District Court Erred In Certifying Class Action Against Tobacco Companies In “Light” Cigarettes Case Second Circuit Holds

Second Circuit Rules District Court Erred in Certifying Class Action because Individual Proof of Reliance on Tobacco Companies’ Marketing of “Light” Cigarettes would be Required Stephanie Saul of The New York Times reports today on a “victory for the tobacco industry” – the Second Circuit opinion reversing class action certification of “an $800 billion class-action lawsuit on behalf of smokers who said they had been misled that light cigarettes were safer than regular ones.

Class Actions In The News Uncategorized

Cigarette Class Action Defense Cases–McLaughlin v. Philip Morris: Second Circuit Reverses Certification Of Class Action Alleging Deceptive Advertising Of “Light” Cigarettes Holding Individual Questions of Reliance Predominate

Class Action Alleging Fraud Under RICO in Advertising of Light Cigarettes Fails to Satisfy Prerequisites for Class Action Certification Under Rule 23 because Individual Issues Predominate Second Circuit Holds

Judge Jack Weinstein of the United States District Court for the Eastern District of New York certified a class action against Philip Morris USA, R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Corp., Lorillard Tobacco Co., Ligget Group, American Tobacco Co., Altria Group, and British American Tobacco; the underlying class action complaint alleged the tobacco companies duped smokers into believing that “light” cigarettes were less harmful to them. See Schwab v. Phillip Morris USA, Inc., 449 F.Supp.2d 992 (E.D.N.Y. 2006). We have previously reported on the district court’s 540-page opinion in that class action, and a copy of that summary may be found here. The theory underlying the class action was that defendants deceived smokers “by convincing them that smoking ‘light’ cigarettes was safer for their health.” 449 F.Supp.2d at 1018. As the Second Circuit explained, the class action claims were “brought as based in fraud under the Racketeer Influenced and Corrupt Organizations Act (RICO)…, but under RICO, each plaintiff must prove reliance, injury, and damages.” McLaughlin v. Philip Morris USA, Inc., ___ F.3d ___ (2d Cir. April 3, 2008) [Slip Opn., at 4]. Accordingly, the Circuit Court reversed class action certification, finding that “Plaintiffs’ putative class action suffers from an insurmountable deficit of collective legal or factual questions.” _Id._

The district court based its certification of the class action on its belief that there was “evidence of fraud on the class appears to be quite strong”: “If, as contended by plaintiffs, a huge fraud was perpetrated on tens of millions of people causing them billions of dollars in loss—measured largely by the difference between the value people were led to believe they were getting when they bought ‘light’ cigarettes for safety, and what they received, a non-safe product—recovery dependent on proof should be allowed.” Schwab, at 1021. The district court explained at page 1018:

Certification of Class Actions Class Action Court Decisions Uncategorized

Breaking News–Second Circuit Reverses Class Action Certification Against Philip Morris In “Light Cigarettes” Class Action Case

We have previously reported on the 540-page district court opinion certifying a class action against Philip Morris USA alleging fraud under the Racketeer Influenced and Corrupt Organizations Act (RICO) arising out of the advertising and sale of “light cigarettes.” See Schwab v. Phillip Morris USA, Inc., 449 F.Supp.2d 992 (E.D.N.Y. 2006). That articule may be found here. The Second Circuit today reversed that district court opinion because “under RICO, eachplaintiff must prove reliance, injury, and damages.

Class Actions In The News Uncategorized

FedEx Class Action Defense Cases–In re FedEx Ground: Indiana Federal Court Grants Class Action Treatment In 19 Labor Law Class Action Cases Alleging Misclassification Of Pickup/Delivery Drivers But Denies Certification In 9 Other Class Actions

In Considering Class Action Certification in 28 Labor Law Class Action Lawsuits Centralized by the Judicial Panel on Multidistrict Litigation, 19 Cases Satisfied Class Action Prerequisites but 9 other Putative Class Actions would Require Individualized Inquiries Sufficient to Defeat Class Action Treatment Indiana Federal Court Holds

Numerous class action lawsuits were filed against FedEx Ground alleging that the company misclassified its pickup and delivery drivers as independent contractors rather than employees; the Judicial Panel on Multidistrict Litigation consolidated the class actions in the Northern District of Indiana, and the plaintiffs in the class action cases characterized as “Wave 1,” “Wave 2” and “Wave 3” moved the district court for class action certification. In re FedEx Ground Package System, Inc., Employment Prac. Litig., ___ F.Supp.2d ___ (N.D. Ind. March 25, 2008) [Slip Opn., at 1]. As the federal court summarized, these class action plaintiffs “assert that although FedEx Ground represents to its drivers that they are only partnering with FedEx Ground and will essentially own their own businesses, all FedEx Ground drivers sign the FedEx Ground Operating Agreement, which actually reserves to FedEx Ground the right to exercise pervasive control over the method, manner, and means of the drivers’ work,” _id._ FedEx opposed class action treatment, arguing that “the plaintiffs’ claims turn on individualized issues, including whether contractors should be classified as employees under the states’ statutory tests, and whether any individual contractor can meet the high bar for rescission of his individual contract.” _Id._, at 2. In a 164-page opinion, the district court certified the Wave 1, Wave 2 and Wave 3 cases as class actions with respect to cases involving drivers from Alabama, Arkansas, California, Florida, Indiana, Kentucky, Maryland, Minnesota, New Hampshire, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, West Virginia and Wisconsin; the court denied class action treatment for drivers from Illinois, Iowa, Massachusetts, Michigan, Mississippi, Missouri, Montana, South Dakota and Virginia. _Id._, at 3. The district court noted that it had previously granted class action certification with respect to drivers from Kansas, _id._, at 9, bringing to 20 the total number of states for which class action treatment has been approved.

Given the extraordinary length and detail of the district court opinion, we provide here only a broad outline of its holdings. Because it had previously granted class action treatment on behalf of the Kansas drivers, the district court used its prior ruling as a benchmark against which it considered the new class action certification motions. In re FedEx Ground, at 9. The court held that class action complaints containing only former drivers as named-plaintiffs could still proceed as class actions on behalf of former and current drivers because “courts have held that former employees have standing to represent a class consisting of both current and past employees.” Id., at 10 (citations omitted); see also, e.g., id., at 24-25 and 30. But with respect to defense attorney efforts to defeat class action treatment on the ground that individual inquiries would be required to determine whether the Operating Agreements were valid and the manner and extent to which the “right to control” will impact the validity of the Operating Agreements, the federal court rejected this argument with respect to the laws of certain states, see, e.g., id., at 14-16 (Tennessee), 25-27 (Arkansas) and 39-42 (Texas), but agreed with FedEx Ground that common questions would not predominate under the laws of other states, see, e.g., id., at 18-20 (Montana), 20-23 (Mississippi) and 80-84 (Michigan). For example, with respect to the Missouri putative class action, the district court explained that class action certification was not warranted because “Whether FedEx Ground has the right to control its drivers within the meaning of Missouri agency law cannot be resolved by simple reference to the Operating Agreements and corporate policies.” Id., at 105. Rather, “Missouri courts define the ‘right to control’ with reference to the actual exercise of control, [citation], which will require a driver-by-driver, terminal-by-terminal, supervisor-by-supervisor analysis that is unnecessary in most other states.” Id., at 105-06. This presented the primary basis for the difference among states for which the court certified class actions and states for which it denied motions for class certification.

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

Class Action Defense Cases-Pfeiffer v. Himax: California Federal Court Denies Defense Motion To Transfer Securities Fraud Class Action To New York

Defendant in Securities Fraud Class Action Failed to Establish Grounds to Transfer Class Action to New York, Particularly in Light of Defendant’s Waiver in Deposit Agreement to Right to Challenge Venue California Federal Court Holds Plaintiffs filed a class action in California federal court against Himax Technologies alleging securities fraud in connection with the initial public offering of Himax stock; a related class action, entitled Oh v. Chan, CV 07-4891 DDP (AJWx), also has been filed, and a motion seeking “to certify a securities class action for substantially similar claims” is pending in that action.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

Class Action Defense Cases–Allen v. Holiday Universal: Pennsylvania Federal Court Certifies Class Action Against Health Clubs Alleging Excessive Membership Fees In Violation Of State Law But Denies Class Action Treatment Of Unjust Enrichment Claim

Class Action Treatment Warranted for Class Action Claims Against Health Clubs based on Violations of State Law but not as to Class Action Complaint’s Unjust Enrichment Claim Pennsylvania Federal Court Holds

Plaintiffs filed a putative class action in Pennsylvania state court against three health clubs (Holiday Universal, Scandinavian Health Spa and Bally Total Fitness) alleging violations of Pennsylvania’s Health Club Act and Unfair Trade Practices and Consumer Protection Law (UTPCPL); defense attorneys removed the class action to federal court. Allen v. Holiday Universal, ___ F.Supp.2d ___ (E.D. Pa. March 11, 2008) [Slip Opn, at 1]. The class action complaint alleged that plaintiffs entered into “Retail Installment Contract” prepared by defendants that required payment of a membership fee ($632 for one of the named plaintiffs, which she financed at 17.50% interest, and $1275 for the other named plaintiff, which he financed at 13% interest) and monthly dues; the health club memberships renewed automatically. _Id._, at 3. The theory underlying the class action was that the health clubs charged “grossly excessive initiation fees” in violation of Pennsylvania state law. _Id._ Plaintiffs moved the district court to certify the litigation as a class action, _id._, at 2; defense attorneys opposed the motion. The federal court found the elements of Rule 23 satisfied and granted plaintiffs’ request for class action treatment.

The defense first argued that the definition of the proposed class was overly broad because it included within its sweep individuals who suffered no damage because they wanted, accepted and benefited from the health club memberships. Allen, at 6-8. The district court disagreed, holding that if the initiation fees were excessive under Pennsylvania law then every member of the proposed class action suffered damage, regardless of whether they wanted and utilized the health club services, id., at 8. The district court also rejected a claim that the class action’s definition of the class was improper because it created a “‘fail/safe’ class, that is, membership in a portion of the Class depends upon a finding for Plaintiffs’ on the merits.” Id., at 15. In essence, the defense argued that inclusion in the class turned on whether a particular health club was owned by defendant Bally Holding; plaintiffs countered that club ownership was not the “central issue of liability” presented by the class action and, accordingly, there was no improper “fail/safe” class. Id., at 15-16. The district court agreed with plaintiffs, and noted that “the question of whether any particular health club in Pennsylvania is owned by the Health Clubs is a question of fact not central to the question of liability and easily answered through further discovery.” Id., at 16. However, the federal court made it clear that it “expect[ed] the parties to promptly clarify any remaining confusion as to this issue.” Id. (The court also rejected a “ratification” argument, but that is not summarized here. See id., at 8-15.)

Certification of Class Actions Class Action Court Decisions Uncategorized

Countrywide Class Action Defense Cases–In re Countrywide: California Federal Court Stays Class Action Claims Against Countrywide And Denies Plaintiffs’ Motion For Constructive Trust/Preliminary Injunction And Plaintiffs’ Request For Expedited Discovery

Securities Class Action Claims Pending in California Paralleled Class Action Claims in Delaware and Colorado River Factors Supported Stay of California Class Action California Federal Court Holds

Several class action lawsuits were filed against Countrywide Financial Corp. and others alleging violations of various state and federal securities laws, including class action complaints that were filed in the United States District Court for the Central District of California. In re Countrywide Financial Corp. Derivative Litig., ___ F.Supp.2d ___ (C.D. Cal. March 28, 2008) [Slip Opn., at 2-3]. Last Friday, the California district court addressed three separate motions that “generally relate to the series of cases before [it] and other courts involving Countrywide…, Bank of America…, and several current and former Countrywide directors and officers.” _Id._, at 1. The district court summarized four separate categories of class action lawsuits that had been filed in state and federal courts against Countrywide prior to the announced merger with Bank of America, _see id._, at 3-6, as well as the various state and federal class action complaints filed immediately after the announced merger, _see id._, at 7-8. One of the pre-merger series of class action lawsuits “consolidated under _Arkansas Teachers_, No. CV-07-06923,” were filed in the California federal court “alleging that Countrywide directors engaged in an extensive pattern of misconduct in disregard of their fiduciary duties to the corporation,” _id._, at 6, and plaintiffs a 200-page amended consolidated class action complaint after the announcement of the merger to add class action claims against Bank of America, _id._, at 8-9.

The district court first addressed the defense motion to stay Arkansas Teachers in favor of litigation pending in Delaware. In re Countrywide, at 9. The court concluded that “the federal and state class action merger claims are substantially similar,” id., at 10-11; accordingly, “the ‘parallelism requirement for a [Colorado River Water Conservation Dist. V. United States, 424 U.S. 800 (1976)] stay is easily met due to the striking similarity of the class action claims in Arkansas Teachers and Freedman,” id., at 11. The federal court next held that partial stays are permissible under Colorado River, id., at 12-13, and that it would issue such a stay in this case because “while the class action claims are sufficiently parallel, the Delaware case does not contain the derivative claims present in this case,” id., at 11-12. The court’s Colorado River analysis may be found at pages 14 through 16 of the slip opinion.

Class Action Court Decisions RESPA/TILA Class Actions Uncategorized

No Surprise — Labor Law Class Action Lawsuits Again Hold On To Top Spot In Weekly Class Action Filings In California State And Federal Courts

As a resource to defense attorneys who defend class actions in California, we provide weekly, unofficial summaries of the legal categories of 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. This report covers March 21 – 27, 2008, during which time 38 new class action lawsuits were filed (down substantially from the 58 new class action filings of the preceding week).

Class Actions In The News Uncategorized

ADEA Class Action Defense Cases-Peterson v. Seagate: Minnesota Federal Court Denies Motion To Certify Interlocutory Appeal Of Order Denying Defense Motion To Dismiss Class Action Claims In Age Discrimination Class Action

Order Denying Motion to Dismiss ADEA (Age Discrimination in Employment Act) Class Action Claims did not Warrant Interlocutory Appeal Minnesota Federal Court Holds

Plaintiffs filed a class action lawsuit against their employer, Seagate, alleging age discrimination in violation of the federal Age Discrimination in Employment Act (ADEA). Peterson v. Seagate U.S. LLC, 534 F.Supp.2d 996, 2008 WL 398968, *1 (D.Minn. 2008). The putative class action also sought “declaratory relief relating to the enforceability of a purported release and waiver that was signed by many of the plaintiffs upon the termination of their employment with Seagate.” Id. Defense attorneys moved to dismiss the class action as to “the claims of those named plaintiffs that signed a release and waiver”; the district court denied the motion, as well as a subsequent motion for reconsideration. Id. Defense attorneys requested that the district court certify the issue for interlocutory appeal, id. The district court denied the motion.

Defense attorneys sought certification on two grounds: “1) whether nineteen plaintiffs who failed to file an EEOC charge properly exhausted their administrative remedies with respect to their age discrimination claims; and 2) whether the SIRP Release that plaintiff Paul Calcagno signed in connection with Defendants’ 2004 voluntary early retirement program is valid and enforceable.” Peterson, at *1. The district court noted that such certification is only appropriate if the order “involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation.” Id. (quoting 28 U.S.C. § 1292(b)). The court concluded that this test was not satisfied.

Class Action Court Decisions Employment Law Class Actions Uncategorized

Labor Law Class Action Defense Cases-Schachter v. Citigroup: California State Court Affirms Summary Judgment In Favor Of Defense In Labor Law Class Action Challenging Forfeiture Provisions Of Voluntary Employee Incentive Compensation Plan

Defense Motion for Summary Judgment in Labor Law Class Action Properly Granted because Employee Incentive Compensation Plan did not Violate California law by Providing for Forfeiture of Stock for Following Resignation or Termination for Cause During Plan’s Two-Year Vesting Period California State Court Holds

Plaintiffs filed a putative class action against their employer, Citigroup, alleging violations of California’s Labor Code; specifically, the class action alleged that the financial brokerage company’s voluntary incentive compensation plan – which “allows participants the option of using a portion of their annual earnings to purchase shares in the company’s stock at a price below the stock’s publicly-traded market price” but provides further that “[i]f the participating employee resigns or is terminated for cause within a two-year vesting period, the employee forfeits the stock as well as the money used to purchase it” – violates California law because the money used to purchase the shares were wages and their forfeiture constituted a conversion of wages. Schachter v. Citigroup, Inc., 159 Cal.App.4th 10, 70 Cal.Rptr.3d 776, 778 (Cal.App. 2008). Defense attorneys moved for summary judgment; the trial court granted the motion and dismissed the class action. The Court of Appeal affirmed.

The appellate court framed the issue as follows: “Do the forfeiture provisions of this voluntary incentive compensation plan violate Labor Code sections 201 and 202, which require an employer to pay its employee all earned but unpaid compensation following the employee’s discharge or his or her voluntary termination of employment?” Schachter, at 778 (footnote omitted). In brief, the Plan permitted employees to purchase company stock “at a 25 percent discount below the stock’s then-current market price,” but the stock “could not be sold, transferred, pledged or assigned during a two-year period, which commenced on the date the stock was initially acquired.” Id., at 779. During this two-year vesting period, the employees received any stock dividends and exercised the right to vote their shares. At the end of the two-year period, the stock fully vested in the employee, but if “the employee voluntarily terminated his or her employment or was terminated for cause during the two-year period, he or she forfeited the shares, as well as the money used to purchase them.” Id. The employee could contribute from 5-25% of their compensation to the program, id. n.4, and employees who retired or were involuntarily terminated without cause were not subject to the forfeiture provisions of the Plan, id. n.7. The appellate court concluded at page 778, “As a matter of economic reality, employees who elect to participate in the plan’s stock-purchase program are paid all the wages they designate to invest in company stock. Thus, the plan’s forfeiture provisions do not violate the Labor Code; and the trial court in this case properly granted summary judgment in favor of the brokerage company.”

Class Action Court Decisions Employment Law Class Actions Uncategorized