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

Judicial Panel Grants Request, Unopposed by Defense, for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407 but Rejects Moving Plaintiff’s Request to Transfer Class Actions to Southern District of Iowa Class action lawsuits were filed in Iowa and California federal courts against Midland National Life Insurance Company alleging deceptive marketing and sale of annuities to seniors. In re Midland Nat’l Life Ins. Co. Annuity Sales Prac. Litig.

Class Action Court Decisions Multidistrict Litigation Uncategorized

Class Action Defense Cases-Bell Atlantic v. Twombly: Supreme Circuit Holds Allegations Of Parallel Conduct Unfavorable To Competition Insufficient To Survive Motion To Dismiss Absent Facts Evidencing Agreement Rather Than Identical Independent Action

Sherman Act § 1 Class Action Complaint Must Allege Agreement not Merely Parallel Conduct Supreme Court Holds

Plaintiffs filed a putative class action against various “Baby Bells” defendants alleging violations of the § 1 of the Sherman Act, which prohibits “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations.” Bell Atlantic Corp. v. Twombly, __ U.S. __, 127 S.Ct. 1955, 2007 WL 1461066, *4 (May 21, 2007). Defense attorneys moved to dismiss the class action on the grounds that defendants were acting in their economic self-interest and that evidence of “parallel behavior” among them is insufficient to establish a conspiracy in violation of the Sherman Act, id., at *5. The district court agreed and granted the defense motion to dismiss, but the Second Circuit reversed. The Supreme Court “granted certiorari to address the proper standard for pleading an antitrust conspiracy through allegations of parallel conduct.” Id., at *6. The Supreme Court explained at page *4, “The question in this putative class action is whether a § 1 complaint can survive a motion to dismiss when it alleges that major telecommunications providers engaged in certain parallel conduct unfavorable to competition, absent some factual context suggesting agreement, as distinct from identical, independent action. We hold that such a complaint should be dismissed.”

Following the divestiture of AT&T’s local telephone service in 1984, regional telephone monopolies known as “Baby Bells” or “Incumbent Local Exchange Carriers” (ILECs) arose to provide local phone service but they were excluded from providing long-distance service. Twombly, at *4. In 1996, Congress enacted the Telecommunications Act of 1996 that permitted competition for local telephone service and authorized ILECs to enter the long-distance market, id. Plaintiffs’ class action complaint named BellSouth Corp., Qwest Communications, SBC Communications and Verizon, and alleged that these ILECs control at least 90% of the local telephone service market in the 48 contiguous states. Id., at *4 n.1. In essence, plaintiffs allege that defendants must have conspired in violation of § 1 of the Sherman Act, and that this conspiracy may be “inferred from the ILECs’ common failure ‘meaningfully [to] pursu[e]’ ‘attractive business opportunit[ies]’ in contiguous markets where they possessed ‘substantial competitive advantages.’” Id., at *5. The gravamen of the class action complaint was as follows:

Class Action Court Decisions Uncategorized

Class Action Defense Cases-Barasich v. Columbia Gulf: Louisiana Federal Court Grants Defense Motion To Dismiss Class Action Alleging Defendants Damaged Marshlands Thus Contributing To Hurricane Damage

Political Question Doctrine does not Preclude Court from Considering Class Action Alleging that Oil Industry Activities Dredging Marshlands Increased Hurricane Damage but Class Action Claims Fail to State Claims Under Louisiana Law Federal Court Holds

Two class actions – subsequently consolidated by the district court because they “raise[d] identical issues of law and fact,” leading to the filing of an joint amended class action complaint – were filed against various oil and gas companies following Hurricane Katrina and Hurricane Rita seeking to hold defendants “accountable for their activities that the plaintiffs allege contributed significantly to the storms’ destructive impact in south Louisiana”; the class action alleged that defendants’ activities damaged marshlands “thereby weakening a protective barrier against hurricanes and exposing Louisianans to the prospect of greater harm from these storms.” Barasich v. Columbia Gulf Transmission Co., 467 F.Supp.2d 676, 678 (E.D. La. 2006). Defense attorneys moved to dismiss the class action complaint under Rule 12(b)(6) on the grounds that the claims involved political questions and therefore were nonjusticiable, and for failure to state a claim, id., at 680. The federal court rejected defense arguments that the class action claims were not justiciable, but granted the motion to dismiss the complaint for failure to state a claim.

The theory underlying the class action is (1) Louisiana’s coastal marshlands protect the state from hurricane damage, (2) defendants’ oil producing and transmission activities included dredging canals through these marshlands, destroying millions of acres of marshlands thereby “depriving inland communities . . . of their natural protection from hurricane winds and accompanying storm surge.” Barasich, at 679. The second amended class action complaint alleges “class members suffered personal injury and/or death, property damage, and the loss of the wetlands’ value as storm protection” and prayed for “all damages reasonable in the premises, including restoration.” Id., at 679-80. Defense attorneys moved to dismiss the class action complaint on two grounds: “1) the subject matter of plaintiffs’ action is nonjusticiable because it concerns a political question, and 2) plaintiffs do not state a claim upon which relief may be granted because they cannot prove the requisite elements for recovery as a matter of law under any available theory.” Id., at 680.

Class Action Court Decisions Uncategorized

Class Action Defense Cases-Lee v. Southern California: Class Action Plaintiff In Putative CLRA/UCL Class Action Not Bound By Arbitration Agreements Signed By Class Members California Court Holds

California Appellate Court Holds that Class Action Plaintiff cannot be Compelled to Arbitrate Claims Simply Because Class Members Signed Arbitration Agreements, as that Fact is not Relevant Until Motion to Certify Class Action, and in any Event Injunctive Relief Claims were not Subject to Arbitration

Plaintiff filed a putative class action against Southern California University for Professional Studies (SCUPS) alleging violations of California’s Consumer Legal Remedies Act (CLRA) and Unfair Competition Law (UCL) for failing to refund prepaid tuitions to its students. Lee v. Southern Cal. Univ. for Prof. Studies, 148 Cal.App.4th 782, 784 (Cal.App. 2007). Defense attorneys moved to compel arbitration, arguing that even though the class action representative was not directly subject to arbitration, 408 of the 519 putative class members had signed enrollment agreements with arbitration clauses and plaintiff, as their representative, was therefore bound to arbitrate her claims. Id., at 785. The trial court disagreed, denying the defense motion to compel arbitration of the putative class action. SCUPS appealed, and the appellate court affirmed.

Arbitration Class Action Court Decisions Uncategorized

Class Action Defense Cases-Oscar v. Allegiance: Fifth Circuit Holds That Loss Causation Must Be Established To Certify Securities Fraud Class Action And Criticizes Efficient Market Theory

To Invoke Presumption of Reliance in Securities Fraud Class Action Based on Fraud on the Market Doctrine, Plaintiff must Establish Loss Causation at Time of Motion to Certify Class Action Fifth Circuit Holds

Plaintiffs filed a securities fraud class action against telecommunications provider Allegiance Telecom and others alleging violations of section 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 based on an inaccurate statement concerning the number of line installations during the first three quarters of 2001 and a drop in stock price following a restated line count announced during the fourth quarter of that year. Oscar Private Equity Inv. v. Allegiance Telecom, Inc., 487 F.3d 261, 2007 WL 1430225, *1 (5th Cir. May 16, 2007). Plaintiffs’ lawyer moved to certify the litigation as a class action, advancing a “fraud on the market” theory to establish reliance by class members; defense attorneys objected to class action treatment, arguing that the restatement was not the cause of a drop in the stock price, id. The district court relied on the “fraud on the market” theory, rejected defense arguments, and certified a class action as requested. Id. The Fifth Circuit granted the defense leave to file an interlocutory appeal and reversed. The Circuit Court summarized its holding as follows: “We vacate the certification order and remand, persuaded that the class certified fails for wont of any showing that the market reacted to the corrective disclosure. Given the lethal force of certifying a class of purchasers of securities enabled by the fraud-on-the-market doctrine, we now in fairness insist that such a certification be supported by a showing of loss causation that targets the corrective disclosure appearing among other negative disclosures made at the same time.” Id. (italics added).

The details of the events that precipitated the filing of the class action complaint are set forth in the Note, below. The Fifth Circuit explained: “This dispute turns on whether the certification order properly relied upon the fraud-on-the-market theory. This theory permits a trial court to presume that each class member has satisfied the reliance element of their 10b-5 claim. Without this presumption, questions of individual reliance would predominate, and the proposed class would fail. Oscar, at *2 (footnotes omitted) (italics added). Under the fraud on the market theory, “Reliance is presumed if the plaintiffs can show that ‘(1) the defendant made public material misrepresentations, (2) the defendant’s shares were traded in an efficient market, and (3) the plaintiffs traded shares between the time the misrepresentations were made and the time the truth was revealed.’” Id. (citation omitted). In the Fifth Circuit, it is insufficient for a plaintiff to show that defendant made a material misstatement; rather, “proof that the misstatement actually moved the market” is required, id., at *3. The Circuit Court explained at page *3:

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

Class Action Defense Cases—In re TFT-LCD: Judicial Panel On Multidistrict Litigation (MDL) Grants Motion To Centralize Class Action Litigation And Selects Northern District of California As Transferee Court

Judicial Panel Grants Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407 in the Northern District of California, Rejecting Request of Separately Moving and Non-Moving Plaintiffs to Transfer Class Actions to Alternative Districts Twenty federal antitrust class action lawsuits were filed in four different states against various defendants alleging a “conspiracy to fix the price of thin film transistor-liquid crystal display (TFT-LCD) panels, which are used in computer monitors, flat panel television sets, and other electronic devices”; the majority of these class actions – 13 of the 20 – were filed in the Northern District of California, and three of the class actions were filed in the District of New Jersey.

Class Action Court Decisions Multidistrict Litigation Uncategorized

Class Action Defense Cases-Davis v. O’Melveny & Myers: Ninth Circuit Reverses Order Dismissing Labor Law Class Action And Compelling Arbitration Holding Arbitration Clause Unconscionable

District Court Erred in Dismissing Employment Class Action and Compelling Arbitration Because “Take it or Leave it” Option was Procedurally Unconscionable Despite 3-Months’ Notice of Arbitration Clause and Limitations Period for Asserting Claims Against Employer was Substantively Unconscionable Ninth Circuit Holds

In February 2004, plaintiff, a paralegal at O’Melveny & Myers until July 2003, filed a class action against her former employer alleging violations of the federal Fair Labor Standards Act (FLSA) and California state laws for failing to pay overtime and failing to provide meal and rest periods. Davis v. O’Melveny & Myers, ___ F.3d ___ (9th Cir. May 14, 2007) [Slip Opn., at 5605-07]. The district court granted the defense motion to dismiss the class action and compel arbitration based on a Dispute Resolution Program that had been distributed to employees via interoffice mail and via the office intranet site. _Id._, at 5606. The class action alleged, in part, that the DRP was unconscionable and enforceable, _id._, at 5607. On appeal, the Ninth Circuit stated that whether the class action claims fell within the scope of the DRP was not in dispute; the issue, rather, was whether the arbitration provision was enforceable. _Id._, at 5608.

Preliminarily, the Ninth Circuit held that “the question of whether O’Melveny’s arbitration agreement is unconscionable is for a court to decide” rather than an arbitrator. Davis, at 5610 (citations omitted). It then addressed whether the arbitration clause was procedurally and substantively unconscionable, as required under California law, id., at 5611 (citations omitted). The Court of Appeals had little difficulty finding the provision procedurally unconscionable, holding that it was prepared by a “sophisticated employer – a national and international law firm, no less” and that, even though the arbitration clause was not hidden and employees were not taken by surprise, “in a very real sense the DRP was ‘take it or leave it.’” Id., at 5611-12. The only way for an employee to “opt out” of the arbitration provision was to leave the company, and California and Ninth Circuit decisional law disapproves of such provisions in employment agreements. Id., at 5612-13 (citations omitted).

Arbitration Class Action Court Decisions Employment Law Class Actions Uncategorized

Class Action Defense Cases-Lindstrom v. City of Des Moines: Court Rejects Defense Effort To Remove Class Action To Federal Court Holding Class Action Claims Not Preempted By Federal Cable Act

Iowa Federal Court Remands to State Court Class Action Lawsuits Challenging Cable Television Franchise Fees Holding that Class Action Claims were not Preempted by Federal Cable Communications Policy Act and that Class Action Complaints did not “Arise Under” Federal Law

Seven putative class action lawsuits were filed in state court against various Iowa cities challenging as illegal a cable television franchise fee tax, and defense attorneys removed the class action to federal court arguing that the claims for damages in the class action complaints are preempted by the Federal Cable Communications Policy Act, 47 U.S.C. § 521 et seq. (Federal Cable Act). Lindstrom v. City of Des Moines, Iowa, 470 F.Supp.2d 1002, 1004-05 (S.D. Iowa 2007). Plaintiffs moved to remand the class action to state court, arguing that their class action lawsuits did not contain any federal claims. Id., at 1005. The district court summarized the class action complaints as follows: “Plaintiffs have stated only a single claim that arises under state law, i.e., whether the Cities can collect the cable franchise fees, in amounts exceeding the reasonable costs of regulating the activity, without express authorization by the Iowa Legislature.” Id. The district court granted the motion and remanded the class action to state court.

The district court recognized that the defense bore the burden of establishing subject matter jurisdiction, Lindstrom, at 1006. While the class action did not state federal claims, defense attorneys argued that the claims were preempted by the Federal Cable Act, id. The federal court stated that “nothing on the face of [the class action complaints] raises a federal question,” id., so the issue was whether the Federal Cable Act completely preempts the state law cause of action in the class actions, id., at 1007. After a detailed analysis, see id., at 1007-10, the court held that the class action claims were not preempted by the Federal Cable Act because the cities were charging less than the maximum tax allowed by federal law and that this would further, not undermine, the intent of the Act, id., at 1010. The court rejected also a defense argument that the class action is preempted because it conflicts with the Act’s definition of “franchise fees,” id., at 1010-11, and that removal was proper because the class action claims “arise under” federal law, id., at 1011-12.

Class Action Court Decisions Uncategorized

Class Action Defense Cases-Bellikoff v. Eaton Vance: Second Circuit Affirms Judgment For Defense In Investment Company Act Class Action Holding That No Private Rights Of Action Exist For Claimed Violations Of The Act

Class Action Complaint Properly Dismissed Because no Private Rights of Action Exist for Alleged Violations of Sections 34(b), 36(a) and 48(a) of the Federal Investment Company Act of 1940 (ICA), and Section 36(b) Claim Failed as a Matter of Law Second Circuit Court Holds

Plaintiffs filed a putative class action against various Eaton Vance entities under sections 34(b), 36(a) and 48(a) of the federal Investment Company Act of 1940 (ICA) arising out of the marketing, managing, and distributing shares of various Eaton Vance mutual funds. Bellikoff v. Eaton Vance Corp., 481 F.3d 110, 113-14 (2d Cir. 2007). The thrust of the class action complaint was that defendants paid kickbacks to brokers who promoted the sale of Eaton Vance mutual funds, that the increase in fund assets meant higher advisory fees paid to certain defendants “while providing no benefits to the funds or the fund investors,” and that the advisory fees paid were too high. Id., at 114. Defense attorney’s moved to dismiss the class action, arguing that no private rights of action exist under ICA for the claims alleged, id. The district court agreed with the defense and dismissed the class action; the Second Circuit affirmed.

The class action complaint alleged that defendants entered into arrangements with Morgan Stanley, Salomon Smith Barney, Wachovia and others that included “(1) cash payments to brokers in return for the brokers’ agreement to promote sales of fund shares; (2) directing fund portfolio brokerage to brokers in return for agreements by the brokers to promote the funds (a practice known as “directed brokerage”); and (3) excessive commission arrangements with brokers.” Bellikoff, at 114. At bottom, “as more investors were drawn to the funds through these arguably nefarious business practices, the fees paid to various defendants mushroomed,” id. The Second Circuit noted that SEC had investigated and sanctioned Morgan Stanley “for accepting impermissible payments from the defendants here in exchange for aggressively pushing Eaton Vance funds over other comparable investment options” while “fail[ing] to disclose adequately certain material facts to its customers … [namely that] it collected from a select group of mutual fund complexes amounts in excess of standard sales loads and Rule 12b-1 trail payments.” Id., at 114-15. The SEC fine resulted in the predictable Pavlovian response. In the words of the Circuit Court, “Smelling blood in the water, five investors then filed complaints . . . against Eaton Vance and many of its affiliated entities, alleging, inter alia, violations of the ICA, the Investment Advisers Act, and breaches of fiduciary duties.” Id., at 115.

Class Action Court Decisions Uncategorized

Class Action Defense Cases-Cole v. General Motors: Fifth Circuit Agrees With Defense That Lower Court Erred In Certifying Nationwide Class Action Because Of Numerous Differences In Several Jurisdictions

District Court Abused its Discretion in Certifying Nationwide Class Action Because Numerous and Substantial Differences in Applicable Substantive laws Precluding Finding that Rule 23(b)(3) Predominance Test was Met Fifth Circuit Holds

Plaintiffs filed a putative class action against General Motors in Louisiana federal court, alleging that the sensors on 1998 and 1999 Cadillac DeVilles were defective. Cole v. General Motors Corp., 484 F.3d 717, 2007 WL 1054697, *1 (5th Cir. 2007). Plaintiffs’ moved to certify the lawsuit as a nationwide class action; defense attorneys opposed the motion, arguing in part that substantial differences in substantive laws among the 51 jurisdictions precluded a finding of predominance under FRCP Rule 23(b)(3). The district court rejected the defense arguments and certified a nationwide class action as requested. The defense filed an interlocutory appeal under Rule 23(f), arguing that the lower abused its discretion in certifying the class action, id., at *3. The Fifth Circuit agreed with the defense and reversed.

In September 2000, after receiving 300 reports of airbags deploying inadvertently, GM sent a voluntary recall notice to all 224,000 DeVille record owners/lessees stated that “a defect which relates to motor vehicle safety exists and may manifest itself in your 1998 or 1999 model year Cadillac DeVille” in that “the side impact air bags in your car [may] deploy unexpectedly, without a crash, as you start your car or during normal driving.” Cole, at *1. GM expected to have sufficient replacement parts by April 2001, but availability was delayed until May 2001, id. However, GM was able to replace 40,000 parts by November 2000, id. Plaintiffs Beverly Cole, Anita S. Perkins and Jewell P. Lowe received the voluntary recall notice: the Court of Appeals described them as follows: “Lowe is the mother of one of plaintiffs’ counsel, Perkins is a paralegal for another of plaintiffs’ counsel, and Cole is the paralegal’s cousin.” Id. None of them had experienced a side airbag deploying inadvertently, but they filed a federal court class action against GM one month after receiving GM’s September 2000 letter, id. In November 2000, GM offered to replace the sensors in plaintiffs’ cars, but the offer was rejected “because GM did not extend the offer to all DeVille owners and GM would not answer questions about the source of the parts, the number available, and whether the SISMs had been properly tested.” Id. Plaintiffs dismissed this class action but filed a new class action in Louisiana state court in December 2000; defense attorneys removed the class action to federal court in January 2001 on the basis of diversity jurisdiction, id., at *1-*2.

Class Action Court Decisions Uncategorized