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 The federal claim was withdrawn in an amended complaint, and the district court then remanded the case sua sponte, concluding that the particular type of state law claim brought under a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.

Over the last several weeks, numerous putative class actions have been filed against insurers seeking coverage for business interruption claims arising from the COVID-19 pandemic. On May 21, 2020, I will be a panelist, along with Robert M. Cooper of Boies Schiller Flexner LLP and Mark P. Rapazzini of Heffler Claims Group, in a Perrin Conferences webinar entitled “Coronavirus Business Interruption Insurance Class Action Lawsuits: Coverage and Certification Issues.” The webinar will highlight the insurance coverage issues raised in these newly-filed cases and the class certification issues likely to arise. A small number of complimentary registrations are available for Robinson & Cole clients and friends on a first-come, first-served basis. If you are interested in one of those, please email me.

This week the D.C. Circuit and Seventh Circuit issued decisions addressing a question that has been hotly debated by class action lawyers on the plaintiffs’ and defense sides: whether the Supreme Court’s decision on personal jurisdiction in Bristol-Myers Squibb Co. v. Superior Court of California, 137 S. Ct. 1773 (2017) (blog post) applies to class actions, and if so, how. Bristol-Myers held that in a mass action, a California state court lacked personal jurisdiction (specific jurisdiction) over claims made by non-California residents that involved no harm in California and no harm to California residents. Following that decision, defendants have argued that trial courts lack jurisdiction over putative class members, or over claims alleged on their behalf, that lack sufficient connection to the forum jurisdiction. The first appellate decisions on these issues came down this week. Thus far, defendants have not prevailed, but I think the litigation of these issues is far from over.

In Molock v. Whole Foods Market Group, Inc., No. 18-7162, 2020 WL 1146733 (D.C. Cir. Mar. 10, 2020), the plaintiff employees sought to bring a nationwide class action for alleged lost wages. The district court denied the defendants’ motion to dismiss based on Bristol-Myers, and an interlocutory appeal was allowed. The D.C. Circuit, in a 2-1 decision, ruled that the question of whether and how Bristol-Myers applies to class actions is premature prior to a decision on class certification because, until a class is certified, putative class members are not parties. The majority relied on Smith v. Bayer Corp. and Standard Fire Ins. Co. v. Knowles, both of which recognized that putative class members cannot be bound by decisions made or actions taken in a putative class suit that has not yet been certified as a class action. The majority did not interpret Whole Foods’ position as asserting that there was a lack of jurisdiction over specific claims, and therefore did not address that question. I read Molock as potentially supporting an argument by defendants that, at class certification, the scope of any certified class should be limited to claims arising out of harm in jurisdictions where a named plaintiff was harmed. The line of argument would be that a class action must be litigated in a manner that ultimately leads to a binding outcome on the absent class members, which logically requires personal jurisdiction over the absent class members and the claims asserted on their behalf.

Judge Silberman of the D.C. Circuit dissented on various grounds, and would have ruled in favor of the defendant. He viewed Whole Foods’ argument as focusing not on whether there was personal jurisdiction over the absent putative class members, but rather seeking dismissal of those claims alleged by the named plaintiffs that related to injuries occurring outside the District of Columbia. He pointed out that courts have generally recognized and decided motions to dismiss or strike a portion of alleged class claims. Judge Silberman expressed a practical concern that, if adjudication of the scope of the class in this respect is postponed until class certification, a defendant can be subjected to unduly burdensome discovery (the majority opinion recognizes, however, that the district court could decide the Bristol-Myers issue in the context of a discovery dispute). Judge Silberman would have reached the merits of the Bristol-Myers issue and held that a named plaintiff cannot pursue claims of putative class members with no connection to the forum state. His reasoning included that: (1) personal jurisdiction must be analyzed on a claim-by-claim basis; (2) logically, a class action is a type of joinder and should not be treated differently than a mass action on this issue; (3) Rule 23 cannot alter jurisdictional requirements; and (4) Congress, in Rule 4(k)(1)(A), has limited federal district courts’ exercise of personal jurisdiction to that of a state court where the district court is located. Judge Silberman also would have concluded that absent class members are parties for purposes of personal jurisdiction over a defendant.

In Mussat v. IQVIA, Inc., No. 19-1204 (7th Cir. Mar. 11, 2020), the plaintiff filed a putative nationwide class action under the Telephone Consumer Protection Act. The district court granted the defendant’s motion to strike the class definition insofar as it alleged a nationwide class, based on Bristol-Myers. The Seventh Circuit agreed to hear an appeal from this ruling under Fed. R. Civ. P. 23(f), and held that Bristol-Myers did not apply to a nationwide class action in federal court under a federal statute. The Seventh Circuit wrote that “[o]nce certified, the class as a whole is the litigating entity, and its affiliation with a forum depends only on the named plaintiffs.” Slip op. at 5 (citation omitted). The Seventh Circuit did not address the issue raised by the D.C. Circuit about whether adjudication of this issue was premature where no class had been certified. The Seventh Circuit noted that the Supreme Court had repeatedly adjudicated nationwide class action cases without addressing the Bristol-Myers issue (although the issue does not appear to have been raised by parties in any of those cases), and that the Supreme Court stated in Bristol-Myers that it was applying “settled principles of personal jurisdiction.” Slip op. at 7. The Seventh Circuit also noted that absent class members are not treated as parties for ordinary diversity jurisdiction purposes, or in determining venue. The Seventh Circuit also analogized class actions to situations where an executor, administrator or trustee sues in a representative capacity, and courts analyze personal jurisdiction only with respect to the representative.

These are complicated issues and it will be interesting to see how the law develops as additional circuits are asked to weigh in. I expect the Supreme Court will take this up within the next few years. There are additional issues in play that were not raised or addressed by the D.C. Circuit or the Seventh Circuit. One of those that comes to mind is the fact that the Class Action Fairness Act (which is the basis for subject matter jurisdiction in many federal court class actions) requires consideration of the citizenship of putative class members for various purposes, including exceptions to jurisdiction. See 28 U.S.C. 1332(d)(3), (4). Putative class member claims are also aggregated for determining whether the amount in controversy requirement is satisfied. Id. § 1332(d)(6). These provisions seem to run counter to part of the Seventh Circuit’s reasoning that putative class members should be treated as irrelevant for jurisdictional purposes.

As highlighted by these decisions, there are strategic decisions defendants need to make in deciding how (and whether) to litigate this issue. One strategic decision is whether to present the question as an issue of personal jurisdiction over the absent class members themselves, or over a certain portion of the claims asserted by the named plaintiff against the defendant (i.e., the “out-of-state” claims), or both. Another strategic consideration is whether or how any positions taken might impact a class action settlement later in the litigation.

 

 

Believe it or not, the Supreme Court of the United States just decided whether “to have ‘actual knowledge’ of a piece of information, one must in fact be aware of it.” The Court said “yes,” and it was unanimous. Most non-lawyers (and even some lawyers) would probably be surprised that this issue was even being debated. But it was a question that had divided the lower courts, with the Sixth Circuit ruling that “actual knowledge” did not require actually seeing or reading a document that was provided. The Supreme Court agreed with the six other circuits that had concluded that “actual knowledge” means what it says. The Court’s opinion potentially holds a silver lining for defendants though when it comes to class certification.

In Intel Corp. Investment Policy Committee v. Sulyma, No. 18-1116, the Court was asked to construe a statute of limitations for breach of fiduciary duty claims under the Employee Retirement Income Security Act  (ERISA), which requires that suit must be filed within three years of “the earliest date on which the plaintiff had actual knowledge of the breach or violation.” The plaintiff in this putative class action was a former Intel employee who claimed that retirement plans that he participated in had poor investment options with high fees and high risks. Various disclosures were made available to him on a website that he had access to, and in fact visited, but he did not remember reviewing the relevant disclosures, and claimed he was unaware that his money was being invested in hedge funds or private equity. He brought suit more than three years after receiving the disclosures.

Justice Alito wrote the opinion for a unanimous Court holding that “actual knowledge” under this statute means that you have to actually be aware of something. The opinion cited various dictionary definitions of “actual” and “knowledge” (even noting that the meaning of those words has not changed since ERISA was enacted in 1974), and explained how Congress in other parts of ERISA used a “should have known” type of standard instead of an “actual knowledge” standard, thereby choosing its words carefully.

What I found most interesting from a class certification perspective though is Part III. In that section, the Court explained how defendants could go about proving that plaintiffs had “actual knowledge”:

Nothing in this opinion forecloses any of the “usual ways” to prove actual knowledge at any stage in the litigation. [Citation omitted.] Plaintiffs who recall reading particular disclosures will of course be bound by oath to say so in their depositions. On top of that, actual knowledge can be proved through “inference from circumstantial evidence.” . . . Evidence of disclosure would no doubt be relevant, as would electronic records showing that a plaintiff viewed the relevant disclosures and evidence suggesting that the plaintiff took action in response to the information contained in them. . . . Today’s opinion also does not preclude defendants from contending that evidence of “willful blindness” supports a finding of “actual knowledge.”

In the context of a putative class action like this one, defendants will no doubt argue that they must be entitled to depose every putative class member regarding which disclosures or other relevant information he or she read, and to present at trial electronic records of every time a class member viewed the disclosures or other relevant information on a website or called to inquire about his or her account. Unless the proposed class is limited to the shortest possible three-year period, this would seem to be a potentially strong defense to class certification.

When a business is sued in a proposed class action and there is only a small amount at stake on the named plaintiff’s claim, often one of the first thoughts that comes to mind is: can’t we just pay the full value of the named plaintiff’s claim and make the case go away? As you might imagine, this is a tactic that has been attempted for decades, since the advent of modern class actions. It’s largely been unsuccessful, but the Illinois Supreme Court clarified last week that defendants can defeat a class action in that state’s courts by “tendering” full relief. According to the Illinois Supreme Court, this requires paying the full amount potentially owed into the court’s registry, agreeing to pay whatever the court awards for reasonable attorney’s fees and costs (if applicable), and effectively admitting liability. And this only works if a motion for class certification has not been filed before the amount is tendered. If there is injunctive or other non-monetary relief sought, the defendant may have to agree to that relief unconditionally as well.

In Joiner v. SVM Management, LLC, Docket No. 124671, 2020 IL 124671 (Ill. Feb. 21, 2020), the Illinois Supreme Court revisited its prior precedent on this issue in light of the U.S. Supreme Court’s decision in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016) (blog post). The Illinois Supreme Court had previously found that a tender of full relief prior to a motion for class certification being filed would moot a putative class action. In Gomez, the U.S. Supreme Court held that an offer of judgment under Federal Rule of Civil Procedure 68 that was not accepted did not render a class action moot because an unaccepted offer was a nullity under basic principles of contract law. The Court suggested that depositing the funds into an account might lead to a different result, but federal courts of appeals addressing that tactic have thus far rejected that approach, as far as I’m aware.

The Illinois Supreme Court distinguished Gomez on the grounds that a tender is actually forking over the money, not just offering it, the Illinois Code of Civil Procedure expressly provides for such a tender, and such a tender admits liability and is unconditional. The court explained:

When a defendant tenders the relief sought by a named plaintiff prior to a motion for class certification, it does not force the plaintiff to accept a settlement against her will, as plaintiffs argue, but admits liability and satisfies plaintiff’s demand. A live controversy therefore no longer exists, and the court must dismiss the case if no other plaintiff steps into the named plaintiff’s shoes to represent the class.

In Joiner, the tender was made by the defendant’s attorney sending a cashier’s check to the plaintiff’s attorney, but the court explained that future tenders should be made by paying the funds to the court:

We hold that future tenders made to satisfy a demand if made after filing of suit, should be made to the court. If the tender fully satisfies the plaintiffs’ demand absent costs and attorney fees, the court could then hold a hearing on costs and, if applicable, attorney fees before dismissing the case contingent upon payment of costs and fees.

Will defendants decline to remove cases to federal court in Illinois where this strategy is available? Keep in mind that Plaintiffs still appear to be able to defeat this strategy under the Joiner decision by filing an appropriate motion for class certification simultaneously with the complaint. And defendants may need to consider whether there are any potential collateral consequences of admitting liability by making a tender.

The issue still remains open at the Supreme Court level in the federal system, so stay tuned.