December 10, 2019

December 10, 2019

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December 09, 2019

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Ninth Circuit Class Action Litigation | Fall 2019

Duguid v. Facebook, Inc., 926 F.3d 1146 (9th Cir. 2019)

Ninth Circuit deepens circuit split over proper definition of “automatic telephone dialing system” under the TCPA, setting the stage for Supreme Court review. 

This case involved alleged violations of the Telephone Consumer Protection Act (TCPA). Plaintiff alleged violations based on text messages that were intended to alert users that their social media accounts had been accessed by unrecognized devices or browsers. Plaintiff was not a user, and he attempted to terminate the alerts without success. He then sued on behalf of (1) persons who received a message without having provided their cell numbers to defendant; and (2) persons who told defendant to cease the messages, but then received at least one more. The trial court dismissed plaintiff’s claims, agreeing with Facebook that plaintiff had not adequately alleged the use of an “automatic telephone dialing system (ATDS),” a prerequisite for TCPA liability, in sending the messages.

On review, the Ninth Circuit noted that ACA International v. Federal Communications Commission, issued in 2018 by the D.C. Circuit, vacated several declaratory rulings from the Federal Communications Commission regarding the definition of an ATDS. The court, however, still articulated the definition as “equipment which has the capacity—(1) to store numbers to be called or (2) to produce numbers to be called, using a random or sequential number generator—and to dial such numbers automatically.” The Ninth Circuit found that the phrase “using a random or sequential number generator” modifies only the verb “to produce,” not the verb “to store.” Thus, in the court’s view, an ATDS need only have the capacity to “store numbers to be called” and to “dial such numbers automatically.” Against this background, the Ninth Circuit found that the text message equipment allegedly used met the definition, rejecting the argument that the numbers were not “stored to be called,” but rather were to be used “reflexively” in response to outside conditions. The Ninth Circuit stated that the equipment need only have the “capacity” to store numbers to be called. The Ninth Circuit’s definition of ATDS, as affirmed in Duguid, reflects a circuit split with the Third Circuit’s earlier decision in Dominguez v. Yahoo, Inc., 894 F.3d 116 (3d Cir. 2018), which construed the statute by its plain terms to require that an ATDS have the capacity to generate numbers randomly or sequentially and dial those numbers (not merely to store and dial them). Id. at 121; see also Dominguez v. Yahoo, Inc., 629 F. App'x. 368, 372, 373 n.2 (3d Cir. 2015) (“an autodialer must be able to store or produce numbers that themselves are randomly or sequentially generated”). Separately, following the Fourth Circuit’s reasoning in American Association of Political Consultants, Inc. v. Federal Communications Commission, the Ninth Circuit rejected a challenge to the entirety of the TCPA as unconstitutional on First Amendment grounds, but did invalidate the debt-collection exception enacted through the Bipartisan Budget Act amendment in 2015. That amendment exempts from the TCPA’s prior express consent requirement “calls made solely to collect a debt owed to or guaranteed by the United States.” The Ninth Circuit found that the exception is “content-based and insufficiently tailored to advance the government’s interests in protecting privacy or the public.”

Patel v. Facebook, Inc., 932 F. 3d 1264 (9th Cir. Aug. 8, 2019)

Ninth Circuit finds standing for violations of the Biometric Information Protection Act (BIPA).

Plaintiffs asserted claims under the Illinois BIPA based on the alleged use of facial-recognition technology, including technology relating to a feature called Tag Suggestions, which allows users to receive suggestions of persons to tag based on matching facial feature data in photographs. According to plaintiffs, this practice violated the BIPA by collecting, using, and storing biometric identifiers without consent.

On review, the Ninth Circuit found that plaintiffs had established Article III standing. Defendant argued plaintiff stated only a bare procedural violation of BIPA, rather than a concrete injury-in fact. Although the plaintiffs conceded having suffered no real harm from Tag Suggestions — monetary, emotional, reputational, or otherwise — and that no consequential harm had been suffered, the Ninth Circuit disagreed, finding that the BIPA protects privacy interests, and relying on federal statutes relating to seemingly distinguishable privacy protections, like the TCPA, and common law torts. The Ninth Circuit also noted the United States Supreme Court’s recent and evolving views on the impact of technological enhancements on privacy issues, including in United States v. Jones and Carpenter v. United States (GPS monitoring) and Riley v. California (cell phone storage of personal information).

Blair v. Rent-A-Ctr., Inc., 928 F.3d 819 (9th Cir. 2019)

Ninth Circuit holds that the Federal Arbitration Act does not preempt the McGill prohibition against agreements that preclude “public injunctive relief” in any forum.

In this case, the consumer sought, among other relief, a “‘public injunction’ on behalf of the people of California to enjoin future violations” of California consumer protection laws. The district court refused to compel arbitration because the arbitration agreement purported to waive the consumer’s “right to seek public injunctive relief in any forum” and thus violated the California Supreme Court’s rule from McGill v. Citibank, which held that a contractual agreement purporting to waive a party’s right to seek public injunctive relief in any forum is unenforceable under California law.

Defendant challenged the district court’s ruling on appeal, arguing that California’s McGill rule was preempted by the Federal Arbitration Act (FAA). The panel disagreed, however, concluding that McGill was “a generally applicable contract defense” for purposes of the FAA’s saving clause because it “derives from a general and long-standing prohibition on the private contractual waiver of public rights” and “applies ‘equally to arbitration and non-arbitration agreements.’” The panel also found that the McGill rule did not “mandate procedures that interfere with arbitration” because arbitration “of public injunctive relief does not ‘sacrifice[ ] the principal advantage of arbitration – its informality.’” The panel thus held that the McGill rule was not preempted by the FAA.

Arias v. Residence Inn, 936 F.3d 920 (9th Cir. 2019)

Ninth Circuit provides a refresher on removal under the Class Action Fairness Act.

In this case, the Ninth Circuit vacated a decision to remand an action to state court. The action had been removed under the Class Action Fairness Act, and the district court sua sponte ordered it remanded, finding a lack of evidence in support of the amount-in-controversy requirement.

Plaintiff had filed a putative class action, alleging that Marriott failed to compensate employees for wages and missed meal breaks, and failed to issue accurate authorized wage statements. To meet the amount-in-controversy requirement, Marriott used plaintiff’s class definition, employee data, assumptions about the number of violations alleged in the complaint and projected attorneys’ fees. The district court found the calculations “unpersuasive” as resting on conjecture, criticized Marriott for not submitting evidence, and found the attorneys’ fees too speculative.

On review, the Ninth Circuit found that, when a notice of removal plausibly alleges federal court jurisdiction, a district court may not remand without giving defendant an opportunity to prove the requirements by a preponderance of the evidence. The court also ruled that a defendant may rely on “a chain of reasoning that includes assumptions” in addressing the amount in controversy. Those assumptions may be reasonable if based on the allegations of the complaint, and the assumptions can reflect the maximum that plaintiff might recover, including attorneys’ fees.

Nguyen v. Nissan North America, Inc., 932 F.3d 811 (9th Cir. 2019)

Ninth Circuit approves cost-to-replace measure of damages in design defect class action.

In this case, Plaintiff asserted claims related to an alleged design defect in the hydraulic clutch system of certain Nissan vehicles. The district court denied class certification, finding that the proposed measure of damages lacked a sufficient nexus to the theory of liability and would give rise to individualized issues. Plaintiff asserted a benefit-of-the-bargain measure, seeking to recover the difference in value between non-defective and defective vehicles based on the average cost to replace the clutch system. The district court found this replacement cost calculation would be an appropriate issue only if consumers would have found the clutch to be of no value.

On appeal, the Ninth Circuit reversed, determining that, under Comcast Corp. v. Behrend, and the specific theory at issue, plaintiff’s damages theory was adequate. Plaintiff argued that: the defect was “inherent in each of the [vehicles] at the time of purchase, regardless of when and if the defect manifested”; Nissan knew about, and failed to disclose, the defect at the time of sale; and a reasonable person would not have purchased the vehicle, or would have paid less.

Emphasizing that the defective clutch was itself the injury, the court ruled that the damages model satisfied Rule 23: “Whether his proposed calculation of the replacement cost is accurate, whether the clutch was actually defective, and whether Nissan knew of the alleged defect are merits inquiries unrelated to class certification. For now, it is sufficient that Plaintiff has demonstrated the nexus between his legal theory—that Nissan violated California law by selling vehicles with a defective clutch system that was not reflected in the sale price—and his damages model—the average cost of repair.” Nguyen, 932 F.3d at 821.

In re Hyundai & Kia Fuel Econ. Litig., 926 F.3d 539 (9th Cir. 2019)

Ninth Circuit rejects earlier ruling that threatened nationwide class settlements.

The Ninth Circuit, sitting en banc, overturned an earlier panel decision that ostensibly made certification of nationwide settlement classes more difficult and time-consuming by requiring district courts to scrutinize a settlement class to the same degree as litigation classes. The divided panel had reversed the certification of a nationwide settlement class because the district court did not undertake a comprehensive choice-of-law analysis in addressing predominance under Rule 23(b)(3).

In overturning the panel and affirming the district court’s order, the Ninth Circuit explained that Rule 23(b)(3)’s predominance inquiry is a “manageability” concern, and that district courts need not consider “manageability” concerns when certifying settlement classes. It reasoned that choice-of-law concerns related to the certification of nationwide classes pursuing claims under state law “present a significant issue for trial manageability,” but do not preclude certification in the settlement context where the claims otherwise “revolve[ ] around a ‘common nucleus of facts.’” In addition, “[s]ubject to constitutional limitations and the forum state’s choice-of-law rules, a court adjudicating a multistate class action is free to apply the substantive law of a single state to the entire class.” The court noted that the objectors had not even argued “that differences between the consumer protection laws of all fifty states precluded certification of [the] settlement class.” Therefore, the district court was not “obligated to address choice-of-law issues beyond those raised by the objectors.” The court thus affirmed the district court’s certification of the settlement class because “the class claims turn[ed] on the automakers’ common course of conduct–their fuel economy statements–and no objector established that the law of any other states applied.”

The court also rejected objectors’ contentions that the settlement notices were required, but failed to inform class members of the formula for calculating each member’s benefits, because “[a] settlement notice need not provide an exact forecast of the award each class member would receive, let alone a detailed mathematical breakdown.” The court also rejected the argument that, because Virginia substantive law was supposedly more favorable, the settlement was unfair to Virginia residents. The objector was “free to opt out of the class,” the court explained, but had “no right to do so on behalf of anyone else.” The court also disagreed that the settlement was the result of a “reverse auction” and collusion between class counsel and defendants, noting that “the settlement bears none of the typical signs of collusion …, such as when class counsel ‘receive a disproportionate distribution of the settlement,’ the agreement contains a ‘clear sailing’ provision for attorney’s fees ‘separate and apart from class funds,’ or unawarded fees revert to the defendants rather than to the class.” Finally, the court concluded that the district court did not abuse its discretion in using the lodestar method to award attorneys’ fees to class counsel and had no obligation to “crosscheck” the amount of the award using the “percentage method,” which “is merely a shortcut to be used ‘in lieu of the often more time-consuming task of calculating the lodestar.’”

NEI Contracting & Eng’g, Inc. v. Hanson Aggregates Pac. Sw., Inc., 926 F.3d 528 (9th Cir. 2019)

Ninth Circuit holds that a class must be decertified when the named plaintiff does not have standing.

In this case, plaintiff alleged, on behalf of itself and a putative class, that a concrete supplier recorded customer calls without consent in violation of California law. The district court initially certified a class consisting of customers who had called the concrete supplier before its implementation of a prerecorded message notifying callers that their calls were being recorded. The class was later decertified, after the supplier identified several customers who had called during that time with knowledge of the supplier’s recording practice and continued to place orders anyway, which the supplier argued demonstrated consent to be recorded. Based on this evidence, the district court concluded that Rule 23’s “commonality” and “predominance” requirements were not satisfied.

After a bench trial on plaintiff’s individual claim, the district court denied statutory damages. The district court further found plaintiff lacked standing to pursue its claim because it had not suffered a “concrete or particularized injury by the violation.” Following entry of judgment, plaintiff appealed the decertification order but not the finding that it lacked standing.

On appeal, the Ninth Circuit framed the question as “whether a class must be decertified when the class representative is found to lack standing as to its individual claims.” Under “circuit precedent,” the panel explained, “when a class is certified and the class representatives are subsequently found to lack standing, the class should be decertified and the case dismissed.”

Thus, because the plaintiff failed to appeal – and therefore waived its right to challenge the district court’s finding that it lacked standing – the order decertifying the class was affirmed.

Banks v. N. Tr. Corp., 929 F.3d 1046 (9th Cir. 2019)

Ninth Circuit clarifies scope of the Securities Litigation Uniform Standards Act in the beneficiary-trustee context.

In this case, the beneficiary-plaintiff alleged that the trustee breached its fiduciary duties by investing trust assets in affiliated funds rather than in unaffiliated investments that would have yielded higher returns, and that the trustee charged excessive fees and failed to maintain adequate records in connection with preparing routine fiduciary tax returns. Based on these allegations, the beneficiary also asserted elder abuse and unfair competition claims under California law.

The district court granted the trustee’s motion to dismiss, finding that the Securities Litigation Uniform Standards Act (SLUSA) barred the beneficiary’s claims. SLUSA was enacted to prevent class action litigants from circumventing the Private Securities Litigation Reform Act (PSLRA), which limited the filing of federal securities class actions in federal court. SLUSA carries out its purpose of preventing state-law class actions from end-running the PSLRA by depriving federal courts of jurisdiction to hear class actions asserting claims under state law based on allegations that a defendant made a misrepresentation or omission or employed any manipulative or deceptive device in connection with the purchase or sale of a covered security. In dismissing the beneficiary’s claims as barred by SLUSA, the district court reasoned that the trustee was the agent of the trust’s beneficiaries, and thus the beneficiary’s claims regarding the imprudent investments featured allegations of material misrepresentations or omissions “in connection with the purchase or sale of covered securities.”

The Ninth Circuit reversed, holding that SLUSA did not bar the beneficiary’s claims, because the trustee’s alleged violations were not “in connection with the purchase or sale of a covered security.” The Ninth Circuit distinguished the trustee-beneficiary relationship from the archetypical principal-agent relationship, because the beneficiary of an irrevocable trust, like the one in question, has no control over how trust assets were invested. As a result, the trustee’s misconduct – over which the beneficiary had no control – could not constitute misconduct “in connection with” the sale of covered securities because “the only party who decide[d] to buy or sell a covered security as a result of a lie [was] the [trustee].” The Ninth Circuit also found the beneficiary’s fee-related claims lacked any plausible relationship to covered securities, and otherwise concluded the beneficiary adequately stated his claims such that dismissal under Rule 12(b)(6) was improper.

Noel v. Thrifty Payless, Inc., 7 Cal. 5th 955 (2019)

California Supreme Court softens ascertainability requirement in state court.

Plaintiff, who purchased an inflatable swimming pool allegedly smaller than the one pictured on its packaging, brought a putative class action against the seller, alleging violations of California’s Consumer Legal Remedies Act, Unfair Competition Law, and False Advertising Law. In his motion to certify a class, plaintiff argued he had no obligation to offer evidence as to how class members could be identified, and contended (without supporting evidence) that modern day point-of-sale systems used by retailers such as Rite Aid could track customers who pay by credit card, and that Rite Aid also could contact consumers who were members of its loyalty program or on its mailing list because it had their contact information. The trial court found that this speculation without evidentiary support was insufficient, and denied certification on that basis. The Court of Appeal agreed and affirmed.

The Supreme Court disagreed, however, and reversed. After an exhaustive review of the court’s prior opinions on the issue of ascertainability, the court held that this requirement is satisfied when a proposed class is defined “in terms of objective characteristics and common transactional facts” that make “the ultimate identification of class members possible when that identification becomes necessary.” Thus, the court held that a representative plaintiff in a class action does not have to introduce evidence establishing how notice will be communicated to individual class members.

ZB, N.A., v. Superior Court (Lawson), 8 Cal. 5th 175 (2019)

California Supreme Court holds that wages cannot be recovered under PAGA.

In recent years, plaintiffs’ lawyers have been bringing claims for unpaid wages under California’s Labor Code section 558 as Private Attorneys General Act (PAGA) claims, to avoid arbitration or having to certify a class. In ZB, the California Supreme Court changed this landscape dramatically by holding that unpaid wages are not “penalties” for which plaintiffs may recover as private attorneys general under PAGA.

Plaintiff brought a PAGA-only action against her employer alleging wage and hour violations and seeking civil penalties, including unpaid wages. The employer filed a motion to compel arbitration of plaintiff’s claim for unpaid wages under Section 558. The trial court granted the motion but compelled arbitration as a representative action for unpaid wages of all allegedly aggrieved employees.

ZB filed an appeal and a writ for mandate from the trial court’s order. The appellate court issued a writ and reversed the trial court’s order, holding that the employer’s claim for unpaid wages could not be arbitrated because those wages were “penalties” under PAGA.

ZB petitioned the California Supreme Court to determine whether an employer may compel arbitration of a PAGA claim seeking unpaid wages under Section 558. The Supreme Court first addressed whether a plaintiff may seek unpaid wages in a PAGA action at all. The court concluded the answer is no, and held that the civil penalties a plaintiff may seek under Section 558 through PAGA do not include unpaid wages. The court reasoned that Section 558 does not provide a private right of action, and that only the Labor Commissioner may recover unpaid wages under that statute.

The Supreme Court, however, upheld the decision overturning the trial court’s order compelling arbitration, because the employer had only moved to compel “victim-specific relief under Section 558,” which the court had determined was not recoverable as a penalty under PAGA in the first place. Nonetheless, the court held that plaintiffs may still recover fixed penalties available under the Labor Code for violations of the statute under PAGA, and that such claims are not arbitrable. And plaintiffs may seek to recover unpaid wages on other theories on a class basis, which claims may also be subject to arbitration depending on the circumstances and arbitration clause at issue.

Part of the Fall 2019 Class Action Litigation Newsletter available here.

©2019 Greenberg Traurig, LLP. All rights reserved.

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About this Author

Robert Herrington, Greenberg Traurig Law Firm, Los Angeles, Cybersecurity Litigation Attorney
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Robert J. Herrington is an attorney in firm's Products Liability & Mass Torts Practice. He focuses his practice on defending consumer products companies in complex, multi-party litigation, including class actions, government enforcement litigation, product defect litigation and mass torts. Rob represents companies in a variety of industries, including apparel and footwear, retail, emerging technologies, consumer electronics, video game, telecommunications, advertising and publicity, online retailing, food and beverage, nutritional supplements, personal care products...

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Stephen L. Saxl Class Action Attorney Greenberg Traurig
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Stephen L. Saxl is the Co-Chair of the Class Action Litigation Group. He concentrates his practice on defending class actions and complex litigation matters in federal court and New York State courts. His class action experience includes cases in the securities, retail, telecommunications, publishing, insurance, Internet and tobacco industries. He has defended clients against statutory and common law claims including fraud, unfair trade practices, Racketeer Influenced and Corrupt Organizations (RICO), breach of contract and price-fixing.

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