Class Action Defense Issues-Slesinger v. Walt Disney: California Appellate Court Affirms Terminating Sanction For “Deliberate And Egregious” Discovery Misconduct

As a Matter of First Impression, Trial Court has Inherent Power to Impose Terminating Sanction in the Face of Deliberate and Egregious Misconduct and Properly Imposed such a Sanction in this Case California Appellate Court Holds

Though not a class action, this case presents a vivid reminder that attorneys are officers of the court and may be held accountable for the misconduct of their clients and experts. Plaintiff filed suit against Walt Disney alleging that it had failed to pay certain royalties due under a licensing agreement for the Winnie the Pooh children’s stories, and “to assist in prosecuting its lawsuit, [plaintiff] hired an investigator to surreptitiously obtain Disney documents.” Slesinger v. The Walt Disney Co., ___ Cal.App.4th ___ [Slip Opn., at 2] (Cal.App. September 25, 2007). An anonymous caller tipped Disney to the fact that confidential documents had been obtained by an investigator, _id._, at 6-7. Once Disney learned of the investigator’s misconduct, defense attorneys moved for terminating sanctions, _id._ Plaintiff argued that it had instructed the investigator to “obey the law,” _id._ The trial court concluded that only terminating sanctions could protect Disney from plaintiff’s use of the information illegally obtained by its investigator, and granted the defense motion. _Id._ The California Court of Appeal held as a matter of first impression that the trial court had the inherent power to impose terminating sanctions and affirmed.

At issue were thousands of pages of documents that plaintiff’s investigator obtained “by breaking into an uncertain number of Disney office buildings and secure trash receptacles, and by trespassing onto the secure facility of the company with which Disney had contracted to destroy its confidential documents,” including documents marked “privileged and confidential.” Slesinger, at 2. During the course of the “lengthy, bitter litigation,” the court imposed evidentiary and monetary sanctions against Disney for destroying certain documents, id., at 3. But it then “fell victim to its own litigation abuses,” id., at 4. According to the court, plaintiff hired an investigator for the purpose of “surreptitiously obtaining Disney documents,” id., at 5. And while plaintiff instructed the investigator to “make sure what you’re doing is legal and that you do it by the book,” no other steps were taken to ensure that he complied with that instruction. Id., at 6. To the contrary, plaintiff argued that supervising the investigator “wasn’t my job” and that all plaintiff “did was pay his bills…[and] receive[] documents.” Id.

We do not here summarize the numerous reasons that the court concluded plaintiff and their counsel knew of the investigator’s misconduct, or at the very least should have known of it. By way of example, the investigator had obtained the documents illegally because the investigator produced documents marked “CONFIDENTIAL – For Internal Use Only” in the footer, but when plaintiff finally produced these pages to the defense, this “confidential” tag had been eliminated. Slesinger, at 8. The fact “Slesinger or someone else on [plaintiff’s] behalf altered copies of [Disney documents] after receiving them from [the investigator] to delete any reference to their confidentiality” was evidence of plaintiff’s misconduct. Id., at 22-23.\

Class Action Court Decisions Uncategorized

Class Action Defense Cases-Grider v. Keystone Health: Pennsylvania Federal Court Sanctions Class Action Defense Counsel And Defendants For Bad Faith Conduct

Class Action Defense Counsel Engaged in Bad Faith Conduct in Connection with Discovery Warranting Sanctions Pennsylvania Federal Court Holds

In a blistering 77-page opinion, a Pennsylvania federal court provided a stern warning to class action lawyers, sanctioning not only defendants but their counsel for discovery abuse. Grider v. Keystone Health Plan Central, Inc., ___ F.Supp.2d ___ [Slip Opn., at 2-6] (E.D. Pa. September 28, 2007). While this opinion faulted class action defense counsel, we will discuss tomorrow _Slesinger v. The Walt Disney Co._, a mirror-image case that sanctions plaintiff and plaintiff’s counsel for abusive discovery tactics, though not in a class action context. Because of the length of the _Grider_ opinion, we summarize it with broad brushstrokes; the slip opinion is well worth reading and may be downloaded at the end of this article. Briefly, in 2001, plaintiffs – a family doctor, and a medical corporation that services 4,000 patients – filed a putative class action in Pennsylvania state court against HMO Keystone Health Plan Central, Highmark (formerly Pennsylvania Blue Shield), Capital Blue Cross and others alleging that they conspired to defraud, delay payment and reduce payment on insurance claims; defense attorneys removed the class action to federal court. _Grider v. Keystone Health Plan Central, Inc._, ___ F.Supp.2d ___ [Slip Opn., at 7-9] (E.D. Pa. September 28, 2007). The court granted plaintiffs’ motion to certify the litigation as a class action, _id._, at 14-15. The class action turned on information in the defendants’ possession “that will either prove or disprove plaintiffs’ claims in this matter.” _Id._, at 38-39. Following years of discovery battles, plaintiffs filed two motions for sanctions against defendants and their counsel. The district court in substantial part granted the motions.

The hearing on sanctions resembled a trial – the parties called 16 witnesses and introduced 306 exhibits over the course of 9 court days, Grider, at 3-4, resulting in the court making 93 findings of fact, id., at 22-35, and 10 conclusions of law, id., at 35-36. At bottom, the discovery process was deeply affected by the animosity between the parties and their counsel. The district court described the discovery phase as “severely troubling” and summarized at page 37, “This case is nearly six-years old, and discovery is not complete. At times the discovery process has completely broken down. It was necessary to appoint a Special Discovery Master to regulate and control discovery.” The district court described “incessant motion practice” that “threatened to paralyze the operations” of the magistrate and the court, id. In part, the court found that defense counsel “attempt[ed] to subvert discovery by the use of general objections,” id., at 46, which they “raised…in every response to plaintiffs’ discovery” and “steadfastly maintained…were all completely proper,” id., at 47.

Class Action Court Decisions Uncategorized

Sharper Image Class Action Defense Cases-Figueroa v. Sharper Image: Florida Federal Court Rejects Class Action Settlement Because Class Counsel Negotiated From Position Of Weakness

Defense Negotiated Class Action Settlement with Florida Class Action Counsel Instead of California Class Action Counsel because of Leverage Over Class Counsel and Class Action Settlement Procedurally and Substantively Unfair Florida Federal Court Holds

Numerous class action and individual lawsuits were filed against Sharper Image alleging that its Ionic Breeze air purifier does not clean and purify the air as advertised and is harmful in that it omits excessive ozone; one such class action was filed in the Florida federal court and ultimately the parties sought court approval of a settlement of the class action. Figueroa v. Sharper Image Corp., ___ F.Supp.2d ___ [Slip Opn., at 1] (S.D. Fla. October 11, 2007). In broad terms, the class action settlement provided for $19 Sharper Image coupons or merchandise credits, an OzoneGuard “to protect against ozone emission,” injunctive relief, and $2 million for class counsel. _Id._, at 1-2. Defense attorneys stressed that the coupon represented the primary financial benefit to the class, not the OzoneGuard, _id._, at 2 n.2. The settlement provided to the court for final approval was the third amended class action settlement; the district court had given preliminary approval to an earlier version of the settlement agreement in January 2007, and a hearing on final approval of the proposed settlement was held in August 2007. _Id._, at 1. The federal court refused to approve the settlement.

The lawsuit was filed in May 2005 as a nationwide class action on behalf of purchasers of Sharper Image “ionizing air purifiers,” including the Ionic Breeze®, and sought damages for breach of contract, breach of warranty, money had and received, and unjust enrichment. Figueroa, at 2. In essence, the class action alleged that Sharper Image engaged in the “unlawful conduct of marketing and selling ionizing air purifiers that do not remove impurities from the air and that fail to perform as advertised and sold” and that “the ionizing air purifiers exposed consumers to hazardous levels of ozone.” Id. Defense attorneys moved to stay, dismiss or transfer the class action on the grounds that it simply copied several class action lawsuits filed in California; in response, plaintiffs’ lawyer sought leave to amend the complaint to add the inventor, Zenion Industries, as a party defendant, so the district court denied the defense motion as moot and granted plaintiffs leave to amend. Id., at 2-3. The federal court subsequently dismissed Zenion from the class action for lack of jurisdiction, id., at 5.

Before the district court ruled on plaintiffs’ motion to certify the lawsuit as a class action, the parties advised the court that “an agreement on all aspects of the class claims on a nationwide basis, and that what remained to be resolved was the issue of attorney’s fees.” Figueroa, at 5. The court therefore continued the hearing on the class certification motion in order to allow the parties to present a “complete package” for approval by the court. Id. Soon thereafter, however, class counsel for the certified nationwide class action pending in California contacted the district court and advised that he had “reason to believe that the parties here are attempting to settle the claims belonging to the California Actions class, without the knowledge or consent of the class representatives or Class Counsel” and that the parties to the Florida class action had refused voluntarily to provide information in this regard. Id., at 5-6. California counsel also sought discovery of documents filed under seal with the Florida district court, id., at 5, and, following a hearing and over defense objection, the federal court ordered defense counsel to produce certain documents, id., at 6. At that time, the court expressed concern “with the parties’ practice of filing documents under seal in a purported class action lawsuit.” Id., at 6.

The parties filed a proposed class action settlement that, which the district court summarized at pages 6 and 7 as follows: “The essence of this first Settlement Agreement was to provide to class members, limit one per household, a $19 merchandise credit, valid for one year, for use at Sharper Image retail stores on Sharper Image branded products. The first Agreement also provided class members the ability to purchase (during a six-month period of time) an OzoneGuard attachment, for Ionic Breeze® floor models only, for $7. Sharper Image also agreed to make modifications with respect to its advertisements of the Ionic Breeze®, for example, to not state that the Ionic Breeze® is a medical device and to remove the British Allergy Foundation and the Asthma and Allergy Foundation of America seals from its advertising.” The parties also represented to the court that the Florida class action was “significantly broader” than the California class action, particularly as the California class actions were “limited to claims under California state law,” and jointly moved the court to enjoin competing class actions from proceeding “in order to facilitate an efficient and expeditious settlement and approval process, and to preserve the Court’s jurisdiction to adjudicate the settlement.” Id., at 7. The federal court characterized as a “consistent theme” the argument that Sharper Image “was on the verge of bankruptcy, and that the proposal then under consideration was the best deal that could be arranged.” Id., at 30.

Class Action Court Decisions Uncategorized

Class Action Defense Cases-In re Pet Food: Judicial Panel On Multidistrict Litigation (MDL) Grants Motions To Centralize Class Action Litigation And Selects New Jersey As Transferee Court

Judicial Panel Grants Request, Unopposed by Defense, for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407 and Transfers Class Actions to District of New Jersey Thirteen (13) lawsuits putative class actions were filed against Menu Foods asserting products liability claims arising out of the sale of allegedly tainted pet food products. In re Pet Food Products Liab. Litig., 499 F.Supp.2d 1346, 1346-47 (Jud.Pan.Mult.Lit. 2007). Three motions were filed with the Judicial Panel for Multidistrict Litigation (MDL) requesting centralization with the class action lawsuits pursuant to 28 U.

Class Action Court Decisions Multidistrict Litigation Uncategorized

UCL Class Action Defense Issues-Buckland v. Threshold Enterprises: Plaintiff Who Buys Products For Purpose Of Filing Class Action Has Not Suffered Loss Supporting Dismissal Of UCL/CLRA Class Action California Court Holds

California Court Holds that Putative Class Action Alleging Violations of State’s Unfair Competition Law, False Advertising Law and Consumers Legal Remedies Act Fails for Lack of Actual Reliance and Lack of Standing Where Plaintiff Purchased Products for the Purpose of Filing Class Action

In a case with broad implications to class action lawsuits, plaintiffs filed an individual lawsuit in California state court against Threshold Enterprises and more than 30 other defendants alleging violations of the state’s unfair competition law (UCL), false advertising law (FAL) and Consumers Legal Remedies Act (CLRA) because its skin cream was a “misbranded or mislabeled drug.” Buckland v. Threshold Enterprises, Ltd., ___ Cal.App.4th ___, 2007 WL 2773497 (Cal.App. September 25, 2007) [Slip Opn., at 2]. Defense attorneys demurred to the complaint on the grounds that plaintiffs lacked standing to assert the various UCL, FAL and CLRA claims, _id._ at 3. The trial court sustained the defense demurrer to the complaint but granted plaintiffs leave to amend; plaintiffs refused to amend the complaint so the court entered judgments of dismissal and plaintiffs appealed. _Id._, at 2. The Court of Appeal affirmed, holding that .

Plaintiffs California Women’s Law Center and its executive director, Katherine Buckland, “seek[] to advance the civil rights of women and girls” and allege that the some skin creams and lotions sold by defendants contain progesterone or other chemicals regulated by the FDA but that defendants failed to provide adequate warnings in violation of FDA regulations. Buckland, at 2-3. Plaintiffs sought a preliminary injunction to enjoin Threshold from selling skin cream, id. at 3. Buckland admitted, however, that she did not suffer any personal injury but rather purchased the items for the express purpose of determining whether lawsuits could be filed based on the chemicals contained in them. Id. Threshold opposed the injunction on the grounds that plaintiff would not likely prevail on the merits and that the “balance of hardships” weighed against such relief. Id., at 3-4.

Certification of Class Actions Class Action Court Decisions Uncategorized

Class Action Defense Cases-Clark v. First Union: California Appellate Court Affirms Trial Court Order Vacating Referral Of Certain Class Action Claims To Arbitration And Staying Other Class Action Claims

Inherent Powers of Trial Court Include Power to Reconsider Interim Rulings Long After the Statutory Time Period for Motions for Reconsideration has Lapsed California Appellate Court Holds

Plaintiffs filed a putative class action against their employer, First Union Securities, and its successor, Wachovia Securities for alleged violations of state labor laws. Clark v. First Union Securities, Inc., ___ Cal.App.4th ___, 64 Cal.Rptr.3d 313, 315 (Cal.App. 2007). Defense attorneys moved to compel arbitration before the National Association of Securities Dealers (NASD) and to stay proceedings on the class action claims for injunctive or declaratory relief, which are not subject to arbitration, _see Broughton v. Cigna Healthplans_, 21 Cal.4th 1066, 1079-80 (Cal. 1999); the trial court granted the motion. _Id._ , at 314. After the arbitrators ruled that the class action claims were “not eligible for arbitration,” the trial court _sua sponte_ reconsidered its ruling on the defense motion and ruled that the class action would proceed in state court. _Id._, at 314-15. Defense attorneys appealed, and the California court of appeal affirmed. The appellate court held that the trial court had the inherent authority to reconsider its ruling referring class action claims to arbitration, that the employment contract did not preclude state court jurisdiction over the putative class action complaint, and that the dismissal of the class action claims by the arbitrators did not constitute a class action waiver.

Plaintiff Clark was hired by First Union as an investment consultant candidate, which required that he hold a license from the NASD and to execute the SEC-approved Uniform Application for Securities Industry Registration or Transfer Form U-4 (Form U-4), which contains an arbitration clause that states “I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the [NASD] as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction.” Clark, at 315. Plaintiff executed the form in October 1998 and began working for First Union in November 1998, id. The SEC promulgated several rules directly implicated by this case, including Rule 10301(d) which addresses investor class action lawsuits filed under FRCP Rule 23. Id., at 316. As the Court of Appeal noted at page 316, “The SEC issued a public notice in connection with the approval of Rule 10301(d). In this 1992 approval order, the SEC gave notice that under the new provision class actions were excluded from arbitration.”

The class action complaint alleged numerous labor law violations based on an array of alleged misconduct ranging “from misrepresentations regarding the sale of securities, to the failure to pay wages and to reimburse for business expenses.” Clark, at 317-18. Defense attorneys moved to compel arbitration of each cause of action in the class action complaint except the claims seeking injunctive and declaratory relief; the defense argued that “because all allegations arose out of Clark’s employment or termination of employment, they must be resolved in arbitration pursuant to the arbitration provision in the Form U-4 and the NASD Code.” Id., at 318. The appellate court noted that defense attorneys did not cite Rule 10301(d) in support of the motion, id. Plaintiff countered that the NASD arbitration procedures were unconscionable – an issue the Court of Appeal found unnecessary to address – and that because the class action claim for unfair practices was asserted on behalf of all Wachovia employees it was not subject to arbitration. Id. Plaintiff’s lawyer argued, “The only forum for the unfair practice claims is a civil lawsuit. The NASD arbitration rules do not even permit putative or class claims to be arbitrated.” Id.

Arbitration Class Action Court Decisions Employment Law Class Actions Uncategorized

Class Action Defense Cases-Gruer v. Merck-Medco: Second Circuit Reverses District Court Order Approving Class Action Settlement Holding Class Action Plaintiffs Were Not Representative Of Class

Interests of Plaintiffs in Class Action Conflicted with other Class Members, Warranting Certification of Subclass and new Hearing on Approval of Class Acton Settlement Second Circuit Holds

Plaintiffs filed a class action Merck-Medco managed Case, L.L.C., a/k/a Medco Health Solutions, Inc., a pharmaceutical benefits manager (PBM), and its former parent company Merck & Co. Inc. (collectively Medco) alleging violations of the Employee Retirement Income Security Act of 1974 (ERISA) for breach of fiduciary duties. Gruer v. Merck-Medco Managed Care, LLC, ___ F. 3d ___ (2d Cir. October 4, 2007) [Slip Opn., at 6]. Ultimately, the parties reached a tentative settlement of the class action. Important to our discussion, the class action settlement required Medco pay $42.5 million to class members, allocated primarily on a pro rata share of monies spent by each plan but reducing by 55% the share of certain plans because those plans could not have been injured directly by the conduct of Medco. _Id._, at 8. The district court approved the class action settlement, but the Second Circuit reversed and remanded holding that the lower court erred in failing to consider the conflict of interest between the purported representatives of the class action and other members of the class.

In very broad terms, plaintiffs in the class action complaint consisted of individuals, as beneficiaries of certain welfare benefit plans, and of trustees of welfare benefit plans. Gruer, at 4. The class action complaint alleged that Medco breached fiduciary duties under ERISA by “failing to act in their best interest in its capacity as a pharmaceutical benefits manager for the plans,” id., as set forth in the Note. A class action settlement was proposed, at which time certain entities sought leave to intervene and/or objected to the settlement. Id. The district court certified a class action, approved the settlement, awarded legal fees, and severed those cases in which ERISA plans opted out of the class action settlement, id.

Certification of Class Actions Class Action Court Decisions Uncategorized

FLSA Class Action Defense Cases-Zhong v. August August: New York Federal Court Partially Grants Defense Motion To Dismiss Overtime/Minimum Wage Class Action Claims

Class Action Complaint Alleging Violations of Federal Fair Labor Standards Act (FLSA) and State Law Equivalent Failed to Adequately Plead Overtime Violations New York Federal Court Holds

Plaintiff filed a putative class action against his employer, August August Corp. (doing business as “River Vietnamese and Thai Restaurant”) alleging failure to pay overtime and minimum wages required by the federal Fair Labor Standards Act (FLSA) and New York’s Minimum Wage Act (NYMWA). Zhong v. August August Corp., 498 F.Supp.2d 625, 627 (S.D.N.Y. 2007). The class action complaint asserted that federal court jurisdiction exists under 28 U.S.C. § 1337 as to the FLSA §§ 206 and 207 claims (the first and second claims for relief), and under 28 U.S.C. §1367 (supplemental jurisdiction) over the third claim for relief brought under New York state law, id. Defense attorneys moved to dismiss the class action on several grounds; the district court granted the motion in part.

Preliminarily, the district court rejected defense claims that the class action complaint failed to adequately plead that defendant was plaintiff’s “employer” within the meaning of the FLSA, holding that under the liberal standards applicable to a motion to dismiss, the allegations that plaintiff was “an employee” and was “employed by” sufficiently placed defendant on notice of the claims against it. Zhong, at 628-29. The next question was whether defendant was “engaged in commerce or in the production of goods for commerce” within the meaning of the FLSA, id., at 629. Again, the federal court held that the class action complaint adequately alleged this element of an FLSA claim, id. Similarly, the allegation that plaintiff earned only $10 per day but worked 3 or 4 hours a day adequately pleaded a breach of the FLSA’s minimum wage requirement. Id., at 629. In this regard, while the district court acknowledged that plaintiff had not demanded any specific amount in damages, “he has provided enough information to give August sufficient notice from which to calculate the alleged damages” because he alleged that he worked “twenty hours per week, spread out over six days per week, at a wage of $10.00 per day, for a total of (roughly) twenty weeks.” Id., at 629-30.

Class Action Court Decisions Employment Law Class Actions Uncategorized

Class Action Defense Cases-In re Wellnx: Judicial Panel On Multidistrict Litigation (MDL) Grants Defense Motion To Centralize Class Action Lawsuits But Selects District of Massachusetts As Transferee Court

Judicial Panel Grants Defense Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407 but Rejects Defense Request to Centralize Class Actions in Maryland or New Jersey, Instead Transferring the Class Actions to the District of Massachusetts Nine class action lawsuits were filed against Wellnx Life Sciences and others seeking damages for strict liability, fraud and unjust enrichment arising from the manufacture, marketing and sale of Wellnx Slimquick and/or NV products, and several class actions alleged that the marketing and sale of the products violated various state consumer protection laws.

Class Action Court Decisions Multidistrict Litigation Uncategorized

Labor Law Class Action Defense Cases-Estrada v. FedEx: California State Court Upholds Class Action Judgment Against FedEx But Holds $14.4 Million Fee Award Must Be Reduced As Excessive

Trial Court Class Action Judgment Against FedEx for Labor Law Violations Generally Upheld but California State Appellate Court Reverses Attorney Fee Award as Excessive and because Multiplier Improperly Based on Same Facts that Triggered Entitlement to Fees

Plaintiffs filed a class action in California state court against FedEx Ground Package System, Inc. alleging violations of the state’s labor laws for failure to reimburse work-related expenses; the thrust of the class action complaint was that, “for the limited purpose of their entitlement to reimbursement for work-related expenses, [class members] were employees, not independent contractors.” Estrada v. FedEx Ground Package Sys., Inc., 64 Cal.Rptr.3d 327 330 (Cal.App. 2007). The trial court granted plaintiffs’ motion to certify the litigation as a class action, and a trifurcated trial followed during which (1) “the court found the drivers were employees within the meaning of Labor Code section 2802 (Phase I) , ordered FedEx to reimburse some (about $5 million, including prejudgment interest) but not all of their expenses (Phase II), granted most of the equitable relief sought by the drivers (Phase III), and ordered FedEx to pay the drivers’ costs and attorneys’ fees (about $12.3 million).” Id. Defense attorneys appealed and plaintiffs cross-appealed.

The Court of Appeal noted that this represented the third appeal in this case, and that it here considered defense challenges to the trial court order certifying the class action, the finding that the drivers were employees, the reimbursement findings, and the award of attorney fees. Estrada, at 330-31. The facts are quite detailed, and we do not repeat them here. See id., at 331-34. On the direct appeal, the Court of Appeal affirmed that the drivers were employees of FedEx, not independent contractors. Id., at 335. The appellate court noted that the California Labor Code does not define “employee” for purposes of section 2802 so the common law test applies, and explained at page 335 that under that test the question is “whether the principal has the right to control the manner and means by which the worker accomplishes the work” based on a number of factors including “(1) whether the worker is engaged in a distinct occupation or business, (2) whether, considering the kind of occupation and locality, the work is usually done under the principal’s direction or by a specialist without supervision, (3) the skill required, (4) whether the principal or worker supplies the instrumentalities, tools, and place of work, (5) the length of time for which the services are to be performed, (6) the method of payment, whether by time or by job, (7) whether the work is part of the principal’s regular business, and (8) whether the parties believe they are creating an employer-employee relationship.” (Citations omitted.) Under those factors, substantial evidence supported the finding that the drivers were “employees,” see id., at 336-37.

Next, the Court of Appeal affirmed that class action treatment was appropriate, holding that “it is clear that common issues – whether the drivers were employees and, if so, which expenses would be reimbursable – predominated.” Estrada, at 338. The appellate court affirmed also the trial court finding that FedEx failed to reimburse the drivers for all expenses required by law, see id., at 339.

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