Class Action Defense Cases-Morgan v. Gay: Third Circuit Holds As Matter Of First Impression That Under CAFA (Class Action Fairness Act Of 2005) Defense Still Bears Burden Of Establishing Amount-In-Controversy

Federal Class Action Fairness Act of 2005 (CAFA) did not Shift Burden of Proving $5 Million Amount in Controversy to Plaintiff and Plaintiff’s “Damages-Limitation Provision” could be used to Avoid Federal Court Provided Plaintiff did not Thereafter Seek to Recover More than $5 Million Third Circuit Holds

Plaintiff filed a putative class action in New Jersey state court based on false advertising claims in the sale of the skin cream StriVectim-SD and asserting various state law claims. Morgan v. Gay, 471 F.3d 469, 471 (3d Cir. 2006). Defense attorneys removed the class action to federal court under the federal Class Action Fairness Act of 2005 (CAFA), and plaintiff moved to remand the class action to state court. Id. The district court granted the motion, concluding that defense attorneys had failed to establish CAFA’s $5,000,000 amount-in-controversy requirement, and the Third Circuit granted the defense leave to appeal. Id., at 471-72. As a matter of first impression in the Third Circuit, the Court of Appeals held that CAFA did not shift to plaintiff the burden of proving the amount in controversy for removal purposes, and affirmed the district court order remanding the class action to state court.

With respect to the amount in controversy, plaintiff’s class action complaint expressly stated that the damages sought in the action, including treble damages and punitive damages, “‘shall not [in total] exceed $5 million in sum or value.'” Morgan, at 471. The district court granted the motion to remand because the defense had not established that the amount in controversy met the $5 million threshold. Id. On appeal, the Third Circuit first addressed whether CAFA shifted the burden of establishing federal court jurisdiction from the defense to the plaintiff. Id., at 472. The Circuit Court agreed with defense attorneys that the legislative history evidenced a willingness to “switch the burden of proof from the party seeking removal to the party seeking remand,” id., but ultimately concluded – as a matter of first impression in the Third Circuit – that CAFA did not alter the time-honored burden of proof and held that “the party seeking to remove the case to federal court bears the burden to establish that the amount in controversy requirement is satisfied,” id., at 473.

Class Action Court Decisions Class Action Fairness Act (CAFA) Removal & Remand Uncategorized

In re Edward Jones Class Action Defense Case: California Federal Court Denies Motion To Remand Securities Class Action And Grants Defense Motion To Dismiss Finding Class Action Complaint Preempted By SLUSA

California Court Holds that Plaintiffs’ Procedural Objections to Removal are Waived as Untimely and that Federal Securities Litigation Uniform Standards Act (SLUSA) Preempted Class Action Claims Requiring Dismissal of Complaint

In 2004, plaintiffs filed a putative class action against Edward D. Jones & Co., one of the largest brokerages in the United States, for violations of California’s unfair competition laws (UCL) and breach of fiduciary duties alleging that it “entered into agreements with certain mutual fund companies whereby Defendant placed the companies on an internal ‘Preferred Funds’ list and received retention ‘kickbacks’ based on the amount of money held by Plaintiff and the Class members in those funds.” In re Edward Jones Holders Litig., 453 F.Supp.2d 1210, 1211 (C.D. Cal. 2006). Defense attorneys removed the action to federal court on the ground that the state law claims were preempted by the federal Securities Litigation Uniform Standards Act (SLUSA), but the district court granted plaintiffs’ motion to remand finding that SLUSA did not apply “because the alleged wrongdoing . . . was not ‘in connection with the purchase or sale of covered securities.'” Id., at 1212. Two years later, after the Supreme Court issued its opinion in Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 548 U.S. —-, 126 S.Ct. 1503 (2006), defense attorneys removed the class action to federal court anew on the ground that Dabit “compels a finding that Plaintiffs’ claims are in fact preempted by SLUSA.” Id. Plaintiffs again moved to remand the complaint to state court, but the district court denied the motion.

First, the district court held that plaintiffs’ procedural objections to removal were waived because the motion to remand the class action to state court was untimely under 28 U.S.C. § 1447(c). In re Edward Jones, at 1212-13. Plaintiffs had argued that the removal was defective in two ways: (1) as untimely under 28 U.S.C. § 1446(b), and (2) as an improper “successive” notice predicated on the identical legal ground previously raised and rejected by the district court. Id., at 1212. An untimely notice of removal is a procedural defect, not a jurisdictional defect, id., at 1213 n.3 (citation omitted), and Rule 6(e) does not extend the time for filing a motion to remand so the motion – filed 32 days after removal – was untimely, id., at 1213.

Class Action Court Decisions PSLRA/SLUSA Class Actions Removal & Remand Uncategorized

Class Action Defense Cases-In re PolyMedica: Massachusetts Federal Court Refuses To Certify Securities Fraud Class Action For Contested Period Because Plaintiff Failed To Establish “Cause And Effect” And “Market Efficiency”

Defense Defeats Class Action Certification for Contested Time Period Because Plaintiff’s Evidence Failed to Demonstrate “Cause and Effect” and Only “Weakly” Showed Market Efficiency Massachusetts Court Holds

Plaintiff investors filed a putative class action against PolyMedica and others alleging securities fraud, relying on the “fraud on the market” doctrine to establish the reliance element of their securities fraud claim. In re PolyMedica Corp. Securities Litig., 453 F.Supp.2d 260, 264-65 (D. Mass. 2006). A Massachusetts federal court certified a class action for the time period of October 26, 1998 to August 21, 2001; the First Circuit reversed with respect to the time period of January 1, 2001 to August 21, 2001, and remanded the case for further proceedings. Id., at 264. The new district court explained at page 264, “The sole issue for further adjudication here is whether Rule 23(b)(3) can be satisfied in the circumstances of this case.” (Broadly, Rule 23(b)(3) requires that common questions of law or fact predominate over individual issues and that the class action device be the superior method for resolving the dispute.) The court agreed with defense attorneys that it could not, and refused to certify a class for the 2001 time period.

The federal court began by noting the special problem created by securities fraud class actions, explaining at page 264: “In the context of securities fraud allegations, the nature of Rule 23(b)(3) analysis is quite particularized. Securities frauds, like all frauds, entail proof of reliance. . . . While reliance is typically demonstrated on an individual basis, the Supreme Court has noted that such a rule would effectively foreclose securities fraud class actions because individual questions of reliance would inevitably overwhelm the common ones under Rule 23(b)(3). . . . To avoid this result, the Supreme Court has recognized the fraud-on-the-market theory, which relieves the plaintiff of the burden of proving individualized reliance on a defendant’s misstatement, by permitting a rebuttable presumption that the plaintiff relied on the ‘integrity of the market price’ which reflected that misstatement.” (Citations omitted.) The fraud on the market doctrine requires that the market be “efficient” – that is, “‘one in which the market price of the stock fully reflects all publicly available information,'” id., at 265 (quoting In re PolyMedica Corp. Securities Litig., 432 F.3d 1, 14 (1st Cir. 2005)).

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

Sinclair v. Merck-Class Action Defense Case: New Jersey Appellate Court Holds Class Action Ruling In Favor Of Defense In Vioxx Case Was Premature

New Jersey Court Holds that Whether Trial Court should Order Medical Monitoring of Vioxx Patients who Show no Signs of Illness, and Whether such Patients have a “Presently Cognizable Injury,” Requires Additional Evidence

Plaintiffs filed a putative class action against Merck in New Jersey state court for negligence, products liability, fraud and breach of warranty because they had used Vioxx for at least six consecutive weeks before the drug was removed from the market. The plaintiffs had not yet suffered any medical problems but alleged that “as a result of their direct and prolonged exposure to Vioxx, they have an enhanced risk of sustaining serious, undiagnosed and unrecognized myocardial infarctions,” and prayed for “the establishment of a court-administered medical screening program, funded by Merck.” Sinclair v. Merck & Co., Inc., — A.2d —-, 2007 WL 91446, *1 (N.J.Super.A.D. January 16, 2007). Defense attorneys moved to dismiss the class action complaint on the ground that New Jersey law did not afford the remedy of medical screening in products liability cases; the trial court agreed and granted the motion to dismiss. Id. The appellate division reversed, holding that the trial court “prematurely terminated plaintiffs’ opportunity to establish the existence of a legally cognizable claim.” Id., at *2.

In reinstating the class action complaint, the appellate division noted the “difficulty” created by “the relative paucity of New Jersey precedent.” Sinclair, at *2. The opinion discusses at length the three controlling decisions on the issue of medical monitoring, id., at *2-*6, and concluded that those cases required an analysis of “scientific and other evidence relevant to plaintiffs’ claims” in order for the trial court to properly determine “that a medical monitoring remedy should not be recognized in connection with Vioxx exposure,” id., at *6. The appellate division explicitly noted that it was “express[ing] no opinion as to the ultimate viability of plaintiffs’ action,” id., at *2, and recognized that “evidence may prove the judge to be correct” in dismissing the class action, id., at *6.

Class Action Court Decisions Uncategorized

Dale v. Comcast Class Action Defense Case: Georgia Federal Court Grants Defense Motion To Compel Arbitration Under Agreement Barring Class Action Lawsuits Holding Arbitration Clause Unconscionable And Dismisses Class Action Complaint

Arbitration Clause Barring Class Action Lawsuits in Contract Governed by Federal Arbitration Act (FAA) Valid and Enforceable Georgia Federal Court Holds, Agreeing with Defense that Arbitration Agreement was not Unconscionable

Plaintiffs filed a putative class action in Georgia state court against their cable television company alleging that it overcharged them for cable television services in violation of the federal Cable Communications Policy Act, 47 U.S.C. § 522 et seq. Dale v. Comcast Corp., 453 F.Supp.2d 1367, 1370 (N.D. Ga. 2006). Defense attorneys removed the action to federal court and moved to compel arbitration under a clause governed by the Federal Arbitration Act (FAA) that arbitration clause required customers to bring claims only in an individual capacity, thereby precluding participation in class action lawsuits, id., at 1374. Specifically, the arbitration clause provided, ” ALL PARTIES TO THE ARBITRATION MUST BE INDIVIDUALLY NAMED, THERE SHALL BE NO RIGHT OR AUTHORITY FOR ANY CLAIMS TO BE ARBITRATED OR LITIGATED ON A CLASS ACTION OR CONSOLIDATED BASIS OR ON BASIS INVOLVING CLAIMS BROUGHT IN PURPORTED REPRESENTATIVE CAPACITY ON BEHALF OF THE GENERAL PUBLIC (SUCH AS A PRIVATE ATTORNEY GENERAL), OTHER SUBSCRIBERS, OR OTHER PERSONS SIMILARLY SITUATED.” Id. The district court granted the defense motion.

Comcast provides its customers with a “subscriber agreement” at the time it installs service, and “on an annual basis, [it] disseminates notices of its policies and practices to its subscribers by including them in the subscribers’ monthly bills.” Dale, at 1371. Notice of the arbitration clause was provided to customers in December 2004 via “a billing stuffer entitled ‘Important Notices to Our Customers: Your Local Cable Company’s Policies & Practices,'” id., and noted that this complied with federal law, id., at 1372 n.2. For new customers, Comcast provided notice of the arbitration agreement at the time service was installed, and new Comcast customers signed forms agreeing to be bound to the terms of the subscriber agreement. Id., at 1371. The district court found that “plaintiffs were given copies of the Subscriber Agreement containing the arbitration provisions at the time of installation of their service” and that “when defendant amended the Subscriber Agreement, it notified plaintiffs that the changes would not take effect for thirty days and that plaintiffs could cancel their service if they objected to the changes.” Id., at 1377 n.4. Defense attorneys moved to compel arbitration and to dismiss the class action allegations.

In analyzing the defense motion, the federal court held that while it was obligated to determine the validity of the arbitration clause under state contract laws, Dale, at 1371-72, “as the FAA is ‘preemptive of state laws hostile to arbitration,’ the court should take into consideration the federal policy favoring arbitration,” id., at 1372 (citing Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1367-68 (11th Cir.2005)). The district court first rejected plaintiffs’ claim that they never entered into an arbitration agreement with Comcast. Id. Comcast established that it sent the notices in the regular course of business, and that plaintiffs’ paid their December 2004 bills evidencing that they received the billing statements. Based on the evidence presented, the federal court concluded “that plaintiffs’ denials and/or conclusory declarations that they do not recall receiving copies of the arbitration provisions are insufficient to defeat defendant’s motion to compel.” Id.

Arbitration Class Action Court Decisions Uncategorized

Davis v. Chase Bank Class Action Defense Case: California Court Holds Defense Properly Removed Class Action To Federal Court Under Class Action Fairness Act Of 2005 (CAFA) Because Securities Exception Did Not Apply

Class Action Alleging Improper Credit Card Charges does not Implicate “Securities Exception” to Federal Court Jurisdiction under CAFA (Class Action Fairness Act) so Defense Removal of Class Action was Proper California Court Holds

Plaintiff filed a putative class action against Chase Bank alleging improper finance charges in connection with retail purchases made with a “rewards” credit card arising out of a no-interest promotional offer Chase extended to cardholders. Davis v. Chase Bank U.S.A., N.A, 453 F.Supp.2d 1205, 1207 (C.D. Cal. 2006). Defense attorneys removed the action to federal court under the Class Action Fairness Act (CAFA), and the district court sua sponte issued an order to show cause why the case should not be remanded to state court. Id., at 1206. Following briefing, the district court concluded that the defense properly removed the class action.

Plaintiff made a $2000 purchase at Circuit City using his Chase “Rewards Card,” taking advantage of a no-interest promotional offer whereby no finance charges would be assessed if the balance was paid in full prior to January 2008. Davis, at 1207. At the time of the purchase, plaintiff had an outstanding balance on his credit card account, and the billing statement he received following his Circuit City purchase included a finance charge which, he alleges, included interest on the $2,000 “no-interest” amount as well as his otherwise outstanding balance. Id. Plaintiff filed a class action lawsuit in California state court, and the defense removed the action asserting that it involved more than $5,000,000 and thus fell within the scope of CAFA. Id. In response to the federal court’s OSC on the issue of whether the class action indeed involved more than $5 million, plaintiff’s lawyer argued that even if it did the class action complaint fell within the securities exception to CAFA and therefore remand was appropriate. Id. The district court disagreed.

Class Action Court Decisions Class Action Fairness Act (CAFA) Removal & Remand Uncategorized

Robinson v. Fountainhead Title-Class Action Defense Cases: Federal Court Holds Class Action Complaint Did Not Toll RESPA (Real Estate Settlement Procedures Act) Statute Of Limitations Against New Defendants

Maryland Court Holds that Federal Real Estate Settlement Procedures Act (RESPA) Claims were not Tolled by Filing of Class Action Complaint Where Defendants were not Named and had No Notice of RESPA Claims Until After Limitations Period Expired

In October 2003 plaintiff filed a putative class action in Maryland federal court against four entitles for violations of RESPA (Real Estate Settlement Procedures Act) and various state laws, arising out of her May 2003 purchase of a home, alleging sham business arrangements and the charging of fees in violation of RESPA. Robinson v. Fountainhead Title Group Corp., 447 F.Supp.2d 478, 481 (D. Md. 2006). In January 2006, plaintiff filed a Third Amended Complaint naming three new defendants which were served on January 20. 2006; prior to being served, none of these defendants had notice of any of the prior class action complaints. Id., at 482. Defense attorneys moved to dismiss the action; the federal court agreed with defense arguments that RESPA’s one year statute of limitations period had run and granted the motion.

Plaintiff purchased a home in May 2003 and financed the purchase. Robinson, at 482. The district court explained that “RESPA claims brought under [12 U.S.C.] § 2607 must be brought within ‘1 year . . . from the date of the occurrence of the violation.'” Id., at 483 (quoting 12 U.S.C. § 2614). The defense argued that the limitations period began to run on the date that escrow closed on the home purchase, and that the new defendants had not been added as party-defendants until after the one-year period expired. Id. Plaintiff’s lawyer, relying on American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), countered that the filing of the original complaint tolled the statute of limitations period on the RESPA claims. Id. The district court disagreed, concluding that American Pipe did not support plaintiff’s theory.

Class Action Court Decisions RESPA/TILA Class Actions Uncategorized

Class Action Defense Cases-Dare v. Knox County: Maine Federal Court Rejects Plaintiff/Defense Motion For Approval Of Class Action Settlement Requiring Class Members Be Afforded A Second Chance To Opt Out

Changed Circumstances Surrounding Proposed Class Action Settlement Requires Class Members Receive Another Opportunity to Request Exclusion from Settlement Maine Federal Court Holds

Plaintiff filed a class action against Knox County challenging the jail’s policy to strip search arrestees at the Knox County Jail; after the district court certified the lawsuit as a class action, defense and plaintiff attorneys reached a proposed settlement and requested court approval. Dare v. Knox County, 457 F.Supp.2d 52, 52-53 (D. Me. 2006). Ironically, the parties could not agree on the terms of the proposed settlement, and the terms submitted by the defense attorneys differed from the terms submitted by the plaintiff’s lawyer. Once the parties agreed upon the language of the proposed settlement, the district court rejected the proposal.

The federal court found that, given the circumstances of the case, class members must be afforded an additional opportunity to opt out as provided by Rule 23(e)(3) of the Federal Rules of Civil Procedure. Dare, at 53. Rule 23(e) gives the district court discretion to give class members a “second opportunity to opt out,” and the Advisory Committee’s Note identifies “changes in the information available to class members since expiration of the first opportunity to request exclusion” as a basis for exercising that discretion. Id. The district court found this to be an appropriate case for a second chance based on several factors, explaining at page 53:

Class Action Court Decisions Uncategorized

Konig v. U-Haul Class Action Defense Case: California Court Denies Defense Motion To Compel Arbitration Under Agreement Barring Class Action Lawsuits Holding Arbitration Clause Unconscionable

California Court Holds that Arbitration Clause Barring Class Action Lawsuits in Contract Governed by Federal Arbitration Act (FAA) is Enforceable Because Not Substantively Unconscionable

Plaintiff filed a putative class action against his former employer in California state court for unfair business practices and violations of the state labor laws alleging that U-Haul misclassifies employees, fails to pay them overtime, and fails to provide meal and rest breaks. Konig v. U-Haul Co. of California, ___ Cal.App.4th ___, 52 Cal.Rptr.3d 244, 246 (Cal.App. December 19, 2006). Defense attorneys moved to compel arbitration and to dismiss the class action allegations based on an arbitration clause governed by the Federal Arbitration Act (FAA) under which employees “waive any right to join or consolidate claims in arbitration with others or to make claims in arbitration as a representative or as a member of a class or in a private attorney general capacity,” _id._, at 247. (The arbitration policy and its class-action waiver provision are quoted in pertinent part in the Note below.) The trial court granted the defense motions, finding that the class action waiver was not substantively unconscionable because plaintiff had not demonstrated that the litigation governed by the arbitration clause involved “predictably . . . small amounts.”

The procedural posture of the case is interesting. In November 2005, the defense moved to compel arbitration and to dismiss the class action claims. Konig, at 247. At oral argument, “the trial court requested supplemental briefing on class action waivers in the employment context,” id., at 248. In January 2006, the Court of Appeal issued its opinion in Gentry v. Superior Court, 135 Cal.App.4th 944 (Cal.App. 2006), affirming a trial court order that enforced an arbitration clause containing a class action waiver. In March 2006, the trial court relied on Gentry in finding U-Haul’s arbitration clause enforceable, unaware that the California Supreme Court would grant review of Gentry the following month, rendering the case noncitable under California law. Id. As the Court of Appeal explained at page 248, “the trial court ruled that plaintiff did not prove that there were predictably [small] amounts of damages plus a negative impact on his ability to pursue his statutory claims such that the arbitration agreement was substantively unconscionable.” In so ruling, the trial court relied on the fact that plaintiff admitted his personal damage claim exceeded $25,000, id., at 246-47. The trial court dismissed the class action claims and compelled arbitration as to the balance of the complaint.

Arbitration Class Action Court Decisions Uncategorized

Jimenez v. Domino’s Pizza-Class Action Defense Cases: California Federal Court Agrees With Defense That Putative Labor Law Class Action Fails To Satisfy Requirements Of Rule 23 And Denies Plaintiffs’ Motion For Class Certification

California Federal Court Holds that Evidence Presented in Connection with Plaintiffs’ Motion for Certification of Class Action Established that Individual Questions as to Whether Employees were Misclassified Predominate over Common Questions of Fact, Thus Rendering Litigation Unsuitable for Class Action Treatment

Plaintiffs filed a putative class action in California state court against their former employer, Domino’s Pizza, for violations of California’s labor laws and unfair competition laws alleging failure to pay overtime and to provide rest and meal periods to its general managers by misclassifying them as exempt employees. Plaintiffs assert they were not exempt because most of their work consisted of making pizzas and cleaning stores, and that only about 20% of their workday was spent “performing their actual general manager duties.” Jimenez v. Domino’s Pizza, Inc., 238 F.R.D. 241, 245-46 (C.D. Cal. 2006). The defense removed the action to federal court, id., at 246, and plaintiffs moved the court to certify the lawsuit as a class action. The district court first addressed the requirements of Rule 23(a). Id., at 247. The court found that each of Rule 23(a)’s prerequisites – numerosity, commonality, typicality, and adequacy of representation – had been satisfied. Id., at 247-49. However, the district court agreed with defense attorneys that plaintiffs had not established the elements required by Rule 23(b), and so denied the motion.

Plaintiffs asserted that the putative class action satisfied each prong of Rule 23(b), so the court addressed each in turn., Jimenez, at 249. With respect to Rule 23(b)(1), the district court agreed with defense attorneys that plaintiffs misperceived the statute’s purpose. Rule 23(b)(1) authorizing class action treatment when separate lawsuits “create a risk of imposing incompatible standards of conduct on the defendant,” id. In this case, while it is possible that different courts may reach different conclusions in separate lawsuits as to whether a particular general manager is exempt or non-exempt, the fact remained that Domino’s “would not be incapable of fulfilling various judgments,” so certification under Rule 23(b)(1). Id., at 250.

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