Class Action Defense Cases–Chavez v. Netflix: California Court Upholds Trial Court Approval Of Class Action Settlement Providing Customers With One-Day Free Rental And Awarding $2 Million In Attorney Fees

Class Action Settlement was not a “Coupon” Settlement and Trial Court did not Abuse its Discretion in Approving Class Action Settlement or Awarding Class Counsel $2 Million in Attorney Fees California State Court Holds

Plaintiff filed a class action lawsuit against Netflix, Inc. alleging false advertising in advising customers that, for a flat monthly fee, it would send them “unlimited” DVD rentals with “1 Day Delivery”; the class action alleged that these representations were false. Chavez v. Netflix, Inc., 162 Cal.App.4th 43, 75 Cal.Rptr.3d 413, 418 (Cal.App. 2008). Specifically, the class action charged that “Netflix was employing sophisticated algorithms to prioritize the allocation of its DVD’s to its lowest-consuming members with the effect that high-consuming members would receive fewer DVD’s per month, reducing the costs Netflix incurred to serve this high-usage group, and increasing its profits.” Id., at 419. Defense attorneys denied the allegations and extensive discovery followed: “Netflix produced approximately 86,000 pages of documents, answered more than 200 interrogatories and 59 requests for admissions, and made five of its employees, including three executives, available for deposition by Chavez. Chavez produced documents and answered interrogatories.” Id. Plaintiff sought class action certification of the lawsuit, but before the court ruled on whether to afford class action treatment, the parties reached a settlement. Id. The original class action settlement was amended to address objections filed in opposition to the proposal; over the challenges of a handful of objectors, the trial court approved the terms of the amended class action settlement and awarded plaintiff’s lawyers $2 million in fees and costs. Id., at 419-21. Some of the objectors appealed, and the California Court of Appeal affirmed.

Under the terms of the original class action settlement, Netflix agreed to modify its advertising, and agreed to provide current members with “a one-level membership upgrade for one month, allowing the current members to receive one additional DVD at a time at no charge,” and all former members with “a free one-month membership at the three-at-a-time level, which would allow the former member to receive a minimum of three and up to 11 or more rentals at no charge.” Chavez, at 419-20. The original proposal also included an “auto-renewal feature.” Id., at 420. The trial court gave preliminary approval to the class action settlement and notice was provided to class members, id. Several objections were filed on behalf of “approximately 450 of the 5.5 million class members”; the Federal Trade Commission (FTC) also filed an objection, challenging the auto-renewal feature of the proposed class action settlement. Id. Ultimately, the parties eliminated the auto-renewal provision, and made certain other modifications to address some of the objectors’ concerns, and a second notice was provided to class members. Id. The amended class action settlement agreement resulted in the withdrawal of the objections by the FTC and by 428 of the original 450 objectors, id. The trial court ultimately gave final approval to the settlement, and awarded plaintiff approximately $2 million in attorney fees. Id., at 420-21. In the end, almost 700,000 people filed claims for benefits under the settlement, id., at 421. Three appeals were filed on behalf of four objectors followed: the appellate court consolidated the appeals and affirmed. Id.

Class Action Court Decisions Uncategorized

Vioxx Class Action Defense Cases–Sinclair v. Merck: New Jersey Supreme Court Holds Class Action Seeking Medical Monitoring For Use Of Vioxx Properly Dismissed By Trial Court Because Class Action Plaintiffs Did Not Allege Harm

Class Action’s Failure to Allege Manifest Injury Precludes Medical Monitoring Remedy Sought in Products Liability Class Action based on Use of Vioxx New Jersey Supreme Court Holds

Plaintiffs filed a products liability class action against Merck in New Jersey state court arising out of the use of the prescription drug Vioxx; the class action complaint sought to “recover the costs of medical monitoring despite [plaintiffs’] failure to allege a physical injury.” Sinclair v. Merck & Co., Inc., ___ A.2d ___ (N.J. June 4, 2008) [Slip Opn., at 2]. Defense attorneys moved to dismiss the class action, and the trial court granted the motion “reasoning that medical monitoring is an uncommon remedy that should not be applied to plaintiffs who did not allege any manifest injury.” _Id._ The appellate court reversed, reinstating the class action and remanding the litigation for discovery. _Id._ (Our article summarizing that appellate opinion may be found here.) The New Jersey Supreme Court reversed, holding that New Jersey’s Products Liability Act (PLA) “does not include the remedy of medical monitoring when no manifest injury is alleged” and holding further that the PLA is “the sole source of remedy” for the class action’s products liability claim so New Jersey’s Consumer Fraud Act (CFA) “does not provide an alternative remedy.” _Id._, at 3.

The history of Vioxx is well known and has been recounted in numerous news reports, court opinions and articles by this author. Suffice it to say that Merck voluntarily withdrew Vioxx from the market after the FDA concluded that use of Vioxx increased the risk of heart attacks and strokes. See Sinclair, at 3-4. Dozens of class action lawsuits followed, including the Sinclair class action, which alleged claims for negligence, violations of the PLA and CFA, breach of express and implied warranties, and unjust enrichment, on behalf of individuals “who may suffer from serious silent or latent injury for which they may require medical monitoring.” Id., at 4. Plaintiffs amended the class action complaint in March 2005 to seek as damages “the cost of diagnostic testing designed to determine whether [class members] have suffered unrecognized or serious latent injury as a result of their direct exposure to Vioxx” and “a court-administered screening program to provide medical diagnostic tests for each member of the proposed class and follow-up with an epidemiologist.” Id., at 4-5. The trial court granted Merck’s motion to dismiss the class action in its entirety, reasoning in part that while medical monitoring has been authorized in asbestos cases it has not been approved in “pure products liability action where the PLA applies,” and that only economic damages are recoverable under the CFA so medical monitoring is not authorized under that statute. Id., at 6. The appellate court reversed, concluding that the record required further development through discovery in order to determine whether “harm” under the PLA exists, id., at 6-7.

Class Action Court Decisions Uncategorized

Class Action Defense Cases–Van Zanen v. Qwest: Tenth Circuit Affirms Dismissal Of Class Action Unjust Enrichment Claim Holding Violation Of Insurance Licensing Statute Insufficient To Support Class Action Claim

Class Action Unjust Enrichment Claim Properly Dismissed because even assuming Defendant Violated Insurance Licensing Statute Plaintiffs Received Value for Services Provided by Qwest so Granting Plaintiffs Restitution “would Effect an Injustice” Tenth Circuit Holds

Plaintiffs filed a putative class action against Qwest Wireless, LLC, Qwest Services Corporation, and Qwest Communications International, Inc. (Qwest) alleging that defendants “acted as an unlicensed seller of insurance in violation of the laws of Arizona and 13 other states where it markets and sells handset insurance to its wireless customers.” The class action complaint alleged unjust enrichment in Qwest’s “receipt of sales commissions in violation of the licensing statutes,” and sought recovery of “the portion of the handset-insurance premium that compensates Qwest for its sales efforts.” Van Zanen v. Qwest Wireless, L.L.C., 522 F.3d 1127, 1128-29 (10th Cir. 2008). Specifically, the class action alleged that plaintiffs purchased “handset insurance” from Qwest, and that Qwest sells such insurance to customers even though “[it] is not licensed to sell or solicit insurance in any of the 14 states in which it operates, markets and sells the handset insurance to its customers.” Id., at 1129. Defense attorneys moved to dismiss the class action; the district court granted the motion, holding that no private right of action exists under Arizona law for violations of the insurance licensing statute. Id. The Tenth Circuit affirmed because “violation of a licensing statute, without more, is generally insufficient to support an unjust-enrichment claim against one who has performed as promised.” Id.

Plaintiffs filed their class action complaint in Colorado federal court “alleging that Qwest’s sales of the handset insurance violate the licensing laws of Arizona and 13 other states.” Van Zanen, at 1129. The class action advanced “implied statutory causes of action and common-law unjust enrichment,” and sought injunctive and declaratory relief and disgorgement of Qwest’s share of the insurance premiums charged to its customers, id. “The parties agreed that Arizona law governed [plaintiffs’] statutory claim on their own behalf.” However, Arizona law provides only that the director of insurance may issue a cease and desist order, and file suit to enjoin, any violation of the licensing statute. Id. (citations omitted). The district court (1) concluded that no private right of action exists under Arizona’s licensing statute, and (2) plaintiffs failed to state a claim for unjust enrichment because they had not suffered “detriment, expense, or impoverishment” but instead had “obtained a valuable product for which they bargained and which they intend to keep.” The district court dismissed the class action complaint in its entirety because plaintiffs failed to state any claims that they could pursue on their own behalf. Id.

Class Action Court Decisions Uncategorized

UCL Class Action Defense Cases–Williams v. Gerber Products: Ninth Circuit Reverses Dismissal Of Class Action Holding False Advertising On Front Of Box Not Cured By Accurate Ingredient List On Side Of Box

Class Action Alleging Fraudulent Advertising Erroneously Dismissed Because Consumers not Required to Read Ingredient List to Correct Deceptive Advertising Claims Underlying Class Action Complaint Ninth Circuit Holds

Plaintiffs filed a putative class action against Gerber Products alleging inter alia violations of California’s Unfair Competition Law (UCL) and Consumer Legal Remedies Act (CLRA); specifically, the class action complaint alleged that Gerber’s Fruit Juice Snacks were deceptively marketed because the packaging – which shows images of various fruits “such as oranges, peaches, strawberries, and cherries” – would lead a reasonable consumer to believe that the juices of these fruits were included in the products when in reality “the only juice contained in the product was white grape juice from concentrate.” Williams v. Gerber Products Co., 523 F.3d 934, 936 (9th Cir. 2008). The class action attacked five features of Gerber’s packaging of its fruit juice snacks, including that the product was “nutritious”; defense attorneys moved to dismiss the class action for failure to state a claim, arguing that the packaging, including the ingredient disclosures on the packaging, defeated plaintiffs’ class action claims. Id., at 937. The district court granted the defense motion and dismissed the class action, holding that “Gerber’s statements were not likely to deceive a reasonable consumer, particularly given that the ingredient list was printed on the side of the box and that the ‘nutritious’ claim was non-actionable puffery.” Id. The Ninth Circuit reversed.

The core of the district court’s decision was its finding that Gerber’s packaging was “not likely to deceive a reasonable consumer as a matter of law.” Williams, at 938. It based this decision “solely on its own review of an example of the packaging.” Id., at 939. While California law permits such consideration, as the advertisement itself is “the primary evidence” of its falsity, id. (citation omitted), California courts also hold that “whether a business practice is deceptive will usually be a question of fact not appropriate for decision on demurrer,” id. (citations omitted). Based on its review of the packaging, the Ninth Circuit found “a number of features…which could likely deceive a reasonable consumer.” Id. Most importantly, it held that “reasonable consumers should [not] be expected to look beyond misleading representations on the front of the box to discover the truth from the ingredient list in small print on the side of the box.” Id., at 939-40. The Circuit Court acknowledged that Gerber’s ingredient list “appears to comply with FDA regulations,” but added that “a busy parent walking through the aisles of a grocery store should [not] be expected to verify that the representations on the front of the box are confirmed in the ingredient list.” Id. As the Ninth Circuit explained at page 940, “We do not think that the FDA requires an ingredient list so that manufacturers can mislead consumers and then rely on the ingredient list to correct those misinterpretations and provide a shield for liability for the deception.”

Class Action Court Decisions Uncategorized

PSLRA Class Action Defense Cases–In re 2007 NovaStar Financial: Missouri Federal Court Grants Defense Motion To Dismiss Class Action Complaint Concluding Class Action Failed To Satisfy PSLRA’s Heightened Pleading Requirements

Class Action Complaint Failed to Plead Securities Fraud with Specificity Required by Private Securities Litigation Reform Act (PSLRA) thus Subjecting Class Action to Motion to Dismiss without Leave to Amend Missouri Federal Court Holds

Plaintiff filed a class action complaint against NovaStar Financial and three of its directors alleging securities fraud violations. In re 2007 NovaStar Financial, Inc., Securities Litig., ___ F.Supp.2d ___ (W.D. Mo. June 4, 2008) [Slip Opn., at 1]. Defense attorneys moved to dismiss the class action, _id._; the class action complaint failed to meet the heightened pleading requirements under the Private Securities Litigation Reform Act (PSLRA), which “is intended to eliminate abusive securities litigation and put an end to the practice of pleading ‘fraud by hindsight,’” _id._, at 2 (citation omitted). The district court granted the defense motion, holding that the class action “has not – and cannot – satisfy the PSLRA’s pleading requirements.” _Id._, at 3. The language of the district court’s opinion should prove useful to class action defense attorneys, so we quote it at length.

The federal court began its analysis with a cogent observation, noting at page 3: “One might be tempted to think that a complaint spanning more than 100 pages and consisting of more than 200 paragraphs could not fail to be specific. The temptation is dangerous and must be resisted.” Under the district court’s careful analysis, it found that the class action complaint “has not specified the allegedly misleading statements, nor has he specified why the statements he has referred to are misleading.” Id. Instead, the class action “presents a very broad picture, and Plaintiff discusses his claims in generalities – precisely what the PSLRA counsels against.” Id. In the court’s words, “This has allowed Plaintiff to pick isolated threads and snippets from the Complaint to create an illusion of detail and insinuate the existence of fraud, which in turn has made it exceedingly difficult for the Court to conduct the analysis required by law.” Id. Relying on the Eighth Circuit’s opinion in In re Cerner Corp. Sec. Litig., 425 F.3d 1079 (8th Cir. 2005), the district court held that the class action failed to plead falsity with the required specificity. See id., at 3-6. At bottom, the class action “has not stated a claim because companies…are not expected to be clairvoyant, and bad decisions do not constitute securities fraud.” Id., at 6.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

Labor Law Class Action Cases Top List Of Weekly Class Action Lawsuits Filed In California State And Federal Courts

In order to assist class action 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 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

Labor Law Class Action Defense Cases–Hoenemier v. Sun Microsystems: California Trial Court Grants Plaintiff’s Motion To Certify Labor Law Class Action Alleging Sun Microsystems Improperly Characterized Techinical Writers As Exempt Employees

Class Action Against Sun Microsystems Alleging Misclassification of Technical Writers as Exempt Employees Warrants Class Action Treatment California State Trial Court Holds On May 13, 2008, the California Superior Court for the County of Santa Clara entered an order granting plaintiff’s motion to certify a class action lawsuit against Sun Microsystems and SeeBeyond Technology. Hoenemier v. Sun Microsystems, Inc.,, Santa Clara Superior Court Case No. Case No.: 106CV-071531 (May 13, 2008).

Class Action Court Decisions Uncategorized

Class Action Defense Cases–Borochoff v. GlaxoSmithKline: New York Federal Court Grants Defense Motion To Dismiss Class Action Alleging Securities Law Violations Finding Complaint Failed To Satisfy PSLRA Pleading Requirements

Class Action Failed to Adequately Allege Securities Law Violations because Pharmaceutical Company’s Meta-Analyses were Inconclusive and because Class Action Failed to Adequately Plead Scienter New York Federal Court Holds

Plaintiffs filed a putative class action against pharmaceutical company GlaxoSmithKline (GSK) and certain individual officers and directors of GSK for violations of federal securities laws; specifically, the class action complaint alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and of Rule 10b-5 on the grounds that defendants failed to disclose the truth about its meta-analysis in connection with its diabetes drug, Avandia. Borochoff v. GlaxoSmithKline PLC, ___ F.Supp.2d ___ (S.D.N.Y. May 9, 2008) [Slip Opn., at 1-2]. Plaintiffs filed an amended class action complaint 5 months later, and defense attorneys moved to dismiss the class action under Rule 12(b)(6), _id._, at 9-10. The district court granted the motion and dismissed the class action.

The class action complaint alleged that in September 2005, GSK finalized a meta-analysis that “showed an estimate of…an increased risk of heart attack, associated with the use of Avandia.” Borochoff, at 2. Nonetheless, its October 2005 press release attributed GSK’s “excellent pharmaceutical sales growth” in part to Avandia’s “tremendous success” and “emphasize[d] that we do not expect the growth rate to slow down over the next couple of years.” Id., at 2-3. GSK’s February 2006 press release also referred to Avandia as a “significant growth driver[],” id., at 3. GSK did not disclose the results of its first mea-analysis, which were duplicated by its second meta-analysis, finalized in March 2006. Id. On the contrary, GSK’s 2005 Annual Report, filed on March 3, 2006, stated that “strong growth” from Avandia was expected to continue in 2006. Id., at 4. The class action alleged that GSK’s statements were “materially false and misleading” because it knew, based on its meta-analyses, that use of Avandia carried with it an increased risk of heart attack, id. The class action also cited two additional press releases, from April and July 2006, that called Avandia a “key growth driver[]” and stressed a “32% increase in sales of Avandia.” Id., at 4-5.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

Class Action Defense News—Brocade Agrees To Pay $160 Million To Settle Shareholder Class Action Lawsuit Involving Backdating Of Stock Options

Shareholder Class Action Against Brocade Communications Systems Arising out of Options Backdating Settled for $160 Million Mark Maremont and John Hechinger of the Wall Street Journal report today that Brocade Communications Systems has agreed to pay $160 million to settle a class action lawsuit filed by shareholders. The class action sought damages allegedly caused by the backdating of stock options. The settlement followed the San Francisco federal court’s ruling last month that Brocade was liable for the conduct of its former Chief Executive Officer, Gregory Reyes, who was sentenced last January to 21 months in federal prison for his role in the scandal.

Class Actions In The News Uncategorized

CAFA Class Action Defense Removal Cases–Springman v. AIG: Seventh Circuit Affirms Denial Of Plaintiff’s Motion To Remand Class Action To State Court Upholding Removal Jurisdiction Under Class Action Fairness Act (CAFA)

Amendment of Class Action Complaint to Add Party-Defendant Years after Plaintiff Learned Defendant’s Identity Constituted a New Action Under Class Action Fairness Act of 2005 (CAFA) thereby Creating CAFA Removal Jurisdiction over Class Action Seventh Circuit Holds

In July 2003, plaintiff file a putative class action in Illinois state court against AIG Claim Services and Illinois National Insurance Company for violations of state fraud and consumer protection laws; the class action complaint alleged that AIG Claim Services, in processing claims under Illinois National insurance policies, systematically underpaid accident insurance benefits. Springman v. AIG Marketing, Inc., 523 F.3d 685, 686 (7th Cir. 2008). In December 2003, defense attorneys disclosed that AIG had not adjusted plaintiff’s claim; plaintiff did not inquire further until October 2004, at which time he learned that at affiliate, AIG Marketing, had handled the claim underlying the class action. Id. Nonetheless, plaintiff waited another three years before seeking leave to file an amended class action complaint to sue AIG Marketing in place of AIG Claim Services, id. The state court granted the motion, and defense attorney removed the class action to federal court under the Class Action Fairness Act of 2005 (CAFA). Id. AIG Claim Services could not have removed the class action itself because the class action complaint had been filed well before CAFA’s effective date, id. Plaintiff’s lawyer moved to remand the class action to state court, but the motion was denied, id. The Seventh Circuit affirmed.

The question before the Circuit Court was whether the substitution of AIG Marketing for AIG Claim Services constituted “the commencement of a suit against AIG[ Marketing] within the meaning of the Class Action Fairness Act, thus enabling removal of the entire suit.” Springman, at 686-87 (citing 28 U.S.C. § 1453(b)). After reaffirming the Seventh Circuit’s law, adoption by all but one other circuit courts, that post-filing acts may affect whether a class action complaint is removable under CAFA, see id., at 687 (citations omitted), the Court reiterated the federal removal doctrine, which permits removal based on post-filings acts if, inter alia, the amended complaint “adds a new defendant.” Id. (citation omitted).

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