KT Class Action Blog

Archive for May 2017

Posted on Friday, May 26 2017 at 11:57 am by -

The Ninth Circuit affirms district court’s dismissal of putative class action where named plaintiff lacked standing to assert claims for injunctive and declaratory relief

by Jay Bogan

Takeaway: While courts continue to grapple with efforts by class action defendants to “pick off” a named plaintiff by mooting his or her individual damages claim, class representatives pressing claims for injunctive and declaratory relief remain subject to well-settled Article III standing limitations. Where a class defendant has an independent basis for challenging the named plaintiff’s damages claim (such as an inability to prove an essential substantive requirement for monetary relief), these standing limitations provide powerful tools to terminate the class representative’s injunctive and declaratory relief claims prior to any class certification determination.

Since the advent of modern class action practice – following the amendments to Rule 23 in 1966 – class action defendants have tried a variety of strategies to “pick off” a named plaintiff’s damages claim. In Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016), the Supreme Court held that an unaccepted offer of judgment for the full amount of the plaintiff’s individual damages claim has no force and does not serve to moot the representative’s claim. But the Supreme Court reserved judgment on whether a plaintiff’s claims would be mooted if a district court entered judgment in the plaintiff’s favor upon the defendant’s depositing the full amount of the plaintiff’s individual claim into an account payable to the plaintiff.

In Chen v. Allstate Ins. Co., 819 F.3d 1136 (9th Cir. 2016), the Ninth Circuit addressed the issue left open by the Supreme Court, holding that a “pick off” executed via an unconditional payment to the plaintiff did not suffice to moot the claim. But do these rules apply to non-monetary claims for injunctive and declaratory relief? A recent decision by the Ninth Circuit confirms that, whatever special rules courts may apply to prevent “mooting” of damages claims, injunctive and declaratory claims asserted by a putative class plaintiff remain subject to long-settled limitations on Article III standing. Long v. Ingenio, Inc., No. 15-16810, 2017 WL 1532057 (9th Cir. Apr. 28, 2017).

In Long, a business (Long Photo) claimed to have been defrauded into purchasing worthless “pay per call” advertising from an advertising and publishing company (“Yellowpages”). But Long Photo never paid for the advertising, an essential requirement for seeking restitution. It also pressed claims for injunctive and declaratory relief as a means of contesting the amounts owed to Yellowpages for the “pay per call” advertising. Long Photo not only sought individual relief, but relief on behalf of a putative class.

Yellowpages moved for summary judgment, challenging Long Photo’s ability to press any damages claim and further arguing that the parties no longer had any ongoing relationship, such that Long Photo’s claims for injunctive and declaratory relief were moot. Among other things, Yellowpages explicitly represented that it would not seek to file a claim against Long Photo for payment and deliberately did not assert a compulsory counterclaim seeking to recover the charges at issue.

The district court granted summary judgment in favor of Yellowpages and the Ninth Circuit affirmed. Regarding Long Photo’s claim for injunctive relief, the Ninth Circuit ruled that it did not have standing to pursue a claim for injunctive relief, given that the parties were no longer in a contractual relationship, Long Photo was no longer threatened by the alleged misconduct, and there was no real or immediate threat of irreparable injury. 2017 WL 1532057, at *1 (citing Hangarter v. Provident Life & Acc. Ins. Co., 373 F.3d 998, 1021-22 (9th Cir. 2004)).

Regarding Long Photo’s claim for declaratory relief, that claim also was moot, because of Yellowpages’ representation it would not pursue a claim for monetary relief and its binding waiver of any compulsory counterclaim against Long Photo for the unpaid charges. Id. (citations omitted).

Having affirmed the grant of summary judgment on Long Photo’s individual claims, the Ninth Circuit also affirmed the dismissal of the putative class action in its entirety. “Although Long’s claims for declaratory relief are moot, any class member who had paid money to Yellowpages would be free to pursue class-wide monetary and declaratory relief and could reject Yellowpages’s efforts to satisfy the original claims.” 2017 WL 1532057, at *1 (citing Campbell-Ewald, 136 S. Ct. at 670). Because other members of the putative class (unlike Long Photo) may have viable damages claim, the class claims were not “‘transitory’ so as to keep the case alive until the district court has the opportunity to rule on class certification.” Id. (citing, inter alia, Chen, 819 F.3d at 1142-43). Thus, the district court properly had dismissed “the entire lawsuit before reaching class certification.” Id. (citations omitted).

The Long decision shows that, while it continues to be difficult for class defendants to moot a named plaintiff’s damages claim (especially in the Ninth Circuit), defendants with a separate basis for attacking the named representative’s monetary claim still can employ traditional standing limitations on declaratory and injunctive relief claims to terminate putative class actions. Particularly if the Supreme Court resolves the open “damages mootness” question from Campbell-Ewald favorably for defendants, these long-established requirements for equitable relief can provide the remaining tools a defendant needs to extinguish the named plaintiff’s non-monetary claims.

Posted on Friday, May 19 2017 at 5:02 pm by -

What does Spokeo mean? The Eleventh Circuit’s Unusual Debate about the U.S. Supreme Court’s Controversial Decision

by Jay Bogan and Allen Garrett

Takeaway: The decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), where the U.S. Supreme Court evaluated Article III standing in the context of a federal statutory violation, continues to generate controversy. Since its issuance in May 2016, Spokeo has been cited in over 400 lower-court decisions. Class actions in particular have wrestled with Spokeo, because a finding that a class representative does not have Article III standing – because he or she has not suffered an “injury-in-fact,” for example – should end the federal case and may defeat the class action entirely. Spokeo, moreover, has divided individual courts. In a recent and unusual decision, Judges within the Eleventh Circuit argued about the meaning of Spokeo, in dueling opinions issued in connection with that court’s denial of a petition for rehearing.

In Nicklaw v. Citimortgage, Inc., 839 F.3d 998 (11th Cir. 2016), the three-judge panel (consisting of Circuit Judges William Pryor and Stanley Marcus and Middle District of Georgia judge R. Hugh Lawson, Jr., sitting by designation) unanimously dismissed the appeal for lack of Article III standing. The Nicklaw decision arose out of a New York mortgagor’s sale of his home and subsequent pay-off of his mortgage. Despite a New York statutory requirement that CitiMortgage record the satisfaction of the mortgage within 30 days, CitiMortgage did not record the sale for 107 days. Two years later, Nicklaw sued CitiMortage to recover the $1,500 statutory penalty for its failure to file a timely satisfaction and sought class treatment of similarly situated mortgagors. But Nicklaw did not allege he suffered any harm as a result of the delayed recordation (such as losing any money or experience an adverse impact on his credit). To the contrary, Nicklaw apparently did not even know about the violation until after CitiMortgage had recorded the satisfaction of mortgage (thereby removing any cloud on the title).

The district court dismissed the complaint and Nicklaw appealed. Following the issuance of Spokeo, CitiMortgage moved to dismissal the appeal for lack of jurisdiction. The panel dismissed the appeal on the ground Nicklaw had not suffered an “injury in fact” sufficient to support federal court standing. In so ruling, the court relied on the statement in Spokeo that “Article III standing requires a concrete injury even in the context of a statutory violation.” Id. at 1002. According to the Eleventh Circuit, “Nicklaw alleges neither a harm nor a material risk of harm that the district court could remedy.” Id.

Nicklaw petitioned for rehearing, and Circuit Judge Beverly Martin requested a poll on whether the case should be reheard by the Eleventh Circuit sitting en banc. When the majority of active Eleventh Circuit judges voted against rehearing en banc, Judge Martin dissented from the denial of rehearing, prompting Judge Pryor (joined by Judge Marcus) to pen his own opinion in support of the denial and “to respond to the errors in arguments made by our dissenting colleague.” Nicklaw v. Citimortgage, Inc., No. 15-14216-FF, 2017 WL 1548204 (11th Cir. May 1, 2017).

Judge Martin’s dissent focused on two aspects of Spokeo. First, Spokeo instructed federal courts, in evaluating injury-in-fact, to “consider both history and legislative judgments,” further observing that “a legislative body may decide to elevate intangible harms, previously deemed inadequate to confer standing, into legally cognizable injuries.” Id. at *4. Second, “any real harm or ‘risk of real harm’ stemming from that legislative judgment can satisfy the concreteness requirement.” Id. (quoting Spokeo, 136 S. Ct. at 1549). On this second point, a plaintiff faced with a real risk of harm “need not allege any additional harm beyond the one Congress has identified.” Id. (quoting Spokeo, 136 S. Ct. at 1549) (emphasis in original).

Judge Martin found Nicklaw adequately alleged a risk of real harm. “The New York legislature identified and elevated the intangible harm alleged by Mr. Nicklaw,” Judge Martin wrote, and “it unambiguously created a right to have truthful information reported about the title to one’s property.” Id. at *6. For his part, “Mr. Nicklaw suffered a material risk of a concrete harm” and was not required to allege that he actually suffered any harm. Id. She concluded: “I am afraid the holding of the Nicklaw panel opinion might end the private vindication of many societal harms identified by legislatures. I dissent to what this Court has done in this regard.” Id. at *7.

The response by the two Circuit judges on the Nicklaw panel (reported before Judge Martin’s dissent from the denial of rehearing) viewed the case as presenting a straightforward situation where a plaintiff suffered a technical statutory violation without suffering an injury-in-fact. According to Judge Pryor, “Nickaw’s complaint alleged only speculative harms to the market for residential property” and he “neither alleged that he had suffered any concrete harm nor that he was at risk of incurring any future harm as a result of the earlier delay in recording the certificate of discharge.” Id. at *1. He concluded: “The panel opinion adhered to the requirement of a concrete injury under Article III, as explicated in Spokeo. It held that Nicklaw’s complaint failed to allege that he suffered a concrete injury when the New York statutes were violated and that he failed to allege a risk of any future harm. CitiMortgage remedied Nicklaw’s earlier risk of harm when it recorded the certificate of discharge two years before he filed his complaint. Because the panel opinion is correct, we agree with our decision not to rehear this appeal en banc.” Id. at *3.

Although the dueling decisions reached different outcomes as to the applicability of Spokeo to the facts of Mr. Nicklaw’s case, they agreed on aspects of the Spokeo analysis determining whether the injury at issue supports federal court standing. Among other things, both the original panel and Judge Martin’s dissent from the denial of rehearing emphasized the importance of whether the alleged injury at issue “has traditionally been regarded as providing a basis for a lawsuit in English or American courts.” 839 F.3d at 1002 (panel decision); see also 2017 WL 1548204, at *4, *6 (referring repeatedly to “history” in analyzing whether violation at issue supporting standing) (Martin, J., dissenting from denial of rehearing). This common ground may advance Spokeo jurisprudence by directing practitioners and courts to examine traditional causes of action in evaluating whether a given harm should support federal court standing.

Posted on Friday, May 12 2017 at 2:02 pm by -

D.C. District Court Upholds FTC Staff’s Decision To Reverse Course On Soundboard Telemarketing Technology

by Mike Breslin

Not all automated voices are created the same. At least that is what the FTC staff had signaled to the telemarketing industry in a September 2009 opinion letter stating that telemarketing calls using “Soundboard” technology were not subject to the 2008 amendments to the Telemarketing Sales Rule (TSR), 16 CFR § 310.4(b)(1)(v), also known as the “Robocall Rule.” Among other things, the Robocall Rule prohibits the use of pre­recorded messages on telemarketing calls unless the recipients had agreed in writing to receive them.

Traditional robocalls, which are subject to the Rule, play a one-way message with no live sales agent or other human interaction. Soundboard technology, on the other hand, involves a form of two-way communication in which a sales agent selectively plays pre-recorded messages in response to the consumer’s verbal statements. The sales agent can also choose to intervene and speak directly with the consumer. Thus, if a consumer asks for more information about the product, the sales agent may play a pre-recorded message addressing that subject or choose to speak to the consumer directly. So while Soundboard still uses pre-recorded audio, there is a degree of human interaction. Think of it as somewhere between an entirely pre-recorded sales call and an actual live conversation.

Because the Robocall Rule requires the consumer’s written consent and imposes several other restrictions on using pre-recorded sales messages, it rendered marketing via traditional pre­recorded sales calls prohibitively expensive. Shortly after the Rule went into effect, and in response to inquiry from telemarketers using Soundboard technology, the FTC staff’s September 2009 letter stated the Robocall Rule would not apply to Soundboard technology since it involves a live sales agent who controls the content and continuity of what is said in response to the consumer’s statements.

So users of Soundboard telemarketing were able to breathe a sigh of relief. At least until seven years later, when the FTC changed its mind.

Following the September 2009 letter, the FTC saw increasing consumer complaints that Soundboard calls were not playing appropriate responses to consumers’ questions, that live sales agents were not intervening, and that sales agents were handling more than one call at a time. This undercut the FTC staff’s rationale behind its September 2009 letter. Following further investigation, the FTC staff announced in a November 10, 2016 letter that it was revoking its prior opinion and now considered Soundboard technology subject to the Robocall Rule. The FTC staff’s main rationale was that Soundboard calls do, in fact, use pre-recorded messages and are therefore subject to the Rule. However, the staff left no doubt that “the increasing volume of consumer complaints, and the abuses we have seen since we issued the September 2009 letter” were a driving force behind the reversal. The 2016 letter gave the telemarketing industry six months to adjust, stating the new opinion would become effective on May 12, 2017.

On January 23, 2017, the Soundboard Association filed suit in the U.S. District Court for the District of Columbia to challenge the 2016 letter opinion, styled Soundboard Association v. U.S. Federal Trade Commission, No. 17-cv-00150 (APM) (D.D.C.). The complaint first alleged the 2016 opinion was a “legislative rule” that, under the Administrative Procedures Act, the FTC was required to promulgate through notice and comment, which it did not do. The complaint also alleged the 2016 opinion effects a content-based speech restriction in violation of the First Amendment, because the Robocall Rule (to which Soundboard calls are now subject) applies to solicitations for charitable contributions directed to first-time donors, but expressly excludes such solicitations made to people who previously donated to, or are members of, the charity in question. See 16 CFR § 310.4(b)(1)(v)(B). According to the Soundboard Association, that carve-out improperly restricts speech based on what the caller says during the call – namely, whether the caller requests a first-time charitable donation or a repeated donation.

In an April 24, 2017 opinion, the district court rejected both arguments, granted the FTC’s motion for summary judgment, and denied the Soundboard Association’s cross-motion for summary judgment. The court first explained that the 2016 opinion is not a legislative rule that must be promulgated through notice and comment because it does not supplement or effect a substantive change in the Robocall Rule. Instead, the court held the 2016 opinion is an “interpretive rule” because it only communicates the FTC staff’s interpretation, based on new evidence, that Soundboard technology falls within the Rule’s existing restrictions on pre­recorded messages. The district court described the nature of the FTC staff’s conclusion – that an existing regulation now applies to a particular form of telemarketing technology as currently used by the industry – as a “quintessential interpretive rule” which does not require notice and comment. Soundboard Association v. FTC, 2017 WL 1476116, at *11 (D.D.C. Apr. 24, 2017), appeal docketed, No. 17-5093 (D.C. Cir. Apr. 28, 2017).

The court then held the Robocall Rule’s carve-out for charitable solicitations to prior donors or current members does not create a content-based speech restriction. Instead, the restriction is content-neutral because it turns on who the recipient is – a first-time donor or a prior donor – not what is said. Id. at *13-14.

The Soundboard Association has appealed the district court’s decision to the D.C. Circuit. Stay tuned to the KTS Class Action Blog for updates on where this issue comes out.

Takeaway: For the time being, telemarketers using Soundboard technology have until May 12, 2017 to ensure they comply with the TSR’s provisions (16 CFR § 310 et seq.) applicable to the use of pre-recorded messages. Companies using this technology should carefully review the TSR, stay apprised of developments in the Soundboard Association’s appeal, and seek legal advice regarding any compliance questions.

 

Posted on Friday, May 5 2017 at 12:57 pm by -

North Carolina General Assembly Strengthens Appeal Rights for Defendants Who Receive Adverse Class Certification Decisions

by Joe Dowdy and Phillip Harris

Background. On April 26, 2017, the North Carolina General Assembly overrode a gubernatorial veto to enact N.C. Session Law ch. 2017-7 (formerly HB-239) (the “Act”). The Act arose from a power struggle between the state’s democratic governor and its republican legislature regarding who should make judicial appointments. The legislature sought to revoke the governor’s longstanding power to fill pre-election judicial vacancies by eliminating seats on the North Carolina Court of Appeals. To prevent opposition from the business community, the legislature included in the Act a potentially beneficial reform of state class action procedural law.

The Class Action Appeals Amendment. The Act amends N.C. Gen. Stat. § 7A-27 by adding a new subsection (subsection (a)(4)), which provides: “[an] [a]ppeal lies of right directly to the Supreme Court in any of the following cases: Any trial court’s decision regarding class action certification under . . . Rule 23 [of the North Carolina Rules of Civil Procedure].” This short amendment implements at least four significant changes to North Carolina class action practice.

First, the Act grants to a class action defendant the right to appeal an order certifying a class. Prior to the Act, a plaintiff could appeal from the denial of class certification, but a defendant could not appeal a grant of class certification. Fisher v. Flue-Cured Tobacco Coop. Stabilization Corp., 794 S.E.2d 699, 705 (N.C. 2016). North Carolina’s appellate courts had concluded that, although either ruling was interlocutory, a denial of class certification affected a substantial right “because it determines the action as to the unnamed plaintiffs,” whereas the allowance of certification does not. Frost v. Mazda Motor of Am., Inc., 540 S.E.2d 324, 327 (N.C. 2000). Thus, an unsuccessful defendant seeking immediate review had to petition for certiorari in the North Carolina Court of Appeals or otherwise show a substantial right beyond the certification decision itself. Now, plaintiffs and defendants stand on equal footing in terms of their right to appeal an adverse decision.

Second, the Act specifies that the direct appeal is directly to the North Carolina Supreme Court. Under prior law, a party appealing from a class certification decision was required to first seek review in the Court of Appeals, pursuant to N.C. Gen. Stat. §§ 7A-27(b). If the Court of Appeals issued a unanimous decision, that decision generally was subject only to discretionary review in the Supreme Court, and an appeal of right existed only when a Court of Appeals judge issued a dissenting opinion. N.C. Gen. Stat. §§ 7A-30 & 31. As the Supreme Court seldom granted discretionary review and dissents were somewhat rare, review in the Supreme Court as a practical matter was unlikely. Further, the Supreme Court had the right, but not the obligation, to take an appeal under N.C. Rule of Appellate Procedure 15. Now all class certification decisions will receive a full, direct appeal in the state’s highest court.

Third, the Act potentially broadens the types of orders that a party can appeal. By its terms the Act applies not only to the denial or allowance of certification, but to “[a]ny trial court’s decision regarding class action certification.” In most instances, parties probably will limit their appeals to grant and denial orders, but it is plausible that other rulings will give rise to appeals as well, such as an order to strike class action allegations.

Fourth, any appeal under the Act will give rise to an automatic stay of proceedings in the trial court. Under North Carolina law, the filing of a notice of appeal divests a trial court of jurisdiction of “all matters embraced within or affected by the order or judgment being appealed.” Lowder v. All Star Mills, Inc., 273 S.E.2d 247, 259 (N.C. 1981). Under prior law, a defendant appealing from an adverse certification decision had to persuade the trial court to issue a discretionary stay of further proceedings. See N.C. R. App. P. 8(a) (governing stays on appeal generally). Now, a stay is automatic.

As a result of this amendment, North Carolina procedural law now provides greater appellate rights in class action cases than Federal Rule of Civil Procedure 23(f). The federal rule allows a party to seek permission from a circuit court to appeal “an order granting or denying class-action certification,” and in federal court, there is no stay of proceedings unless the district court or the appellate court so orders.

Key Takeaways. Businesses facing possible class action liability in North Carolina now have enhanced protections under the Act.

  • In negotiating class action settlements, businesses should be mindful that an adverse certification decision in state court may have less weight than it formerly did as a result of the direct right of appeal, at least if the order is vulnerable to attack.
  • In pending cases in which an arguably erroneous class certification order has been entered, the defendant should consider whether to move for decertification or reconsideration, to prompt a ruling that may give rise to a direct appeal to the North Carolina Supreme Court under N.C. Gen. Stat. § 7A-27(a)(4).
  • In class certification cases presently pending in the North Carolina Court of Appeals, the defendant should consider whether to make a motion to transfer the case to the North Carolina Supreme Court if such a transfer is not otherwise ordered by the Court of Appeals (the Act’s impact on existing appeals is unclear).
  • Businesses served with new class action cases should carefully consider whether to remove the cases to federal court or whether the Act’s appeal rights make proceeding in state court more desirable.
  • Businesses should consider engaging appellate counsel at the class certification stage to ensure that they have the best chance of obtaining appellate relief if they receive an unfavorable decision.
  • Appeals of North Carolina state court class certification decisions are more economical, given there will no longer be proceedings in the intermediate appellate court, and any litigation in the trial court would be subject to an automatic stay.

Additional Resources. KT Class Action team member, Joe Dowdy, provides additional thoughts on HB-239 in the May 15, 2017 edition of NC Lawyers Weekly. Access his comments by clicking image below.

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