CLASS ACTION DEFENSE BLOG
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Securities Fraud Class Action Properly Dismissed by District Court because Class Action Complaint Failed to Adequately Allege Failure to Disclose and because Class Action Complaint Failed to Create Strong Inference of Scienter Sixth Circuit Holds
Plaintiffs filed a class action against Visteon Corporation and certain officers and directors of Visteon, and against its outside auditor, Pricewaterhousecooper, alleging violations of federal securities law; specifically, the class action complaint asserted claims for violations of § 11 of the Securities Act of 1933, § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and § 20(a) of the Exchange Act. Ley v. Visteon Corp., 543 F.3d 801, 804-05 (6th Cir. 2008). The class action complaint followed the disclosure by Visteon of “$108 million in accounting errors which understated net losses by in excess of $60 million,” id., at 805. According to the class action, this disclosure “shocked the market” and caused Visteon’s stock to drop dramatically. Id., at 804-05. Defense attorneys moved to dismiss the class action complaint, id., at 804. Defense attorneys moved to dismiss the class action’s § 11 claim as barred by the statute of limitations, id., at 806. The defense motion as to the remaining class action claims focused on the failure of the class action complaint to meet the heightened pleading requirements of the Private Securities Litigation Reform Act of 1995 (PSLRA). The district court granted the motion and dismissed the class action complaint in its entirety, id., at 805. Plaintiffs appealed but did not challenge the dismissal of the class action’s § 11 claim, id., at 806; accordingly, the Sixth Circuit affirmed that portion of the district court’s order without discussion and focused its analysis only on the remaining claims. The Sixth Circuit affirmed.
After discussing briefly the rules governing its review of the dismissal of the class action complaint, see Ley, at 805-06, the Sixth Circuit summarized the law governing securities fraud claims and the heightened pleading requirements necessitated by the PSLRA, see id., at 806-07. The § 10(b)/Rule 10b-5 class action claim against Visteon alleged that it failed to disclose certain information; specifically, Visteon, a spin-off of Ford Motor, “failed to disclose that ‘Ford so dominated the day to day business affairs of Visteon via the contracts between the two and beholden Visteon management, such that Visteon was essentially no more than a repository for operations of Ford that had built in losses.’” Id., at 807. In the words of the Circuit Court, “Essentially, Plaintiffs argue that Defendants failed to adequately disclose that Visteon may have difficulty shedding unprofitable business lines.” Id. The Sixth Circuit disagreed finding the company’s disclosure to be “rife with such information.” Id. And the Circuit Court similarly rejected plaintiffs’ other claims regarding Visteon’s failure to disclose material information, see id., at 807-08. In fact, the Court found that defendants made numerous disclosures and that Visteon was under no duty to disclose information relative to its competitors, id., at 808. As the Sixth Circuit explained at page 808:
Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized
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Class Action Complaint by Car Dealers Against Ford Arising out of Blue Oval Program Erroneously Certified as Class Action because Rule 23(b)(3)’s Predominance and Superiority Requirements not met Third Circuit Holds
Nine plaintiffs filed a putative class action against Ford on behalf of themselves and other Ford dealers; the class action complaint alleged that Ford’s Blue Oval Program violated state and federal law. Danvers Motor Co., Inc. v. Ford Motor Co., 543 F.3d 141, 142-43 (3d Cir. 2008). The federal court dismissed the class action for lack of standing, and plaintiffs filed an amended class action complaint. Id., at 143. In response to a defense motion to dismiss the amended class action, the federal court again concluded that all but one of the named plaintiffs lacked standing to prosecute the action, id. The Third Circuit reversed. See Danvers Motor Co. v. Ford Motor Co., 432 F.3d 286 (3d Cir. 2005). Plaintiffs moved the district court to certify the litigation as a class action, and the court granted the motion. Danvers, 543 F.3d at 143. The Third Circuit granted Ford leave to appeal pursuant to Rule 28 U.S.C. § 1292(b), and reversed.
Ford’s Blue Oval Program, which ran from April 2000 to March 2005, was a voluntary program extended to all Ford dealers “to improve dealer performance and customer satisfaction” by “provid[ing] cash bonus payments and other benefits to Ford dealers who improved customer satisfaction according to certain criteria.” Danvers, at 143. The class action complaint alleged that the Blue Oval Program violated the Robinson-Patman Act, the Automobile Dealer’s Day in Court Act, and various state franchise laws. Id., at 143-44. The class action alleged further that Ford breached the terms of its Sales and Service Agreement with its dealers, and sought “both injunctive relief and damages on behalf of approximately 4,000 Ford dealers.” Id., at 144. However, the Third Circuit observed that some dealers were “certified” under the Blue Oval Program while other dealers were not certified under the Program, and that “dealers expended different efforts with respect to certification, [and] the dealers were impacted by the [Program] in different ways.” Id. Indeed, the Third Circuit summarized the way in which the specific injuries allegedly suffered by the nine named plaintiffs showed those differences, see id., at 144-45.
Certification of Class Actions Class Action Court Decisions Uncategorized
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Securities Fraud Class Action Properly Dismissed for Failure to Adequately Plead Falsity and Scienter because Allegations in Class Action Complaint did not Meet Heightened Pleading Requirements Under Private Securities Litigation Reform Act of 1995 (PSLRA) Eighth Circuit Holds
Plaintiffs filed a class action against Centene Corporation and three of its officers alleging violations of federal securities law; the class action complaint alleged violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and of Rule 10b-5. Elam v. Neidorff, 544 F.3d 921, 924-25 (8th Cir. 2008). The class action centered on the company’s estimates of costs that had been “incurred but not reported” (IBNR). According to the class action, Centene – a “healthcare enterprise that primarily provides programs and related services to individuals receiving benefits under Medicaid,” acted as “an intermediary between the government and Medicaid recipients in the states” and “receive[d] a monthly amount for each Medicaid recipient in its plan and, in turn, [paid] for the recipient’s healthcare services.” Id., at 925. In filing its quarterly reports, the company “include[d] not only the costs incurred and billed during the quarter but also an estimate of medical costs that have been incurred but not reported (IBNR).” Id. Centene’s calculation of IBNR was necessarily an educated guess: it represented “an estimate of claims liability because some medical events occur before the end of a given reporting period (and Centene is therefore liable to pay them) but have not yet been formally billed to the company,” and Centene calculated the estimate “on a monthly basis employing various factors, including in-patient hospital utilization dates and prior claims experience.” Id. Moreover, “Independent actuaries review Centene’s quarterly estimates.” Id. In April 2006, Centene filed its Form 10-Q with the SEC and issued a press release that “were positive and in line with analyst estimates,” and providing positive guidance for the second quarter as well as the balance of the year. Id., at 925-26. In July 2006, the company disclosed that second quarter earnings would be “substantially lower than expected,” and this securities fraud class action complaint soon followed. Id., at 926. Defense attorneys moved to dismiss the class action complaint on the grounds that it failed to satisfy the heightened pleading requirements established by the Private Securities Litigation Reform Act of 1995 (PSLRA); the district court granted the motion and dismissed the class action “finding that plaintiffs failed to allege facts demonstrating that defendants had misrepresented a material fact or acted with scienter.” Id., at 926. The Eighth Circuit affirmed.
After summarizing the “heightened pleading requirements” imposed by the PSLRA on securities fraud cases (class action and non-class action), Elam, at 926-27, the Eighth Circuit turned its attention to plaintiffs’ claim that the class action complaint “sufficiently alleges both falsity and scienter, satisfying the elevated pleading standard for their securities fraud class action,” id., at 927. The Circuit Court held that the mere fact defendants “monitored” its medical costs was insufficient under the PSLRA to establish that defendants knew of information that contradicted any of the financial statements they made, id. The Eighth Circuit refused plaintiffs’ invitation to infer that defendants’ statements were false “based solely on defendants’ representations as to their ability to estimate medical costs.” Id. On the contrary, the PSLRA’s heightened pleadings standards requires that falsity be pleaded with particularity, and this requirement “cannot be satisfied with allegations that defendants made statements ‘and then showing in hindsight that the statement is false.’” Id. (quoting In re Navarre Corp. Sec. Litig., 299 F.3d 735, 743 (8th Cir. 2002)). Plaintiffs’ failure to “point to any contemporaneous reports, witness statements, or any information that had actually been provided to defendants as of April or June that indicated that Centene would need to increase estimated medical costs” was fatal to the class action. Id. (citation omitted). The Circuit Court therefore affirmed the district court’s conclusion that falsity had not been adequately pleaded. Id., at 927-28.
Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized
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Judicial Panel Grants Plaintiff Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407, Unopposed by Common Class Action Defendants or by Plaintiffs in New York Class Action, and Transfers Class Actions to Northern District of Oklahoma Two class actions – one in Oklahoma and one in New York – were filed against SemGroup Energy Partners alleging violations of federal securities laws; specifically, the class action complaints alleged that defendants “made materially false and misleading statements which artificially inflated the price of SGLP common stock in violation of the federal securities laws” In re SemGroup Energy Partners, L.
Class Action Court Decisions Multidistrict Litigation Uncategorized
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Class Action Alleging Violations of Kansas Wage Payment Act may be Brought by Plaintiffs who do not Live or Work in Kansas because State Law Contains no Express Geographical Limitation and Employment Agreement Expressly Contained Kansas Choice of Law Provision Federal Court Holds Plaintiffs filed a class action against their employer, Sprint Nextel and Sprint/United Management (collectively “Sprint”) alleging violations of federal securities law; specifically, the class action claimed that “Sprint failed to pay [plaintiffs] proper commissions.
Class Action Court Decisions Employment Law Class Actions Uncategorized
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Class Action Against Oracle Alleging Failure to Pay Overtime Pursuant to State and Federal Laws Survives Summary Judgment as to California Law Claims because Nonresidents are Protected by California Labor Code for Work Performed within California, but District Court Properly Granted Summary Judgment as to Class Action Claim Alleging Violation of California’s Unfair Business Practices Act (UCL) for Failure to Pay Overtime under Federal Fair Labor Standards Act (FLSA) because California’s UCL “does not have Extraterritorial Application” Ninth Circuit Holds
Plaintiffs filed a class action against their employer, Oracle, alleging labor law violations; specifically, the class action complaint asserted that Oracle failed to pay employees overtime under either the federal Fair Labor Standards Act (FLSA) or California state law. Sullivan v. Oracle Corp., ___ F.3d ___ (9th Cir. November 6, 2008) [Slip Opn., at 15261]. According to the class action, Oracle hired hundreds of employees “to train Oracle customers in the use of its software” but “classified these workers as teachers who were not entitled to compensation for overtime work under either federal or California law.” _Id._ The putative class was not limited to California residents, and the three putative class representatives were nonresidents of California who “performed only some of their work for Oracle in California,” _id._ The class action complaint contained three claims for relief – two of them sought recovery for work performed in California, and one for work performed “anywhere in the United States.” _Id._ Each of the claims, however, was premised on California law; specifically, either the California Labor Code, or California Business & Professions Code section 17200 (unfair business practices). _Id._, at 15264-65. Defense attorneys moved for summary judgment on all claims in the class action; the district court granted the motion “on the ground that the relevant provisions of California law did not, or could not, apply to the work performed by Plaintiffs.” _Id._, at 15261. The district court reasoned that California’s Labor Code “do[es] not apply to nonresidents who work primarily in other states,” and that it would violate the Due Process Clause of the Fourteenth Amendment to construe the Labor Code so as to apply to work performed primarily outside of California, _id._, at 15265. Similarly, the federal court concluded that California’s unfair business practices statute does not apply to work performed outside of California, _id._ The Ninth Circuit affirmed as to the class action’s unfair business practices claim premised on work performed outside of California, but reversed as to the first two claims for relief.
Briefly, Oracle’s principal place of business is California, and it hires “instructors” on a contract basis to travel throughout the U.S. and for the purpose of training its customers in the use of Oracle software. Sullivan, at 15261-62. Three individuals – two of them residents of Colorado, and the third a resident of Arizona – worked as Oracle Instructors; they each spent a limited amount of time in California, though not necessarily each calendar year. See id., at 15262-63. None of the plaintiffs worked more than 36 days in California during a calendar year, and one of the plaintiffs did not work in California at all one year. Id. Oracle originally classified its instructors as “teachers” and did not pay them overtime; however, in 2003 Oracle reclassified its California instructors and began paying them overtime under California law, and in 2004 it reclassified its remaining instructors and began paying them overtime under the FLSA. Id., at 15263.
Class Action Court Decisions Employment Law Class Actions Uncategorized
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Class Action Claims not Rendered Moot by Rule 68 Offer of Judgment to Settle Individual Claims of Named Plaintiffs so long as Plaintiffs have not Delayed in Seeking Class Action Treatment of Litigation Ohio Federal Holds
Two class action lawsuits were filed against the law firm of Cheek & Zeehandelar, a consumer debt collection firm, alleging violations of the federal Fair Debt Collection Practices Act (FDCPA) and Ohio’s Consumer Sales Practices Act (CSPA); the class action complaints alleged that defendant “engages in misleading and deceptive debt-collection practices” and that it “uniformly fails to properly investigate whether debtor funds are lawfully subject to attachment, prior to seeking and obtaining orders of attachment. Stewart v. Cheek & Zeehandelar, LLP, 252 F.R.D. 384, 384-85 (S.D. Ohio 2008). The class actions were consolidated, and the district court ordered that plaintiffs file their motion for class action certification by February 15, 2008. Id., at 385. Prior to February 15, defendant served a Rule 68 offer of judgment on plaintiffs, which offered to compensate them for their individual claims only; the Rule 68 offer did not offer to settle the claims of the putative class. Id. Plaintiffs moved to strike the offer of judgment and, on February 15, 2008, filed their motion for certification of the litigation as a class action. Id. The district court granted plaintiffs’ motion to strike the offer of judgment.
The district court began its analysis by noting that “[t]he purpose of Rule 68 ‘is to encourage settlement and avoid litigation.’” Stewart, at 385 (quoting Marek v. Chesny, 473 U.S. 1, 5 (1985)). Rule 23 class actions, by contrast, serves to vindicate important constitutional and statutory rights by permitting individually small damage claims to be grouped together so that the amount of money involved is worth the fight. Id. Or as the Supreme Court put it, “Where it is not economically feasible to obtain relief within the traditional framework of a multiplicity of small individual suits for damages, aggrieved persons may be without any effective redress unless they may employ the class-action device.” Deposit Guar. Nat’l Bank v. Roper, 445 U.S. 326, 339 (1980). The district court observed at page 385, “The great weight of federal authority holds that a Rule 68 offer of judgment cannot moot the named plaintiffs’ claims after a motion for class certification has been filed.” (Citations omitted.) To hold otherwise would permit defendants to “unilaterally control whether the district court ever heard the certification motion,” id., at 385-86 Moreover, “Although courts are somewhat more divided about the effect of a Rule 68 offer before a class-certification motion has been filed, most have endorsed the view that the settlement offer will not moot the named plaintiffs’ claims so long as the plaintiffs have not been dilatory in bringing their certification motion.: Id., at 386 (citations omitted). After summarizing the reasons behind the majority view, the district court adopted that rule and held, further, that plaintiffs had not been dilatory in seeking class action certification. Id., at 386-87. Accordingly, the district court granted plaintiffs’ motion to strike the Rule 68 offer of judgment, id., at 387.
Certification of Class Actions Class Action Court Decisions FDCPA Class Actions Uncategorized
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Trial Court Erred in Decertifying UCL Class Action because Post-Proposition 64 UCL Relief does not Extend Beyond Named Plaintiffs Absent Class Action Treatment and because Attorney Fees Generally not Recoverable Absent Class-Wide Relief California State Court Holds
Plaintiffs filed a class action against 24 Hour Fitness alleging violations of California’s unfair competition law (UCL) and Consumers Legal Remedies Act (CLRA), and false advertising; the class action complaint asserted that their health club memberships allowed them to renew for an additional three years – the same period as their original membership contract – “at the same rate if they renewed their membership when the initial term expired,” but defendant asserted that the membership contracts permitted “renewals at the specified rate for an annual term only.” Harper v. 24 Hour Fitness, Inc., ___ Cal.App.4th ___ (Cal.App. October 22, 2008) [Slip Opn., at 2-3]. The class action argued that “24 Hour Fitness’s contracts and sales techniques were deceptive and falsely implied that members who prepaid their dues for the entire contract term were entitled to keep their dues at the same rate if they renewed their membership when the initial term expired.” _Id._, at 2. In March 2003, the trial court granted plaintiffs’ motion to certify the litigation as a class action, _id._, at 3-4, but plaintiffs thereafter made seven (7) attempts to modify the definition of the class, each of which were rejected by the trial court, _id._, at 4-5. In January 2006, defense attorneys moved the trial court to decertify the class, which the trial court granted. _Id._, at 5-7. The Court of Appeal reversed.
The trial court’s class action decertification order was based on the court’s reexamination of whether a class action was a superior means for resolving the UCL claims and whether – with the benefit of three (3) years of class discovery – plaintiffs could establish commonality and typicality. Harper, at 5-6. The trial court concluded that class action treatment was no longer warranted; on the contrary, it found that class action treatment “has ceased to be beneficial” and that class action treatment had “become an obstacle to the prompt, fair, and (reasonably) economical resolution of this matter.” Id., at 6.. The Court of Appeal summarized the court’s ruling at page 6 as follows:
Certification of Class Actions Class Action Court Decisions Uncategorized
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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 Eastern District of Louisiana Three class actions –in the Eastern District of Louisiana, the Western District of Tennessee and the Eastern District of Texas – were filed against DirecTech Southwest alleging violations of the federal Fair Labor Standards Act; specifically, the class action complaints allege defendant failed to pay its technicians overtime as required by the FLSA.
Class Action Court Decisions Employment Law Class Actions Multidistrict Litigation Uncategorized
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Home Owners’ Loan Act (HOLA) Preempted Class Action Claims Premised on Scheme to Defraud Senior Citizens into Entering into Reverse Mortgages but Plaintiff given Leave to File Amended Class Action Complaint California Federal Court Holds
Plaintiff filed a putative class action against Financial Freedom Senior Funding Corporation alleging that “Financial Freedom instituted a complex scheme to defraud senior citizens in the structuring, origination, underwriting, marketing and sale of reverse mortgages.” Munoz v. Financial Freedom Senior Funding Corp., 567 F.Supp.2d 1156, 1158 (C.D. Cal. 2008). The class action complaint alleged ten claims for relief: elder abuse, violation of California’s Unfair Competition Law (UCL) practices by violating the Real Estate Settlement Procedures Act (RESPA) and Regulation X, false advertising, breach of fiduciary duty and aiding and abetting breach of fiduciary duty, fraudulent concealment, unjust enrichment and imposition of constructive trust, violation of the Consumer Legal Remedies Act (CLRA), breach of the implied covenant of good faith and fair dealing, and negligent misrepresentation. Id., at 1161. At bottom, the class action alleged that defendant “included a number of hidden costs and fees in the reverse mortgage transactions, and also to have paid brokers ‘kickbacks’ for directing borrowers to the company.” Id., at 1158. Defense attorneys moved the district court for judgment on the pleadings as to the class action claims under Rule 12(c) on the ground that the class action claims are preempted by federal law. Id., at 1159. The district court granted the motion in part and denied it in part.
The district court summarized the three ways in which federal law may preempt state law, and noted that while there is generally a presumption against federal presumption, that presumption does not apply to the banking industry because it is “‘an area where there has been a history of significant federal presence.’” Munoz, at 1159 (citation omitted). Defense attorneys argued that the class action claims were preempted by the Home Owners’ Loan Act of 1933 (HOLA), which gave “broad authority” to the Office of Thrift Supervision (OTS) to “promulgate regulations governing savings and loan institutions,” id., at 1160. The OTS regulations, in turn, expressly provide, “OTS hereby occupies the entire field of lending regulation for federal savings associations.” Id. (quoting 12 C.F.R. § 560.2(a)). Under Ninth Circuit authority, “HOLA preempts all state regulation of savings associations under the doctrine of field preemption.” Id. (citations omitted). Specifically, HOLA expressly preempts state laws governing “Loan-related fees, including without limitation, initial charges, late charges, prepayment penalties, servicing fees, and over limit fees,” § 560.2(b)(5), and “Disclosure and advertising, including laws requiring specific statements, information, or other content to be included in credit application forms, credit solicitations, billing statements, credit contracts, or other credit-related documents,” § 560.2(b)(9).
Class Action Court Decisions RESPA/TILA Class Actions Uncategorized
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