KT Class Action Blog

Archive for April 2017

Posted on Friday, April 28 2017 at 4:47 pm by -

Back to the class-action waiver drawing board: California Supreme Court holds arbitration agreement cannot extinguish a claimant’s right to seek a public injunction

by Jon Michaelson

Takeaway: Businesses operating in California now face another hurdle in drafting enforceable arbitration agreements. The California Supreme Court has invalidated a provision in an aggressive class action waiver purporting to preclude any relief on behalf of non-parties, on the ground that it prohibits injunctive relief for the benefit of the public. If such a provision cannot be severed from the remainder of the arbitration agreement, a business with an otherwise enforceable arbitration provision may find itself facing a full-blown class action in court.

The California Supreme Court once again targeted class action waivers in arbitration agreements in McGill v. Citibank, No. S224086, 2017 WL 1279700 (Cal. Apr. 6, 2017). But beyond echoing a theme which often puts California jurisprudence at odds with directives of the U.S. Supreme Court, McGill offers an important lesson in how efforts to craft comprehensive waiver provisions can backfire.

The facts in McGill are hardly extraordinary. In 2001, the plaintiff purchased credit protection when she opened a credit card account with Citibank. Under that plan, the bank agreed to defer or credit certain amounts if a qualifying event (such as loss of employment) occurred. The plan included arbitration provisions containing class waivers. Over several years, terms were changed slightly and with each such modification plaintiff was offered the opportunity – but declined – to opt out of the program.

In 2008, plaintiff lost her job but did not receive what she later alleged were promised benefits of the plan. She later sued, claiming that in marketing the credit protection plan and in handling her claim, Citibank had violated California’s Unfair Competition Law, false advertising statute, Consumer Legal Remedies Act, and insurance code. In addition to damages, plaintiff sought an injunction to prevent Citibank from continuing to engage in its allegedly illegal and deceptive practices.

Citibank petitioned to compel arbitration of plaintiff’s claims on an individual basis. The Superior Court granted the petition with respect to plaintiff’s damages claims, but denied it to the extent the complaint sought injunctive relief. In refusing to compel arbitration of the injunctive relief claims, the trial court cited Broughton v. Cigna Healthplans, 21 Cal. 4th1066 (1999), and Cruz v. Pacificare Health Systems, Inc., 30 Cal. 4th 303 (2003), which together invalidate agreements to arbitrate claims for public injunctive relief under the UCL, CRLA, or false advertising law.

On appeal, the District Court of Appeal reversed and remanded. The intermediate court directed the trial court to compel arbitration of all of plaintiff’s claims, ruling that AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), had interpreted the Federal Arbitration Act in a manner which preempted the Broughton-Cruz rule.

At oral argument before the District Court of Appeal and in a request for reconsideration, the plaintiff challenged the enforceability of the arbitration agreement not only under Broughton-Cruz, but also because it prevented her from pursuing public injunctive claims in any forum. The intermediate court did not address this argument in its opinion or in its order denying plaintiff’s request for rehearing. The California Supreme Court, however, took up the issue on review. In its holding, the unanimous California Supreme Court found in favor of plaintiff on the public injunction waiver basis alone, and therefore did not reach the question of whether Broughton-Cruz remained good law following Concepcion.

The underlying agreement between McGill and Citibank made all claims arising from or related to the credit protection plan subject to compulsory arbitration, regardless of the legal theory asserted or remedy sought (including, specifically, injunctive or declaratory relief). The waiver provisions in the agreement stated: (1) “[a]n award in arbitration shall determine the rights and obligations between the named parties only, and only in respect of the Claims in arbitration, and shall not have any bearing on the rights and obligations of any other person, or on the resolution of any other dispute”; (2) “[t]he arbitrator will not award relief for or against anyone who is not a party”; (3) “the arbitrator may award relief only on an individual (non-class, representative) basis”; and (4) “neither you, we, or any other person may pursue the Claims in arbitration as a class action, private attorney general action, or other representative action.” These waiver provisions, as McGill argued and Citibank conceded, purported to extinguish McGill’s right to seek public injunctive relief – relief which would cause Citibank to halt allegedly improper practices and misleading representations rather than directly benefit the plaintiff – in any forum whatsoever (including in arbitration).

The California Supreme Court had little difficulty finding such a broad waiver to be illegal and unenforceable. California Civil Code section 3513 states that “[a]ny one may waive the advantage of a law intended solely for his benefit. But a law established for a public reason cannot be contravened by a private agreement.” And as the Court itself already had held in Broughton and Cruz, the UCL, CRLA, and false advertising law serve to “‘remedy a public wrong,’” rather than to “‘resolve a private dispute.’” 2017 WL 1279700, at *7 (quoting Broughton, 21 Cal. 4th at 1080). Thus, “any benefit to the plaintiff requesting such relief ‘likely…would be incidental to the general public benefit of enjoining such a practice.’”   Id. (quoting Broughton, 21 Cal. 4th at 1080 n.5).

Citibank did not argue the validity of the waiver language. Instead, it contended the FAA preempted application of Civil Code section 3513: “‘[A] court,’ Citibank asserts, ‘may not avoid the FAA by applying state-law rules of contract interpretation to limit the scope of an agreement to arbitrate.’” 2017 WL 1279700, at *8. The McGill court rejected this contention based on its reading of U.S. Supreme Court precedents. Based on Concepcion, for example, the court found Civil Code section 3513 fell within the definition of a statute which applied to all contracts, and thus was covered by the FAA’s savings clause (permitting arbitration agreements to be invalidated on the same grounds as any contract). Id.

Relying on Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985), and American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), the McGill court emphasized that “‘by agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute.’” 2017 WL 1279700, at *8 (quoting Mitsubishi, 473 U.S. at 628). By insisting on a waiver of public injunction claims, the court reasoned, Citibank sought to limit a consumer’s rights under California’s statutory law. Id. at *8-*9.

And based on Concepcion and Italian Colors, the California Supreme Court rejected Citibank’s argument a request for public injunctive relief could be equated with a procedural device (such as a class action) impairing the benefits of an arbitration protected by the FAA: “Under Italian Colors, because the waiver at issue here is a waiver of the right to pursue statutory remedies – rather than of a procedural path to vindicating the statutory claim – it is … distinguishable from a waiver of class procedures.” 2017 WL 1279700, at *10. The McGill court then cited additional U.S. Supreme Court authorities as holding the bifurcation of proceedings between arbitrable and non-arbitrable claims did not offend the FAA. Id.

Having found the public injunction waiver unenforceable, McGill briefly addressed whether the entire arbitration agreement should be invalidated. The last modification of the agreement provided: “‘If any portion of the arbitration provision is deemed invalid or unenforceable, the entire arbitration provision shall not remain in force.’” 2017 WL 1279700, at *11. Because the parties had not discussed this language on appeal, the Supreme Court remanded to the District Court of Appeal to determine the enforceability of the remainder of the arbitration agreement.

Assuming the U.S. Supreme Court does not review the decision, the McGill ruling sends class-action waiver drafters back to the drawing board. The California Supreme Court’s reasoning does not bar all class action waivers, only waivers that purport to preclude public injunctive relief. And even the inclusion of such waivers would not necessarily invalidate the entire clause, assuming it could be severed. The ultimate lesson of McGill may be to limit the scope of class action waivers to no more than absolutely necessarily to avoid class litigation or class arbitration.

Posted on Thursday, April 20 2017 at 9:39 am by -

D.C. Circuit Strikes Down FCC Opt-Out Notice Requirement for “Solicited” Fax Ads

by Mike Breslin

Takeaway: The D.C. Circuit recently dismantled a claim commonly asserted under the TCPA’s Junk Fax Prevention Act of 2005, by rejecting the FCC’s rule that fax advertisers violate the TCPA by not including compliant “opt-out” notices on solicited faxes. Senders of solicited fax ads, however, should be sure to carefully document (and be ready to prove) they actually received prior permission from the recipients and the permission has not been revoked.

In Bais Yaakov of Spring Valley v. FCC, No. 14-1234, 2017 WL 1192909 (D.C. Cir. Mar. 31, 2017), a split D.C. Circuit panel struck a blow to the FCC’s rule-making authority under the TCPA. In an occasionally droll opinion that opens with “[b]elieve it or not, the fax machine is not yet extinct,” the court ruled the FCC exceeded its authority when it imposed its 2006 mandate that solicited fax advertisements contain an opt-out notice – something the text of the TCPA only requires for unsolicited faxes.

The TCPA defines an unsolicited fax advertisement as one the sender has not received the recipient’s “prior express permission” to send. Such permission can be given “in writing or otherwise.” The TCPA doesn’t define a solicited fax – the word “solicited” appears nowhere in 47 U.S.C. § 227. But by negative implication, a solicited fax must be one for which, “at a minimum,” the sender has received prior permission to send.

The majority employed straightforward logic. First, the FCC may only take action that Congress has authorized. On that point, the court summarily rejected the FCC’s argument that it could require opt-out notices on solicited faxes because Congress has not prohibited the FCC from doing so. According to the majority, the FCC’s position “has it backwards as a matter of basic separation of powers and administrative law.” 2017 WL 1192909, at *3.

Second, Congress drew a line in the text of the TCPA between solicited and unsolicited faxes, only requiring opt-out notices on the latter. The court concluded: “Congress has not authorized the FCC to require opt-out notices on solicited fax advertisements. And that is all we need to know to resolve this case.” Id. Stated differently, the authorization to prescribe rules “implement[ing] [the TCPA’s] requirements” does not empower the FCC to enact a rule expanding those requirements beyond the text of the TCPA. In this case, that meant the FCC could not require senders of solicited faxes to comply with an obligation the TCPA imposes only on senders of unsolicited faxes.

The decision was a victory for Anda, a generic drug company that had been sued in a 2008 class action for sending solicited fax advertisements – sans an opt-out notice – to various pharmacies. Despite many of the plaintiff pharmacies admitting they gave Anda permission to send the faxes, they sought over $150 million from Anda for not complying with the FCC’s 2006 rule. The court seemed sympathetic to Anda’s plight, instructing the reader to “[l]et that soak in for a minute” when explaining that whether or not the FCC had authority to issue its rule would determine whether Anda was potentially on the hook for $150 million for not putting opt-out notices on solicited faxes. Id. at *2. Fortunately for Anda, the court ruled that the FCC had no such authority.

Judge Pillard’s dissent countered that the FCC did not overstep its authority. A recipient’s “prior express permission” to receive faxes cannot be perpetual – at a minimum, there must be some way to revoke it. And the FCC has already properly limited the concept of “prior permission” by saying it lasts only “‘until the consumer revokes [it] by sending an opt-out request to the sender.’” 2017 WL 1192909, at *5 (Pillard, J., dissenting) (quoting 21 F.C.C. Rcd. 3787, 3812 (2006)).

So, Judge Pillard asks, why can’t the FCC also require the obvious next step that senders of solicited faxes tell recipients how they may do so? Without that information, the ability to revoke consent is not meaningful. To illustrate, she notes that anyone who has shared their contact information and then received an onslaught of unwanted advertisements without opt-out notices has likely experienced the frustration of trying to figure out how to stop them. She believes requiring solicited faxes to clearly explain how the recipient can revoke their consent is consistent with the TCPA’s underlying purpose: protecting recipients from unwanted ads. Her dissent also notes that requiring opt-out notices on solicited faxes avoids the “factual morass” that can arise from allowing prior permission to be granted in writing “or otherwise.” Id. at *6. Providing a clear opt-out mechanism on purportedly solicited advertisements permits the consumer to quickly resolve any disagreement over whether some non-written act constituted permission for the sender to fax ads.

The majority acknowledged these arguments might reflect “good policy.” Id. at *4. But mere policy does not change the fact that the language of the TCPA does not permit the FCC to require opt-out notices on solicited advertisements. On this point, the majority stated “[i]t is the Judiciary’s job to respect the line drawn by Congress, not to redraw it as we might think best.” Id. at *3. Anda – and many other TCPA defendants facing similar class actions based on non-compliant (or non-existent) opt-out language in solicited faxes – breathed a sigh of relief at this exercise in judicial restraint.

Stay tuned for an update on another pending challenge to the FCC’s rule-making authority under the TCPA. In ACA Int’l v. FCC, No. 15-1211, a D.C. three-judge panel that includes Judge Pillard (the dissenting judge in Bais Yaakov) will be addressing the FCC’s authority to enter a 2015 order that broadened the definition of “autodialer” and set strict conditions on calling reassigned numbers. TCPA plaintiffs and defendants will be watching to see if the D.C. Circuit will again adhere strictly to the text of the TCPA or will find support for the FCC’s attempts to effect Congress’s perceived broader consumer protection purpose.

Posted on Friday, April 14 2017 at 1:07 pm by -

Spokeo Dismissals – With Prejudice, Without Prejudice or Something Else?

by Joe Reynolds

Takeaway: In the wake of the Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), federal courts and litigants have grappled not only with what constitutes an actionable injury sufficient to confer standing to sue, but also the issue of whether a dismissal for lack of standing should be with or without prejudice. While litigants lacking standing usually have their claims dismissed without prejudice, a recent opinion by Judge Posner suggests dismissal with prejudice may be appropriate in some circumstances. Other authorities suggest a third option – dismissal for lack of federal jurisdiction – meaning the dismissal bars a future federal filing but would not bar a state filing pressing the same claims.

In Eike v. Allergan, Inc., 850 F.3d 315 (7th Cir.), reh’g denied (Apr. 7, 2017), the Seventh Circuit vacated certification of classes consisting of Illinois and Missouri residents with glaucoma who used defendants’ eyedrops. The glaucoma sufferers claimed defendants’ products dispensed unnecessarily large eye drops; in the words of the district court, defendants’ oversized eye drops had the effect of “creating wastage of medication and forcing the plaintiffs to spend more money on medication.” Eike v. Allergan, Inc., No. 12-cv-1141-SMY-DGW, 2016 WL 4272127, at *1 (S.D. Ill. Aug. 15, 2016). Plaintiffs further alleged the increased size of the eye drops added no therapeutic value. Id.

Judge Posner had no patience for the theory of plaintiffs’ case, which he viewed as mere “dissatisfaction” with a product and its price. In classic Posner fashion, he analogized the case to a dissatisfied group of cat owners who, at the cat breeders’ suggestion, purchased an expensive drinking fountain because “cats prefer to drink out of a fountain (where gravity works for them) rather than out of a bowl (where gravity works against them).” Eike, 2017 WL 881834, at *1.  “Yet,” Judge Posner writes, “would anyone think they could successfully sue the breeders?” Id. According to Judge Posner, “It’s the same here … you cannot sue a company and argue only—‘it could do better by us’—which is all they are arguing.” Id. at *1-*2. Plaintiffs’ suit, he concluded, failed for lack of standing. Citing Spokeo, he ruled: “The fact that a seller does not sell the product that you want, or at the price you’d like to pay, is not an actionable injury; it is just a regret or disappointment—which is all we have here, the class having failed to allege ‘an invasion of a legally protected interest.’” Id. at *2.

Judge Posner then remanded the case to the district court “with directions to dismiss the suit with prejudice.” Id. (emphasis added). The plaintiffs quickly filed a petition for rehearing en banc, arguing the dismissal should have been without prejudice because a court without jurisdiction should not rule on the merits. See, e.g., Fredericksen v. City of Lockport, 384 F.3d 438, 438 (7th Cir. 2004) (holding “a suit dismissed for lack of jurisdiction cannot also be dismissed ‘with prejudice’; that’s a disposition on the merits, which only a court with jurisdiction may render”). The petition for rearing, however, was denied.

In Frederiksen, moreover, Judge Easterbrook viewed “no jurisdiction” and “without prejudice” as “mutually exclusive” categories. Id. In other words, “[a] jurisdictional disposition is conclusive on the jurisdictional question: the plaintiff cannot re-file in federal court. But it is without prejudice on the merits, which are open to review in state court to the extent the state’s law of preclusion permits.” Id. Judge Easterbrook further observed: “Some of our decisions, however, have affirmed dismissals ‘without prejudice,’ which misleadingly implies that the plaintiff may pursue the same claim again in federal court, or ‘with prejudice,’ which implies that even a state court is powerless to act.” Id. Indeed, in a prior case, Hill v. Potter, Judge Posner himself (at least from Judge Easterbrook’s view), made that mistake, when he ruled that “[d]ismissals for want of subject-matter jurisdiction are always denominated without prejudice, because they signify that the court did not have the power to decide the case on the merits.” 352 F.3d 1142, 1146-47 (7th Cir. 2003).

So did Judge Posner mistakenly use the words “with prejudice” in Eike? Or did he mean to preclude the plaintiffs from bringing the action in any court (state or federal)? That Judge Posner analogized plaintiffs’ cause of action to people being upset about buying their cats a luxury fountain suggests he ruled intentionally and dismissed the case with prejudice on grounds of frivolity.

As Judge Posner stated in El v. AmeriCredit Financial Services, Inc., dismissals for lack of federal jurisdiction “ordinarily are without prejudice.” 710 F.3d 748, 751 (7th Cir. 2013) (emphasis added). But courts recognize an exception for frivolity: “if the reason there’s no federal jurisdiction is the plaintiff’s having predicated jurisdiction on a frivolous federal claim, dismissal with prejudice is appropriate for such a suit will go nowhere in any court.” Id.; see also Georgakis v. Illinois State Univ., 722 F.3d 1075, 1078 (7th Cir. 2013) (Posner, J.) (holding a frivolous suit “can justifiably be dismissed with prejudice to avoid burdening the court system with a future suit that should not be brought—anywhere.”); United States v. Funds in the Amount of $574,840, 719 F.3d 648, 652 (7th Cir. 2013) (Posner, J.) (“And there are at least two situations in which even though the standing issue merges with the merits, a ruling rejecting standing has res judicata effect. One … is where the suit either is frivolous (and so does not engage the jurisdiction of the court) or is intended to harass, and in either case the court by dismissing with prejudice can preclude burdening itself or another court with a future suit that simply should not be brought.”); Beauchamp v. Sullivan, 21 F.3d 789, 790-91 (7th Cir. 1994) (Posner, J.) (“Unless the plaintiff has standing, a court cannot reach the merits of his case. But there is an exception for the frivolous case. A frivolous case does not engage the jurisdiction of the court. So frivolousness is an alternative jurisdictional ground for dismissal to lack of standing.”).

Judge Posner did not state explicitly that he dismissed Eike with prejudice because he viewed the claims as frivolous. The only cases he cites in the entire opinion are Spokeo and Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). But his reasoning and typically colorful illustrations strongly suggest a frivolous action lacking an actionable injury should be dismissed with prejudice, thereby foreclosing re-filing of the suit in any court. After all, many suits that fail to allege an actionable injury under Spokeo might naturally lead a person to ask: Would anyone think they should be able to successfully someone anywhere (including in state court) for that?


Posted on Tuesday, April 4 2017 at 4:00 pm by -

Using Expert Testimony To Establish Class-Wide Damages For Partial Refund Or Reimbursement Claims

 by Richard J. Keshian

Takeaway: Following the U.S. Supreme Court’s decision in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), class action defendants frequently have argued damages cannot be established on a class-wide basis. Conversely, attorneys representing class action plaintiffs have endeavored to develop class-wide damages models that satisfy Comcast. A district court in a multidistrict, consumer fraud class action recently rejected a defendant’s motion to exclude expert testimony, potentially giving class plaintiffs a road map for developing expert testimony that calculates class-wide damages in a partial refund or reimbursement case with sufficient reliability. See

In re: Dial Complete Marketing and Sales Practices Litigation, MDL Case No. 11-md-2263-SM, 2017 DNH 051 (D.N.H. Mar. 27, 2017).

In a prior post on this blog, Jay Bogan analyzed two Ninth Circuit decisions rejecting class certification of claims seeking damages under a partial refund or reimbursement damages theory. In both cases, the Ninth Circuit determined that damages could not be measured on a class-wide basis, and thus ruled the predominance requirement had not been met.

On March 27, 2017, the District of New Hampshire analyzed this same issue in Dial Complete Marketing, a consolidated, multidistrict class action brought by consumers in Arkansas, California, Florida, Illinois, Missouri, Ohio and Wisconsin. Plaintiffs alleged that Dial misrepresented the antibacterial properties of its “Dial Complete” branded soap, asserting various state consumer protection and unfair trade practice claims, as well as claims for breach of warranty and unjust enrichment. Among other claims, Plaintiffs disputed statements on the soap labels that Dial Complete “kills 99.99% of germs,” is “#1 Doctor Recommended,” and “kills more germs than any other liquid hand soap.”

Plaintiffs sought damages under the theory consumers had been “deprived of a measurable monetary portion of the benefit of the bargain they had struck with Dial by buying Dial Complete with a superior efficacy claim on the label but, in fact, receiving a product that did not provide the promised superior efficacy.” In support of this theory, Plaintiffs’ expert submitted a so-called “conjoint analysis methodology” relying upon, among other things, a consumer survey that “collected data from 2,000 qualifying respondents.”

Dial challenged the reliability of this model in a number of respects, including attacking its failure to adequately take into account and properly weigh other non-price attributes that may well have been important to liquid hand soap consumers (such as brand name, scent, shape, or color). Relying on Comcast, Dial argued the model was “incapable of measuring only those damages attributable to plaintiffs’ theory of liability.”

In denying Dial’s motion to exclude the expert testimony, the district court stated “there is an important difference between what is unreliable support and what a trier of fact may conclude is insufficient support for an expert’s conclusion.” The court found that the challenges identified by Dial either could be cured or went to the weight, rather than the admissibility, of the expert testimony. Having found that Plaintiffs’ damages model satisfied the reliability criteria of Comcast, the district court granted certification of eight state-specific subclasses.

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