Lack of Standing in TCPA Class Action Results in Remand to State Court, Says The Eighth Circuit

A recent decision by the Eighth Circuit in a Telephone Consumer Protection Act (TCPA) class action provides an important pointer for defendants and their counsel with respect to strategy in defending a putative class action. The key takeaway is to take into consideration whether the case was originally filed in federal court or removed from state court, and consider whether you want to raise lack of standing as an issue in federal court if a successful outcome in the applicable federal circuit is likely to result in a remand to state court.

In St. Louis Heart Center, Inc. v. Nomax, Inc., No. 17-1794, 2018 WL 3719694 (8th Cir. Aug. 6, 2018), the plaintiff brought suit alleging that the defendant violated the TCPA by transmitting faxes without a proper opt-out notice. The faxes had an opt-out notice on them, it just did not satisfy all of the requirements of regulations implementing the TCPA. The plaintiff conceded that consent was not an issue. The Eighth Circuit affirmed the district court’s conclusion that the plaintiff lacked Article III standing because the plaintiff could have opted out and simply chose not to, and “[a]ny technical violation in the opt-out notices thus did not cause actual harm or create a risk of real harm.” Id. at *4.

But the Eighth Circuit vacated the district court’s dismissal of the lawsuit and remanded with direction to remand the case to state court. It explained that “the lack of federal jurisdiction does not obviate the remand requirement of § 1447(c), because state courts are not bound by the limitations of an Article III case or controversy.” Id.

The lesson here for defendants is that in cases removed to state court, it might not be worth raising a standing issue in federal court if the outcome is likely to be a remand and state law on standing is not favorable. Courts can and do raise standing issues sua sponte, so you may want to keep that possibility in mind as well.

Numerosity and Commonality Requirements Reinforced by Third Circuit

The Third Circuit’s new opinion on class certification issues in Mielo v. Steak ‘N Shake Operations, Inc., No. 17-2678 (3d Cir. July 26, 2018) provides helpful guidance for district courts and class action lawyers on both sides. The case alleged violations of the Americans with Disabilities Act (“ADA”) at the defendant’s restaurants. In brief, here are my takeaways from it:

  • Standing: In prior opinions, the Third Circuit has taken the view that the standing inquiry focuses only on the named plaintiffs, not on the class members. That’s an issue ripe for the Supreme Court to tackle. In this case, the Third Circuit found it sufficient for standing purposes for the named plaintiffs to allege that they had personally encountered difficulties with parking facilities that they alleged violated the ADA. Whether the plaintiffs could pursue claims involving restaurants they never visited was an issue the court viewed as a Rule 23 issue rather than an Article III standing issue, in the Third Circuit’s view.
  • Numerosity: The Third Circuit explained how “[i]n recent years the numerosity requirement has been given ‘real teeth.’” (Slip op. at 35.) It requires real evidence, not speculation. Merely because there are millions of persons with mobility disabilities in the United States and it might be fair to assume that at least 40 of them experienced the alleged access issues at the defendant’s restaurants was not enough. The court noted that the numerosity requirement is not “relaxed” in any sense when certification is sought for declaratory or injunctive relief under Rule 23(b)(2). The lesson for defendants here? Think twice before you give up on numerosity.
  • Commonality: This is the most significant part of the opinion, in my view. The court focused on how, although the case plainly focused on a common legal issue involving one ADA provision, that was not enough for commonality. The class definition encompassed various different types of alleged ADA violations under the same statutory provision and regulations, from parking lots to bathrooms to water fountains. The court said that “the collective claims are so widely divergent that they would be better pursued on either an individual basis or by a sufficiently numerous lass of similarly-aggrieved patrons,” and “[w]ith such a potentially wide array of different claims by members of the class,” commonality was not satisfied. (Slip op. at 51.) Defendants can use this decision effectively in lots of cases that involve similar alleged statutory violations or contract claims. In a footnote, the court suggested (but did not decide) that a very narrowly-pled case might satisfy commonality. But that might make numerosity a challenge, and could make a class case much less attractive for plaintiffs’ counsel to pursue. It will be interesting to see if (and how) the plaintiffs continue to pursue this case on remand.
  • Rule 23(b)(2): The court did not reach any issue under Rule 23(b)(2). But footnote 24 of the opinion provides some important guidance, reminding the district court that: (1) subsection (b)(2) applies only if a “single” injunction or declaratory judgment would apply to the entire class; and (2) Rule 65 requires specificity and detail in any proposed injunction.

Judge Kavanaugh on Class Actions

With Judge Brett Kavanaugh’s nomination to the Supreme Court, one question to ask is whether, if he is confirmed, that will move the Court to any degree in class action cases. Unfortunately, we don’t have much to look at. The D.C. Circuit, with its small geographic footprint, is not a hotbed of class action filings. I could not find any opinion written, or even joined by Judge Kavanaugh, that squarely reviewed a class certification decision. But a few insights might be gleaned from the following three cases:

  • In re District of Columbia, 792 F.3d 96 (D.C. Cir. 2015): Here, Judge Kavanaugh was the presiding judge on the panel but assigned the opinion to Judge Wilkins. The court denied the District of Columbia’s petition for permission to appeal the district court’s order certifying a class. The plaintiffs alleged that the District failed to provide adequate community-based care for Medicare beneficiaries requiring long-term care. In denying permission to appeal, the court held that the District had failed to satisfy the D.C. Circuit’s criteria for granting Rule 23(f) review where the only argument made by the District was that the district court’s decision was “manifestly erroneous.” The court of appeals made clear that the “manifest error” standard was a “high bar,” the court was not deciding the merits of the class certification issues, and it had serious doubts about the district court’s decision. The central question (not decided) was whether there was “a policy or practice affecting all members of the class in the manner Wal-Mart requires for certification.” at 100. I don’t think this case suggests that Judge Kavanaugh would be reluctant to grant certiorari on class action issues, given the nature of the case and the limited basis on which the District sought review.
  • Mills v. Giant of Md., LLC, 508 F.3d 11 (D.C. Cir. 2007): Judge Kavanaugh wrote this opinion about a year after he joined the D.C. Circuit. It was a class action in which the plaintiffs claimed that sellers of milk should be required to put warning labels on containers advising consumers that some people are lactose intolerant. The court of appeals affirmed the district court’s dismissal of the case on the grounds that District of Columbia tort law did not protect against such a “widely known” risk. Judge Kavanaugh explained that “[a] bout of gas or indigestion does not justify a race to the courthouse,” “30 to 50 million Americans suffer from some level of lactose intolerance,” “products targeted to lactose-intolerant individuals are now commonplace,” and “the problem of lactose intolerance has received an extraordinary amount of attention in the media and in the medical community.” He wrote a short opinion, noting that “[w]e will not belabor the obvious.” The outcome here is not remarkable. The opinion suggests that Judge Kavanaugh is unlikely to use the more colorful language than Justices Scalia or Kagan might use in deciding such a case.
  • Cohen v. United States, 650 F.3d 717 (D.C. Cir. 2011): This is an en banc decision in which Judge Kavanaugh wrote a dissenting opinion. It involved a class action in which the plaintiffs challenged the sufficiency of a refund procedure created by the IRS to refund excessive taxes collected on long-distance telephone calls (remember those days when long-distance calls were more expensive?). The majority opinion focused on jurisdictional issues and the Administrative Procedure Act, concluding that the plaintiffs could pursue their suit without having to file refund claims or individual tax refund suits. Judge Kavanaugh wrote a dissent that focused on how the refund procedure was relatively simple, and the plaintiffs could have filed refund claims or brought individual tax refund suits. He wrote that: “Plaintiffs’ ultimate objectives are class certification and a court order that the U.S. Government pay billions of dollars in additional refunds to millions of as-yet-unnamed individuals who never sought refunds from the IRS or filed tax refund suits. It seems that plaintiffs have deliberately avoided filing individual refund claims with the IRS and filing tax refund suits because they think they have a better chance of obtaining class certification if they don’t take those steps. And class certification is a necessary prerequisite to the class-wide jackpot plaintiffs are seeking here.” at 737 (Kavanaugh, J., dissenting). Judge Kavanaugh and the judges who joined his opinion would have held that individual tax refund suits would be an adequate forum for plaintiffs to pursue their claims. This opinion seems to demonstrate that Judge Kavanaugh has a good handle on the reality and practicalities of modern class action litigation and might be persuaded, at least in some circumstances, that under the superiority requirement for certification under Rule 23(b)(3), individual suits and/or a voluntary refund process are a superior means of resolving class claims.

Overall, we have few data points to draw from, but I found no reason to think that a Justice Kavanaugh would consistently vote differently in class action cases as compared with Justice Kennedy.

Sveen v. Melin: Supreme Court Speaks On the Contracts Clause

After a decades-long drought, the Supreme Court recently decided a case involving the Contracts Clause of the Constitution. You might not recall that provision because it is so rarely invoked in modern-day litigation (due to how it has been construed). It provides that “[n]o state shall . . . pass . . . any Law impairing the Obligation of Contracts.” U.S. Const. art I, § 10, cl. 1. Given that many class action suits involve contracts with consumers and state laws applicable thereto, I thought this case was worthy of mention on my blog.

Sveen v. Melin involved a Minnesota statute providing that a divorce automatically revokes a prior beneficiary designation by the insured under a life insurance policy that designated the former spouse as a beneficiary. The ex-spouse whose rights were divested by the statute argued that applying the statute to a life insurance policy that was issued and beneficiary designation that was executed before the statute was enacted was a violation of the Contracts Clause. The Eighth Circuit found a violation of the Contracts Clause. But the Supreme Court reversed, in an 8-1 decision by Justice Kagan.

The Court’s test for whether the Contracts Clause applies has two parts: (1) whether the state law affects a “substantial impairment” of the contractual relationship, taking into account whether it “undermines the contractual bargain, interferes with a party’s reasonable expectations, and prevents the party from safeguarding or reinstating his rights”; and (2) “whether the state law is drawn in an ‘appropriate’ and ‘reasonable’ way to advance ‘a significant and legitimate public purpose.’” (Slip opinion, at 7.)

In Sveen, the Court found no “substantial impairment” because the Minnesota law was “designed to reflect a policyholder’s intent,” was “unlikely to disturb any policyholder’s expectations,” and “supplies a mere default rule.” (Id. at 7-8.) The Court reasoned that most people who get divorced generally do not want to maintain their former spouse as the beneficiary of their life insurance policy (unless otherwise agreed or ordered by the court in the divorce settlement, which were carveouts in the Minnesota statute). And it would be quite easy to reestablish prior intent simply by re-executing another beneficiary designation form. Justice Kagan described this as a mere “paperwork obligation” of the type the Court had long held does not violate the Contracts Clause.

Justice Gorsuch was the sole dissenter. He argued that there was a “substantial impairment” here because the designation of the beneficiary is the “whole point” of a life insurance policy. It appears that he also would have been inclined to change the Court’s prior precedent because the requirement of a “substantial impairment” seems inconsistent with the text of the Contracts Clause and some indications of its original purpose. He noted that “Many critics have raised serious objections” to the Court’s Contracts Clause jurisprudence, citing several law review articles, and “[t]hey deserve a thoughtful reply, if not in this case then in another.” (Gorsuch, J., dissenting, at 4.) He also would have found the second part of the test not satisfied in this case because there are various other means by which a state could achieve its goal of informing people of their right to change the beneficiary following a divorce without retroactively changing the contract.

To make this case more interesting for what I deal with on a regular basis, let’s turn things around a bit. The Court’s principles presumably work both ways. From the insurer’s perspective, it’s fairly common for an insurance statute to be contrary to the insurer’s intent and interfere with the insurer’s reasonable expectations under preexisting policies. Is that enough to move the analysis to the second part of the Contracts Clause test? And if so, would the Court consider abandoning or modifying the second part of its test to reform its jurisprudence closer to the original meaning of the clause? (See footnote 2 of the Court’s opinion, finding that the Court did not need to reach that issue here.) Justice Gorsuch’s dissent makes it pretty clear that he would grant certiorari to take those issues up in the right case. Would there be four justices willing to take such a case?

 

China Agritech, Inc. v. Resh: Class Actions Toll Statutes of Limitations Only for Individual Suits

Yesterday, in China Agritech, Inc. v. Resh, the U.S. Supreme Court ruled that, under its prior decision in American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974), the filing of a putative class action suit tolls the statutes of limitations only to allow individual, non-class suits to be filed after class certification is denied or the putative class action otherwise ends. The practice of “piggyback” class action filings, where an otherwise untimely class suit is filed on the theory that the time to sue was extended by the pendency of a prior class case, has come to an end. In a nearly unanimous opinion by Justice Ginsburg, the Court held that “American Pipe does not permit the maintenance of a follow-on class action past expiration of the statute of limitations.” (Slip opinion, at 2.) The Court reasoned that American Pipe is an equitable rule to promote efficiency in litigation, and that is not supported by allowing the filing of serial, “piggyback” class actions. Such a rule would also be contrary, the Court says, to Rule 23’s instruction that class certification should be resolved at “an early practicable time.” And equitable tolling requires diligence on the part of plaintiffs, which is not demonstrated by late piggyback filings.

Justice Ginsburg offers some advice for plaintiffs’ lawyers, suggesting that “any additional class filings should be made early on, soon after the commencement of the first action seeking class certification.” (Id. at 6.) She suggests that where there are several early filings, district courts can then select lead plaintiffs and lead counsel in non-securities cases (that is mandated by the Private Securities Litigation Reform Act (“PSLRA”) where it applies).

There has been some debate about whether this decision will cause more copycat class action suits and lead to more MDL proceedings. Perhaps, but China Agritech is not a change in the law of most circuits that had addressed the issue (see id. at 5). So we might not see much more in terms of repetitive filings.

Justice Sotomayor concurred only in the judgment. She would have ruled on narrower grounds, limiting the decision to class actions subject to the PSLRA. She expresses concern that outside of PSLRA class actions (where early notice by publication is required), class members may not learn of the pendency of class suits that are not certified. But that is true of class members who may want to file individual suits as well. She suggests that outside of the PSLRA context, it might be appropriate to allow tolling if the first case failed on a ground such as the lack of an adequate class representative. But the majority chose not to rule so narrowly.

One advantage I see for defendants here is that it is now clear that if the first class action is filed near the end of the limitations period, and the claims are not ongoing in nature, the defendant should have to litigate only one class action. If class certification is not granted, any follow-on suits could only be individual ones.

There remains a small loophole, as the Court and Justice Sotomayor note. A court in a pending class action might be persuaded to allow amendment of the complaint or a new plaintiff to intervene after the limitations period has expired, and perhaps that amendment would relate back for purposes of determining the statute of limitations. But where that comes late in the game, after extensive discovery and a denial of class certification, the defendant may have a strong argument that such an amendment or intervention should not be allowed for the purpose of a “redo.”

Supreme Court to Decide Whether Class Action Arbitration Is Allowed Where Arbitration Clause Is Silent Regarding Availability of Class Proceedings

The Supreme Court recently granted certiorari in Lamps Plus Inc. v. Varela, No. 17-988. The question presented in the petition for certiorari is: “Whether the Federal Arbitration Act forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements.”

The Court will review the Ninth Circuit’s unpublished decision in Varela v. Lamps Plus, Inc., No. 16-56085 (9th Cir. Aug. 3, 2017), which affirmed the district court’s order compelling a class-wide arbitration. The Ninth Circuit opinion explained that the Supreme Court’s decision in Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp., 559 U.S. 662 (2010) “accepted the parties’ stipulation that silence meant ‘there’s been no agreement that has been reached,” and concluded that the fact that an arbitration clause “does not expressly refer to class arbitration is not the ‘silence’ contemplated in Stolt-Nielsen.” The arbitration clause at issue provided that “arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings relating to my employment.” The Ninth Circuit held that “[a] reasonable – and perhaps the most reasonable – interpretation of this expansive language is that it authorizes class arbitration.” (Emphasis in original.) The Ninth Circuit further concluded that, where the court found two reasonable interpretations of the agreement, it was ambiguous, and should be construed against the defendant based on California principles of contract construction. Judge Fernandez dissented, stating simply that in his view the agreement was not ambiguous, and that the plaintiff’s position was a “palpable evasion” of Stolt-Nielsen. The petition for certiorari argues that the Ninth Circuit decision was contrary to the Court’s reasoning in Stolt-Nielsen as well as Oxford Health Plans LLC v. Sutter, 569 U.S. 564 (2013) (blog post) and AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (blog post).

The Court’s decision in Lamps Plus is unlikely to impact arbitration provisions that many companies currently have in use, which specifically preclude a classwide arbitration procedure. This case will be closely watched, however, by companies that have issued contracts with arbitration provisions that do not specifically preclude classwide arbitration.

 

Supreme Court to Address Use of Cy Pres Relief in Class Action Settlements Next Term

The Supreme Court recently granted review in a case that involves whether, or in what circumstances, cy pres relief may be used in class action settlements. In Frank v. Gaos, No. 17-961, the Court will review the Ninth Circuit’s decision in In re Google Referrer Header Privacy Litig., 869 F.3d 737 (9th Cir. 2017). The question presented in the petition for certiorari is: “Whether, or in what circumstances, a cy pres award of class action proceeds that provides no direct relief to class members supports class certification and comports with the requirement that a settlement binding class members must be ‘fair, reasonable, and adequate.’”

The case involves claims under the Stored Communications Act and various state common law claims, alleging that Google violated users’ privacy rights by disclosing the search terms used to owners of websites. The district court approved a settlement that called for Google to provide a disclosure of how it shares users’ search terms, and for an $8.5 million settlement fund. $5.3 million of the settlement fund would be distributed to six cy pres recipients, non-profit organizations that would use the funds to promote Internet privacy, and the remaining $3.2 million would go to attorneys’ fees, administrative costs and incentive payments for the named plaintiffs. The Ninth Circuit affirmed. It explained that cy pres-only settlements are “the exception, not the rule,” but that they are appropriate where the settlement is “non-distributable” because it would not be feasible to distribute money to individual class members. Here, the class size is estimated at 129 million class members, who would be entitled to 4 cents each, and the cost of sending out the payments would exceed the benefit. The objectors argued that there should be a lottery system whereby some class members would receive say $5 or $10, and that if the settlement was nondistributable, the court should instead rule that the superiority requirement for class certification was not satisfied. The Ninth Circuit found that the district court’s rejection of these arguments and approval of the settlement was not an abuse of discretion.

The objectors also argued that the cy pres recipients were inappropriate because Google had previously donated to some of them, three of them previously received funds in other Google class settlements, and three of them were affiliated with class counsel’s alma maters. The Ninth Circuit rejected these contentions, noting that the organizations had a strong nexus to the interests of the class, Google had previously donated to hundreds of organizations, there was no fraud or collusion, and the mere fact that class counsel graduated from schools that had connections to some of the organizations did not warrant rejecting the settlement. The Ninth Circuit also found the attorneys’ fees reasonable because they were 25% of the settlement fund and consistent with a lodestar calculation.

Judge Wallace wrote an opinion concurring in part and dissenting in part. He dissented only on the issue involving the relationships between the cy pres recipients and the alma maters of class counsel, concluding that the district court should have looked into that issue further. He wrote that “I would vacate the district court’s approval of the class settlement, and remand with instructions to hold an evidentiary hearing, examine class counsel under oath, and determine whether class counsel’s prior affiliation with the cy pres recipients played any role in their selection as beneficiaries.” Id. at 748 (Wallace, J., concurring in part and dissenting in part). In my view, requiring such a hearing could present substantial concerns about the protection of the attorney-client privilege and work product doctrine – ultimately it is the clients on both sides who are making settlement decisions, and examining counsel as to their thinking (or their advice to their client) behind such decisions seems problematic, although that may not be something the Supreme Court addresses in this case.

From a defense perspective, this case may present a challenge with respect to what position industry organizations may wish to take in amicus briefs. If the Court were to rule that cases where settlements would be “non-distributable” do not satisfy the superiority requirement and should never be certified class actions at all, defendants might welcome that result. But how would such a rule be applied, and where would the line be drawn? In most cases like this, one might be able to calculate a theoretical class recovery (e.g., with punitive damages) that might, in theory, be large enough to be distributable, although such an amount is very unlikely to be awarded. If a “non-distributable” settlement means only that the settlement is rejected and the parties are forced to continue to litigate, that forces defendants to incur large litigation expenses and risk in cases that they would prefer to resolve. The reality is that there needs to be a route to settling cases like this when appropriate. To the extent the Court is granting certiorari to provide some guidance around when to use cy pres relief and how to do it, that may be welcomed by both sides, provided the Court does not make it unduly difficult to satisfy whatever criteria are ultimately adopted.

Second Chance to Opt Out of Class Not Required for Class Action Settlement

The Ninth Circuit recently ruled in favor of President Trump. That was not a typo, and this is not fake news. The ruling was not in favor of Trump in his official capacity, but in his capacity as a class action defendant. And it was in a case where the plaintiffs were on his side, seeking to defend the lower court’s approval of a class action settlement involving Trump University. The key practice pointer from this decision for those who litigate class actions is that if a class is certified before you reach a settlement, you don’t have to give the class members a second chance to opt out when you later reach a settlement. You might want to make it explicit that there will not be a second chance to opt out.

In Low v. Trump Univ., LLC, No. 17-55635,2018 U.S. App. LEXIS 2920 (9th Cir. Feb. 6, 2018), an objector challenged the district court’s approval of a settlement of several class actions involving allegations of false advertising and fraudulent practices by Trump University, which provided real estate investment seminars. The objector argued that she was entitled to a second opportunity to opt out of the class after a settlement was reached.

The Ninth Circuit first held that the notice that was sent to class members when the class was certified and before a settlement was reached did not promise them as second opportunity to opt out. The Ninth Circuit adopted a standard focusing on “what an average class member would have understood the notice to guarantee.” Id. at *19. The objector focused on a statement in the notice that if “the Plaintiffs obtain money or benefits, either as a result of the trial or a settlement, you will be notified about how to obtain a share (or how to ask to be excluded from any settlement).” Id. at *16.  The court concluded that the notice, which was based on a Federal Judicial Center form, when read as a whole, made clear that there was a single deadline to opt out, and the decision had to be made when the first notice was sent. Based on the notice as a whole, a class member being excluded from the settlement could refer to simply declining to submit a claim form in a claims made settlement, and it was unclear at that point what type of settlement might be reached.

The Ninth Circuit then held that due process did not require a second opportunity to opt out, applying binding precedent in Officers for Justice v. Civil Service Commission of San Francisco, 688 F.2d 615 (9th Cir. 1982), which reasoned that class members’ rights were adequately protected by the opportunity to object to the settlement, the district court’s fairness hearing, and the right to appeal from the approval of a settlement. The court found no intervening Supreme Court authority on point. In a footnote, the court suggested that a district court might have the power to withhold approval of a settlement that did not provide a second opportunity to opt out, in an appropriate case.

Although large numbers of opt outs are relatively rare in the context of a class notice, regardless of whether a settlement has been reached, it may be advisable not to offer class members a second chance to opt out. If the parties think ahead about this issue, they can address it explicitly when the first notice is issued to class members.

Are Defendants Required To Create Datasets to Respond to Discovery Requests in Class Actions?

Discovery disputes in class actions often focus on plaintiffs’ requests for computer data regarding putative class members’ claims, and how far defendants need to go in providing such data. An Illinois federal court recently addressed this in an employment class action. The key takeaways from this opinion are that: (1) a defendant was not required to create a dataset that did not exist in order to respond to the plaintiffs’ discovery requests; and (2) a defendant was entitled to create a new dataset as work product for the purpose of assisting its expert, without disclosing the data until the expert report was disclosed.

In Ahad v. Bd. of Trs. of S. Ill. Univ., 2018 U.S. Dist. LEXIS 11248 (S.D. Ill. Jan. 24, 2018), a putative class action alleging gender discrimination in the compensation of physicians, the plaintiff sought sanctions on the grounds that the defendants’ expert had relied on certain data regarding physicians’ compensation that was not produced in response to the plaintiff’s earlier discovery requests. The court first held that “Defendants did not have a duty to create a spreadsheet or database that tracked total compensation when one did not exist” because, although the defendants had the ability to create such data, they “were only required to produce records as kept in the normal course of business,” and “were not under a further obligation to create a new dataset if it was not kept in the usual course of business.” Id. at *14-16. The court noted that the plaintiff could have requested raw payroll data from which a dataset could be created. Id. at *16. The defendants were entitled to create a total compensation spreadsheet for the use of their expert witness, which was protected as work product until the expert report was disclosed. Id.

The court’s approach here allows defendants the flexibility of being able to work with a consulting expert and with their counsel to create a new dataset that may or may not support their position in the litigation, and protect that information unless and until they want to use it. Plaintiffs are not prejudiced because they can request raw data and have their expert manipulate it as they see fit to attempt to support their case.

Are Nationwide Class Settlements Endangered By Ninth Circuit’s Opinion in Hyundai and Kia Case?

The Ninth Circuit’s decision this week vacating a class action settlement in In re Hyundai and Kia Fuel Economy Litig., No. 15-65014 (9th Cir. Jan. 23, 2018) is getting a lot of attention in the class action bar. It’s 84 pages long, but the bottom line is that the Ninth Circuit held that the district court failed to analyze whether differences in state law precluded a finding that common questions of law and fact predominated under Rule 23(b)(3). That’s an argument that defendants often make in opposing class certification, and courts often agree with it. In fact, the trial court in this case when a motion for class certification was under consideration strongly suggested that this argument would carry the day. But the parties later settled and agreed to certification, and the Ninth Circuit majority criticized the district court for sidestepping the issue in the settlement approval process. This is because the basic requirements for class certification under Rule 23(a) and (b) must be satisfied for settlement purposes under the Supreme Court’s decision in Amchem Prods., Inc. v. Windsor, except that factors such as manageability do not apply where the case is being settled, not tried. This is nothing new, but parties and district courts sometimes do not give sufficient attention to this in the settlement process.

Some commentators have suggested that this decision could endanger nationwide class action settlements in cases governed by state law (it’s not a problem where federal law applies). Defendants sometimes need to enter into a nationwide settlement to achieve complete peace, such as in this MDL proceeding involving alleged misrepresentations as to the fuel economy of Hyundai and Kia vehicles. Entering into 50 separate statewide settlements would be impractical.

So what can parties do when they want to settle but the issues are governed by state law that in some respects varies among the 50 states? Here are a couple of thoughts:

  • If you need to do a Rule 23(b)(3) settlement, find at least one plausibly common and predominating issue on which state law does not vary and make that your focus in seeking approval of the settlement. The defendant does not have to affirmatively sign onto the argument that predominance is satisfied based on that issue; it can just not oppose the plaintiff’s motion. Defenses should not be an issue because it is a settlement, and thus the defendant is effectively waiving its individualized defenses if the settlement is approved.
  • Consider whether you can seek certification of a settlement class under Rule 23(b)(2) if the settlement includes some declaratory or injunctive relief and the monetary relief goes hand-in-hand with the declaratory or injunctive relief. Rule 23(b)(2) does not require a showing of predominance. If the class receives notice and has the opportunity to opt out, some of the concerns about the propriety of a Rule 23(b)(2) class may fall by the wayside.
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