KT Class Action Blog

Archive for January 2017

Posted on Friday, January 27 2017 at 1:09 pm by -

What to Make of the Third and Seventh Circuit Dueling Spokeo Rulings in Recent Privacy Breach Class Actions

What to Make of the Third and Seventh Circuit Dueling Spokeo Rulings in Recent Privacy Breach Class Actions by Joe Dowdy and Phillip Harris

Spokeo-based challenges are now common in class actions alleging statutory violations. But disagreements remain concerning when Spokeo mandates dismissal for lack of Article III standing. Last week, two different federal appellate courts reached seemingly different conclusions about whether lower courts properly dismissed putative privacy breach class actions for failure to satisfy Article III’s concrete injury requirement. In re: Horizon Healthcare Services Inc. Data Breach Litigation, No. 15-2309, 2017 WL 242554 (3d Cir. Jan. 20, 2017) (“Horizon”) (reversing dismissal); Gubala v. Time Warner Cable, Inc., No. 16-2613, 2017 WL 243343 (7th Cir. Jan 20, 2017) (“Gubala”) (affirming dismissal). Considered together, however, these decisions clarify when standing exists in a data breach case.

In Horizon, the named plaintiffs asserted Fair Credit Reporting Act (FCRA) claims based on allegations that their insurance carrier failed to maintain the confidentiality of their personal information, given that two of the insurer’s laptops housing their unencrypted customer data had been stolen. Rejecting a Spokeo-based challenge, the Third Circuit held:

In light of the congressional decision to create a remedy for the unauthorized transfer of personal information, a violation of FCRA gives rise to an injury sufficient for Article III standing purposes. Even without evidence that the Plaintiffs’ information was in fact used improperly, the alleged disclosure of their personal information created a de facto injury.

According to the majority, “Spokeo itself does not state that it is redefining the injury-in-fact requirement. Instead, it reemphasizes that Congress ‘has the power to define injuries.’” The Third Circuit concluded that Spokeo did not require dismissal because Congress exercised the power to define injury “with the passage of FCRA” to “establish[] that the unauthorized dissemination of personal information by a credit reporting agency causes an injury in and of itself – whether or not the disclosure of that information increased the risk of identity theft or some other future harm.”

In Gubala, the named plaintiff asserted that his former cable provider (Time Warner) violated the Cable Communications Policy Act (CCPA) because Time Warner failed to destroy but continued to store his personal information long after he had cancelled his subscription. In an opinion authored by Judge Posner, the Seventh Circuit held that although retaining the data was an apparent but “not certain” violation of the CCPA, the plaintiff lacked standing because he asserted only that “the retention of the information, on its own, has somehow violated a privacy right or entailed a financial loss.” (The panel left unaddressed whether standing might exist if a plaintiff alleged fear that his personal information “might have been stolen from [the company] or sold or given away by it, and if so the recipient or recipients of the information might be using it, or planning to use it, in a way that would harm him.”)

According to the Seventh Circuit, the case failed under Spokeo because “while the [plaintiff] might well be able to prove a [statutory] violation . . . , he ha[d] not alleged any plausible (even if attenuated) risk of harm to himself from such a violation – any risk substantial enough to be deemed ‘concrete.’” The Seventh Circuit declined to find a concrete injury based on plaintiff’s right to privacy because he failed to allege an actual or threatened release or dissemination of his personal information.

Takeaway: Read together, Horizon and Gubala show that the mere retention of a consumer’s private information is insufficient to confer standing, but that the actual or imminent dissemination of that information likely does confer standing.

Posted on Thursday, January 19 2017 at 10:32 am by -

Predominance? Class Defendant Must Introduce Evidence that Individualized Issues Predominate

Predominance?  Class Defendant Must Introduce Evidence that Individualized Issues Predominate by Jay Bogan

Takeaway: To prevail on the predominance issue, an evidentiary showing is required. Defense counsel should prove – either through declaration or deposition testimony – that a particular defense (such as consent under the TCPA) applies to individual class members. Simply arguing that a defense might apply is insufficient to defeat a class plaintiffs’ showing that common issues predominate.

The Sixth Circuit addressed this issue in a “junk fax” case filed under the Telephone Consumer Protection Act (TCPA). Bridging Communities, Inc. v. Top-Flite Financial Inc., 843 F.3d 1119 (6th Cir. 2016). There, the TCPA plaintiffs alleged that a “fax blasting” company hired by the defendant (a residential mortgage firm) “blasted” more than 4,000 unsolicited fax ads to the plaintiffs and others across the United States, in violation of the TCPA. On the issue of consent under the TCPA, both plaintiffs asserted that the faxes they received were unsolicited and also that they did not have “established business relationships” with the defendant (an unsolicited fax ad does not run afoul of the TCPA where the sender and recipient have an “established business relationship,” the recipient voluntarily made its fax number available to the sender, and the unsolicited fax contains a notice satisfying various requirements under the TCPA and its corresponding regulations).

The district court denied class certification. Focusing its analysis exclusively on predominance under Federal Rule of Civil Procedure 23(b)(3), the district court “expressed concern that individual class members might have solicited or consented to receiving the challenged faxes,” which would require a class member-by-class member investigation. The district court further stated it was “not persuaded” the issue of TCPA consent could be established by common proof. The district court refused to certify a class, ruling that the TCPA plaintiffs had not carried their burden of showing that common questions predominated over individual ones.

The TCPA plaintiffs successfully petitioned for an interlocutory appeal under Federal Rule of Civil Procedure 23(f). The Sixth Circuit then reversed the district court’s denial of class certification, finding that the district court had abused its discretion.

The Sixth Circuit observed that the TCPA plaintiffs had submitted evidence showing that the consent issue was subject to “generalized proof,” including that the faxes were sent to numbers obtained from a single list of fax numbers purchased by the fax blasting company, and also that the fax blasting company failed to contact anyone on the list to verify consent. In response, the defendant did not submit any evidence but “merely raised the possibility of consent.”

The Sixth Circuit held: “[T]here the mere mention of a defense is not enough to defeat the predominance requirement,” further holding “that speculation alone regarding individualized consent was insufficient to defeat plaintiffs’ showing of predominance under Rule 23(b)(3).”

Posted on Friday, January 13 2017 at 9:46 am by -

Ninth Circuit Rejects Ascertainability as a Requirement for Class Certification Under Rule 23

Ninth Circuit Rejects Ascertainability as a Requirement for Class Certification Under Rule 23 by Joe Reynolds

A potent weapon for defending against class actions is the requirement that class members be “ascertainable.” Circuit courts phrase this requirement differently, but at bottom, it is two-fold: (1) the class must be objectively defined and (2) the court must be able to identify class members in an administratively feasible way. See, e.g., Brecher v. Republic of Argentina, 806 F.3d 22, 24 (2d Cir. 2015); Karhu v. Vital Pharm., Inc., 621 F. App’x 945, 947-48 (11th Cir. 2015); EQT Prod. Co. v. Adair, 764 F.3d 347, 358 (4th Cir. 2014); Carrera v. Bayer Corp., 727 F.3d 300, 306 (3d Cir. 2013).

The ascertainability requirement has been particularly important in consumer class actions. Where a class representative attempts to define a class based solely on the purchase of a low-cost product—such as a diet supplement (Carrera and Karhu)—a defendant can readily cry foul. How can the defendant be sure that absent class members actually purchased the product? Consumers typically don’t keep grocery receipts and are unlikely to remember the details about an otherwise routine purchase of a low-cost product. While members of a consumer class could submit affidavits swearing that they purchased the product at issue, this is viewed as an administratively infeasible way to determine class membership. Because a defendant has the right to challenge each claimant’s class membership, this would devolve into a “series of mini-trials just to evaluate the threshold issue of which [persons] are class members.” Karhu, 621 F. App’x at 949; see also Carrera, 727 F.3d at 307 (“A plaintiff does not satisfy the ascertainability requirement if individualized fact-finding or mini-trials will be required to prove class membership.”).

This is exactly what ConAgra argued in Briseno v. ConAgra Foods, Inc., No. 15-55727, 2017 WL 24618 (9th Cir. Jan. 3, 2017). Plaintiffs essentially sought to define their class as all persons who purchased Wesson-brand cooking oils labeled “100% Natural”—a label Plaintiffs claim is false or misleading because the product contains bioengineered ingredients. ConAgra, which markets and sells the product, argued that the district court erred by not requiring Plaintiffs to proffer a reliable way to identify class members. Again, “consumers do not generally save grocery receipts and are unlikely to remember details about individual purchases of a low-cost product like cooking oil.” Id. at *3. The Ninth Circuit readily dismissed ConAgra’s argument, refusing to even use the term “ascertainability.” Id. at *2 n.3. Instead, the Ninth Circuit focused only on the second portion of the ascertainability requirement: whether class representatives must demonstrate an administratively feasible way to identify class members. Id. at *3 n.4. After employing the rules of statutory construction, the Ninth Circuit held that “the language of Rule 23 does not impose a freestanding administrative feasibility prerequisite to class certification.” Id. at *4.

After its interpretation of Rule 23, the Ninth Circuit spent the remainder of its opinion reviewing and rejecting the reasons the Third Circuit has proffered for requiring that class members be identified in an administratively feasible manner. In doing so, the Ninth Circuit joined the likes of the Sixth, Seventh, and Eighth Circuits, which have all criticized the Third Circuit’s reasoning for such a requirement. See, e.g., Sandusky Wellness Ctr., LLC v. Medtox Sci., Inc., 821 F.3d 992, 996-97 (8th Cir. 2016); Mullins v. Direct Digital, LLC, 795 F.3d 654, 657-58 (7th Cir. 2015); Rikos v. Procter & Gamble Co., 799 F.3d 497, 525 (6th Cir. 2015). The Seventh and Eighth Circuits in particular have characterized the Third Circuit’s approach as a “heightened” ascertainability requirement. Sandusky, 821 F.3d at 996; Mullins, 795 F.3d at 661-62.

At bottom, the Ninth Circuit reasoned that the factors enumerated in Rule 23 “already address” the policy concerns underlying any “separate administrative feasibility requirement.” 2017 WL 24618, at *1. The Ninth Circuit leaned heavily on one factor in particular: Rule 23(b)(3)(D), “the likely difficulties in managing a class action.” This is one of the four factors courts should consider in determining whether a class action is the superior vehicle for adjudicating the controversy. By invoking the superiority requirement—which entails a “comparative assessment of the costs and benefits of class adjudication, including the availability of ‘other methods’ for resolving the controversy”—the Ninth Circuit appears to be instructing courts to assess any potential administrative burdens alongside and compared to any potential benefits of using the class action vehicle. 2017 WL 24618, at *6.

This may be the upside of the opinion. The Ninth Circuit clearly had the low-value consumer class action in mind, noting there is no “realistic alternative to class treatment” for a class action involving “inexpensive consumer goods.” Id. Therefore, the Ninth Circuit might have less tolerance for administrative burdens related to identifying class members outside of thelow-value consumer class action context. Moving forward, a defendant should (1) consider framing arguments regarding these administrative burdens under the superiority requirement and (2) pay close attention to how other factors used to assess superiority might impact a court’s tolerance of these burdens.

Takeaway: The Ninth Circuit joins the Sixth, Seventh, and Eighth Circuits in disposing of the “heightened” ascertainability requirement. If a defendant must defend a class action in the Ninth Circuit, this is all the more reason to consider early defenses such as personal jurisdiction. But to the extent these defenses are unavailable, a defendant must be careful to frame an argument based upon potential administrative burdens in such a way that the argument will be recognized by the courts in the Ninth Circuit.

Posted on Wednesday, January 4 2017 at 2:57 am by -

Establishing CAFA Jurisdiction in the Face of Contradictory Allegations

Establishing CAFA Jurisdiction in the Face of Contradictory Allegations by Jay Bogan and Allen Garrett

It is a bedrock principle of American jurisprudence that you can’t have your cake and it eat too.

In class action litigation, plaintiffs often strive to avoid removal to federal court because they perceive state courts as more plaintiff-friendly. So class action plaintiffs frequently advance allegations designed to frustrate CAFA removals to federal court.

But plaintiffs also want to recover as much money as possible, so they naturally want to include allegations preserving the ability to recover the maximum amount of damages.

Courts in “fuel surcharge” class actions recently have grappled with this tension in addressing motions to remand CAFA removals. In these cases, plaintiffs allege the defendants collect unreasonable or excessive fees or surcharges, such as fuel charges, environmental charges, or delivery charges. To avoid removal to federal court, however, a plaintiff might argue that it is only challenging the portion of these charges that exceed the defendants’ related costs (claiming, for example, that a defendant collected more in fuel charges than it incurred in fuel costs).

In 2015, a Georgia federal court granted a motion to remand a class action challenging the reasonableness of various surcharges. The defendant presented evidence of the total amount of its charges and offered arguments (but not evidence) as to the amount of such charges that should be considered “unreasonable” under the theory articulated in the class action plaintiff’s complaint. But the defendant also refused to produce evidence of the costs that allegedly offset the collected charges. The federal court, distinguishing federal appellate authorities holding that the entire amount of the disputed charges should be considered under CAFA’s $5 million jurisdictional threshold, remanded the case to state court, reasoning that the defendant’s removal evidence did not show that $5 million was at stake, in light of plaintiff’s allegations. All-South Subcontractors, Inc. v. Sunbelt Rentals, Inc., No. 1:14-CV-124-WLS, 2015 WL 4255781 (M.D. Ga. July 14, 2015).

A Florida federal court recently reached a different result in 2016, denying a motion to remand a class action challenging fuel and environmental surcharges. In that Florida case, the complaint advanced contradictory allegations. On the one hand, the complaint challenged the fuel and environmental charges in their entirety, arguing the surcharges constituted “double dipping” by the defendant (under the theory the defendant was already reimbursed for its fuel and environmental costs through its base price). On the other hand, the complaint alleged the plaintiff sought only to recover the “excessive portion” of the charges, rather than the entire amount of those charges.

The federal court rejected this purported limitation and denied the plaintiff’s motion to remand. Pointing to the “double dipping” allegations, which attacked the charges in their entirety, the court ruled that the defendant’s evidence – which showed that the charges in their entirety exceeded $5 million – supported removal under CAFA. Vision Construction Ent., Inc. v. Argos Ready Mix, LLC, No. 3:15cv00534-MCR/CJK, 2016 WL 6987009 (N.D. Fla. Nov. 7, 2016).

Takeaway: CAFA has changed the jurisdictional analysis. It used to be that removal jurisdiction was strictly construed and that all jurisdictional doubts were to be resolved in favor of remand. No longer. The U.S. Supreme Court confirmed in Dart Cherokee Basin Operating Co. v. Owens, 135 S. Ct. 547, 554 (2014), that “no antiremoval presumption attends cases invoking CAFA, which Congress enacted to facilitate adjudication of certain class actions in federal court.” See also Dudley v. Eli Lilly and Co., 778 F.3d 909, 912 (11th Cir. 2014) (“we may no longer rely on any presumption in favor of remand in deciding CAFA jurisdictional questions.”)

In this context, “it must appear to a legal certainty that the claim is really less than the jurisdictional amount to justify dismissal.” Federated Mut. Ins. Co. v. McKinnon Motors, LLC, 329 F.3d 805, 807 (11th Cir. 2003) (emphasis added). Accordingly, when faced with a complaint that purports to challenge only the “unreasonable” or “excessive” portion of an alleged fee or charge, while at the same time preserving the ability to attack the fee or charge in its entirety, the defendant should emphasize the allegations that put all of the charges at issue and submit detailed evidence showing the charges well exceed CAFA’s $5 million threshold.

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