Class Action Litigation Newsletter - Summer 2021: Ninth, Eleventh, and D.C. Circuit
Highlights from this issue include:
Supreme Court rules that class members who did not suffer concrete harm do not have Article III standing to sue for violation of a federal statute.
Supreme Court holds that generic nature of a misstatement is important evidence to show no price impact at the class certification stage, but that defendant bears the burden of persuasion to prove a lack of price impact.
District court in the First Circuit (D. Mass.) grants motion to strike nationwide class allegations at the pleading stage.
Second Circuit holds that a plaintiff cannot establish injury-in-fact sufficient to confer Article III standing where personally identifiable information was inadvertently disclosed and not yet misused by any third party.
Third Circuit follows majority rule that American Pipe tolling applies to plaintiffs who file individual suits before a ruling on class certification.
Fourth Circuit finds ERISA plaintiff established Article III standing and reverses denial of class certification.
District court in Fifth Circuit (N.D. Tex.) denies class certification because individual issues predominate in case alleging fraud and misrepresentation.
Divided Sixth Circuit panel affirms dismissal of proposed insurance coverage class action.
Seventh Circuit affirms summary judgment for defendant in consumer class action, finding no reasonable consumer would be materially misled by alleged misrepresentations.
Eighth Circuit reverses class certification, holding that plaintiff’s expert’s computer technology and algorithm cannot overcome individualized inquiry into economic loss.
Ninth Circuit reverses approval of class action settlement, holding that under revised Rule 23(e)(2)(C)(iii), a district court must review a proposed class settlement for unfair collusion.
D.C. district court permits tolling of putative class members’ claims under American Pipe because they are based on the same acts and will be proven by the same evidence as prior claims.
Under revised Rule 23(e)(2)(C)(iii), a district court must review a proposed class action settlement for collusion.
The Ninth Circuit reversed the district court’s approval of the class action settlement in this case, in which plaintiffs claimed allegedly misleading labels on Wesson Oil. The labels stated that the oil was “100% Natural,” but it allegedly contained genetically modified organisms. Following certification of a damages class under Rule 23(b)(3), the parties reached a settlement. The settlement contained a claims process and required defendant to pay $0.15 for each unit of oil purchased by households (up to a maximum of 30 units without proof of purchase and unlimited with such proof). According to defendant, with a class size of 15 million consumers, the amount available for claims would be almost $67.5 million (assuming the entire class submitted claims). Meanwhile, the settlement: (1) did not require defendant to identify or provide direct notice to class members; (2) enjoined advertisement of the oil as “natural”; (3) was premised on an expert report valuing the injunctive relief at $27 million; and (4) awarded $6.85 million in attorneys’ fees and costs.
In the settlement administration, only 0.5% class members submitted claims, resulting in awards in the amount of $418,919. A class member objected to the discrepancy between the class member awards and the attorneys’ fees and moved to strike the expert report. The district court overruled the objection and granted final approval.
On appeal, the Ninth Circuit reversed the district court’s approval of the class action settlement, holding that, under revised Rule 23(e)(2)(C)(iii), a district court must “scrutinize settlement agreements – including post-class certification settlements – for potentially unfair collusion in the distribution of funds between the class and their counsel.” Applying that standard, the court held that the disparity between the funds awarded to class members and the attorneys’ fees raised “an urgent red flag.” The court noted another red flag in the “clear sailing arrangement,” which suggested “the potential that a defendant agreed to pay class counsel excessive fees in exchange for counsel accepting a lower amount for the class members.” Further, the court criticized the expert’s estimate of the value of the injunctive relief as “worthless” because defendant ceased labeling the oil as “natural” two years prior to the settlement, thus rendering the injunction “illusory.”
Fisher v. Osmose Utilities Services, Inc., Case No. 1:18-cv-1704-NONE-EPG, 2021 U.S. Dist. LEXIS 66775 (E.D. Cal. Apr. 5, 2021), Report and Recommendation adopted (July 22, 2021)
Class settlement rejected when the parties did not have enough information to consider proper valuation.
Plaintiff sued for various state law wage and hour violations. The parties reached a class settlement, providing that each class member’s share would be allocated as 33.3% wages, 33.3% interest, and 33.4% penalties. In the motion for preliminary approval, plaintiff’s counsel stated that the damages analysis was based exclusively on his interview with plaintiff, and extrapolated across the class, resulting in: (1) $320,000 for unpaid meal and rest break premiums; (2) $250,000 for wage statement damages; (3) $1.7 million for waiting time penalties; (4) $500,000 for PAGA damages; (5) $210,000 for unpaid wages; and (6) $200,000 for unpaid mileage and business expense damages. The Magistrate Judge recommended denial of the motion for preliminary approval of the class action settlement, finding that the damages analysis was unclear, and that the parties did not consider enough information to “make an informed decision about the value of the settlement.” The Magistrate Judge further found that the proposed incentive award and attorneys’ fees were too high. The incentive award was 2.66% of the total settlement amount, where plaintiff had spent approximately 15-20 hours on the case, and the attorneys’ fees award was 33.33% of the settlement amount, above the Ninth Circuit’s 25% benchmark. On July 22, 2021, the district court adopted the Magistrate Judge’s report and recommendation and denied the motion for preliminary approval.
Rodriguez v. Just Brands USA, Inc., Case No. 2:20-CV-0489-ODW (PLAx), 2021 U.S. Dist. LEXIS 94413 (C.D. Cal. May 18, 2021)
Allegation that plaintiff “may” purchase CBD products in future is insufficient for Article III standing, and plaintiff cannot maintain a claim for restitution under the UCL, FAL and CLRA as an alternative to actual damages.
Plaintiff brought claims for himself and a putative class against a producer of cannabidiol (CBD) products under the brand “JustCBD.” Plaintiff alleged that he purchased JustCBD vape cartridges, gummies, and dog treats after reviewing and relying on the product packaging, which he claimed promised specific quantities of CBD. Plaintiff claimed he later discovered through independent lab testing commissioned by counsel that JustCBD products contained between 10% to 100% less CBD content than promised on the labels, and that plaintiff therefore “paid a substantial premium due to the false and misleading CBD claims . . . [and] did not receive the benefit of his bargain.” Based on these allegations, plaintiff alleged claims for violation of California’s Unfair Competition Law (UCL), Consumer Legal Remedies Act (CLRA), and False Advertising Law (FAL), as well as Florida’s Deceptive and Unfair Practices Act, unjust enrichment, express warranty, and fraud.
Defendant moved to dismiss plaintiff’s claims, and the court granted the motion in part and denied it in part. First, the court held that plaintiff lacked Article III standing to pursue injunctive relief because he alleged only that he “may” purchase JustCBD products in the future, and therefore lacked the “firm intention” to purchase the product in the future that is required to have standing to seek such relief in the Ninth Circuit. Second, the court denied defendant’s motion to dismiss claims brought on behalf of out-of-state putative class members under Bristol Myers Squibb Co. because the case at issue involved a nationwide class action, and noted that “in class actions, the citizenship of the unnamed plaintiffs is not taken into account for personal jurisdiction purposes.”
The court also dismissed plaintiff’s claims under the CLRA, UCL, and FAL because they are all based on the same factual predicates (namely, the underfilling of CBD content), and plaintiff cannot maintain claims for restitution under those statutes as an alternative to actual damages, because only equitable relief is permitted.
Kalaveras v. NCR Corp., Case No. 20-C-6930 YGR, 2021 U.S. Dist. LEXIS 77728 (N.D. Cal. Apr. 22, 2021)
Court declines to exercise supplemental jurisdiction over PAGA claim after elimination of class allegations that had been the basis for removal.
Plaintiff brought claims in state court for himself and a putative class, along with representative claims under California’s Private Attorney General Act (PAGA), and defendant removed under the Class Action Fairness Act (CAFA). Plaintiff then stipulated to submit his individual claims to arbitration, except the PAGA claim, which was not subject to arbitration as a matter of law. The question became whether the district court should retain jurisdiction over that claim.
The court noted the absence of Ninth Circuit authority. The court then stated that, on the one hand, elimination of class allegations generally does not divest a court of CAFA jurisdiction. On the other, a PAGA case would not be removable, as it is not a mass or class action. After considering district court decisions going both ways on the issue, the court determined that it could only exercise supplemental jurisdiction under 28 U.S.C. section 1367(c). Applying those factors, the court found there was no basis for maintaining federal jurisdiction.
Heathcote v. Spinx Games Ltd., Case No. C20-131-RSM, 2021 U.S. Dist. LEXIS 81559 (W.D. Wash. Apr. 28, 2021)
Court upholds defendants’ revision to terms of service to include a class-action waiver after initiation of litigation.
Plaintiff sued video casino game providers for losses suffered through mobile phone gaming. Following initiation of litigation, defendants added a pop-up window to the application, which amended the terms of service to add an arbitration provision with a class-action waiver. For persons covered by the claims, the provision also stated that the litigation was pending; described the claims and relief sought; noted that the court had made no decision on class certification; provided the name and telephone number for plaintiff’s counsel; and noted that, if the gamer accepted the terms, and did not opt out of the arbitration provision, the gamer could not participate in the litigation. The gamer was required to accept the terms of service in order to play.
Plaintiff sought a temporary restraining order, seeking to control defendants’ communications with putative class members under Rule 23(d). Plaintiff argued that the pop-up was misleading and inadequate in explaining class members’ rights. The court disagreed and denied the temporary restraining order, finding that the pop-up met the requirements previously stated in Kater v. Churchill Downs Inc., 423 F. Supp. 3d 1055 (W.D. Wash 2019). Specifically, the pop-up: (1) referenced class members’ ability to opt out and instructed them how to do so; (2) explained the claims and class members’ rights in such a way as “an average user would understand what they are giving up”; and (3) advised class members to contact plaintiff’s counsel and provided the contact information.
Benson v. Enterprise Leasing Company of Orlando, LLC, Case No. 6:20-cv-891-Orl-37LRH (M.D. Fla.)
Federal district court in Florida allows a purported class action to proceed asserting violation of the WARN Act.
A federal district judge denied a motion to dismiss this putative class action brought under the Worker Adjustment and Retraining Act (WARN Act) for dismissing employees without the required 60-days’ notice during the pandemic.
The case arises from a suit brought by former Enterprise employees laid off due to the COVID-19-related business downturn. In April 2020, layoffs of Enterprise employees began at both the Orlando and Tampa airports due to pandemic-related travel restrictions. The class representatives alleged that, before termination, they either received no notice (in one case) or six days’ notice (in the other case). The putative class consists of 508 people laid off between the two locations.
Enterprise sought dismissal of the purported class action based upon two affirmative defenses within the WARN Act: (i) the occurrence of a natural disaster and (ii) unforeseeable business circumstances. The court reasoned that the dismissal of a claim based on such affirmative defenses could only be warranted when such defense clearly appears on the face of the complaint. “To qualify for . . . [natural disaster exception], an employer must be able to demonstrate that its plant closing or mass layoff is a direct result of a natural disaster.” 20 C.F.R. §639.9(c)(2).
The court found that the complaint did not allege that the layoffs were a direct result of the pandemic and determined that the pandemic caused a global slowdown in travel. The slowdown in global travel meant that fewer people were flying, and as a result, fewer people were renting cars. So, while Enterprise suffered “a dramatic downturn in business,” that downturn did not result directly from COVID-19. There was no outbreak of the virus at the facilities at issue in the complaint. The downturn in business was a result of a downturn in business travel. That such business travel slowed because of COVID-19 does not amount to a direct result as required by the statute, according to the court.
The court next examined the “unforeseeable business circumstances” defense and noted that this defense does not waive the 60-day notice requirement but instead softens it to “as much notice as practicable.” One plaintiff received no notice at all, and the other received six days’ notice. Whether no notice or a short six-day notice is sufficient is inherently a question of fact. The court held that such issues could not be properly decided on a motion to dismiss, and as such, the case could proceed.
In re Rail Freight Fuel Surcharge Antitrust Litig. (No. II), MDL No. 2925, 2021 WL 1909777 (D. D.C. May 12, 2021)
District court permits tolling of putative class members’ claims under American Pipe doctrine, as they had a sufficient factual nexus to timely claims.
Plaintiffs brought this action alleging that defendant railroads engaged in a multi-year price-fixing conspiracy to increase the price of rail-freight transport. Defendants moved for reconsideration of the court’s decision to deny their motions to dismiss 10 individual complaints based on the exception to the running of statute of limitations for former putative class members set forth in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974). The district court denied the motion for reconsideration.
Plaintiffs argued that their claims were timely because of “the tolling made generally available to former putative class members under American Pipe” which “suspends the applicable statute of limitations . . . as to all putative class members’ individual claims concerning ‘the same evidence, memories, and witnesses as the subject matter of the original class suit’ . . . ‘until class certification is denied. . . .” Defendants argued that the allegations in these MDL II complaints differed from the allegations in the MDL I complaints, depriving plaintiffs of the benefit of American Pipe tolling.
While denying the motion for reconsideration, the court explained that the tolling rule is designed to “promote both Federal Rule of Civil Procedure 23’s ‘goals of efficiency and economy of litigation’ by eliminating the need for putative class members to file protective motions to intervene in the pending class action to preserve their claims, and thus preventing a ‘needless multiplicity of actions.’” The D.C. Circuit “takes a ‘functional’ approach to the application of these guideposts of American Pipe tolling” and the central inquiry is whether the claims of the former putative class members are “’predicated on the same acts’ as the conduct challenged in the original class action, ‘such that ‘there can be no doubt that the defendants have received sufficient notice of the contours of potential claims.’” Here, tolling was permitted only for allegations with a “‘sufficient factual nexus’ to the conduct alleged by the putative MDL I class” but “‘allegations outside the class period that address conduct or harm completely unrelated to conduct or harm that occurred within the class period are untimely’.” The court held that “[i]n sum, the limited lingering-effects allegations tolled . . . were correctly found to fall within the scope of American Pipe’s exception to the running of the statute of limitations because they are ‘predicated on the same acts’ and will be proven by the same evidence as the claims advanced by the putative class in MDL I.”
Aaron Van Nostrand, Kara E. Angeletti, Layal Bishara, Andrea N. Chidyllo, Gregory Franklin, Brian D. Straw also contributed to this article.