Alexander M. Smith

October Term 2018 Preview: The Supreme Court’s Class Action Docket

SCOTUSBy Alexander M. Smith

The Supreme Court’s next term kicks off next week, when the court re-convenes for its first oral argument since last April.  The docket currently features four cases of interest to the consumer law and class action bar:

  • In Lamps Plus, Inc. v. Varela, a divided panel of the Ninth Circuit construed a provision stating that “arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings relating to my employment” to authorize class arbitration, even though the plaintiff’s employment agreement with Lamps Plus did not expressly authorize class-wide arbitration.  The Supreme Court granted certiorari to determine whether the Federal Arbitration Act “forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements.” 
  • In Frank v. Gaos, the district court authorized a class-wide settlement of a lawsuit alleging that Google violated federal and state privacy laws by disclosing users’ search terms to third parties, even though the settlement consisted only of cy pres relief and attorneys' fees.  A divided panel of the Ninth Circuit affirmed, rejecting the objectors’ arguments that (1) a settlement that provided no direct relief to the class was inappropriate and (2) that the cy pres beneficiaries, which had previously received settlement funds from Google and which were affiliated with the law schools attended by class counsel, were improper.  The Supreme Court granted certiorari to determine “[w]hether, or in what circumstances, a cy pres award of class action proceeds that provides no direct relief to class members supports class certification and comports with the requirement that a settlement binding class members must be ‘fair, reasonable, and adequate.’”

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Ninth Circuit Reaffirms Narrow Scope of Restitution Under California Consumer Protection Statutes

By Alexander M. Smith

RetailIn the last three years, the Ninth Circuit and the California Court of Appeal have issued a pair of decisions clarifying that restitution under California’s consumer protection statutes is limited to the difference between the price a consumer paid for the product and the value the consumer received from that product—i.e., the “price premium” attributable to the defendant’s conduct.  See In re Tobacco Cases II, 240 Cal. App. 4th 779, 791-802 (2015); Brazil v. Dole Packaged Foods, LLC, 660 F. App’x 531, 534-35 (9th Cir. 2016).  Earlier this week, the Ninth Circuit continued this line of cases in Chowning v. Kohl’s Department Stores, Inc., which reaffirmed that “[t]he proper calculation of restitution . . . is price paid versus value received” and rejected a variety of alternative restitution models suggested by the plaintiff.  No. 16-56272, 2018 WL 3016908, at *1 (9th Cir. June 18, 2016). 

In Chowning, the plaintiff alleged that Kohl’s misled consumers by displaying alongside the sale price for its products an inflated “Actual Retail Price,” which was not the prevailing market retail price and which caused consumers to believe that they were receiving a larger discount than they were.  As a result, the plaintiff alleged that she and other putative class members were deceived into buying products that they would not have purchased but for Kohl’s misleading price comparisons.  In March 2016, Judge Klausner of the Central District of California granted Kohl’s motion for summary judgment.  He identified “three limiting principles” that defined the appropriate scope of restitution under California law: (1) that “restitution cannot be ordered exclusively for the purpose of deterrence”; (2) that any proposed method of restitution “must account for the benefits or value that a plaintiff received at the time of purchase”; and (3) that “the amount of restitution ordered must represent a measurable loss supported by the evidence.”  No. 15-8673, 2016 WL 1072129, at *6 (C.D. Cal. Mar. 15, 2016). 

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CFPB Announces It Will “Reconsider” October 2017 Rule Governing Small-Dollar Loans

Pexels-photo-259130By Alexander M. Smith

Last October, the Consumer Financial Protection Bureau issued a final rule requiring payday lenders, automotive title lenders, deposit advance lenders, and similar short-term loan issuers to determine up front whether borrowers would have the ability to repay certain short-term, small dollar loans without borrowing again.  (The CFPB press release summarizing this rule is available here.)  On January 16, however, the CFPB announced that it would initiate additional rulemaking so that it could “reconsider” this rule.   Although the CFPB’s announcement did not repeal the rule, Law360 notes that many observers believe that the protections in the CFPB’s final rule will be “rolled back or eliminated altogether” and that other federal regulators, such as the Comptroller of the Currency, are considering amending their rules to expand the availability of similar small-dollar loans.   We will continue to monitor and report on the fate of the CFPB’s payday lending rule.


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.


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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Supreme Court Holds That Voluntary Dismissal Does Not Permit Appellate Review of Class Certification Orders

Us-supreme-court-building-2225765_1920By Alexander M. Smith

This morning, the Supreme Court held 8-0 in Microsoft Corp. v. Baker that the named plaintiffs in a class action cannot appeal a denial of class certification (or the granting of a motion to strike class allegations) by voluntarily dismissing their claims.  A five-Justice majority held that this tactic was barred because a voluntary dismissal under these circumstances does not constitute a “final order” under 28 U.S.C. § 1291, while three Justices concurred in the judgment on the basis that such a voluntary dismissal extinguishes the adversity necessary to give rise to Article III standing.  (The Consumer Law Roundup has covered Baker in three previous posts.) 

In Baker, the plaintiffs had filed a putative class action against Microsoft alleging that a defect in the Xbox 360 resulted in scratched discs.  After the district court granted Microsoft’s motion to strike the plaintiffs’ class allegations, the named plaintiffs voluntarily dismissed their claims against Microsoft so that there would be a “final decision” from which they could appeal the denial of class certification.  The Ninth Circuit held, inter alia, that a stipulated dismissal of an individual claim is an adverse and appealable final judgment.  The Supreme Court granted certiorari to address this jurisdictional issue and subsequently reversed.

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D.C. Circuit Strikes Down FCC Rule Requiring Opt-Out Notices on Solicited Faxes

By Alexander M. Smith

Printer-2178752_1920In November 2016, this blog reported that the D.C. Circuit appeared “sympathetic” to the position that the Telephone Consumer Protection Act (“TCPA”), which regulates “unsolicited” fax advertisements, did not empower the FCC to require opt-out notices on solicited fax advertisements.  Last Friday, a divided panel of the D.C. Circuit issued an opinion striking down the FCC’s 2006 rule requiring opt-out notices on solicited fax advertisements. 

In 2010, a group of businesses facing class action lawsuits involving solicited faxes without opt-out notices sought a declaratory ruling from the FCC clarifying that the TCPA does not require an opt-out notice on solicited fax advertisements.  The FCC responded to their petition by reiterating its position that the TCPA authorized it to require opt-out notices on solicited faxes, but it stated that it would waive application of this rule to businesses that sent solicited faxes before April 30, 2015.  The petitioners then sought review from the D.C. Circuit.  (A separate group of class action plaintiffs also appealed the FCC’s decision to grant a retroactive waiver.) 

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Supreme Court Hears Oral Argument in Microsoft v. Baker (Part II)

Supreme Court iStock_000017257808LargeBy Alexander M. Smith

On Tuesday, March 21, the Supreme Court heard oral argument in Microsoft, Inc. v. Baker.  (This blog has previously covered Baker here and here.)  Baker addresses whether a plaintiff can render a denial of class certification – which is not otherwise a final appealable order under 28 U.S.C. § 1291 – appealable by voluntarily dismissing her individual claims.  

According to Ronald Mann at SCOTUSBlog, the Justices were “deeply skeptical” of this strategy and appeared sympathetic to Microsoft’s argument that a party cannot ask a court to enter a judgment against her and then appeal from that judgment.  At one point, Mann reports, Justice Kagan asked: “Why did people think this was the governing law?”  Likewise, Justice Roberts commented that if “you told the district court to enter a judgment against you . . . you can’t argue that it shouldn’t have done that.”   The Court also appeared sympathetic to Microsoft’s argument that the voluntary dismissal strategy effectively gutted Federal Rule of Civil Procedure 23(f), which grants federal appellate courts discretion to allow interlocutory appeals of class certification rulings.  At one point, Justice Ginsburg stated that Rule “23(f) is out the window” if plaintiffs are allowed to appeal a class certification ruling after voluntarily dismissing their individual claims.   Ultimately, Mann concluded, “[t]his is one of those arguments in which the [J]ustices leave little doubt about the ultimate outcome,” and he predicts a “prompt and all-but-unanimous reversal of the 9th Circuit.” 

The transcript is available here.  We will report on the opinion once it issues. 

 


Supreme Court Hears Oral Argument in Microsoft Corp. v. Baker

By Alexander M. Smith

Supreme-court-546279_1920Today, the Supreme Court hears oral argument  in Microsoft Corp. v. Baker, which addresses the question of whether a plaintiff may render a denial of class certification appealable by voluntarily dismissing his or her claims with prejudice.  (The Consumer Law Roundup’s earlier post on Baker is available here.)   As SCOTUSBlog notes, the case pits Microsoft, which argues that this strategy is “a thinly veiled end-run” around both Rule 23(f) and the general rule prohibiting interlocutory appeals of denials of class certification, against the plaintiffs’ bar, which argues that this strategy satisfies the rule against interlocutory appeals by providing an order of dismissal, which is “the paradigmatic final order suitable for appellate review.” 

We will provide an update about oral argument shortly.    


House of Representatives Passes Class Action Reform Measure

By Alexander M. Smith

Washington-dcUpdating our previous report on the introduction of proposed class action reform, on March 9, the U.S. House of Representatives passed H.R. 985, the Fairness in Class Action Litigation and Furthering Asbestos Claim Transparency Act of 2017, by a margin of 220-201.  The current version of H.R. 985 includes, among other things, the following provisions: 

  • R. 985 bars federal courts from certifying “a class action seeking monetary relief for personal injury or economic loss unless the party seeking to maintain such a class action affirmatively demonstrates that each proposed class member suffered the same type and scope of injury as the named class representative or representatives.” 
  • Additionally, H.R. 985 bars certification of “a class action seeking monetary relief unless the class is defined with reference to objective criteria and the party seeking to maintain such a class action affirmatively demonstrates that there is a reliable and administratively feasible mechanism (a) for the court to determine whether putative class members fall within the class definition and (b) for distributing directly to a substantial majority of class members any monetary relief secured for the class.” 
  • R. 985 also bars federal courts from certifying a class action “with respect to particular issues pursuant to Rule 23(c)(4) of the Federal Rules of Civil Procedure unless the entirety of the cause of action from which the particular issues arise satisfies all of the class certification prerequisites of Rule 23(a) and Rule 23(b)(1), Rule 23(b)(2), or Rule 23(b)(3).”
  • R. 985 requires that, “[i]n any class action, all discovery and all other proceedings shall be stayed during the pendency of any motion to transfer, motion to dismiss, motion to strike class allegations, or other motion to dispose of the class allegations, unless the court finds upon the motion of any party that particularized discovery is necessary to preserve evidence or to prevent undue prejudice to that party.” 
  • R. 985 would require disclosure of third-party litigation funding for any class action.
  • Finally, H.R. 985 provides that “[a] court of appeals shall permit an appeal from an order granting or denying class-action certification under Rule 23 of the Federal Rules of Civil Procedure.” 

The bill also includes other provisions relating to joinder of parties in personal injury and wrongful death claims removed to federal court, as well provisions affecting multidistrict litigation procedure. 

On March 13, the bill was referred to the Senate Committee on the Judiciary.  We will continue to monitor this legislation.

Law360, the National Law Journal , and JD Supra have additional coverage.