Arbitration Class Action Defense Cases-Douglas v. U.S. District Court: Ninth Circuit Holds Class Action Plaintiff Cannot Be Compelled To Arbitrate Class Action Dispute Against Long Distance Telephone Service Carrier If Not Told Of Contract Modifications

Modification of Telephone Service Contract to Include Class Action Waiver and Arbitration Clause not Binding on Class Action Plaintiff Where Customer did not Receive Notice of Change in Contract Terms Ninth Circuit Holds, Reversing District Court Order Compelling Arbitration in Favor of Telephone Company in Class Action Challenging New, Undisclosed Charges

Plaintiff filed a putative class action in California federal court against Talk America, his long distance telephone service company, alleging violations of the Federal Communications Act, breach of contract, and violations of various California consumer protection laws based on its unilateral revision of the service contract, without notice, to add additional service charges. Douglas v. U.S. District Court, 495 F.3d 1062, Slip Opn., at 2 (9th Cir. 2007). Defense attorneys moved to compel arbitration based on another unilateral revision to the service contract that added, without notice to customers, an arbitration clause as well as a class action waiver. Id. The district court granted the motion, and plaintiff petitioned for a writ of mandate because the Federal Arbitration Act does not authorize interlocutory appeals. Id., at 2-3.

Talk America acquired AOL’s long distance telephone service, and then modified the terms of the service contract with former AOL customers to add four provisions: “(1) additional service charges; (2) a class action waiver; (3) an arbitration clause; and (4) a choice-of-law provision point to New York law.” Douglas, at 2. The class action complaint alleged that Talk America did not provide notice of these revisions to its customers, and that the revised contract was only available on Talk America’s website. Id., at 4. The class action alleged that a customer would only learn of the revisions to the service contract if he visited the website and compared the terms of the contract online with prior versions of the contract, id. The district court “seems to have assumed” plaintiff did this as it noted that the contract was available on “the web site on which Plaintiff paid his bills,” id.; but plaintiff argued that “he authorized AOL to charge his credit card automatically and Talk America continued this practice, so he had no occasion to visit Talk America’s website to pay his bills” and that in any event “he would have had no reason to look at the contract posted there” as he was not notified that the terms of the contract had been changed. Id.

Arbitration Class Action Court Decisions Uncategorized

Arbitration Class Action Defense Cases–Shroyer v. New Cingular: Ninth Circuit Holds Class Action Arbitration Waiver Unconscionable Under California Law And Federal Arbitration Act Does Not Preempt Enforceability Of Class Action Waiver Provision

Enforceability of Class Action Arbitration Waiver Clause is Governed by State Law and District Court Erred in Granting Defense Motion to Compel Arbitration and Dismiss Class Action Complaint because Class Action Arbitration Waiver in Consumer Contract was Unconscionable under California Law Ninth Circuit Holds

Last Friday, the Ninth Circuit held that a class action arbitration waiver in a cellular telephone service contract is unconscionable under California law, and that the Federal Arbitration Act (FAA) did not protect the class action waiver. Shroyer v. New Cingular Wireless Services, Inc., 498 F.3d 976, Slip Opn., at 9993 et seq. (9th Cir. 2007). Plaintiff filed a class action in California state court against New Cingular Wireless and AT&T alleging that cellular phone service “deteriorated significantly” following the merger of the two companies, id., at 9997-98. The class action complaint alleged in part various violations of California’s unfair competition law, id., at 9998, and defense attorneys removed the class action to federal court, id., at 10000. Defense attorneys then moved the district court to compel arbitration and dismiss the class action; arguing that the arbitration clause is enforceable under the FAA; the district court agreed and plaintiff appealed. Id., at 10000-01. The Ninth Circuit reversed.

The Ninth Circuit summarized the case as requiring it to consider “whether a class arbitration waiver in New Cingular Wireless Service Inc.’s standard contract for cellular phone services is unconscionable under California law, and whether the [FAA] preempts a holding that the waiver is unenforceable.” Shroyer, at 9997. The cellular service contract plaintiff signed with AT&T in 2000 and 2003 apparently did not contain class action waiver; but when he switched his account to Cingular in January 2005 – which he did via telephone – the contract he agreed to included a binding arbitration clause that included a class action waiver. Id., at 9998-10000. The Ninth Circuit held that, under the FAA, whether the class action arbitration clause was enforceable turned on state law, and that under Discover Bank v. Superior Court, 36 Cal.4th 148 (Cal. 2005), the class action arbitration provision in plaintiff’s service contract was “both procedurally and substantively unconscionable and, therefore, unenforceable.” Id., at 10002.

The Circuit Court summarized California and Ninth Circuit case law regarding unconscionability of class action arbitration waivers, culminating in the three-part test set forth in Discover Bank. Shroyer, at 10002-05. That test requires court determine (1) whether the consumer contract is one of adhesion, (2) whether the contract involves disputes of “predictably…small amounts of damages,” and (3) whether the alleged intent of the contract is to permit the company to “carr[y] out a scheme to deliberately cheat large numbers of consumers out of individually small sums of money.” Id., at 10005 (quoting Discover Bank, at 162-63). The Ninth Circuit found each of these tests satisfied in this case, id. at 10006-08.

Arbitration Class Action Court Decisions Uncategorized

15 U.S.C. § 78ee—Transaction Fees And The Federal Private Securities Litigation Reform Act (PSLRA) Governing Individual And Class Action Lawsuits For Securities Fraud

To assist class action defense attorneys in defending against securities class action lawsuits, we provide the text of the Private Securities Litigation Reform Act of 1995 (PSLRA). Congress addressed transaction fees under the PSLRA in 15 U.S.C. § 78ee, which provides as follows:

§ 78ee. Transaction fees

(a) Recovery of cost of services

The Commission shall, in accordance with this section, collect transaction fees and assessments that are designed to recover the costs to the Government of the supervision and regulation of securities markets and securities professionals, and costs related to such supervision and regulation, including enforcement activities, policy and rulemaking activities, administration, legal services, and international regulatory activities.

(b) Exchange-traded securities

Subject to subsection (j) of this section, each national securities exchange shall pay to the Commission a fee at a rate equal to $15 per $1,000,000 of the aggregate dollar amount of sales of securities (other than bonds, debentures, other evidences of indebtedness, security futures products, and options on securities indexes (excluding a narrow-based security index)) transacted on such national securities exchange.

Statutes & Rules Uncategorized

New Labor Law Class Action Complaints Regain Sole Possession Of Top Spot In Weekly Class Action Filings In California State And Federal Courts

To assist defense attorneys in California predict the type of cases against which they may have to defend, 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 relevant timeframe.

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Class Action Defense Cases-In re C.H. Robinson: Judicial Panel On Multidistrict Litigation (MDL) Grants Plaintiff’s Motion To Centralize Class Action Litigation And Selects District of Minnesota As Transferee Court

Judicial Panel Grants Request, Over Defense Objection, for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407 and Transfers Class Actions to District of Minnesota, but Panel Refuses Joint Request to Circumscribe Authority of Transferee Court Hundreds of lawsuits, many of them putative class actions, were filed against C.H. Robinson Worldwide alleging failure to pay overtime in violation of the federal Fair Labor Standards Act (FLSA). In re C.

Class Action Court Decisions Multidistrict Litigation Uncategorized

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

The American Conference Institute is sponsoring a two-day seminar on “Defending Fraud Claims in Consumer Class Actions.” The conference will be held in New York on October 15 and 16, 2007. The details of the conference, its location and its topics may be found here. More information about the American Conference Institute may be found at its website: www.americanconference.com.

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UCL Class Action Defense Cases- Akkerman v. Mecta Corp.: California Court Upholds Denial Of Class Action Treatment For Class Action Complaint Premised On False Advertising/Unfair Competition Law (UCL) Violations

Putative Class Action Alleging False Advertising Against Manufacturer did not Warrant Class Action Treatment Because Proposed Class was Overly Broad, not Readily Ascertainable, Plaintiff was not an Adequate Class Representative, Commonality was not Shown as Individual Issues would Predominate over Common Questions, and Class Action Device was not Superior Method of Resolving Dispute California Appellate Court Holds

Plaintiff filed a putative class action in California state court against Mecta Corporation, the manufacturer of an electro-convulsive therapy (ECT) machine, alleging violations of the state’s Unfair Competition Law (UCL) based on false advertising. Akkerman v. Mecta Corp., Inc., 152 Cal.App.4th 1094, 62 Cal.Rptr.3d 39, 42 (Cal.App. 2007). Plaintiff filed a motion to certify the litigation as a class action; defense attorneys argued that class action treatment was inappropriate for a litany of reasons. The trial court agreed with defense attorneys and refused to certify a class action finding that plaintiff “did not establish the elements for class certification; did not adequately define an ascertainable class; did not show that he could represent it; and did not demonstrate a sufficient community of interest among the class members.” Id. Further, class action treatment was inappropriate because “[t]he factual issues pertaining to each class member’s tort restitution claim predominate over common questions of law and fact for the class.” Id. The California Court of Appeal affirmed.

In 1999, plaintiff began receiving ECT treatments to address severe depression; plaintiff filed a putative class action against Mecta in federal court claiming that the electric shocks resulted in memory loss and impaired cognitive functioning. Akkerman, at 42. The class action claims alleged violations of California’s UCL, and the federal court remanded the class action causes of action to state court, id., at 43. Ultimately, the federal court ruled in favor of the defense on the remaining causes of action, id. Plaintiff also filed a state-court lawsuit against his doctor, id., at 42-43, but that, too, ultimately resulted in judgment for the defense, id., at 43. What remained, then, was plaintiff’s state-court UCL class action complaint against Mecta, which was premised on the allegations that his doctor “falsely represented” that the ECT treatments were “not harmful” based on “false information provided to him by Mecta.” Id., at 43-44.

Plaintiff’s motion for class certification defined the class as “all members of the public who have received shock treatment in California from MECTA devices after September of 1997.” Akkerman, at 44. The trial court agreed with the defense that class action treatment was not warranted, and “denied the motion ‘based on the inability to determine the class, and for failure to show other elements necessary for class certification.’” Id. Plaintiff then filed a motion asking the trial court to order hospitals that were not parties to the lawsuit to notify their patients that had received ECT treatments of the putative class action: the trial court initially granted the motion, but reversed that decision after an appellate court issued an alternative writ of mandate, id. Plaintiff appealed, arguing that the trial court erred in refusing to certify a class action and in refusing to order hospitals to give the pre-certification notice he requested. Each of these claims is reviewed for abuse of discretion, id.

Certification of Class Actions Class Action Court Decisions Uncategorized

FedEx Settles Class Action – California Federal Court Gives Final Approval To Settlement Of Class Action Alleging Race Discrimination

FedEx reports that on August 14, 2007, Judge Susan Illston of the U.S. District Court for the Northern District of California gave final approval to a class action settlement in Satchell v. FedEx Express, a class action that alleged racial discrimination by the company. In part, the terms of the class action settlement require FedEx discontinue its use of a Basic Skills Test (BST), which the company believed necessary to “ensure that customer-facing employees possess the basic skills required for successful job performance”; the class action alleged that the BST acted as a barrier to minority advancement in the company.

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RESPA Class Action Defense Cases-Pierce v. NovaStar: Washington Federal Court Rejects Defense Claim In RESPA Class Action That NovaStar Purchased Loans On Secondary Market But Finds Triable Issues As To Whether Lender Violated RESPA

District Court Grants Plaintiffs’ Motion for Partial Summary Judgment as to Whether in Connection with Plaintiffs’ Loans NovaStar Fell Within the Bona Fide Secondary Market Transaction Exemption Afforded by RESPA (Real Estate Settlement Procedures Act), but Triable Issues of Fact as to the Adequacy of NovaStar’s Disclosures of Yield Spread Premiums (YSPs) Precluded Summary Judgment on RESPA Claims

Plaintiffs filed a class action against NovaStar Mortgage alleging that it failed to adequately disclose yield spread premiums (YSPs) – payments made to mortgage brokers by lenders “as an incentive to induce borrowers to enter into mortgages with higher interest rates” – on its good faith estimates, in violation of Washington’s Consumer Protection Act (CPA). Pierce v. NovaStar Mortgage, Inc., 489 F.Supp.2d 1206, 1208 (W.D. Wash. 2007). The district court certified the litigation as a class action, id., at 1208-09. Plaintiffs’ lawyer filed a motion for partial summary judgment on the ground that NovaStar’s conduct was “per se unfair or deceptive under the CPA” and thus violated the Consumer Loan Act (CLA), id., at 1209; defense attorneys opposed the motion, arguing that it purchased the loans “in a bona fide secondary market transaction,” id., at 1210. The district court rejected the defense argument as to whether the disclosures were required, but agreed that triable issues of fact existed that precluded summary judgment.

The class action complaint alleged that in May 2004 plaintiff Larry Brown sought to refinance his home loan through NovaStar Home Mortgage, and Brown maintained that he was “not aware of any distinction between NovaStar Home and NovaStar Mortgage or that NovaStar Mortgage agreed to pay a fee to NovaStar Home” but that the payment of that fee “significantly increased interest rate on his loan.” Pierce, at 1209. NovaStar Mortgage’s “Loan Approval Summary” to NovaStar Home described the latter as a “customer,” stated the initial interest rate on Brown’s adjustable rate loan would be 8.2%, and discloses that NovaStar Mortgage would pay NovaStar Home a broker fee of 3% of the loan amount. Id. This summary also revealed that the interest rate on the loan in the absence of the YSP would have been 6.45%, id. The class action alleged that Brown never received a good faith estimate; an allegation NovaStar disputed. Id., at 1209-10. Brown signed the promissory note on May 28, 2004, and that same date NovaStar Home transferred the loan to NovaStar Mortgage through an allonge. Id., at 1209. The loan was funded through a “UBS warehouse loan,” and then transferred to a Wachovia Bank line of credit, id., at 1210. The loan documents provided to Brown “[did] not clearly distinguish between NovaStar Home and NovaStar Mortgage,” id.

Class Action Court Decisions RESPA/TILA Class Actions Uncategorized

Class Action Defense Cases-Adams v. Southern Farm: Eleventh Circuit Holds Class Action Plaintiffs Bound By Settlement Of Prior Class Action Compelling Dismissal Of Class Action Complaint On Grounds Of Res Judicata

1999 Nationwide Class Action Settlement of Federal Court Class Action Challenging Insurer’s Marketing and Sales Practices of Life Insurance Policies was Entitled to Res Judicata Effect and thus Barred 2005 State Court Class Actions Against Insurer Eleventh Circuit Holds

A class action was filed against insurer Southern Farm in Georgia federal court culminating in a nationwide class action settlement in 1999, but in 2005 two new class action lawsuits were filed against Southern Farm, this time in Mississippi state court, presenting the issue of whether the new class actions were barred by res judicata. Adams v. Southern Farm Bureau Life Ins. Co., 493 F.3d 1276, 2007 WL 2119182, *1 (11th Cir. 2007). Defense attorneys moved to enjoin the new class actions from proceeding on the ground that they were barred by the Adams class action settlement, id., at *5; plaintiffs argued that notice afforded in the Adams class action was “constitutionally inadequate” and that the types of claims they asserted in the new class actions were different from those settled and released in the Adams class action id., at *6. The district court granted the defense motion, and the Eleventh Circuit affirmed.

In January 1998, Walter Adams filed a putative class action in Georgia federal court against insurer Southern Farm alleging fraudulent and deceptive practices in its marketing and sale of flexible premium and universal life insurance policies by “misrepresenting the benefits of the new policies; failing to provide an adequate explanation of concepts such as the policy’s ‘cash value’ and the ‘premium’ required by the policy; and ‘employing performance projections based on unreasonable explanations concerning interest rates and misrepresenting and/or omitting adequate explanation of the consequences of less favorable performance.’” Adams, at *1. The Adams class action eventually settled as a nationwide class, defined as “those persons and entities who currently own, or have owned, one or more flexible premium or universal life insurance policies [] issued between January 1, 1983 and March 24, 1999 by [Southern Farm] to replace other life insurance policies.” Id. Class notice was mailed via first class to the last known of address of 174,000 class members, a toll-free telephone number was established to answer questions about the class action, notice was published in USA Today, and information about the class action and the settlement was posted on the insurer’s website. Id.

The notice sent out in the Adams class action was a 48-page “Q & A”-type notice that disclosed that the Adams class action “involv[ed] claims about how flexible premium and universal life insurance policies have been sold and how those policies have performed” and, specifically, in a section entitled “Description of the Lawsuit,” that the Adams Class Action alleged Southern Farm had “made misrepresentations or omissions of fact in connection with the sale of flexible premium and universal life insurance policies,” including (1)”misleading policyowners to believe that only a single or fixed, limited number of out-of-pocket premium payments would be required to keep a policy in force, and that the promised death benefits and increasing or stable cash values would continue to exist, without the policymaker making any further out-of-pocket premium payments;” and (2) “misleading policy owners to believe that interest rates illustrated at the time the policies were sold to Class Members were reasonable, and that such rates were not likely to change, or would not change in an amount sufficient to cause the policies to perform differently than was represented at the time of sale.” Adams, at *2. The class notice described the two forms of relief provided to participants in the Adams class action settlement, and warned putative class members that they would be bound by the terms of the class action settlement unless they affirmatively opted out, and provided notice of the release and waiver of claims applicable to all participants in the class action settlement. Id., at *2-*3. The Adams class action settlement was approved in August 1999, with the district court retaining jurisdiction as to enforcement of the class action settlement. Id., at *4. Notice of final approval of the class action settlement was also provided to class members, id.

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