KT Class Action Blog

Archive for December 2017

Posted on Thursday, December 21 2017 at 1:29 pm by -

Communicating with Putative Class Members Prior to Class Certification: Important Reminders (or New Lessons) for Federal Court Practice

by Chad Hansen & Rich Keshian

Many class actions are won or lost at the class certification stage. Because FRCP 23(c) requires a district court to determine whether a class action is to be maintained (i.e., certified) “[a]t an early practicable time after a person sues,” both sides often engage in a flurry of activity to gather evidence either to support or oppose class certification. Frequently, this involves communication with potential class members.

Class action defense counsel readily recognize the pitfalls in communicating directly with putative class members once class counsel has been appointed. Rule 4.2 of the ABA Model Rules of Professional Conduct and corresponding state ethics rules prohibit a lawyer from communicating about the subject of representation with a person the lawyer knows to be represented by another lawyer. Less settled is whether that prohibition applies upon class certification or instead upon the later expiration of any opt-out period. (Compare, e.g., Walney v. Swepi LP, Civ. A. 13-102, 2017 WL 319801, at *12 (W.D. Pa. Jan. 23, 2017) (collecting cases for the proposition that the attorney-client relationship between class counsel and class member arises at the time of class certification) with ABA Committee on Ethics & Prof’l Responsibility, Formal Op. 07-445, at 3 (2007) (finding that the attorney-client relationship arises only after expiration of the opt-out period)). But there is much more uncertainty about how class or defense counsel may communicate with potential class members prior to class certification and about the ability and role of the district courts to regulate these communications.

Below, we answer some of the most commonly asked questions regarding communicating with potential class members prior to class certification.

Can counsel communicate with potential class members before a class is certified?

Yes. It is now well-established that both plaintiffs’ counsel and defense counsel can communicate with potential class members prior to class certification, just as they would with any other witness or unrepresented party. From an ethical standpoint, “[t]he key to evaluating the propriety of contacting putative class members is whether they are deemed to be represented by the lawyer or lawyers seeking to certify a class,” ABA Formal Op. 07-445 at 2, and, as discussed above, that happens at the earliest upon the certification of a class.

Under FRCP 23, and as confirmed by the U.S. Supreme Court, counsel generally are not required to obtain leave of court before communicating with potential class members before certification. See Gulf Oil Co. v. Bernard, 452 U.S. 89, 99-102 (1981); Agerbrink v. Model Serv. LLC, No. 14 Civ. 7841, 2015 WL 6473005, at *3 (S.D.N.Y. Oct. 27, 2015) (“[T]here is nothing inherently improper about a party’s communication with potential class members prior to certification.”), vacated sub nom. Agerbrink v. MSA Models, No. 14 CIV 7841, 2017 WL 4876221 (S.D.N.Y. May 23, 2017) (vacating restriction on communications with putative class members following withdrawal of class allegations). As the Manual for Complex Litigation explains, citing Gulf Oil, “Defendants and their counsel generally may communicate with potential class members in the ordinary course of business, including discussing settlement before certification.” Manual for Complex Litigation (Fourth) § 21.12 at p. 249 (2004).

Are certain types of communications with unrepresented potential class members ethically prohibited?

Yes. Even though counsel may be permitted to communicate with potential class members before class certification, state ethical rules still restrict certain types of communication. ABA Model Rule 4.3, for example, prohibits providing legal advice to unrepresented parties other than advice to retain counsel, if appropriate, if there is a reasonable possibility of a conflict of interest between the unrepresented party and the lawyer’s client. Model Rules of Prof’l Conduct r. 4.3.

ABA Model Rule 7.3’s restrictions on solicitation of clients presents another potential ethical pitfall. It prohibits a lawyer from soliciting professional employment by in-person, live telephone, or real-time electronic contact unless the person contacted is a lawyer or has a close personal or prior professional relationship with the lawyer. Model Rules of Prof’l Conduct r. 7.3. And written, recorded, and electronic communications soliciting clients must include the words “Advertising Material” as required by the rule. Id. Counsel for plaintiffs or defendants should check the applicable ethics rules, comments, and opinions before reaching out to putative class members, to avoid the potentially severe sanctions for prohibited solicitation of clients. See, e.g., Hamm v. TBC Corp., 345 Fed. Appx. 406, 409-12 (11th Cir. 2009) (affirming imposition of severe sanctions for solicitation of class members to join collective action).

Do federal courts have authority to regulate communications with potential class members?

Yes. FRCP 23(d)(1) provides as to putative class actions that “the court may issue orders that: . . . (C) impose conditions on the representative parties or on intervenors . . . [and] (E) deal with similar procedural matters.” The Court in Gulf Oil, acknowledging these provisions, recognized that “a district court has both the duty and the broad authority to exercise control over a class action and to enter appropriate orders governing the conduct of counsel and parties.” Gulf Oil, 452 U.S. at 100. It has that authority over communications because “it is critical that the class receive accurate and impartial information regarding the status, purposes and effects of the class action.” Kleiner v. First Nat’l Bank, 751 F.2d 1193, 1202 (11th Cir. 1985).

When may a district court regulate these communications?

Judicial intervention is warranted when communications pose a serious threat to the fairness of the litigation process, the adequacy of representation, and the administration of justice generally. Brown v. Mustang Sally’s Spirits & Grill, Inc., No. 12-CV-529S, 2012 WL 4764585, at *3 (W.D.N.Y. Oct. 5, 2012). Therefore, court intervention is typically justified only by “actual or threatened misconduct of a serious nature.” Great Rivers Coop. of Se. Iowa v. Farmland Indus., Inc., 59 F.3d 764, 766 (8th Cir. 1995). The party challenging the communications bears the heavy burden of adducing “evidence that a potential for serious abuse exists.” Burrell v. Crown Cent. Petroleum, Inc., 176 F.R.D. 239, 244 (E.D. Tex. 1997); Williams v. U.S. Dist. Ct., 658 F.2d 430, 436 (6th Cir. 1981) (finding trial court lacked grounds to restrict a party’s pre-certification communications absent evidence of abuse). Generally, a party seeking to regulate these communications must (1) “show that a particular form of communication has occurred or is threatened to occur” and (2) “show that the particular form of communication at issue is abuse in that it threatens the proper function of the litigation.” Cox Nuclear Med. v. Gold Cup Coffee Servs., Inc., 214 F.R.D. 696, 697-98 (S.D. Ala. 2003). “[T]he Court will not impose limitations based on speculation and conjecture.” In re M.L. Stern Overtime Litig., 250 F.R.D. 492, 500 (S.D. Cal. 2008). However, actual harm need not be proven. Ojeda-Sanchez v. Bland Farms, 600 F. Supp. 2d 1373, 1378 (S.D. Ga. 2009).

What constitutes misconduct and abuse?

            Courts are willing to correct communications that are inaccurate, unbalanced, misleading, or coercive, or which improperly attempt to encourage class members not to join the suit. Agerbrink, 2015 WL 6473005, at *3. These include communications that undermine cooperation with or confidence in class counsel. Cox Nuclear Med., 214 F.R.D. at 698. “Whether a communication is misleading or coercive—and therefore warrants judicial intervention—often depends not on one particular assertion, but rather the overall message or impression left by the communication.” Talavera v. Leprino Foods Co., Case No. 1:15-cv-105, 2016 WL 880550, at *5 (E.D. Cal. Mar. 8, 2016).

One court, for example, found the actions of a defendant in a Title VII discrimination case to be intimidating to putative class members where the employer for the first time compelled its employees to complete federal immigration employment forms. EEOC v. City of Joliet, 239 F.R.D. 490, 492-93 (N.D. Ill. 2006). Another court found that comments by the defendant about how “Plaintiffs’ lives will be subject to public scrutiny” as a result of participation in the putative class action would have a “chilling effect” on participating in the class action. Wright v. Adventures Rolling Cross Country, Inc., No. C-12-0982, 2012 WL 2239797, at *5 (N.D. Cal. June 15, 2012). Yet another court found letters from the defendant to potential class members to be misleading where the letters mischaracterized the damages available to the potential class and misrepresented how the plaintiffs’ attorneys would be compensated if successful in the class action. Belt v. Emcare, Inc., 299 F. Supp. 2d 664, 668 (E.D. Tex. 2003).

            May the district court enter a blanket prohibition on communications?

No. Orders regulating communications between litigants pose grave threats to First Amendment freedom of speech. In re Sch. Asbestos Litig., 842 F.2d 671, 680 (3d Cir. 1988). As a result, orders that operate prospectively are unconstitutional prior restraints. Bernard v. Gulf Oil Co., 619 F.2d 459, 466-71 (5th Cir. 1980), aff’d on other grounds, 452 U.S. 89 (1981). As the Supreme Court explained, “[a]n order limiting communications between parties and potential class members should be based on a clear record and specific findings that reflect a weighing of the need for a limitation and the potential interference with the rights of the parties. . . . [S]uch a weighing—identifying the potential abuses being addressed—should result in a carefully drawn order that limits speech as little as possible . . . .” 452 U.S. at 101-102.

What remedies are available to address misleading or abusive communications?

Because of First Amendment concerns, courts generally address improper communications with putative class members after the fact, through remedial or curative notices. The parties or their counsel who engaged in the behavior requiring remediation may be required to bear the costs of the curative notices. Great Rivers Coop., 59 F.3d at 766. The court may also impose a wide variety of sanctions, such as setting aside executed opt-ins or opt-outs or extending the deadlines for returning them. Belt, 299 F. Supp. 2d at 669-70. A district court may also impose monetary sanctions, as well as attorneys’ fees and costs. Kleiner, 751 F.2d at 1209-1210.

* * * *

Counsel for both plaintiffs and defendants, subject to applicable ethical restrictions, are free to communicate with putative class members prior to class certification in the normal course of business. Thus, for example, putative class counsel may communicate with potential class members to discuss representation, encourage support, or investigate the merits of the action. For their part, defense counsel may contact potential class members to marshal evidence on Rule 23’s class requirements or to discuss settlement. And defendants may have ongoing business relationships with potential class members (e.g., employees in a wage act suit) that require the involvement of counsel (e.g., releases arising out of a reduction in force).

But these communications remain subject to limitations. District courts are willing to police communications before certification to protect the administration of justice. That means the communications must be accurate, fair, and non- coercive. Otherwise, the offending party risks corrective action and the possibility of sanctions.

Posted on Wednesday, December 13 2017 at 2:58 pm by -

The U.S. Supreme Court grants class defendants’ petition for certiorari in Ninth Circuit American Pipe tolling case (Resh v. China Agritech)

by John Neeleman

As we discussed at length last June [Ninth Circuit extends tolling doctrine to allow successive class actions, subject only to preclusion and “comity” defenses], the Ninth Circuit in Resh v. China Agritech, Inc., 857 F.3d 994, 999 (9th Cir. 2017), extended the American Pipe tolling rule (see American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), and Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983)) – providing that the statute of limitations is tolled for claims of unnamed members of a putative class during the pendency of a class action – by ruling that the limitations period had been tolled for unnamed plaintiffs for a third class action after two prior class actions involving the same allegations had failed to win certification. Prior to Resh, no court, including the Ninth Circuit, had held that under this precedent the statute would be tolled for class actions as well as individual claims. Now, last Friday, the Supreme Court granted the class defendants’ petition for writ of certiorari and agreed to review the Ninth Circuit’s decision in Resh.

Given the political makeup of the Supreme Court, and its recent decision in California Public Employees’ Retirement System v. ANZ Securities, Inc., 137 S.Ct. 2042 (U.S. 2017), holding that the filing of a putative class action does not toll the statute of repose for actions brought under Section 11 of the Securities Act of 1933, which we discussed at length last July [U.S. Supreme Court rejects application of American Pipe tolling to statutes of repose], a reversal seems a good bet. But the Supreme Court will have to address the central issue that occupied the Ninth Circuit—what legal or public policy basis would support distinguishing between individual and class actions in this context.

The crux of the Ninth Circuit’s reasoning was that there is no principled legal or public policy basis for distinguishing between individual actions and class actions in this context. Rule 23 is, after all, a procedural rule that, the Supreme Court has held, authorizes a district court to certify a class in every single case that satisfies Rule 23’s criteria—by its nature Rule 23 is not supposed to impact the adjudication of a claim on the merits. Moreover, while the Ninth Circuit was sensitive to the problem of serial efforts to certify class actions that were pending or previously failed to gain certification in state or federal courts, legal mechanisms exist to prevent such abuses in the class context (as in individual litigation), including claim preclusion and comity doctrines.

Among the cases upon which the Ninth Circuit relied was Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., 559 U.S. 393 (2010), where the Supreme Court held that Rule 23 authorizes a district court to certify a class in every case that satisfies Rule 23’s criteria, regardless of the cause of action. In Resh, the Ninth Circuit reasoned that Shady Grove means that as a procedural rule, Rule 23 cannot abridge a claimant’s existing rights under a limitations statute. Resh, 857 F.3d at 1002 (“There is nothing in the certification criteria of Rule 23 that tells us to look to whether the statute of limitation has, or has not, been tolled.”)

The Ninth Circuit also addressed the defendants’ argument that “serial relitigation of class certification” was unfair to defendants, and that defendants “would be forced in effect to buy litigation peace by settling.” Id. at 1003. The quotations are from Smith v. Bayer Corp., 564 U.S. 299 (2011), wherein the Supreme Court refused to allow a federal district court to enjoin a state court from certifying a class after the federal court had denied class certification of a class involving the same transaction or occurrence. The Ninth Circuit relied on Smith v. Bayer’s reasoning that “there was no basis to apply formal preclusion principles against them, and thus no basis to enjoin the state court from certifying the class action.” Id. The Ninth Circuit followed Bayer’s holding that “traditional principles of stare decisis and comity, combined with the possibility of removal under the Class Action Fairness Act or consolidation by the Panel on Multidistrict Litigation, [are] adequate to the task of protecting defendants.” Id. (citing Smith v. Bayer, 564 U.S. at 316–18).

If it desires to reverse Resh, the Supreme Court will have to find that the legal and public policy issues identified and addressed by the Ninth Circuit compel an opposite result.

Posted on Monday, December 4 2017 at 12:49 pm by -

Following Federal Courts’ Lead, North Carolina Superior Court Dismisses No-Injury Class Action For Lack of Standing

by Joe Dowdy and Phillip Harris

The United States Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), which holds plaintiffs without concrete injury lack standing to sue in federal court, relies on federal constitutional and jurisprudential principles. Because federal standing flows from Article III of the Constitution, Spokeo does not control the standing issue in state court litigation. As a recent North Carolina trial court decision shows, however, federal Spokeo precedents can be persuasive to a state court judge faced with a class action in which the named plaintiff cannot allege or prove a concrete injury.

In Miles v. The Company Store, Inc., at al., No. 16-CVS-2346 (Alamance Cnty, N.C. Sup. Ct. Nov. 16, 2017) (slip op.) (unpublished), the named plaintiff (Miles) alleged that the defendants generated and provided a copy of a receipt revealing the first six digits and the last four digits of the credit card plaintiff used to make a purchase. Miles sought recovery on a class-wide basis for alleged intentional violations of the Fair and Accurate Credit Transactions Act (“FACTA”) (see 15 U.S.C. §§ 1681(c)(g)(1)), which prohibits the display of “more than the last 5 digits of the card number . . . upon any receipt provided at the point of the sale or transaction.” Problematically, however, Miles did not allege the receipt was seen by anyone other than himself. Miles, slip. op. at 2. Further, although Miles alleged he faced an increased risk of identity theft, he did not say that he actually suffered identify theft. Id.

North Carolina Superior Court Judge Richard S. Gottlieb ruled that the allegations did not confer standing for Miles to bring suit in state court. Judge Gottlieb relied upon North Carolina appellate decisions and did not cite Spokeo. He did, however, cite to federal cases that relied on Spokeo. See id. at 3 (“This court agrees that the injury alleged here does not meet the concreteness requirement to establish an injury in fact in order to support standing.”).

Miles predictably argued that North Carolina required less for state-court standing than Spokeo and its progeny require in federal court. But Judge Gottlieb found the no-injury claims insufficient under North Carolina standing law just as under federal standing decisions:

Plaintiff correctly notes that the Supreme Court of North Carolina has identified some circumstances where standing is proper in North Carolina even when it would not be proper under federal law. However, standing still requires a plaintiff to allege such a personal stake in the outcome of the controversy as to assure that concrete adverseness . . . sharpens the presentation of issues. For example, . . . a plaintiff c[an] maintain standing if they have [been] injuriously affected, even if they [cannot] show an injury in fact which is concrete and particularized. Here, Plaintiff has only alleged that Defendants provided him a copy of his own personal information, exceeding federal statutory limits. Since Plaintiff already has access to his personal information, this does not have an injurious effect or create any other personal stake in the controversy sufficient to assure concrete adverseness. Therefore Plaintiff does not have standing to pursue a claim.

Id. at 3 (citations and quotation marks omitted).

Miles might appeal the decision, which could result in a published decision on the issue from the North Carolina Court of Appeals or the North Carolina Supreme Court. In the meantime, defendants facing no-injury state-court class actions should consider carefully urging Spoke-type standing challenges wrapped in state law standing limitations.

Key Takeaway: Spokeo can impact the standing analysis in no-injury class action at the state level, when a state trial court is left to analyze state constitutional and jurisprudential principles. Accordingly, a defendant in a state court no-injury class action should marshal state law and consistent elements of Spokeo jurisprudence to mount the most effective challenge to state-court standing in such cases.

Posted on , December 4 2017 at 8:58 am by -

Seventh Circuit: American Pipe tolling stops when a class action is dismissed – with or without prejudice – before a class is certified

by Joe Reynolds

Takeaway: In Collins v. Village of Palatine, Ill., — F.3d —, 2017 WL 5490819, at *1 (7th Cir. November 16, 2017), the Seventh Circuit announced a “simple and uniform” rule for determining when a once-tolled statute of limitations starts running again: “Tolling stops immediately when a class-action suit is dismissed—with or without prejudice—before the class is certified.” Applying this rule in Collins, the Seventh Circuit upheld the district court’s dismissal of the class representative’s claim as time-barred (as well as its summary denial of class certification). The Seventh Circuit’s ruling brings clarity to this oftentimes confusing area of class action practice.

In August 2010, Jason Senne filed a class action against the Village of Palatine, after the Village issued him a parking ticket displaying his personal information. The suit alleged the parking ticket and disclosures on it violated the Driver’s Privacy Protection Act (“DPPA”). In September 2010, the district court granted the Village’s motion to dismiss for failure to state a claim, but in 2012 the Seventh Circuit reversed. On remand, the district court deferred ruling on Senne’s motion for class certification and instead invited the Village to file a motion for summary judgment. The Village obliged and the district court granted its motion, further ruling the class certification motion had been “terminated” as moot. This time, the Seventh Circuit affirmed the judgment, and the Supreme Court denied certiorari (on November 2, 2015).

But Senne’s attorney filed a successor class action the same day the Supreme Court denied certiorari (naming himself as the class representative). He filed the suit simply as a “placeholder” to preserve the claims of the class. He then filed another, independent class action naming another individual (Michael Collins) as the class representative. Like Senne, Collins claimed that a parking ticket issued by the Village violated the DPPA. The Village then moved to dismiss Collin’s claim as time-barred by DPPA’s four-year statute of limitations, since Collins’ parking ticket issued on June 14, 2007. In response, Collins argued that the limitations period was tolled from the time Senne filed his original suit in August 2010 until the time the Supreme Court denied Senne’s petition for certiorari in November 2015. Rejecting this argument, the district court dismissed the complaint as time-barred and summarily denied Collins’s motion for class certification (without stating any reason for the denial of certification).

The Seventh Circuit affirmed. The court observed that under American Pipe tolling (see American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974) and Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983)), “the filing of a proposed class action immediately pauses the running of the statute of limitations for all class members.” Collins, 2017 WL 5490819, at *3. The court then observed that these cases do not address whether tolling continues during the pendency of an appeal. After surveying the law in other circuits, the Seventh Circuit held that the “consensus view” is that the limitations clock immediately resumes once certification has been denied or upon “other procedural intervals,” such as when a class member opts out or the court dismisses a suit for lack of subject matter jurisdiction. Id. Finding no difference between these situations and the dismissal of an action with prejudice, the court held that American Pipe tolling does not continue during the pendency of an appeal of an action that has been dismissed with prejudice.

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