KT Class Action Blog

Archive for March 2017

Posted on Thursday, March 30 2017 at 3:44 pm by -

House Passes Fairness in Class Action Litigation Act of 2017

 by Ian Goldrich

In a February 27, 2017 post, we reported that the House Judiciary Committee approved the Fairness in Class Action Litigation Act of 2017 (“FCALA”), a bill described by its sponsor, Rep. Robert Goodlatte (R. Va.), as intended “to protect innocent individuals and small businesses who have become targets of frivolous suits by attorneys who have found loopholes in our civil litigation system.” Among other things, the FCALA would (a) prohibit class certification where class members cannot be objectively identified or did not suffer the same type and scope of injury; (b) revise the amount and timing of payments of fees to class counsel; (c) provide for interlocutory appellate review of all class certification decisions; and (d) impose a stay of discovery pending resolution of motions to dismiss, transfer, or strike class allegations.

On March 9, 2017, the House of Representatives passed FCALA, without amendment, by a vote of 220-201. FCALA now moves on to the Senate where, in 2016, a similar bill sponsored by Rep. Goodlatte failed to make it out of committee for a vote. We will continue to track FCALA and provide updates.


Posted on Thursday, March 23 2017 at 11:22 am by -

A Ninth Circuit Blueprint for a RICO Class Action

 by Jay Bogan

Takeaway: Civil RICO claims usually present complex issues. As civil causes of action predicated on violations of criminal law, a RICO plaintiff must prove (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity (5) causing injury to the plaintiff’s business or property. Given their inherent complexity, RICO claims – especially fraud-based RICO claims – usually raise fact-intensive issues inappropriate for class certification. But, as demonstrated in a recent Ninth Circuit decision, class certifications in RICO cases remain possible, giving plaintiffs a potentially lethal weapon in winning the certification of nationwide federal-claim class actions seeking the treble damages and attorneys’ fees mandated under the federal RICO statute.

In Just Film, Inc. v. Buono, 847 F.3d 1108 (9th Cir. 2017), small businesses that leased “point of sale” processing equipment for credit and debit cards filed a putative class action, alleging that the providers of credit card processing services conspired to sell fraudulent, long-term equipment leases and processing services, in violation of the federal Racketeer Influenced and Corrupt Organizations Act (RICO) and other statutes. Plaintiffs alleged the defendants (the “Leasing Defendants”) engaged in two fraudulent schemes in connection with the equipment leases between the Leasing Defendants and the class members.

First, in the “Post-Lease Tax Collection Scheme,” the Leasing Defendants allegedly conspired to defraud plaintiffs “by collecting or attempting to collect taxes that were not actually due or paid to any taxing authority.” Id. at 1113. Notably, on this issue, the district court had entered a preliminary injunction earlier in this case, enjoining the collection of these taxes. The Ninth Circuit upheld this injunction in a prior appeal.

Second, in the “Property Tax Scheme,” the Leasing Defendants allegedly employed a fraudulent means of collecting property taxes on leased equipment (point of sale swipe terminals and pinpads). While the Leasing Defendants should have calculated property taxes under the leases based on the actual cost of the equipment, they instead calculated the taxes using a much higher base – the stream of income a lease would generate. On this point, a Rule 30(b)(6) witness for the Leasing Defendants had conceded in a deposition that the higher base should not have been used, and that the tax should have been based on the much-lower equipment cost. Despite this admitted mistake, the Leasing Defendants never told the plaintiffs about the tax overcharge and made no effort to provide refunds to the members of the class.

Based on these alleged schemes, the plaintiffs asserted federal RICO and related claims against the Leasing Defendants. As relevant to the RICO claims, the district court certified two national classes to pursue RICO and RICO conspiracy claims with respect to both the “Post-Lease Tax Collection Scheme” and the “Property Tax Scheme.” The Leasing Defendants then filed a petition to appeal these certifications under Federal Rule of Civil Procedure 23(f), which the Ninth Circuit granted. On appeal, the Ninth Circuit affirmed the certification of the classes and, in so doing, rejected the Leasing Defendants’ arguments that the plaintiffs (1) did not establish typicality, commonality, and predominance for the “Post-Lease” class and (2) did not establish commonality, predominance, and superiority for the “Property Tax” class.

The Ninth Circuit started off by noting its view that a grant of class certification should be accorded “noticeably more deference” than a denial of class certification. Id. at 1115. The Court of Appeals’ analysis relative to both classes includes several highlights summarized below.


Typicality: The representative of this class did not directly lose money (by having her account debited for taxes and fees), while the other putative class members did. The Ninth Circuit nevertheless found that she had established typicality, because she “was injured by the same pattern of racketeering activity as the other class members” (the class representative’s only injury consisted of the time and money she spent contesting the allegedly fraudulent taxes and related fees). Id. at 1116. The Court of Appeals did not consider it determinative that the class representative’s injury differed from the other class members or that she relied on different criminal predicate acts that proximately caused her RICO injury. Rather, the Ninth Circuit found typicality because the representative’s claims were “reasonably coextensive” with the claims of the other class members. Id. at 1120.

Commonality and predominance: The Leasing Defendants argued that the class representative’s damages theory – the time and effort she spent contesting charges – did not lend itself to proof on a class-wide basis. The Court of Appeals rejected this argument, stating that “damage calculations alone cannot defeat certification,” and that each class member need not experience identical damages from the illegal conduct. Id. Plaintiffs argued the class could demonstrate damages in two ways, either by proving up the amount of unauthorized debits from their accounts or proving the amount of time and effort they spent in contesting the charges. The Ninth Circuit accepted this argument, ruling that common issues in terms of establishing liability predominated over any individualized issues arising from class members’ damages calculations.


Commonality and predominance: According to the Leasing Defendants, the district court assumed that the higher tax base – the stream of income a lease would generate – constituted an inflated figure unsupported by the record. The Ninth Circuit ruled that while plaintiffs “may or may not prevail” on that issue, it nevertheless represented “a merits question not appropriately addressed at the class certification stage.” Id. at 1122. The Leasing Defendants further argued that plaintiffs had presented no evidence about the various tax rates in innumerable jurisdictions. This also did not matter, according to the Ninth Circuit, because, no matter the tax rate, the issue of whether the Leasing Defendants employed the wrong tax basis under the equipment leases presented a common question that predominated over individual ones.

Superiority: While the Leasing Defendants challenged the superiority of the class device given the number of taxing jurisdiction involved (over 3,500 taxing jurisdictions), the Ninth Circuit disagreed. Noting the small recovery sought by each class member, the Court of Appeals stated: “These considerations are at the heart of why the Federal Rules of Civil Procedure allow class actions in cases where Rule 23’s requirements are satisfied. This case vividly points to the need for class treatment.” Id. at 1123.

Just Film systematically rejected numerous arguments against class certification – arguments that frequently go to the heart of a class action defendant’s opposition to class certification. If left undisturbed, it could mark the beginning of even more aggressive class action efforts in the Ninth Circuit. Conversely, this latest pro-certification ruling may provide an opportunity for the U.S. Supreme Court to weigh in again on the “rigorous requirements” for certification under Rule 23.

Posted on Friday, March 17 2017 at 3:10 pm by -

Spokeo and the TCPA: Mere Receipt of Fax with Non-Compliant Opt-Out Notice is Not “Concrete Injury”

by Jeff Fisher, John Jett and Mike Breslin

In ARcare v. Qiagen N. Am. Holdings, Inc., No. CV 16-7638 PA (ASX), 2017 WL 449173, at *1 (C.D. Cal. Jan. 19, 2017), the district court granted the defendant’s motion to dismiss a TCPA class action, finding that the simple receipt of a facsimile lacking a TCPA-compliant opt-out notice does not, without more, constitute a “concrete and particularized harm” conferring standing to sue for a TCPA violation. Although there are cases to the contrary, ARcare provides a valuable weapon in the TCPA defendant’s arsenal.

The plaintiff in ARcare, a non-profit medical provider, alleged that it received five unsolicited fax advertisements from the defendant, Qiagen, advertising a test for tuberculosis. The faxes contained an opt-out notice stating that if the recipient no longer wished to receive fax advertisements from Qiagen it could send an email to QFTinfo@qiagen.com. The TCPA, however, requires that the opt-out notice include notice of other means of opting-out, specifically, “a domestic contact and facsimile machine number.” 47 U.S.C. § 227(b)(1)(D)(ii).

Although the opt-out notice did not comply with the TCPA’s technical requirements, Qiagen argued that the complaint should be dismissed for lack of standing under Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016). In Spokeo, the Supreme Court held that allegations of a “bare procedural violation” of a statute, “divorced from any concrete harm,” is insufficient to satisfy the injury-in-fact requirement for Article III standing. Qiagen argued that its violation of the TCPA was nothing more than a “de minimis injury” and that any concrete injury to the plaintiff was “not traceable to Qiagen’s violation of the TCPA.” ARcare, 2017 WL 449173, at *3.

The Central District of California agreed and granted Qiagen’s motion to dismiss. The court recognized that the plaintiff’s allegations that it had “lost paper, toner, ink, and time” as a result of receiving unsolicited faxes were “sufficiently concrete and particularized to satisfy Article III’s injury in fact requirement.” Id. at *3. But it concluded that the plaintiff failed to show that its injury was “traceable or related to Qiagen’s alleged violation of the TCPA.” Id. In other words, even if Qiagen had included a TCPA-compliant opt-out notice, the plaintiff “would have lost the same amount of ink, toner, paper and time.” Id. The court therefore dismissed the TCPA complaint for lack of standing.

Although ARcare appears to be the first case dismissing a TCPA claim for lack of standing due to a non-compliant fax opt-out notice, a number of courts have dismissed TCPA claims on analogous grounds. For example, the Southern District of California recently dismissed two TCPA cases alleging improper use of an automatic telephone dialing system, reasoning that the plaintiff “would have been no better off had Defendants dialed his number manually.” Ewing v. SQM US, Inc., No. 3:16-CV-1609-CAB-JLB, 2016 WL 5846494, at *3 (S.D. Cal. Sept. 29, 2016); see also Romero v. Dep’t Stores Nat’l Bank, 199 F. Supp. 3d 1256, 1265 (S.D. Cal. 2016). But even since ARcare, a number of courts have rejected the ARcare court’s broad application of Spokeo, finding similar violations of the TCPA constitute concrete injuries. See e.g., Swetlic Chiropractic & Rehab. Ctr., Inc. v. Foot Levelers, Inc., No. 2:16-CV-236, 2017 WL 373514, at *4 (S.D. Ohio Jan. 26, 2017) (finding failure to include proper opt-out notice constitutes concrete injury, noting that if defendant had used proper opt-out language “there would be no statutory violation and thus, no damage whatsoever”); O.P. Schuman & Sons, Inc. v. DJM Advisory Grp., LLC, No. CV 16-3563, 2017 WL 634069, at *2 (E.D. Pa. Feb. 16, 2017) (rejecting standing challenge to TCPA claim, collecting cases).

ARcare is a well-reasoned district court decision applying Spokeo to a TCPA claim. The law in this area is rapidly evolving, however, with district court decisions being published nearly every week. Only time will tell whether the district court’s reasoning in ARcare is adopted on a wider basis.


Posted on Friday, March 10 2017 at 3:07 pm by -

The Eleventh Circuit holds CAFA’s local controversy provision does not preclude the exercise of federal question jurisdiction

 by Jay Bogan and Allen Garrett

Takeaway: The Class Action Fairness Act (“CAFA”) was enacted to broaden federal diversity jurisdiction over class actions. While CAFA’s local controversy provision requires district courts to “decline to exercise [diversity] jurisdiction” over local class actions, it was not intended to restrict other bases for federal subject matter jurisdiction, such as federal question jurisdiction.

In Blevins v. Askut, No. 16-11585, 2017 WL 782288 (11th Cir. Mar. 1, 2017), the plaintiff filed a putative class action in Alabama state court against a doctor and several medical facilities, alleging the doctor recommended and performed unnecessary heart procedures. Because the plaintiff alleged claims under federal RICO, the defendants removed the case to federal court. The district court denied plaintiff’s motion to remand and dismissed the RICO claims on the ground that plaintiff had failed to allege a cognizable RICO injury. The plaintiff appealed.

The Eleventh Circuit affirmed the district court’s denial of the motion to remand, rejecting the plaintiff’s arguments that CAFA’s local controversy provision (1) precluded district courts from exercising jurisdiction over all local class actions or (2) otherwise vested state courts with exclusive jurisdiction over such class actions.

On the first point, the Eleventh Circuit observed that the local controversy provision – 28 U.S.C. § 1332(d)(4) – requires a form of abstention and thus does not abrogate federal jurisdiction. But more importantly, the provision only directs district courts to refrain from exercising diversity jurisdiction over local class actions under Section 1332(d)(2). In other words, while Section 1332(d)(2) expands a federal court’s diversity jurisdiction over class actions with over $5 million at stake, § 1332(d)(4) (the local controversy provision) “proscribes the exercise of that [expanded] jurisdiction over local cases.” 2017 WL 782288, at *3. Thus, the local controversy provision has no impact on class actions properly removed to federal court based on the existence of federal question jurisdiction.

On the second point, the Eleventh Circuit held that federal courts presumptively have federal question jurisdiction under Section 1331 over claims arising under federal statutes, and that there was nothing in the language of the local controversy provision showing that Congress intended to divest federal courts of federal question jurisdiction over local class actions. “In sum, CAFA’s local-controversy provision does not require district courts to abstain from exercising federal-question jurisdiction over local class actions, and nothing in that provision indicates that Congress intended to divest district courts of federal-question jurisdiction.” Id.

On the merits, the Eleventh Circuit reversed the district court’s dismissal of plaintiff’s federal RICO claim, holding that payments for allegedly unnecessary heart procedures constituted “economic injuries” conferring standing under RICO – i.e., injuries to “business or property” – rather than injuries flowing from personal injuries. In so ruling, the Court of Appeals followed its reasoning in Ironworkers Local Union 68 v. AstraZeneda Pharmaceuticals, LP, 634 F.3d 1352, 1363 (11th Cir. 2011), a case involving allegedly inappropriate prescriptions, which differentiated non-recoverable personal injury-related harm from recoverable RICO injury arising from “a physician’s medically unnecessary or inappropriate prescriptions.” 2017 WL 782288, at *4. The Eleventh Circuit explained: “These injuries do not flow from any personal injuries. Rather, as in Ironworkers, the payments themselves are economic injuries because they were for medically unnecessary procedures.” Id.

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