Nationwide and Multi-State Class Actions Likely Limited by Bristol-Myers Squibb Decision

In Bristol-Myers Squibb Co. v. Superior Court, 137 S. Ct. 1773 (2017), the U.S. Supreme Court held that the California state courts lacked personal jurisdiction over claims made by out-of-state plaintiffs in a mass action, where the plaintiffs did not claim that they were harmed in California and the defendant’s relevant conduct did not occur in California. (See my June 22, 2017 blog post for a more extensive summary of the decision.) There has been some debate about whether this decision applies to a class action, and whether it applies in federal court.

A Northern District of Illinois decision recently addressed this issue in the context of a nationwide putative class action against a distributor of a dietary supplement. DeBernardis v. NBTY, Inc., 2018 U.S. Dist. LEXIS 7947 (N.D. Ill. Jan. 18, 2018). While noting that there has been a split of authority among district courts nationwide, and that it was a “close question,” the court dismissed the plaintiff’s claims to the extent they were asserted on behalf of putative out-of-state class members, explaining that:

The Court believes that it is more likely than not based on the Supreme Court’s comments about federalism that the courts will apply Bristol-Myers Squibb to outlaw nationwide class actions in a form, such as in this case, where there is no general jurisdiction over the Defendants. There is also the issue of forum shopping, which was mentioned in the Chinese DryWall case as a basis for distinguishing mass torts from class actions, but possible forum shopping is just as present in multi-state class actions.

Defendants should closely monitor developments on this important issue. It is likely worth raising not only in the context of a nationwide class action but also in a multi-state class action. Some plaintiffs’ lawyers are bringing simultaneous or serial statewide class actions individually, which avoids the impact of this decision. Another approach is for plaintiffs’ lawyers to bring a nationwide or multistate class action in a jurisdiction where the defendant is subject to general jurisdiction, such as the state of incorporation or principal place of business.

Impact of Surveys and Affirmative Defenses on Class Certification Motion Addressed By California Court of Appeal

In a long-running employment class action in California, a California Court of Appeal recently addressed once again the use of surveys of class members. The case was the subject of a prior California Supreme Court decision (see my June 2014 blog post), which provided guidance on the use of statistical evidence by plaintiffs to attempt to prove their claims on the merits in class actions, the need for a trial plan, and the need to allow the defendant to prove its affirmative defenses.

After remand, the trial court ultimately denied class certification on various grounds, including the unreliability of, and discrepancies between, two surveys conducted by plaintiffs’ counsel. In Duran v. U.S. Bank Nat’l Ass’n, 2018 Cal. App. LEXIS 36 (Cal. Ct. App. Jan. 17, 2018), the California Court of Appeal recently affirmed. What I found most interesting was how the court evaluated whether a trial of the affirmative defenses would be manageable:

In the portion of the court’s decision about which plaintiffs complain, the court observed that if “the vast majority of the class sample would credibly testify that most of their time was spent inside the office and the confidence interval was relatively narrow, then one might infer that the number of witnesses the defense would call on its affirmative defenses would be relatively small. But if the results relied upon [by an expert witness] are as unreliable as suggested by a comparison of the 2008 and 2015 surveys, then the court cannot take much comfort in the notion that Plaintiffs’ trial plan adequately manages the affirmative defenses. As with the issue of restitution, the affirmative defenses would appear to require a host of ‘mini trials.’”

What is the best approach for the defendant to take in this scenario? Strategically, a defendant may not want to reveal too much of its trial strategy at the class certification stage. But it may be necessary in order to present the best possible defense to class certification. A court should not need to guess how many witnesses the defense would call on its affirmative defenses based upon the reliability of a survey. The defendant can instead demonstrate how it will prove its affirmative defenses and why that will make a class trial unmanageable.

Rule 23(f) Petitions – Sixth Circuit Provides Guidance

When a defendant receives an adverse decision on a motion for class certification, whether the court of appeals grants permission to appeal under Rule 23(f) of the Federal Rules of Civil Procedure (or a state-court equivalent, if available) can be a crucial turning point in the case. If the court of appeals will not hear an interlocutory appeal on class certification, the only way to obtain review of that decision is to take the case through trial, to a final judgment. But few class actions are tried. Due to the high stakes and large costs involved, when a class is certified, the case often settles. While the petition for permission to appeal under Rule 23(f) is thus a crucial step, it must be put together under a short timeframe (14 days from the trial court’s order), which may make it difficult for the defendant to select and retain appellate counsel new to the case. And the petition must be concise – 5,200 words (approximately 20 pages).

The short timeframe and limited space for these petitions sometimes results in defendants filing petitions that are focused heavily or even entirely on why they believe the trial court got it wrong. But the court of appeals will also be focused on other factors, such as whether there are significant questions of law involved (as opposed to merely application of established law to the facts of your case), why the issues presented matter for other cases or the development of the law, and why the appeal cannot wait until after a final judgment.

In many instances, a court of appeals’ decision on whether to grant permission to appeal will be only a one-line order without explanation. In In re Marietta Memorial Hospital, 2018 U.S. App. LEXIS 460 (6th Cir. Jan. 8, 2018), however, the Sixth Circuit wrote a short opinion on this, likely to provide parties filing Rule 23(f) petitions with additional guidance. The court began by setting forth the key factors it considers in deciding whether to hear these appeals:

We may, in our discretion, permit an appeal from an order granting class certification. Fed. R. Civ. P. 23(f). This “unfettered” discretion is akin to the discretion of the Supreme Court in considering whether to grant certiorari; thus, we may consider any relevant factor we find persuasive. See Fed. R. Civ. P. 23, advisory committee’s note (1998 amendment); In re Delta Air Lines, 310 F.3d 953, 959 (6th Cir. 2002) (per curiam). Typically, however, we consider (1) whether the petitioner is likely to succeed on appeal under a deferential abuse-of-discretion standard; (2) whether the cost of continuing the litigation for either the plaintiff or the defendant presents such a barrier that subsequent review is hampered; (3) whether the case presents a novel or unsettled question of law; and (4) the procedural posture of the case before the district court. In re Delta Air Lines, 310 F.3d at 960.

In explaining why it declined to grant review, the Sixth Circuit noted that the defendant “has not identified any novel legal question raised by the petition,” and that the defendant’s “mere ‘general assertion[s]’ that certification is dispositive of the litigation” were insufficient. The Sixth Circuit advised that, in order to demonstrate that the costs of litigation would likely preclude review after a final judgment, “the defendant should provide insight into the potential expenses and liabilities.” The Sixth Circuit also noted that the defendant failed to address whether the district court might reexamine the class certification decision, and noted that both parties had filed dispositive motions, which weighed against interlocutory review.

The short opinion in Marietta Memorial Hospital provides a useful reminder for defendants about what should be addressed in a Rule 23(f) petition. It is also important to keep in mind that in most circuits these petitions are decided quickly by a motions panel, which will not delve deeply into the case. A defendant will often be best served by highlighting, where possible, the importance of the issues presented and explaining persuasively why the case is unlikely to reach a final judgment.

Oral Argument in Epic Systems Corp. v. Lewis: Class Action Waivers in Employment Agreements

The Supreme Court began its new Term yesterday with oral arguments in cases involving whether arbitration agreements permitting only individual (non-class) arbitrations are enforceable under the Federal Arbitration Act, or prohibited by the National Labor Relations Act as an improper restriction on collective action. It is a case that essentially pits one federal statute against another. The decision could impact the enforceability of arbitration provisions with class action waivers in other contexts where there is another relevant federal statute.

The position in favor of the employers was perhaps most persuasively articulated by Jeffrey Wall, the Principal Deputy Solicitor General, when he said “It is a fundamental attribute of arbitration, and this Court said it three times, to pick the parties with whom you arbitrate. And our simple point is this case is at the heartland of the FAA. It is, at best, at the periphery of the NLRA, on the margins of its ambiguity, and you simply can’t get there under the court’s cases.” Justices Ginsburg, Sotomayor and Kagan seemed to push strongly against that position, suggesting that the right to collective action was at the heart of the NLRA.

The justices were so eager to get their questions and comments in that Justices Alito and Kagan had to reserve in advance the opportunity to ask questions and Chief Justice Roberts stepped in to referee that process. Perhaps the Court could develop a new electronic system for that process, with justices pressing a button to create a waiting line of sorts to ask questions.

Justice Kennedy, who is often the swing vote in these types of cases, seemed to be focused on whether it would make a difference if a small number of employees retained the same lawyer and sought arbitration individually. His questions and comments could be read to suggest that as long as that type of action were permitted, there would not be a conflict with the NLRA. Justice Breyer also seemed to focus on whether the answer to the question presented was not tied to a prohibition on class actions, but rather whether prohibiting employees from joining together even in a non-class action context would violate the NLRA, which he seemed to think would be prohibited.  Chief Justice Roberts posed a hypothethical in which the rules of the arbitration forum (selected by the employer) allowed a class arbitration, but only if there were 51 or more people who joined. The NLRB’s lawyer said that would be permissible. Justice Alito then asked about whether it would be permissible if the rules of the arbitration forum prohibited class arbitration, and the NLRB’s lawyer appeared to agree that that would be permissible, just as if there were no class actions allowed in court. If those propositions are correct, an employer could potentially reach the same outcome simply by selecting a a particular arbitration forum with a particular set of rules. Justice Sotomayor pointed out that many union contracts provide exclusively for arbitration, suggesting that the Court may not want to reach a result that could invalidate those. Paul Clement, arguing for the employers, pointed out that the notion of a class arbitration was unheard of when the FAA was enacted in 1925 (and the same would be true with respect to the NLRA).

Labor Depreciation Class Action: New Eighth Circuit Decision

This week the Eighth Circuit issued its long-awaited decision in a class action against State Farm involving the “labor depreciation” issue that I have covered extensively on this blog (see my August 14 post and others). State Farm prevailed on both the merits of whether its approach to determination of the actual cash value of property damage was proper under Missouri law, and on class certification. This important ruling will not end the labor depreciation class action litigation entirely, but it will be of substantial benefit to insurers litigating this issue in various jurisdictions across the country. It is part of a growing trend of decisions in favor of insurers, including decisions by the Tenth Circuit and Nebraska Supreme Court, and Minnesota Supreme Court.

The Eighth Circuit opinion is captioned as In re State Farm Fire and Casualty Company (in the district court the case was captioned as Labrier v. State Farm Fire & Cas. Co.).  The district court had denied State Farm’s motion to dismiss, finding depreciation of labor costs improper as a matter of law, and granted class certification. The Eighth Circuit granted discretionary appellate review under Rule 23(f) and reversed both the order on the motion to dismiss and the class certification ruling, remanding with direction to dismiss the complaint.  The Eighth Circuit also had accepted a mandamus petition with respect to certain discovery rulings that State Farm had challenged, but found it unnecessary to reach the discovery issues given its ruling on the merits and class certification.

The court of appeals held that, under Missouri law, actual cash value means “the difference between the reasonable value of the property immediately before and immediately after the loss.” (Slip op. at 6.) The court explained that the determination of the difference in fair market value, including the determination of depreciation in connection therewith, is generally a question of fact where there is a dispute over conflicting estimates. (Id. at 8.) The Eighth Circuit concluded that the Missouri Supreme Court would agree with the Minnesota Supreme Court’s decision that the application of depreciation to labor costs is a case-by-case factual question that “may only be determined based on all the facts surrounding a particular insured’s loss.” (Id. at 13.) The court thus concluded that “there are no predominant common facts at issue,” and thus certification under Rule 23(b)(3) was improper. (Id.)

In the interest of full disclosure, I represented the American Insurance Association and Property Casualty Insurers Association of America as amici curiae in this case.


Medicare Secondary Payer Act Class Actions

There have been a substantial number of putative class actions filed recently against insurers involving the Medicare Secondary Payer Act (MSPA). These cases are typically filed by assignees of Medicare advantage organizations that have paid for medical services arising from auto accidents. The claim is that under the MSPA, the PIP/MedPay coverage under auto policies is primary and the coverage provided by the Medicare advantage organizations is secondary. Most of these cases are pending in Florida, and I have seen at least one case in New Jersey. I have seen some rulings denying motions to dismiss, mostly focused on whether there was an enforceable assignment of rights. I have not yet seen a decision on class certification. This is definitely an issue worth watching. Please let me know if you learn of significant developments on this issue.

Class Action Involving Application of Deductible to Actual Cash Value Payment

An emerging issue in class action litigation against the insurance industry involves an attempt by plaintiffs’ attorneys to argue that insurers should not be permitted to apply any deductible to payments made on an actual cash value basis. Most homeowners and commercial property insurance policies provide for insurers to make an initial payment for the actual cash value of the damage (often calculated as the estimated replacement cost less depreciation), and then, after the repairs are completed, make an additional payment so that the total amount paid is the replacement cost value of the damage (in accordance with the terms of the policy).

In Bond v. Liberty Ins. Corp., 2017 U.S. Dist. LEXIS 114778 (W.D. Mo. July 24, 2017), the court, which had previously certified a class, granted, in part, the plaintiffs’ motion for summary judgment. The court reasoned that “[b]oth the Home Protector Plus Endorsement and base policy’s respective loss settlement provisions are silent regarding an ACV deductible in the face of their explicit references to an RCV deductible. This silence suggests the parties did not intend to make the deductible applicable to ACV payments.” The court rejected the insurer’s argument that the declarations page indicated that a deductible would apply, as well as other arguments raised by the insurer.

This decision appears to be contrary to longstanding, well-established insurance industry practice. I would not be surprised if the rulings in this case lead to additional class action filings against insurers in Missouri and perhaps other jurisdictions as well.

Update on Labor Depreciation Class Actions

There have been two recent federal district court decisions in the widespread class action litigation involving the application of depreciation to the labor cost component of replacement cost value on property insurance claims. (For background on this issue, see my February 21, 2017 blog post.) The “labor depreciation” litigation has been trending in favor of the insurers’ position, although these two decisions demonstrate that courts continue to reach conflicting results.

In Basham v. United Servs. Auto. Ass’n, 2017 U.S. Dist. LEXIS 118729 (D. Colo. July 28, 2017), a Colorado federal court recently granted a motion for judgment on the pleadings in favor of the insurer. The court explained that “[c]overed property, such as a roof, is often the product of both materials and labor. Accordingly, repair and replacement costs comprise the cost of materials (e.g., shingles and nails), and the cost of labor (e.g., roofing contractors). Both the cost of materials and the cost of labor are therefore subject to a depreciation deduction.” The court further reasoned that actual cash value coverage “is designed to avoid placing the insured in a better position than he or she was in before the” damage occurred, and that “[w]henever property is the indivisible product of materials (stuff) and labor (work), its physical components and the assembly of those pieces will decay over time.” The court rejected the plaintiffs’ argument that depreciation should be applied only to the cost of the materials.

In Arnold v. State Farm Fire & Cas. Co., 2017 U.S. Dist. LEXIS 122051 (S.D. Ala. Aug. 3, 2017), an Alabama federal district court denied the insurer’s motion to dismiss. The court wrote that “[t]he defendant certainly has not attempted to show that Alabama law requires insureds, before forming an understanding of what undefined policy terms mean, to discover and ponder the myriad and largely hidden commercial and societal considerations that underlie the insurance industry and its oversight by the three branches of state government. “ The court further explained that “[t]he defendant has identified no well-developed Alabama case law demonstrating that ACV encompasses depreciation for labor and [an Alabama Supreme Court decision] reflects that the common understanding of ACV does not encompass depreciation at all.” The decision in Arnold appears to conflict with the decision of another Alabama federal district court in Ware v. Metropolitan Prop. & Cas. Ins. Co., 220 F. Supp. 3d 1288 (M.D. Ala. 2016), which granted an insurer’s motion to dismiss in a “labor depreciation” class action.

In another recent development on this issue, on August 4, 2017, the Mississippi Insurance Department issued a bulletin stating as follows: “There is no statutory law in Mississippi prohibiting the practice of labor depreciation in the adjustment of property loss claims. If such a practice is used, the insurer should clearly provide for the depreciation of labor in the insurance policy. Likewise, if material and/or labor depreciation is applied, the insurer should clearly set out any such depreciation on the claim estimate furnished by the insurer.” Miss. Ins. Dep’t Bulletin 2017-8.

Highlights From DRI Class Action Seminar 2017 – Day Two

Here are my highlights from the second day of DRI’s 2017 Class Action Seminar:

Class Action Waivers in Employment Agreements (Neal Katyal of Hogan Lovells)

Neal Katyal is a leading Supreme Court advocate and is litigating one of several cases involving class action waivers in employment agreements that will be argued in the Court early next Term. He offered some general thoughts on Supreme Court advocacy and how it differs from that in the courts of appeals. The Court is testing the logical limits of positions, focusing more on what the law should be as opposed to what the law is. It is thus helpful to have a broader understanding of what individual justices think the law is all about and try to move the law and your argument in the direction that fits with your client’s position. The central question in the upcoming cases involves the interplay between two federal statutes — whether the National Labor Relations Act supersedes the Federal Arbitration Act. The Solicitor General’s office has flipped its position to the employer side after President Trump took office, but the National Labor Relations Board is expected to remain on the other side.  The employer-side position focuses on an argument that the FAA’s savings clause does not apply when two federal statutes are at issue; it applies only if the other applicable law is state law. The employers also argue that under the Court’s decision in AT&T v. Concepcion, the savings clause does not apply to the fundamental aspects of arbitration. The employees argue that the savings clause applies based on illegality, and that the arbitration provision is illegal under the NLRA. This is an important case to watch next Term.

Rule 23 Amendments: What Comes Next? (Scott Burnett Smith of Bradley Arant and Judge Robert M. Dow, Jr. of the Northern District of Illinois)

This conversation focused on the work of the Rule 23 subcommittee of the Judicial Conference Advisory Committee on Civil Rules on proposed amendments to Rule 23. Judge Dow chairs that subcommittee. The subcommittee has endeavored to prioritize transparency and take input from a broad range of interested judges, lawyers and academics. The subcommittee elected not to move forward with proposals that were more substantive or where court of appeals’ decisions were in conflict and the Supreme Court potentially may weigh in. This included cy pres relief in settlements, issue classes, and ascertainability. The proposed amendments that if ultimately approved will go into effect in December of 2018 appear to be relatively uncontroversial. The amendments would provide more detail regarding what must be provided to a district court with a motion for preliminary approval of a class settlement; expressly permit electronic notice to class members (which is already taking place); insert into the rule criteria for approval of class settlements consistent with existing law (with no intent to override existing law); expressly require that objections to class settlements be made with specificity;  and require that any payment to an objector or the objector’s counsel be approved by the district judge. Judge Dow noted that the subcommittee has not been disbanded and it may consider other proposals in coming years.

Class Action Settlements (Tristan Duncan of Shook Hardy)

Tristan Duncan explained how the class action settlements that courts are finding the most problematic involve trifling issues, such as arguments for trivial additions to disclosures regarding corporate transactions.  Settlements of such cases fail to provide any real value for class members, only attorneys’ fees for class counsel. Similar “trifling” cases that have been dismissed involved the size of eye drops purportedly being too large and wasteful, and the amount of lip balm that cannot be accessed in a container.

Recent Developments in TCPA Class Actions (Christine Reilly of Manatt Phelps and Christine Brandt of Macy’s)

This session covered the latest developments in Telephone Consumer Protection Act (TCPA) cases. The D.C. Circuit’s long-awaited decision in ACA International v. FCC is expected to address important issues about what constitutes an automatic telephone dialing system, the meaning of “called party” (whether it means a current subscriber or intended recipient) and revocation of consent.  Courts have not been particularly well-receptive to arguments under Spokeo of a lack of injury or harm under the TCPA. The FCC is anticipated to become more business friendly under new chairman Ajit Pai. A newly emerging issue is whether a voice broadcast (where your phone does not ring but you have a voicemail) is subject to the TCPA.

Ethics (Matthew Berkowitz of Carr Maloney)

This session covered, among other topics, ethical issues regarding communications with putative class members (generally permitted in most jurisdictions, as long as counsel clearly states their role and makes no misrepresentations), potential settlements with putative class members, limitations on what class counsel can agree to as part of a settlement, and cy pres settlements where an attorney has a relationship with a cy pres beneficiary.

How Should Corporate Defendants Handle Media Inquiries Regarding Class Actions?

At the recent DRI Class Action Seminar, I asked Alison Frankel of Thomson Reuters how she thinks corporate defendants should best handle media inquiries relating to class action suits. Here’s what I gleaned from her answer:

  • Statements issued by corporate media relations departments are usually worthless. They do not help a reporter understand a court ruling or what is important about it.
  • Defense counsel should ask their client for permission to talk to the reporter on background, off the record, so that the reporter can get a more accurate understanding of the background, what the court decided and why it is important or not important. You make the rules and a reputable reporter will honor that. If the reporter does not honor that, speak with their editor.
  • Court papers and opinions can be helpful to reporters but they don’t have the time to wade through a lengthy brief or opinion and try to figure out what matters. You should send the brief and point the reporter to particular pages.
  • If your client has not yet responded to an argument made by the other side, consider helping the reporter predict what your responsive brief will say, obviously on background and with your client’s permission. This will make the reporter look good when your brief is later filed and they accurately predicted what it would say.