CLASS ACTION DEFENSE BLOG
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As Matter of First Impression, Request in Class Action for Precertification Discovery by Plaintiffs who Learns They were Never Members of Putative Class is not Automatically Prohibited and Trial Court did not Err in Permitting such Discovery where Wrong Alleged Involved Surreptitious Recording of Telephone Calls so Class Members would not Know Their Privacy Rights had been Violated California State Court Holds
Plaintiffs filed class action against their lender, CashCall, alleging that it secretly and illegally monitored its collection calls in violation of the borrowers’ privacy rights; they subsequently filed an amended class action complaint alleging further that defendant “surreptitiously monitored or eavesdropped on their conversations through a machine or other manner” in violation of California law. CashCall, Inc. v. Superior Court, ___ Cal.App.4th ___, 2008 WL 192282, *1 (Cal.App. January 24, 2008). After discovering that the plaintiffs named in the class action had not had their calls monitored, the class action complaint was further amended to substitute new named plaintiffs, _id._ However, the new plaintiffs, too, were not members of the putative class so plaintiffs sought precertification discovery for the identities of the apparently 551 members of the putative class action whose calls had been surreptitiously recorded. _Id._, at 1-2. Defense attorneys argued a bright-line rule exists in class actions that preclude discovery of the identity of class members if the named plaintiffs were never members of the class, _id._, at *3. The trial court disagreed and defense attorneys petitioned the Court of Appeal for writ relief.
The appellate court summarized plaintiffs’ argument as follows: CashCall disclosed in discovery that it had monitored collection calls at least 551 times but refused to disclose the names or contact information of the borrowers at issue. CashCall, at *2. Plaintiffs argued, “It is the clandestine component that makes [CashCall’s] monitoring illegal, and it is that aspect [that] makes it difficult, if not impossible, for a victim to ever learn [his or her] rights were violated.” Id. Absent the requested discovery, “the class action might be dismissed for lack of a suitable class representative and then the one-year statute of limitations” may run, “leaving the actual class members without a remedy for CashCall’s violation of their privacy rights.” Id. Plaintiffs argued that the trial court should apply a “balancing test” and “should conclude the rights of the parties (i.e., class members) outweigh any potential abuse of the class action procedure and therefore should order that CashCall disclose the names and contact information of the 551 putative class members.” Id. They relied on Parris v. Superior Court, 109 Cal.App.4th 285, 300-01, which held that in determining whether to grant precertification discovery of the identities of putative members of the class action, the “trial court must…expressly identify any potential abuses of the class action procedure that may be created if the discovery is permitted, and weight the danger of such abuses against the rights of the parties under the circumstances.”
Class Action Court Decisions Uncategorized
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Trial Court Properly Entered Judgment for Defense in Class Action by Engineers, Employed by Firms Working under Contract for County, because Engineers were not “Common Law Employees” of County California State Court Holds
Plaintiff-engineers filed a putative class action against the County of Los Angeles alleging that they had been designated improperly as employees of the independent contractors hired to perform work for the County, rather than as employees of the County itself. Holmgren v. County of Los Angeles, ___ Cal.App.4th ___, 71 Cal.Rptr.3d 611, 613 (Cal.App. 2008). As authorized by the California Government Code, Los Angeles outsourced engineering work to two firms: “The engineers were employees of the contracting firms and paid by the contracting firms, and all signed written acknowledgements that they were _not_ employees of the County and _not_ entitled to any of the benefits available to County employees.” _Id._, at 612. Nonetheless, plaintiffs filed the class action complaint alleging that they were “common law employees” of the County and, as such, entitled to benefits under the County’s retirement plan. _Id._, at 612-13. The “theme” of the class action complaint was that even though plaintiffs were paid by the independent contractor and designated as a contract employees, they had been “screened, interviewed, and effectively hired by the County; worked solely on County business; had [their] salary fixed by the County; [were] subject to the direct supervision and control of the County; and used County facilities, equipment and supplies to perform County business.” _Id._, at 613-14. The class action further alleged that plaintiffs performed the same work as, and worked side-by-side with, “recognized County employees,” but for lower pay and without receiving the benefits of County employees. _Id._, at 614. The trial court granted plaintiffs’ motion for class action treatment of the lawsuit, _id._, but decided three critical “threshold” issues in favor of the County that effectively eviscerated the class action, _see id._, at 614-15. Accordingly, plaintiffs stipulated to entry of judgment in favor of the County and appealed, _id._, at 615. The Court of Appeal affirmed, holding that the engineers were not County employees.
The facts underlying the class action claims were as follows: The County entered into “Master Agreements” with two firms for engineering services pursuant to which each firm would supply the County with the firm’s own employees, bill the County for work performed, and receive payment from the County. The Master Agreement provided that each firm was “solely liable” for the compensation and benefits of their employees, and expressly prohibited the County from soliciting the firms’ engineers. Holmgren, at 613. The named plaintiffs in the putative class action each acknowledged, in writing, that they were not County employees and that they “do not have and will not acquire any rights or salary benefits of any kind from the County of Los Angeles by virtue of my performance of work [for the County].” Id. and n.1. The class action alleged that plaintiffs were “temporary” or “leased” employees, entitled to County benefits, id., at 613.
Class Action Court Decisions Employment Law Class Actions Uncategorized
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Class Action Derivative Claims Challenging Severance Package Paid by HP to Former CEO Dismissed for Failure to Make Requisite Demand on Board and Failure to Establish Futility California Federal Court Holds
Plaintiffs filed a class action against Hewlett-Packard, its former chief executive officer, Carleton Fiorina, and various other individual defendants challenging the severance package HP paid Fiorina. Indiana Electrical Workers Pension Trust Fund v. Dunn, ___ F.Supp.2d ___ (N.D. Cal. March 28, 2008) [Slip Opn., at 1-2]. The class action complaint outlined Fiorina’s role in HP’s merger with Compaq, over board member Walter Hewlett’s vigorous opposition, and alleged that Fiorina and HP used knowingly false financial projections to secure approval of the merger. _Id._, at 2-3. The class action also alleged that after the merger was characterized as a failure, HP fired Fiorina and paid her more than $40 million in benefits, including a $21.4 million severance package that, plaintiffs allege, was aimed at “mak[ing] sure that Fiorina kept quiet about the Compaq merger debacle.” _Id._, at 3. The second amended class action complaint charges that Fiorina’s severance package were ‘far in excess” of “the express terms of the Company’s Severance Policies,” _id._ The gravamen of the complaint was that Fiorina termination was “involuntarily” and, accordingly, “she was not entitled to any accelerated vesting of payments under HP’s Long-Term Performance Cash (‘LTPC’) Program.” _Id._, at 3-4. Defense attorneys for HP and the individual defendants moved to dismiss the class action; the district court granted the motion.
The defense motion to dismiss the class action advanced two main arguments. First, defense attorneys argued that the class action complaint’s derivative claims failed because plaintiffs never made the requisite demand on HP’s board of directors. Dunn, at 8. The district court explained that “[a] shareholder seeking to vindicate the interests of a corporation through a derivative suit must first demand action from the corporation’s directors or plead with particularity the reasons why such demand would have been futile.” Id., at 8-9 (citing In re Silicon Graphics Inc. Securities Litig., 183 F.3d 970, 989-90 (9th Cir. 1999)). Because the laws of the state in which HP is incorporated govern whether it would be futile to make the requisite demand and because HP is incorporated in Delaware, the court analyzed futility under Delaware law. Id., at 9. Based on its detailed factual analysis, the district court rejected plaintiffs’ counter that making the requisite demand on the board would have been futile. See id., at 9-14. The district court also concluded that the business judgment rule insulates the board’s decision to pay Fiorina the $21 million severance. Id., at 14. The court explained at pages 14 and 15 that it was incumbent upon plaintiffs to “allege facts sufficient to rebut a presumption that the decision was a result of a valid exercise of business judgment.” Based on the federal court’s analysis, plaintiffs failed to rebut this presumption, see id., at 15-17, and failed to establish that the board’s acts were ultra vires, see id., at 17-21.
Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized
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ERISA Class Action Barred by Plaintiff’s Prior Lawsuit Against IBM thus Supporting Defense Motion to Dismiss Class Action New York Federal Court Holds Plaintiff filed a putative class action in New York against his former employer’s pension plan and its administrator alleging violations of ERISA (Employee Retirement Income Security Act of 1974) by failing to pay him plan benefits. Adams v. IBM Personal Pension Plan, 533 F.Supp.2d 342, 343 (S.D.N.Y. 2008).
Class Action Court Decisions Employment Law Class Actions Uncategorized
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Class Action Alleging Fraud Under RICO in Advertising of Light Cigarettes Fails to Satisfy Prerequisites for Class Action Certification Under Rule 23 because Individual Issues Predominate Second Circuit Holds
Judge Jack Weinstein of the United States District Court for the Eastern District of New York certified a class action against Philip Morris USA, R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Corp., Lorillard Tobacco Co., Ligget Group, American Tobacco Co., Altria Group, and British American Tobacco; the underlying class action complaint alleged the tobacco companies duped smokers into believing that “light” cigarettes were less harmful to them. See Schwab v. Phillip Morris USA, Inc., 449 F.Supp.2d 992 (E.D.N.Y. 2006). We have previously reported on the district court’s 540-page opinion in that class action, and a copy of that summary may be found here. The theory underlying the class action was that defendants deceived smokers “by convincing them that smoking ‘light’ cigarettes was safer for their health.” 449 F.Supp.2d at 1018. As the Second Circuit explained, the class action claims were “brought as based in fraud under the Racketeer Influenced and Corrupt Organizations Act (RICO)…, but under RICO, each plaintiff must prove reliance, injury, and damages.” McLaughlin v. Philip Morris USA, Inc., ___ F.3d ___ (2d Cir. April 3, 2008) [Slip Opn., at 4]. Accordingly, the Circuit Court reversed class action certification, finding that “Plaintiffs’ putative class action suffers from an insurmountable deficit of collective legal or factual questions.” _Id._
The district court based its certification of the class action on its belief that there was “evidence of fraud on the class appears to be quite strong”: “If, as contended by plaintiffs, a huge fraud was perpetrated on tens of millions of people causing them billions of dollars in loss—measured largely by the difference between the value people were led to believe they were getting when they bought ‘light’ cigarettes for safety, and what they received, a non-safe product—recovery dependent on proof should be allowed.” Schwab, at 1021. The district court explained at page 1018:
Certification of Class Actions Class Action Court Decisions Uncategorized
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In Considering Class Action Certification in 28 Labor Law Class Action Lawsuits Centralized by the Judicial Panel on Multidistrict Litigation, 19 Cases Satisfied Class Action Prerequisites but 9 other Putative Class Actions would Require Individualized Inquiries Sufficient to Defeat Class Action Treatment Indiana Federal Court Holds
Numerous class action lawsuits were filed against FedEx Ground alleging that the company misclassified its pickup and delivery drivers as independent contractors rather than employees; the Judicial Panel on Multidistrict Litigation consolidated the class actions in the Northern District of Indiana, and the plaintiffs in the class action cases characterized as “Wave 1,” “Wave 2” and “Wave 3” moved the district court for class action certification. In re FedEx Ground Package System, Inc., Employment Prac. Litig., ___ F.Supp.2d ___ (N.D. Ind. March 25, 2008) [Slip Opn., at 1]. As the federal court summarized, these class action plaintiffs “assert that although FedEx Ground represents to its drivers that they are only partnering with FedEx Ground and will essentially own their own businesses, all FedEx Ground drivers sign the FedEx Ground Operating Agreement, which actually reserves to FedEx Ground the right to exercise pervasive control over the method, manner, and means of the drivers’ work,” _id._ FedEx opposed class action treatment, arguing that “the plaintiffs’ claims turn on individualized issues, including whether contractors should be classified as employees under the states’ statutory tests, and whether any individual contractor can meet the high bar for rescission of his individual contract.” _Id._, at 2. In a 164-page opinion, the district court certified the Wave 1, Wave 2 and Wave 3 cases as class actions with respect to cases involving drivers from Alabama, Arkansas, California, Florida, Indiana, Kentucky, Maryland, Minnesota, New Hampshire, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, West Virginia and Wisconsin; the court denied class action treatment for drivers from Illinois, Iowa, Massachusetts, Michigan, Mississippi, Missouri, Montana, South Dakota and Virginia. _Id._, at 3. The district court noted that it had previously granted class action certification with respect to drivers from Kansas, _id._, at 9, bringing to 20 the total number of states for which class action treatment has been approved.
Given the extraordinary length and detail of the district court opinion, we provide here only a broad outline of its holdings. Because it had previously granted class action treatment on behalf of the Kansas drivers, the district court used its prior ruling as a benchmark against which it considered the new class action certification motions. In re FedEx Ground, at 9. The court held that class action complaints containing only former drivers as named-plaintiffs could still proceed as class actions on behalf of former and current drivers because “courts have held that former employees have standing to represent a class consisting of both current and past employees.” Id., at 10 (citations omitted); see also, e.g., id., at 24-25 and 30. But with respect to defense attorney efforts to defeat class action treatment on the ground that individual inquiries would be required to determine whether the Operating Agreements were valid and the manner and extent to which the “right to control” will impact the validity of the Operating Agreements, the federal court rejected this argument with respect to the laws of certain states, see, e.g., id., at 14-16 (Tennessee), 25-27 (Arkansas) and 39-42 (Texas), but agreed with FedEx Ground that common questions would not predominate under the laws of other states, see, e.g., id., at 18-20 (Montana), 20-23 (Mississippi) and 80-84 (Michigan). For example, with respect to the Missouri putative class action, the district court explained that class action certification was not warranted because “Whether FedEx Ground has the right to control its drivers within the meaning of Missouri agency law cannot be resolved by simple reference to the Operating Agreements and corporate policies.” Id., at 105. Rather, “Missouri courts define the ‘right to control’ with reference to the actual exercise of control, [citation], which will require a driver-by-driver, terminal-by-terminal, supervisor-by-supervisor analysis that is unnecessary in most other states.” Id., at 105-06. This presented the primary basis for the difference among states for which the court certified class actions and states for which it denied motions for class certification.
Certification of Class Actions Class Action Court Decisions Employment Law Class Actions Uncategorized
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Defendant in Securities Fraud Class Action Failed to Establish Grounds to Transfer Class Action to New York, Particularly in Light of Defendant’s Waiver in Deposit Agreement to Right to Challenge Venue California Federal Court Holds Plaintiffs filed a class action in California federal court against Himax Technologies alleging securities fraud in connection with the initial public offering of Himax stock; a related class action, entitled Oh v. Chan, CV 07-4891 DDP (AJWx), also has been filed, and a motion seeking “to certify a securities class action for substantially similar claims” is pending in that action.
Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized
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Class Action Treatment Warranted for Class Action Claims Against Health Clubs based on Violations of State Law but not as to Class Action Complaint’s Unjust Enrichment Claim Pennsylvania Federal Court Holds
Plaintiffs filed a putative class action in Pennsylvania state court against three health clubs (Holiday Universal, Scandinavian Health Spa and Bally Total Fitness) alleging violations of Pennsylvania’s Health Club Act and Unfair Trade Practices and Consumer Protection Law (UTPCPL); defense attorneys removed the class action to federal court. Allen v. Holiday Universal, ___ F.Supp.2d ___ (E.D. Pa. March 11, 2008) [Slip Opn, at 1]. The class action complaint alleged that plaintiffs entered into “Retail Installment Contract” prepared by defendants that required payment of a membership fee ($632 for one of the named plaintiffs, which she financed at 17.50% interest, and $1275 for the other named plaintiff, which he financed at 13% interest) and monthly dues; the health club memberships renewed automatically. _Id._, at 3. The theory underlying the class action was that the health clubs charged “grossly excessive initiation fees” in violation of Pennsylvania state law. _Id._ Plaintiffs moved the district court to certify the litigation as a class action, _id._, at 2; defense attorneys opposed the motion. The federal court found the elements of Rule 23 satisfied and granted plaintiffs’ request for class action treatment.
The defense first argued that the definition of the proposed class was overly broad because it included within its sweep individuals who suffered no damage because they wanted, accepted and benefited from the health club memberships. Allen, at 6-8. The district court disagreed, holding that if the initiation fees were excessive under Pennsylvania law then every member of the proposed class action suffered damage, regardless of whether they wanted and utilized the health club services, id., at 8. The district court also rejected a claim that the class action’s definition of the class was improper because it created a “‘fail/safe’ class, that is, membership in a portion of the Class depends upon a finding for Plaintiffs’ on the merits.” Id., at 15. In essence, the defense argued that inclusion in the class turned on whether a particular health club was owned by defendant Bally Holding; plaintiffs countered that club ownership was not the “central issue of liability” presented by the class action and, accordingly, there was no improper “fail/safe” class. Id., at 15-16. The district court agreed with plaintiffs, and noted that “the question of whether any particular health club in Pennsylvania is owned by the Health Clubs is a question of fact not central to the question of liability and easily answered through further discovery.” Id., at 16. However, the federal court made it clear that it “expect[ed] the parties to promptly clarify any remaining confusion as to this issue.” Id. (The court also rejected a “ratification” argument, but that is not summarized here. See id., at 8-15.)
Certification of Class Actions Class Action Court Decisions Uncategorized
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Securities Class Action Claims Pending in California Paralleled Class Action Claims in Delaware and Colorado River Factors Supported Stay of California Class Action California Federal Court Holds
Several class action lawsuits were filed against Countrywide Financial Corp. and others alleging violations of various state and federal securities laws, including class action complaints that were filed in the United States District Court for the Central District of California. In re Countrywide Financial Corp. Derivative Litig., ___ F.Supp.2d ___ (C.D. Cal. March 28, 2008) [Slip Opn., at 2-3]. Last Friday, the California district court addressed three separate motions that “generally relate to the series of cases before [it] and other courts involving Countrywide…, Bank of America…, and several current and former Countrywide directors and officers.” _Id._, at 1. The district court summarized four separate categories of class action lawsuits that had been filed in state and federal courts against Countrywide prior to the announced merger with Bank of America, _see id._, at 3-6, as well as the various state and federal class action complaints filed immediately after the announced merger, _see id._, at 7-8. One of the pre-merger series of class action lawsuits “consolidated under _Arkansas Teachers_, No. CV-07-06923,” were filed in the California federal court “alleging that Countrywide directors engaged in an extensive pattern of misconduct in disregard of their fiduciary duties to the corporation,” _id._, at 6, and plaintiffs a 200-page amended consolidated class action complaint after the announcement of the merger to add class action claims against Bank of America, _id._, at 8-9.
The district court first addressed the defense motion to stay Arkansas Teachers in favor of litigation pending in Delaware. In re Countrywide, at 9. The court concluded that “the federal and state class action merger claims are substantially similar,” id., at 10-11; accordingly, “the ‘parallelism requirement for a [Colorado River Water Conservation Dist. V. United States, 424 U.S. 800 (1976)] stay is easily met due to the striking similarity of the class action claims in Arkansas Teachers and Freedman,” id., at 11. The federal court next held that partial stays are permissible under Colorado River, id., at 12-13, and that it would issue such a stay in this case because “while the class action claims are sufficiently parallel, the Delaware case does not contain the derivative claims present in this case,” id., at 11-12. The court’s Colorado River analysis may be found at pages 14 through 16 of the slip opinion.
Class Action Court Decisions RESPA/TILA Class Actions Uncategorized
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Order Denying Motion to Dismiss ADEA (Age Discrimination in Employment Act) Class Action Claims did not Warrant Interlocutory Appeal Minnesota Federal Court Holds
Plaintiffs filed a class action lawsuit against their employer, Seagate, alleging age discrimination in violation of the federal Age Discrimination in Employment Act (ADEA). Peterson v. Seagate U.S. LLC, 534 F.Supp.2d 996, 2008 WL 398968, *1 (D.Minn. 2008). The putative class action also sought “declaratory relief relating to the enforceability of a purported release and waiver that was signed by many of the plaintiffs upon the termination of their employment with Seagate.” Id. Defense attorneys moved to dismiss the class action as to “the claims of those named plaintiffs that signed a release and waiver”; the district court denied the motion, as well as a subsequent motion for reconsideration. Id. Defense attorneys requested that the district court certify the issue for interlocutory appeal, id. The district court denied the motion.
Defense attorneys sought certification on two grounds: “1) whether nineteen plaintiffs who failed to file an EEOC charge properly exhausted their administrative remedies with respect to their age discrimination claims; and 2) whether the SIRP Release that plaintiff Paul Calcagno signed in connection with Defendants’ 2004 voluntary early retirement program is valid and enforceable.” Peterson, at *1. The district court noted that such certification is only appropriate if the order “involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation.” Id. (quoting 28 U.S.C. § 1292(b)). The court concluded that this test was not satisfied.
Class Action Court Decisions Employment Law Class Actions Uncategorized
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