KT Class Action Blog

Archive for February 2017

Posted on Monday, February 27 2017 at 3:08 pm by -

The new CAFA? The Fairness in Class Action Litigation Act of 2017

 by Ian Goldrich

The House Judiciary Committee has approved a bill introduced by its Chairman Robert Goodlatte (R-Va.), one of the authors of the Class Action Fairness Act of 2005 (“CAFA”), that would greatly alter class action litigation in the federal courts. The Fairness in Class Action Litigation Act of 2017, H.R. 985, addresses a host of topics including, among others, the similarity of injury among class members required for class certification, the “ascertainability” of putative class members, the amount and timing of payments of fees to class counsel, appeals of class certification decisions, and stays of discovery.

Here are some of the highlights:

“Same Type and Scope of Injury”

The bill limits class certification to actions in which all class members “suffered the same type and scope of injury as the named class representative or representatives.” This provision should operate to preclude certification of any class that includes uninjured members. At present, most courts allow certification even where the class may include uninjured members. See, e.g., Kohen v. Pacific Inv. Mgmt. Co. LLC, 571 F.3d 672, 677 (7th Cir. 2009) (“a class will often include persons who have not been injured by the defendant’s conduct . . . Such a possibility or indeed inevitability does not preclude class certification.”). The bill offers no guidance as to the degree of similarity required to deem injuries of the “same type and scope,” one of many issues that will be left to the courts to determine.


Several federal courts (with the recent notable exception of the Ninth Circuit) have implied to varying degrees a requirement that the identity of putative class members be objectively ascertainable. The bill codifies “ascertainability” by precluding class certification unless the class plaintiffs “affirmatively demonstrate that there is a reliable and administratively feasible mechanism (a) for the court to determine whether putative class members fall within the class definition and (b) for distributing directly to a substantial majority of class members any monetary relief secured for the class.”

Opponents argue a rigid ascertainability requirement will preclude small-value consumer class actions where, e.g., consumers likely did not retain a receipt or proof of purchase. Another question for the courts will be whether affidavits from putative class members swearing to their purchases would satisfy this requirement.

Attorneys’ Fees

Before receiving any attorneys’ fees, class counsel would be required to complete distribution of all damages to class members. In the case of cash settlements, class counsel must also submit to the Director of the Federal Judicial Center and the Director of the Administrative Office of U.S. Courts – prior to collecting fees – an accounting that discloses, among other things, the total amount paid to all class members, the average amount paid, and the largest and smallest payments.

The bill also limits fee awards in damages cases to “a reasonable percentage of any payments directly distributed to and received by class members.” Fee awards in equitable relief cases must reflect “a reasonable percentage of the value of the equitable relief, including any injunctive relief.”


The bill would make all district court class certification rulings directly appealable (thereby eliminating the Court of Appeals’ current discretion to deny petitions for interlocutory review of such rulings under current Federal Rule 23(f)). Although this change protects class defendants from the settlement pressure of improper class certifications, it also potentially adds the expense of an appeal in every case where a district court properly denies certification of a class.

Stay of Discovery

Some appellate courts already have directed district courts to stay discovery pending resolution of a motion to dismiss or motion to transfer. The bill would codify these requirements and also require a stay of discovery based on an early motion to strike class allegations. This would represent a significant change in existing law, given that district courts usually do not give meaningful consideration to early motions to strike class allegations.

Conflicts of Interest

The bill also seeks to curtail the use of “professional plaintiffs” by requiring class counsel to disclose, and prohibiting certification based on, any preexisting relationship with the named plaintiffs.


CAFA’s passage in 2005 – the last year Republicans controlled the presidency and both houses of Congress – had a seismic impact on class action litigation by, among other things, moving many large class actions based on violations of state law to federal court. The current bill (with the much less elegant acronym FCALA) strikes at the heart of many perceived continuing abuses in class action litigation. Several of the key provisions – most notably the “same type and scope of injury” requirement and the attorneys’ fees limitations – could undermine key economics driving much of the current consumer class action docket. And the mandatory discovery stay would avoid the burden of discovery in putative class actions that never get past the pleading stage. We will track this bill as it makes its way through Congress and provide updates in future posts.


Posted on Thursday, February 23 2017 at 2:29 pm by -

Ninth Circuit: An enforceable arbitration agreement requires notice to and assent by the consumer

 by Jay Bogan

Takeaway: Technology advances. Business processes evolve. Contract formation, however, remains an old-fashioned concept. A party must have notice of and actually assent to a contractual provision to be bound by it. Where an arbitration clause is set out in a warranty brochure in a box containing the purchased product, and there was nothing on the face of the box to call the consumer’s attention to the existence of the clause, the consumer – according to the Ninth Circuit – is not bound by the clause. Accordingly, the consumer’s class action lawsuit was allowed to proceed in the district court.

In Norcia v. Samsung Telecommunications America, LLC, 845 F.3d 1279 (9th Cir. 2017), the consumer (Norcia) purchased a Galaxy S4 phone at a Verizon Wireless store. Immediately after he purchased the phone, a Verizon employee and Norcia took the phone (still in its sealed box) to a table, where they opened the box and unpacked the phone and materials, and the employee then proceeded to assist Norcia in transferring the contacts from his old phone to his new phone. Norcia then took the new phone, phone charger, and headphones as he left the store, leaving the box and the rest of its contents – including a 101-page warranty brochure containing an arbitration clause – behind.

Norcia later filed a class action complaint against Samsung, alleging (among other things) that Samsung made misleading statements about the Galaxy S4’s storage capacity. Samsung moved to compel arbitration. But the district court denied the motion, ruling that Norcia’s receipt of the brochure in the box did not form an agreement to arbitrate. Samsung appealed, and the Ninth Circuit affirmed the district court’s ruling.

Analyzing California law of contract formation, the Ninth Circuit noted the general rule that “silence or inaction does not constitute acceptance of an offer.” Id. at 1284. There are exceptions to this rule, including that “silence may be deemed to be consent when the offeree has a duty to respond to an offer and fails to act in the face of this duty.” Id. at 1284-1285. Also, “silence may also be treated as consent to a contract when the party retains the benefit offered.” Id. at 1285. Neither of these exceptions applied, however. Norcia was under no duty to respond, and Norcia did not retain any benefit by failing to act (while the warranty brochure gave Norcia an opportunity to “opt out” of the arbitration agreement, the brochure made it clear that the warranty applied regardless of whether Norcia opted-out). Id. at 1286.

The Ninth Circuit held: “Because Norcia did not give any ‘outward manifestations of consent [that] would lead a reasonable person to believe the offeree has assented to the agreement,’ no contract was formed between Norcia and Samsung, and Norcia is not bound by the arbitration provision contained in the brochure.” Id. (citation omitted).

For similar reasons, the Ninth Circuit rejected Samsung’s arguments that the arbitration provision should be enforced either as analogous to a shrink-wrap license or as an “in-the-box contract.” On the shrink-wrap license point, the Ninth Circuit ruled: “Even if a license to copy software could be analogized to a brochure that contains contractual terms, the outside of the Galaxy S4 box did not notify the consumer that opening the box would be considered agreement to the terms set forth in the brochure.” Id. at 1287. On the in-the-box contract point, the court ruled: “A reasonable person in Norcia’s position would not be on notice that the brochure contained a freestanding obligation outside the scope of the warranty.” Id. at 1289.

Posted on Friday, February 17 2017 at 1:21 pm by -

The TCPA and Risk of “Sabotage Liability”

 by Jeff Fisher

Takeaway: The Telephone Consumer Protection Act (“TCPA”) broadly defines the “sender” of a facsimile advertisement to include any entity “whose goods or services are advertised.” On its face, this language creates risk of liability arising out of an illegal fax campaign that a defendant has no knowledge of or control over. In the recent case Comprehensive Health Care Sys. of Palm Beaches, Inc. v. Vitaminerals VM/Orthopedics, Ltd., No. 5:16CV2183, 2017 WL 27263 (N.D. Ohio Jan. 3, 2017) (“Comprehensive”), a district court in the Sixth Circuit observed the absurdity of potential “sabotage liability,” where a company is exposed to liability where a competitor or another entity outside of its control advertises the company’s products in an illegal fax campaign. Businesses should be aware of the potential reach of the TCPA and guard against potential TCPA liability in third-party distribution and marketing agreements.

Cases brought under the TCPA often are based on fax ads that are not transmitted directly by the TCPA defendant. Accordingly, it is possible to be exposed to TCPA liability for a fax campaign conducted by third-party distributors or marketers over whom the TCPA defendant has little or no control. In some cases, the TCPA defendant first learns that its products or services have been advertised through a fax campaign when it is served with a TCPA complaint. The first question an in-house attorney might ask is: How can we be held directly liable for a fax campaign we did not authorize or even know about?

Comprehensive demonstrates the potential reach of the TCPA and the possibility of “sabotage liability.” There, a serial TCPA plaintiff alleged class-action TCPA claims against Vitaminerals (“VM”), a distributor of therapeutic products, as well as Hygenic, for faxes advertising the Hygenic product “Biofreeze.” Although it was clear the faxes were sent only by VM, the TCPA plaintiff named both VM and Hygenic as defendants. The plaintiff alleged that, because the fax campaign advertised a product manufactured by Hygenic, Hygenic was a “sender” under the TCPA and could be held directly liable. Hygenic moved to dismiss, arguing there were no allegations it had knowledge or control over VM’s fax campaign.

            The TCPA broadly defines the “sender” of a fax to include the company whose products are advertised

As far-fetched as it may seem, the imposition of liability on Hygenic is arguably consistent with the FCC regulations interpreting the TCPA. Those regulations define the “sender” of a fax as “the person or entity on whose behalf a facsimile unsolicited advertisement is sent or whose goods or services are advertised or promoted in the unsolicited advertisement.” 47 C.F.R. § 64.1200(f)(10) (emphasis added). (This definition is unique to claims arising out of illegal fax campaigns. Direct liability for telephone solicitation is limited to the person that initiates the call. 47 CFR § 64.1200(f)(11).) The second clause – “or whose goods or services are advertised or promoted” – was added by amendment in 2006. Although VM did not send the fax “on behalf” of Hygenic, there is no question the fax promoted Hygenic’s “goods.” Given the use of the word “or,” Hygenic was subject to potential strict liability regardless of whether it had any knowledge of or control over the fax campaign.

In fact, the Sixth Circuit has adopted the broad reading. In Imhoff Inv., L.L.C. v. Alfoccino, Inc., 792 F.3d 627, 636 (6th Cir. 2015), the Sixth Circuit reversed the district court’s dismissal of a direct liability TCPA claim against a restaurant featured in an illegal fax campaign, finding that direct liability attaches “if an unsolicited advertisement for [a defendant’s] goods or services was faxed to an entity with which it had no existing business relationship.” In Siding & Insulation Co. v. Alco Vending, Inc., 822 F.3d 886, 894 (6th Cir. 2016), the court affirmed Imhoff’s broad reading and determined that, for faxes sent after the 2006 amendment, liability “extend[s] to both those entities ‘on whose behalf the advertisement [was] sent’ and those entities ‘whose goods or services [were] advertised or promoted in the unsolicited advertisement.’” Id. at 894 (emphasis in original).

Relying on the Sixth Circuit’s decision in Siding, district courts have found that defendants whose products were advertised fall within the definition of “sender,” regardless of their knowledge of or control over the fax campaign. For example, in JWD Auto., Inc. v. DJM Advisory Grp. LLC, No. 215CV793FTM29MRM, 2016 WL 6835986, at *4 (M.D. Fla. Nov. 21, 2016), the Middle District of Florida denied a motion to dismiss filed by insurance underwriters. Although the TCPA complaint included no allegations “tying [the underwriters] directly or vicariously to the Fax’s creation or dissemination,” the court found that the underwriters fit within the definition of “sender” simply because the fax stated that the policies were “underwritten by Banner Life Insurance Company … and William Penn Life Insurance Company.” Id.; see also Supply Pro Sorbents, LLC v. Ringcentral, Inc., No. C 16–02113 JSW, 2016 WL 5870111, at *4 (N.D. Cal. Oct. 7, 2016) (inclusion of defendant’s name and website at the bottom of a fax promoted defendant’s services and thus was “sufficient to permit Defendant to fall with[in] the statutory definition of sender”); Arkin v. Innocutis Holdings, LLC, 188 F. Supp. 3d 1304, 1309 (M.D. Fla. 2016) (“When the FCC defined ‘sender,’ liability was expanded to include the ‘on-whose behalf’ standard and a strict liability standard for entities whose good or services were advertised.”)

            Comprehensive criticizes the “absurd” results of an expansive reading of “sender”

The district court in Comprehensive distinguished Imhoff and Siding while at the same time criticizing the Sixth Circuit’s broad definition of “sender.” 2017 WL 27263, at *5. The court granted Hygenic’s motion to dismiss, holding that the “fact that VM promoted Hygenic’s products, without more, does not make Hygenic liable under the TCPA.” Id. at *6. The court pointed out the logical fallacy apparently overlooked by Imhoff, Siding, and similar cases – “sabotage liability.” If a company can face TCPA liability for any unsolicited fax that advertises its goods or services, regardless of whether the fax was sent on its behalf, a company’s rival could create a fax campaign for the purpose of triggering TCPA liability. For example, a disgruntled Atlanta Falcons fan, humiliated by his team’s epic Super Bowl collapse, could execute a illegal fax campaign advertising New England Patriots season tickets. Although the faxes would certainly not have been sent “on behalf of” the Patriots, because they advertise the Patriots’ “good and services,” the five-time Super Bowl champions could face liability under the TCPA.

Other courts have criticized the “absurd” results of such a broad reading. See Bridgeview Health Care Ctr., Ltd. v. Clark, 816 F.3d 935, 938 (7th Cir.), cert. denied, 137 S. Ct. 200 (2016) (rejecting broad reading of “sender” as “absurd,” noting that “[t]he very notion of advertising one’s goods entails that one must do something to advertise them.”); Cin-Q Auto., Inc. v. Buccaneers Ltd. P’ship, No. 8:13-CV-01592-AEP, 2014 WL 7224943, at *6 (M.D. Fla. Dec. 17, 2014) (coining the phrase “sabotage liability”). Comprehensive, however, is the first Sixth Circuit district court decision to do so. As a result, the court was forced to carefully distinguish Imhoff and Siding. The district court observed that Imhoff and Siding both involved fax broadcasting companies paid by the defendants to execute fax campaigns. As a result, there was no question the faxes were sent on the defendant’s behalf and no risk of “sabotage liability.” These cases are distinguishable from cases like Comprehensive, where the defendant had no direct contact with the fax blaster. The court in Comprehensive persuasively demonstrated that extending direct liability to defendants like Hygenic, with no connection to or control over a fax campaign, is inconsistent with the purpose of the TCPA.

            Implications for businesses

            The FCC’s definition of “sender” and cases applying that definition create challenges for TCPA defendants. Although “sabotage liability” may be an extreme example, there is risk of companies facing direct liability arising out of fax campaigns over which the company had little or no control over or even knowledge of.

Contractual protections to address this potential risk is often a desired approach to reducing litigation risk. Businesses that hire third party marketing companies should insist on the inclusion of strong indemnification provisions that specifically include protection against TCPA liability, as well as limitations on the use of the businesses’ trade name in advertisements.


Posted on Friday, February 10 2017 at 12:52 pm by -


 by Ron Raider and Allen Garrett

President Trump has nominated Tenth Circuit Judge Neil M. Gorsuch to replace Justice Antonin Scalia on the United States Supreme Court, and we expect that his nomination will eventually be confirmed. Since 2006, Judge Gorsuch has issued a limited set of decisions concerning Rule 23 and the Class Action Fairness Act (“CAFA”). Here is our take on his class action jurisprudence:

Judge Gorsuch addressed the interplay of Rule 23(b)(2) (governing injunctive relief classes) and the general requirements for injunctive relief under Rule 65(d) in upholding an order denying class certification in Shook v. Board of County Commissioners, 543 F.3d 597 (10th Cir. 2008). The Shook plaintiffs sought to certify a class consisting of all present and future mentally ill inmates at Colorado’s El Paso County Jail. Gorsuch ruled that “[a]t the class certification stage, the injunctive relief sought must be described in reasonably particular detail such that the court can at least ‘conceive of an injunction that would satisfy [Rule 65(d)’s] requirements,’ as well as the requirements of Rule 23(b)(2).” Id. at 605 (quoting Monreal v. Potter, 367 F.3d 1224, 1236 (10th Cir. 2004)). Analyzing the different types of class members suffering from mental illness as well as “the fluid nature of the class” (given that it included not only current but future inmates), he found that any injunction would have to distinguish class members “based on individual characteristics and circumstances” rather than “prescribing a standard of conduct applicable to all class members.” Id. at 605 (emphasis in original). Moreover, while the problems inherent in formulating appropriate class-wide injunctive relief could have been “mitigated, or perhaps avoided, by the use of subclasses,” the district court did not sua sponte create any subclasses and was under no obligation to do so. Id. at 606-607. Accordingly, Gorsuch ruled that the district court did not abuse its discretion in declining to certify an injunctive relief class under Rule 23(b)(2).

In a 2010 opinion, Judge Gorsuch allowed a corporate defendant to appeal a federal district court order remanding a “mass action” to state court – one that that had been removed to federal district court under CAFA. BP America, Inc. v. Oklahoma ex. rel. Edmondson, 613 F.3d 1029 (10th Cir. 2010). BP raised two issues: (1) whether the appellate court had jurisdiction to consider the appeal (given that appellate courts are generally prohibited from reviewing district court remand orders under 28 U.S.C. § 1447), and (2) whether, if the order was appealable under CAFA’s exception to this general rule (28 U.S.C. § 1453), the appellate court should accept the interlocutory appeal. On the issue of appellate jurisdiction, Judge Gorsuch found that Congress had authorized appellate courts in § 1453(c)(1) to review district court remand orders of “mass actions.” Accordingly, the appellate court had jurisdiction over the appeal. On the issue of whether the appellate court should take the appeal, Gorsuch considered the factors listed by the First Circuit in terms of whether to grant leave to appeal under CAFA. Gorsuch ruled that the appellate court should accept the appeal, because (among other reasons) the “case raise[d] the important and unsettled legal questions whether CAFA’s mass action provision applies to suits by a state attorney general; . . .” Id. at 1035.

Just two months ago, Judge Gorsuch addressed how to prove the amount “in controversy” in terms of determining CAFA’s $5 million jurisdictional threshold in Hammond v. Stamps.com, Inc., 844 F.3d 909 (10th Cir. 2016). Hammond involved a class of Stamps.com subscribers who allegedly had been deceived into paying a monthly subscription fee. Stamps.com removed the case to federal court, asserting that the putative class sought damages that well exceeded $5 million. The district court remanded the case to state court, however, noting that the class consisted of persons who were “actually deceived,” and that, without proof as to how many class members were so deceived, Stamps.com could not satisfy the $5 million “in controversy” requirement. Examining the historical meaning of the term “in controversy,” Gorsuch ruled that Stamps.com need only show what a fact finder “might legally conclude,” as opposed to what the “factfinder would (or probably would) find” on the issue of damages. Id. at 912 (emphasis in original). Because the district court applied the wrong standard, it abused its discretion and improperly remanded the case to state court.


All three of these Gorsuch opinions are pro-defendant decisions. In Hammond, Judge Gorsuch joined the Seventh, Eighth, and Ninth Circuits in holding that a party may satisfy the amount “in controversy” requirement under CAFA by showing what a fact-finder could award in damages, as opposed to proving up the likely outcome, a decision that makes it easier for a defendant to remove a case under CAFA. See also Jay Bogan and Allen Garrett, Establishing CAFA Jurisdiction in the Face of Contradictory Allegations, January 4, 2017. BP was another pro-defendant removal decision. Finally, in Shook, Judge Gorsuch used the general injunctive relief requirements under Rule 65 to affirm the denial of certification of an injunctive relief class under Rule 23(b)(2). Shook should prove useful to any corporate defendant opposing Rule 23(b)(2) certification, especially in the Tenth Circuit.




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