KT Class Action Blog

Archive for June 2017

Posted on Friday, June 30 2017 at 1:00 pm by -

The Seventh Circuit forecloses one “pick off” method under Rule 67, but leaves a trail of crumbs for both the plaintiffs’ and defense bar

by Chad Hansen

Takeaway: The U.S. Supreme Court ruled in January 2016 in Campbell-Ewald Co. v. Gomez that an unaccepted Rule 68 offer of judgment has no legal effect and therefore does not serve to moot a class action. 136 S. Ct. 663 (2016). Since that time, defendants in class actions – especially defendants in Telephone Consumer Protection Act (TCPA) cases and other lawsuits in which statutory damages are sought – have been exploring the question reserved in Campbell-Ewald: what if a defendant actually pays what is offered, rather than merely offering the payment? The Seventh Circuit recently rejected one such method of “picking off” the named plaintiff in its recent decision in Fulton Dental, LLC v. Bisco, Inc., No. 16-3574, 2017 WL 2641124 (7th Cir. June 20, 2017), but left open issues for further exploration by the plaintiffs’ and defense bar.

In Fulton Dental, the putative class action plaintiff sought statutory damages under the TCPA as well as injunctive relief banning future violations. Before Fulton Dental moved for class certification, however, the defendant (Bisco) executed the classic “pick off”: it tried to moot the case by tendering a Rule 68 offer of judgment in the amount of the statutory damages sought by Fulton Dental, plus accrued costs, along with a consent to injunctive relief. Two days after the offer of judgment was filed, however, the Supreme Court decided Campbell-Ewald, holding that “an unaccepted settlement offer or offer of judgment does not moot a plaintiff’s case.” 136 S. Ct. at 672. After the offer was rejected, and considering the Supreme Court’s qualifying language, Bisco implemented another strategy. This time, it moved for leave to deposit $3,600—what Bisco regarded as the maximum recovery sought by Fulton Dental, plus fees and costs—with the district court pursuant to Rule 67 of the Federal Rules of Civil Procedure, which allows all or part of a disputed amount to be deposited into the district court’s registry. Combined with its renewed acquiescence to injunctive relief, Bisco argued the deposit into the court mooted the case under Campbell-Ewald. The district court agreed and granted Bisco’s motion, treating the Rule 67 deposit of funds as the equivalent of giving the money directly to the plaintiff and thereby dismissing the case.

The Seventh Circuit reversed. It read no invitation for such creativity in the Supreme Court’s reservation in Campbell-Ewald that, “We need not, and do not now decide whether the result would be different if a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount.” 136 S. Ct. at 672. The Seventh Circuit further held that Rule 67 is but a procedural mechanism for deposits into the court and not a “vehicle for determining ownership; that is what the underlying litigation is for.” 2017 WL 2641124 at *3. And, the court explained, statutes corresponding to Rule 67 (28 U.S.C. §§ 2041 & 2042) make clear that no party is entitled to the funds absent court order, making the Rule 67 procedure no more of a definitive payment to the plaintiff than a contractual offer or an equitable tender, both rejected in Campbell-Ewald. Ultimately, the Seventh Circuit saw “no principled distinction between attempting to force a settlement on an unwilling party through Rule 68, as in Campbell-Ewald, and attempting to force a settlement on an unwilling party through Rule 67.”

Although the court in Fulton Dental rejected defendant’s Rule 67 attempt to “pick off” the plaintiff, it left open other possibilities for short-circuiting class actions. The court discussed its prior decision in Chapman v. First Index, Inc., 796 F.3d 783, 786 (7th Cir. 2015), and noted that although Bisco’s Rule 67 tender had not mooted the case, “other hurdles still exist[], including a possible affirmative defense of payment, estoppel, or waiver.” 2017 WL 2641124 at *4. Additionally, the court provided another tidbit of hope to the defense bar when it wrote: “And this is not an unimportant point: if it turns out that the named plaintiff really has no personal stake in the litigation, the district judge might well question whether it is the appropriate champion for the class.” Id.

Not overlooking the plaintiffs’ bar, the court also provided it with potential ammunition. By acknowledging that named plaintiffs’ interests include not only statutory damages, but also the hope of receiving “service awards” for their role as class representatives, the court suggested that any settlement offer or payment intended to moot a case may need to be large enough to compensate the plaintiff for any potential service award. As the court concluded its opinion, “we cannot say as a matter of law that the unaccepted offer was sufficient to compensate plaintiff Fulton for its loss of the opportunity to represent the putative class.” Id. at *5.

The Fulton Dental decision rejects the latest “pick-off” strategy used by a defendant in the wake of the Supreme Court’s 2016 ruling in Campbell-Ewald. It stands for the proposition that a class action defendant may not pay into the court under Rule 67 the amount of damages, fees, and costs to moot the putative class action. However, it leaves open whether such a payment raises other affirmative defenses that could lead to dismissal or leads to findings during class certification that the named plaintiff is not adequate or typical or otherwise not an appropriate representative for the class. It also raises but leaves open an interesting mootness issue in cases where a payment has been made to a plaintiff: whether the amount paid must compensate the plaintiff for his interest in a service award for being the named plaintiff. Ultimately, these issues will be resolved, because class action defendants – especially in TCPA and similar class actions – really have nothing to lose by attempting to execute a “pick-off” strategy.

Posted on Friday, June 23 2017 at 2:22 pm by -

U.S. Supreme Court Issues Anti-Forum Shopping Jurisdictional Decision

by Jon Michaelson

As anticipated, the just-released U.S. Supreme Court decision in Bristol-Myers Squibb Co. v. Superior Court, No. 16-466, 2017 WL 2621322 (U.S. June 19, 2017), establishes an important limitation in the law of personal jurisdiction, especially as it relates to mass tort and class action litigation. Just as the Court in Daimler AG v. Bauman, 134 S. Ct. 746 (2014), drastically limited the ability of lower courts to assert general jurisdiction over non-resident defendants, the Bristol-Myers opinion likewise restricts the ability of plaintiffs to establish specific jurisdiction over non-resident defendants. The impact of this decision has been immediate. The very day Bristol-Myers issued, a Missouri state court judge declared a mistrial with respect to talcum powder claims brought by plaintiffs who were both residents and non-residents of Missouri, given that the Missouri state court likely did not have personal jurisdiction over the claims of the two non-resident plaintiffs.

The question presented in Bristol-Myers was whether out-of-state plaintiffs’ claims arose out of or related to a defendant’s forum activities – sufficient to establish specific jurisdiction – when there was no causal link between those forum contacts and the plaintiffs’ claims. More particularly, the Court addressed a California Supreme Court decision in a mass tort action instituted on behalf of nearly 600 non-California residents asserting California state law claims leveled at Bristol-Myers’ drug Plavix, where none of the non-residents’ claims had any connection with Bristol-Myers’ activities in California. Plavix was not marketed, prescribed, or ingested by any of the non-residents in California. None were injured or received treatment in the state. Plavix was not developed or packaged in California. Bristol-Myers’ regulatory compliance efforts regarding Plavix also took place elsewhere. And even though Bristol-Meyers had entered into a distribution agreement with California-based co-defendant McKesson, it was not possible to trace any Plavix pill taken by a non-resident plaintiff to McKesson.

Notwithstanding this complete lack of connection between the non-resident plaintiffs and their injuries and California, the California Supreme Court held – by a bare (4 to 3) majority – that specific jurisdiction over Bristol-Myers was established. It did so by applying a “sliding scale” test to determine whether non-residents’ claims were sufficiently related to California. Under that test, the intensity of a defendant’s overall forum contacts and the connection between those contacts and a plaintiff’s claims are inversely-related. In other words, the more extensive a defendant’s overall activities in the forum, the easier it is to demonstrate “relatedness” to a claim, for purposes of specific jurisdiction. Additionally, under this approach, a defendant’s forum contacts do not need to be a “but for” or even a “proximate” cause of the injuries alleged.

According to the California Supreme Court’s majority opinion, Bristol-Myers’ connections to California were extensive, even though they were insufficient to render it “at home” (i.e., subject to general jurisdiction) in California. Because national marketing and other efforts with respect to Plavix were conducted in California (among the other states), because California was the site for some company R&D activity (though not involving Plavix), and because claims asserted by the non-resident class members were similar to those advanced by California residents, the California Supreme Court held that there was sufficient “relatedness” to establish specific jurisdiction relative to the claims of the non-resident plaintiffs.

The Supreme Court disagreed by a margin of 8 to 1. According to the Court, under “settled principles regarding specific jurisdiction,” “there must be an ‘affiliation between the forum and the underlying controversy, principally, [an] activity or an occurrence that takes place in the forum State.’” Id. at *6 (quoting Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011)). Even regularly occurring sales or other continuous activity within a state will not suffice if there is no connection between those contacts and the issue in dispute. Likewise, “‘a defendant’s relationship with a … third party, standing alone, is an insufficient basis for jurisdiction.’” Id. at *8 (quoting Walden v. Fiore, 571 U.S. ___ (2014) (slip op., at 8)). That principle undercut any contention that similar or even identical injuries suffered by resident and non-resident claimants provided a proper foundation for the exercise of specific jurisdiction. In light of these limitations, the Court described California’s sliding scale approach as “difficult to square with our precedents” and “resembl[ing] a loose and spurious form of general jurisdiction.” Id.

The Court’s holding – that specific jurisdiction does not exist where a non-resident asserts claims over a non-resident defendant where the relevant, alleged misconduct took place elsewhere – casts a cloud over state court mass tort and class actions asserted by non-resident plaintiffs against non-resident defendants. Obviously, a corporate defendant will still be subject to suit in its “home state,” as a matter of general jurisdiction. But combining resident and non-resident claims in a “non-home” forum has become far more difficult (if not impossible), as Justice Sotomayor pointed out in her lone dissent. Id. at *17. Further still, and again as noted in the dissent, joining corporate co-defendants domiciled in different states in a single state court proceeding may be impossible, as well. Id. The days of creative forum shopping for mass tort cases involving a multi-state class may be coming to an end.

It must be emphasized that the Bristol-Myers court did not decide two important issues. First, the Court left open the question whether the restrictions it established for specific jurisdiction on state courts apply to the exercise of jurisdiction by federal courts. Id. at *11. And second, the Court did not address Bristol-Myers’ argument that “relatedness” for purposes of specific jurisdiction can be satisfied only by a showing of actual causation. That leaves open the split which has emerged among courts – both state and federal – as to the meaning of “suit related conduct” in assessing specific jurisdiction. The vast majority (nine circuits along with the highest courts of Arizona, Massachusetts, Oregon, and Washington) have ruled that a plaintiff’s case does not “relate to or arise out of” a defendant’s forum contacts unless those contacts caused in some manner the injury alleged. Several of these courts express the relatedness requirement in “but for” terms while others articulate a “proximate cause” or foreseeability” test. In all instances, though, some direct linkage is required. By contrast, a minority of courts – including the Federal Circuit as well as the highest courts of California, the District of Columbia, and Texas – have adopted a more flexible (and easy to satisfy) approach. Although California’s “sliding scale” standard has now been struck down, it remains unclear whether and to what extent other similarly-relaxed standards will pass constitutional muster.

Posted on Friday, June 16 2017 at 1:45 pm by -

Supreme Court rejects creative dismissal strategy to engineer appellate review of order denying class certification

by Ron Raider

Takeaway: The United States Supreme Court has rejected a tactic used by the plaintiffs’ bar to obtain appellate court review of an order denying class certification. Justice Ginsburg held that “the voluntary dismissal essayed by [class representatives] does not quality as a ‘final decision’ within the compass of 28 U.S.C. § 1291,” such that an order denying class certification could be reviewed even where the appeals court had rejected an interlocutory appeal of the certification ruling. Microsoft v. Baker, No. 15-457, 2017 WL 2507341 (U.S. June 12, 2017).

In Microsoft v. Baker, consumers sought to bring a class action against Microsoft based on an alleged Xbox defect that caused game discs to be scratched during normal use. After the district court denied certification, the consumers petitioned for interlocutory review of the certification order under Rule 23(f), which the Ninth Circuit denied. The named plaintiffs then dismissed their individual claims with prejudice and appealed, claiming the Court of Appeals possessed appellate jurisdiction over final judgments under 28 U.S.C. § 1291.

Justice Ginsburg emphasized the broad discretion of appellate courts to accept or decline petitions for immediate review of class certification rulings under Rule 23(f). Justice Ginsburg explained that “[c]ourts of appeals wield ‘unfettered discretion’ under Rule 23(f), akin to the discretion afforded circuit courts under § 1292(b).” 2017 WL 2507341, at *7.

Once the appellate court denied their Rule 23(f) petition, the disappointed consumers retained several procedural options for seeking review of the certification ruling. They could settle their individual claims; seek discretionary interlocutory review of the class certification decision under § 1292(b); request that the district court revisit the class certification order; or litigate their individual claims through judgment and then appeal both the final judgment and the order denying class certification. Id. at *9.

The Baker plaintiffs utilized none of these procedures. Instead, they stipulated to the dismissal of their individual claims with prejudice and then appealed the order denying class certification §1291. The Ninth Circuit held it had appellate jurisdiction and reversed the order striking class allegations. The Supreme Court granted certiorari to address a Circuit split on the appellate jurisdiction issue. Id. at *10 & n.8.

Recognizing as foundational the principle that all issues be decided in a single appeal, the Supreme Court rejected the consumers’ strategy: “Because respondents’ dismissal device subverts the final-judgment rule and the process Congress has established for refining that rule and for determining when nonfinal orders may be immediately appealed, the tactic does not give rise to a ‘final decision[n]’ under § 1291.” Id. at *11. Rather than enhancing efficiency, the consumers’ approach “invites protracted litigation and piecemeal appeals,” in violation of the final judgment rule and the interlocutory appeal balance struck by Rule 23(f). Id. Accordingly, the Supreme Court reversed the Ninth Circuit’s exercise of appellate jurisdiction. Id.

Justice Thomas, joined by Chief Justice Roberts and Justice Alito, issued a concurring opinion arguing the appeal should have been rejected because of a lack of Article III standing. Justice Thomas disagreed with the majority that an appeal from a voluntary dismissal did not constitute a final judgment under § 1291. 2017 WL 2507341, at *16-*17 (Thomas, J., dissenting). Rather, the consumers’ appeal should have been rejected because, once the consumers dismissed their claims, the parties “were no longer adverse to each other on any claims, and the Court of Appeals could not ‘affect the[ir] rights’ in any legally cognizable manner.” Id. at *17. Because the Court of Appeals lacked jurisdiction over the consumers’ individual claims, “it could not hear plaintiffs’ appeal of the order striking their class allegations.” Id. at *18.

The Supreme Court’s ruling in Baker should put to bed class representatives’ tactic of dismissing their claims to secure immediate review of an adverse class certification ruling, as well as laying out the logical framework for challenging appeals generated through other litigation stratagems. And the concurring opinion may give class defendants greater ammunition to challenge class certification appeals by named plaintiffs with Article III standing issues. We will stay tuned for the next chapter in the Supreme Court’s class certification jurisprudence.

Posted on Friday, June 9 2017 at 9:53 am by -

Ninth Circuit extends tolling doctrine to allow successive class actions, subject only to preclusion and “comity” defenses

by Jon Michaelson

Takeaway: In Resh v. China Agritech, Inc., No. 15-55432, 2017 WL 2261024 (9th Cir. May 24, 2017), the Ninth Circuit stretched the tolling principles of American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), and Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983), to new lengths, ruling that unnamed plaintiffs in two prior would-be securities class actions could bring a third class action based on the same underlying events. But defendants facing successive class actions still have preclusion and “comity” arguments to attempt to shut down these cases.

The Resh court recounted the history of the prior class actions. In the first case, the district court denied certification because the named plaintiffs failed to establish a fraud on the market theory, thereby facing insurmountable individualized reliance issues. Following the Ninth Circuit’s affirmation of the denial of certification, the named plaintiffs continued to litigate individually and ultimately settled their claims. Then a new plaintiff filed a nearly identical class action complaint on behalf of the same would-be class in federal court in Delaware, which promptly shipped the case back to the same Central District of California judge who had handled the first case. The district court again rejected class certification, this time finding a lack of typicality under Rule 23(a)(3) and inadequacy of representation under Rule 23(a)(4). The parties then dismissed the second case with prejudice as to the named plaintiffs.

A few months later, a third set of plaintiffs initiated yet another class suit based on the same facts. This time the (same) district judge dismissed the case with prejudice and without leave to amend based on the applicable two-year statute of limitations for securities law violations. While the district court recognized that under American Pipe and Crown, Cork & Seal, the limitations period would have been tolled as to individual claims of the class members until class certification had been denied, the Supreme Court had not extended tolling to an entirely new class action. And two Ninth Circuit decisions – Robbin v. Fluor Corp., 835 F.2d 213 (9th Cir. 1987), and Catholic Social Services, Inc. v. INS, 232 F.3d 1139 (9th Cir. 2000) – militated against any such extension of tolling. The district court added that extending tolling in these circumstances “would allow tolling to extend indefinitely as class action plaintiffs repeatedly attempt to demonstrate suitability for class certification on the basis of different expert testimony and/or other evidence.”

The Ninth Circuit panel reversed. In its view, the decision in Robbin refusing to extend tolling to a subsequent class action had been “modified” by Catholic Social Services. Based on its reading of Catholic Social Services, the ability to file a subsequent class action turns entirely on preclusion rather than tolling: “[W]e did not write that the availability of a subsequent class action depended on general tolling principles. Thus, availability depended on the operation of preclusion and preclusion-related principles.” Resh, 2017 WL 2261024, at *7. The Resh court sought to reinforce this interpretation by citing three recent Supreme Court cases.

In Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., 559 U.S. 393 (2010), the Supreme Court refused to limit eligibility for class treatment under Rule 23 to claims authorized by “some other law,” because Rule 23 authorizes a district court to certify a class in every single case that satisfies Rule 23 criteria. Viewing the statute of limitations as “some other law,” the Resh court reasoned that Shady Grove dictates a limitations statute cannot be applied to dismiss a putative class action. 2017 WL 2261024, at *7.

The Supreme Court in Smith v. Bayer Corp., 564 U.S. 299 (2011), addressed parallel class actions in federal and state court. Bayer held that even after a federal court had denied class certification, it could not enjoin the state court from certifying a class in the parallel state lawsuit. In so ruling, Bayer explained that the named plaintiffs in the state case had been unnamed members of the uncertified class in the federal action, such that they would not be subject to preclusion arising from the federal denial of class certification. The Resh court further noted that Bayer stated in dicta that where sequential class actions had been filed in federal court, the Supreme Court “‘would expect federal court to apply principles of comity to each other’s class certification decisions when addressing a common dispute.’” 2017 WL 2261024, at *8 (quoting Bayer, 564 U.S. at 317).

In the third case, Tyson Foods, Inc. v. Bouaphakeo, 136 S. Ct. 1036 (2016), the Supreme Court observed that “[i]n a case where representative evidence is relevant in proving a plaintiff’s individual claim, that evidence cannot be deemed improper merely because the claim is brought on behalf of a class.” Resh, 2017 WL 2261024, at *8 (quoting Tyson Foods, 136 S. Ct. at 1046). The Tyson Foods court based its reasoning on the Rules Enabling Act, which precludes Rule 23 from abridging any substantive right. In the Resh panel’s view, Tyson Foods at least implicitly supports the conclusion that “the statute of limitations does not bar a class action brought by plaintiffs whose individual actions are not barred.”

Based on this analysis, the Ninth Circuit ruled that allowing “unnamed class members in previously uncertified classes” to bring a subsequent class lawsuit “would advance the policy objectives that led the Supreme Court to permit tolling in the first place.” Id. As to the potential for “abusive filing of repetitive class actions, the current legal system is adequate to respond” because (1) attorneys operating on contingency “at some point will be unwilling to assume the financial risk in bringing successive suits” and (2) “ordinary principles of preclusion and comity will further reduce incentives to re-litigate frivolous or already dismissed class claims, and will provide a ready basis for successor federal district courts to deny class action certification.” Id. at *9. The Resh court thus remanded for the district court to consider the Rule 23 factors and whether “comity or preclusion principles” should bar class certification. Id.

The Resh court’s reasoning ignores the practical impact of extending tolling to successive class actions. Attorneys representing plaintiffs who file successive class claims do have something to gain – specifically, greater fees by way of settlement because it will be more difficult and expensive for defendants to present a preclusion (or comity) defense than a limitations defense. Stay tuned to learn whether the en banc Ninth Circuit or the Supreme Court weighs in on this unprecedented extension of the American Pipe/Crown Cork tolling doctrine.

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