KT Class Action Blog

Archive for October 2017

Posted on Monday, October 30 2017 at 6:37 pm by -

Third Circuit Endorses Standing for Putative Class of Eye Drop Consumers, Rejecting Seventh Circuit’s View

by Joe Reynolds

Takeaway: Ever since the Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), federal courts have grappled with the threshold standing question of what constitutes concrete injury in consumer class action litigation. Earlier this year, the Seventh Circuit, in an amusing opinion by Judge Posner, likened a putative class of eye drop purchasers complaining about the size of their eye drops to a group of cat owners dissatisfied with the purchase of an expensive drinking fountain for their cats. Eike v. Allergan, Inc., 850 F.3d 315 (7th Cir. 2017). After the Seventh Circuit dismissed the action with prejudice, we suggested in a prior post [Spokeo Dismissals – With Prejudice, Without Prejudice or Something Else?] that the Seventh Circuit viewed the case as frivolous, since federal courts generally dismiss cases for lack of standing without prejudice. But faced with “materially identical allegations,” the Third Circuit rejected the Seventh Circuit’s view, holding that the eye drop purchasers sufficiently alleged concrete injury. Cottrell v. Alcon Labs., — F.3d —, 2017 WL 4657402, at *6 (3d Cir. Oct. 18, 2017). This divergent approach is another reminder that class action attorneys must stay current on the ever-evolving standing doctrine.

In Cottrell, the plaintiffs – purchasers of eye drops – filed suit against the manufacturers and distributors of the eye drops for violation of various states’ consumer protection statutes. Plaintiffs alleged the tip of the bottle of eye drops necessarily dispensed too large of an eye drop, around 50 microliters. Since a “plethora” of scientific research shows that an eye can only handle 7 to 10 microliters of fluid, plaintiffs alleged that any portion of the drop in excess of 7 to 10 microliters is “entirely wasted.” Id. at *1. As a result, plaintiffs claimed the defendants caused them to suffer “substantial” economic injury by manufacturing and selling eye drops in bottles that “emit such large drops.” Id. at *2.

These allegations are materially identical to the allegations made by the consumer-plaintiffs in Eike v. Allergan, Inc., 850 F.3d 315 (7th Cir. 2017).  Writing for the Seventh Circuit, Judge Posner suggested plaintiffs there were simply dissatisfied with a product and its price, likening them to cat owners who sued cat breeders for duping them into buying expensive drinking fountains for their cats: “[W]ould anyone think they could successfully sue the breeders? For what?” 850 F.3d at 317. Judge Posner observed “[y]ou cannot sue a company and argue only—‘it could do better by us’—which is all they are arguing.” Id. at 318. Citing Spokeo, Judge Posner concluded the consumers had no standing to sue: “The fact that a seller does not sell the product that you want, or at the price you’d like to pay, is not an actionable injury; it is just a regret or disappointment—which is all we have here, the class having failed to allege ‘an invasion of a legally protected interest.’” Id.

The Third Circuit expressly rejected the Seventh Circuit’s reasoning. Writing for the majority, Judge Restrepo held the Seventh Circuit’s “logic flips the standing inquiry inside out, morphing it into a test of the legal validity of the plaintiffs’ claims of unlawful conduct.” Cottrell, 2017 WL 4657402, at *7. According to Judge Restrepo, “the Court in Eike blended standing and merits together” by determining the consumers had no cause of action; reasoning they had no injury because they had no cause of action; and concluding they had no standing to sue because they had no injury. Id. The Seventh Circuit erred by not focusing on whether plaintiffs alleged an invasion of a “legally protected interest.” Id. at *5. After noting that economic interests have traditionally been treated as legally protected interests for purposes of the standing doctrine, the Third Circuit held plaintiffs sufficiently alleged their “interests in the money they had to spend on medication that was impossible for them to use.” Id. at *6. And, by manufacturing and selling bottles of eye drops with tips that necessarily dispense too large of an eye drop, plaintiffs sufficiently alleged “Defendants’ conduct … caused harm to these interests.” Id.

Judge Roth dissented, holding the consumers “manufacture[d] a purely speculative injury.” Id. at *11 (Roth, J., dissenting). Judge Roth agreed plaintiffs’ injury boiled down to “the money spent on that portion of a single eye drop which exceeds the medically necessary volume.” Id. But Judge Roth noted plaintiffs did not argue they were charged more than market price for eye drops; instead, “they argue that the defendants could manufacture a hypothetical eye dropper that would dispense the exact amount of fluid needed to maximize efficacy without waste.” Id. (emphasis in original). Plaintiffs then assumed that once defendants’ conduct changed, no other aspects of the market would change—that is, “changing the eyedropper size would … change the price of the medicine.” Id. at *13. In Judge Roth’s view, this is an unreasonable assumption because the pharmaceutical market is shifting to pricing medicine based on effective doses, not volume. So even if defendants modified their eye dropper, plaintiffs might still pay the same price they’re paying now. Accordingly, Judge Roth could not accept such an “imaginative” economic theory and so rejected “the plaintiffs’ alleged economic injury as overly speculative and untenable under existing precedent.” Id.

In Eike, Judge Posner disregarded plaintiffs’ claims as mere “regret or disappointment” and dismissed the claims with prejudice, thereby foreclosing re-filing of the suit in any court. Judge Roth’s dissent in Cottrell did not go so far, but she did say the majority’s decision “flouts” the principle that “jurisdiction is a strict master” and that she is “troubled by both the legal and practical ramifications of the Majority’s decision.” 2017 WL 4657402, at *14. That distinguished jurists can disagree so strongly shows that the concept of “actionable injury” under Spokeo remains unclear, and the directly conflicting rulings on the identical claim might catch the eye of a Supreme Court looking to clarify its recent Spokeo ruling.

Posted on Friday, October 27 2017 at 11:59 am by -

Following Razor-Thin Senate Vote, The Consumer Financial Protection Bureau Fails in Effort to Outlaw Class Action-Killing Arbitration Clauses in Consumer Financial Services Contracts

by Joe Dowdy and Phillip Harris

On October 24, 2017, the U.S. Senate passed a resolution disapproving the Arbitration Agreements Final Rule (“Rule”) enacted earlier this year by the Consumer Financial Protection Bureau (“CFPB”). The Rule sought to prohibit financial services providers from using pre-dispute arbitration agreements to block consumer class actions in federal and state courts. We previously reported on the content of the Rule in a prior Client Service Alert.

The Senate passed the disapproval by a by a razor-thin margin of 51-50, with Vice President Mike Pence casting the tiebreaking vote. The House of Representatives previously passed the disapproval resolution in July, as we reported in a prior KT Class Action Blog Post. Further, President Trump has stated that he will not veto the disapproval. Accordingly, under the Congressional Review Act, the Rule will not take effect, and the CFPB cannot reissue the Rule in “substantially the same form.” 5 U.S.C. § 801(a)(3), (b).

Key Takeaways: For now, pre-dispute arbitration clauses with class action waivers are safe. The close, party-line votes on the disapproval resolutions and the heated rhetoric on both sides of the debate indicate, however, that the larger debate may not be over. Much will depend on future elections, as Congress of course remains free to pass future laws overriding the disapproval regulation — laws that a future president (especially a Democratic president) might entertain.

In the meantime, companies should be able to count on most courts continuing to enforce arbitration clauses containing class-action waivers. Although the absence of an opportunity to certify a class will obviate many financial services claims, some consumers will elect to press their claims in individual arbitrations. These arbitrations present different challenges and opportunities for a cost-efficient and effective defense, including making an early determination of a defendant’s true exposure on the individual consumer’s claims and appreciating the virtually unreviewable status of an arbitration award. Where winning the motion to compel individual arbitration does not end the consumer financial services claim war, corporate defendants should retain counsel with experience in individual consumer financial services arbitrations to navigate the unique challenges presented by these smaller-dollar disputes. The authors of this article have handled such matters in the past and can advise on best practices.

Posted on Monday, October 23 2017 at 9:22 am by -

Parens Patriae Representative Suits by State AGs: Parental Help with Strings Attached

by Gwendolyn Payton

Parens patriae is a Latin term which literally means “parent of the fatherland.” In parens patriae actions, a state sues on behalf of its citizens. The rights of the states to do this was first established in 1900 in Louisiana v. Texas, 176 U.S. 1 (1900), when Louisiana sued Texas on behalf of its citizens to stop Texas from quarantining Louisiana goods shipped into Texas. Like a class action, parens patriae is a powerful mechanism for aggregating claims of individuals that are too modest themselves to justify confronting a corporate defendant with vast resources. But the benefits of the parens patriae mechanism come with strings attached.

The United States antitrust laws contain explicit provisions that allow states to seek antitrust relief in federal courts on behalf of the people of the state. These actions function similarly to class actions, with the state acting in a role similar to a putative class representative. One of the primary differences between parens patriae and private class actions is that parens patriae law imposes no certification requirement, such as is required by Federal Rule of Civil Procedure 23, for a parens patriae action to proceed.

A state can bring a parens patriae action, for example, under Section 4C of the Clayton Act, 15 U.S.C. § 15c, which allows state attorneys general to sue private companies in federal court for monetary damages under federal antitrust law, as parens patriae, on behalf of their citizens who are “natural persons.”  (A state could bring antitrust claims on its own behalf just as any private person could, but 15 U.S.C. § 15c limits beneficiaries of claims made as parens patriae to natural persons.)

Could the existence of a parens patriae action effect your company’s rights? Possibly. Most state laws include statutes that are analogous to 15 U.S.C. § 15c, but many extend the state’s authority to sue on behalf of all “persons,” including corporations. Moreover, while federal law contains specific provision for opt-outs, further providing that any final judgment shall be res judicata as to any claim by a person that does not opt out (see 15 U.S.C. § 15c(b)), many state statutes do not provide an opt out or notice mechanism.  See, e.g., Illinois Antitrust Act §7(2), 740 Ill. Comp. Stat. 10/7(2) (2010); Neb. Rev. Stat. §84-212 (2008) (Nebraska antitrust statute); N.H. Rev. Stat. Ann. §356:4-a (2009) (New Hampshire antitrust statute); Ohio Rev. Code Ann. §1345.07 (West Supp. 2012) (Ohio antitrust statute).

Thus, intervention may be the only means by which a corporation that has suffered substantial competitive injury can obtain its day in court and not be left to rely on the state to prosecute its claims.  Notably, a state’s action could potentially preclude any follow-on action by other entities, under the res judicata doctrine. See, e.g., Alaska Sport Fishing Ass’n v. Exxon Corp., 34 F.3d 769, 773 (9th Cir. 1994) (“Exxon”) (“State governments may act in their parens patriae capacity as representatives for all their citizens in a suit to recover damages for injury to a sovereign interest…. There is a presumption that the state will adequately represent the position of its citizens….Thus, the sportfishers here, as members of the public, were ‘parties’ to the…suit within the meaning of res judicata.”).

Can a party intervene in a state’s parens patriae action? Maybe. The courts have evinced a bias against intervention in parens patriae suits.  See Margaret H. Lemosa 126 Harv. L. Rev. 486, 508-09, Aggregate Litigation Goes Public: Representative Suits by State Attorneys General (December, 2012) (explaining courts’ disinclination to allow intervention: “Once again, the difference in treatment of public and private [i.e., class action] aggregate litigation seems to stem from a presumption that state attorneys general will protect the interests of the individuals they represent, making it unnecessary for those individuals to take a hand in (or exclude themselves from) the litigation.”); see also Prete v. Bradbury, 438 F.3d 949, 956-59 (9th Cir. 2006) (requiring a “very compelling showing” of inadequacy of representation for intervention).

This may be important because state laws may not permit the attorney general to pursue certain remedies that would otherwise be available to class action plaintiffs or plaintiffs otherwise suing on their own behalf. Some statutes allow the state to seek only parens patriae restitution and injunctive relief (and not compensatory damages). See, e.g., Ariz. Rev. Stat. Ann. §§44-1521 to -1534 (2003); Cal. Bus. & Prof. Code §17535 (West 2008); Conn. Gen. Stat §§42.110a-.110q (2011); 815 Ill. Comp. Stat. 505/7 (2010); Iowa Code §714.16 (2007); N.Y. Exec. Law §63(12) (McKinney 2012); Ohio Rev. Code Ann. §1345.07 (West 2012). Defendants could then seek dismissal of follow-on federal antitrust claims by corporate plaintiffs, claiming that federal as well as state antitrust law claims are barred, based on the doctrine of claim splitting, which is a subset of res judicata or claim preclusion:  “The doctrine of claim splitting bars a party from subsequent litigation where the ‘same controversy’ exists.”  Single Chip Systems Corp. v. Intermec IP Corp., 495 F. Supp. 2d 1052, 1058 (S.D. Cal. 2007).

In Exxon, for example, the United States and the State of Alaska brought suit in their capacities as “trustees for the public” (effectively parens patriae) under federal statutes, including Section 311(f) of the Clean Water Act (CWA), 33 U.S.C. § 1321(f)(5), and Section 107(f)(1) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), as amended, 42 U.S.C. § 9607(f)(1). The governments sought damages for restoration of the environment and compensation for lost public uses of natural resources. 34 F.3d at 771.

The Ninth Circuit held claims asserted by private plaintiffs in a separate suit barred by res judicata, ruling they sought relief that the governments had claimed in their prior action. Thus, where a corporate plaintiff faces any risk of preclusion under res judicata based on a prior state action (because, for example, the governmental entity has a plausible basis for seeking the damages that otherwise would be available to the plaintiff), intervention may be the only course that avoids the risk of losing potentially significant damages claims.

Posted on Monday, October 16 2017 at 9:25 am by -

Ninth Circuit: Rule 23(f)’s interlocutory appeal deadline is not jurisdictional – equitable exceptions apply to extend the deadline

by Ian Goldrich

Under Federal Rule 23(f), parties have 14 days to petition for interlocutory review of an order granting or denying class certification. The federal appellate courts of appeals construe this deadline as “procedural” rather than “jurisdictional” and thus subject to equitable tolling. What warrants equitable tolling, however, is less certain with the Ninth Circuit’s recent decision in Lambert v. Neutraceutical Corp., 870 F.3d 1170 (9th Cir. 2017). There, the Ninth Circuit joined the Second, Third, Fourth, Fifth, Seventh, Eleventh, and D.C. Circuits in holding that a motion for reconsideration filed within 14 days of a class certification order tolls the Rule 23(f) deadline. But the Ninth Circuit went further to accommodate an appeal by a class action plaintiff, holding that equitable circumstances beyond the timely filing of a formal motion for reconsideration may also toll the Rule 23(f) deadline.

In Lambert, Mr. Lambert sued Neutraceutical, the manufacturer of the alleged aphrodisiac dietary supplement “Cobra Sexual Energy,” for violations of California consumer protection statutes (California’s Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act). The district court initially granted class certification on the basis of a “full refund” damages model calculated by multiplying the average retail price by the number of units sold. Such a model may be used where a consumer product is shown to be worthless.

Upon the district judge’s retirement, the case was reassigned to a new judge. At the close of discovery, Neutraceutical moved to decertify the class. On February 20, 2015, the new judge granted the motion on ground that Mr. Lambert did not submit proof supporting his model – proof of the actual average retail price of the product.

At a March 2, 2015 status conference, ten days after the decertification order, Mr. Lambert advised the district court of his intention to move for reconsideration. The district court directed the plaintiff to file his motion by March 12, 2015, i.e., within 20 days of the date of the decertification order. As directed by the district court, Lambert moved for reconsideration on March 12, which was denied by the district court on June 10, 2015. On June 24, 2015, within 14 days of this ruling, Lambert petitioned for interlocutory review. A motions panel of the Ninth Circuit conditionally granted the petition but directed the parties to address the timeliness of the appeal. Not surprisingly, Neutraceutical argued that the petition was untimely because the motion for reconsideration was not filed within 14 days of the decertification order.

In finding the petition timely, the Ninth Circuit relied on specific equitable factors apparent from the record that demonstrated Lambert’s diligence in pursuing his legal rights. The court held that “because Lambert informed the court orally of his intention to seek reconsideration of the decertification order and the basis for his intended filing within fourteen days of the decertification order and otherwise acted diligently, and because the district court set the deadline for filing a motion for reconsideration with which Lambert complied, the Rule 23(f) deadline should be tolled.” Lambert, 870 F.3d at 1179.

The court then turned to the merits of the petition and held—perhaps not surprisingly considering the court’s flexibility on the equitable tolling question—that the district court abused its discretion in decertifying the class, because the alleged uncertainty of the plaintiff’s damages methodology or class members’ damages should not preclude certification.

Lambert creates a narrow but conspicuous split of authority on Rule 23(f) tolling. In Gutierrez v. Johnson & Johnson, 523 F.3d 187 (3d Cir. 2008), for example, the Third Circuit held that even if a motion for reconsideration is timely as defined by the district court’s rules or its scheduling order, it is untimely if filed outside the Rule 23(f) 14-day deadline. The Supreme Court may be called upon to resolve this circuit split in the near future.

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