WorldCom Class Action Defense Case: Second Circuit Holds Class Action Complaint Tolls Statute Of Limitations Of Putative Class Members Who File Individual Suits Prior To Certification Of Class Action

As Matter of First Impression, Second Circuit Holds that American Pipe Tolling Applies to Putative Class Members of Class Action who File Individual Lawsuits Prior to Decision on Class Action Certification

Prior to the filing of putative class action lawsuits and within one year after plaintiffs discovered “the untrue statement or the omission,” see 15 U.S.C. § 77m, certain pension funds filed individual lawsuits against underwriters of WorldCom bonds under Section 11 of the federal Securities Act of 1933 alleging that they had purchased bonds based on registration statements that contained false and misleading information. In re WorldCom Sec. Litig., ___ F.3d ___, 2007 WL 2127874, *1 (2d Cir. July 26, 2007). Numerous putative class action lawsuits also were filed against WorldCom and its bond underwriters, including Caboto-Gruppo Intensa and Caboto Holdings Sim, and these alleged _inter alia_ violations of Section 11, _id._ After the expiration of the one-year limitations period, the pension funds amended the individual complaints to add Caboto as party-defendants, _id._ Caboto defense attorneys moved to dismiss the individual actions as time-barred; plaintiffs countered that the class actions tolled the running of the statute of limitations. _Id._ The district court granted the defense motion, ruling that the class action complaints did not toll the limitations period because plaintiffs had filed suit before a decision on class certification in the class action lawsuits. _Id._ The Second Circuit reversed.

Briefly, WorldCom falsified financial records to paint an inaccurate picture of the company’s profitability, but in 2002 “the scheme collapsed.” In re WorldCom, at *2. A class action complaint was filed against WorldCom in April 2002, and numerous other class actions soon followed. More than 120 individual lawsuits also were filed against the company, all of which were removed to federal court based on WorldCom’s petition for bankruptcy protection. Id. By May 2003, the individual actions had been consolidated with the class action complaints, id. In October 2003, the district court certified a class action against WorldCom alleging securities violations; that class action complaint included Section 11 claims against Caboto and other bond underwriters. Id., at *3. In analyzing Caboto’s motion to dismiss the class action and individual claims, the district court found that the statute of limitations began to run no later than June 25, 2002, but that Caboto and certain other bond underwriters were not named as defendants until September 24, 2003 – three months after the expiration of the one year limitations period. Id., at *4.

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

Class Action Defense Cases-Pastor v. State Farm: Seventh Circuit Affirms Refusal To Certify Class Action Holding Individual Fact Issues Predominate Over Common Questions Rendering Class Action Treatment Unmanageable

District Court Properly Denied Class Certification Motion on Grounds of Unmanageability because Literally Thousands of Individual Evidentiary Hearings would be Required Seventh Circuit Holds

Plaintiff filed a putative class action in Illinois federal court against State Farm alleging that it failed to pay insureds $10 as required by its insurance policies when car repairs render the insured’s vehicle unusable for at least one day but the insured does not rent a car during the repair period. Pastor v. State Farm Mut. Auto. Ins. Co., 487 F.3d 1042, 1043 (7th Cir. 2007). Defense attorneys argued against certification of a class action, and the district court agreed; plaintiff thereafter accepted an offer of judgment, and appealed the denial of class certification. Id. The Seventh Circuit affirmed, holding that class action treatment was not appropriate because common issues did not predominate over individual issues.

Plaintiff’s car windshield was damaged in an accident 11 years ago. Pastor, at 1044. Her auto insurer, State Farm, paid for the repairs, which were completed in about one hour, but it did not pay her an additional $10 pursuant to a provision in her policy that required State Farm to “pay you $10 per day if you do not rent a car while your car is not usable.” Id. The policy states that the “per day” entitlement period begins at the time of the accident or “if your car can run, when you leave it at the shop for agreed repairs,” and ends when the repairs are complete. Id. Plaintiff did not rent a car for the one-hour repair period and did not ask State Farm for the extra $10, but the class action complaint alleges that the insurer was contractually obligated “to notify her that she was entitled to the money,” id. The Circuit Court was harsh in its characterization of plaintiff’s claim, stating “there is nothing in the policy to suggest that upon receipt of a claim seeking reimbursement of one cost (the cost of repairing the windshield) the insurer must determine and inform the insured of any additional entitlement that the policy might confer on her, just in case its customers don’t bother to read their insurance policies when they file claims under them.” Id. Despite this problem, just before the expiration of the 10-year statute of limitations period, plaintiff filed a putative class action in Illinois federal court seeking to represent all State Farm insureds who “received payments for claims for damage to their vehicles, did not rent a car, yet did not receive any payment pursuant to the $10 a day clause.” Id.

Certification of Class Actions Class Action Court Decisions Uncategorized

Class Action Defense Cases-In re Trade Partners: Judicial Panel On Multidistrict Litigation (MDL) Grants Defense Motion To Centralize Class Action Litigation In Western District Of Michigan

Judicial Panel Grants Defense Request, Opposed by Plaintiffs, for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407 and Agrees with Defense Request to Transfer Class Actions to Western District of Michigan Five federal securities class action lawsuits (two in Oklahoma and one in California, Michigan and Texas) were filed against Macatawa Bank and others arising out of the role played by Macatawa bank’s predecessor-in-interest, Grand Bank, in an alleged fraud perpetrated by Trade Partners, Inc.

Class Action Court Decisions Multidistrict Litigation Uncategorized

Amex Class Action Defense Cases-Aviation Data v. American Express: California Court Holds Defense Misrepresentations Warrant Rejection Of Class Action Settlement And Waiver Of Right To Arbitrate

Misrepresentations by Defendant and Defense Counsel in Connection with Discovery and Court Proceedings Surrounding Proposed Settlement of Class Action Supported Trial Court Ruling that Defense Waived Right to Compel Arbitration California Court Holds

Plaintiffs filed a class action California state court against American Express Travel Related Services (Amex) alleging violations of the state’s unfair competition law arising out of the manner in which it charged for flight and baggage insurance. Aviation Data v. American Express Travel Related Services Co., Inc., ___ Cal.App.4th __, 62 Cal.Rptr.3d 396, Slip Opn., at 2 (Cal.App. 2007). A proposed settlement fell apart due to misrepresentations made by defense counsel, and Amex moved to compel arbitration. The Court of Appeal defined the issue as, “May a party lose its contractual right to compel arbitration if, when negotiating and seeking approval of a class action settlement, it misrepresents the benefits of the proposed settlement to the court, opposing counsel and others?” _Id._, at 1. The court summarized the trial court order and its holding at page 1 as follows: “Here the trial court refused to approve a class action settlement when it concluded that counsel for [Amex] misled plaintiffs in the course of negotiations by offering to make significant modifications to its travel insurance program that, unbeknownst to the plaintiffs, it had already made for reasons unrelated to the lawsuit. We hold the court did not err in ruling that due to its misleading conduct, Amex lost its right to compel arbitration.”

The class action complaint alleged that Amex offered cardholders flight and baggage insurance programs at a cost of $4-$14 per flight automatically charged to their American Express card. The class action alleged that cardholders believed Amex would charge them for this insurance only if they actually flew, and would receive refunds if flights were canceled or the airline tickets were not used. Instead, “Amex engaged in a scheme to cheat and defraud its cardholders by assessing premiums for trips it knew were never taken; intentionally designed its billing practices, procedures and computer programs to bill customers for services they did not receive or use and to double-bill for the same service; and intentionally failed to issue refunds or credits on cancelled flights or unused tickets.” Aviation, at 2.

Arbitration Class Action Court Decisions Uncategorized

Allstate Class Action Defense Case-Allstate v. Superior Court: California Circuit Holds That “Made Whole” Rule Does Not Require Insured Recover Attorney Fees Before Insurer Can Demand Reimbursement Of Policy Benefits Previously Paid

As Matter of First Impression, Court Holds Class Action Failed to State a Claim Against Insurer because California Law Permits Insurers to Demand Reimbursement of Insurance Benefits Following Insured’s Recovery of Damages from Tortfeasor

Plaintiff filed a class action in California state court against Allstate Insurance alleging that its demand for reimbursement of benefits paid under the insurance policy violated various state and common laws. Allstate Ins. Co. v. Superior Court, 151 Cal.App.4th 1512, 1518 (Cal.App. 2007). Defense attorneys demurred, arguing that Allstate’s reimbursement demand, made pursuant to the terms of the insurance policy, was allowed by California law and so the class action complaint failed to state a claim, id., at 1519-20. The trial court overruled the demurrer, permitting the class action to proceed_, id._ The California Court of Appeal granted Allstate’s petition for writ of mandate and reversed.

Following an accident, plaintiff tendered a claim to Allstate under the first-party, no-fault medical payments insurance coverage section (“med-pay”) of his automobile policy, and Allstate paid him $4203.36. Allstate, at 1518. Plaintiff then sued the responsible party, recovering $11,000 but incurring $5926.84 in attorney fees and costs, id. Allstate did not participate in the litigation, but demanded reimbursement of the policy benefits paid pursuant to the “subrogation rights” provision which provides, “When we pay, your rights of recovery from anyone else become ours up to the amount we have paid. You must protect these rights and help us enforce them.” Id. Plaintiff reimbursed Allstate $1,696.13; “Allstate agreed to the reduction based on the common-fund rule that an insurer is required to deduct from its reimbursement a pro rata portion of the insured’s attorney fees and costs incurred to recover covered losses against a third party tortfeasor when the insurer had knowledge of, but did not participate in, the litigation.” Id., at 1519 (citing Lee v. State Farm Mut. Auto. Ins. Co., 57 Cal.App.3d 458, 465-66 (Cal.App. 1976)).

Class Action Court Decisions Uncategorized

PSLRA Class Action Defense Cases-Baker v. MBNA: Delaware Federal Court Grants Defense Motion To Dismiss One Count In Class Action Complaint Against Two Individuals Only But Otherwise Denies Motion

Class Action Complaint Adequately Alleged Section 10(a) Control Person Liability as to All Individual Defendants and Adequately Alleged Section 10(b) Violation Against Company and Three of its Officers, but Failed to Establish Necessary Inference of Scienter as to Two Other Officers Warranting Dismissal of Claim Against Them Only Delaware Federal Court Holds

Nine (9) securities class action lawsuits were filed against MBNA and consolidated in the United States District Court for the District of Delaware. The consolidated class action complaint sought to represent purchasers of MBNA securities and alleged that the company of five of its officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. Baker v. MBNA Corp., ___ F.Supp.2d ___, 2007 WL 2009673, *1 (D. Del. July 6, 2007). Defense attorneys moved to dismiss the class action; the federal court dismissed one count as against two of the individual defendants, but otherwise denied the defense motion.

The class action complaint named MBNA and MBNA officers Bruce L. Hammonds, Kenneth A. Vecchione, Richard K. Struthers, Charles C. Krulak, and John R. Cochran, III, and alleged that defendants reported false information concerning its growth in order to artificially inflate the stock price for their personal financial gain. Baker, at *1. The details of the allegedly false statements are discussed in the court’s opinion, see id., at *1-*2. The class action contained two counts only: one for violations of Section 10(b) and Rule 10b-5 against all defendants, and one for violations of Section 20(a) against the individual defendants. Id., at *3. All defendants moved for dismissal of the class action complaint under Rule 12(b)(6) and Rule 9(b), id. In addition to noting its safe harbor provision, the district court summarized the impact of the Private Securities Litigation Reform Act of 1995 (PSLRA) on securities cases at page *4 as follows:

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

PSLRA Class Action Defense Cases-Tellabs v. Makor: Supreme Court Holds In Securities Class Action That “Strong Inference” Of Scienter Under PSLRA Requires “More Than Merely Plausible Or Reasonable” Inference

Required “Strong Inference” of Scienter Under Private Securities Litigation Reform Act (PSLRA) “Must be More than Merely Plausible or Reasonable – it Must be Cogent and at Least as Compelling as any Opposing Inference of Nonfraudulent Intent” Supreme Court Holds

Plaintiffs filed a class action against Tellabs and its CEO alleging violations of federal securities laws; defense attorneys moved to dismiss the class action complaint on the grounds that the Private Securities Litigation Reform Act (PSLRA) required plaintiffs to plead facts sufficient to support a “strong inference” of scienter, and that the putative class action failed to do so. The district court granted the defense motion, but the Seventh Circuit reversed and reinstated the class action. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. __, 127 S.Ct. 2499 (2007). The Supreme Court granted certiorari and reversed.

The Supreme Court recognized the positive aspects of private actions to enforce federal antifraud securities laws, but noted “if not adequately contained, [they] can be employed abusively to impose substantial costs on companies and individuals whose conduct conforms to the law.” Tellabs, at 2504. One control enacted by Congress consists of the exact pleading requirements in the Private Securities Litigation Reform Act (PSLRA), which “requires plaintiffs to state with particularity both the facts constituting the alleged violation, and the facts evidencing scienter, i.e., the defendant’s intention ‘to deceive, manipulate, or defraud.’” Id. (citations omitted). Specifically, the PSLRA requires that the complaint “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind,” 15 U.S.C. § 78u-4(b)(2). Congress, however, did not define the term “strong inference” and circuit courts have disagreed on its meaning. Tellabs, at 2504.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

Class Action Defense Cases-In re TJX Security Breach: Judicial Panel On Multidistrict Litigation (MDL) Grants Plaintiff’s Motion To Centralize Class Action Lawsuits And Agrees District of Massachusetts Is Appropriate Transferee Court

Judicial Panel Grants Request, Unopposed by Defense, for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407 in the District of Massachusetts Six class action lawsuits (four in Massachusetts, and one in Alabama and Puerto Rico) were filed against TJX and others seeking damages arising out of the electronic theft of confidential customer data from TJX’s computer system. In re In re The TJX Cos., Inc., Customer Data Security Breach Litig.

Class Action Court Decisions Multidistrict Litigation Uncategorized

FDCPA Class Action Defense Cases-Meselsohn v. Lerman: New York Federal Court Denies Defense Motion To Dismiss Class Action Under Fair Debt Collection Practices Act (FDCPA) Holding Collection Letter Complied With Statute But Required Transitional Language

District Court Concludes that Validation Notice in Debt Collection Letter was Presumptively Valid because it Tracked Section 1692g of the Fair Debt Collection Practices Act (FDCPA), but Concluded that Least Sophisticated Consumer could have been Confused by “Subject To” Language in Letter and so Denies Defense Motion to Dismiss Class Action Complaint

Plaintiffs filed a putative class action against debt collection law firm alleging that a debt collection letter sent in August 2005 violated the federal Fair Debt Collection Practices Act (FDCPA). Meselsohn v. Lerman, 485 F.Supp.2d 215, 216 (E.D.N.Y. 2007). Defense attorneys moved to dismiss the class action complaint for failure to state a claim on the ground that the letter was presumptively valid. Surprisingly, plaintiff admitted that the letter “properly informs the consumer of his rights to dispute the debt, request verification of the debt and request creditor information within thirty (30) days of the initial communication from the debt collector.” Id., at 217. The class action complaint was premised on the theory that the letter violated the FDCPA because the 30-day validation period required by Section 1692g is “improperly overshadowed by the demand for payment of the debt within the same thirty days.” Id. According to plaintiff, it was unclear that he had the right “to either pay the debt or request validation,” id. (italics added). Defense attorneys argued that dismissal of the class action was warranted because the letter “tracks the statutory language of the FDCPA and is presumptively valid,” and argued further that the demand for payment “is specifically made ‘subject to’ the thirty day notice provisions” and so the validation notice is not “overshadowed” by the payment demand. Id. Plaintiff countered that the letters should have included “transitional language explaining to the consumer that the demand for payment does not override the consumer’s right to seek validation of the debt” and that it is deficient because it is not clear that the consumer may either pay the debt or dispute it. Id. The district court agreed with plaintiff.

Class Action Court Decisions FDCPA Class Actions Uncategorized

Class Action Defense Cases-Villanueve-Bazaldua v. TruGreen: Delaware Federal Court Denies Conditional Class Action Certification Of FLSA Class Action Holding Plaintiff Not “Similarly Situated” to Putative Class

Plaintiff in FLSA Class Action Must Make “Some Factual Showing” that Similarly-Situated Requirement is met in order to Obtain Conditional Certification of Class Action Treatment Delaware Federal Court Holds

Plaintiff filed a labor law class action against TruGreen – a lawn and landscaping company that hires non-immigrants for seasonal work under the federal H-2B visa program – alleging violations of the federal Fair Labor Standards Act (FLSA) and various state law claims. Villanueve-Bazaldua v. TruGreen Ltd. Partners, 479 F.Supp.2d 411, 413 (D. Del. 2007). Plaintiff moved to conditionally certify a class action; defense attorneys objected to class certification on the ground that plaintiff was not “similarly situated” to the putative class members and that, in any event, the company was not legally required to reimburse the expenses underlying the class action claims. The district court agreed with the defense and refused to certify an FLSA class action.

The class action complaint alleged that he was “recruited” in Mexico and that TruGreen promised to pay him $11.34 per regular hour and $17.01 per overtime hour to work for the company, and that in reliance on these promises, plaintiff incurred the expense of obtaining an H-2B visa and of traveling to and from the U.S. TruGreen, at 413. “These expenses included the cost of obtaining a Mexican passport, a $100 visa application fee, a $100 visa issuance fee, a $6 border crossing fee, a $155 administrative fee paid to TruGreen’s agent for processing the visa paperwork, and transportation expenses from the point of recruitment to the place of work in the United States.” Id. According to the class action allegations, these expenses constituted “de facto deductions from the first and last weeks of their wages, causing them to earn less than the wages required by the FLSA.” Id., at 413-14. Plaintiff argued that class action treatment was appropriate because Arriaga v. Florida Pacific Farms, 305 F.3d 1228 (11th Cir. 2002), holds that “visa and transportation costs incurred by foreign visa workers are de facto wage deductions from the workers’ first and last weeks’ wages for purposes of the FLSA” and because “all of TruGreen’s H-2B workers present the same claim that the FLSA requires reimbursement of those costs up to the mandated FLSA wage level,” id., at 414. Defense attorneys opposed conditional certification of a class action arguing that (1) it is not required to bear the visa and transportation costs of its H-2B employees, (2) plaintiff is not “similarly situated” to the putative class members because TruGreen provided him with transportation back to Mexico, and (3) “certain H-2B workers did receive compensation for various incidentals arising from their temporary employment.” Id.

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