KT Class Action Blog

Archive for September 2017

Posted on Friday, September 22 2017 at 3:29 pm by -

Ridgeway v. Walmart Stores, Inc. – A Reminder That There Are Few Bright Line Rules in Class Action Attorneys’ Fees Awards.

By Joseph S. Dowdy and Phillip A. Harris, Jr.

On September 14, 2017, the Northern District of California entered its order awarding attorneys’ fees to plaintiffs’ class action counsel in Ridgeway v. Walmart Stores, Inc., No. 08-cv-05221-SI, 2017 WL 4071293 (N.D. Cal. Sept. 14, 2017). In the order, the court required the defendant to pay $12,983,324.25 in fees to plaintiffs’ counsel in addition to the $60.8 million damages award in the case. The court’s analysis highlights a number of issues that defendants facing potential class action liability should consider.

First, the posture of the case can impact whether attorneys’ fees increase the total final judgment amount. In many instances, a defendant can settle a class action on court-approved terms that require plaintiffs’ counsel to recover their fees from the total settlement amount. In that situation, the defendants’ total payout is limited. If, however, a case proceeds to judgment under a statute that permits fee-shifting, then the defendant can be required to pay some or all of the class’ counsel fees in addition to the amount it must pay as damages to the class.

Second, when a case reaches judgment, there is no clear bright line rule establishing how statutory fee-shifting and the common fund doctrine should interact, and courts have broad discretion in determining the fee award. Most courts tend to analyze the issue the same way the Ridgeway court has, by awarding a percentage of the class’ recovery to class counsel under the common fund doctrine and requiring the defendant to reimburse the class for the amount of the statutory-fee shifting award. For example, in Ridgeway, the court awarded class counsel twenty-five percent of the $60.8 million recovery, or $15,200,002.90, which the court offset by statutory fee award of $12,983,324.25, such that the class’ recovery was reduced only by the $2,216,678.65 difference. We recently handled a case in which class counsel requested that the fees be considered part of the judgment to the class (based on the language of a particular fee-shifting statute), which would have increased the amount of the award from the common fund. The court declined to adopt that approach and instead used the same approach as the Ridgeway court. Dijkstra v. Carenbauer, No. 5:11-CV-152, 2015 WL 12750449, at *6–7 (N.D.W. Va. July 29, 2015).

Third, the court’s discretion concerning the fee award to class counsel is broad, even if the case does not reach final judgment. Rule 23(h) provides that “[i]n a certified class action, the court may award reasonable attorney’s fees and nontaxable costs that are authorized by law or by the parties’ agreement.” As Ridgeway demonstrates, that discretion includes not only the source of the fees (common fund, statutory fee-shifting, or both), but also the percentage of the common fund, the multiplier to be applied to the statutory lodestar analysis, and whether a particular billing entry or set of entries is reasonable and should be awarded.

Fourth, when considering a defendant’s challenges to fee petitions by class counsel, courts are not necessarily inclined to hold plaintiffs’ counsel to the same rules that many defendants have for their outside counsel. In Ridgeway, the court declined to significantly cut class counsel’s lodestar award based on arguments that class counsel had: (1) performed unnecessary discovery work, (2) failed to write detailed time entries, (3) made multiple 0.1- and 0.2-hour entries, (4) block-billed, (5) billed for travel time, (6) assigned multiple firms or attorneys to work on the same issue, (7) failed to shift work to timekeepers with lower rates, (8) billed for clerical tasks, (9) failed to keep contemporaneous time logs, (10) billed for continuing legal education related to the causes of action, and (11) billed for time interviewing witnesses who did not ultimately testify in the case. The court did make some reductions for travel time, clerical work, and unnecessary duplication, but these reductions were far less than the defendant requested.

Key Takeaways. Often, a class action defendant does not have a plan for addressing or opposing class counsel’s attorneys’ fees until the end of a case. Given the potential for fees to increase a final judgment, and the broad discretion courts possess in ruling on class counsel’s fee petitions, defendants and their counsel would be wise to: (1) analyze how statutory fee shifting may impact the case, and (2) bring fee-related considerations to the presiding judges’ attention early in, and throughout, the case.  Doing so will not only allow for insight into a defendant’s potential liability for attorneys’ fees, but it will also offer opportunities to decrease the likelihood that the court will award certain fees requested by class counsel.

Posted on Saturday, September 16 2017 at 2:10 pm by -

House Financial Services Subcommittee Focuses on Bill to Reduce FCRA Class Action Liability

by Mike Breslin

On September 7, the House Financial Services Subcommittee on Financial Institutions and Consumer Credit held a hearing on six proposed bills for creating a “more efficient federal financial regulatory regime.” Among the bills heard was the FCRA Liability Harmonization Act (H.R. 2359), sponsored by Representative Barry Loudermilk (R-GA), which seeks to align FCRA class action liability with that of other federal consumer protection laws by imposing damages caps and other restrictions. Key amendments proposed by the Harmonization bill include:

  • removing the availability of punitive damages for willful noncompliance;
  • removing mandatory minimum statutory damages in class actions; and
  • capping total class action damages at $500,000 or 1% of the defendant’s net worth, whichever is less.

The Harmonization bill would not restrict individual lawsuits and would preserve a consumer’s ability to be compensated for actual injury, while placing reasonable limitations on a defendant’s total class action liability. The stated intent of the bill is to eliminate in terrorem settlements resulting from the FCRA’s mandatory award of per-class member minimum statutory damages for willful noncompliance, even where the claim alleges only a technical FCRA violation and no actual harm to any consumer. In support of the bill, Rep. Loudermilk cited such a no-injury case where the defendant paid $3 million to settle out of court, each class member received $15, and the plaintiff’s counsel received $1 million.

Among the six legislative proposals that were heard, the Harmonization bill received significant attention from both the Subcommittee and witnesses. The bill received opposition from consumer advocate Ms. Chi Chi Wu, who claimed it would “drastically reduce accountability for violations of the [FCRA]” and cited examples of consumers who spent years attempting to fix incorrect information in their credit reports. Ranking Democrat Lacy Clay (D­MO) also claimed the bill would “gut” existing consumer protections. In response, Representative Loudermilk emphasized that the Harmonization bill would not restrict individual lawsuits and would not affect the claims of the consumers Ms. Chi Wu referenced in her verbal statement.

Significantly, Democratic Representative David Scott (D-GA) discussed how “the business community suffers from so many frivolous lawsuits” and praised the Harmonization bill as seeking “to strike a delicate balance” between an individual’s right to be compensated for actual injury while imposing class action caps that are now “standard procedure” among other agencies in the federal government. A video recording of the September 7 hearing is available here.

Be sure to check back with the KTS Class Action Blog for more updates on this and other significant bills for class action reform.

Posted on Monday, September 11 2017 at 12:47 pm by -

Ninth Circuit: “Zombie” Cookie Installer Cannot Compel Arbitration Based on Verizon Arbitration Agreement

by Mike Breslin

Takeaway: Non-parties who seek to rely on equitable estoppel to compel arbitration of claims based on an arbitration agreement they did not sign face an uphill battle in the Ninth Circuit. In In re Henson, No. 16-71818, 2017 WL 3862458 (9th Cir. Sept. 5, 2017), the Court again held that business to business service providers cannot take advantage of their clients’ arbitration agreements simply because a consumer’s claims against them are related to the underlying consumer contract. Rather, the non-signatory must prove that the claims actually rely on the existence of the customer agreement or otherwise arise from its obligations.

In April 2015, Anthony Henson and William Cintron filed suit against Turn, Inc. in the Northern District of California on behalf of all New York Verizon Wireless subscribers. The class action complaint alleged Turn had a contract with Verizon to facilitate the delivery of third-party online behavioral advertising to Verizon subscribers. To customize the advertisements it would deliver to each subscriber, Turn attached cookies to the subscribers’ mobile device transmissions to collect their web-browsing and usage data and then stored that data on Turn’s servers – a commonplace practice in today’s advertising world that was disclosed in Verizon’s agreement with each of its subscribers.

Plaintiffs alleged, however, that Turn was attaching no ordinary cookies to their transmissions. Instead, Turn attached “zombie” cookies that automatically saved a backup version of the cookies in a directory on the subscribers’ phones, outside of the dedicated directory for cookie storage. Plaintiffs claimed that if a subscriber deleted Turn’s original cookie by clearing the directory where all cookies were supposed to be (e.g., by using the “clear cookies and browsing data” function on their browser), the backup version would automatically repopulate the cookie using the same data the subscriber thought he had deleted. That newly-resurrected cookie would then link itself to the data about the subscriber that Turn had already stored on its servers and continue collecting information about the subscriber. In sum, zombie cookies are very difficult to remove and often result in the subscriber’s browsing activity being collected after the subscriber believes the cookie has already been deleted.

Based on these allegations, plaintiffs asserted claims against Turn for violation of New York’s consumer protection laws and for common-law trespass. Turn moved to compel arbitration based on the arbitration clause in Verizon’s agreement with each of its subscribers (to which Turn was not a signatory). The district court granted the motion based on New York’s equitable estoppel doctrine and stayed the litigation.

In a brief opinion with little analysis, the district court held New York law applied because the plaintiffs’ (and each of the class members’) subscriber agreements with Verizon contained a New York choice of law provision. It also held plaintiffs should be equitably estopped from avoiding arbitration because the plaintiffs’ claims against Turn (1) were “inextricably intertwined” with Verizon’s subscriber agreements containing the arbitrate clause, given that the agreement’s disclosure of the use of third-party cookies would be an aspect of Turn’s defense, and (2) were based on “substantially interdependent and concerted conduct” between Verizon and Turn. The district court also was of the view that plaintiffs had engaged in “artful pleading” to avoid arbitration, since they originally filed the case against both Turn and Verizon (and would have had to contend with the arbitration clause in Verizon’s subscriber agreement), but voluntarily dismissed that complaint and filed essentially the same claims five days later against Turn only.

Plaintiffs petitioned the Ninth Circuit for a writ of mandamus. Granting mandamus, the Court of Appeals found that the district court committed two clear errors. First, the lower could erred by applying New York’s equitable estoppel doctrine on the basis of the New York choice of law provision in Verizon’s subscriber agreement, since Turn was not a party to that agreement. Instead, the district court should have applied California equitable estoppel law. Second, according to the Ninth Circuit, the district court did not correctly apply the equitable estoppel doctrine.

To satisfy California’s equitable estoppel doctrine, a non-signatory must show the claims against it (a) rely on the terms of the agreement containing the arbitration clause or are intimately intertwined with that agreement, or (b) are based on concerted misconduct by the signatory and non-signatory, which misconduct is intimately connected with the obligations of the agreement. The Ninth Circuit found neither situation applied.

First, the fact that plaintiffs’ claims against Turn might relate to their subscriber agreement with Verizon in no way meant the claims were dependent on the agreement. The Ninth Circuit noted that plaintiffs’ claims contained numerous allegations against Turn that had nothing to do with Verizon’s subscriber agreement (e.g., violations of reasonable privacy expectations, interfering with plaintiffs’ ownership and control over the content stored on their mobile devices). Further, under the facts alleged, plaintiffs could maintain their claim under New York’s consumer protection statute even if they had never entered into subscriber agreements with Verizon. Second, there was no basis for finding “concerted misconduct” between Verizon and Turn. Plaintiffs did not allege Verizon and Turn acted in concert, but rather asserted Turn engaged in its misconduct in secret and without Verizon’s knowledge. Thus, it was clear error to apply equitable estoppel.

Even under Henson, a non-signatory may be able to invoke equitable estoppel where, but for the existence of the customer agreement, the consumer’s claims could not survive (for example, where an essential element of the claim depends on an obligation in the agreement). Otherwise, the non-signatory must show the consumer alleges truly concerted and interdependent misconduct among the signatory and non-signatory defendant with respect to the performance (or breach) of the consumer agreement. As Henson re-affirms, this will be nearly impossible where the terms of the agreement between the signatory and non-signatory disclaim any joint venture or partnership. 2017 WL 3862458, at *2 n.4. And, where a non-signatory claims the terms of its confidential agreement with the signatory established an interdependent relationship supporting equitable estoppel, the defendant will be found to have waived any claim of confidentiality as to those portions of its agreement. Id.

Posted on Friday, September 1 2017 at 12:40 pm by -

Ninth Circuit Declines to Hold Seller Vicariously Liable for Third-Party Telemarketer’s TCPA Violations

by Jeff Fisher

Takeaway: Decisions addressing a seller’s exposure to vicarious liability for calls placed by a third-party telemarketer in violation of the Telephone Consumer Protection Act (“TCPA”) offer little predictability or guidance. In Jones v. Royal Admin. Servs., Inc., No. 15-17328, 2017 WL 3401317 (9th Cir. Aug. 9, 2017), the Ninth Circuit affirmed the district court’s grant of summary judgment and dismissed putative class claims against Royal Administrative Services, Inc. (“Royal”), finding that the All American Auto Protection (“AAAP”) telemarketers who made the calls were not agents of Royal. The ruling should provide some comfort to sellers that, so long as they do not overlook repeated TCPA violations or control the timing or volume of the calls, sellers can exercise control over the content of a telemarketer’s advertising without exposing themselves to TCPA liability.

Royal provides and administers vehicle service contracts (“VSCs”), car warranties that promise coverage for certain types of repairs and service. 2017 WL 3401317, at *1. Royal supplies its warranties to car dealers and direct-to-consumer marketing companies, who then market and sell the warranties to consumers. In 2001, Royal entered into an agreement with AAAP, a direct marketing firm that marketed VSCs to consumers for numerous VSC providers and administrators. The agreement provided guidelines governing the message AAAP could use to promote Royal’s VSCs and prohibited AAAP from engaging in “any act or omission that violates applicable state or Federal law, including but not limited to ‘robo-calling.’”

The named plaintiffs received calls from AAAP on their cell-phones that were allegedly made in violation of the TCPA. After the district court entered default judgment against AAAP, the plaintiffs added Royal as a defendant, alleging that AAAP’s telemarketers acted as an agent of Royal, and that Royal should be held vicariously liable for their TCPA violations.

In evaluating Royal’s liability, the Ninth Circuit applied standard agency principles, explaining that “the extent of control exercised by the principal” over the agent is the “essential ingredient” in determining whether the third-party telemarketer was an agent or independent contractor. 2017 WL 3401317, at *4. Applying the ten-factor agency test articulated by the Restatement (Second) of Agency § 220(2) (1958), the Court recognized that Royal exercised control over AAAP in numerous ways. Royal provided AAAP with scripts for the calls, trained AAAP’s telemarketers on how to sell Royal VSCs, required AAAP to keep records of its calls, and mandated that AAAP send weekly sales reports. Royal also required AAAP to take steps to protect consumer information and imposed strict guidelines on how AAAP collected payments for Royal. Id. Indeed, Royal’s president had visited AAAP’s call-center more than a dozen times in the previous three years. And AAAP performed a critical role in Royal’s business. Although Royal was in the business of selling VSCs, it relied entirely on third-party sellers like AAAP to sell its product to consumers. Id. at *6.

But the Ninth Circuit held that Royal did not exercise sufficient control to establish vicarious liability under the TCPA. Royal did not control the timing or volume of the calls. 2017 WL 3401317, at *4. AAAP picked the customers to call, determined when the calls would be made, used its own equipment, and received purely commission-based compensation. And Royal was not AAAP’s only VSC client. When calling a consumer, AAAP’s telemarketers would first sell the consumer on buying a VSC in general and then pitch a VSC of a specific company (like Royal). And there was no evidence that AAAP attempted to sell a Royal VSC to any of the named plaintiffs. Id. at *5.

The court also noted that Royal’s standards and procedures prohibited robo-calling. Unlike recent cases imposing vicarious liability, there was no evidence that Royal had overlooked repeated TCPA violations by AAAP. To the contrary, Royal had previously suspended its relationship with AAAP based on violations of Royal’s standards and procedures. 2017 WL 3401317, at *4. Although the court recognized that Royal exercised “some control over AAAP’s telemarketers,” the court concluded that AAAP’s telemarketers were independent contractors, and found no evidence that Royal exercised control over the calls at issue (because the telemarketers did not try to sell a Royal VSC). Id. at *6. The court therefore found that Royal could not be held vicariously liable for AAAP’s TCPA violations.

The TCPA’s draconian penalties, combined with courts’ unpredictable application of the fact-specific vicarious liability doctrine, put sellers in a difficult position. A seller should be able to exercise control over a third-party’s use of its trade name without risking liability for violations of the TCPA. In Jones, the Ninth Circuit sensibly distinguished between a seller’s control over the content of telemarketer’s advertising on the one hand, and control over the timing and form of the advertising on the other. The holding in Jones suggests that, even if sellers provide telemarketers with scripts and other sales materials and guidelines, sellers may be able to avoid vicarious liability by (1) contractually prohibiting TCPA violations, (2) investigating suspected violations, and (3) taking action to enforce future TCPA compliance.

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