Plaintiffs Are Not Permitted to Manipulate Facts and Federal Procedure to Avoid CAFA Jurisdiction.
In 2014, Federal Courts continued to overwhelmingly interpret CAFA to mandate Federal Court jurisdiction despite plaintiffs' creative efforts to avoid having their cases litigated there. At the end of the year,SCOTUS held that there is no presumption against removal under CAFA, and that defendants are not required to include actual evidence of the amount in controversy in a notice of removal. The Court also provided clear guidance concerning the related burdens to be applied in amount in controversy disputes. (December 18, 2014)
Several other CAFA decisions were quite favorable to defendants :
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The Seventh Circuit confirmed that a putative class representative cannot manipulate jurisd iction by pleading less damages. (April23, 2014)
The Sixth Circuit held that CAFA's "local controversy " and "home state" exceptions are not jurisdicti onal and thus may be waived. (May 16, 2014)
The Fifth Circuit held that CAFA's "local controversy" exception cannot be triggered by adding a local defendant post removal. (October 11, 2014)
Picking Them Off or Settling Class Cases
May Not Be So Easy
Early in 2014, we asked the following question: Is there a way to end class action litigation before it gets started? Our answer to the question remains "maybe." (April2, 2014)
But, we note that using Rule 68 offers of judgment to resolve cases, and obtaining approved settlement agreements later in a case, might be more difficult.
For example, at the end of 2014, the Eleventh Circuit held that an unaccepted offer of judgment does not moot a plaintiff's individual or class claims. (January 5, 2015) In doing so, the Eleventh Circuit seems to have joined the majority rule, with the Seventh Circuit, curiously, being the most important holdout. Whether the Sixth Circuit follows the Seventh or Eleventh Circuit holdings remains to be seen. (December 7,2014)
The Seventh Circuit's Rule 68 decision in Damasco
v. Clearwire Corp., 662 F.3d 891 (Seventh Circuit 2011), stands somewhat in contrast to the Court's
"settlement decisions" in 2014 in Eubank v. Pelle
Corp.; and Redman eta! v. Radio Shack Corp., et
a!. where the Court reversed the approval of class action settlements with strong words, noting that Rule 23 requires more than ajudicial rubber stamp, and that Judges must play an active role because of the "built in conflict of interest" which exists in the settlement of class action cases. (September 24, 2014) In addition, the Northern District of California issued helpful Procedural Guidelines for Class Action Settlements. (July 9, 2014)
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In 2014, in response to the Target data breach, we presented a seminar (which we plan to repeat in 2015) titled : "Data Privacy and Security in the Crosshairs: Are you Covered?" Inthat seminar, we covered government investigations ; data breach class actions; cyber and other insurance issues; class actions under the Telephone Consumer Protection Act ("TCPA"), the misuse of data; and cutting edge jury research from DecisionQuest. We also expressed great concern at the seminar and on our Class Counsel Blog that the Target data breach could present a watershed moment in data breach and privacy class action matters.
We started the year with the fallout f rom the massive Target breach, and ended the year on December 18 with the denial of Target's motion to dismiss the plaintiffs' consumer class action, and the Sony cyber-security drama. (December 26, 2014) As we predicted, the Target class action, because of the "size of the breach and its notoriety," did make inroads against the law of standing as articulated in Clapper. (August 29, 2014)
Like the Target standing decision, in In Re Adobe Systems, Inc. Privacy Litigation,a District Court in California held that putative class action plaintiffs had alleged sufficiently immediate injuries for standing to proceed under Rule 23. (October 14, 2014)
Finally, as if data breaches and the new standing decisions are not enough to encourage a proliferation of class action litigation, the TCPA continues to be a darling of plaintiff class action counsel because of its near strict liability for violations, and its statutory damages. The large Bank of America and Capital One settlements highlight the problems associated with the alleged misuse of the ubiquitous data known as phone numbers (cell or otherwise). (October 6,2014)
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The Merits Have Merit After All -
at Least for the U.S. Supreme Court
The U.S. Supreme Court's opinion in Halliburton Co. v. Erin P. John Fund, Inc., might be a rare instance where the Court's decision has more impact than expected. This decision was clearly one of the most anticipated security law cases in 2014. The immediate impact of the Court's decision is that it upheld the "fraud on the market" presumption set forth in Basic, Inc.
v. Levinson. Perhaps the more important aspect of the decision is the holding that defendants are allowed to introduce merits
evidence at the class certification stage to defeat the presumption and certification. Specifically,the Court held that Halliburton should have been allowed to introduce merits evidence to rebut plaintiff's reliance arguments by introducing evidence at the class certification stage that the misstatements at issue had no impact on the company stock price. This holding continues the Court's recent trend to reign in class action litigation by allowing more scrutiny at the certification stage. The holding that direct evidence of price impact should be allowed at the certification stage, should help other defense efforts to introduce what might be called merits evidence ,which goes directly against the heart of a plaintiff's case. (June 27,2014)
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The Supreme Court's decision in Walmart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011) has been hailed as one of the most significant class action decisions in years. The Court's later decision in
Comcastwas also thought to step towards limiting class actions.Yet,the Court's attempt to clarify and strengthen the requirements for a class action to proceed does not seem to have limited the number of cases granting or upholding class certifications under Rule 23.
In fact, the ease with which some Federal District Court and Appellate Courts dismiss Dukes (and Corneas is troubling. In employment cases,Courts have held that the commonality requirement can be established even if there is no common employment policy, and with regard to FLSA collective actions, Courts have held that Dukes has little bearing on conditional certifications. (April10,2014)
In a similar vein, the Seventh Circuit seems to have ignoredtherigorousexamination of classcertification issues under Rule 23, and as contemplated by the
U.S. Supreme Court in its decisions in Dukes and Comcast, with its holding in In Re IKO Roofing and Shingle Products litigation that Dukes and Comcast
have nothing to do with commonality of damages.
The Seventh Circuit's mischief continued when it allowed a single issue case against Sears to remain certified by ignoring the clear implication that Dukes and Comcast stand up for the proposition that a single issue class, which ignores damage issues and distinctions, is inappropriate. (October 10, 2014) In October, in the related Sixth Circuit case which was certified against Whirlpool, a jury returned a defense finding of no defect.
What impact the Whirlpool verdict will have on class action litigation remains to be seen. Will the verdict encourage Courts to certify cases, or will it spook plaintiffs into settlements? In our view, this victory should encourage more aggressive defense strategies, and communicate to plaintiff 's counsel and Courts that these cases can be won at trial, which will hopefully lead to fewer certifications by docket minded Courts, and lower settlement payments in those cases which should be settled.
And,other Circuits deny the relevancy of Dukes by holding that Dukes addresses class certification and not the sufficiency of evidence to support a class-wide verdict. (August 24, 2014)
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A Good Defense is the Best Offense - Defeating Class Actions by Arbitration Agreement
2014 confirmed, a good defense like a class action waiver, is a potent weapon that employers can use to attack class actions. Numerous state appellate Courts and circuit Courts of appeals in 2014 held that class actions waivers in arbitration agreements are enforceable, which allowed the employers to avoid class certification in favor of individual arbitration. This despite the National Labor Relations Board's 2012 opinion in D.R. Horton, Inc and Michael Cuda that class waivers signed as a condition of employment violate employees' rights under the National Labor Relation Act to engage in concerted activity. The Second, Fourth, Fifth, Ninth, and Eleventh Circuits have all rejected
D.R. Horton and enforced such waivers in the last year or two. (June
But the NLRB continues to reject class waivers in the employment context. (August 8, 2014) Indeed, in a controversial decision that rejected the employer-favorable treatment that Courts have given to class action waivers, the NLRB in 2014 reaffirmed its earlier decision in Murphy Oil USA, Inc. However, because of the consistent decisions from the circuit Courts upholding class waivers, employers should continue to consider arbitration agreements as a means for attacking the ever-increasing number of class and collective actions in the employment context.
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Even without a class action waiver, an individual arbitration agreement can be used to defeat a class and collective action. In a case that was defended by Frost Brown Todd, Huffman v. The Hilltop Companies, the Sixth Circuit considered professional services contractor agreements
that contained arbitration provisions but did not contain class waivers and did not provide for class arbitration. (April 8, 2014) Because of the overwhelming support received by the Courts, 2014 confirmed that arbitration agreements remain a great way for employers to defend against class and collective actions. The agreements' silence regarding classwide arbitration compelled the Sixth Circuit to conclude that arbitration against the alleged employer had to proceed individually. Also, in an issue of first impression, the Sixth Circuit held that the strong federal policy in favor of arbitration requires an arbitration agreement to be enforced after the agreement expires, even if the arbitration clause is not listed in the agreement's survival clause.
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In hindsight, the most significant 2014 developments stemmed not from one case or decision but from two major trends and developments. These trends and developments ,when combined with the increasing number and magnitude of data breach and hacking incidents, could change the litigation landscape in 2015 and beyond.
First, with the Targe Adobe Systems and Sony data incidents, 2014 really might be a watershed year for data privacy and breach cases. These cases all stand for the proposition that plaintiffs have standing to assert data breach claims even where they can not allege actual misuse of their data or that they have not been reimbursed for such misuse. These and other incidents are not likely to subside in the minds of the public and Judges due to their size and notoriety. This could lead to significant new cyber legislation, and cause District Courts to certify more and more data breach and privacy matters.
Second, the litigation risks for defendants are exacerbated by the apparent willingness of many Courts to limit the reach and impact of significant SCOTUS precedent found in Dukes, Comcast and Clapper. SCOTUS did not help matters when it declined to grant certification in the Whirlpool case following the Sixth Circuit's curious application of Comcast in an unyielding fashion to justify the District Court's certification of the products case against Whirlpool. Based on these decisions it is therefore possible we will see more and more classes certified in data breach/privacy cases even where plaintiffs' damages are unknown, speculative or even nonexistent, at least in the traditional sense.
The good news is that the Federal Jury deciding the Whirlpool case returned a defense verdict. Defendants and class defense counsel should be encouraged that certification is really just a procedural mechanism, and that big and complex cases can be won at a trial
following the most feared of all decisions certification of the merits for trial. In our view,the Whirlpool defense verdict should encourage more aggressive defense and settlement strategies , and might lead to fewer certifications in docket minded Courts as defense counsel projects a clear willingness to try any case that might be certified. Of course, how juries will treat and analyze data breach and privacy incidents has not yet been tested in the Courtroom, although our jury research suggests that people generally believe data breaches and hacks are perhaps inevitable, that consumers should protect themselves , but that companies should be held responsible for them and that customers and others are in fact harmed by them.
Finally, the SCOTUS holding that there is no presumption against removal under CAFA, and the several favorable CAFA defense decisions in the Federal Appellate Courts makes it clear that Courts are following Congressional intent to have class action matters litigated in Federal Courts. However, isthe day coming where even with these jurisdictional victories other populist or consumer oriented decisions will cause certain defendants to question the wisdom of a CAFA removal to Federal Court? This might happen sooner than later for those defendants who find themselves defending a case in the Seventh Circuit.
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