Here is part two of my insights from the 2013 DRI Class Action Seminar:
Standard Fire v. Knowles (blog post): Ted Boutrous of Gibson Dunn, who argued for Standard Fire in the Supreme Court (I worked with him on the case), spoke about the Court’s decision striking down the use of a stipulation by a named plaintiff that he was not seeking to recover more than $5 million on behalf of the putative class, in order to avoid federal jurisdiction under the Class Action Fairness Act. Ted talked about the importance of the Supreme Court’s point about “slicing and dicing” of putative classes, in which the Court used an example of a plaintiffs’ lawyer subdividing a $100 million class action into 21 just-below-$5 million class actions in order to evade federal jurisdiction. Ted explained that the Supreme Court instructed that manipulation for the purpose of thwarting federal jurisdiction is improper. The Court’s opinion also calls into question the adequacy of class representatives who manipulate class claims. Knowles is also consistent with the fundamental principle that a class action is a procedural device implemented for the convenience and efficiency of the court system, where appropriate. The named plaintiff has no personal right to bring a class action, as was reinforced by the Court’s decision in Genesis Healthcare.
American Express v. Italian Colors (blog post): Michael Kellogg, who argued for American Express, spoke about this case, in which the Court upheld a class action waiver in an arbitration clause. He said the opinion is notable for the broadness of its ruling and the sharpness of the dissent. When the dissent suggests that the sky is falling, that tends to broaden the scope of the majority opinion. In light of this decision, it should not matter whether a claim is state or federal, either way an arbitration clause can prevent a class action, unless Congress excludes the claim from the Federal Arbitration Act. It also should not matter if the contract is commercial (as in American Express, which involved merchants) or a consumer contract. Kellogg expects that many companies will add these provisions to their contracts, and perhaps also to their corporate charter or bylaws (to try to prevent shareholder class actions). There will be lots of litigation over state unconscionability rules relating to contract formation. There is also likely to be a push for legislation in Congress that would undermine the decision. The Consumer Financial Protection Bureau also is expected to enact regulations regarding arbitration clauses in consumer financial services contracts. (This would not impact insurance per se, but might affect some insurance company families that have financial services operations as well.) As I noted in my blog post on AmEx, the expansion of arbitration in other industries may drive plaintiffs’ lawyers to sue insurers in class actions more frequently simply because insurance contracts generally do not have arbitration clauses (unless that changes).
Trial of a Rule 23(c)(4) Class Action: Jim Muehlberger of Shook Hardy & Bacon spoke about a trial of an “issues” class action under Rule 23(c)(4). He advised to lay the groundwork for decertification of the class, maybe after the close of the evidence, or earlier if there is some major development that warrants it. Some of these trials are phased, with common issues tried in phase 1 and individual issues for the named plaintiffs tried in phase 2. The defendant may want to insist on the claims of the named plaintiffs being tried in phase 1. Jury research may be helpful in developing themes, testing how a jury might perceive the named plaintiffs and their claims, and whether or not to exclude jurors whose immediate family members are class members (the defendant should have the right to exclude these jurors but might not want to). Jim suggested that in the opening, defense counsel should spend time on what a class action is, the plaintiffs’ obligation to prove the case on a classwide basis, and the weaknesses of the named plaintiffs’ claims. The cross-examinations of the named plaintiffs are often far longer than the direct examination and important for the defense case. It may be useful to use the class definition as a demonstrative exhibit. It is important to remind the court that the class can be decertified at any time before final judgment, and that the defendant has the right to put on evidence relevant to that. The closing for the defendant will often focus on the failure of classwide proof. Jim anticipates we will see more class actions tried because defendants need to demonstrate that they will not settle every case that is certified.
Why Class Actions Have Not Decreased Following CAFA’s Enactment: Jessica Miller of Skadden presented on why class actions have not decreased following CAFA. The statistics show that Rule 23(f) petitions are being granted by the federal courts of appeals at a substantially lower rate in more recent years (36% from 1998-2006 and then 25% from 2006 to 2013). The rates at which 23(f) petitions are granted also varies substantially between the circuits, with the Fifth Circuit granting 72% of defendants’ petitions (and reversing in 67% of cases in which review is granted), and the Ninth Circuit granting only 14% of defendants’ petitions, and then reversing in only 50% of cases where review is granted. There has also been some resistance to federal jurisdiction under CAFA in the lower federal courts, with the Third and Ninth Circuits imposing a higher threshold for defendants to establish federal jurisdiction.
Ethics in Class Actions: Kevin Clines of Hughes Hubbard & Reed presented on ethics in class actions. He discussed the general rules about contact with members of a putative class and a certified class, noting that the rules vary in different jurisdictions. In some cases it may be useful to remind counsel for objectors to class action settlements of their obligation to comply with those rules. With respect to class action settlements, Kevin noted the recent authority regarding incentive awards to named plaintiffs, and restricting cy pres settlements, topics I’ve covered extensively on this blog (you can use the search function on the right-hand side of this page to locate relevant posts). He recommended taking steps to ensure that settlement funds are secure when they are provided to a settlement administrator, and also that the administrator, and any vendors they use, have appropriate procedures to comply with privacy law obligations.