Ninth Circuit Hears Oral Argument on Constitutional Challenge to Federal Arbitration Act

Pexels-photo-261706By Alexander M. Smith

Earlier this week, the Ninth Circuit heard oral argument in Roberts v. AT&T Mobility LLC (Case No. 16-16915).  In 2015, a putative class of consumers sued AT&T in the Northern District of California, alleging that AT&T misled consumers about its “unlimited” data plans by misrepresenting its data speeds and failing to disclose that it would “throttle” data after a certain point.  AT&T moved to compel arbitration, and the plaintiffs raised a novel argument in opposition: The Federal Arbitration Act violates the First Amendment because, as construed by AT&T Mobility LLC v. Concepcion and its progeny, it denies consumers the right to petition the government for a redress of grievances.  In 2016, the district court (Chen, J.) rejected this argument.  The district court did not reach the merits of the plaintiffs’ Petition Clause argument; instead, it held as a threshold matter that the plaintiffs could not raise a constitutional challenge to the FAA because AT&T’s act of seeking to compel enforcement of an arbitration agreement did not constitute state action.  No. 15-3418, 2016 WL 1660049, at *4-10 (N.D. Cal. Apr. 27, 2016).  The district court nonetheless noted that the application of the state action doctrine to this argument presented “novel and difficult questions of first impression” and accordingly certified an interlocutory appeal to the Ninth Circuit on the state action issue.  No. 15-3418, 2016 WL 3476099, at *2 (N.D. Cal. June 27, 2016). 

Although the Ninth Circuit will likely take weeks (if not months) to issue its opinion, early coverage of the oral argument suggests that the plaintiffs’ argument may not fare well.  According to Law360, one of the judges on the panel inquired whether the plaintiffs were asking the court “to tell the Supreme Court in hindsight [that] the [J]ustices were wrong in their Concepcion ruling.”  We will update this post when the Ninth Circuit issues its ruling.


For Whom Rule 23(f) Tolls

NewupdateBy Kate T. Spelman

In a matter of first impression for the court, a three-judge panel of the Ninth Circuit recently held in Lambert v. Nutraceutical Corp. that the fourteen-day deadline to file a petition for interlocutory review of an order granting or denying class certification under Federal Rule of Civil Procedure 23(f) is not jurisdictional, and thus equitable exceptions apply to toll the deadline.  While other circuits have come to this same conclusion, the Ninth Circuit went one step further in holding that Rule 23(f)’s fourteen-day deadline was tolled in this case by the plaintiff’s filing of a motion for reconsideration, even though the motion itself was filed more than fourteen days after the court’s decertification order.  In so holding, the Ninth Circuit has created a circuit split that may require resolution by the U.S. Supreme Court.        

In Lambert, the plaintiff challenged the efficacy of Cobra Sexual Energy, an alleged aphrodisiac dietary supplement, under California’s consumer protection laws.  The district court initially certified a damages class under Rule 23(b)(3) based on the plaintiff’s full refund damages model, which was properly tied to the plaintiff’s theory that the product was entirely worthless.  However, the district court later decertified the class because the plaintiff had provided only the suggested retail price of the product, and not the actual average retail price necessary to calculate the full refund amount.  The plaintiff filed a motion for reconsideration twenty days after the court’s decertification order, which the court denied.  The plaintiff filed a Rule 23(f) petition less than fourteen days after that. 

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Insurance and Regulatory Hurdles to Blockchain Adoption

BlockchainJenner & Block Partners Brian S. Scarbrough and Justin C. Steffen wrote an article for Law360 explaining the basics of blockchain – a database that is shared across a network – as well as potential insurance and regulatory issues raised by the technology.  The authors detail the background of blockchain and its rise from Bitcoin and describe the advantages of blockchain technology. They then analyze the current regulatory state surrounding blockchain and highlight potential areas on which regulators will focus in the future. Brian and Justin then address insurance issues those seeking to utilize the technology should consider.

To read the full article, please click here


Pop Quiz! An Inch, 3% Or 10 Calories: Which One Is Material?

Sub Sandwich 2By Reena R. Bajowala 

Class plaintiffs often accuse food manufacturers of misrepresenting some aspect of their product offerings.  There are countless examples where the discrepancies latched onto by the plaintiffs’ bar between what the manufacturer advertised and what the consumer received are small.  But how small is too small to matter?  Lawyers have a name for this question:  materiality.  A claim for fraudulent misrepresentation can only go forward if the alleged misrepresentation is material.  

The Seventh Circuit recently rejected a proposed settlement involving Subway, citing materiality as one reason.  In In re Subway Footlong Sandwich Marketing & Sales Practices Litig., ___ F.3d ___, 2017 WL 3666635 (7th Cir. Aug. 25, 2017), class members sued Subway for marketing its trademark sandwich as a “footlong” when some sandwiches fell a little short.  The parties presented a settlement to the district court that involved injunctive relief and up to $525,000 in attorney’s fees.  The Seventh Circuit Court of Appeals rejected the settlement, calling it “utterly worthless.”  Discovery established that the vast majority of sandwiches are 12-inches; minor variations in length were attributable to unpreventable vagaries in the baking process.  Importantly, even if the sandwich was slightly shorter, each customer received the same amount of food.  The court noted that “the element of materiality – a requirement for a damages claim under most state consumer-protection statutes – was an insurmountable obstacle to class certification” because “[i]ndividualized hearings would be necessary to identify which customers, if any deemed the minor variation in bread length material to the decision to purchase.”  Because there was no compensable injury, the parties shifted to an injunctive relief class, which the court said “d[id] not benefit the class in any meaningful way.” 

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Lenovo Data Security Settlement with FTC and 32 State Attorneys General Shows Importance of Vendor Management

Pexels-photo-239898By Nancy C. Libin

On September 5, 2017, the Federal Trade Commission (“FTC”) announced that Lenovo, the personal computer manufacturer, settled charges brought by the FTC and 32 state attorneys general that Lenovo had harmed consumers by selling computers preinstalled with an ad-injecting software known as VisualDiscovery.  VisualDiscovery was developed by a software company called Superfish, Inc. (“Superfish”). 

Background

According to the complaint, when Lenovo users shopped for products online, VisualDiscovery would display pop-up ads with the image of similar-looking products offered by Superfish’s retail partners.  In addition, by substituting its own certificates for those of websites that users visited, VisualDiscovery was able to operate as a “man-in-the-middle” between the Lenovo user’s browser and any websites the user visited.  This gave VisualDiscovery visibility into all information that a user transmitted – including financial information and Social Security Numbers on encrypted websites.  VisualDiscovery also was configured to send certain user information – such as IP address, URLs of websites visited, and unique identifiers assigned by Superfish – to Superfish servers.  VisualDiscovery’s substitution of its own digital certificates made Lenovo users vulnerable to hackers, who could easily exploit the configuration to access users’ sensitive information.

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On Remand, Ninth Circuit in Spokeo Says Alleged FCRA Violation Is Enough

Supreme Court iStock_000017257808LargeBy Olivia Hoffman

On August 15, 2017, the Ninth Circuit ruled in Robins v. Spokeo[1] (“Spokeo II”) that the violation of a consumer’s statutory rights under the Fair Credit Reporting Act (“FCRA”) was sufficient to constitute “injury-in-fact” for the purpose of establishing Article III standing. The case involved claims brought by a consumer under the FCRA alleging that Spokeo—an online search engine that compiles and publishes data about individuals including their employment information, education, names of family members and marital status—had published false information about him. As discussed previously on this blog, the Supreme Court in 2016 remanded the case after determining that the Ninth Circuit had failed to properly consider the “concreteness” component of the “injury-in-fact” requirement. In its opinion, the Supreme Court emphasized that a procedural statutory violation alone would not necessarily suffice and that a concrete injury must be “real” and not merely “abstract.”[2]

In Spokeo II, the Ninth Circuit zeroed in on the question of whether an FCRA violation represents the type of statutory violation that can itself constitute a cognizable injury, notwithstanding the Supreme Court’s admonition that a plaintiff does not “automatically satisf[y] the injury-in-fact requirements whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right.”[3]

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Eighth Circuit Reverses Sanctions for Re-Filing Putative Class Action in State Court

Photo-1429961449642-0d5a0d68245fBy Alexander M. Smith

Earlier this week, the Eighth Circuit reversed an order by the Western District of Arkansas (Holmes, J.) imposing sanctions on counsel who voluntarily dismissed a putative class action immediately before they re-filed the action and sought approval of a class settlement in Arkansas state court.  Although the district court concluded that counsel for the putative class stipulated to the dismissal for the “improper purpose of seeking a more favorable forum” and used “properly attached federal jurisdiction as a mid-litigation bargaining chip,” the Eighth Circuit found that counsel’s conduct was proper because “a reasonable lawyer would have had a colorable legal argument that a stipulation of voluntary dismissal . . . is permissible in a case in which the class has not yet been certified.” 

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The CFPB’s Recent Arbitration Agreements Rule Likely to Face Numerous Challenges Ahead

By Kali Bracey, Jeremy M. Creelan and Nicolas G. Keller

Pexels-photo-487786On July 10, the Consumer Financial Protection Bureau (CFPB) issued a final rule under Section 1028(b) of the Dodd-Frank Act that governs the use of arbitration by providers of a wide swath of consumer financial products and services.[1]  Once in effect, the rule will preclude providers of these financial products and services from including class action waivers in their pre-dispute agreements.  But the rule’s future in the face of potential legal challenges and in Congress is far from certain. 

Coming after the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion—which held that the Federal Arbitration Act (FAA) preempts state laws that bar the use of classwide arbitration waivers[2]—the CFPB’s rule operates as an exception to the FAA.[3]  The rule consists of three main provisions.  First, it prohibits providers and their affiliates from relying on mandatory pre-dispute arbitration agreements to bar consumer participation in class action suits concerning covered financial products and services.[4]  The CFPB’s definition of “covered products and services” reaches financial products and services that are offered or provided to consumers primarily for personal, family, or household purposes, including providing consumer asset accounts, extending consumer credit, providing credit reporting, and processing consumer payments using financial or banking data accepted “directly from a consumer . . . .”[5] 

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Supreme Court Holds That Statute of Repose Imposes Absolute 3-Year Bar on Opt-Out Claims

By Stephen L. AscherThomas C. Newkirk and Howard S. Suskin

New-Update-IconOn June 26, 2017, in California Public Employees’ Retirement System v. ANZ Securities, Inc., the Supreme Court held that the three-year statute of repose in the Securities Act of 1933 prevents plaintiffs from pursuing individual actions under Section 11 more than three years after the challenged offering, even if a class action was pending, because the pendency of a class action tolls statutes of limitations and not statutes of repose.  In resolving the circuit split on the issue, the Supreme Court, in a 5-4 decision, gave defendants a complete defense against suits initiated after the conclusion of that period.  As a result, plaintiffs with Section 11 claims must opt out of a class action and file their own actions (or perhaps move to intervene in the class action) within the three-year period or be barred from pursuing individual claims.  This holding provides class action defendants with greater certainty and predictability concerning their exposure and requires class action plaintiffs to consider filing timely actions to protect their ability to opt out of a future class settlement.  Defendants in other types of class actions will doubtless look to characterize the limitations periods applicable to those types of claims as statutes of repose that also cannot be tolled. 

To read the full Jenner & Block client alert on this subject, please click here.


Seventh Circuit Holds that Defendants Cannot Use Deposits Under Rule 67 To Moot Putative Class Actions

CoinsBy Sarah E. Weiner

On June 20, the Seventh Circuit held that a defendant cannot moot a plaintiff’s claim simply by depositing with the court an amount intended to fully compensate the plaintiff. Taking up the question left open by the Supreme Court in Campbell-Ewald Co. v. Gomez, Chief Judge Wood’s opinion for the unanimous panel explained that defendants may not use Rule 67 to pick-off putative plaintiff class representatives.

In Fulton Dental, LLC v. Bisco, Inc., Fulton Dental filed a class action complaint alleging that Bisco had sent unsolicited faxes in violation of the Telephone Consumer Protection Act. In addition to declaratory and injunctive relief, Fulton sought statutory damages for two alleged violations—worth $500 per negligent violation or $1,500 per willful violation. Hoping to moot the suit before class certification, Bisco made Fulton an offer of judgment under Rule 68. But before Fulton responded to the offer, the Supreme Court issued its opinion in Campbell-Ewald, which held that an unaccepted offer of judgment does not moot a plaintiff’s claim. Shortly thereafter, Fulton rejected Bisco’s offer.

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