cy pres beneficiary with a nexus to theclaims in the case (required in manyjurisdictions)• Specifically name the cy pres beneficiary inthe settlement (and, if possible, evenspecifically provide permitted use of the cypres funds)• Discount amount of “credit” class counselreceives for the cy pres award whencalculating fee award49
  50. 50. Download the 2013 Carlton FieldsClass Action Survey
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