In class actions involving more than one defendant and at least one local defendant, two exceptions to jurisdiction under the Class Action Fairness Act (CAFA) potentially come into play. The “home state” exception applies if two-thirds or more of the proposed class members and the “primary defendants” are citizens of the state where suit was filed. 28 U.S.C. § 1332(d)(4)(B). The “local controversy” exception applies if the same two-thirds threshold is satisfied, there is at least one local defendant “from whom significant relief is sought by members of the plaintiff class” and “whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class,” and during the previous three years, “no other class action has been filed asserting the same or similar factual allegations against any of the defendants on behalf of the same or other persons.” Id. § 1332(d)(4).  The terms “primary defendants,” “significant relief” and “significant basis” are not defined in the statute, and thus whether a particular defendant constitutes a “primary defendant” or satisfies the “significant basis” requirement have been the subject of extensive litigation.

The First Circuit recently addressed these issues, reviewing the law nationwide. It held that the “home state” exception did not apply because a nonlocal defendant was a “primary” defendant. However, the “local controversy” exception applied because the local defendant satisfied the “significant basis” requirement where essentially the same claims were alleged against all defendants. The court also held that the district court did not abuse its discretion in declining to sever the case against the nonlocal defendant, with one judge dissenting from that ruling.

In Kress-Stores of Puerto Rico, Inc. v. Wal-Mart of Puerto Rico, Inc., — F.4th –, 2024 WL  4750774 (1st Cir. Nov. 12, 2024), the plaintiffs were smaller merchants who sued several big-box retailers, alleging that they failed to comply with the executive orders of the governor of Puerto Rico during the COVID-19 pandemic. The big-box retailers were permitted to remain open for supermarket and pharmacy operations but allegedly sold other “non-essential” goods in violation of the orders. The case was removed to federal court by Costco, the only non-local defendant. The federal district court denied a motion to remand and later granted summary judgment for the defendants.

On appeal, the plaintiffs challenged federal jurisdiction under both the “home state” and “local controversy” exceptions to CAFA. Addressing the “home state” exception, the First Circuit explained that in interpreting the term “primary defendant,” some courts have focused on whether a defendant is alleged to be directly liable to the proposed class as opposed to vicariously or secondarily liable. Other courts have focused on which defendants have the largest exposure. The First Circuit appeared to agree with the Ninth Circuit’s approach, which considers both of those factors, along with others. The First Circuit rejected the plaintiffs’ argument that Costco was not a “primary” defendant because its potential liability was smaller than others — approximately $65 million, in comparison to Wal-Mart’s potential liability of over $265 million. Costco was a “primary” defendant because it “could face direct liability to class members on the order of tens of millions of dollars,” The “home state” exception was therefore inapplicable because one “primary” defendant was nonlocal.

Addressing the “local controversy” exception, the First Circuit explained that most circuits have adopted the Third Circuit’s test, under which a “significant” defendant is one whose alleged conduct is “an important ground for the asserted claims in view of the alleged conduct of all the Defendants.”  The First Circuit explained that courts have disagreed over how to apply this test where the complaint alleges that local and nonlocal defendants engaged in essentially the same conduct. The Ninth Circuit found that the local controversy exception applies in that circumstance, while the Fifth and Eighth Circuits have required what the First Circuit described as “some sort of plus-factor in the allegations of a local defendant’s conduct (as compared to non-local defendants’ conduct) to count the local defendant’s conduct as a ‘significant basis’ of the plaintiffs’ claims.” The First Circuit concluded that a “plus factor” was not required and agreed with the Ninth Circuit that a local defendant can be “significant” if the complaint’s allegations do not differentiate between defendants, but it noted that a “holistic evaluation” is required and that “[w]e remain sensitive to Congress’s suggestion that the local controversy exception is a ‘narrow’ one.” On the facts of this case, the First Circuit held that Wal-Mart Puerto Rico, Inc., a local defendant, satisfied the “significant basis” requirement because “all the claims run against Wal-Mart, and all the plaintiffs in the putative class have claims against Wal-Mart.” The “local controversy” exception therefore applied, defeating federal jurisdiction.

The First Circuit panel was split in reviewing the district court’s denial of Costco’s motion to sever. The majority concluded that the claims against the various defendants were properly joined under Rule 20(a) because they arose out of “the same transaction, occurrence, or series of transactions or occurrences.” The majority found it sufficient for joinder purposes that all the claims arose out of the COVID-19 pandemic and the governor’s orders. Judge Hamilton (of the Seventh Circuit, sitting by designation) dissented on this issue. Looking by analogy to intellectual property cases, he would have held that severance was warranted because the plaintiffs alleged that the defendants “acting independently and in competition with each other” engaged in similar conduct at the same time, but were not alleged to act in concert. Judge Hamilton would have found joinder improper, severed the claims against Costco and affirmed the district court’s summary judgment ruling in its favor.

This case is an example of how navigating the exceptions to CAFA jurisdiction can be complicated and requires a detailed case-by-case analysis along with the law of the applicable circuit. The “home state” exception is a tougher climb for plaintiffs. The “local controversy” exception is construed more broadly in some circuits than others. If plaintiffs can avoid CAFA merely by alleging that multiple defendants engaged in the same conduct and one of them is local, that has the potential to create a significant gap in federal jurisdiction. In such cases, severance might be a strategy worth pursuing by nonlocal defendants if Judge Hamilton’s dissenting opinion gains traction in his home circuit or others.

Plaintiffs sometimes seek to certify an “issues class” under Federal Rule of Civil Procedure 23(c)(4) (or an equivalent state court rule) if they anticipate difficulty certifying the entire case for class treatment, but certain issues maybe more likely to qualify for class treatment. The federal rule provides that “[w]hen appropriate, an action may be brought or maintained as a class action with respect to particular issues.” Federal circuits have taken different approaches to applying Rule 23(c)(4) along with the requirement under Rule 23(b)(3) that common issues must predominate over individualized issues. The Seventh Circuit recently weighed in on this debate, finding the superiority requirement dispositive in affirming decertification of the class.

In Jacks v. DirectSat USA, LLC, — F.4th –, 2024 WL 4380256 (7th Cir. Oct. 3, 2024), technicians that service satellite dishes brought claims against their employer alleging wage and hour violations. This was not your typical wage-and-hour case because the technicians were paid specific dollar amounts for particular tasks but also recorded their hours to ensure they were paid at least minimum wage. The plaintiffs alleged that they were underpaid because they worked overtime without being paid for it and were encouraged to perform tasks “off the clock.” A district court judge certified a Rule 23(c)(4) class to decide fifteen issues, focused on whether commuting time and certain tasks, if performed before or after the “workday,” were compensable. After the case was reassigned to a different judge, the class was decertified as trial approached because the new judge concluded that most of the issues varied for individual class members and could not be answered for the entire class.

On appeal, the Seventh Circuit weighed in on the debate about how to apply Rule 23(c)(4). It explained that the Fifth Circuit requires that the entire cause of action must satisfy the predominance requirement, while five circuits (the Second, Third, Fourth, Sixth, and Ninth) require only that common questions predominate in resolving specific certified issues.  The D.C. Circuit takes another approach, requiring district courts to evaluate the relationship between certified issues and the entire case.

The Seventh Circuit agreed with the majority of other circuits that plaintiffs “must show that common questions predominate in the resolution of the specific issue or issues that are the subject of the certification motion,” not the entire case. But the superiority requirement also must be satisfied – “a party seeking certification under Rule 23(c)(4) must show that certifying the proposed issues would be the most practical and efficient way to resolve the litigation.” In this case, the superiority requirement was not met because the technicians varied in whether they performed certain tasks “off the clock,” how much time they spent on them, and how they recorded their time. Thus, even if the fourteen certified questions were answered, there would have to be individual trials on liability and damages, rendering certification inappropriate.

The superiority requirement is sometimes an afterthought in class action briefing and decisions, with courts often merging it with the predominance requirement. This case highlights how important superiority can be if an “issues class” is sought.

These days it seems like nearly every data breach results in a multitude of class action filings. Some of these cases settle quickly with minimal litigation. In such a case, the Eighth Circuit recently reversed an attorneys’ fees award of $78.75 million, finding it excessive.

In re T-Mobile Customer Data Security Breach Litigation, Nos. 23-2744, 23-2798, __ F.4th __, 2024 WL 3561874 (8th Cir. July 29, 2024), involved a data breach that occurred when cybercriminals hacked into computer systems of T-Mobile. Over 40 putative class actions were filed and centralized by the Judicial Panel on Multidistrict Litigation in the Western District of Missouri. Less than a month after a consolidated amended complaint was filed, a settlement was reached providing for a $350 settlement fund and for T-Mobile to spend an additional $150 million on data security. Out of the fund, class members could recover actual out-of-pocket losses or a $25 payment ($100 in California), as well as obtain free credit monitoring services.  Class counsel sought $78.75 million in attorney’s fees (22.5% of the fund) and thirteen class members objected. The district court awarded the full amount requested.

The district court struck some of the objections as not made in good faith by “serial” objectors and revoked their counsel’s pro hac vice admission. The Eighth Circuit reversed that ruling because there was no evidence of misconduct in this case and the objection was meritorious. Another objection was struck because the objecting class member refused to sit for a deposition ordered by the court. That ruling was affirmed because the objector did not challenge the discovery ruling in the district court.

Addressing the attorneys’ fees award, the Eighth Circuit reversed. It declined to adopt a special rule for “megafund” class actions involving more than $100 million.  Instead, it concluded that the usual factors governing fee awards are sufficient for big cases too. Applying those factors, the lodestar was about $8.17 million, which seems shockingly high to me for a case that, as the Eighth Circuit described it, “had barely gotten off the ground before it settled.” Using that lodestar amount, the multiplier was 9.6 – effective hourly rates were in the range of $7,000 to $9,500 per hour. While class counsel argued that reversal would penalize them for settling quickly, the court noted that “[r]educing the fee award to say, half of what was requested (resulting in fees of $3,500 to $4,750 per hour) could hardly be considered a penalty.” The court noted that other big class actions had settled with much smaller lodestar multipliers.

This opinion and others like it seem likely to have some impact in reducing the overall cost of class action settlements for defendants in large cases that settle quickly. We may also see courts and objectors digging in more deeply to the lodestar amounts as well as the multiplier. It’s hard to imagine the defendant incurring fees in the range of $8 million for a case resolved within a month, and the same should be true on the plaintiffs’ side.

A recent Texas Supreme Court decision in a class action caught my eye because it addressed several significant class certification issues, including one that I’ve seen regularly and another that the court analyzed in a new and different way. First, the court held that a named plaintiff does not have standing to seek injunctive relief where the possibility of imminently sustaining a similar future injury is speculative. Second, standing can pose a predominance problem—the court held that “the predominance requirement cannot be met when, from the outset, it is clear that substantial variation exists among the class regarding standing.” Third, a named plaintiff with an “atypically strong” claim may not satisfy the typicality requirement.

In USAA Casualty Insurance Co. v. Letot, No. 22-0238, – S.W.3d –, 2024 WL 2490521 (Tex. May 24, 2024), the plaintiff owned a vintage Mercedes sedan that was rearended by another driver. She made a third-party claim with the other driver’s insurer. The insurer concluded the vehicle was a total loss, promptly issued a check to the plaintiff for the vehicle’s pre-loss value, and notified the Texas Department of Transportation (“DOT”) that the vehicle was salvage (meaning it could not be driven on public roads or sold without obtaining a salvage title). The plaintiff disagreed with the total loss determination and with the insurer’s notification to the DOT. She later brought a putative class action alleging that the insurer should not notify the DOT before a vehicle owner accepts the proposed payment. Skipping over some other procedural history not pertinent to this decision, the trial court ultimately certified a class seeking both injunctive relief and damages, and the court of appeals affirmed. The Texas Supreme Court reversed.

First, the Texas Supreme Court held that the named plaintiff did not have standing to seek injunctive relief, but she had standing to seek damages. Texas law on standing appears to largely mirror federal law. The court explained that a past injury can be sufficient for standing only if it is “quite likely that [the plaintiff] will go through the same experience again.” Here, the plaintiff could encounter the same problem only if she experienced another accident in which the other driver was responsible and was insured by the same insurer. The court explained that this was the same risk that anyone else in the general public would face and was thus insufficient to confer standing. On top of that, the same issue would arise again only if the insurer determined there was a total loss, made the same report to the DOT, and the plaintiff disagreed. All of this was too speculative to confer standing to seek injunctive relief. But the plaintiff adequately alleged a damages claim based on the alleged impact of the report to the DOT.

Second, in addressing class certification, the Texas Supreme Court concluded that the predominance requirement was not satisfied because “standing itself poses a threat to predominance” by necessitating “highly individualized inquiries.” Some class members would want the insurer to expedite the payment of their claim and would not object to notifying the DOT. While the Texas Supreme Court did not decide whether every class member must have standing (an open question in federal courts at the U.S. Supreme Court level), it concluded that where standing would be a highly individualized question, a class could not be certified. This holding is potentially helpful to defendants in other contexts, such as data breach cases where standing is often highly individualized.

Third, the named plaintiff’s claim failed the typicality requirement because it was “atypically strong” – she had good (but unusual) reasons why she did not want her vintage car declared a total loss and had persuaded the insurer to try to withdraw its notice to the DOT. This is a good example of why selecting a “strong” class representative can sometimes backfire for plaintiffs’ counsel.

Overall, this case presents several potentially useful strategies for defense counsel: (1) defending against an attempt to certify an injunctive relief class on the ground that the potential for the named plaintiff to suffer a future injury is speculative; (2) focusing on the individualized nature of standing determinations for class members in challenging the predominance requirement; and (3) recognizing that an “atypically strong” named plaintiff may be an inappropriate class representative.

Suppose that the central issue in a putative class action is a legal issue pending before the Supreme Court. Depending on how the Supreme Court rules, the plaintiffs will recover either nothing or up to $600 million. But rather than rolling the dice and waiting for that decision, the parties agree to a class action settlement that can only work if it’s approved before the decision is issued. Conceptually that seems like something parties should be able to do. Settlements often happen because the defendant doesn’t want to risk being held liable for a huge exposure, and plaintiffs don’t want to risk being left empty handed. But litigation takes time, and if there are objections to the settlement and an appeal, that will all occur after the merits issue is decided. At that point, the deal will look much better or worse for one side. A recent decision from the Eleventh Circuit provides several lessons for lawyers negotiating class settlements and presenting them to a district court for its approval.

In Drazen v. Pinto, No. 21-10199, 2024 WL 2122466 (11th Cir. May 13, 2024), the plaintiffs alleged that the defendant violated the Telephone Consumer Protection Act (TCPA) by using an autodialer to make telephone calls and send text messages. The parties agreed to a claims-made settlement of up to $35 million in cash and vouchers for those class members who made claims, with up to $10.5 million for attorney’s fees. The district court granted preliminary approval. Shortly after notice was emailed to the class, the Supreme Court granted certiorari to decide whether a device must have certain capabilities to constitute an autodialer under the TCPA. If the Supreme Court ruled for the defendant, the Drazen case would be worthless, and if it ruled for the plaintiff, the claims would be worth potentially up to $600 million. Several months after final approval of the settlement, the Supreme Court decided the issue in favor of the defendant.

Judge Tjoflat’s opinion vacating the approval of the settlement is lengthy. Here is what I found most significant for purposes of parties seeking approval of future settlements:

  1. Sufficient Notice to Class Members of Attorney’s Fees Motion: The schedule proposed by the parties and adopted by the district court provided class members with only 7 days to review the attorney’s fees motion before the objection deadline, and the notice did not specify when that motion would be filed.  The opinion strongly criticized this timing.
  2. Notice of “the Class Claims, Issues or Defenses”: The court held that this requirement is conjunctive and required notice to the class members of not merely the claims asserted but also the issue pending before the Supreme Court and how its decision would impact the case. The Eleventh Circuit opinion suggested that a supplemental notice should have been issued regarding this development.
  3. Opt-Out Requests: The court of appeals took issue with the parties requiring that class members seeking to opt out submit a detailed letter under penalty of perjury.
  4. Release: The opinion takes issue with what it refers to as an “overbroad release,” pointing to language that released the defendant’s “past and present parents, predecessors, successors, affiliates, holding companies, subsidiaries, employees, agents, attorneys, board members, assigns, partners, contractors, joint venturers or third-party agents with which it has or had contracts, and/or their affiliates.” This type of language in large part is fairly standard. It’s hard to imagine a defendant settling a class action while leaving open potential claims against its affiliated entities, officers, and employees. The district court interpreted the release as limited to claims that were made or could have been made in the lawsuit, although Judge Tjoflat’s opinion indicated that the district court improperly “amended” the settlement agreement in reaching that conclusion.
  5. CAFA’s Coupon Settlement Provisions: The settlement provided class members with an option of either $35 in cash or a $150 voucher redeemable for any of the defendant’s products and services and freely transferable. The Eleventh Circuit held that this was a “coupon settlement” subject to stricter requirements for approval under the Class Action Fairness Act (CAFA), ruling in essence that any credit or discount on the defendant’s goods or services is a “coupon.” If you want to avoid this, the best approach would be an all-cash settlement.
  6. Attorney’s Fees: In a “coupon settlement” under CAFA, attorney’s fees for class counsel may be based on the value of the coupons that were redeemed, the lodestar method, or both. Only 1.9% of class members made claims, valued at approximately $2.3 million. The district court awarded a $7 million fee (20% of the $35 million potentially available if all class members made claims), where the lodestar amount was approximately $2.8 million. In vacating the settlement, the court of appeals explained that in “many cases” the district court should wait until after the coupons’ expiration date to decide on attorney’s fees, although a district court may estimate a redemption rate and receive expert testimony for that purpose. Here, the district court erred by basing the attorney’s fees on a percentage of the total amount potentially available to class members rather than the much smaller amount of relief obtained.

Ultimately, this case goes back to the district court, and it is unclear what will happen. The district court might only reduce the attorney’s fees or disapprove the settlement. Given the outcome on the merits issue in the Supreme Court, the defendant would obviously be pleased if the settlement is disapproved because it will prevail on the merits. But the deal was structured so that the parties could hedge their bets on the merits. In any event, the parties likely could have avoided some or all of the issues identified above in preparing the settlement documents and seeking approval of the settlement.

It is worth noting that two of the three judges on the panel filed a concurring opinion stating that they would have addressed only the coupon settlement and attorney’s fees issues. So, the remainder of the opinion, which appears to be the opinion of only Judge Tjoflat, may not carry the typical weight of a regular full panel opinion.

When a class certification decision overlaps with merits issues, can a court of appeals deciding an interlocutory appeal from a class certification order also review an earlier decision on a motion to dismiss if it was integral to the class certification order? Yes, according to a new Fourth Circuit decision.

Elegant Massage, LLC v. State Farm Mutual Automobile Insurance Company, No. 22-1853, – F.4th –, 2024 WL 995480 (4th Cir. Mar. 8, 2024), is one of many cases brought against property insurers seeking coverage for business income losses arising from the COVID-19 pandemic. With near unanimity, these lawsuits have been dismissed on Rule 12 motions and almost all those dismissals have been affirmed on appeal. But here the district court denied a motion to dismiss and declined to certify that ruling for interlocutory appeal under 28 U.S.C. § 1292(b). It later certified a class of the defendant’s commercial property insurance policyholders in Virginia that were affected by COVID-19 government orders and whose insurance claims were denied. The Fourth Circuit granted the insurer permission to appeal the class certification order under Rule 23(f).

When the case reached the Fourth Circuit, that court had previously affirmed the dismissal of a similar case under West Virginia law. The insurer asked the Fourth Circuit to review the earlier ruling on its motion to dismiss in addition to the class certification order. The Fourth Circuit majority held that it could review the motion to dismiss decision under its pendent appellate jurisdiction. Under that circuit’s jurisprudence, it can exercise pendent appellate jurisdiction if the rulings are ”so interconnected” that “either (1) an issue is inextricably intertwined with a question that is the proper subject of an immediate appeal, or (2) review of a jurisdictionally sufficient issue is necessary to ensure meaningful review of an immediately appealable issue.” (Cleaned up.) The second of those two alternative prongs applied here.  The district court’s ruling on the motion to dismiss was relied upon in its class certification decision, and “was integral to the district court’s later conclusion that the class members could prove their claims through evidence common to the class.” Because the court of appeals could not “meaningfully review the class certification order” while ignoring its own recent decision on the insurance coverage issues that were the subject of the motion to dismiss ruling, pendent appellate jurisdiction was appropriate. The Fourth Circuit then applied its recent decision on the merits issues, finding Virginia law functionally the same as West Virginia law. It therefore reversed both the motion to dismiss and class certification orders, remanding with direction to dismiss the entire case.

Judge Wynn concurred in the reversal of the class certification order, but otherwise dissented. He disagreed with the majority’s finding of pendent appellate jurisdiction, concluding that such jurisdiction should be exercised only in “exceedingly rare circumstances.” He would have reversed the class certification order because, even assuming the district court correctly found the possibility of coverage for the claimed losses, this “would require an individual review of each denied claim to determine whether the loss of business income claimed was due to the [COVID-19] executive orders or to another cause.” He noted that the named plaintiff had “business troubles [that] long predated COVID-19” and had closed before the government orders took effect.  His opinion suggests that he would exercise pendent appellate jurisdiction in this procedural posture only if it would be “impossible” to review the class certification order without reviewing a motion to dismiss decision. He expressed concerns that the majority opinion might unduly open the door to defendants seeking review of merits issues on class certification appeals.

The majority’s opinion puts the Fourth Circuit in line with other circuits. Often courts of appeals have ruled on a merits issue simply because it formed part of the analysis of the class certification issues, without finding it necessary to rely on pendent appellate jurisdiction. See, e.g., Van v. LLR, Inc., 61 F.4th 1053, 1065 (9th Cir. 2023); In re State Farm Fire & Cas. Co., 872 F.3d 567, 572-73 (8th Cir. 2017); Regents of the Univ. of Cal. v. Credit Suisse First Boston, 482 F.3d 372, 381 (5th Cir. 2007).

Think twice about whether the Class Action Fairness Act’s “local controversy” exception applies to your case. Even if more than two-thirds of the proposed class members are citizens of the forum state, there is a significant in-state defendant and the claims asserted arise from conduct in that state, that is not necessarily enough for the plaintiffs to avoid CAFA jurisdiction under a new Fifth Circuit decision. Under this decision, if any of the putative class members’ injuries occurred outside of the forum state, the “local controversy” exception does not apply. This decision could enable defendants to remove some single-state putative class actions that might have been thought unremovable under the “local controversy” exception. And, as the Fifth Circuit also concluded, a denial of remand on this issue was appealable as of right.

The “local controversy” exception provides that a federal district court “shall decline” jurisdiction over a putative class action if more than two-thirds of the proposed class are citizens of the state where suit was filed, at least one defendant is a citizen of that state and satisfies certain requirements, and no other class action “asserting the same or similar factual allegations” against any defendant has been filed during the prior three years. 28 U.S.C. § 1332(d)(4). The additional requirements to qualify as an in-state defendant are that the defendant is one “from whom significant relief is sought by members of the plaintiff class,” “whose alleged conduct forms a significant basis for the claims asserted by the proposed plaintiff class,” and “principal injuries arising from the alleged conduct or any related conduct of each defendant were incurred in the State in which the action was originally filed.” Id. (emphasis added). A lot of lawyers likely assumed that this exception would apply if more than two-thirds of the class are citizens of the forum state and their injuries (but not every single class member’s injury) were suffered in that state. Not so, according to a new Fifth Circuit decision.

In Cheapside Minerals, Ltd. v. Devon Energy Production Co., L.P., Nos. 23-40591, 24-40026, – F.4th –, 2024 WL 886951 (5th Cir. Mar. 1, 2024), the plaintiffs sued for underpayment of oil-and-gas royalties on Texas properties. As you might expect, more than two-thirds of the proposed class members were Texas citizens, but some class members were citizens of other states and the United Kingdom. The defendant successfully argued that that the “principal injuries” requirement means that all putative class members must have suffered their injuries in Texas for the exception to apply. The Fifth Circuit reasoned that the word “principal” means “primary” or “chief,” that “CAFA ties the ‘principal injuries’ sustained to the entire class, not just a subset of it,” and that “[t]here is no exception for cases in which most plaintiffs sustain the principal injury in the forum state but some do not.”  (Emphasis in original.) The court found support for its interpretation in other sections of CAFA that were more specific about how you count class members for certain purposes. The court also concluded that the exception must be construed narrowly. The court noted that CAFA’s legislative history appeared to be inconsistent with the court’s ruling, but found no ambiguity in the statute and therefore did not consider the legislative history.

Given that the only injury in this case was a financial harm, the court concluded that the injuries occurred wherever the class members resided. Because some putative class members were not Texas citizens, the local controversy exception did not apply.

Notably, this decision did not address the mandatory exception to CAFA jurisdiction applicable where “two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed.” 28 U.S.C. § 1332(d)(4)(B).

The Fifth Circuit also agreed with the Eighth and Eleventh Circuits (see my blog post about the Eleventh Circuit decision) that an order remanding a case based on the “local controversy” exception is a remand based on “abstention principles” that is appealable as of right, without the need to petition for permission to appeal under CAFA.  

Overall, this decision seems likely to result in an increased number of single-state class actions being removable to federal court, at least in the Fifth Circuit. It might not be too late to remove such cases where the complaint did not clearly plead an amount in controversy over the $5 million threshold. See, for example, Cutrone v. Mortgage Electronic Reg. Sys., Inc., 749 F.3d 137, 145 (2d Cir. 2014) (blog post).

In today’s world nearly everyone’s name, address and various other pieces of arguably personal information reside on many companies’ computer servers. Sharing of such information between companies has resulted in countless class action suits, in many of which the alleged harm is negligible at best. The Supreme Court’s decision on Article III standing in TransUnion LLC v. Ramirez, 594 U.S. 413 (2021) (my blog post), set some ground rules for these types of suits. It has led to extensive debate in the lower courts regarding how to apply the Court’s test in cases alleging invasion of privacy. The Third Circuit recently weighed in, with the majority of the panel concluding that the fact that information was passed on to a single third-party vendor for a ministerial purpose was insufficient to establish standing.

In Barclift v. Keystone Credit Services, LLC, No. 22-1925, – F.4th –, 2024 WL 655479 (3d Cir. Feb. 16, 2024), the plaintiff sued under the Fair Debt Collection Practices Act (FDCPA), alleging that the defendant debt collector violated the FDCPA by providing certain information to a third-party mailing vendor for the purpose of sending the plaintiff a debt collection letter. The plaintiff alleged that this purportedly “caused her embarrassment and stress, invaded her privacy, and inflicted reputational harm.” The plaintiff further alleged that the vendor maintained such data electronically for years, and had once had a data breach (unrelated to her information). The district court held that this was insufficient to establish standing, and the Third Circuit affirmed in a 2-1 decision.

The only issue in dispute was whether, for purposes of standing, the plaintiff had alleged an “injury in fact,” which must be “concrete and particularized.” The Third Circuit explained that “intangible harms can give rise to concrete injuries when they bear ‘a close relationship to harms traditionally recognized as providing a basis for lawsuits in American courts,’ such as ‘reputational harms, disclosure of private information, and intrusion upon seclusion.’” In applying this rule, the courts of appeals have applied one of two approaches: (1) an ”element-based approach,” focused on whether the plaintiff alleged all of the elements of a common law tort; or (2) a harm-based approach, focused on “compar[ing] the kind of harm a plaintiff alleges with the kind of harm caused by the comparator tort.” The Third Circuit adopted the harm-based approach as more closely in line with TransUnion.

Applying the harm-based approach, the Third Circuit held that “[i]nformation transmission that neither travels beyond a private intermediary nor creates a sufficient likelihood of external dissemination cannot compare to a traditionally recognized harm that depends on the humiliating effects of public disclosure.” The court further concluded that “the mere assertion that [the vendor’s] employees could access and broadcast [plaintiff’s] personal information to the public is far too speculative to support standing.”

This decision will be helpful to defendants faced with the wave of privacy suits. The debate about where to draw the line, however, will undoubtedly persist. Judge Matey dissented in large part, first criticizing TransUnion, then agreeing with the majority that the harm-based approach was the correct standard, but applying it differently in this case. The dissent would have held that the common law tort of disclosure of private information historically would have found a violation even if the disclosure was to a third party performing a ministerial role, such as a stenographer.

When class certification is denied because the named plaintiff’s claim fails for some reason, sometimes an absent class member will try to intervene rather than filing their own separate suit. Their goal is usually to attempt to certify a class for a longer time period than would otherwise be possible.  If the new plaintiff files a new suit, the statute of limitations period for the proposed class claims would be shorter than if they join a suit that was pending for years. The Sixth Circuit recently addressed this issue, holding that the proposed intervenor could not demonstrate that his rights would be impaired without intervention because he could bring his own separate suit.

Grainger v. Ottawa County, – F.4th –, 2024 WL 64093 (6th Cir. Jan. 5, 2024), is one of various cases seeking to recover against counties or municipalities that foreclosed on properties for nonpayment of taxes and then kept proceeds exceeding the amount owed. (For more background, see my blog post on another Sixth Circuit case involving this issue and the juridical link doctrine.) The district court denied class certification under the Supreme Court’s decision in China Agritech, Inc. v. Resh, 138 S. Ct. 1800 (2018) (see my blog post). Under that decision, the named plaintiff (Grainger) could rely on the pendency of an earlier class action to toll the statute of limitations on his individual claims, but Grainger could not “piggyback” on that earlier class action to bring another class action where, absent class action tolling, his individual claims would have been untimely. Three days later, a new proposed plaintiff (Behovitz) who had a timely claim because his foreclosure proceeding was more recent in time, moved to intervene in Grainger’s case. For various reasons, the district court denied both intervention as of right and permissive intervention.

The Sixth Circuit affirmed, focusing on two of the four requirements for intervention: (1) whether Behovitz had a “substantial interest” in the subject matter of the case; and (2) whether his ability to protect his interest may be impaired without intervention. Behovitz argued that he had a substantial interest in seeking to pursue class claims. The Sixth Circuit concluded that this “likely does not” constitute a sufficient interest to warrant intervention after denial of class certification, noting that “carrying Behovitz’s argument to its logical endpoint could result in ‘multiple bites at the certification apple’ for class counsel” in a manner that seemed improper, but the court declined to decide the case on that basis. Instead, the Sixth Circuit ruled based on the impairment requirement, holding that Behovitz could not demonstrate impairment because he was entitled to bring his own separate suit, which would be timely, and could allege class claims (albeit for a shorter time period). To the extent Behovitz was concerned about a class action settlement that had been approved in another case, his remedy was to appeal that decision or opt out.

The Sixth Circuit also held that the district court did not abuse its discretion in denying permissive intervention. Allowing intervention would further delay the case and potentially require adding more plaintiffs who had properties in other counties, or relitigating issues about whether Behovitz could represent putative class members in counties where his property was not located.

Grainger may aid defendants in seeking to fend off or narrow the scope of successive class actions.

In analyzing class certification issues, courts have said that common issues may predominate in some cases even though damages would have to be determined individually for each class member. But what about where some class members have no damages? Recent federal appellate decisions have said that situation presents an issue of liability, not damages. A subtle distinction, but one that can make all the difference. Where liability cannot be determined class-wide, courts have held that the predominance requirement is not satisfied.

Sampson v. United Services Automobile Association, — F.4th –, 2023 WL 6533181 (5th Cir. Oct. 6, 2023), is one of a series of cases brought against auto insurers challenging how they value vehicles that are total losses. The plaintiffs alleged that the insurer’s use of a software product called CCC violated a Louisiana statute because CCC was not a “generally recognized motor vehicle industry source” within the meaning of the statute. The district court certified a class, and the Fifth Circuit agreed to hear an interlocutory appeal from that ruling.

In seeking class certification, the plaintiffs proposed to use National Automobile Dealers Association (NADA) guidebook values, although there were other options that undisputedly would comply with the statute, including Kelley Blue Book (KBB). The insurer presented evidence that 9.2% of claims were valued less than the NADA value, but above the KBB value, so if KBB was chosen, there would be no recovery. The Fifth Circuit vacated the class certification decision, agreeing with a Ninth Circuit decision in a similar case last year (see my blog post here), which held that where vehicles would have to be valued individually, and on some claims there would be no injury, the predominance requirement for class certification was not satisfied. The Fifth Circuit explained that “a district court’s wide discretion to choose an imperfect estimated-damages model at the certification stage does not carry over from the context of damage to the context of liability.” Where the plaintiffs’ evidence could not establish liability (injury) on a class-wide basis, that was insufficient.