KT Class Action Blog

Category: Ninth Circuit

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, November 27 2017 at 8:51 am by
FCRA Injury Requirement Remains Murky Following Supreme Court Denial of Certiorari

by Annica Bianco

On November 12, 2017, the U.S. Supreme Court declined to hear a case that would have clarified an important issue in Fair Credit Reporting Act (FCRA) litigation, a popular source of no-injury class action litigation. The petition sought review of a Ninth Circuit decision in a putative class action holding that an “informational injur[y]” constitutes a “real-world harm” sufficient to establish standing for purposes of FCRA litigation. Petition for Writ of Certiorari at 4, M-I LLC v. Syed, No. 16-1524 (June 19, 2017).

What constitutes an informational injury, practically speaking? The answer is far from clear. In Syed, the alleged “informational injury” arose from the simple fact that the prospective employer combined into one document the required FCRA disclosure with a liability waiver. Syed v. M-I, LLC, 853 F.3d 492, 499 (9th Cir. 2017). Plaintiff’s signature on that single document served as both an authorization for the employer to procure his consumer report and as a broad release of liability. Id. Plaintiff alleged that the combination generated confusion concerning his rights and that he would not have authorized the disclosure had it been a standalone document. Id. The Ninth Circuit held those allegations were sufficient to establish standing. Id. at 500.

Stated more generally, the Ninth Circuit found that an informational injury can arise in the FCRA context “when applicants are deprived of their ability to meaningfully authorize [a] credit check.” Id. at 499. In reaching this conclusion, the court reasoned that FCRA’s requirement that a job candidate authorize the collection of consumer information by a prospective employer creates a right to privacy because the candidate can withhold permission. Id.

But the takeaway is broader: so-called “informational injuries” can provide the requisite injury-in-fact to establish standing to pursue a FCRA claim. This is important because FCRA violations can result in statutory penalties ranging from $100 to $1,000 per violation, as well as punitive damages at the discretion of the court, and attorneys’ fees and costs. On a class level, these numbers add up. In a 1,000 member class, for example, statutory penalties alone can reach $1,000,000.

Syed broadened the universe of harms that may give rise to a FCRA claim, and following the Supreme Court’s denial of certiorari in Syed, the concept of an “informational injury” will continue to be subject to broad judicial interpretation.

The Supreme Court’s decision not to hear Syed is also important because it leaves intact the Ninth Circuit’s ruling on the merits. After finding the plaintiff had standing, the court went on to hold that the prospective employer’s combination of the required FCRA disclosure with a liability waiver was not only a statutory violation, but a willful violation of the statute. Id. at 503. Effectively, the court held that the combination of the forms was knowing or reckless. Id. (citing Safeco Insurance co. of America v. Burr, 551 U.S. 47 (2007)). Under this precedent, employers will continue to face the risk of FCRA liability from even technical violations.

The landscape is different in other circuits. In August of this year, for example, the Seventh Circuit considered an analogous situation to Syed and came to the opposite conclusion. Groshek v. Time Warner Cable, Inc., 865 F.3d 884 (7th Cir. 2017). In that case, the plaintiff alleged that the prospective employer’s failure to provide a FCRA compliant disclosure constituted a concrete informational injury. In Groshek, like Syed, the alleged violation stemmed from the inclusion of “extraneous information” in the disclosure. Id. at 885. The Seventh Circuit found, however, that while the plaintiff had alleged a statutory violation, it was “completely removed from any concrete harm or appreciable risk of harm.” Id. at 887.

But Groshek distinguished Syed on the facts. The Seventh Circuit reasoned that Syed, unlike Groshek, presented factual allegations plausibly suggesting that the disclosure, as structured, created confusion, and that the plaintiff in Syed would not have signed the disclosure had it been a standalone document, as required by the FCRA. Id. at 889.

The Supreme Court’s denial of certiorari preserves this arguable split in circuit authority for now. But if the plaintiff in Groshek has his way, the issue will be before the Supreme Court soon. On October 30, 2017, the Groshek plaintiff petitioned the Supreme Court for certiorari.

Until the Supreme Court decides whether to hear the Groshek appeal, employers concerned about potential FCRA liability should give careful attention to their disclosure forms to ensure they comply with the letter of the statute, to minimize the risk of litigation. If certiorari is granted, regardless of how the Supreme Court decides the matter, the issue of FCRA standing and injury could finally be clarified.

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, 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.

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