CAFA Class Action Defense Cases–Ava Acupuncture v. State Farm: New York Federal Court Denies Motion To Remand Class Action To State Court Holding “Reasonably Probable” $5,000,000 Was At Stake And Plaintiffs Failed To Establish Local Controversy Exception

Class Action Properly Removed to Federal Court under CAFA (Class Action Fairness Act) because State Farm Declaration Established “Reasonable Probability” that Amount in Controversy Exceeded $5 Million and Plaintiffs Failed to Establish Relief Sought Against “Significant” Local Defendant New York Federal Court Holds

Plaintiffs, medical providers who had “been assigned No-Fault medical reimbursement claims by eligible injured persons (‘EIPs’),” filed a class action in New York state court against various defendants, including State Farm, alleging “that defendant insurers have fraudulently failed to pay statutorily mandated medical benefits under New York’s No-Fault Insurance Law” and that, together with “their legal counsel and special investigation units (‘SIUs’),” violated various New York state laws. Ava Acupuncture P.C. v. State Farm Mutual Auto. Ins. Co., ___ F.Supp.2d ___, 2008 WL 5170186, *1 (S.D.N.Y. December 9, 2008). According to the allegations underlying the class action, the defendants engaged in “harassing, abusive verification and litigation tactics” and used “preset numeric targets to limit claim payouts,” and allegedly bribed individuals at the Suffolk County District Attorney’s office. _Id._ Defense attorneys for State Farm and two other defendants removed the class action to federal court, asserting removal jurisdiction existed under the Class Action Fairness Act of 2005 (CAFA), _id._ In response, plaintiffs voluntarily dismissed their class action claims against the two other removing defendants, leaving State Farm as “the only remaining removing defendant,” and then filed a motion to remand the class action back to state court. _Id._ The district court denied the motion.

Plaintiffs argued that the class action should be remanded to state court for two reasons: (1) because State Farm failed to establish that the amount in controversy exceeded $5,000,000, and (2) because the class action falls within the scope of CAFA’s “local controversy” exception. Ava Acupuncture, at *1. After summarizing New York’s no-fault insurance law and federal subject matter jurisdiction requirements of CAFA, see id., at *2, as well as the general rules for calculating the amount in controversy and summarizing the “local controversy” exception to CAFA removal jurisdiction and the burden of the party opposing removal to establish the applicability of exceptions to CAFA removal, see id., at *3, the district court turned to whether the removing parties had met their burden of establishing federal court jurisdiction within a “reasonable probability,” id., at *2. While the class action complaint outlined damages “in only the most general terms, indicating that the exact number of class members will be ascertained through discovery and review of defendants’ records.,” and while the class action failed to “plac[e] a value on the object of the litigation,” the complaint did allege that “thousands” of individuals would be covered by the class action and attacked every denial of insurance coverage by State Farm over a 6-year period. Id., at *4. To meet its burden, State Farm submitted as evidence a declaration stating that “over the last six years State Farm has denied $40,265,558 worth of claims arising out of investigations conducted by its SIU investigators” and that “the amount of unpaid denied claims since 2003 far exceeds $5,000,000.” Id. The district court rejected plaintiffs’ objections to this declaration and concluded that the $5 million threshold was “easily” met. Id., at *4-*5. The federal court therefore turned to the local controversy exception.

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

CAFA Class Action Defense Cases–Johnson v. Advance America: Fourth Circuit Affirms Remand Of Class Action Against Payday Lender To State Court Because Minimal Diversity Under Class Action Fairness Act (CAFA) Not Met

District Court Properly Remanded Class Action to State Court because under Class Action Fairness Act (CAFA) a Defendant is Citizen of Both its State of Incorporation and the State where it has its Principal Place of Business Fourth Circuit Holds

Plaintiffs filed a class action against Advance America in South Carolina state court alleging labor law violations; alleging violations of state law in “payday loans” that were allegedly unconscionable and failed to meet the state law requirement for good faith and fair dealing; plaintiffs were South Carolina citizens, and brought the putative class action complaint on behalf of themselves and other South Carolina citizens. Johnson v. Advance America, 549 F.3d 932, 933 (4th Cir. 2008). Advance America removed the class action to federal court asserting removal jurisdiction under the Class Action Fairness Act (CAFA); defense attorneys asserted that minimal diversity existed because, even though it had its principal place of business in South Carolina, it was a Delaware corporation. Id. The defense argued also that minimal diversity existed because some class members may have moved out of state, id. The district court granted plaintiff’s motion to remand the class action to state court because Advance America and the putative class members were citizens of South Carolina. Id. The district court found also that the class action “fell within the ‘home-state exception’ to CAFA jurisdiction set forth in 28 U.S.C. § 1332(d)(4) because in a class limited by definition to ‘citizens of South Carolina,’ at least two-thirds of the class members necessarily are citizens of South Carolina.” Id. The Fourth Circuit granted defendant’s request for permission to appeal the remand order and affirmed.

The Circuit Court explained that despite the fact that Advance America was a citizen of Delaware, it was also a citizen of South Carolina. Johnson, at 934. Because the class action defined the class “to include only citizens of South Carolina, thus excluding persons who may have moved from South Carolina and established citizenship elsewhere at the time the action was commenced,” minimal diversity under CAFA had not been established. Id. Specifically, plaintiffs’ class action defined three proposed subclasses limited to “[a]ll citizens of South Carolina who are domiciled in South Carolina” or “[a]ll citizens of South Carolina,” id. The district court granted plaintiffs’ motion to remand both because minimal diversity had not been satisfied and because of the home-state exception. Id., at 934-35.

In broad terms, the Class Action Fairness Act permits removal of class actions if, inter alia, the citizenship of a single defendant is diverse from the citizenship of a single member of the class, and the defendant, as the removing party, bears the burden of establishing federal court jurisdiction. See Johnson, at 935. The Fourth Circuit first held that the fact Advance America has “dual citizenship” does not mean that it may select the citizenship of a diverse state to establish removal jurisdiction under CAFA: in short, Advance America has dual citizenship, not alternative citizenship, and it may not “rely on only one citizenship where its other citizenship would destroy federal jurisdiction.” Id., at 935-36. Further, the Circuit Court rejected defense efforts to create diversity among the plaintiffs, holding that the definitions of the proposed classes were limited to individuals who resided in South Carolina, not to former South Carolina citizens who had moved out of state. See id., at 936-37. The Court noted, “To be a citizen of a State, a person must be both a citizen of the United States and a domiciliary of that State.” Id., at 937 n.2 (citing Newman-Green, Inc. v. Alfonzo-Larrain, 490 U.S. 826, 828 (1989)). The fact certain Advance America customers may indeed have moved out of state was irrelevant for purposes of removal: “as the maters of their complaint, [plaintiffs] can choose to circumscribe their class definition” so as to exclude such persons and preclude removal. Id., at 937 (citations omitted). Accordingly, the defense failed to establish minimal diversity and the district court did not err in remanding the class action to state court. Id., at 937-38. (The Fourth Circuit found it unnecessary to reach the home-state exception argument, but noted “as a matter of logic, that if the class is limited to citizens of South Carolina, it could hardly be claimed that two-thirds of the class members were not citizens of South Carolina.” Id., at 938.)

Class Action Court Decisions Class Action Fairness Act (CAFA) Uncategorized

Labor Law Class Action Defense Cases–Crab Addison v. Superior Court: California Appellate Court Denies Writ Relief In Labor Law Class Action Holding Plaintiff Entitled To Contact Information Of Members Of Putative Class Action Despite Release Form

Employees’ Execution of Release Forms Requesting Employer not to Disclose their Contact Information in Connection with Litigation did not Prevent Disclosure to Plaintiff in Labor Law Class Action California State Appellate Court Holds

Plaintiff filed a class action against his employer Crab Addison (erroneously sued as Joe’s Crab Shack) alleging labor law violations; the class action complaint asserted that defendant failed to provide meal and rest periods as required by law, and that it misclassified employees as exempt. Crab Addison, Inc. v. Superior Court, 169 Cal.App.4th 958, 87 Cal.Rptr.3d 400, 402 (Cal.App. 2008). Defense attorneys answered the putative class action, asserting in part that class action treatment was not warranted. Id. Prior to seeking class action certification, plaintiff served discovery seeking inter alia the identity of each class member, including their names, addresses and telephone numbers. Id. The discovery also sought all facts supporting the contention that class action certification was not warranted, and the identity of each person with knowledge of those facts, id. Defense attorneys objected to this discovery on numerous grounds, including that the information sought was “confidential and private.” Id. The trial court granted plaintiff’s motion to compel responses to this discovery. Id. The defense opposed the motion in part based on a “release of contact information” form signed by employees; that form stated that defendant may be asked to provide “your contact information, including your home address and telephone number, to third parties” in connection with litigation, and to “indicate whether you consent to the disclosure of your contact information by marking the appropriate box.” Id., at 402-03. One of the options included a “ask me on a case-by-case” basis prior to disclosing or not disclosing this information, id., at 403. Further, at least 19 employees requested that their contact information never be disclosed, while 17 more requested that they be contacted before their contact information is released. Id. After weighing the privacy rights of the employees against the plaintiff’s “need for discovery,” the court ordered the information be provided to plaintiff. Id., at 403-04. Defendant sought extraordinary relief from the appellate court, id., at 405, but the Court of Appeal denied the petition.

In granting plaintiff’s motion to compel, the trial court explained in part that it was permitting plaintiff’s counsel to contact employees “irrespective of any things that might be in their file saying they did not wish to be contacted” because it believed that many employees believed that they were completing the forms to preclude telemarketers from obtaining their contact information. Crab Addison, at 404. The Court of Appeal began its analysis with a detailed discussion of its recent opinion in Puerto v. Superior Court (2008) 158 Cal.App.4th 1242, which may be found at pages 405 through 408. We do not summarize that analysis here; we note only that Puerto concluded that first giving potential class members an opportunity to “opt in” to being contacted “effectively gave more protection to nonparty witnesses’ contact information than the Discovery Act gives to much more sensitive consumer or employment records” and that the Court was “aware of no logic or authority that would justify such disproportionate protection of this private but under these circumstances relatively nonsensitive information.” Crab Addison, at 408 (quoting Puerto, 158 Cal.App.4th at p. 1259). The appellate court found Puerto to control its resolution of the requested petition for writ relief, though it recognized “two significant differences”: “First, in Puerto, the employer voluntarily disclosed the identities of the witnesses but sought to protect addresses and telephone numbers. Here, [defendant] seeks to protect identities as well as addresses and telephone numbers. Second, in Puerto there was no release form like the one utilized by [defendant].” Id., at 408. It found “no great significance” to the first difference, see id., at 408-09. Rather, the “key question” turned on “the effect of the release forms” executed by defendant’s employees, id., at 409.

Class Action Court Decisions Uncategorized

GM Class Action Defense Cases–J & R Marketing v. General Motors: Sixth Circuit Affirms Dismissal Of Securities Class Action Holding Class Action Plaintiff’s Claims Were Meritless

Securities Class Action Claims Meritless because GMAC’s Representations Concerning Its Bonds were not False or Misleading and GMAC was not Required to Learn and Disclose Information Concerning the Financials of its Parent Company GM Sixth Circuit Holds

Plaintiffs, as purchasers of bonds registered by GMAC, filed a class action against GMAC, GM and others alleging violations of federal securities laws; specifically, the class action complaint advanced claims under Sections 11 and 12(a)(2) of the Securities Act of 1933, and that GMAC failed to disclose required information and made material misstatements in its registration statements and prospectuses for various bond offerings. J & R Marketing, SEP v. General Motors Corp., 549 F.3d 384, 387 (6th Cir. 2008). According to the allegations underlying the class action, GMAC’s offering materials filed violated Sections 11 and 12(a)(2) of the Securities Act of 1933 because they contained “material omissions and misstatements” by failing to disclose GM’s (in addition to GMAC’s) performance and credit rating, even though matters adversely affecting GM could also adversely affect GMAC’s credit rating. Id., at 388. The class action also alleged that GMAC materially misstated its 2004 financial results, id. Defense attorneys moved to dismiss the class action for failure to state a claim; the district court granted the motion and dismissed the class action, finding that plaintiffs lacked standing to prosecute class action claims on behalf of purchasers of bonds which plaintiffs themselves had not purchased. Id., at 387. Additionally, the district court held that the non-disclosure claim failed because defendants were not required to disclose the information at issue, and because GMAC’s statements were not misleading and were not false, id. Accordingly, the district court dismissed the class action complaint. Id. The Sixth Circuit affirmed because it found “that the named plaintiffs’ own claims are without merit,” id.

Briefly, GMAC borrowed money from several sources, including the general public through publicly offer debt securities. J & R Marketing, at 387. “The debt securities had a coupon rate, which is the rate of interest GMAC would pay, as well as a yield, which was the payments GMAC would make over the life of the security not including the return of the principal. At the time the last interest payment was due, GMAC would return the principal to the investor.” Id., at 387-88. The class action plaintiffs had purchased “Second SmartNotes,” which were bonds registered by GMAC in September 2003, but the class action sought to define a class of all investors who purchased GMAC bonds sold from July 2003 through November 2005 “alleg[ing] that GMAC’s conduct similarly injured all members of the purported class.” Id., at 388. According to plaintiffs, once GM’s financial risks became known, its credit rating fell, as did GMAC’s credit rating, id. Defense attorneys argued that the named plaintiffs lacked standing to prosecute the class action as to any bonds other than those purchased by them, and that the offering materials concerning the Second SmartNotes did not contain material omissions or misstatements. Id., at 388-89. The district court granted the motion and dismissed the class action, id., at 389. The Sixth Circuit affirmed, but it did not address the standing issue because it found that plaintiffs’ class action claims lacked merit. Id., at 389-90.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

No Surprise…Labor Law Class Action Lawsuits Hold Top Spot Of Weekly Class Action Lawsuits Filed In California State And Federal Courts

In order to allow defense attorneys anticipate the types of class actions against which they will have to defend in California, we provide weekly, unofficial summaries of the legal categories for new class action lawsuits filed in the California state and federal courts located in Los Angeles, San Francisco, San Jose, Sacramento, San Diego, San Mateo, Oakland/Alameda and Orange County areas. We include only those categories that include 10% or more of the class action filings during the preceding week.

Class Actions In The News Uncategorized

Class Action Defense Cases—In re VistaPrint: Judicial Panel On Multidistrict Litigation (MDL) Grants Defense Motion To Centralize Class Action Litigation In Southern District Of Texas

Faced with Two Motions to Centralize Class Actions, Judicial Panel Grants Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407 and Agrees with Defendants that the Southern District of Texas is the Appropriate Forum for the Class Actions Seven class actions –two in Massachusetts; and one each in Alabama, Florida, Nevada, New Jersey and Texas – were filed against various defendants including VistaPrint, Vertrue and Adaptive Marketing, alleging violations of the federal Electronic Fund Transfer Act and the federal Electronic Communications Privacy Act.

Class Action Court Decisions Multidistrict Litigation Uncategorized

MARK YOUR CALENDARS – CLASS ACTION DEFENSE CONFERENCE COMING TO NEW YORK

ACI is sponsoring a conference on Managing Complex Litigation, which will be held at the Helmsley Park Lane in New York on February 25 and 26, 2009. The conference features a faculty of 25 in-house counsel. Details on the conference and its topics may be found at www.americanconference.com/complexlit.htm or by calling (888) 224-2480. The conference promises to be well worthwhile for class action defense attorneys and in-house who manage complex cases.

Class Actions In The News Uncategorized

CAFA Class Action Defense Cases–United Steel Workers v. Shell Oil: Ninth Circuit Reverses District Court Order Remanding Class Action To State Court Holding Timely Removal Of Class Action Under CAFA By One Defendant Is Sufficient

District Court Erred in Remanding Labor Law Class Action Complaint to State Court because Defendants Separately Filed Notices of Removal Pursuant to Class Action Fairness Act (CAFA), and Timely Removal under CAFA by One Defendant was Sufficient to Remove Class Action to Federal Court for All Defendants Ninth Circuit Holds The United Steel Workers union filed a class action in California state court against Shell Oil, Equilon and Tesoro alleging various labor law violations; the class action complaint asserted that defendants failed to provide employees with meal or rest periods, failed to provide proper wage statements, and failed to timely pay wages on termination.

Class Action Court Decisions Class Action Fairness Act (CAFA) Employment Law Class Actions Uncategorized

Amex Class Action Defense Cases–In re American Express: Second Circuit Reverses District Court Order Enforcing Class Action Waiver And Compelling Individual Arbitration In Antitrust Class Action

As Matter of First Impression, District Court Erred in Antitrust Class Action in Compelling Arbitration Pursuant to Mandatory Arbitration Clause in Commercial Contract and Enforcing Class Action Waiver because Absent Class Action Relief it was Unlikely Merchants would seek Redress for Alleged Wrong Second Circuit Holds

Several class action lawsuits were filed by various merchants against American Express alleging violations of federal antitrust laws in the form of a “tying arrangement” between its charge cards and credit cards; the first of these class actions was filed in August 2003 in the Northern District of California, but in December 2004 the district court granted a motion filed by defense attorneys to transfer the class actions, pursuant to 28 U.S.C. § 1404(a), to the Southern District of New York, where it was consolidated with several class actions against Amex pending in that district. In re American Express Merchants’ Litig., ___ F.3d ___, 2009 WL 214525, *2, *5-*6 (2d Cir. January 30, 2009). According to the allegations underlying the class action, Amex “is the leading issuer of general purpose and corporate charge cards to consumers and businesses in the United States and throughout the world. It is also the leading provider of charge card services to merchants.” _Id._, at *3. The class action plaintiffs are “(1) California and New York corporations which operate businesses which have contracted with Amex and (2) the National Supermarkets Association, Inc. (‘NSA’), ‘a voluntary membership-based trade association that represents the interests of independently owned supermarkets.’” _Id._ The Card Acceptance Agreement entered into by the merchants-plaintiffs provided, in pertinent part, that any dispute was subject to a broad and mandatory arbitration clause, which was governed by the Federal Arbitration Act (FAA) and which contained a class action waiver provision. _See id._, at *3-*5. Defense attorneys moved to compel arbitration and to enforce the class action waiver provision, _id._, at *6. The district court granted the motion, finding that the arbitration clause was broad enough to govern the dispute. _Id._ With respect to whether the matter could proceed as a class action, the district court suggested that enforcement of the class action waiver would not preclude individual merchants from enforcing their rights because the Section 4 of the Clayton Act allows for recovery of treble damages, costs of suit and attorney fees, but deferred the issue of enforceability of the class action waiver to the arbitrator. _Id._ The Second Circuit reversed.

The Circuit Court explained that it was “consider[ing] here only the narrow question of whether the class action waiver provision contained in the contract between the parties should be enforced,” In re American Express, at *3. The Court began by noting that it “frequently enforces mandatory arbitration clauses contained in commercial contracts,” but that this case presented a case of first impression in the Ninth Circuit as it dealt with the enforceability of a class action waiver in the context of a commercial contract with a mandatory arbitration clause. Id., at *1. And the court summarized the countervailing arguments surrounding the enforceability of class action waivers, see id., at *1-*2. Ultimately, the Ninth Circuit concluded that the class action waiver was unenforceable under the facts of this case “because enforcement of the clause would effectively preclude any action seeking to vindicate the statutory rights asserted by the plaintiffs.” Id., at *2.

Arbitration Class Action Court Decisions Uncategorized

Deloitte Class Action Defense Cases– In re Parmalat Securities: New York Federal Court Denies Defense Summary Judgment Motion In Securities Fraud Class Action

Summary Judgment as to Securities Fraud Claims against Various Deloitte Entities Denied because Genuine Issues of Fact Existed as to Liability for Claims in Class Action Complaint New York Federal Court Holds

Following the collapse of Parmalat Finanziaria, S.p.A., Parmalat S.p.A. and their affiliates because of a multi-billion dollar fraud that understated Parmalat’s debt by $10 billion and overstated Parmalat’s assets by $16 billion, various securities fraud class actions were filed against numerous parties: one such class action was filed against Deloitte Touche Tohmatsu (DTT), Deloitte & Touche LLP (DT-US), and James Copeland (collectively “Deloitte defendants”) on behalf of purchasers of Parmalat stock. In re Parmalat Securities Litig., ___ F.Supp.2d ___ (S.D.N.Y. January 27, 2009) [Slip Opn., at 2]. The class action alleged violations of Section Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and of Rule 10b-5 thereunder, _id._, at 2-3. Defense attorneys moved for summary judgment as to the class action claims against the Deloitte defendants, _id._, at 2. Alternatively, the defense argued that the Deloitte defendants were not jointly and severally liable under the Private Securities Litigation Reform Act of 1995 (PSLRA), _id._, at 8.

We do not here discuss Deloitte’s corporate structure, or the Parmalat scandal and the alleged fraud of Deloitte Italy. See In re Parmalat, at 3-7. In a detailed opinion, the federal district court first rejected the defense challenge to DTT’s vicarious liability, on a respondeat superior theory, for the federal securities class action claims arising out of the acts of its alleged agent, Deloitte Italy. See id., at 9-11. The question was whether DTT had a principal-agent relationship with Deloitte Italy, id., at 12, and the district court found that a triable issue of material fact existed as to whether it did, see id., at 12-19. As the court concluded at page 19, “In all the circumstances, the totality of the evidence…raises a genuine issue of material fact as to whether Deloitte Italy was an agent of DTT with respect to the Parmalat engagement.” It accordingly denied DTT’s motion for summary judgment as to those class action claims premised on respondeat superior liability for Section 10(b) violations. Id., at 19. Turning to the class action’s Section 20(a) claim against DTT, defense attorneys argued that “there is no evidence that would justify a conclusion that it controlled the alleged primary violator, Deloitte Italy,” and that in any event DTT is not liable because it “acted in good faith and did not induce the act or acts constituting the alleged violations.” Id., at 19-20. Again, the federal court found a genuine issue of material fact existed as to whether DTT was a “control person” within the meaning of Section 20(a), id., at 20-21, and that it could not find, as a matter of law, that DTT acted in good faith, see id., at 21-25.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized