Attorney Fee Class Action Defense Cases–In re Nortel Networks: Second Circuit Affirms Class Action Attorney Fee Award Of 3% Of Value Of Nortel Securities Class Action Settlement Rather Than 8.5% Negotiated With Lead Plaintiff

District Court Order Reducing Fee Award from 8.5% Negotiated with Lead Plaintiff to 3% of Value of Securities Class Action Settlement not Subject to Attack on PSLRA Grounds because Argument Waived as not Raised below and Attorney Fee Award is Reasonable Second Circuit Holds

Plaintiffs filed a class action complaint against Nortel Networks alleging violations of federal securities laws; specifically, the class action alleged that defendant “knowingly and recklessly issued false and misleading statements and engaged in various accounting manipulations causing its stock price to be inflated between October 24, 2000 and February 15, 2001.” In re Nortel Networks Corp. Securities Litig., 539 F.3d 129, 130-31 (2d Cir. 2008). After several years of litigation, the parties reached a settlement of the class action (Nortel I); the district court gave final approval to a class action settlement valued at more than $700,000,000. Id., at 131. As part of the settlement, class counsel negotiated a fee award under the Private Securities Litigation Reform Act of 1995 (PSLRA) that provided for an attorney fee award of 8.5%. Id., at 130. At the same time, Nortel settled another class action involving similar securities claims filed on behalf of a separate class of plaintiffs (Nortel II); the value of that class action settlement also was valued at more than $700 million. Id., at 131. Class counsel in each class action sought an award of attorney fees: the district court in Nortel II awarded approximately 8% of the total class recovery in fees; the district court in Nortel I awarded approximately 3% of the total class recovery in fees. Id. Class counsel in Nortel I, Milberg Weiss & Bershad LLP, appealed the fee award, id., at 130, and the Second Circuit affirmed.

The district court based its attorney fee award on its independent analysis of the factors set forth by the Second Circuit in Goldberger v. Integrated Resources, Inc., 209 F.3d 43, 50 (2d Cir. 2000); this analysis led the district court to conclude that an 8.5% fee award would be excessive and that a 3% fee award – amounting to approximately $34 million – would be “fair and reasonable.” In re Nortel Networks, at 131-32. On appeal, “Milberg argues that the district court erred by disregarding the purportedly altered fee-award scheme under the [PSLRA] pursuant to which Milberg’s negotiated fee with the lead plaintiff would have been presumptively reasonable.” Id., at 130. The Second Circuit held that Milberg waived the argument by failing to raise it in the district court. See id., at 132-34. Turning to the reasonableness of the fee award itself, the Second Circuit held that it “will not overturn a district court’s award of attorneys’ fees ‘absent an abuse of discretion, such as a mistake of law or a clearly erroneous factual finding.’” Id., at 134 (citation omitted). The Circuit Court noted that the district court properly considered each of the relevant factors, and that it “carefully weighed” those factors in making its award. Id. The Court rejected Milberg’s argument that “the district court abused its discretion in part because it awarded a fee significantly below those awarded in other cases where we have upheld higher percentage fees and higher lodestar multipliers” and “erred by not using the 8% Nortel II award as a ‘benchmark,’” id. While the award was “toward the lower end of reasonable fee awards,” and while the Circuit Court was “troubled by the district court’s failure to discuss Nortel II and why it believed the fee award here to be more reasonable,” the question on appeal was “not whether we would have awarded a different fee, but rather whether the district court abused its discretion in awarding this fee.” Id. Accordingly, the Circuit Court affirmed the district court’s attorney fee award. Id.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

CAFA Class Action Defense Cases–Lloyd v. General Motors: Maryland Federal Court Denies Motion To Remand Class Action Holding That Under Maryland Law Amendment Adding New Plaintiffs Commenced New Action Under Class Action Fairness Act

Products Liability Class Action Complaint Originally Filed in 1999 Removable under CAFA (Class Action Fairness Act) because Maryland Law Holds Amendments that Add New Party Plaintiffs do not Relate Back so 2007 Amendment to Add New Named Plaintiffs Commenced New Class Action under CAFA Maryland Federal Court Holds

In 1999, plaintiffs filed a putative class action in Maryland state court against four automobile manufacturers seeking “damages arising from the cost of replacing allegedly defective seating systems”; Eight years later, defense attorneys removed the class action to federal court on the ground that removal jurisdiction existed under the Class Action Fairness Act of 2005 (CAFA). Lloyd v. General Motors Corp., 560 F.Supp.2d 420, 421 (D.Md. 2008). Plaintiffs did not dispute that their class action involved more than 100 plaintiffs, or that the amount in controversy was more than $5,000,000, or that the minimal diversity test under CAFA had been met. Id., at 423 n.3. Instead, plaintiffs moved to remand the class action to state court on the ground that the Class Action Fairness Act applies only to class actions “commenced” on or after February 18, 2005 – long after they had filed their class action complaint in this case. Id., at 421. Defense attorneys countered that plaintiffs’ fourth amended class action complaint materially changed the lawsuit so as to “commence” a new action within the meaning of CAFA. Id. The district court agreed and denied the motion to remand the class action state court.

The initial class action complaint alleged that the seating systems in defendants’ cars were “unreasonably dangerous” because they were “susceptible to rearward collapse in the event of a rear-end collision.” Lloyd, at 421. Over the following six months, plaintiffs amended the class action complaint three times “adding several new named plaintiffs and significantly expanding the class of relevant automobiles.” Id. In March 2000, the Maryland state court granted defendants’ motion to dismiss the third amended class action complaint “ruling that the Plaintiffs had failed to plead actual injury and that their claims were barred by the economic loss doctrine.” Id., at 422. The case was tied up in the appellate courts until February 2008, when the Maryland Court of Appeals reinstated the class action complaint. Id. (citing Lloyd v. General Motors Corp., 916 A.2d 257 (Md. 2007). On August 19, 2007, plaintiffs filed a fourth amended class action complaint that, in the district court’s words, “alter[ed] their claims in three significant respects: first, by adding five new named plaintiffs, three of whom were never a part of the putative class; second, by including in the putative class lessees of class vehicles for model years 1988-2005; and third, by including in the putative class owners of class vehicles for model years 1988-89 and 2000-2005. “ Id. It was based on these amendments that defense attorneys removed the class action to federal court, arguing that under CAFA a new action had been “commenced” after February 18, 2005. Id.

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

Attorney Fees Class Action Defense Cases–Mark v. Spencer: California State Court Affirms Dismissal Of Lawsuit Seeking Damages Under Fee-Splitting Agreement Underlying Class Action Following Class Action Court Fee Award Inconsistent With Agreement

Trial Court Properly Dismissed Lawsuit Seeking Recovery under Fee-Splitting Agreement underlying Class Action because Attorney-Plaintiff Failed to Disclose Fee Agreement to Class Action Court as Required by California Law and because Attorneys’ Respective Rights to Fees were Finally Determined by Class Action Court, thus Barring Subsequent Action under Doctrine of Res Judicata, California State Court Holds

Plaintiff, attorney Ronald Mark, was retained by an individual to commence a labor law class action against his former employer, General Nutrition Corporation (GNC); prior to filing the class action complaint, plaintiff asked defendant, attorney Jeffery Spencer, to serve a co-counsel in the class action litigation, and the attorneys signed a written agreement that proposed to split any fee award 50-50, subject to renegotiation in the event that one of them fails to perform an equal share of the work. Mark v. Spencer, ___ Cal.App.4th ___ (Cal.App. August 22, 2008) [Slip Opn., at 3.]. The attorneys filed the class action complaint in November 2001; the class action was settled in 2004, obtaining final court approval in December 2004. _Id._ The attorneys filed a motion requesting “a $600,000 lump sum for attorney fees and expenses” to “Class Counsel,” and Mark and Spencer filed separate declarations in support thereof. _Id._ Neither Mark nor Spencer notified the trial court of their written fee-splitting agreement, and only Spencer appeared at oral argument on the attorney fee application. _Id._ Ultimately, the trial court awarded Spencer about $401,000 and Mark about $76,500, and the class action defendant wired these sums to Spencer and Mark, respectively. _Id._, at 4. Mark filed a lawsuit against Spencer seeking “his share” of the class action attorney fee award; the trial court granted Spencer’s motion to dismiss the complaint ruling (1) Mark failed to comply with California law requiring disclosure of fee agreements in class action cases, and (2) Mark was precluded from collaterally attacking the attorney fee award based on an agreement not provided to the trial court at the time it determined the class action attorney fee award. _Id._ The Court of Appeal affirmed.

First, the appellate court held that Mark was required to disclose the fee-splitting agreement in the class action. After summarizing the potential conflict of interest created by such agreements, see Mark, at 5, and the Rules of Professional Conduct governing such agreements, see id., at 5-6, the Court of Appeal held that “ [t]o fulfill its role in protecting absent class members, the class action court must consider the potential effect of a fee-splitting agreement before approving a proposed settlement,” id., at 8. Put simply, “Rule 3.769 [of the California Rules of Court] was designed to protect class members from potential conflicts of interest with their attorneys by requiring the full disclosure of all fee agreements in any application for dismissal or settlement of a class action.” Id., at 2. The Court rejected plaintiff’s invitation to enforce the fee agreement despite potential harm to the class: “In essence, Mark urges us to sanction the concealment of material information from the class action court, even if it harms the absent class members. The integrity of the judicial system demands we not do so.” Id., at 8. The class action court’s decision to approve the class action settlement could have been affected by the disclosure of the fee-splitting agreement, and “attorneys would have little incentive to disclose the agreement if they could simply enforce it in a separate action.” Id., at 9.

Class Action Court Decisions Uncategorized

PSLRA Class Action Defense Cases–In re Hutchinson: Eighth Circuit Affirms Dismissal Of Class Action Holding Class Action Complaint Failed To Meet Heightened Pleading Requirements Under The Private Securities Litigation Reform Act (PSLRA)

Securities Class Action Properly Dismissed because Allegations in Class Action Complaint Failed to Meet PSLRA’s Heightened Pleading Requirements Eighth Circuit Holds

Plaintiff filed a class action complaint against Hutchinson Technology and six of its officers and directors alleging violations of federal securities law; the class action complaint asserted claims under Section 10(b) of the Securities Exchange Act of 1934 and under Rule 10b-5 of the Securities and Exchange Commission implementing regulation, as well as control person liability under Section 20 of the 1934 Act. In re Hutchinson Technology, Inc. Securities Litig., 536 F.3d 952, 954-55 (8th Cir. 2008). Defense attorneys filed a motion to dismiss the class action complaint on the ground that it failed to meet the heightened pleading requirements of the Private Securities Litigation Reform Act (PSLRA). Id., at 955. The district court granted the motion and denied plaintiff’s request for leave to file an amended class action complaint. Id. Plaintiff appealed, and the Eighth Circuit affirmed.

Very briefly, Hutchinson manufactures and supplies suspension assemblies for computer hard disk drives. In re Hutchinson, at 955. In 2005, the company’s five largest customers accounted for 90% of its revenue, and sales of suspension assemblies accounted for 95% of its total revenue. Id. After giving guidance of $0.10 earnings per share (EPS) for the fourth quarter of 2004, the company reported EPS of $0.15 to $0.20 for that quarter and announced that it expected an increase in product demand in the first quarter of 2005. Id. Hutchinson stock price increased more than 10% on the news, from $30.93 to $34.09. Id. Thereafter, despite releasing positive information, Hutchinson’s stock price dropped to about $30 per share; also during this time, certain officers sold a total of 137,750 shares of stock at $29-$30 per share for a total of about $6 million, and later sold another 26,820 shares at $33.55-$34 per share for a total of about $1 million. Id., at 956. We do not summarize further additional positive guidance provided by the company, or additional shares of stock sold by insiders. See id., at 956-57. But on August 30, 2005, the company issued a press release disclosing lower demand and a reduction in sales and earnings for fourth quarter 2005: in response, the company stock price dropped from $31.51 to $26.16. Id., at 957. In addition to the financial allegations, the class action complaint contained allegations from five confidential witnesses. Id., at 957-58. In granting the defense motion to dismiss the class action complaint, the district court “[held] that the complaint did not meet the heightened pleading standards for falsity and scienter required by the PSLRA.” Id., at 958. Additionally, it dismissed the Section 20 class action claim (concerning “control person” liability) as derivative of the class action’s Section 78j(b) claim. Id. Finally, the district court denied leave to amend the class action complaint because it found that amendment would be futile, id.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

Labor Law Class Action Lawsuits Maintain Dominance Among New Class Action Filings In California State And Federal Courts In Heavy Week For New Class Action Cases

In order to assist class action defense attorneys anticipate the types of class actions against which they will have to defend in California state and federal courts, we provide weekly, unofficial summaries of the legal categories for new class action lawsuits filed in California state and federal courts in the 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 Family Dollar Stores: Judicial Panel On Multidistrict Litigation (MDL) Grants Plaintiffs’ Motion To Centralize Class Action Litigation But Transfers Class Actions To Western District Of North Carolina

Over Objection of Defense Attorneys, Judicial Panel Grants Plaintiffs’ Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407, but Agrees with Defendant that Class Actions should be Centralized in Western District of North Carolina Nine class action lawsuits were filed against Family Dollar Stores alleging violations of the federal Fair Labor Standards Act (FLSA); specifically, the class action complaints alleged that under the FLSA defendant’s store managers are entitled to overtime pay.

Class Action Court Decisions Multidistrict Litigation Uncategorized

Class Action Defense Cases–Peck v. Cingular: Ninth Circuit Reverses Dismissal Of Class Action Holding That Federal Communications Act Did Not Preempt State Law Requiring Disclosure Of Line Item Charges

Class Action Against Wireless Service Provider Challenging Whether Carrier may Pass Business tax through to Customers Without Specifically Disclosing it Service Contract not Preempted by FCA (Federal Communications Act) because State Law did not Seek to Regulate Rates but Rather “Other Terms and Conditions” of Wireless Service Ninth Circuit Holds

Plaintiff filed a class action in Washington state court against his wireless service provider, Cingular, alleging that it improperly passed on to its customers the “business and occupation tax” (B & O Tax) levied by the state; according to the class action complaint, Cingular’s monthly invoices to plaintiff included a $0.31 line item charge identified as “State B & O Surcharge,” which the class action alleged should not have been passed through to customers or, at the very least, should have been disclosed in Cingular’s contract with its customers. Peck v. Cingular Wireless, LLC, 535 F.3d 1053, 1054-55 (9th Cir. 2008). The class action sought recover for violation of Washington’s Consumer Protection Act (CPA), breach of contract, and unjust enrichment, and sought declaratory and injunctive relief, id., at 1055. Defense attorneys removed the class action to federal court, id. Defense attorneys then moved to dismiss the class action complaint, alleging that the claims therein were preempted by the Federal Communications Act (FCA), which “prohibits state regulation of telecommunications carriers’ rates.” Id. The district court followed an FCC opinion that the FCA preempted state laws that sought to regulate line item billing for cellular wireless services, and dismissed the class action claims as preempted by the FCA. Id. Plaintiff appealed the dismissal of his class action complaint, and the Ninth Circuit reversed. Id., at 1054.

The Ninth Circuit began by observing that “while a state may not regulate a wireless carrier’s rates, it may regulate the ‘other terms and conditions’ of wireless telephone service.” Peck, at 1056. But federal law “leaves its key terms undefined”: “‘It never states what constitutes rate and entry regulation or what comprises other terms and conditions of wireless service.’” Id. (quoting Cellular Telecomms. Indus. Ass’n v. FCC, 168 F.3d 1332, 1336 (D.C. Cir.1999)). The Circuit Court then observed, “When a statute is ambiguous or leaves key terms undefined, a court must defer to the federal agency’s interpretation of the statute, so long as such interpretation is reasonable.” Id. (citation omitted). As noted above, the FCC interpreted the FCA as barring states from regulating “rate structures” and “rate elements,” including line item charges; accordingly, “the FCC [has] concluded state laws that regulate line item charges in wireless bills were pre-empted by the FCA.” Id. The Eleventh Circuit rejected the FCC’s interpretation that rates include line item charges based on its conclusion that federal law “unambiguously preserved the ability of the States to regulate the use of line items in cellular wireless bills,” and vacated the FCC’s order that contained its interpretation of the applicable law. Id. (citation omitted). The Ninth Circuit explained that “as a result of the [Eleventh Circuit’s] vacatur of the Second Report and Order, there is no FCC ruling on the issue of whether ‘rates’ include line item charges.” Id., at 1057.

Class Action Court Decisions Uncategorized

Class Action Defense Cases–Newby v. Enron: Fifth Circuit Partially Partially Affirms District Court Order Denying Law Firm Leave To File New State Law Claims Involving Enron But Reverses As To Claims Governed By Four-Year Limitations Period

Pursuant to District Court Order Enjoining Law Firm from Filing Further Lawsuits Involving Collapse of Enron Absent Leave of Court, District Court Properly Denied Leave to File 24 New Lawsuits in Texas State Court Seeking to Assert 7 New Claims, but only as to those Claims Subject to Two-Year or Three-Year Statutes of Limitation, Requiring Reversal of District Court Order as to Proposed New Claims Subject to Four-Year Limitations Periods Fifth Circuit Hold, but only as to those Claims Subject to Two-Year or Three-Year Statutes of Limitation, Requiring Reversal of District Court Order as to Proposed New Claims Subject to Four-Year Limitations Periods

In 2001, a Houston law firm (Fleming & Associates) filed several individual and class action lawsuits in Texas state courts against Enron, its accounting firm, and various officers; the class action and individual complaints were brought on behalf of shareholders and arose of the collapse of Enron’s stock price. Newby v. Enron Corp., 542 F.3d 463, 2008 WL 4113964, *1 (5th Cir. 2008). Enron filed for bankruptcy protection in December 2001, and “[s]even years later, litigation involving the Enron collapse endures.” Id. The Fleming firm has played a central role in that litigation, and repeatedly has “sought ex parte temporary restraining orders to prevent the defendants from destroying Enron-related documents.” Id. The Circuit Court explained, “Based on the Fleming Firm’s conduct in seeking ex parte orders in state court, on February 15, 2002, the district court issued a memorandum and order enjoining the Fleming Firm from filing any new Enron-related actions without leave of the court (the ‘February 15, 2002, injunction’).” The Fleming Firm challenged this order but the Fifth Circuit affirmed the injunction, holding that district courts have the authority under the All Writs Act to issue “narrowly tailored” injunctions to “enjoin[] repeatedly vexatious litigants from filing future state court actions.” See Newby v. Enron Corp., 302 F.3d 295, 302 (5th Cir. 2002). The Fifth Circuit there explained, “The district court in this case was attempting to rein in a law firm that represents over 750 plaintiffs …. The problem is Fleming’s unjustified and duplicative requests for ex parte temporary restraining orders, without notice to lawyers already across the counsel table from Fleming and engaged in the prosecution and defense of virtually identical claims in federal suits.” 2008 WL 4113964 at *2 (quoting Newby, 302 F.3d at 302). In October 2003, the Fleming Firm sought and obtained leave of court to file two more Enron-related actions in state court. Id., at *2. In July 2003, “the district court issued a scheduling order in the Newby securities class action,” and three years later, in July 2006, the district court granted plaintiffs’ motion to certify the litigation as a class action. Id.

In October 2005, before it obtained class action status in Newby, the Fleming Firm sought leave to file 24 more Enron-related lawsuits in Texas state courts. 2008 WL 4113964 at *2. The lawsuits sought to represent 1200 shareholders and to seek recovery against “several financial institutions and Enron outside officers and directors” under seven theories – “common law fraud and fraud-on-the-market, negligence, statutory fraud, aiding and abetting liability under the Texas Securities Act, civil conspiracy, aiding and abetting common law fraud, and negligent misrepresentation.” Id. The district court denied the motion on the ground that each of the proposed claims were time-barred and that the applicable statutes of limitation had not been tolled. Id. The Fleming Firm appealed, and the Fifth Circuit affirmed in part and reversed in part.

We do not discuss the Fifth Circuit’s reasoning in detail. At bottom, the Circuit Court held that the district court properly denied leave to file suit as to claims subject to two- or there-year statutes of limitation, unless the time period for filing such claims had been tolled, but the district improperly denied leave to file suit as to claims subject to a four-year statute of limitations. 2008 WL 4113964 at *3-*5. The Fleming Firm filed its motion on October 14, 2005: “Given that the Fleming Firm’s clients had notice of their claims on October 17, 2001, the longest statute of limitations at issue here (four years) would have expired on October 17, 2005, unless a tolling doctrine applies.” Id. at *3. The district court had held that even claims subject to a four-year limitations period were time-barred because, under the district court’s local rules, the Fleming Firm could not have filed suit “until twenty days after the Fleming Firm filed the motion, or until November 3, 2005.” Id. The Fifth Circuit disagreed, and held that “it is up to the state court to determine how to proceed” as to those claims. Id., at *5. In sum, the district court improperly denied the motion for leave to file the claims “involving common law fraud and fraud-on-the-market (Count I), statutory fraud (Count III), and aiding and abetting common law fraud (Count VI), because these claims all have a four-year statute of limitations, and the Fleming Firm submitted its motion for leave to file suit before that limitations period expired.” Id.

Class Action Court Decisions Uncategorized

ERISA Class Action Defense Cases–White v. Coca-Cola: Eleventh Circuit Affirms Summary Judgment In Favor Of Employer In ERISA Class Action Holding Plan Administrator’s Decision To Reduce Benefits Based On Social Security Benefits Was Reasonable

District Court Properly Granted Summary Judgment in Class Action Alleging Coca-Cola Violated ERISA by Interpreting Plan so as to Permit an Offset Based on Receipt of Social Security Benefits and to Recoup Overpayment of Benefits Eleventh Circuit Holds

Plaintiffs, participants in long term disability plan, filed a class action against their employer, Coca-Cola, in its capacity as sponsor and administrator of a benefits plan alleging violations of the Employee Retirement Income Security Act of 1974 (ERISA); specifically, the class action complaint challenged the plan administrators “reduction of benefits under a long-term-disability plan based on a participant’s receipt of Social Security disability benefits.” White v. Coca-Cola Co., ___ F.3d ___, 2008 WL 4149706, *1 (11th Cir. September 10, 2008). The class action “contest[ed] the plan administrator’s interpretation of both a provision that permits an offset for the receipt of other disability benefits and a provision that allows the plan to recoup overpayments of benefits.” _Id._ The parties filed cross-motions for summary judgment; the district court granted the defense motion and entered judgment in favor of Coca-Cola on the class action claims. _Id._ Based on this ruling, the district court denied as moot plaintiffs motion to certify the litigation as a class action. _Id._, at *4. The Eleventh Circuit affirmed.

We do not here summarize the terms of the plan, other than to note that it “grants the committee exclusive responsibility and discretionary authority ‘to construe the Plan and decide all questions arising under the Plan,’ including the authority ‘to determine the eligibility of Participants to receive benefits and the amount of benefits to which any Participant may be entitled under the Plan.’” White, at *1. We note also that the plan “works with” Social Security benefits received, and provides “for the recoupment of any overpayment of benefits.” Id., at *2. Procedurally, before filing the class action, one of the plaintiffs asked Coca-Cola to reconsider his benefits payments arguing, in part, “that, even if the plan permits the offset of his future benefits to account for his Social Security benefits, the plan and ERISA prohibit the recovery of an overpayment of his past benefits.” Id., at *3. The committee retained outside counsel, who concluded that the plan’s offset provision was ambiguous but that the committee could legally interpret the plan to permit an offset in the manner that it had: accordingly, the committee did not alter its interpretation of the plan. Id.

Class Action Court Decisions Employment Law Class Actions Uncategorized

Arbitration Class Action Defense Cases–McKee v. AT&T: Washington State Court Holds Class Action Waiver Arbitration Clause Enforceable Affirming Trial Court Order Denying AT&T’s Motion To Compel Arbitration Of Class Action

Class Action Complaint Properly Kept in State Court Rather than Referred to Arbitration because Class Action Waiver Provision in Arbitration Clause Rendered Dispute Resolution Provision of Consumer Service Agreement Unenforceable as Unconscionable Washington State Court Holds

Plaintiff filed a class action against AT&T alleging that it wrongly charged him “city utility surcharges and usurious late fees”; specifically, the class action complaint alleged that plaintiff signed up with AT&T for long distance telephone service, and that his monthly bills “included a Wenatchee city utility tax surcharge, even though he lives outside the Wenatchee city limits.” McKee v. AT&T Corp., ___ P.3d ___ (Wash. August 28, 2008) [Slip Opn., at 1-2]. According to the class action, AT&T assessed taxes based on zip codes, and plaintiff’s zip code included not only people who lived in Wenatchee, but also people who lived outside the city limits. Plaintiff’s class action alleged that AT&T collects taxes from its customers “whether the customers owe the tax or not,” and imposes a late fee of 1.5% if the bill is not paid timely. _Id._, at 2. Defense attorneys removed the class action to federal court on the ground that it raised claims under federal law; plaintiff amended the class action complaint to omit any reference to federal law, and the district court remanded the class action back to state court. _Id._ Defense attorneys then moved to compel arbitration of the dispute pursuant to the dispute resolution provisions of their long distance service contract. _Id._, at 1. The dispute resolution provision required arbitration of all disputes and prohibited class actions; it also provides that claims must be brought within two years, and “limits a consumer’s right to collect punitive damages and attorney fees.” _Id._, at 4. The trial court denied the motion, finding the dispute resolution provision in AT&T’s Consumer Services Agreement to be unconscionable. _Id._, at 1. The Washington Supreme Court affirmed.

The Supreme Court explained that plaintiff “did not sign any agreement with AT&T” when he accepted AT&T as his long distance provider, and that he did not know whether he received a contract in the mail from AT&T. McKee, at 2-3. Defense attorneys submitted declarations that stated plaintiff received a “specific agreement” as part of his “fulfillment package,” and attached the agreement to their declarations, id., at 3. Plaintiff argued that the agreement was unconscionable: “He claimed he had no meaningful choice and the agreement was overly one-sided and harsh because it prohibited class actions, shortened the statute of limitations, prohibited punitive damages and attorney fees, required arbitration be kept secret, and required application of New York law.” Id., at 5. The trial court agreed with plaintiff: he ruled that the dispute resolution provision of the agreement was substantively unconscionable “because of the provisions prohibiting class actions, shortening the statute of limitations, limiting damages, requiring confidentiality, and” Id., at 5. A few months later, defense attorneys moved for reconsideration based on a new declaration that stated prior information provided under oath was in error because “AT&T had amended its agreement ‘in significant ways, including, for example, the removal of the two-year statute of limitations, the ability of the customer to determine whether the proceedings should be confidential, and specifically allowing consumers to obtain statutory relief—including damages and attorney’s fees—through the arbitration process.’” Id., at 6. The trial court denied the motion, and AT&T appealed. Id., at 7.

Arbitration Class Action Court Decisions Uncategorized