FDCPA Class Action Defense Cases–Anchondo v. Anderson: New Mexico Federal Court Denies Motion To Dismiss FDCPA Class Action Holding Class Action Complaint Adequately Alleged Debt Collector Violated State And Federal Laws

Class Action Alleging Violation of Fair Debt Collection Practices Act (FDCPA) Survives Defense Motion to Dismiss because Class Action Complaint Alleged Debt Collector Failed to Identify Itself or that it was Attempting to Collect a Debt in its Initial Communication with Plaintiff New Mexico Federal Court Holds

Plaintiff filed a class action against a debt collector alleging violations of the federal Fair Debt Collection Practices Act (FDCPA) and New Mexico’s Unfair Practices Act; the class action complaint asserted that. Anchondo v. Anderson, Crenshaw & Associates, L.L.C., 583 F.Supp.2d 1278, 1280 (D. N.M. 2008). According to the allegations underlying the class action, plaintiff purchased a home alarm system which failed to work properly so she stopped paying the monthly service fee; the alarm company retained debt collector Anderson, Crenshaw & Associates to collect the fees owed. Id. Defendant telephoned plaintiff and left a message on her answering machine requesting a return call; the message said the matter was “important,” but did not identify defendant or disclose that it concerned an attempt to collect a debt. Id. Plaintiff filed her class action complaint a few months later, alleging claims for relief under the FDCPA and the UPA, id. Defense attorneys moved to dismiss the class action under Rule 12(b)(6) or, alternatively, for judgment on the pleadings under Rule 12(c). Id., at 1279-80. The defense argued that the class action failed because the message left on plaintiff’s answering machine was not a “communication” within the meaning of the FDCPA, and because the FDCPA was unconstitutionally vague and unreasonably impeded defendant’s First Amendment right to exercise commercial speech. Id., at 1280. The district court denied the motion.

With respect to defendant’s Rule 12(b)(6) motion, the district court readily found that the allegations in the class action complaint satisfied the requirements for pleading a violation of the FDCPA because it alleged that defendant (1) “fail[ed] to identify itself” and (2) failed to “state that the voicemail message was left on her answering machine as an attempt to collect a debt.” Anchondo, at 1280 (citing 15 U.S.C. § 1692e(11)). And because the complaint’s allegations are accepted as true for purposes of Rule 12(b)(6) motions, the alleged constitutional law defenses “have no bearing as to whether Plaintiff has made sufficient factual allegations to state a claim upon which relief can be granted.” Id., at 1280-81 (citation omitted).

With respect to the Rule 12(c) motion, the federal court explained that the FDCPA requires debt collectors to disclose their identity in initial communications made for the purpose of collecting a debt, and that the purpose of the communication is to collect a debt. Anchondo, at 1281. Congress enacted the FDCPA to protect consumers against abusive debt collection practices, and because the message defendant left for plaintiff did not include the required disclosures she “would be entitled to relief, pursuant to the FDCPA, if she can prove that the voicemail was a communication regarding a debt.” Id. (citation omitted). The district court concluded that nothing more was required “at this stage of the proceedings,” and that the constitutional challenges were not ripe for adjudication. Id., at 1281-82. Accordingly, it denied the defense motion in its entirety. Id., at 1282.

Class Action Court Decisions FDCPA Class Actions Uncategorized

Class Action Defense Cases–Woods v. QC Financial: Missouri State Appellate Court Affirms Trial Court Order Striking Class Action Waiver From Arbitration Clause And Then Compelling Arbitration Of Dispute

Class Action Waiver in Payday Loan Agreement Containing Mandatory Arbitration Clause was Unconscionable and Trial Court did not Err in Severing Class Action Waiver, Compelling Arbitration, and Allowing Arbitrator to Determine Whether Matter should Proceed as Class Action Missouri State Appellate Court Holds

Plaintiff filed a class action against QC Financial, a payday lender, from whom plaintiff had borrowed money several times; the class action complaint alleged that defendant violated various Missouri state laws governing payday lenders. Woods v. QC Financial Services, Inc. d/b/a Quik Cash., ___ S.W.2d ___ (Mo.App. December 23, 2008) [Slip Opn., at 1]. Defense attorneys moved to dismiss the class action and to compel plaintiff to arbitrate the dispute individually; the motion was premised on an arbitration clause with a class action waiver that was contained in the payday loan documents. _Id._, at 1-2. Each loan agreement contained a mandatory arbitration clause that provided in pertinent part that the borrower is (1) waiving their right to a jury trial, (2) waiving their right to any court proceeding (other than small claims), and (3) waving the right to “SERVE AS A REPRESENTATIVE, AS A PRIVATE ATTORNEY GENERAL, OR IN ANY OTHER REPRESENTATIVE CAPACITY, AND/OR TO PARTICIPATE AS A MEMBER OF A CLASS OF CLAIMANTS, IN ANY LAWSUIT FILED AGAINST US AND/OR RELATED THIRD PARTIES.” _Id._, at 2. The arbitration clause further provided that “all disputes including any Representative Claims against us…shall be resolved by binding arbitration only on an individual basis with you” and precluded the arbitrator from allowing any dispute to proceed as a class action, _id._ Plaintiff moved for declaratory judgment, seeking to hold the class action waiver unconscionable; the trial court granted plaintiff’s motion and severed the provisions of the arbitration clause prohibiting class actions. _Id._ At the same time, the trial court denied the defense motion to compel plaintiff “to participate in individual arbitration,” but granted the defense motion to dismiss in part, in that the matter was ordered to arbitration for the arbitrator to decide whether the litigation could proceed as a class action. _Id._ Defendant appealed, and the Missouri Court of Appeal affirmed.

Defense attorneys raised several issues on appeal: (1) that plaintiff failed to prove procedural unconscionability; (2) that the arbitration clause was not procedurally unconscionable “because the font size used complies with statute and [plaintiff] signed the contract without any misrepresentations, hurry, or duress from [defendant]”; (3) that the arbitration clause was not substantively unconscionable, in part because the Federal Arbitration Act (FAA) “preempts the trial court’s holding as Missouri law does not bar class action waivers in all consumer contracts”; (4) that the class action waiver was an “essential “ part of the loan agreement, which does not contain a severance clause, so the trial court erred in severing the class action waiver from the arbitration clause; and (5) that the trial court erred in granting plaintiff’s request for declaratory judgment because it was not properly presented. Woods, at 3-4. The appellate court began by addressing the fifth point, quickly rejecting the defense characterization of the trial court’s action as one of “granting summary judgment,” and holding that the court granted declaratory judgment only to the extent that the mandatory arbitration clause precluded class action relief and only after hearing argument and testimony. Id., at 4-5. The Court of Appeal concluded that there was nothing improper in this aspect of the court’s ruling, id., at 5.

Arbitration Class Action Court Decisions Uncategorized

UPS Class Action Defense Cases–Taylor v. UPS: Fifth Circuit Reverses Dismissal Of Labor Law Class Action Holding Statutes Of Limitation Governing Class Action Claims Were Tolled During Appeal Of Related Class Action

Statutes of Limitation for Class Action Claims Against UPS were Tolled in Labor Law Class Action during Appeal from Summary Judgment in Favor of UPS in Certified Class Action Alleging Related Claims Fifth Circuit Holds

Plaintiff filed a class action against his former employer, United Parcel Service, alleging labor law violations; the class action complaint asserted that UPS discriminated against its employees on the basis of race. Taylor v. United Parcel Service, Inc., ___ F.3d ___, 2008 WL 5401487, *1 (5th Cir. December 30, 2008). Plaintiff worked for UPS from 1975 to 2004, during which time he was member of class action lawsuit that had been filed in 1994. _Id._ The 1994 class action alleged that UPS engaged in race discrimination; plaintiff “was a member of the pay and promotion class and gave deposition testimony on behalf of the class” in a class action that was dismissed on UPS’s motion for summary judgment in June 2000 and affirmed by the Eighth Circuit in August 2004. _Id._ (citing _Morgan v. United Parcel Service of America, Inc._, 143 F.Supp.2d 1143 (E.D.Mo. 2000), _aff’d_, 380 F.3d 459 (8th Cir. 2004), _cert. denied_, 544 U.S. 999 (2005)). In January 2003, during the pendency of the appeal in the prior class action, plaintiff filed a Title VII charge with the Equal Employment Opportunity Commission, and in March 2003, plaintiff filed the present putative class action “alleging that UPS had denied him promotion on the basis of race and retaliation since at least 1993, denied him equal pay on the basis of race and retaliation since November 1991, and provided a hostile work environment.” _Id._ As the Fifth Circuit explained, “The biggest difference between the claims asserted in the _Morgan_ class action [filed in 1994] and this suit is [plaintiff’s] addition of the retaliation claims, which allegedly are related to his participation in _Morgan_.” _Id._ Defense attorneys moved for summary judgment as to all of the class action claims; the district court granted the motions as to the promotion and hostile work environment claims, but denied the motions as to plaintiff’s discriminatory and retaliatory pay disparity claims. _Id._, at *2 (citing _Taylor v. United Parcel Service, Inc._, 421 F.Supp.2d 946, 956 (W.D.La. 2006)). Plaintiff appealed, and the Fifth Circuit reversed.

The Fifth Circuit explained that its statute of limitations analysis played a “central part” in the district court’s decision to toss out of the class action complaint. Taylor, at *2. Specifically, “[t]he district court found that tolling ceased on [plaintiff’s] claims in 2000, when the Eastern District of Missouri dismissed the Morgan class claims, rather than in 2004, when the Eighth Circuit affirmed that dismissal”; based on that conclusion, all of plaintiff’s promotion claims in the current class action were time-barred to the extent they arose prior to March 2002. Id. (For reasons we do not here discuss, the district court found that plaintiff’s post-March 2002 promotion claims failed on the merits. See id.) With respect to the “retaliatory promotion” claims, the district court entered summary judgment in favor of UPS because plaintiff presented no evidence that the decision makers at UPS knew of his role in the Morgan class action, and that the time between plaintiff’s involvement in the 1994 class action and the March 2002 pay period “was simply too long to independently support an inference of causation.” Id. Finally, the lower court rejected the class action’s “hostile work environment” claim, and held that the four-year statute of limitations barred the class action’s discriminatory and retaliatory pay claims. Id., at *2-*3. Plaintiff challenged on appeal the district court’s ruling only as to the promotion and pay disparity claims, but not the hostile work environment claim. Id., at *3.

Class Action Court Decisions Employment Law Class Actions Uncategorized

Class Action Defense Cases–Williams v. Gerber Products: Ninth Circuit Reverses Dismissal Of Class Action Challenging Gerber “Fruit Juice Snacks” Packaging

District Court Erred in Dismissing Class Action Complaint Alleging that Packaging of Toddler “Fruit Juice Snacks” was Deceptive and Misleading because Reasonable Consumer is not Required to Read Ingredient List to Correct Misimpressions given by Balance of Packaging Ninth Circuit Holds

Plaintiffs filed a class action against Gerber Products alleging that it deceptively marketed its toddler “Fruit Juice Snacks”; the 8-count class action complaint “challenged five features of the packaging used by Gerber to sell its Fruit Juice Snacks” (summarized in the Note, below). Williams v. Gerber Products Co., ___ F.3d ___ (9th Cir. December 22, 2008) [Slip Opn., at 16633]. Defense attorneys moved to dismiss the class action under Rule 12(b)(6); the district court granted the motion and dismissed the class action because it “found 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._, at 16634. The Ninth Circuit reversed.

The Ninth Circuit focused on whether plaintiffs had stated claims under California’s Unfair Competition Law (UCL), which includes false advertising claims, and California’s Consumer Legal Remedies Act (CLRA), noting that these claims “are governed by the ‘reasonable consumer’ test,” which requires plaintiffs to show that members of the public are likely to be deceived by Gerber’s packaging. Williams, at 16637 (citations omitted). Under California law, the advertising need not be “false” – it is sufficient if it is either “actually misleading” or if it is likely to deceive or confuse the public. Id. (citation omitted). The district court dismissed the class action because it found as a matter of law, based “solely on its own review of an example of the packaging,” that the packaging was not likely to deceive the public. Id., at 16637-38.The Circuit Court explained, however, that California courts generally leave such determinations to the trier of fact, id., at 16638 (citations omitted). And while it is true that orders granting motions to dismiss UCL claims “have occasionally been upheld,” those situations are “rare” and this case did not present such a “rare situation.” Id. The Court explained at page 16638 and 16639:

Class Action Court Decisions Uncategorized

FEMA Class Action Defense Cases–In re FEMA Trailer Formaldehyde: Louisiana Federal Court Denies Class Action Treatment To Products Liability Class Action Arising From Trailers FEMA Provided Hurricane Victims

Class Action by Victims of Hurricanes Katrina and Rita and FEMA and Others Alleging High Levels of Formaldehyde in Trailers Supplied to Displaced Citizens Failed to Satisfy Class Action Requirements of Rule 23 and therefore Class Action Treatment was not Warranted Louisiana Federal Court Holds

Numerous class action lawsuits were filed against the federal government and several others arising out of the trailers provided to evacuees of Hurricanes Katrina and Rita; the class actions were filed by individuals “claiming that they either lived or resided along the Gulf Coast of the United States in travel trailers, park models, and manufactured homes provided to them by the Federal Emergency Management Agency (‘FEMA’)” and that they “have been exposed to purportedly high levels of formaldehyde contained in these [emergency housing units] EHUs, and…have suffered damages as a result.” In re FEMA Trailer Formaldehyde Products Liab. Litig., ___ F.Supp.2d ___ (E.D.La. December 29, 2008) [Slip Opn., at 3]. The class action complaints advanced various claims against the defendant manufacturers, including products liability under Louisiana, Alabama and Texas law, strict liability under Mississippi law, failure to warn; and “breach of express or implied warranty and/or failure to conform to other express factual representations on which the plaintiffs justifiably relied.” _Id._, at 3-4. The class actions also asserted claims “against the United States/FEMA…under Louisiana Civil Code Articles 2316 and 2317.” _Id._, at 4. Eventually, the Judicial Panel on Multidistrict Litigation coordinated the various class actions in the Eastern District of Louisiana, _id._, at 3, and plaintiffs moved the district court to certify the litigation as a class action, _id._, at 1-3. The district court denied the motion.

Plaintiffs proposed numerous subclasses for the proposed class action: a Louisiana subclass, a Texas subclass, a Mississippi subclass, and an Alabama subclass, as well as subclasses for individuals in need of future medical care and individuals who suffered economic loss. In re FEMA Trailer, at 1-3. The district court first addressed numerosity under Rule 23(a)(1), noting that this inquiry considered such factors as “the geographical dispersion of the class, the ease with which class members may be identified, the nature of the action, and the size of each plaintiff’s claim. Id., at 9 (citation omitted). Further, “each proposed subclass must independently meet all of the requirements of Rule 23.” Id. (citing FRCP Rule 23(c)(5)); see also id., at 10, n.5. The court concluded that plaintiffs “fail[ed] to demonstrate or offer any evidence as to whether numerosity exists as to each proposed sub-class.” Id., at 10. Accordingly, class action treatment was not warranted, id. But the district court held further that Rule 23(a)(2)’s commonality requirement for class action treatment also had not been met, agreeing with defense attorneys that “there is no commonality because Plaintiffs lived in different EHUs.” Id., at 10-11. Put simply, “this case does not involve one single product that is alleged to have caused Plaintiffs damage” but, rather, “that dozens of different manufacturing defendants have manufactured products or EHUs that have caused them harm” and that “some defendants have manufactured multiple models of EHUs that Plaintiffs claim to have caused them harm.” Id., at 11. And these facts highlighted the numerous individual inquiries that defeated Rule 23(a)(3)’s typicality test, see id., at 12-18. And while plaintiffs’ counsel were adequate to represent the class, the court found that the plaintiffs themselves were not adequate representatives of the class. See id., at 18-22.

Certification of Class Actions Class Action Court Decisions Uncategorized

UCL and Labor Law Class Action Lawsuits Share Top Spot Of Weekly Class Action Lawsuits Filed In California State And Federal Courts

As a resource for California class action defense attorneys, 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. This report covers the period from January 9 – 15, 2009, during which time 45 new class action lawsuits were filed.

Class Actions In The News Uncategorized

ERISA Class Action Defense Cases—In re National City: Judicial Panel On Multidistrict Litigation (MDL) Grants Defense Motion To Centralize Class Action Litigation In Northern District of Ohio

Judicial Panel Grants Defense Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407, Unopposed by Class Action Plaintiffs, and Transfers Actions to Northern District of Ohio Thirteen (13) class actions lawsuits – 12 in the Northern District of Ohio and 1 in the Southern District of Florida – were filed against National City and certain affiliates alleging violations of federal securities laws by issuing “materially false and misleading statements which had a negative impact in 2008 on National City’s stock”; the putative class actions were filed on behalf of three separate groups – “securities holders seeking relief under the federal securities laws, shareholders suing derivatively on behalf of National City [and] participants in National City’s retirement savings plans suing for violations of the Employee Retirement Income Security Act of 1974 [(ERISA)].

Class Action Court Decisions Multidistrict Litigation Uncategorized

Class Action Defense Cases– Ghazaryan v. Diva Limousine: California State Court Reverses Denial Of Class Action Treatment In Labor Law Class Action Holding Trial Court Erred In Believing It Had To Reach Merits To Certify Class Action

In Denying Motion for Class Action Certification, Trial Court Erroneously Concluded that it would be Required to Reach Merits of Class Action Allegations in order to Determine Ascertainability and Numerosity, Thus Necessitating Reversal and Remand with Instructions to Certify Labor Law Class Action California State Appellate Court Holds

Plaintiffs filed a class action against his employer, Diva Limousine, alleging labor law violations; the class action complaint asserted, in part, that Diva failed to pay overtime and failed to provide its employees with meal and rest breaks. Ghazaryan v. Diva Limousine, Ltd., ___ Cal.App.4th ___ (Cal.App. January 12, 2009) [Slip Opn., at 3, n.3]. According to the class action’s allegations, Diva’s drivers collectively made anywhere from 100 to more than 200 trips on any given day, _id._, at 2. The facts underlying the class action complaint are as follows: Diva would provide its drivers with their first few assignments in order to permit the drivers to plan their breaks. Id. Diva also permitted about 75% of its drivers to take their vehicles home so that they could drive straight to their first assignment. Id. Once the first batch of trips had been completed, Diva’s dispatcher would dole out “additional trips according to location, availability and fairness among drivers”; on any given day, a driver may have as many as 8 assignments or less than 5. Id. The class action alleged that “Drivers have no way of predicting the length of any particular period of gap time although, on occasion, dispatchers may accommodate requests to schedule assignments around the drivers’ personal appointments.” Id. at 2-3. Plaintiff worked full-time for Diva, was “hard working” and “asked for as many assignments as available.” Id., at 3. Nonetheless, plaintiff “frequently had significant periods of on-call time between assignments.” Id. Diva prohibited its drivers from using company vehicles during “gap time” and required its drivers “to utilize gap time for their mandatory rest and lunch breaks, which could be interrupted if dispatched on an assignment.” Id. Further, drivers were not permitted to turn down assignments, even if the assignment conflicted with a meal or rest break, id. Plaintiff moved the trial court to certify the litigation as a class action, _id._, at 2. The trial court denied the motion, but the California Court of Appeal reversed.

Defense attorneys argued against class action treatment “principally because of the purported difficulties in identifying eligible members of the class and assessing the validity of Diva’s compensation policy as applied to different drivers who may or may not have used their gap time for personal pursuits”; certain employees, for example, are “dedicated event drivers” and are paid for their gap time. Ghazaryan, at 4. Additionally, a number of Diva’s drivers provided declarations that they “typically use unpaid gap time for their own purposes, such as working out at the gym, napping or eating at home or running personal errands,” and that they opposed plaintiff’s efforts to modify the manner in which Diva paid its drivers. Id. The trial court was persuaded by the defense arguments and refused to grant class action treatment to the litigation because of the “many individualized issues” raised by the class action complaint. Id. The trial court explained that determining numerosity would require that it “first determine an ultimate issue in the case, which this Court cannot do to determine the class.” Id., at 5. The trial court found further that the class was not ascertainable because it would first have to “determine if Diva’s practices are improper and, if so, which drivers fit into an appropriate class.” Id. The Court of Appeal reversed.

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

FDCPA Class Action Defense Cases–Seeger v. AFNI: Seventh Circuit Affirms Summary Judgment Against Debt Collector In FDCPA Class Action Holding Fee Sought To Be Recovered By Debt Collector Were Not Authorized

District Court Properly Granted Plaintiffs’ Summary Judgment Motion in Class Action Under Fair Debt Collection Practices Act (FDCPA) because Fees Debt Collector Sought to Recover and Underlying Class Action Claims were not Proper Seventh Circuit Holds

Plaintiffs filed a class action against AFNI, a debt collection company, alleging violations of the federal Fair Debt Collection Practices Act (FDCPA) and the Wisconsin Consumer Act; the class action complaint asserted that AFNI’s collection practices violated state and federal law because ANFI sought to collect a 15% that was not authorized by either statute or contract. Seeger v. AFNI, Inc., 548 F.3d 1107, 1109-10 (7th Cir. 2008). According to the class action complaint, plaintiffs had entered into contracts with various cellular telephone service providers, and each contract advised customers of the possibility that a debt collection agency may be retained in the event of a payment default, id., at 1109-10; for example, Cingular’s contracts provided that customers would be required to pay “the fees of any collection agency, which may be based on a percentage at a maximum of 33% of the debt, and all costs and expenses, including reasonable attorneys’ fees and court costs,” incurred in collecting payments owed, id., at 1110. Additionally, each service contract “contained various provisions making it clear that failure to pay was cause for termination of the contract and that an early termination fee or cancellation fee would be imposed.” Id. Each plaintiff fell behind on payments owed under the cell phone contracts, id., at 1109. AFNI purchased the accounts, and sent debt collection letters to plaintiffs “informing each one that he owed a debt and that Cingular was the original creditor” and that each “was responsible for paying AFNI a collection fee of 15% of the ‘original balance.’” Id., at 1109-10. Plaintiffs filed the class action complaint “alleging that [ANFI’s] attempt to include a separate collection fee in the amount due violated the FDCPA”; an amended class action complaint added party plaintiffs and added also the Wisconsin Consumer Act claim. Id., at 1110. Plaintiffs’ attorneys moved the district court to certify the litigation as a class action, and the district court agreed that class action treatment was warranted. Id., at 1110. The parties then filed cross motions for summary judgment; the district court ruled in favor of plaintiffs and ANFI appealed. Id., at 1109. The Seventh Circuit affirmed.

In ruling on the summary judgment motions, the district court concluded that AFNI violated both the FDCPA and Wisconsin state law “because neither AFNI’s contracts with its customers nor Wisconsin law authorized it to charge the type of collection fee it was using.” Seeger, at 1109. Specifically, the district court ruled that ANFI “violated the FDCPA because neither the contracts nor Wisconsin law permitted the owner of a debt to impose a separate fee for collection, if the fee was for the purpose of reimbursing the owner itself as opposed to a third-party debt collector.” Id., at 1110. Defense attorneys first argued that Wisconsin law permits debt collectors to charge “incidental or consequential damages” for customer breaches of the cell phone service contracts, and by extension that the 15% fee it sought to charge plaintiffs “may be collected by an entity that purchases the contract for collection purposes.” Id., at 1111. The Seventh Circuit disagreed. The Court recognized that all states “permits recovery of losses that are the natural and probable result of the breach of a contract and that were within the reasonable contemplation of the parties” and that “[t]his rule applies to service contracts like the plaintiffs’ cell phone contracts,” id. (citations omitted), but it found ANFI’s reliance on this general proposition to be insufficient. Rather, to recover the 15% fee it sought to impose, ANFI “must show that this rule permits a third-party purchaser of an account to recover its internal costs to recover the debt in this manner, and, if so, that the 15% fee it charged to the plaintiffs reflected AFNI’s actual costs.” Id. The defense argument failed, the Circuit Court concluded, because (1) “Neither a law expressly permitting a collection fee on behalf of a person in the position of a seller of cellular telephone services nor an agreement between the class members and their cellular providers exists here”; and (2) ANFI failed to establish that the fee it sought to charge “can properly be characterized as incidental or consequential damages resulting from the plaintiffs’ breach of their cellular phone contracts with Cingular.” Id., at 1112.

Class Action Court Decisions FDCPA Class Actions Uncategorized

PSLRA Class Action Defense Cases–Cozzarelli v. Inspire Pharmaceuticals: Fourth Circuit Affirms Dismissal Of Securities Fraud Class Action Holding Allegations In Class Action Complaint Failed To Meet PSLRA’s Heightened Pleading Requirements

Securities Fraud Class Action Complaint Failed to Adequately Plead Strong Inference of Scienter Required by Private Securities Litigation Reform Act (PSLRA) because Defense Presented Compelling Inference that Company Refused to Disclose Details of Phase III Drug Trials for “Competitive Reasons,” thereby Supporting District Court Order Dismissing Class Action Complaint Without Leave to Amend Fourth Circuit Holds

Plaintiffs filed a class action against Inspire Pharmaceutical and three of its directors (collectively “Inspire”), as well as other defendants, alleging violations of federal securities laws; the class action complaint asserted that Inspire “overstat[ed] the prospects for an experimental drug that the company was developing to treat dry eye disease.” Cozzarelli v. Inspire Pharmaceuticals Inc., 549 F.3d 618 (4th Cir. 2008) [Slip Opn., at 2]. Specifically, the class action alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and of Rule 10b-5, as well as violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933. See id., at 6. Defense attorneys moved to dismiss the class action on the ground that the allegations in the class action complaint failed to meet the heightened pleading requirements established by the Private Securities Litigation Reform Act of 1995 (PSLRA), and the Supreme Court’s decision in Tellabs, Inc. v. Makor Issues & Rights, Ltd., ___ U.S. ___, 127 S.Ct. 2499 (2007). _See id._, at 2-3 and 6-7. Specifically, Inspire argued that plaintiff’s class action complaint failed to raise the requisite “strong inference of scienter,” _id._, at 6, or that defendants had made false or misleading statements, _id._, at 7. The magistrate recommended that the motion be granted, and the district court dismissed the class action. _Id._, at 6-7. The Fourth Circuit affirmed.

In brief, Inspire had reached Phase III trials of its drug diquafosol tetrasodium, but while the study showed that the drug objectively resulted in substantial improvement of dry eye disease, the company failed to achieve its second primary goal, or “endpoint,” in that patients did not report subjective feelings of improvement. See Inspire, at 3-4. The FDA gave Inspire two options: (1) “conduct two additional trials that met both an objective endpoint and a subjective endpoint,” or (2) “conduct one additional trial that replicated – this time as a primary endpoint – the corneal clearing that Inspire achieved” in its prior study. Id., at 4. Inspire chose the second option but was “tight-lipped” about details of its new study, id., at 5. Inspire made several “generic” comments about its new study, including that it was “very similar” to the prior study and that it was a “confirmatory” Phase II trial, id. Additionally, some stock analysts “speculated that the primary endpoint of [the new study] was only a relative improvement in corneal staining scores and that [the new study] was likely to meet that endpoint.” Id. In point of fact, however, the new study failed to meet its primary endpoint, and Inspire’s stock plunged 44.5% on the news. Id., at 6. Plaintiffs’ class action complaint followed, id.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized