Strategies for Class Action Defense
Four Key Developments
Wednesday, Sept. 9, 2015 12:00 – 1:15 p.m. EST
Introductions
Paul G. Karlsgodt Partner, Denver Leader of BakerHostetler’s national Class Action Defense practice
Patrick T. Lewis Partner, Cleveland
Mootness & Offers of Judgment Rand L. McClellan Partner, Columbus [email protected]
“Full” Rule 68 Offers
• Issue: Defendants are issuing “full” Rule 68 offers to named Plaintiffs in putative class actions and, if the Rule 68 offer is refused, then arguing that an offer of full (individual) relief mooted Plaintiff’s claim. o Offers must be “full” o Exception: Claims that are “so insubstantial
that it fails to present a fed. controversy” (e.g., previous Circuit or Supreme Court decisions preclude claim)
Hot Topic
• The legal underpinnings of this issue have existed for some time, so why now?
• Proliferation of class actions for violations of federal statutes o Strict liability o Statutory damages
• TCPA example o Approximately 112 TCPA class actions were
filed in 2010. By 2014, that number grew to 558. Pace is not abating.
Legal Tenet - Mootness
• Federal jurisdiction is limited by Article III of the Constitution to “cases” and “controversies,” which “restricts the authority of the federal courts to resolving the legal rights of litigants in actual controversies.” Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523, 1528 (2013) (internal quotations and parallel citations omitted).
• A party must have a legally cognizable interest in a case to “ensure[] that the Federal Judiciary confines itself to its constitutionally limited role of adjudicating actual and concrete disputes . . . which have direct consequences on the parties involved.” Id.
• “[A]ctual controversy must be extant at all stages . . . , not merely at the time the complaint is filed.” Id.
Offers of Judgment (Rule 68)
• Rule 68(a): “At least 14 days before the date set for trial, a party defending against a claim may serve on an opposing party an offer to allow judgment on specified terms ….”
• Rule 68(b): “An unaccepted offer is considered withdrawn, but it does not preclude a later offer….”
• Note, a proposed revision to Rule 68 that would have precluded offers of judgment in class actions was proposed, but never adopted.
Two Camps
• Preserve or not “frustrate” class action or
collective action device via “pick off offers.” • Settlement
o Individual Plaintiff receives all requested relief
o Limit “abusive” class actions
Circuit Split
• By 2013, there was disagreement among circuit courts regarding whether an unaccepted Rule 68 offer that fully satisfies a plaintiff’s individual claim renders that claim moot. o Individual claim vs. class claim o Circuit split on both issues
Genesis Healthcare Corp. Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (U.S. 2013)
• FLSA collective action. • Defendant made Rule 68 offer for all individual
relief sought by Plaintiff, who ignored offer. No other individuals joined her suit. District court determined Plaintiff’s claim was moot and dismissed claim for lack of subject-matter jurisdiction.
• Third Circuit, citing “pick off” concerns, reversed, holding that the individual claim was moot, but the collective action was not.
Genesis Healthcare Corp. Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (U.S. 2013)
• Question Presented: Does a case become moot, and beyond the judicial power of Article III, when the lone plaintiff receives an offer from the defendants to satisfy all of the plaintiff's claims?
Genesis Healthcare Corp. Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (U.S. 2013)
• Genesis Healthcare Corp passed on question presented because it was later discovered that the Plaintiff conceded the issue below and did not raise it via a cross petition. o The Court assumed that the Rule 68 offer
mooted the individual claim.
Genesis Healthcare Corp. Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (U.S. 2013)
• Held: After Plaintiff’s individual claim became moot, she had no interest in representing others, reversed Third Circuit, stating that the Plaintiff’s claim was “appropriately dismissed” for lack of subject-matter jurisdiction. o Justices: Thomas, Kennedy, Alito, Roberts,
Scalia
Genesis Healthcare Corp. Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (U.S. 2013)
Noteworthy observations by the majority: • Acknowledged Circuit split. • Rule 23 class acquires legal status when certified. • Rejected “relation back” doctrine rationale cited by some
courts in avoiding mootness argument. – Inherently transitory reserved for challenged conduct that
was “effectively unreviewable” because no plaintiff possessed a personal stake in the suit long enough for litigation to run its course (e.g., temporary pretrial detentions). 133 S. Ct. at 1525. “[C]laim for damages cannot evade review ….” Id. at 1525.
– Appellate reversal of certification may relate back to time of denial. Id. at 1528, n.2.
Genesis Healthcare Corp. Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (U.S. 2013)
• Seemed to discount pick-off issue: – Dismissed references in Deposit Guaranty
National Bank v. Roper regarding “pick-off” offers as dicta. Genesis Healthcare Corp., 133 S. Ct. at 1531-32 (citing Roper, 445 U.S. at 329-30).
– “[S]ettlement may . . . foreclos[e] unjoined claimants from having their rights vindicated in [the named plaintiff]’s suit, [but] such putative plaintiffs remain free to vindicate their rights in their own suits. They are no less able to have their claims settled or adjudicated following [the named plaintiff]’s suit than if her suit had never been filed at all.” Genesis Healthcare Corp., 133 S. Ct. at 1531.
Kagan’s Dissent • An unaccepted offer is “withdrawn” and thus is a “legal nullity.” A
court can still grant relief. • Rule 68 provides no mechanism to terminate a lawsuit without the
Plaintiff’s consent. • Court lacks “inherent authority” to enter an unwanted judgment on
an individual claim, in service of wiping out collective action. o Does not address majority’s discounting of Roper and its
statements that other claimants are free to assert their rights. • Pick-offs frustrate collective action goals. • But a court can halt a lawsuit by entering judgment for the Plaintiff
when the defendant unconditionally surrenders. o Dissent does not identify the source of this authority.
• Has been adopted by several Circuits, most recently the 7th Circuit. (Chapman v. First Index, Inc., Nos. 14-2773 & 14-2775, 2015 U.S. App. LEXIS 13767 (7th Cir. Aug. 6, 2015).
Genesis Healthcare Corp. Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (U.S. 2013)
Did not resolve much… • Relation back can be used to keep class action
claims alive in the face of a full Rule 68 offer (E.g., 11th Circuit).
• Entire class action suit is moot when individual claim is mooted via an offer of full relief (E.g., .4th Circuit).
Justice Kagan’s dissent has been followed by other courts. (E.g., 7th Circuit)
Genesis Healthcare Corp. Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (U.S. 2013)
Campbell-Ewald Co. v. Gomez (No. 14-857)
Question presented: • Whether a case becomes moot, and beyond the
judicial power of Article III, when the plaintiff receives an offer of complete relief on his claim.
• Whether the answer to the first question is any different when the plaintiff has asserted a class claim under Federal Rule of Civil Procedure 23, but receives an offer of complete relief before any class is certified.
Campbell-Ewald Co. v. Gomez (No. 14-857)
Will the following impact Gomez outcome? • Timing: Will Court address issue of timing of
Rule 68 offer? o Offers issued prior to filing of class
certification motion. (Damasco v. Clearwire Corp., 662 F.3d 895 (7th Cir. 2011)) (overruled)
o Carroll v. United Compucred Collections, Inc., 399 F.3d 620 (6th Cir. 2005)
Campbell-Ewald Co. v. Gomez (No. 14-857)
Will the following impact Gomez outcome? • Individual vs. class relief: Will Court split its
analysis between individual and class relief? • Role, if any, of Rule 68: Assuming causes of
action can be resolved by offer of “full relief,” will that offer depend on Rule 68 framework?
• Legislative history or inaction.
Campbell-Ewald Co. v. Gomez (No. 14-857)
Will the following impact Gomez outcome? • Nature of Action: Will decision distinguish between
different types of claims? o Will Court target certain types of class actions?
(e.g., no injury, statutory damages claims?) o “Total victory” exception.
o “[A] court has discretion to halt a lawsuit by entering judgment for the plaintiff when the defendant unconditionally surrenders and only the plaintiff’s obstinacy or madness prevents her from accepting total victory.” Genesis Healthcare Corp., 133 S. Ct. at 1536.
Campbell-Ewald Co. v. Gomez (No. 14-857)
Foreshadowing? • Seventh Circuit decision in Chapman v. First Index,
Inc., Nos. 14-2773 & 14-2775, 2015 U.S. App. LEXIS 13767 (7th Cir. Aug. 6, 2015) o Overruled prior precedent that an offer of full
compensation moots the litigation or otherwise ends the Article III case or controversy.
o But … “Why should a judge do legal research and write an opinion on what may be a complex issue when the plaintiff can have relief for the asking?”
Standing David M. McMillan Associate, New York [email protected]
Two Major Decisions Coming Soon
• Spokeo, Inc. v. Robins, 2015 WL 4148655
(2015) • Tyson Foods, Inc. v. Bouaphakeo, 2015
WL 1285369 (2015)
Spokeo v. Robins • Putative class action stemming from violations of the Fair
Credit Reporting Act. • Spokeo.com is a “people search engine”: compiles publically-
available information on individuals and then displays that information in an easy-to-read format.
• Plaintiff alleged Spokeo willfully published inaccurate
information that hurt his ability to obtain credit, employment, and caused anxiety, stress and concern.
• Did not allege he suffered any particular or specific injury, but
the statute automatically entitled him to “not less than $100 and not more than $1,000”
Spokeo v. Robins
Fair Credit Reporting Act • Regulates “credit reporting agencies” to ensure
publication only of accurate information. • Allows private citizens to sue for violations. • Provides that willful violations as to a consumer
entitles that consumer to “any actual damages sustained by the consumer as a result of the failure or damages of not less than $100 and not more than $1,000”
Spokeo v. Robins
Article III standing (1) the plaintiff has suffered an injury in fact;
(2) there is a causal connection between the injury
and the conduct complained of; and (3) it is likely that the injury will be redressed by a
favorable decision. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S. Ct. 2130, 119 L. Ed. 2d 351 (1992).
A winding road at the District Court • Jan 2011 - District court grants Spokeo’s motion
to dismiss without prejudice, holding that plaintiff had no standing.
• May 2011 – District Courts finds that allegations of the Amended Complaint were sufficient to allege standing.
• Sep 2011 – District Court “strike[s] the standing discussion from its May 11, 2011 Order,” and “reinstates the January 27, 2011 Order, which found that Plaintiff fails to establish standing.”
Injury-in-law vs. Injury-in-fact
• 9th Circuit - Reverses district court and holds that plaintiff had alleged standing.
• Violation of a statute for which Congress has created a private right of action counts as “injury” sufficient to confer Article III standing.
Does this turn the three-part test for Article III standing into a single question—i.e.,
whether the plaintiff is entitled to statutory damages?
Issue before Supreme Court
Whether a mere statutory violation, without more, satisfies the constitutional requirement of an injury-in-fact.
Implications for Class Actions Landscape 1. Will make predominance analysis under Rule
23 either more, or less, strict. 2. Creates standing for de minimus statutory
violations (i.e., clerical errors). 3. Exerts enormous settlement pressure even
though plaintiffs haven’t actually been injured. 4. Affects class actions not only in FCRA but
Truth in Lending, Fair Debt Collection Act, Telephone Consumer Protection Act, and any other act that confers a private cause of action and statutory damages.
Tyson v. Bouaphakeo
• Hourly workers at a pork-processing facility sued for overtime compensation for time spent on “donning/doffing” protective gear.
• Case brought as a putative class action premised on Iowa
state law and as a collective action under the Fair Labor Standards Act.
• District Court certified a Rule 23(b)(3) class and an FLSA collective action:
– Tyson’s “gang-time” system was the “tie that binds” the class,
despite individual differences in time spent donning/doffing, rinsing, walking, and types of equipment worn.
Tyson v. Bouaphakeo: Proof by Statistical Extrapolation • Plaintiffs presented a time study by Dr. Kenneth Mericle that
purported to show the “average” amount of time Tyson employees spent on donning/doffing-related activities.
• Videographers stationed in various parts of the plant
recording time spent donning and doffing. • Computed an “all-in” average of 18 minutes on the
Processing floor and 21.25 minutes on the Slaughter floor.
• Dr. Liesl Fox: used Dr. Mericle’s “averages” to compute an aggregate damages award for each class, based on Tyson pay records.
Flashback: Wal-mart v. Dukes
• Class action by female Wal-Mart employees alleging sexual discrimination under Title VII seeking injunctive relief and backpay.
• Employees “held a multitude of different jobs, at different
levels of Wal–Mart’s hierarchy, for variable lengths of time, in 3,400 stores, sprinkled across 50 states, with a kaleidoscope of supervisors (male and female), subject to a variety of regional policies that all differed .... Some thrived while others did poorly. They have little in common but their sex and this lawsuit.”
• “The Court of Appeals believed that it was possible to replace
such proceedings with Trial by Formula. . . We disapprove that novel project.”
Tyson v. Bouaphakeo
• At trial, class members testified as to the amount of time spent donning/doffing—none of them matched Mericle’s “averages.”
• Fox’s testimony established that there were at least 212
class members who had zero uncompensated overtime. • Jury awarded lump sum damages in an amount roughly
equal to half of what Fox had calculated—by implication, this means that Mericle’s “averages” were overstated (and that there were even more uninjured class members).
• 8th Circuit affirmed by divided panel
Tyson v. Bouaphakeo: Issue before the Supreme Court
Whether Article III is satisfied where only the named plaintiff suffered actual injury (and some absent class members have not)
Tyson v. Bouaphakeo: Implications for class actions • If affirmed, will pave the wave for class actions
that include class members that suffered no injury in fact.
• If reversed, certification will become more difficult—defendants will have the ability to present individualized defenses to show that certain class members were not injured.
Comcast’s Impact After Two Years Patrick T. Lewis Partner, Cleveland [email protected]
Comcast Corp v. Behrend, 569 U.S. ___, 133 S. Ct. 2426 (2013)
• 5-4 decision that reversed the certification of an antitrust class
• Quickly heralded by some in the defense bar as a sea change in class certification law
• Has it turned out that way?
What was Comcast about?
• Antitrust class action brought by putative class of cable subscribers.
• Alleged claim under Section 2 of the Sherman Act that the cable company drove up prices in the Philadelphia media market using anticompetitive “clustering strategy”
• To show predominance, plaintiffs had to: – Prove that individual injury resulting from the alleged
antitrust violation (“antitrust impact”) could be proven with evidence common to the class; and
– Show damages to the class were measurable on a class-wide basis using a “common methodology.”
Plaintiffs’ Damages Model
• Plaintiffs alleged four theories of antitrust impact from “clustering”: – Decreased satellite competition by allowing
cable company profitably withhold local sports programming
– Reduced competition from “overbuilders” (companies that build competing networks in the same area)
– Prevented customers from “benchmarking” competition
– Increased cable company’s bargaining power with content providers
Plaintiffs’ Damages Model
• Plaintiffs’ expert purported to calculate $875,576,662 in class-wide damages from the combined effect of all four antitrust impact theories.
• But the district court only certified the class using one theory—”overbuilding”
• So… Did Plaintiffs show damages could be calculated on a class-wide basis?
Comcast’s Holding
• Class should not have been certified • The Court held the model could not measure
damages on a class-wide basis because it was not measuring antitrust impact of just the overbuilding theory
• Lower courts held that requiring Plaintiffs to show a damages calculation was premature at class certification because it was a merits issue
• This, the Court held, was inconsistent with Dukes’ “rigorous analysis” test, which it applied to predominance under Rule 23(b)
Takeaways?
• Comcast expressly extended Wal-Mart Stores v. Dukes’ “rigorous analysis test” to the Rule 23(b) predominance inquiry
• Hot debate over Comcast’s impact on the class action landscape – Can a court certify a class with individual
damages concerns? • What about Daubert?
Rigorous Analysis
• Comcast now requires Dukes’ “rigorous analysis” to be performed on the class certification elements under Rule 23(b)(3), particularly predominance
• Solidifies trend toward requiring plaintiffs to demonstrate a case is susceptible to resolution by common proof
Comcast and Damages
• Comcast’s impact on 23(b)(3)’s predominance requirement unclear: – Must plaintiffs show a class-wide
measurement of damages in all cases? – Does case simply require proof that
damages caused by defendant’s conduct? • Dissent: idea that “individual damages
calculations do not preclude certification under Rule 23(b)(3) is well-nigh universal.”
Comcast and Damages
• Several Circuit Courts have concluded Comcast does not require a class-wide measurement of damages in all cases: – Roach v. T.L. Cannon Corp.,
778 F.3d 401 (2d Cir. 2015) – Neale v. Volvo Cars of N. Am., Inc.,
794 F.3d 353 (3d Cir. 2015) – In re Deepwater Horizon,
739 F.3d 790 (5th Cir. 2014) – Butler v. Sears, Roebuck & Co., Inc.
727 F.3d 796 (7th Cir. 2013) – Leyva v. Medline Indus., Inc.,
716 F.3d 510 (9th Cir. 2013)
Comcast and Damages
• These cases gave Comcast a narrow construction: – Neale rejected notion that Comcast created “a
broad-based rule” requiring damages to be susceptible to measurement across entire class
– Deepwater Horizon called it a “misreading” of Comcast to interpret it as “preclud[ing] certification under Rule 23(b)(3) in any case where class members’ damages were not susceptible to a formula for classwide measurement.”
Comcast and Damages
• The D.C. Circuit came out the other way in an antitrust class action: – “No damages model, no predominance, no
class certification.” In re Rail Freight Fuel Surcharge Antitrust Litig., 725 F.3d 244 (D.C. Cir. 2013)
Rule 23(c)(4)
• Rule 23(c)(4) provides: – “When appropriate, an action may be
brought or maintained as a class action with respect to particular issues.”
• After Comcast, more liability-only classes: – In re Whirlpool Corp. Front-Loading Washer
Prods. Liab. Litig., 722 F.3d 838 (6th Cir. 2013)
But what about Daubert?
• But the Court left unanswered the question on which it granted cert: – “Whether a district court may certify a class
action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis?”
• Issue here was whether a Daubert challenge could be mounted to plaintiffs’ experts at the class certification stage
But what about Daubert?
• Courts more consistently permitting Daubert challenges to experts at class certification stage
• “[A] plaintiff cannot rely on challenged expert testimony, when critical to class certification, to demonstrate conformity with Rule 23 unless the plaintiff also demonstrates, and the trial court finds, that the expert testimony satisfies the standard set out in Daubert.” – In re Blood Reagants Antitrust Litig., 783 F.3d
183 (3d Cir. 2015)
Key Takeaways
• The jury is still out on Comcast’s impact on the Rule 23(b)(3) predominance analysis – Probably not a sea change – Does highlight importance of being able to
show class-wide injury • Defendants should consider greater use
of Daubert challenges to plaintiffs’ experts
Class Action Objectors Casie D. Collignon Partner, Denver [email protected]
Courts are taking Objectors seriously.
• Eubank v. Pella Corp., 753 F.3d 718 (7th Cir. 2014) • Redman v. RadioShack Corp., 768 F.3d 622 (7th Cir. 2014) • Pearson v. NBTY, Inc., No. 12-1245, (7th Cir. Nov. 19, 2014)
Judge Posner criticizes: • the valuation of a settlement for purposes of determining attorney's
fees (administration costs and cy pres awards are not part of the value to the settlement class)
• the calculation of attorney's fees (a ratio based on actual value to the class, not the maximum potential value, especially when “clear sailing” provisions are included in settlement agreements)
• and the notice to the class and the claims process (claims forms were too long and complicated and notice was too long, confusing, yet incomplete and misleading - simplification is what the court wants)
We Have To Face All Kinds of Objectors.
• Whackos • Individual class members • Professional or “Greenmail” objectors • Public Interest objectors
– Ted Frank - In Re: Capital One Telephone Consumer Protection Act Litigation (June 2015) Because the Center for Class Action Fairness was “poorly funded and thinly staffed,” and “because courts failed to provide adequate compensation for successful objectors” he entered into an agreements with professional objectors for cuts of their fees.
• Government objectors • Competing Plaintiff Lawyer objectors - leading to opt out litigation
– Allen et al. v. Schnuck Markets, 15-cv-00061 (S.D. Ill.) • Allies Who Have Become Enemies
– In re: Target Corp. Customer Data Security Breach Litigation, MDL. No. 14-25222 (D. Minn. 4/21/15)
• Objections from Judges
Social Media is the new frontier.
• Mirakay v. Dakota Growers Pasta Co.,
Inc., No. 13-cv-4229 (Oct. 20, 2014, D. N.J.) – In a food case, objector argued that the
parties should have posted notice on defendants social media pages.
– Settlement was approved over the objection.
Strategies for Avoiding and Defeating Objectors or Settlement Rejection
• Avoid appearance of collusion. – Allow some confirmatory discovery. – Make sure to keep a record of negotiations. – Consider hiring a mediator or using court-
sponsored dispute resolution service. – Put evidence or documentation in the
Settlement Agreement. – Avoiding “clear sailing” provisions.
• Avoid overreaching with your release.
Strategies for Avoiding and Defeating Objectors or Settlement Rejection
• Make the Plaintiff defend the attorney fee calculation during the mediation: – Do not let Plaintiff’s counsel include admin costs or
cy pres as part of the class recovery. – Have a principled basis for settlements with
outrageously high exposure and relatively low class recovery…and any necessary cy pre component.
• Carefully vet your notice and claims processes and know your anticipated claims rates.
• Know your objectors and their weaknesses.
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These materials have been prepared by Baker & Hostetler LLP for informational purposes only and are not legal advice. The information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Readers should not act upon this information without seeking professional counsel. You should consult a lawyer for individual advice regarding your own situation. ©2014 Baker & Hostetler LLP. All Rights Reserved.
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