Class Action Litigation Newsletter - Summer 2021: Supreme Court, First Circuit, and Second 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.
U.S. Supreme Court
Supreme Court rules that class members who did not suffer “a concrete harm” do not have Article III standing to pursue their claims in federal court.
The Supreme Court addressed whether a violation of a federal statute providing for a private right of action, without concrete harm, will provide standing in federal court. In a 5-4 decision, the Court reversed a Ninth Circuit decision approving a damages award to 6,332 class members asserting that TransUnion violated the Fair Credit Reporting Act by mislabeling their credit reports as a “potential match” to a name on the list of terrorists, drug traffickers, and other criminals maintained by the U.S. Treasury Department’s Office of Foreign Asset Control. These class members comprised more than three-quarters of the total class, but their claims were distinct in that TransUnion had only flagged their credit reports internally, without distributing the reports to potential creditors or any other third party.
Writing for the majority, Justice Kavanaugh’s decision began by stating “no concrete harm, no standing”, and explained that mislabeling, alone, was not a “concrete injury” needed to establish Article III standing, because “the retention of information lawfully obtained, without further disclosure, traditionally has not provided the basis for a lawsuit in American courts.” Thus, “[t]he mere presence of an inaccuracy in an internal credit file, if it is not disclosed to a third party, causes no concrete harm.” The risk of future harm resulting from potential distribution to third parties also was not enough to establish concrete harm. Though the Court recognized that someone “exposed to a risk of future harm may pursue forward-looking, injunctive relief to prevent the harm from occurring, … so long as the risk of harm is sufficiently imminent and substantial,” here, the plaintiffs sought only money damages. And Justice Kavanaugh explained, “a plaintiff’s standing to seek injunctive relief does not necessarily mean that the plaintiff has standing to seek retrospective damages.” Id. at 20.
The dissent by Justice Thomas took issue with the fact that the TransUnion credit reports erroneously flagged many law-abiding people inaccurately and found that these actions were significant enough. Among other things, the dissent noted that “each class member established a violation of his or her private rights” and therefore had “a sufficient injury to sue in federal court.” The second dissent — authored by Justice Kagan and joined by Justice Breyer and Justice Sotomayor – joined Justice Thomas’s dissent with one caveat. In Justice Thomas’s view, any violation of a statutory right could give rise to Article III standing, while Justice Kagan maintained that some concrete injury is still needed. Even so, Justice Kagan proffered that courts should defer to Congress’s judgment “to determine when something causes harm or risk in the real world,” and that “[o]verriding an authorization to sue is appropriate when but only when Congress could not reasonably have thought that a suit will contribute to compensating or preventing the harm at issue.”
For more information on this case, see June 2021 GT Alert, ‘No Concrete Harm, No Standing’: Supreme Court Reverses Judgment Where Class Members Did Not Have Standing.
Goldman Sachs Grp., Inc. v. Ark. Teacher Ret. Sys., __ S. Ct. __, 2021 WL 2519035 (U.S. June 21, 2021)
Supreme Court holds that (1) the generic nature of a misstatement is important evidence of price impact in a securities fraud case, and the district court should consider all (not just some) evidence probative of price impact at the class certification stage, and (2) once a plaintiff invokes the Basic presumption of class-wide reliance, the defendant bears the burden of persuasion to prove a lack of price impact.
In this purported securities fraud suit against Goldman Sachs and three of its former executives (collectively, GS), plaintiffs alleged GS had misrepresented the existence of conflicts of interest surrounding several collateralized debt obligation (CDO) transactions involving subprime mortgages, and that the plaintiffs were purportedly injured after those conflicts were revealed in, among other things, a 2010 SEC complaint, and GS’s stock price dropped. After discovery, plaintiffs moved for class certification, invoking the presumption of class-wide reliance established by the Supreme Court in Basic Inc v. Levinson, 485 U.S. 224 (1988). The district court granted the motion and held that GS had failed to meet its burden to rebut the presumption, notwithstanding evidence that GS’s stock had not decreased on at least 34 occasions when the media had reported on the alleged conflicts prior to the filing of the SEC complaint.
On appeal, the Second Circuit unanimously vacated the decision, reasoning that the district court had failed to apply the proper standard in considering whether the presumption invoked by plaintiffs had been rebutted (i.e., by a preponderance of the evidence) and should have considered evidence that GS’s stock price had not decreased when the media reported on the company’s alleged conflicts of interest prior to 2010. The Second Circuit also reasoned that a defendant seeking to rebut the Basic presumption bears the ultimate burden of persuasion. On remand, the district court granted class certification again, GS appealed, and the Second Circuit affirmed.
The Supreme Court held that the Second Circuit correctly held that a defendant bears the burden of persuasion to prove a lack of price impact once the Basic presumption is invoked by a plaintiff. In so holding, the Court disagreed that a defendant need only produce “any competent evidence of a lack of price impact” to rebut the Basic presumption at the class certification stage, interpreting its prior opinions as having assigned to the defendant the burden of persuasion with respect to price impact, too.
The Supreme Court also confirmed that the generic nature of a misstatement is not only relevant to price impact, but “often will be important evidence of price impact because, as a rule of thumb, ‘a more-general statement will affect a security’s price less than a more specific statement on the same question.’” The Court repeatedly emphasized that courts must consider “all” evidence probative of the price impact issue, “regardless of whether the evidence is also relevant to a merits question like materiality.” Finding it “unclear” whether the Second Circuit considered GS’s evidence—in particular, expert testimony regarding the generic nature of the alleged misstatements—the Court vacated the decision below and remanded with an instruction for the Second Circuit to “take into account all record evidence relevant to price impact.”
Justice Sotomayor concurred in part and dissented in part. Justice Sotomayor agreed with the Court’s answers to the questions presented but disagreed with the Court’s judgment to vacate and remand because she believed the Second Circuit properly considered the generic nature of GS’s statements.
Justice Gorsuch, Justice Thomas, and Justice Alito also concurred in part and dissented in part in a separate opinion. These justices disagreed that the defendant should bear the burden of persuasion on price impact and characterized the majority’s ruling as the first time the Court had ever placed a burden of persuasion on the defendant with respect to an element of a plaintiff’s case.
For more information on this case, see June 2021 GT Alert, Rebutting the Presumption of Class-Wide Reliance at the Class Certification Stage (Part II): Key Takeaways from the Supreme Court’s Decision in Goldman Sachs Grp., Inc. v. Arkansas Teacher Ret. Sys. (2021).
District court strikes nationwide putative class claims at pleading stage.
Plaintiff asserted that the defendant deceptively advertised its products as recyclable when they allegedly were not according to federal regulations and in violation of Massachusetts General Laws Chapter 93A—the Massachusetts Consumer Protection Act. The plaintiff’s complaint proposed two classes—one consisting of persons who purchased the products in Massachusetts and one consisting of all product purchasers nationwide. After expressing caution about striking class-action allegations at the pleading stage, the district court struck the Chapter 93A nationwide class allegations from the complaint under Federal Rule of Civil Procedure 12(f). In doing so, the district court explained that, although Chapter 93A does not require a plaintiff to reside in Massachusetts, courts consider where the plaintiff acted in reliance on the alleged misrepresentations, where the plaintiff received the alleged misrepresentations, where the defendant made the alleged misrepresentations, and the domicile, residence, nationality, place of incorporation, and place of business of the parties when assessing whether a plaintiff may proceed under Chapter 93A. The district court placed greater emphasis on the “place of reliance” factor than the defendant’s principal place of business and concluded that, because the alleged misrepresentations were made on the product packages themselves, the plaintiff (and putative class members) would have seen and acted in reliance on those alleged misrepresentations outside of Massachusetts, meaning they were not covered by Chapter 93A for those residing outside of Massachusetts.
Second Circuit holds that a plaintiff cannot establish an injury in fact sufficient to confer Article III standing where their personal information was inadvertently disclosed and not yet misused by any third party, and declines to consider protective measures taken as part of the standing analysis.
This case arose out of an email sent by mistake to all approximately 65 employees of Carlos Lopez & Associates (CLA). The email contained sensitive personally identifiable information (PII) of approximately 130 then-current and former employees. CLA emailed the then-current employees to address the accidental email but did not contact any of the former employees regarding the disclosure or take any other corrective action. Three individuals whose information had been shared then filed a putative class action complaint. Notably, plaintiffs did not allege that their PII had been shared outside of CLA or misused by third parties, or that they were the victims of fraud or identity theft, but rather, claimed that “because their PII had been disclosed to all of CLA’s then-current employees, they were ‘at imminent risk of suffering identity theft’ and becoming the victims of ‘unknown but certainly impending future crimes.’”
CLA moved to dismiss for lack of Article III standing, among other things. The parties reached a class settlement, but in advance of the fairness hearing, the district court sua sponte ordered further briefing on the issue of Article III standing. The district court ultimately found that the plaintiffs lacked Article III standing because they failed to allege ‘”an injury that is concrete and particularized and certainly impending.” As such, the court dismissed the case for lack of subject matter jurisdiction, noting it was “powerless to approve the parties’ proposed class settlement.”
On appeal, the Second Circuit affirmed, finding that the alleged “increased risk of identity theft” was not sufficient to confer Article III standing. In so ruling, the court was persuaded by, among other things, the fact that the data disclosure at issue was inadvertent (and not a cyberattack) and plaintiffs did not allege that their PII had been misused. The court also declined to consider the proactive measures plaintiffs took to protect themselves in assessing standing, noting that their efforts against a hypothetical future threat “cannot create an injury.”
District court denies plaintiff’s request to amend a complaint to include putative class allegations due to the belated nature of the request and the prejudice it would cause.
Plaintiff brought an action alleging that a New York police officer used excessive force while arresting him, and that the New York Police Department unlawfully handcuffed him during his subsequent hospitalization based on a policy requiring that, among other things, all hospitalized suspects be handcuffed. Three years after he commenced his action on a pro se basis, and more than a year after fact discovery closed, plaintiff moved to amend his complaint to certify a class of all hospitalized prisoners subject to the purported handcuffing policy.
In denying the request, the district court explained that prejudice is “perhaps the most important factor” bearing on the Rule 15(a) analysis. It ultimately held that “[t]he hour is late for plaintiff to seek to transform this case into a class action,” highlighting that plaintiff waited to bring this request until “more than a year after the close of fact discovery, more than two years after his counsel first appeared, and nearly three years after he commenced the action.” The court explained that parties may not “strategically withhold all notice that they plan to move for class certification until they deem it most advantageous.”
The court also noted that transforming the case into a class action would cause defendant undue prejudice because it would “fundamentally transform the litigation in a manner burdensome to defendants” as a class action is “more costly, more time-consuming, and exposes defendants to more substantial recoveries than an individual  suit.”
Chen v. Hunan Manor Enter., No. 17-cv-802, 2021 WL 2282642 (S.D.N.Y. June 4, 2021)
Report and recommendation denying plaintiffs’ motion for class certification based solely on the inadequacy of proposed class counsel.
Nine former employees of defendants’ restaurants alleged that defendants failed to pay employees minimum wage, overtime, and spread of hours pay and failed to give employees a wage notice at the time of hire. Plaintiffs moved for class certification, but the Magistrate Judge denied the motion solely based on plaintiffs’ failure to demonstrate that their counsel would adequately represent the class.
Defendants argued that plaintiffs’ proposed class counsel was inadequate because the conduct of counsel, John Troy, and his firm, Troy Law PLLC, in previous cases and in the current litigation was inadequate. The Magistrate Judge agreed, citing numerous reasons. First, the Second Circuit previously upheld the decertification of a class due to inadequate representation by Troy Law and John Troy individually in Jin v. Shanghai Original, Inc., 990 F.3d 251 (2d Cir. 2021). The court noted that the derelictions described in Jin could by themselves have justified the denial of the class certification motion in this case. Second, another court recently rejected Troy Law as class counsel in Rodpracha v. Pongsri Thai Rest. Corp., 2021 WL 1733515 (S.D.N.Y. Mar. 22, 2021), and other courts have imposed sanctions as a result of Troy Law’s conduct and the conduct of its attorneys. In other cases, this proposed class counsel was found to “repeatedly fail[ ] to comply” with court deadlines, fail to file a revised motion for default judgment, and “fail[ ] to submit jointly proposed jury instructions, a jointly proposed verdict sheet, or exhibits in usable form.” The Magistrate Judge found these other cases compelling evidence of Mr. Troy and Troy Law’s “lack of adequacy to represent a class.”
As for proposed class counsel’s conduct in this case, the court pointed to the fact that counsel “cancelled multiple depositions for plaintiffs at the last minute in the case, sometimes on the day of the scheduled depositions” and missed various court deadlines. In addition, counsel sought to add six new defendants to the case, and the court denied the request due to counsel’s unexplained failure to pursue the remedy diligently. The court found these tactics and unexplained delays rendered proposed class counsel inadequate.
Aaron Van Nostrand, Kara E. Angeletti, Layal Bishara, Andrea N. Chidyllo, Gregory Franklin, Brian D. Straw also contributed to this article.