A recent Ninth Circuit decision caught my eye. It addressed whether a state enforcement action can be barred by a class action settlement on the same issue, finding that it was barred in part, to the extent the suit sought restitution that was the same relief at issue in the class action.
In People v. Intelligender, LLC, 2014 U.S. App. LEXIS 21313 (9th Cir. Nov. 7, 2014), the defendant had settled a nationwide class action alleging that it made misrepresentations about its urine test designed to predict a fetus’s gender. The State of California was given notice of the proposed settlement and did not object. An enforcement action was later brought by the People of the State of California, through the San Diego City Attorney. The Ninth Circuit concluded that the State could litigate claims for statutory penalties and injunctive relief, because those claims implicated the State’s public interests. But the State could not pursue claims for restitution, because those same claims had been pursued by the class, and were barred by res judicata. The court explained:
That compensation was limited to those who obtained an incorrect result is a reflection of the bargaining and compromise inherent in settling disputes. Individual Gram class members who bought a Test and used it but did not obtain an incorrect result remain bound by the settlement, even though they will not receive any compensation. If the State wished to secure compensation for those class members, it had an opportunity to do so by intervening after receiving notice of the proposed settlement pursuant to 18 U.S.C. § 1715(a). This is the method CAFA established for states to seek equitable compensation for class members. The State chose not to use its authority, and the settlement was approved. Compensation is res judicata. (Id. at *26-27.)
This case is a good reminder for defendants that a well-crafted class action settlement will not necessarily buy them complete peace. Government enforcement actions may still be able to be brought on essentially the same claims. The type of relief sought may be limited, but here the civil penalties ($2,500 per violation) might be substantial, depending on how they would be calculated. In the insurance context, it is worth taking into consideration whether the state attorney general(s) or insurance regulator(s) have or might be likely to become involved in the issue that is before the court in the class action.