A recent Sixth Circuit decision caught my eye because it addressed an important issue on which I have not seen any other appellate decisions (and none were cited in the opinion). The plaintiff argued that the Class Action Fairness Act (CAFA) should be interpreted as overriding the Federal Arbitration Act (FAA), effectively precluding the enforcement of class action waiver provisions in consumer contracts. The Sixth Circuit rejected the argument, finding no clear congressional intent to displace the FAA.

In Adell v. Cellco Partnership, No. 21-3570, 2022 WL 1487765 (6th Cir. May 11, 2022), the plaintiff brought a putative class action involving a Verizon Wireless mobile phone contract, claiming that a monthly administrative charge of about $1 was not permitted by the contract. The defendant filed a motion to compel arbitration, which the district court granted. The arbitrator ruled for the defendant, the district court confirmed the award, and the plaintiff appealed.

The plaintiff argued that “CAFA guaranteed her right to federal adjudication of her claim,” asserting support for this position in the statutorily-expressed purpose of CAFA and its legislative history. She also argued that Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), which held that the National Labor Relations Act did not displace the FAA in the employment context, supported her position.

The Sixth Circuit rejected the argument, noting that courts construing two statutes should give effect to both when possible. Construing one statute as displacing another is generally appropriate only if there is “clear and manifest congressional intention” to do so. The Sixth Circuit explained that “CAFA undoubtedly discusses class actions, but it neither mentions arbitration nor offers the ‘clear and manifest congressional intention’ signaling FAA displacement.” While CAFA’s “findings and purposes” “express the importance of class action lawsuits … [t]hese are not clear statements displacing the FAA.” The court also found no support for the plaintiff’s position in CAFA’s legislative history.

Federal district court orders remanding cases to state court are generally not appealable, as provided by 28 U.S.C. § 1447(d). One exception to this is that the Class Action Fairness Act (CAFA) allows a court of appeals, in its discretion, to accept an appeal from an order granting or denying a motion to remand a putative class action. 28 U.S.C. § 1453(c). The courts of appeals can decline to hear an appeal under § 1453(c), and they are selective about hearing these appeals, particularly because if they accept one, they have to rule within 60 days (subject to an extension of time if either agreed by the parties or limited to ten days). A recent Eleventh Circuit decision pointed out, however, that there are narrow circumstances where a party can appeal as of right from a remand order in a putative class action — where the order is based on CAFA’s “local controversy” or “home state” exception.

In Simring v. Greensky, LLC, — F.4th –, 2022 WL 894206 (11th Cir. Mar. 28, 2022), the district court remanded a putative class action based on the “local controversy” exception, which provides that a district court shall decline jurisdiction where more than two-thirds of the members of all proposed classes are citizens of the state where suit is filed and certain other requirements are satisfied (there is at least one in-state defendant from which significant relief is sought and whose contact forms a significant basis for the claims alleged, the principal injuries were incurred in that state, and no other class action asserting the same or similar factual allegations against any of the defendant has been brought within the last three years). 28 U.S.C. § 1332(d)(4). In Simring, the district court interpreted the complaint as limiting the proposed class to Florida citizens, and because the other requirements for the “local controversy” exception applied, remanded the case to state court.

The Eleventh Circuit held that the district court’s decision was appealable as of right because “CAFA’s local controversy exception does not implicate subject matter jurisdiction” and thus 28 U.S.C. § 1447(c) and (d), which generally prohibit appeals of remand orders, were not applicable. Rather, “the local controversy exception is ‘akin’ to abstention,” a basis for remand that is appealable, “because it requires courts to decline jurisdiction that otherwise exists.”

The Eleventh Circuit went on to reverse the district court’s order because the class definition was not limited to Florida citizens, despite the fact that other allegations in the complaint indicated that suit was being brought “on behalf of all other Floridians similarly situated.” The plaintiff had the burden of proof on the applicability of the local controversy exception, and did not present any evidence of the citizenship of the putative class members.

The key point here for class action practitioners is that there are circumstances where a remand order is appealable as of right under CAFA. Where that is the case, you would not want to file a petition for permission to appeal, which could be denied for any number of reasons. This decision is also significant in emphasizing that the definition of the class, rather than other allegations in the complaint, may control the analysis of whether the local controversy (or home state) exception applies.

A recent Seventh Circuit decision makes an important point about how the principle that a court generally need not resolve the merits to decide class certification is bilateral – it applies to both affirmative claims and defenses. The plaintiff argued that the district court erred in denying class certification because there was one key defense that was central to the case, and the defendant had not established that it had a viable defense to even a single class member’s claim. But that made no difference because the evidence showed that the process for resolving the defense would require individualized adjudication.

Gorss Motels, Inc. v. Brigadoon Fitness, Inc., No. 21-1358, — F.4th –, 2022 WL 872639 (7th Cir. Mar. 24, 2022), was brought under the Telephone Consumer Protection Act (TCPA), seeking to hold the defendant liable for sending unsolicited advertisements by fax. (One would think these cases would come to an end given that fax machines seem like ancient technology that is hardly ever used today. But these cases live on.) The key issue here, as in many TCPA cases, was consent—whether class members had provided prior express permission for the ads. The defendant or relevant third parties from which it obtained the fax numbers had different agreements with the class members who received the faxes, and some fax numbers were obtained through personal contact. The district court denied class certification because common issues of law or fact would not predominate over individual issues with respect to this key defense at the heart of the case.

On appeal, the plaintiff argued primarily that the defendant had failed to establish consent by even a single class member, pointing to a district court opinion in another case that had focused on whether there was permission given for the fax advertisements by a “significant percentage” of the class. The Seventh Circuit rejected that argument, explaining that “it is not the final merits of the permission inquiry that matter for Rule 23(b)(3) purposes; it is the method of determining the answer and not the answer itself that drives the predominance consideration.” Moreover, “[t]his analysis applies not only to the elements that plaintiffs must prove but also to affirmative defenses like prior express permission.” Regardless of whether the defendant could establish the merits of its defense, the district court reasonably concluded that it could not be resolved with “generalized proof.”

 

A recent Seventh Circuit decision made two rulings on issues arising under the Class Action Fairness Act (CAFA) that defendants may find useful in other cases. First, potential punitive damages exceeding a single-digit ratio may be considered in determining whether the class claims satisfy the $5 million threshold if compensatory damages are small or where a statute provides for punitive damages. Second, the local controversy exception does not apply if another class action asserted the “same or similar factual allegations” against any defendant within the last three years, even if the claims in the prior suit were under a different state’s law and there is no overlap between putative class members.

In Schutte v. Ciox Health, LLC, No. 22-1087, 2022 WL 792258 (7th Cir. Mar. 16, 2022), the plaintiff alleged that the defendant improperly charged for copies of electronic medical records, in violation of a Wisconsin statute that the Wisconsin Court of Appeals held does not allow any such fees. The defendant removed the case under CAFA, the district court denied the plaintiff’s motion to remand, and the Seventh Circuit agreed to hear the plaintiff’s appeal from that order.

On the amount in controversy issue, the plaintiff argued that since her individual claim was for only $61, under Supreme Court precedent generally limiting punitive damages awards to a single-digit ratio, it was unlikely that the punitive damages per claim would reach the point where a class of several thousand class members would recover more than $5 million. Rejecting that argument, the Seventh Circuit explained that “a higher punitive damages ratio may be warranted in cases where compensatory damages are too low to provide meaningful deterrence,” and the statute expressly provides for up to $25,000 for a “knowing and willful” violation, which could be an obstacle to a due process challenge. In any event, “[w]hat matters is the amount ‘in controversy’—not the amount that plaintiffs are most likely to recover.” The court of appeals emphasized that “it is critical for courts to focus on the phrase ‘in controversy’ and to remember the difference between even highly unlikely results and truly impossible results, and to avoid prematurely trying the merits of the case in deciding jurisdiction.” The court’s holding on this issue will be useful to defendants because this is not an uncommon scenario in class actions – the potential individual damages are quite small but punitive damages are sought (or potentially available on the claims alleged).

The second issue focused on CAFA’s local controversy exception, which requires a district court to decline jurisdiction where over two-thirds of proposed class members are citizens of the state where suit was filed, at least one “significant” defendant (satisfying certain requirements) is a citizen of that state, the principal injuries or defendant’s conduct were in that state, and “during the 3-year period preceding the filing of that class action, 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.” 28 U.S.C. § 1332(d)(4) (emphasis added). Most of the requirements for the local controversy exception apparently were satisfied here. The dispute was over whether there had been a class action brought against the defendant within the three-year period involving the “same or similar factual allegations” and “on behalf of the same or other persons.” The defendant pointed to a prior case filed in Montana alleging that it had improperly charged for electronic medical records under Montana law. The plaintiff argued that the Montana case was brought under a different state’s law and involved class members in a different state. Rejecting that argument, the Seventh Circuit emphasized that the statute requires only “the same or similar factual allegations,” not an overlapping legal theory. Moreover, “[i]f geographic differences could render two otherwise identical complaints dissimilar for CAFA’s purposes, then plaintiffs would be able to avoid federal jurisdiction by filing individual actions based on the same kind of misconduct in all fifty states.”

The plaintiff further argued that if the statutory language requiring that the prior suit be brought “on behalf of the same or other persons” did not require any overlap in the proposed classes, the quoted language would be superfluous because in the context of a class action, the second suit would always be brought on behalf of “the same or other persons.” Not so, said the Seventh Circuit, because statutes often have redundancies, and if CAFA had not included the language at issue, courts might wonder whether Congress intended that the proposed classes in the prior and subsequent cases must overlap. The court also pointed to indications that the intent of this three-year exception to the local controversy requirement was so that a series of class actions in multiple states (except for the first one) might be considered for a multidistrict litigation where appropriate.

Overall, the Seventh Circuit appeared to make clear that plaintiffs cannot evade federal jurisdiction under CAFA by bringing similar single-state cases for small individual amounts, if punitive damages are potentially recoverable such that the amount in controversy requirement is satisfied.

A recent Eleventh Circuit decision on the Class Action Fairness Act (CAFA) caught my eye. It involves the kind of question legislators (and their staffs) probably never think about when drafting a statute. Law professors dream up these types of questions when trying to find a way to puzzle their students on an exam. It’s of interest only to nerds of the law.

In Ruhlen v. Holiday Haven Homeowners, Inc., No. 21-90022, — F.4th –, 2022 WL 701622 (11th Cir. Mar. 9, 2022), the question was whether the trial court’s order remanding the case to state court “sua sponte” — Latin for “of its own volition” — could be appealed. Under CAFA, federal appeals courts can hear appeals, in their discretion, “from an order of a district court granting or denying a motion to remand a class action to the State court from which it was removed.” 28 U.S.C. § 1453(c)(1) (emphasis added). This case was removed to federal court based on both the inclusion of a federal statutory claim in the complaint and under CAFA. The federal claim was withdrawn in an amended complaint, and the district court then remanded the case sua sponte, concluding that the particular type of state law claim brought under a Florida rule of civil procedure allowing a mobile homeowners’ association to sue on behalf of homeowners was not a “class action” within the meaning of CAFA. The defendants asked the Eleventh Circuit to hear an appeal from the remand order.

The Eleventh Circuit, in a 2-1 decision, concluded it did not have jurisdiction to hear the appeal because there was no “motion to remand” filed in the district court. The majority concluded that the plain language of CAFA requires a “motion” made by a party and does not apply to a remand ordered by the court without a motion being filed. Although Black’s Law Dictionary and some court opinions refer to “sua sponte” as meaning “on its own motion,” the majority held that a “motion” requires a party’s request, and when the court acts sua sponte, “the court … does not actually ‘request[]’ anything of itself, nor does it grant or deny anyone else’s request.” The majority acknowledged that Congress may have intended otherwise, and that this was an “odd” result, but felt it was bound by the plain meaning of the text, citing Justice Scalia and Brian Garner’s book Reading Law: The Interpretation of Legal Texts. The majority suggested Congress would have to fix this if they intended otherwise.

Unless Congress fixes this or the Supreme Court takes the issue and reaches a different result, those defending class actions in the Eleventh Circuit better hope that if a jurisdictional issue arises, the plaintiff files a motion to remand. If the court questions its own jurisdiction, you might try suggesting that a briefing schedule be set on a motion to remand the plaintiff might wish to file. Otherwise you could have no chance to appeal.

Judge Rosenbaum dissented, finding the majority’s reading of CAFA “hypertechnical,” inconsistent with the surrounding statutory context and expressed Congressional purpose, and leading to an absurd result. “I can conceive of no logical reason,” she wrote, “why the same action should be exposed to two opposite results, depending on whether a party made a motion before the court issued its order.” Judge Rosenbaum identified a circuit split, citing a decision by the Ninth Circuit, holding that CAFA allowed an appeal of a sua sponte remand, and cases where the Seventh and Eighth Circuits had reviewed sua sponte remands without raising the jurisdictional issue.

Perhaps the Supreme Court will take this case, if a petition for certiorari is filed. It would not be heavy lifting for them. Assuming Judge Jackson is confirmed, this one could be a good candidate for her first opinion, which are traditionally “easy” ones that are of little interest to anyone other than lawyers in a particular practice area.

 

Last week the Fifth Circuit issued a short opinion that made an important point that does not arise often in class certification decisions. Class certification failed because the plaintiffs’ proposed theory of liability would benefit only some class members and disadvantage others, who would be overpaid if the plaintiffs’ theory were correct. For that reason alone, the plaintiffs could not adequately represent the class.

Prudhomme v. Government Employees Insurance Company, No. 21-30157, 2022 WL 510171 (5th Cir. Feb. 21, 2022) (per curiam) was similar to another case I recently wrote about—the plaintiffs claimed that their insurer undervalued their vehicles that were deemed total losses, in violation of Louisiana statutes. Sidestepping questions about commonality and predominance, which are usually the focus of class certification decisions, the Fifth Circuit affirmed the denial of class certification because the adequacy of representation requirement was not met. This was because “a portion of the proposed class members received payments above (that is, benefitted from) the allegedly unlawful valuation.” According to the district court opinion, an expert witness opined that approximately one-fifth of the class would have received less on the plaintiffs’ theory than they received from GEICO. While the plaintiffs argued that class members who were overpaid on their theory might still be entitled to some damages under Louisiana law, that would likely create a typicality problem. Class representatives cannot adequately represent a class if they offer “a theory of liability that disadvantages a portion of the class they allegedly represent.”

Look out for this type of issue the next time you are litigating a class action. It might be lurking in your case when you peel back the onion.

Numerous class action suits have been filed against auto insurers regarding the valuation of vehicles that are total losses. These cases typically allege that insurers are undervaluing vehicles in some common way or in violation of a state regulation. The Ninth Circuit recently affirmed the denial of class certification in a published decision that I expect will be helpful to insurers defending these cases and others involving different lines of insurance but similar issues.

In Lara v. First National Insurance Company of America, No. 21-35126, — F.4th –, 2022 WL 414691 (9th Cir. Feb. 11, 2022), the plaintiffs sued Liberty Mutual companies and CCC Intelligent Solutions, a vendor that assists insurers in valuing vehicles, alleging breach of contract as to Liberty Mutual and an unfair trade practices claim against all defendants. The insurance policy required payment of the “actual cash value” of the vehicle, which was defined by a Washington regulation as “fair market value.” CCC researches the prices at which used vehicles sell at car dealers, and then makes adjustment based on the pre-loss condition of the insured vehicle and the difference between prices paid for vehicles purchased from private parties rather than dealerships. The insurance adjuster then in some cases adjusts the value shown on the CCC report. Plaintiffs claimed that the “condition adjustments” on the CCC reports violated a Washington regulation. The case survived a motion to dismiss, but the district court denied class certification under Rule 23(b)(3), based on lack of predominance of common issues and because a class action would not be a superior method of resolving the dispute.

In affirming, the Ninth Circuit concluded that whether the condition adjustment violated the regulation was a common question, but liability and injury would require individualized adjudication of each claim. The court explained that “[b]ecause Liberty owed each putative class member the actual cash value of his or her car, if a putative class member was given that amount or more, then he or she cannot win on the merits,” and determining that “would involve looking into the actual pre-accident value of the car and then comparing that with what each person was offered.” In other words, there would have to be a minitrial on the value of each vehicle.

As plaintiffs often do in these cases, the plaintiffs here argued that the value of the vehicles involved “damages issues,” and some courts have said that if the only individualized issues involve damages, that should not defeat class certification. But, as the Ninth Circuit explained here, “if there’s no injury, then the breach of contract and unfair trade practices claims must fail,” and “[t]hat’s not a damages issue; that’s a merits issue.” In other words, if the ultimate amount paid was sufficient, it doesn’t matter how you get there. As the court put it, “the district court was correct to apply ‘the old basketball phrase, ‘no harm, no foul.’” The court also agreed with the district court that the superiority requirement was not satisfied because individual trials would be preferable given the nature of the issues to be decided.

Insurers will want to cite this opinion in cases involving other lines of insurance as well, such as property. Property insurance class actions often involve disputes over actual cash value or replacement cost value, and the same principle should apply. Disputes over whether a few hundred dollars more were owed for damage from a hail storm, for example, are individualized. As in this case, those disputes may be best resolved by the appraisal process provided for in these policies, or in small claims court, and often fail to satisfy the requirements for a class action.

On August 30, 2021, the U.S. Court of Appeals for the First Circuit issued a decision in Bais Yaakov of Spring Valley v. ACT, Inc. that addresses how plaintiffs can satisfy the predominance requirement in federal class actions. (The opinion (“Op.”) is available here). The decision held that on the facts of this case, the plaintiff could not establish predominance because individualized proof would be required on at least one element of the claim. The decision follows on the heels of an earlier decision where the First Circuit ruled against plaintiffs on a predominance dispute. In re Asacol Antitrust Litig., 907 F.3d 42 (1st Cir. 2018). These two cases create a high bar for plaintiffs to overcome defendants’ submission of declarations or other evidence substantiating an actual need to litigate an issue using individualized evidence.

Bais Yaakov arose under the Telephone Consumer Protection Act (TCPA). The TCPA prohibits sending advertisements by fax, unless the advertisement was either 1) sent pursuant to prior express permission or invitation of the recipient; or 2) the advertisement meets certain formatting requirements, including the presence of an opt-out notice in the advertisement. See 47 U.S.C. § 227(a)(5), 227(b)(1)(C). The statute provides for penalties of up to $1,500 per violation, which can quickly add up given the usually high volume of fax advertisements. 47 U.S.C. § 227(b)(3). Plaintiff, a small private high school, sent a request form to ACT in order to permit students’ ACT test scores to be reported to the school. Op. at 3. The school provided its fax number on the form and checked a box stating that the school wanted to receive SAT and ACT publications. Id.  Seven years later, ACT sent three faxes to Bais Yaakov. Id.  Two of the faxes promoted registration to take the ACT, while the third invited the school to sign up as an ACT test administration venue. Id. at 3-4. Bais Yaakov then brought a TCPA suit against ACT on behalf of a putative class of approximately 7,000 schools. Id. at 4. Bais Yaakov alleged that ACT sent approximately 28,000 faxes that transgressed the TCPA. Id.

The district court denied Bais Yaakov’s motion for class certification. Id. at 8. The court concluded that determining whether the faxes were sent with the prior express permission of the recipients would require individualized examination of the class members’ individual communications with ACT. Id. at 7. Thus, common issues would not predominate and the class could not be certified pursuant to Rule 23(b)(3) of the Federal Rules of Civil Procedure. Op. at 7. The court reached this conclusion in large part based on declarations (submitted by ACT) from seventy-eight putative class members stating that they provided ACT with their fax numbers, that they received communications via fax that were integral to their relationship with ACT, and that they would have given permission to send such information via fax. Id. at 20-21.

Bais Yaakov appealed and the First Circuit affirmed the denial of class certification. The court held that the predominance inquiry turned on whether “the record reasonably shows that some putative class members” gave ACT permission to send the faxes and, if so, whether “there is a fair and efficient method for culling those consenting recipients from the class.” Id. at 16. The court emphasized the importance of the declarations from the seventy-eight putative class members, which highlighted the differing positions of different putative class members regarding whether they had given ACT permission to send faxes. Id. at 20-21. The court concluded that, based on this evidence, the district court did not abuse its discretion in holding that there would be putative class members that consented to the faxes. Id. at 24. The First Circuit further held that Bais Yaakov raised no argument that there was a feasible way to cull those members from the class. Id. at 24-25.

In a concurring opinion, Circuit Judge Barron addressed the implications of the court’s decision on plaintiffs’ ability to satisfy the predominance requirement more generally. In light of the First Circuit’s decision and its earlier, similar decision in In re Asacol Antitrust Litig., 907 F.3d 42 (1st Cir. 2018), some commentators have questioned whether plaintiffs could ever satisfy the predominance requirement if the defendant merely contends that it needs to challenge class members’ testimony on an individual basis. Judge Barron’s concurrence pushes back against that argument and identifies potential situations where he might hold that a plaintiff can establish predominance even though the defendant contends that individual proof is required. He contends that Asacol and Bais Yaakov do not establish a per se rule that predominance cannot be satisfied whenever a defendant announces an intent to contest class members’ testimony individually. Op. at 40. Rather, in Judge Barron’s view, the court must make a “predictive assessment” of how the case would actually be litigated. Id. at 41. In making that assessment, the concurrence says that the court must look at whether such litigation would actually result in inefficiency (such as a large number of class members needing to testify about individual issues) or unfairness (such as infringing defendants’ rights to present individualized evidence in order to avoid inefficiency). Id.

After Asacol, many commentators viewed the First Circuit as a difficult place for class action plaintiffs to win class certification. The Bais Yaakov decision will likely reinforce that view. ACT effectively used declarations from putative class members to establish that different class members were differently situated regarding an element of the claim and to illustrate that individualized proof would be required on that element. By observing that courts should not just rest on defendants’ word that individualized issues defeat predominance, the concurring opinion further highlights how important it is for defendants to supplement their class certification evidence with declarations or other supporting evidence, where appropriate. Whether and if plaintiffs can successfully rebut an argument against certification that is supported with such evidence remains to be seen in future cases. But the First Circuit’s decisions so far suggest that where defendants’ evidence demonstrates a real need for individualized assessments, the predominance standard is difficult for class action plaintiffs to satisfy.

Last Friday, the U.S. Supreme Court issued a new decision on the requirement that plaintiffs have “standing” to sue in federal court. More specifically, the Court addressed what is required for a plaintiff to demonstrate “concrete harm.” Following this decision, defendants in class actions will have significant strategic decisions to make about whether and when to challenge the standing to sue of class members.

In TransUnion LLC v. Ramirez, Sergio Ramirez learned that TransUnion, one of the major credit reporting agencies, identified him as a “potential match” to someone on the Office of Foreign Assets Control (OFAC) list of terrorists, drug traffickers and other criminals with whom it is unlawful to do business. Although by all accounts Ramirez was a law-abiding citizen, a car dealership refused to sell a car to him because TransUnion identified him as a potential match to the OFAC list simply because he shared the same first and last names with someone on the list (without checking any other information). Ramirez brought a class action suit under the Fair Credit Reporting Act, alleging that TransUnion failed to “follow reasonable procedures to assure maximum possible accuracy” in credit reports, as required by that statute. He also alleged that disclosures made to him by TransUnion after he requested his credit report were inaccurate.  Ultimately a class was certified, the case was tried to a jury, and the jury awarded over $60 million, later reduced by the Ninth Circuit to about $40 million.

The Supreme Court addressed whether all or only some of the class members were entitled to recover. Out of a total of 8,185 class members, TransUnion issued credit reports to third parties on 1,853 of them during the relevant time period. The remaining 6,332 did not have credit reports issued to any third party, but complained about inaccurate disclosures made to themselves. The Supreme Court concluded that only the 1,853 had suffered “concrete harm” and thus had standing to sue. Doing some quick math, it appears the Court reduced TransUnion’s liability by about 80%.

Justice Kavanaugh wrote the majority opinion. He explained that, even where Congress has created a right to sue under a statute, Article III of the Constitution, which provides for courts to decide “cases” or “controversies,” requires courts to “assess whether the alleged injury to the plaintiff has a ‘close relationship’ to a harm ‘traditionally’ recognized as providing a basis for a lawsuit in American courts.” (Opinion, at 9.) This is straightforward when there is physical or monetary harm, and can also include “reputational harms, disclosure of private information and intrusion upon seclusion,” but overall is less clear when the harm is intangible. (Id.) Applying this test, the Court concluded that the class members whose credit reports were provided to third parties had standing to sue because their harm was similar to the longstanding tort of defamation. (Id. at 17.) But the bulk of the class, whose credit reports were inaccurate but never disseminated during the class period, did not have standing on the “reasonable procedures” claim because publication of the false information is a traditional requirement for defamation (although they might have had standing to sue for injunctive relief). (Id. at 19-20.) The risk of future harm, the Court wrote, was too speculative and unproven because there was no evidence that many of this group of class members were even aware that TransUnion had identified them as a potential match to the OFAC list. “[M]any of them would first learn that they were ‘injured’ when they received a check compensating them for their supposed ‘injury.’” (Id. at 23.) With respect to the claims about inaccuracies in disclosures made when credit reports were requested, the Court characterized these as “formatting violations” and mere “procedural” violations that failed to meet the test of “a harm with a close relationship to a harm traditionally recognized as providing a basis for a lawsuit in American courts.” (Id. at 25.) The Court sent the case back to the Ninth Circuit for reconsideration of the class certification decision and other issues. (Id. at 27.)

Four justices dissented. In brief, Justice Thomas’s view is that any violation of private, individual rights where Congress creates a private right and a cause of action is sufficient to confer standing. Stressing how the majority took the law in a new direction, he wrote that “never before has this Court declared that legislatures are constitutionally precluded from creating legal rights enforceable in federal court if those rights deviate too far from their common-law roots.” (Thomas, J., dissenting, at 12-13.) Justice Kagan (joined by Justices Breyer and Sotomayor) joined Justice Thomas’s dissent with a qualification. They would not alter the Court’s prior precedent under which “Article III requires a concrete injury even in the context of a statutory violation,” but would find standing to sue on all of the claims in this case, and would give substantial deference to Congress. Justice Kagan wrote that “[o]verriding an authorization to sue is appropriate when but only when Congress could not reasonably have thought that a suit will contribute to compensating or preventing the harm at issue.” (Kagan, J., dissenting, at 3.)

So what does all this mean for defending against class certification in putative class actions? What I found most significant was that the Court confirmed that “[e]very class member must have Article III standing in order to recover individual damages,” a proposition that Chief Justice Roberts had previously endorsed in a concurring opinion, but which had not previously been stated by a majority of the Court. (Opinion, at 15.) In a footnote, however, the Court stated that “[w]e do not here address the distinct question whether every class member must demonstrate standing before a court certifies a class,” citing an Eleventh Circuit decision that requires district courts to consider whether individual issues of standing predominate over common issues when deciding class certification.  (Id. at 15 n.4.) The Eleventh Circuit stated in that case that, in some circumstances, it might be appropriate for a district court to certify a class in which some class members would not have standing and deal with that issue later in the proceeding (while noting that such an approach may be inappropriate where many class members do not have standing). The courts of appeals are split on whether plaintiffs in class actions must establish standing of class members at the class certification stage, with some circuits saying that only the named plaintiffs need to have standing, and others requiring that all class members have standing. The Supreme Court may well take that issue up in a future case.

Significantly, footnote 9 in Justice Thomas’s opinion suggested that there may be circumstances in which, based on the Court’s decision, state courts, some of which have less rigorous standing requirements, might have jurisdiction over claims (even under federal statutes) that cannot be brought in federal court. In some instances, federal courts finding a lack of standing have remanded cases to state court where a defendant would prefer to litigate in federal court. This presents significant strategic considerations for defendants. In some circuits, defendants may be able to defeat class certification because a substantial portion of the class does not have standing. But there also could be cases where a defendant might decide it is better off not challenging the issue of whether a portion of the class has standing until after class certification is decided, or not challenging the standing issue at all and instead challenging those claims on the merits. If a class is likely to be certified, a final judgment against a portion of the class on the merits could be more advantageous to a defendant than a finding of lack of standing in federal court that may leave open the possibility for state court litigation.

A recent decision by the Eleventh Circuit struck down a practice that is commonplace in class action settlements—providing a modest incentive award to a named plaintiff. In Johnson v. NPAS Solutions, LLC, No. 18-12344, 2020 WL 5553312 (11th Cir. Sept. 17, 2020), the district court, as part of the final approval of a class action settlement, approved a $6,000 incentive award for the named plaintiff. An objector to the settlement challenged the incentive award along with other objections, and the Eleventh Circuit held (with one judge dissenting) that the incentive award was improper. The court found that, although such awards are routine, no court had thoroughly evaluated the basis for its authority to approve them. The court relied on two 1880s decisions of the U.S. Supreme Court, which held, prior to invention of the modern class action, that plaintiffs who recovered on behalf of others (such as a trustee who sued on behalf of himself and other bondholders) could not recover an allowance for “personal expenditures” or “personal services” out of a common fund that was obtained. Id. at *8. The Eleventh Circuit majority concluded that, under these decisions, “[a] plaintiff suing on behalf of a class can be reimbursed for attorneys’ fees and expenses incurred in carrying on the litigation, but he cannot be paid a salary or be reimbursed for his personal expenses,” and “the modern-day incentive award” was “roughly analogous to a salary” or “payment for ‘personal services.’” Id. at *9. The majority further concluded that the same result would be warranted if the incentive award were characterized as a “bounty.” According to the majority, such awards, although they have been routine, can be authorized only if the Supreme Court overrules its old precedent, Rule 23 is amended to authorize such awards, or Congress enacts a statute authorizing such awards. Id. at *9, 10-12.

Judge Martin dissented from this portion of the opinion, concluding that the majority’s decision was inconsistent with a 1983 decision of the Eleventh Circuit that had set forth a fairness test for such awards, similar to the approach taken by other circuits (albeit without thoroughly evaluating the authority to make such awards). Judge Martin wrote that: “By prohibiting named plaintiffs from receiving incentive awards, the majority opinion will have the practical effect of requiring named plaintiffs to incur costs well beyond any benefits they receive from their role in leading the class. As a result, I expect potential plaintiffs will be less willing to take on the role of class representative in the future.” Id. at *15 (Martin, J., dissenting).

It will be interesting to see whether this decision results in a decrease in class action filings in the Eleventh Circuit, or if plaintiffs’ attorneys are still able to recruit named plaintiffs without the possibility of an incentive award. It seems unlikely that this decision will make class actions more difficult to settle, although perhaps that could happen if named plaintiffs cannot obtain more than a small amount that absent class members are receiving. Given that the old Supreme Court decisions are focused on circumstances in which a “common fund” was created, perhaps the Eleventh Circuit would reach a different result if the settlement is on a claims-made basis, and provides for the incentive award to be paid by the defendant separately, not as part of a “common fund.” In those circumstances, the court is simply approving the parties’ agreement and not involved in the allocation of a “fund.”

The Eleventh Circuit also found that the district court erred in two other respects that demonstrate some good practice tips for class action lawyers. First, the court of appeals found that the district court improperly set the deadline for objections to the plaintiff’s attorneys’ fee award prior to the filing of the plaintiff’s attorneys’ motion for the fee award, which the court concluded was not in compliance with Fed. R. Civ. P. 23(h). The court concluded, however, that this was harmless error because the objector to the settlement had adequate opportunity to present its position in the district court after the fee motion was filed and on appeal. This problem can easily be avoided when the parties propose a schedule for the class action settlement process to the district court. Such a schedule can require the fee motion to be filed sufficiently in advance of the objection deadline. Second, the court of appeals concluded that the district court failed to make sufficient findings or conclusions to support its decision granting final approval of the settlement and the proposed fee award. Given that it is common practice in most federal courts for the parties to submit a proposed order to the district court, this problem also potentially can be avoided by presenting a thorough proposed order for the district court’s consideration.