KT Class Action Blog

Archive for August 2017

Posted on Wednesday, August 23 2017 at 12:42 pm by -

Filing an early motion to strike class allegations

by Richard J. Keshian and Chad D. Hansen

A recent decision by the Western District of Michigan is indicative of the increasing trend in federal district courts to grant early motions to strike class allegations where it is obvious that a class cannot be certified. The benefit of resolving class certification at the pleadings stage, thereby avoiding costly and protracted discovery, is obvious. Moreover, the district court in Oom v. Michaels, Inc., No. 1:16-CV-257, 2017 WL 3048540 (W.D. Mich. July 19, 2017) viewed the motion to strike as case-dispositive and struck the class allegations on four separate grounds: ascertainability, typicality, commonality, and predominance.

In Oom, plaintiffs Oom and Spofford alleged that they bought at a Michaels store in Holland, Michigan custom-framing services for 25 pieces of artwork, but received lesser-value framing that actually caused damage to their artwork. They asserted claims for violations of state consumer protection statutes, the Uniform Deceptive Trade Practices Act (as codified by state statutes), the Magnuson-Moss Warranty Act, and the Michigan Consumer Protection Act, as well as claims for fraud and misrepresentation, unjust enrichment, negligence, breach of express warranty, and breach of implied warranty. They sought to represent nationwide and Michigan classes consisting of persons “who purchased custom framing products, specifically preservation mounting and/or archival tape mounting from Defendants’ store locations and who did not received preservation mounting and/or archival tape mounting.” Id. at *1.

Defendants immediately challenged class certification, filing a motion to strike based exclusively on the allegations in the plaintiffs’ class action complaint. In granting defendants’ motion to strike the class allegations, the district court observed that “a court may strike class-action allegations before a motion for class certification if the complaint demonstrates that the requirements for maintaining a class action cannot be met and discovery or factual development would not ‘alter the central defect in the class claim.’” Id. at *2 (quoting Pilgrim v. Universal Health Card, LLC, 660 F.3d 943, 949 (6th Cir. 2011) (noting “that the motion to strike came before the plaintiffs had filed a motion to certify the class does not by itself make the court’s decision reversibly premature” and affirming the district court’s decision because it “cannot see how discovery or for that matter more time would have helped …”)). The district court further noted that the motion to strike standard is the same as applied in deciding a motion to dismiss under Rule 12(b)(6). In other words, the Supreme Court’s decisions in Iqbal and Twombly require that the complaint set out factual allegations that raise a right to class certification above the speculative level.

While predominance and ascertainability are the grounds on which most courts rely in striking class allegations, the Oom court found that ascertainability, typicality, commonality, and predominance were all lacking in plaintiff’s complaint, justifying the motion to strike.

On the ascertainability issue, the district court ruled that the defined class was a “fail safe” class, which is a class defined so that “whether a person qualifies as a member depends on whether the person has a valid claim.” Id. at *4 (citations and punctuation omitted). As the Oom court observed, “[s]uch classes are improper because ‘[e]ither the class members win or, by virtue of losing, they are not in the class and, therefore, not bound by the judgment.’” Id. (citations and punctuation omitted). The district court also found that the plaintiffs could not satisfy the typicality and commonality requirements, because proving plaintiffs’ own claims would not prove any other proposed class member’s claim, absent a separate, fact-specific inquiry of each proposed member and each framing performed by Michaels for each class member. For many of the same reasons, predominance was the last nail in the plaintiffs’ class action coffin. Even in plaintiffs could satisfy the commonality requirement, any common questions of fact or law would not predominate over questions affecting individual class members.

The district court therefore took the unusual step of granting the motion to strike, because, as the district court saw it, there was no way the proposed class could be modified to avoid the problems apparent on the face of the complaint, and, given the individualized nature of the claims, discovery would not cure the Rule 23 deficiencies.

Key Takeaways: While courts most frequently grant motions to strike class allegations on predominance and ascertainability grounds, given the right factual scenario, the Rule 23(a) requirements of commonality, typicality, and adequacy can also be grounds for the motion. Key to success on these requirements is a straightforward identification from the pleadings of disparate facts, theories, and legal elements within the named plaintiff’s own claims and in comparison to those of the putative class members.

Practice Tips: Federal Rules of Civil Procedure 23(c)(1)(A), 23(d)(1)(D) and 12(f) should all be cited in a motion to strike class allegations. Remember to highlight that the burden of proof always lies with the plaintiffs (who are seeking class certification), regardless of who files a motion directed to the issue of class certification (but note that some courts have ruled that, by moving to strike, the burden of proof shifts to the defendant to show that class treatment is inappropriate under the Rule 12(b)(6) standard, as the Western District of Michigan ruled in the Oom case). Also keep in mind that motions to strike are generally disfavored and, as a general matter, are only granted when it is obvious to a district court that a plaintiff will not be able to win certification. When motions to strike are denied, they are typically denied on the ground that they are premature – in other words, the district court holds open the possibility that any problems identified in an early motion to strike could be cured through some combination of class discovery and later modification of the class definition.

Posted on Monday, August 21 2017 at 11:56 am by -

The Spokeo saga continues: Ninth Circuit finds that incorrect consumer report about age, marital status, wealth, education level, and profession gives rise to concrete injury

by Jay Bogan

Takeaway: In Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016) (“Spokeo II”), the Supreme Court ruled that not every statutory violation gives rise to a concrete injury for standing purposes. An inaccurate report of a person’s zip code, for example, might be a technical violation of the Fair Credit Reporting Act (“FCRA”), but such a violation does not cause the concrete injury required for Article III standing. On remand from the Supreme Court, the Ninth Circuit addressed the concrete injury requirement in Spokeo III (Robins v. Spokeo, Inc., No. 11-56843, 2017 WL 3480695 (9th Cir. Aug. 15, 2017)), ruling that Spokeo’s dissemination of information to the effect that the plaintiff was employed (when he was actually unemployed), and that he was wealthier and better-educated than he actually was, gave rise to a concrete injury. While it may be that Spokeo III is a fact-specific decision, it does appear that, in the Ninth Circuit, a FCRA-alleged inaccuracy must be trivial in the extreme to fall short of Article III’s concrete injury requirement.

As background, the Fair Credit Reporting Act (“FCRA”), 15 U.S.C. § 1681 et. seq., requires consumer reporting agencies to do a number of things, such as “follow reasonable procedures to assure maximum possible accuracy” of the information contained in a consumer report. Id. at § 1681e(b).

Spokeo operates a website that aggregates personal information about individuals and generates individual profiles about them, for use by anyone, including employers. Thomas Robins discovered that Spokeo had a profile about him that contained incorrect information. The profile “falsely stated his age, marital status, wealth, education level, and profession, and … included a photo of a different person.” Spokeo III, 2017 WL 3480695, at *2. Claiming that the report harmed his employment prospects and caused him emotional distress, Robins sued Spokeo in federal court, alleging violations of FCRA and seeking to represent himself and a putative class.

Spokeo’s procedural history is now well-known. The district court dismissed Robin’s complaint for lack of standing, specifically, for failure to allege an actual injury-in-fact. The Ninth Circuit reversed, ruling that Robin’s alleged injuries were sufficiently “particularized” to him, that they were caused by the FCRA violation, and that they were “redressable” in court. Robins v. Spokeo, Inc., 742 F.3d 409 (9th Cir. 2014) (“Spokeo I”). The Supreme Court granted certiorari and reversed, holding in Spokeo II that the Ninth Circuit had not analyzed whether Robin’s injuries were sufficiently “concrete” for standing purposes.

On remand, the Ninth Circuit held that Robin’s alleged injuries were sufficiently concrete to satisfy Article III standing. Following the Supreme Court’s reasoning in Spokeo II, the Ninth Circuit observed that “Robins may not show an injury-in-fact merely by pointing to a statutory cause of action.” Spokeo III, 2017 WL 3480695, at *4. Some statutory violations, however, are by themselves sufficient to constitute concrete harm. Adopting the Second Circuit’s recent formulation of the concrete injury standard in Strubel v. Comenity Bank, 842 F.3d 181 (2d Cir. 2016), the Ninth Circuit boiled the analysis down to two questions: “(1) whether the statutory provisions at issue were established to protect [Robin’s] concrete interests (as opposed to purely procedural rights), and if so, (2) whether the specific procedural violations alleged in this case actually harm, or present a material risk of harm to, such interests.” Spokeo III, 2017 WL 3480695, at *4.

As to the first question, “given the ubiquity and importance of consumer reports in modern life,” and given that FCRA’s protections “resemble other reputational and privacy interests that have long been protected in the law,” the Ninth Circuit concluded “that the FCRA procedures at issue in this case were crafted to protect consumers’ (like Robins) concrete interest in accurate credit reporting about themselves.” Id. at *4-*5 (emphasis added).

As to the second question, the Ninth Circuit acknowledged that any inaccuracy would not suffice, referencing the “incorrect zip code” example given by the Supreme Court in Spokeo II. Id. at *6 (citing Spokeo, II, 136 S.Ct. at 1550). Spokeo II, according to Ninth Circuit, demanded an examination of the nature of the credit reporting inaccuracies “to ensure that they raise a real risk of harm to the concrete interests that FCRA protects.” Id.

According to the Ninth Circuit, Robin’s allegations met this test, “because it is clear to us that Robin’s allegations relate facts that are substantially more likely to harm his concrete interests than the Supreme Court’s example of an incorrect zip code.” Id. at *7. Robins alleged Spokeo incorrectly reported (among other things) that he is employed in a technical or professional field, that he has a graduate degree, and that he is wealthier than he actually is, when in fact he is unemployed and searching for a job. In light of Robin’s allegations of harm to his employment prospects and the anxiety the Spokeo report caused him, and that the information involved was of “the type that may be important to employers or others making use of a consumer report,” the Ninth Circuit was satisfied that Robins’ allegations “present[ed] a sincere risk of harm to the real-world interests that Congress chose to protect with FCRA.” Id.

Posted on Friday, August 11 2017 at 2:18 pm by -

California Supreme Court endorses “fishing expedition” discovery under PAGA

by Jon Michaelson

In its recent decision concerning the proper scope of discovery under California’s Labor Code Private Attorneys General Act of 2004 – known as “PAGA” – the California Supreme Court authorized discovery just as broad as that available in California class action proceedings, while at the same time weakening the ability of defendants to object to such discovery on invasion of privacy grounds. As a result, Williams v. Superior Court, 5 Cal. 5th 331, 2017 WL 2980258 (Cal. July 13, 2017), presents new challenges for California employers and others in defending PAGA and similar “representative action” claims.

PAGA, set forth in California Labor Code sections 2698 et seq., authorizes and encourages employees to bring actions against their employers to recover civil penalties for certain Labor Code violations. A PAGA suit is essentially a qui tam or representative proceeding brought on behalf of all affected employees, and thus is similar to a class action. Unlike a class action, however, the named plaintiff is entitled to only 25 percent of any recovery, with the remaining 75 percent allocated to the State of California to fund enforcement and educational activities.

In the Williams case, the plaintiff alleged that his employer – Marshalls Stores – failed to provide required meal and rest periods or compensation in lieu of required breaks; understaffed stores, forcing employees to work during meal periods without compensation; directed managers to erase meal period violations from time records; instituted a systematic, company-wide policy to avoid paying premiums for missed breaks; failed to provide timely, accurate, and complete wage statements; and followed a policy and practice of forcing workers to carry out certain tasks without compensation. In early discovery regarding this pro forma laundry list of alleged wrongdoing, Williams served special interrogatories demanding the disclosure of contact information and basic employment history for all Marshalls employees in California. In response, Marshalls disclosed that it had roughly 16,500 California employees, and objected to furnishing their contact information on grounds of overbreadth, undue burden, and invasion of privacy.

Ruling on Williams’ motion to compel, the trial court directed Marshalls to provide employee contact information limited to the single store at which the plaintiff worked, subject to an opt-out notice to enable workers at that store to protect their privacy if they wished, and held open the possibility that following further discovery Williams might obtain contact information for additional employees depending on his ability to demonstrate that his claims had substantive merit. Recognizing that there was no controlling authority on this subject, the trial judge certified his order for immediate appellate review. The Court of Appeal upheld the order, ruling that Williams was required to “set forth specific facts showing good cause” for the broad discovery he had sought and also that, in view of the third party privacy interests involved, Williams “must demonstrate a compelling need for discovery” – in other words, “the discovery sought is directly relevant and essential to the fair resolution of the underlying lawsuit.”

In a unanimous opinion, the California Supreme Court reversed. The Court began with the fundamental proposition that a party has a right to obtain discoverable information, absent a clear legal prohibition. And in this instance, the California discovery statute expressly authorizes discovery of the identity and location of those who might have knowledge of discoverable evidence. As a result, Williams was presumptively entitled to the information he had sought, and the requirements which the trial court and Court of Appeal had attempted to impose on him to justify the interrogatories were improper. Rather, the California Supreme Court held that the burden clearly fell on Marshalls to substantiate its objections.

With respect to overbreadth, Marshalls argued that contact information as to employees who did not share Williams’ position, job classification, and store location “exceeded the scope of permissible discovery.” The Court, however, viewed Williams’ request as an effort to identify other aggrieved employees and to obtain evidence with respect to the state-wide Labor Code violations he alleged. The Court analogized the situation to a putative consumer class action where it had held that “[c]ontact information regarding the identity of potential class members is generally discoverable, so that the lead plaintiff may learn the identities of other persons who might assist in prosecuting the case.” Pioneer Electronics (USA), Inc. v. Superior Court, 40 Cal. 4th 360, 373, 53 Cal. Rptr. 3d 513, 150 P.3d 198 (2007). It found nothing in the purpose or language of PAGA to suggest that a different standard for discovery should apply. And it set aside differences between a class action and a PAGA case in terms of the differing duties of class versus PAGA counsel to those impacted by the case and in terms of possible binding impacts of judgments in class actions versus PAGA actions as potentially legitimate reasons for a trial court’s discretionary decision to alter the normal approach to discovery. In sum, “[t]he trial court had no discretion to disregard the allegations of the complaint making this case a statewide representative action from its inception,” and the Court of Appeal “likewise misread the complaint when it described Williams’ claim as ‘parochial” and thus affording no basis for statewide contact information.” 2017 WL 2980258, at *8.

Relative to burden, Marshalls argued that it should not be forced to provide contact information for thousands of other employees absent a prior showing that the named plaintiff himself had been subject to any alleged Labor Code violations or that at least some others had been. Marshalls did not, however, provide any information indicating how much effort or expense would be necessary to gather the data involved for its entire California workforce. That failure in proof proved fatal to the burden objection. The Court had little difficulty rejecting Marshalls’ attempt to impose a good cause requirement on Williams: “[a]s a general matter, the [discovery] statute… imposes no obligation on a party propounding interrogatories to establish good cause or prove up the merits of any underlying claims.” 2017 WL 2980258, at *9. Moreover, Marshalls had not made a formal request to the trial court to manage the sequence or timing of discovery “for the convenience of parties and witnesses and in the interests of justice.” Id. at *10. Accordingly, the burden contention was unavailing: “[t]hat the eventual proper scope of a putative representative action is as yet uncertain is no obstacle to discovery; a party may proceed with [discovery] precisely in order to ascertain that scope.” Id.

And then, turning to the question of privacy, the Court noted that neither the trial judge nor the Court of Appeal had undertaken the analysis mandated by Hill v. National Collegiate Athletic Ass’n, 7 Cal. 4th 1, 26 Cal. Rptr. 2d 834, 865 P.3d 633 (1994): (1) whether a legally protected privacy interest exists, (2) whether there is a reasonable expectation of privacy under the circumstances, and (3) the relative seriousness of the potential invasion of privacy. This framework had been extended over the years to the consumer class action arena, as in Pioneer Electronics, 40 Cal. 4th at 372, and to wage and hour class actions in California, as in Belair-West Landscape, Inc. v. Superior Court, 149 Cal. App. 4th 554, 561-562, 57 Cal. Rptr. 3d 197 (2007). Addressing these elements, the Court recognized that while other Marshalls employees had a reasonable expectation of privacy which was implicated by requests for their names and contact information, the second Hill factor – reasonable expectation of privacy under similar circumstances – was not met because those other employees might expect and indeed might even hope that their names and contact information would be shared so that their employment rights could be protected. And third, the potential seriousness of any invasion of privacy had been mitigated by Williams’ willingness to accept an opt-out arrangement for other employees. As a result, the Court rejected Marshalls’ privacy objection. 2017 WL 2980258, at *13.

But that was not all. The Court went on to discuss the manner in which the Court of Appeal had handled the privacy question. It observed that instead of following Hill, the Court of Appeal had started (and also essentially ended) its analysis by examining whether Williams, as the requesting party, had demonstrated a compelling state interest in the disclosure of the private information involved. In doing so, the Court of Appeal had followed a host of cases which effectively compressed the assessment of privacy objections down to that single consideration. Doing so, per the Supreme Court, was not appropriate: “[we reject] the de facto starting assumption that … an egregious invasion is involved in every request for discovery of private information. Courts must instead place the burden on the party asserting a privacy interest to establish its extent and the seriousness of the prospective invasion, and against that showing must weigh the countervailing interests the opposing party identifies….To the extent prior cases require a party seeking discovery of private information to always establish a compelling interest or compelling need, without regard to … other considerations … they are disapproved.” 2017 WL 2980258, at *14.

Applying this logic, the Court rejected several factors which the Court of Appeal had deemed important, including the fear of retaliation on the part of Williams’ fellow employees: “[to the extent real, this] cuts the other way, in favor of facilitating collective actions so that individual employees need not run the risk of individual suits.” 2017 WL 2980258, at *15. Nor, according to the Court, was it necessary for Williams to demonstrate the existence of any illegal uniform companywide policy as an element of “compelling need.” That “may be a convenient or desirable way to show commonality of interest in a case where class certification is sought, but it is not a condition for discovery, or even success, in a PAGA action, where recovery on behalf of the state and aggrieved employees may be had for each violation, whether pursuant to a uniform policy or not.” Id.

PAGA lawsuits are inherently difficult to defend, and the decision in Williams makes the task that much more difficult. While the sorts of objections which Marshalls raised are not absolutely foreclosed, employers in the future will have to advance far more compelling arguments and evidence to sustain those positions and avoid workforce- wide discovery.

Posted on Tuesday, August 1 2017 at 10:21 am by -

The Future of Class Action Waivers in Financial Services Arbitration Clauses Remains Unclear

by Joe Dowdy and Phillip Harris

In a Legal Alert posted earlier this month, Kilpatrick Townsend’s Financial Institutions Team highlighted the key provisions of the Consumer Financial Protection Bureau’s Arbitration Agreements Final Rule, 82 Fed. Reg. 33210 (July 19, 2017) (the “Rule”). The full Alert is available here. Among other things, the Rule prohibits covered financial services providers from using pre-dispute arbitration agreements to block consumer class actions in court and requires most financial services providers to include language in their arbitration agreements reflecting this limitation.

Soon after the Rule’s issuance, the U.S. House of Representatives voted last week 231-190 to repeal it under the Congressional Review Act. H.R.J. Res. 111, 2017. The Congressional Review Act, 5 U.S.C. § 801, et seq., permits Congress to pass a joint resolution disapproving a regulatory enactment within 60 days of a promulgating agency providing notice of the enactment to Congress, and if the disapproval is signed by the President (or his veto is overridden), the regulation does not go into effect and the same or a substantially similar regulation cannot be enacted by the agency. 5 U.S.C. § 801(a)(3), (b). The House’s disapproval resolution will now go to the Senate for consideration, and if it passes, it is likely to be signed into law by the President. See Sylvan Lane, House votes to repeal consumer arbitration rule, The Hill, July 25, 2017, available at http://thehill.com/policy/finance/343652-house-votes-to-repeal-consumer-financial-protection-bureau-rule. It is unclear whether the resolution has the votes to pass the Senate. Even if the Senate does not pass the disapproval, it is possible that Congress will eventually enact a law overriding the Rule.

Key Takeaways: The future of class waivers in pre-dispute consumer financial services arbitration agreements remains uncertain. Financial services providers should carefully monitor developments and be sure to have an appropriate compliance plan. We will update the KTS Class Action Blog to address future developments

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