For defense attorneys negotiating class action settlements, a major consideration is ensuring that their client has indeed “bought its peace”—and won’t be facing follow-on litigation from plaintiffs who may not be bound by the class action settlement. A recent Ninth Circuit decision helps protect defendants against duplictaive follow-on claims by state attorneys general.
In California v. Intelligender, LLC, the district court approved a nationwide settlement of a class action brought on behalf of disappointed users of Intelligender’s gender prediction test, which Intelligender billed as an accurate predictor of a fetus’ gender. Subsequently, the state of California brought an action against Intelligender seeking civil penalties, injunctive relief, and restitution for some individuals who were bound by the class action settlement. Intelligender’s motions for an injunction against the entire action, and then for an injunction only against the state’s restitution claims, were denied by the district court.
The Ninth Circuit upheld the district court’s refusal to enjoin the entire case, agreeing that Intelligender had not met its burden of showing that the class action could bind the state in its sovereign capacity, where it asserted both public and private interests. The court held that “a CAFA class action settlement, though approved by the district court, does not act as res judicata against the State in its sovereign capacity . . . . Because the State action is brought on behalf of the people, it implicates the public’s interest as well as private interests, and therefore the remedial provisions sweep much more broadly.”
However, the panel reversed the district court’s denial of Intelligender’s motion to enjoin the state’s restitution claims, holding that the district court could and should enjoin these claims in the exercise of its continuing jurisdiction to enforce and administer the class action settlement. At issue, the court held, was whether there was privity of interests between the class members and the state with respect to its restitution claims. The district court had found insufficient privity, relying on its determination that (i) the individuals on whose behalf restitution was sought were different from the certified class and (ii) the amount sought by the state was different that allowed under the settlement.
The Ninth Circuit found fault with both premises. With respect to the individuals involved, the district court had concluded that the class was limited to those individuals who had purchased the Intelligender test and received an inaccurate result, while the state sought restitution on behalf of all individuals who purchased the product, regardless of the result. The panel noted that the class was not, in fact, limited to those who had received an inaccurate result; the class included all purchasers, but only those who received an accurate result were eligible to recover under the settlement.
As to the disparity in amounts—Intelligender settled with the class for $10 for each claimant who submitted a declaration swearing that she received an inaccurate result, while the state sought restitution of the full $30 purchase price for each purchaser–the Ninth Circuit held this to be irrelevant to privity. If anything, the court held, the disparity “merely confirms that the State is essentially seeking a double (or at least better) recovery.” Moreover, the panel noted, the appropriate inquiry is whether the government is suing for the same relief already pursued by the class—not what relief was ultimately granted. The court noted that CAFA requires prior notification of proposed settlements to appropriate federal and state authorities; had the state of California found the Intelligender settlement inadequate, it could have intervened and objected.
So Intelligender will still face the spectre of injunctive relief as well as civil penalties under California law–$2,500 for each untrue or misleading statement. But with respect to restitution, Intelligender has indeed “bought its peace.”