KT Class Action Blog

Category: Appeals

Posted on Thursday, February 8 2018 at 4:09 pm by
Fourth Circuit Reaffirms Pre-Dart Cherokee Ruling that Counter-Defendant Cannot Remove Class Action Counterclaims Under CAFA

By Joe Reynolds

In Jackson v. Home Depot U.S.A., Inc., 880 F.3d 165 (4th Cir. Jan. 22, 2018), the Fourth Circuit held a counter-defendant cannot invoke federal jurisdiction under the Class Action Fairness Act of 2005 (“CAFA”). The Court reasoned that both CAFA and the general removal statute, 28 U.S.C. § 1441 expressly provide for removal by a “defendant”—not a counter-defendant. The Seventh and Ninth Circuit have reached the same result, Westwood Apex v. Contreras, 644 F.3d 799 (9th Cir. 2011), and Tri-State Water Treatment, Inc. v. Bauer, 845 F.3d 350 (7th Cir. 2017). But the Fourth Circuit’s careful attention to the procedural posture of the case suggests a different timeline might have produced a different result.

In Jackson, Citibank filed a debt collection action against George Jackson in North Carolina state court, based on Jackson’s failure to pay for a water treatment system purchased using a Citibank-issued credit card. 880 F.3d at 167. Jackson responded by filing a counterclaim against Citibank and third-party class action claims against Home Depot and Carolina Water Systems (“CWS”), claiming the latter two entities misled customers about their water treatment systems. Following Citibank’s voluntary dismissal of its original claims against Jackson, Home Depot removed the action to federal court, invoking federal jurisdiction under CAFA. And after removal, Home Depot moved to realign the parties such that Jackson would be the plaintiff and Home Depot, CWS, and Citibank would be the defendants. Jackson moved to remand and then amended his third-party complaint to remove any reference to Citibank. Id.

The general removal statute contemplates that “the defendant” or “the defendants” may remove a case to federal court, providing in pertinent part: “[A]ny civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.” 28 U.S.C. § 1441 (emphasis added). CAFA incorporates this statute, providing that a class action filed in state court may be removed “in accordance with section 1446 [the procedure for removal of civil actions under § 1441]… without regard to whether any defendant is a citizen of the State in which the action is brought, except that such action may be removed by any defendant without the consent of all defendants.” 28 U.S.C. § 1453(b) (emphasis added).

Apart from this statutory language, the Supreme Court held long ago that a plaintiff cannot remove a counterclaim brought against it. Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100 (1941). In doing so, the Supreme Court held that the predecessor to the current removal statue, which used similar language, should be strictly construed. Id. at 108. Congress enacted CAFA, on the other hand, “to facilitate adjudication of certain class actions in federal court.” Dart Cherokee Basin Operating Co., LLC v. Owens, 135 S. Ct. 547, 554 (2014). As such, “CAFA’s provisions should be read broadly, with a strong preference that interstate class actions should be heard in a federal court if properly removed by any defendant.” Id. (quoting S.Rep. No. 109–14, p. 43 (2005)).

In advocating for the application of CAFA, Home Depot first argued the phrase “any defendant” in CAFA should be read to include a counter-defendant, especially in light of the Supreme Court’s recent decision in Dart Cherokee that “no antiremoval presumption attends cases invoking CAFA.” Jackson, 880 F.3d at 170 (quoting Dart Cherokee, 135 S. Ct. at 554). The Fourth Circuit rejected this argument, holding that Congress chose to use the term “defendant,” and absent evidence otherwise, the Court would presume that Congress intended to adopt its well-established meaning. The Court of Appeals also refused to “upend so settled a definition as ‘defendant’ without clear direction from the Supreme Court,” leaving it to the highest court to rule “directly” CAFA effectuated such an expansion. Id. at 171.

Home Depot next argued that it actually constituted the true “defendant” as to the only live action remaining in the case (Jackson’s third-party class action claims against Home Depot and CWS). 880 F.3d at 171. The Fourth Circuit rejected this argument as well, paying “particular attention to the complex timeline of events in this case.” Id. Specifically, the Court of Appeals placed great emphasis on the fact that, at the time Home Depot removed, Citibank remained a counterclaim-defendant, even if Jackson thereafter dropped his claims against Citibank. Id.

Finally, Home Depot challenged the district court’s denial of its motion to re-align the parties. 880 F.3d at 172. The Fourth Circuit likewise gave short shrift to this argument, on the grounds that the purpose of realignment is to prevent “the creation of sham diversity jurisdiction.” Id. According to the Court of Appeals, “[b]ecause no party contends that this case involves an attempt to fraudulently manufacture jurisdiction, we need not delve too deeply into the issue of realignment.” id. at 172-73.

Takeaway: The Jackson decision rejected the argument that Dart Cherokee warranted a change to the existing law holding that an existing counterclaim-defendant could not remove. But the decision’s careful attention to the timeline of the case may leave open a procedural path for removal by a similarly-situated counterclaim-defendant in the future. If, for example, an additional counterclaim-defendant facing class claims can persuade a state court to re-align the parties with the original defendant as plaintiff (which could only happen if, as with Citibank in Jackson, the original plaintiff dismissed its claims against the original defendant), would the state court order granting realignment constitute an “order or other paper” rendering the case removable under 28 U.S.C. § 1446(b)(3)? For that matter, could Home Depot “re-remove” the case if it persuaded the North Carolina state court to re-align the parties following the remand of Jackson? Until these remaining procedural questions have been answered, the final fate of the current rule barring additional counterclaim-defendants from removing remains unresolved.

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.

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, 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.

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