Class Action Defense Cases–DeBlasio v. Merrill Lynch: New York Federal Court Grants Motion To Dismiss Fraud Class Action Against Brokerages Finding Class Action Complaint’s Allegations Failed Under Rules 9(b) and 12(b)(6)

Defense Motions to Dismiss Class Action Granted because Allegations in Class Action Complaint Failed to Meet Rule 9(b)’s Requirements for Pleading Fraud with Specificity and because Class Action’s Allegations Failed under Rule 12(b)(6) New York Federal Court Holds Plaintiffs filed a putative class action against Merrill Lynch entities, Morgan Stanley entities, Citigroup entities, Charles Schwab entities and Wachovia entities, alleging inter alia violations of the Investment Advisers Act (IAA), the Sherman Antitrust Act, and New York’s General Business Law § 349; the class action complaint alleged that defendants violated state and federal laws by “engaged in ‘deceptive and misleading’ practices relating to a series of ‘Cash Sweep Programs’ that were offered as part of Plaintiffs’ brokerage accounts.

Class Action Court Decisions Uncategorized

Class Action Defense Cases–Greenwich v. Countrywide: New York Federal Court Remands Class Action To State Court Holding Class Action Complaint Fell Within Exception To CAFA (Class Action Fairness Act) Removal

Class Action Complaint Satisfied Amount in Controversy and Minimal Diversity Requirements for Removal under Class Action Fairness Act (CAFA), but Remand Warranted because Plaintiffs Met Burden of Establishing Exception to Removal Jurisdiction in that Class Action Related Solely to Securities New York Federal Court Holds

Plaintiffs, the holders of mortgage-backed securities certificates issued by various trusts, filed a putative class action in New York state court against various Countrywide entities seeking declaratory relief; specifically, the class action complaint alleged inter alia that Countrywide violated the federal Truth-in-Lending Act (TILA). Greenwich Fin. Servs. Distressed Mtg. Fund 3, LLC v. Countrywide Fin. Corp., ___ F.Supp.2d ___ (S.D.N.Y. August 18, 2009) [Slip Opn., at 1-2]. According to the allegations underlying the class action complaint, the Attorneys General for 7 states sued Countrywide in 2008 alleging violations of predatory lending laws; Countrywide settled those lawsuits with “a multistate settlement, requiring it to modify the terms of numerous mortgage loans that it currently services – including at least some of the loans it services on behalf of plaintiffs.” _Id._, at 2-3. Plaintiffs argued that the loan modifications caused them to suffer monetary damage, and that Countrywide was required to repurchase the loans that it modified “at a price equal to the unpaid principal and accrued interest thereon” in order to make plaintiffs whole. _Id._, at 2-3. Defense attorneys removed the class action to federal court; Countrywide argued that removal was proper under the Class Action Fairness Act of 2005 (CAFA), and further argued that the class action was removable “because plaintiffs’ claims raise substantial, disputed federal questions under the Truth-in-Lending Act [(TILA)],” _id._, at 1. Plaintiffs moved to remand the class action to state court. _Id._ The district court held that neither CAFA nor TILA provided subject-matter jurisdiction over the dispute and remanded the class action as requested.

The district court first examined whether removal jurisdiction existed under CAFA, which authorizes removal of class actions where the amount in controversy exceeds $5 million and where minimal diversity exists. Greenwich, at 4. (A more detailed discussion of CAFA may be found HERE.) Plaintiffs conceded that the requirements for removal had been met, but countered that their class action fell within an exception to removal – viz., a class action that “solely involves a claim…that relates to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security.” Id. (quoting 28 U.S.C. § 1332(d)(9)(C)). The burden of establishing that the exception applied rests with plaintiffs, id. Relying on the Second Circuit decision in Estate of Barbara Pew v. Cardarelli, 527 F.3d 25 (2d Cir. 2008), the district court held that the class action fell squarely within the scope of the exception to CAFA removal jurisdiction, see Greenwich, at 4-8, and rejected Countrywide’s arguments to the contrary, see id., at 8-11.

Class Action Court Decisions Class Action Fairness Act (CAFA) Removal & Remand Uncategorized

FLSA Class Action Defense Cases–Boucher v. Shaw: Ninth Circuit Affirms Dismissal Of Labor Law Class Action Claims Against Individual Managers But Reverses As To Class Action’s FLSA Claims Against Individuals

Labor Law Class Action Seeking to Hold Individual Managers Liable for Wages due Employees Properly Dismissed as to Class Action Claims under Nevada State Law, but Improperly Dismissed as to Class Action Claims under Federal Fair Labor Standards Act (FLSA) Ninth Circuit Holds

Plaintiffs, former employees and their local union, filed a putative class action in Nevada state court against individual managers of the Castaways Hotel, Casino and Bowling Center alleging violations of state and federal labor laws; specifically, the class action complaint alleged that That the three individual managers – the Chairman and CEO, who had a 70% ownership interest in Castaways, the CFO, who had a 30% ownership interest in the Castaways, and the head of labor and employment matters for the Castaways – were personally liable for the state and federal labor law violations because “each defendant had custody or control over the ‘plaintiffs, their employment, or their place of employment at the time that the wages were due.’” Boucher v. Shaw, ___ F.3d ___ (9th Cir. July 27, 2009) [Slip Opn., at 9731, 9734-36]. According to the allegations underlying the class action, plaintiffs were not paid for their final pay period or were paid late, and were not paid for accrued vacation and holiday time. _Id._, at 9735. Plaintiffs had filed the lawsuit against the individuals because the Castaways was in Chapter 11 bankruptcy proceedings at the time the plaintiffs were fired, and subsequently went through a Chapter 7 liquidation. _Id._ Defense attorneys removed the class action to federal court, and moved to dismiss the class action complaint for failure to state a claim. _Id._, at 9736. The district court dismissed the class action because it found “that the defendants were not ‘employers’ under Nevada law, Local 226 lacks standing to bring a claim under Nevada law and the plaintiffs cannot maintain a cause of action under the Fair Labor Standards Act [(FLSA)] against the defendants.” _Id._ The Ninth Circuit affirmed in part, but reversed as to the class action’s FLSA claim.

The Ninth Circuit opened its opinion as follows: “This appeal raises three issues: (1) whether the Castaways’ individual managers can be held liable for unpaid wages under Nevada law; (2) whether the union has standing to raise the state law claim; and (3) whether the managers can be held liable under the Fair Labor Standards Act (FLSA).” Boucher, at 9734. Because the question of whether individual managers may be liable under Nevada law for unpaid wages was a matter of first impression, the Circuit Court certified the issue to the Nevada Supreme Court – the Nevada Supreme Court held that “individual managers cannot be held liable as ‘employers,’ and therefore that claim was properly dismissed by the district court.” Id., at 9734, 9737-38. That decision rendered moot the second issue on appeal, as it did not matter whether the local union had standing to raise a state law claim that did not exist. Id., at 9734-35. The issue became, then, whether individual managers may be held liable under the FLSA. Id., at 9735. 9738-39. This was not a matter of first impression in the Ninth Circuit. The Court noted at pages 9739 and 9740 that in Lambert v. Ackerley, 180 F.3d 997, 1011-12 (9th Cir. 1999) (en banc), the Ninth Circuit held:

Class Action Court Decisions Employment Law Class Actions Uncategorized

Class Action Defense Cases—In re Orleans Homebuilders: Judicial Panel On Multidistrict Litigation (MDL) Grants Defense Motion To Centralize Class Action Litigation In Southern District Of Texas

Judicial Panel Grants Defense Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407, Unopposed by Class Action Plaintiffs, and Transfers Actions to Southern District of Texas Nineteen (19) class actions – seven in the District of New Jersey; two in the Southern District of Texas; and one each in the Middle District of Alabama, the District of Arizona, the Eastern District of California, the Southern District of California, the Northern District of Florida, the Southern District of Florida, the District of Kansas, the Western District of Missouri, the Northern District of Ohio, and the Eastern District of Wisconsin – were filed against Heartland Payments Systems arising from an “electronic intrusion into Heartland’s processing system.

Class Action Court Decisions Multidistrict Litigation Uncategorized

Class Action Defense Cases–Clark v. American Residential: California Appellate Court Reverses Approval Of Class Action Settlement Holding Trial Court Lacked Sufficient Information And Amounts Approved Were Excessive

Approval of Class Action Settlement Required Reversal because (1) Record did not Support Trial Court’s Valuation of Class Claims, (2) Incentive Award of 44 Times Average Recovery of Class Members was Excessive, and (3) Trial Court could not Award Costs in Excess of Amount set forth in Class Notice without Further Notice to Class California Appellate Court Holds

Plaintiffs filed a putative class action in California state court against their employer, American Residential Services alleging labor law violations; the class action complaint alleged that defendant failed to pay minimum wage or overtime, and failed to provide meal and rest periods. Clark v. American Residential Services LLC, ___ Cal.App.4th ___, 96 Cal.Rptr.3d 441, 444 (Cal.App. 2009). Defense attorneys removed the class action to federal court under the Class Action Fairness Act (CAFA), but the district court granted plaintiffs’ motion to remand the class action to state court. _Id._, at 445. Eventually, the parties negotiated a settlement of the class action whereby the two named plaintiffs would receive $25,000 each, and the 2360 class members would receive an average of $560 each. _Id._, at 444. Additionally, plaintiffs’ attorneys would receive $640,000 in fees and costs as part of the class action settlement, _id._, at 445. Following notice, 20 members of the putative class objected to the settlement on the grounds that they “worked at least two hours of unpaid overtime every workday, that they would be compensated for only about 1% of the total value of their claims, and that no evidence was presented to the court to justify the settlement.” _Id._, at 444. According to the objectors, class members would receive only $6 for each week that they had worked for defendant. _Id._, at 445. Plaintiffs’ counsel responded that the overtime claim had “absolutely no” value, _id._, at 453. The trial court approved the class action settlement, but the Court of Appeal reversed.

The Court of Appeal noted that its review of class action settlements was “limited in scope.” Clark, at 451. The objectors argued that the trial court apparently relied on plaintiffs’ counsel’s belief that the overtime claim had “‘absolutely no’ value” despite objectors’ counsel’s belief that this evaluation was based on a “staggering mistake of law.” Id., at 444. The appellate court agreed, concluding that the trial court “did not receive and consider sufficient information on a core legal issue, affecting the strength of the case for plaintiffs on the merits, to make the requisite independent assessment of the reasonableness of the terms of the settlement.” Id., at 451 (citation omitted). Additionally, the Court held that “the enhancement or incentive awards were excessive” and that the trial court erred in awarding costs in excess of the maximum amount set forth in the notice to the class, id. The appellate court rejected the argument that the objectors had to prove the settlement was unfair, holding at page 453 that “it is the trial court’s duty, whether or not there are objectors, to employ those factors to evaluate independently the fairness of a proposed settlement.” And in this case, “the record before the trial court…did not contain the information required for ‘an understanding of the amount that is in controversy and the realistic range of outcomes of the litigation.’” Id. (citation omitted). The Court of Appeal held that “the trial court is obligated, at a minimum, to determine whether a legitimate controversy exists on a legal point, if that legal point significantly affects the valuation of the case for settlement purposes.” Id., at 455.

Class Action Court Decisions Uncategorized

FedEx Class Action Defense Cases–In re FedEx Ground: Indiana Federal Court Grants Class Action Certification Motions As To Certain State Labor Law Class Action Claims And Denies Class Action Treatment As To Five State Lawsuits

Labor Law Class Actions, Coordinated for Pretrial Purposes by Judicial Panel on Multidistrict Litigation, Warranted Class Action Treatment under Certain State Laws but failed to Satisfy Prerequisites for Class Action Treatment under Other State Laws Indiana Federal Court Holds

Numerous class action lawsuits were filed in various states against Federal Express alleging labor law violations in that FedEx allegedly failed to pay certain delivery drivers overtime and other wages; ultimately, the Judicial Panel on Multidistrict Litigation coordinated the class actions for pretrial purposes in the Northern District of Indiana. In re FedEx Ground Package System, Inc., Employment Practices Litig., ___ F.3d ___ (N.D.Ind. July 27, 2009) [Slip Opn., at 1 _et seq._]. In October 2007 and March 2008, the district court resolved “the first of three wages” of class action certification motions involving putative class actions that had been filed in 28 states. _Id._, at 1 (and see Note, below). Plaintiffs in 14 of the remaining class actions, filed in at least 11 different states, moved the district court to certify their lawsuits as class actions (or as collective actions under the Fair Labor Standards Act (FLSA)), _id._, at 1-2. The district court explained that in considering whether to grant class action treatment with respect to the states at issue, “Analysis focuses primarily on whether the substantive law governing the motion allows resolution, without extrinsic evidence, of whether the Operating Agreement and policies applicable to the entire class create an employment relationship, and whether a would-be employer’s conduct can convert an employment relationship (as defined in the employment contract) into an independent contractor relationship.” _Id._, at 2.

Given the length of the district court’s opinion, and the detailed analysis involved in considering each state’s laws, we provide here only the court’s conclusions. First, the district court granted the motion by Arizona plaintiffs to certify their lawsuit as a class action, see In re FedEx, at 4-5. Second, the court denied the motion by Colorado plaintiffs to certify their lawsuit as a class action, id., at 7. Third, the court denied the motion by Connecticut plaintiffs to certify their lawsuit as a class action, id., at 9. Fourth, the court denied the motion by certain plaintiffs for conditional certification of a collective action under the FLSA, id., at 16. Fifth, the court granted the motion by Georgia plaintiffs to certify their lawsuit as a class action, id., at 24. Sixth, the court granted the motion by Louisiana plaintiffs to certify their lawsuit as a class action with respect to certain claims for relief, but denied the motion with respect to other claims for relief, id., at 39-40. Seventh, the court denied the motion by certain plaintiffs to certify as a class action their lawsuit under the Motor Carrier Safety Act, id., at 43-44. Eighth, the court granted the motion by Nevada plaintiffs to certify their lawsuit as a class action with respect to a statutory claim brought under Nev. Rev. Stat. Ch. 608, but otherwise denied the motion with respect to all other claims for relief, id., at 50. Ninth, the court granted the motion by North Carolina plaintiffs to certify their lawsuit as a class action, id., at 52. Tenth, the court granted the motion by Ohio plaintiffs to certify their lawsuit as a class action, id., at 56. Eleventh, the court granted the motion by Oregon plaintiffs to certify their lawsuit as a class action with respect to all claims for relief except for the rescission claim, id., at 67. Twelfth, the court denied the motion by Vermont plaintiffs to certify their lawsuit as a class action, id., at 78.

Certification of Class Actions Class Action Court Decisions Employment Law Class Actions Multidistrict Litigation Uncategorized

Class Action Defense Cases–In re CP Ships: Eleventh Circuit Affirms Class Action Settlement Of Securities Fraud Class Action Holding Class Members Of Canadian Class Actions Could Opt Out

District Court did not Abuse its Discretion in Approving Class Action Settlement in Securities Fraud Class Action Filed in United States because Class Members with Claims in Canadian Class Actions were Provided Adequate Notice of the Right to Opt Out of the U.S. Class Action Settlement Eleventh Circuit Holds

Plaintiffs filed a class action against CP Ships, a container shipping company, and others alleging violations federal securities laws; specifically, the class action complaint alleged that Belo – a media company that inter alia published the Dallas Morning News (DMN), which accounted for 30% of Belo’s revenue – “engaged in a fraudulent scheme designed to inflate DMN’s circulation artificially.” In re CP Ships Ltd. Securities Litig., 578 F.3d 1306 (11th Cir. 2009) [Slip Opn., at 1]. Defendant is organized under the laws of Canada, headquartered in England, and operates in several countries; 80% of the company’s stock is traded on the Toronto Stock Exchange (TSX), and 20% is traded on the New York Stock Exchange (NYSE). Id. Additionally, “crucial headquarters activities – including the relevant operations and personnel that were central to the fraud (i.e. the accounting department and executive offices) – were located in Tampa, Florida.” Id. According to the allegations underlying the class action complaint, CP Ships acquired 9 business during a 10-year period, each with its own accounting system: the company eventually transitioned to a single accounting system, but later “announced that the transition had caused it to understate its operational costs” causing the stock price to drop by more than 20% on both the TSX and NYSE. Id. This class action complaint followed, as did lawsuits filed in Canada, id. Defense attorneys successfully moved to dismiss the U.S. class action on the grounds that the complaint failed to adequately plead scienter under the heightened pleading requirements established by the Private Securities Litigation Reform Act (PSLRA), but while plaintiffs’ appeal from that order was pending, the parties negotiated a class action settlement. Id. The district court approved the settlement over various objections, including the objections of an individual who was also a class member in a Canadian class action that “the settlement would prevent some members of the Canadian class from pursuing their action in Canada.” Id., at 1-2. All class members were given notice and an opportunity to opt out of the U.S. class action settlement, id., at 1. One of the objectors appealed, and the Eleventh Circuit affirmed.

The objector leveled a multi-prong attack against the class action settlement: (1) the district court lacked subject-matter jurisdiction over the claims of class members who purchased foreign stock, or at the very least, as a matter of comity, should have declined to exercise jurisdiction over the dispute, (2) that the notice was inadequate, and (3) that the terms of the settlement were not fair, reasonable or adequate. In re CP Ships, at 1. The Circuit Court began by considering de novo whether subject matter jurisdiction was present over the dispute. Id., at 2. The Court found that the objector failed to raise a factual challenge to jurisdiction, see id., at 2-3, and concluded that the facial challenge to jurisdiction failed because jurisdiction exists under the “conduct test,” see id., at 3-6. The Eleventh Circuit then readily rejected the objector’s challenge to the adequacy of the notice, id., at 7, and turned to the adequacy of the class action settlement.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

Class Action Defense Cases–Fener v. Belo: Fifth Circuit Court Affirms Denial Of Class Action Treatment In Securities Fraud Class Action Holding Plaintiffs Failed To Establish Loss Causation

Class Action Complaint Alleging Securities Fraud Properly Denied Class Action Treatment because Plaintiffs Failed to Establish that Decline in Stock Price was Connected to Disclosure of Alleged Fraud rather than Long-Term Industry Trends Fifth Circuit Holds

Plaintiffs filed a putative class action against Belo Corporation and others alleging violations of the Securities Exchange Act of 1934; specifically, the class action complaint alleged that Belo – a media company that inter alia published the Dallas Morning News (DMN), which accounted for 30% of Belo’s revenue – “engaged in a fraudulent scheme designed to inflate DMN’s circulation artificially.” Fener v. Belo Corp., ___ F.3d ___ (5th Cir. August 12, 2009) [Slip Opn., at 1-2]. According to the allegations underlying the class action complaint, Belo “allegedly paid bonuses for achieving circulation targets, rigged audits of DMN’s circulation, and implemented a no-return policy that eliminated any incentive for distributors to return unsold newspapers.” _Id._, at 2. These acts “artificially increased recorded circulation, which led to higher advertising revenues for DMN and larger profits for Belo” because 90% of DMN’s revenue came from advertising. _Id._ Belo eventually disclosed these facts in a press release, and the company’s stock price dropped substantially, _id._, at 2-3. The class action complaint followed, and plaintiffs moved the district court to certify the litigation as a class action. _Id._, at 3. Defense attorneys opposed class action treatment, relying on an expert opinion that “plaintiffs could not show that the fraudulent disclosure in the press release was the primary cause of the stock price decline.” _Id._, at 3-4. Plaintiffs countered with an expert opinion that the drop in stock price was “entirely or almost entirely attributable to the revelation of the relevant truth in this case.” _Id._, at 4. The district court denied class action treatment and plaintiffs appealed. _Id._ The Fifth Circuit affirmed.

After outlining the standard of review and the elements (including loss causation) required to prove a securities fraud case, see Fener, at 4-7, the Circuit Court noted that a district court may properly examine loss causation as part of a class action certification determination, id., at 7. The issue before the Court was “whether these plaintiffs have presented enough information to show loss causation under Rule 23.” Id. While plaintiffs submitted 100 pages in support of their class certification motion, defendants introduced expert testimony that Belo’s press release contained three distinct parts: “DMN’s circulation decrease resulted from (1) fraudulent overstatements; (2) changes in DMN’s methodology; and (3) industry-wide decline in newspaper circulation” and concluded – based on an examination of 132 analyst reports – that Belo’s stock dropped primarily because of “the non-fraudulent disclosures instead of the fraudulent one.” Id., at 8-9. The Fifth Circuit stated that it was important to resolve whether the press release should be viewed as “one complete disclosure or three separate ones,” id., at 9. Based on the “plain language” of the press release, the Circuit Court concluded that it was three separate disclosures. Id., at 10. Accordingly, “the release divides the news into fraudulent and non-fraudulent information related to possible future circulation declines.” Id.

Certification of Class Actions Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

Class Action Defense Cases—In re Citigroup: Judicial Panel On Multidistrict Litigation (MDL) Grants Defense Motion To Centralize Class Action Litigation In Southern District Of New York

Judicial Panel Grants Defense Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407, Over Objection of Class Action Plaintiffs, and Transfers Actions to Southern District of New York Three class actions – two in New York and one in Pennsylvania – were filed against Citigroup and others alleging that “Citigroup entities and/or its employees made misrepresentations or omissions in the context of the sale of auction rate securities (ARS).

Class Action Court Decisions Multidistrict Litigation Uncategorized

Qualcomm Class Action Defense Cases–Lorenzo v. Qualcomm: California Federal Court Dismisses Antitrust Class Action Complaint Against Qualcomm For Lack Of Standing And Failure To Adequately Plead Damage

Class Action Alleging Antitrust And State Law Violations Against Qualcomm Warranted Dismissal because Plaintiff Lacked Standing to Prosecute Clayton Act/Cartwright Act Antitrust Claims and Failed to Adequately Plead Damage Resulting from Defendant’s Conduct California Federal Court Holds

Plaintiff filed a putative class action against Qualcomm alleging inter alia violations of state and federal antitrust laws, as well as violations of California’s Unfair Competition Law and Unfair Practices Act; specifically, the class action complaint “challenged the lawfulness of Qualcomm’s licensing practices with respect to its intellectual property used for Code Division Multiple Access (‘CDMA’) wireless technology.” Lorenzo v. Qualcomm Inc., ___ F.Supp.2d ___ (S.D.Cal. August 10, 2009) [Slip Opn., at 1-2]. Defense attorneys moved to dismiss the class action; the district court granted the motion, finding in part that plaintiff lacked standing under the Clayton Act because his injury was “too remote from Qualcomm’s alleged antitrust violations” and because “the Complaint fails to allege sufficient facts to support a finding that Plaintiff’s alleged injury is inextricably intertwined with Qualcomm’s unlawful conduct so as to fit within the narrow exception to the market participant requirement.” _Id._, at 2. But the court gave plaintiff leave to file an amended class action complaint, which he did. _Id._, at 2-3. Defense attorneys again moved to dismiss the class action, _id._, at 3; the district court granted the motion without leave to amend but without prejudice.

After setting forth the standard of review, see Lorenzo, at 3-4, the district court turned to the issue of standing under the Clayton Act, id., at 4. Because the amended class action complaint, like the original complaint, alleged that “there are at least three intermediaries – CDMA chipset manufacturers, CDMA device manufacturers, and CDMA device vendors – between Plaintiff’s injury and the alleged antitrust violations,” id., at 5-6, plaintiff’s injury remained too remote to support a Clayton Act claim, id., at 6. The district court granted the motion to dismiss the unfair practice act claims because plaintiff’s allegations in the amended class action complaint were identical to those in the original complaint, id., at 7. And dismissed the unfair competition law claim because plaintiff lacked standing as he had not adequately alleged that he suffered any damage as a result of the alleged representations made by Qualcomm. Id., at 7-10. Accordingly, the district court dismissed the class action complaint without leave to amend. Id., at 11. However, as explained in the Note, it dismissed the action without prejudice, id.

Class Action Court Decisions Uncategorized