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US Supreme Court Holds that Classwide Arbitration is Unavailable Unless the Parties Clearly Agree to It


By: Michael T. BrodyGabriel K. GillettHoward S. Suskin and Adam G. Unikowsky

Supreme Court Pillars - iStock_000017257808LargeOn April 24, 2019, the US Supreme Court issued its decision in Lamps Plus, Inc. v. Varela, No. 17-988, holding that classwide arbitration is not available unless clearly authorized by the parties.[1]  In a 5-4 decision authored by Chief Justice Roberts, the Court reasoned that when an arbitration agreement is ambiguous or silent about classwide arbitration, the parties have not actually agreed to it.[2]  As a result, the Federal Arbitration Act (FAA) does not allow a party to be forced into classwide arbitration based on an ambiguous agreement, even if state-law contract interpretation principles would construe ambiguity against the agreement’s drafter.[3]

Lamps Plus is just the latest in a long string of victories for arbitration advocates.  Building on prior decisions rejecting classwide arbitration in the consumer and employment contexts, the Court has now suggested that classwide arbitration is presumptively unavailable and that a clear expression of intent is required to overcome that presumption.  The practical result is that classwide arbitration may only be available against corporate defendants that specifically subject themselves to it.  And that may be a null (or very small) set, at least for companies that take the majority opinion’s view that classwide arbitration “‘sacrifices the principal ad­vantage of arbitration—its informality—and makes the process slow­er, more costly and more likely to generate procedural morass than final judgment.’”[4]

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Spokeo and Wheel – Rolling Thru Recent Circuit Court Cases

By Kate T. Spelman

PillarsFive months have passed since the Supreme Court’s decision in Spokeo, Inc. v. Robins, where the Court held (on the one hand) that a “violation of a procedural right granted by statute can be sufficient in some circumstances to constitute injury in fact,” but also (on the other hand) that a plaintiff cannot establish standing by alleging a “bare procedural violation” because “Article III standing requires a concrete injury even in the context of a statutory violation.”  In the intervening time period, Spokeo has been cited by almost 200 federal district courts attempting to apply the Supreme Court’s directives.  However, only a handful of federal courts of appeal have waded into the fray.  A review of these appellate decisions provides helpful insights into how the lower federal courts are (or should be) applying the Supreme Court’s opinion.  In fact, three general rules can be gleaned from these decisions:

First, a plaintiff may have standing to sue based solely on a defendant’s failure to disclose information when such disclosure is statutorily mandated.

In Church v. Accretive Health, Inc., the Eleventh Circuit found that the plaintiff had standing to assert a claim for violation of the Fair Debt Collections Practices Act based solely on the defendant’s alleged failure to include in its letter to the plaintiff certain disclosures required by the Act.  For example, the letter did not expressly state that it was sent by a “debt collector ... attempting to collect a debt and that any information obtained will be used for that purpose,” nor did it alert the plaintiff that “unless the consumer, within thirty days after receipt of notice, disputes the (Continued) validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector.”  The plaintiffs alleged no actual damages aside from the defendant’s alleged failure to include the required disclosures.  However, the court noted that, in certain instances, a plaintiff can rest on the deprivation of a Congressionally-created right to satisfy the standing inquiry.  Because Congress had created “a new right—to receive the required disclosures in communications governed by the FDCPA—and a new injury—not receiving such disclosures,” the plaintiff satisfied Article III’s injury-in-fact requirement.   

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How Far Does American Pipe Tolling Reach?

By Reena R. Bajowala

Supreme Court 35719-0001The Supreme Court started another term this week.  One granted petition of interest is DeKalb County Pension Fund v. Transocean Ltd., which arises out of the Second Circuit’s ruling that the filing of a putative Rule 23 class action does not suspend the three-year period of repose for claims brought under Section 14(a) of the Securities Exchange Act.  In so ruling, the Second Circuit declined to extend to “statutes of repose” the Supreme Court’s landmark holding in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), that “statutes of limitations” are tolled for all putative class members.  Quick primer:  A statute of limitations is typically based on when a plaintiff experiences harm associated with the legal injury.  A statute of repose, on the other hand, is a time limit that is triggered by an event unconnected to the harm – such as the date a stock was first offered for sale.  Courts have typically held that statutes of limitations can be equitably tolled, while statutes of repose are stricter and cannot.  In DeKalb County, the consequences of applying the statute of repose were significant.  The plaintiff filed suit within the period of repose and moved for lead plaintiff status after the period of repose had expired.  The court denied the motion, finding him to be a flawed representative, and consequently held that the claims of the class were time-barred.  With DeKalb County, the Court will resolve a circuit split.  In Joseph v. Wiles, 223 F. 3d 1155 (10th Cir. 2000), the Tenth Circuit held that American Pipe tolling does apply because statutes of repose are subject to tolling that is legal (as opposed to equitable) in nature, like that which occurs when an action is commenced and class certification is pending, and arises from the procedures set forth in Rule 23.  The Court granted certiorari on this question two years ago, but later dismissed its order as “improvidently granted.”  Public Employees’ Retirement System v. IndyMac MBS, 134 S. Ct. 1515 (2014). 

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POM Seeks Supreme Court Review in FTC Ad Dispute

By Michael A. Scodro and Ramon Villalpando

On April 29, 2016, the Supreme Court will consider whether to grant the certiorari petition in POM Wonderful et al v. Federal Trade Commission (15-525), which asks the Court to identify the standard of review applicable to agency decisions that prohibit truthful, yet allegedly misleading, advertising.  The case arises out of an FTC complaint filed against POM claiming, among other things, that certain POM ads misleadingly implied that pomegranate juice was a scientifically-established treatment for disease.  An administrative law judge determined that a subset of the challenged ads contained this implied message, but the full Commission later banned a substantially larger group of ads, concluding that these ads made implied, misleading claims.  On appeal, the D.C. Circuit deferred to the FTC’s determination and upheld the ban, rejecting POM’s argument that—to safeguard POM’s First Amendment rights—the court should have reviewed the Commission’s decision de novo.

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"Gambits” or Just Good Lawyering: Recent Class Action Cases in the Supreme Court

By Jill M. Hutchison

In a recent New York Law Journal Supreme Court 35719-0001 article, Partner Jeremy M. Creelan and Associate Daniel H. Wolf explore class action cases before the US Supreme Court.  They explain that the Court in recent years has raised the thresholds for class action plaintiffs and other plaintiffs to bring and sustain their claims.  “At the start of this Supreme Court term, the court appeared poised to continue this threshold-raising trend,” the authors observe.  They examine Campbell-Ewald Co. v. Gomez and Microsoft Corp v. Baker.  Associate Jacob D. Alderdice assisted with preparing the article. 

To read more on what they have to say, click here.

No resolution of growing rift on acceptable method for establishing ascertainability for small-dollar claims

By Jill M. Hutchison

IStock_000009666174MediumThe Supreme Court recently declined to wade into a developing circuit split on the question of just what constitutes an ascertainable class under Fed. R. Civ. P. 23(b)(3) class. In the case of many consumer products, particularly those that are consumable, like food, cosmetics, and supplements, the defendant is unlikely to have records to document individual customers’ purchases, and the consumers are unlikely to have kept receipts. In such cases, some court have permitted class members to self-identify by affidavit and have held that this identification method is acceptable to create an ascertainable class.

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What’s That Trump University Lawsuit About Anyway?

Graduation capBy Reena R. Bajowala

On Super Tuesday, the news regarding Republican Presidential Candidate Donald J. Trump was not limited to the campaign trail.  On March 1, 2016, the New York Supreme Court’s Appellate Division reinstated claims in a 2013 suit filed by Attorney General Eric T. Schneiderman alleging that Trump University (“TU”) “through various fraudulent practices,[] intentionally misled more than 5,000 students nationwide . . . into paying as much as $35,000 each to participate” in programs offered by TU.  Trump started TU in 2004 to instruct entrepreneurs on real estate investing.  The suit accuses TU of violating New York laws related to fraudulent and deceptive practices, false advertising (General Business Law §§349-350) and fraud.  People ex rel. Schneiderman v. Trump Entrepreneur Initiative LLC, No. 16093, 2016 WL 783216 (N.Y. App. Div. Mar. 1, 2016).  In 2013, Schneiderman initiated a special proceeding under New York Executive Law § 63(12), seeking damages, civil penalties and a variety of equitable relief. 

Schneiderman alleged, among other things, that “instructors played a video featuring Donald Trump telling prospective students the ‘professors . . are absolutely terrific – terrific people, terrific brains, successful, the best’ and ‘are handpicked by [Trump].’”  Id. at *2.  According to the allegations, “Trump did not handpick the instructors; indeed, only one of the live event speakers for Trump University had even ever met Donald Trump” and the instructors “had little to no experience in real estate investing, instead having prior work experience such as food service management and graphic design.”  Id.  Schneiderman also alleged that TU’s instructors “engaged in a bait-and-switch by urging students to sign up for . . . packages [] rang[ing] from $10,0000 to $35,000 that supposedly provided the only way to succeed in real estate investment.”  Id. at *3. 

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The Post-Scalia Class Action Landscape

Supreme Court 35719-0001By Alexander M. Smith

On Saturday, Justice Antonin Scalia passed away after nearly three decades on the Supreme Court.  During that time, he authored many opinions, including Wal-Mart Stores, Inc. v. Dukes, Comcast Corp. v. Behrend, and AT&T Mobility LLC v. Concepcion, that significantly affected the class action landscape.  Several other legal bloggers have also recognized Scalia’s legacy in the class action arena and have described the impact his death may have going forward:

  • At Lexology, Donald R. Frederico notes that “[n]o one has done more to shape class action law than Justice Antonin Scalia” and explains that his decisions in Dukes, Concepcion, and Behrend will leave “an imprint that is likely to long survive his passing.”  
  • In an article on Law360, Vin Gurrieri describes the effect of Scalia’s passing and notes that “a more left-leaning justice could flip the court’s internal dynamics on key issues like class actions and arbitration agreements.”
  • And in the AmLaw Litigation Daily, Scott Flaherty describes Scalia’s “indisputable mark on the class action landscape” and notes that his rulings “forced lower court judges and lawyers alike to view issues of class certification through a lens that focused on the facts.”

Another Supreme Court Rebuff To California Arbitration Rule

PillarsBy Michael A. Scodro

Issued on December 14, 2015, DirectTV v. Imburgia represents the newest in a line of Supreme Court decisions applying the Federal Arbitration Act (FAA) to enforce contractual arbitration provisions.  Here, a service agreement between DirectTV and its customers requires arbitration of any future disputes and expressly waives either party’s right to initiate arbitration on a class-wide basis, with the exception that, if the “law of your state” prohibits the waiver of class arbitration, then the arbitration provision as a whole “is unenforceable.”  Two customers sued DirectTV, seeking to proceed in court rather than arbitration on the theory that the “law of” their “state,” California, does indeed prohibit class-action waivers in arbitration.  It was this theory—requiring application of the term “law of your state” to California—that divided lower courts and attracted Supreme Court review. 

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S. Ct. to decide availability of post-dismissal review of class cert denial

GavelBy Howard S. Suskin

The U.S. Supreme Court has granted certiorari to address whether a federal court of appeals has jurisdiction under both Article III and 28 U.S.C. §1291 to review an order denying class certification after the named plaintiffs voluntarily dismiss their individual claims with prejudice.   Microsoft Corp. v. Baker, No. 15-457 (cert. granted Jan. 15, 2016).  In the proceedings below, the Ninth Circuit held that a stipulated dismissal of an individual claim is an adverse and appealable final judgment and that the plaintiffs did not lose their ability to appeal from a stipulated dismissal with prejudice of their lawsuit and from the order striking their class allegations.  A link to the Ninth Circuit’s opinion is available here.