Class Action Litigation Newsletter Summer 2020: First, Second and Third Circuit
In re Intuniv Antitrust Litig., 2020 U.S. Dist. LEXIS 119289 (D. Mass. July 8, 2020)
Court decertifies class based on plaintiff’s bankruptcy filing, concluding that debtor-in-possession cannot act as a class representative when defendants themselves are creditors.
In this case, a direct purchaser filed an antitrust action against various entities alleging that they improperly delayed competition when manufacturing the brand name and generic versions of Intuniv, an extended release guanfacine hydrochloride product. After plaintiff filed for bankruptcy protection, defendants moved to decertify the class. The district court granted the motion in part, concluding that plaintiff was no longer an adequate class representative but inviting motions to provide a substitute class representative. As to plaintiff’s inadequacy, which the district court referred to as a matter of first impression in the First Circuit, the district court concluded that a debtor cannot act as a class representative when defendants are creditors. The district court found that plaintiff was now an inadequate representative based on two conflicting duties when acting as a debtor-in-possession and class representative: First, it must maximize the value of its assets and the value of the lawsuit for the benefit of its creditors, including defendants in the case. Second, it must fairly and adequately protect the interests of the class. The district court, however, refused to find that the debtor-plaintiff was inadequate based on its inability to fund the litigation as class counsel was advancing expenses and had taken the matter on a contingent basis. Finally, the district court made clear that it was “not advocating a blanket rule that a debtor-in-possession could never be an adequate class representative.”
Quadrelli v. Moniz, 2020 U.S. Dist. LEXIS 99456 (D. Mass. June 8, 2020)
Civil detainees granted class certification to avoid risk of COVID-19 exposure.
This action was filed by a group of pro se civil immigration detainees seeking a writ to fast-track their cases due to concerns about contracting COVID-19 while in a state correctional facility. Plaintiffs sought to certify a class of civil detainees. In opposing plaintiffs’ motion, defendant challenged commonality and typicality under Fed. R. Civ. P. 23(a) and asserted that plaintiffs could not meet Fed. R. Civ. P. 23(b)(2) based on disparate factual circumstances. As to commonality, the district court agreed that there existed a common question among the proposed class, whether, because of COVID-19, their continued detention violated their constitutional rights. This common question focuses on the conditions at the detention center and the risk of infection in general, rather than, as defendant argued, on the unique impact of those conditions on individual plaintiffs. As to typicality, that too was met because plaintiffs resided in the same center and were exposed to the same risk of contracting COVID-19. Finally, plaintiffs’ satisfied Rule 23(b)(2) by demonstrating that a single remedy (release) could provide relief to all class members.
Vara v. Devos, 2020 U.S. Dist. LEXIS 112296 (D. Mass. June 25, 2020).
Former students granted class certification in lawsuit alleging that the Department of Education arbitrarily and capriciously denied petition to set aside defaulted student loans.
Plaintiffs, former students, filed this lawsuit to challenge actions taken by the Department of Education concerning thousands of student loans used to pay for attending Everest Institute, a for-profit college. Plaintiffs sought to set aside the DOE’s denial of an application to discharge their loans as submitted by the Massachusetts Attorney General’s Office. The district court concluded that commonality was met because the following common questions were resolvable through common proof: (1) whether the AGO's submission represents a valid borrower defense on behalf of all former Everest Massachusetts students named therein; (2) whether defendant constructively denied that application without making a reasoned decision; and (3) given Everest's undisputed violations of state law, whether any decision that fails to grant full relief to plaintiffs and proposed class members is arbitrary and capricious under the Administrative Procedures Act. The district court also found that the Higher Education Act’s anti-injunction provision did not preclude class certification based on the Administrative Procedure Act’s waiver of sovereign immunity provision. Finally, the proposed relief (declaratory and injunctive) was appropriate under Fed. R. Civ. P. 23(b)(2).
Kurtz v. Costco Wholesale Corp., Nos. 17-1856-cv, 17-1858-cv, 2020 U.S. App. LEXIS 20077, at *1 (2d Cir. June 26, 2020)
The Second Circuit affirms certification in flushable baby wipes class actions while reversing certification for injunctive relief class.
Plaintiffs alleged that wipes sold by defendants were not “flushable” as advertised but instead damaged plumbing and septic systems because they did not disintegrate and thus were not truly “flushable.” As to the damages class, the Second Circuit focused on defendants’ argument that the class representative had a conflict of interest because he had abandoned claims based on damages to plumbing in favor of a theory that customers paid more for disposal wipes than was warranted. The Second Circuit found there was insufficient evidence that such plumbing damages offered a meaningfully greater recovery than the “overcharge” theory and found that the expense of litigating plumbing damages claims would have outweighed any recovery. The Second Circuit also addressed defendants’ challenges to the expert evidence plaintiffs submitted to establish a “price premium.” The court reasoned that, “Defendants' central contention is that [the expert’s] analysis either does not or cannot establish a price premium because of issues such as an incomplete dataset, flawed parameters of the regression, or business considerations not captured by the model.” Concluding that these arguments showed “a fatal similarity—an alleged failure of proof as to an element of the plaintiffs' cause of action,” the court affirmed certification. The court, however, rejected the injunctive relief class because the class representative had given no indication that he planned to buy wipes in the future and thus had no standing for an injunction.
Bacon v. Avis Budget Group, Inc., 959 F.3d 590 (3d Cir. 2020)
Third Circuit rejects enforcement of arbitration clause based on incorporation-by-reference doctrine.
Plaintiffs alleged that the defendant rental car company imposed unauthorized charges on their credit and debit cards and asserted claims on behalf of a putative class under various states’ consumer protection statutes, unjust enrichment and conversion. Defendant moved to compel individual arbitration under the terms and conditions for the rental. Specifically, the one-page rental agreement signed by each customer stated that the customer “reviewed & agreed to all notices & terms here and in the rental jacket.” The agreement was folded and then placed in the rental jacket, which bore the title “Rental Terms and Conditions” and not “rental jacket,” and the twenty-eighth paragraph of the terms and conditions contained a mandatory arbitration clause. The district court ordered the parties to conduct discovery as to arbitrability and then denied the motion to compel arbitration, reasoning that the arbitration clause was not incorporated by reference in the rental agreement.
The Third Circuit affirmed. The panel applied New Jersey law, which provides that “for there to be a proper and enforceable incorporation by reference of a separate document, (1) the separate document must be described in such terms that its identity may be ascertained beyond doubt and (2) the party to be bound by the terms must have had knowledge of and assented to the incorporated terms.” The panel found that standard was not satisfied because (i) the agreement provided that the customer “reviewed & agreed to all notices & terms here and in the rental jacket,” “but the phrase ‘rental jacket’ is not defined or even used in the … Agreement and is not otherwise so ‘specific or identifiable’ that the customer could ascertain the document to which the phrase refers,” and (ii) “there is no evidence that Plaintiffs knew about the arbitration provision in the rental jacket when they signed the … Agreement” because it was without dispute that the customers were not showed the rental jacket until after they signed the agreement. In short, the panel held that “[w]hile there is no obligation to provide a copy of a clearly identified incorporated agreement at the time the agreement itself is signed, the incorporated document must be identified beyond doubt.”
In re Lamictal Direct Purchaser Antitrust Litigation, 957 F.3d 184 (3d Cir. 2020)
Third Circuit reiterates that Rule 23 requires a rigorous analysis of expert evidence when evaluating class certification.
Plaintiffs alleged that an agreement between two drug manufacturers to settle a patent dispute was an impermissible “reverse payment agreement” that violated antitrust laws. In seeking certification, plaintiffs’ expert provided a model using an “average hypothetical price” to show that the entire class suffered injury. The district accepted this model to certify a class of all those who purchased drugs from defendants. The Third Circuit reversed, holding that the district court erred by assuming that “averages are acceptable” to show commonality and predominance, explaining averages could “mask individualized injury.”
Little v. Kia Motors America, Inc., __ A.3d __, 2020 WL 3455799 (N.J. 2020)
New Jersey Supreme Court prevents class from pursuing aggregate damages.
Plaintiff alleged breach of warranty against Kia based on an allegedly defective brake system. The class was certified, and, at trial, the class presented two claims for damages: (1) diminution in value of their vehicles, and (2) out of pocket costs due to brake defects. The second theory of damages was not supported by individual proof of out-of-pocket costs but on an expert’s estimate of the amount of money an average Kia owner would pay for brake repairs. The jury rejected the diminution of value damages claim but awarded out-of-pocket cost damages of $750 per class member. On post-trial motions, the trial court determined that it should have required individualized proof of out of pocket damages, decertified the class on that issue, and appointed a special master to administer a claims process and adjudicate individual class members’ damages claims. Plaintiff appealed, and the New Jersey Appellate Division reversed, finding that aggregate damages were appropriate.
The Supreme Court granted review to “consider the standard that guides a court’s determination whether to permit a class to prove its damages in aggregate form, or to require evidence specific to each class member.” After discussing the judicial efficiencies that class actions may achieve, the Court observed that “a court must recognize that the most expeditious method of presenting a claim or defense may not ensure a fair trial. Accordingly, before admitting aggregate proof of damages in a class action, a court must undertake a careful inquiry to ensure that the proposed evidence does not deprive the defendant of a meaningful opportunity to contest the plaintiff’s claims.” The Court then set forth the following factors for a court to consider when deciding whether to permit aggregate proof of damages: “(1) the underlying cause of action for which the class seeks recovery; (2) the measure of damages that the law allows if there is a finding of liability for that claim; and (3) the methodology by which plaintiff seeks to prove damages on an aggregate basis.” Significantly, the Court found that “[i]f the plaintiff cannot establish a basis for a presumption that all members of the class have sustained damage, aggregate proof of damages raises the specter that an individual with no viable claim will recover a windfall. In such settings, the court should require individualized proof of damage.” Even if plaintiff has established that all class members have sustained damages, “aggregate proof of damages must be based on a reliable mathematical formula in order to be admissible.” Because plaintiff did not establish that presumption here, the Court affirmed the trial court’s rejection of the class’s aggregated damages model.