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2017 Class Action Review

Baker & Hostetler LLP

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USA May 22 2018

2017 Class Action Review

bakerlaw.com

A SUMMARY OF CLASS ACTION LITIGATION IN 2017

Table of Contents

I. Introduction

II. Developments in Class Action Procedure 5

II.A. Standing Issues

II.B. Offers of Judgment

II.C. Ascertainability

II.D. Personal Jurisdiction

II.E. Settlements

III. Developments by Subject Matter

III.A. Employment and Waivers

III.B. Antitrust

III.C. Privacy

III.D. Consumer

IV. Conclusion

BakerHostetler

YEAR-END UPDATE

I. Introduction

A SUMMARY OF CLASS ACTION LITIGATION IN 2017

I. Introduction

By Dustin M. Dow

If you read any of last year’s Review, you’re not going to be surprised that we discuss Robins

v. Spokeo again in this year’s edition. Indeed, if 2016 was the year that Spokeo dominated

class-action jurisprudence, then 2017 was the aftermath. In the year after the Supreme Court

rearticulated the concrete nature of an injury to establish statutory standing, lower courts

consistently differed on what the Supreme Court actually meant.

You probably also won’t be surprised that the circuit split regarding ascertainability for class

certification appears to be growing. This is an issue we’ve been following for several years, and for

just as long, there’s been significant divergence on what ascertainability means and how to assess

it. How those differences manifested in 2017 is reflected below.

There were also a couple of surprises, among them the focus on personal jurisdiction, which

occupied the Supreme Court’s interest in two cases. Both decisions, turning on specific and general

jurisdiction respectively, have already significantly affected where certain class actions may be

maintained depending on the location of the defendant and the putative or actual class members.

Finally, 2017 was the year of waiting – for the set of consolidated cases regarding class-action

waivers to make their way onto the Supreme Court’s docket for oral argument. After bumping the

cases from the 2016 to the 2017 term, the Supreme Court heard oral argument in October, but

not before the delay enabled other circuits to weigh in on the scope of employee rights under the

National Labor Relations Act vis-à-vis class waivers in individual arbitration agreements. In May,

the Court gave us the answer that many expected: the class waivers must be enforced as written.

Fortunately, 2018 presents an opportunity for lower-court interpretation of that decision (and its

four-justice dissent) which, of course, we’ll be reviewing in detail when this Review comes around

the bend again.

BakerHostetler

YEAR-END UPDATE

II. Developments in Class Action Procedure

A SUMMARY OF CLASS ACTION LITIGATION IN 2017

II. Developments in

Class Action Procedure

By Sam Camardo

2017 saw the Courts of Appeals struggle to define the meaning of two prominent 2016 Supreme

Court decisions. In 2016, the Supreme Court in Spokeo held that an injury must be “concrete”

in addition to being particularized, but it offered little guidance on when a statutory violation one

suffers is a concrete injury. And the Supreme Court in Campbell-Ewald held that an unaccepted

offer of judgment does not moot a putative class action, but left open the effect of a defendant’s

actual tender of compensation to the plaintiff – say, a cashier’s check – on the mootness question.

Unsurprisingly, the Courts of Appeals diverge on the effect of these decisions. On remand in

Spokeo, the Ninth Circuit reaffirmed its prior decision finding that the plaintiff had standing, despite

the Supreme Court’s concreteness requirement. And defendants have tried many different angles

– such as depositing a check with the court under Rule 67 – to avoid Campbell-Ewald’s holding.

These cases, and more, are discussed below.

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A SUMMARY OF CLASS ACTION LITIGATION IN 2017

II.A. Standing Issues

II. Developments in

Class Action Procedure

By Sam Camardo

Two standing issues dominated 2017 class action litigation: When does the risk of future harm

following the theft of a plaintiff’s data provide standing, and when is a statutory violation “concrete”

enough under the Supreme Court’s 2016 decision in Spokeo? This section also notes a recent

Ninth Circuit decision expanding the ability of false-advertising plaintiffs to sue for injunctive relief.

Risk of future harm cases

The rift among the U.S. Courts of Appeals grew significantly in 2017. The Eighth and Fourth

Circuits sided with the Third Circuit in holding that the mere risk of future harm following a

data theft is insufficient to confer standing, while the D.C. Circuit sided with the Seventh and

Ninth Circuits in holding the opposite. These cases follow the significant 2013 United States

Supreme Court decision Clapper v. Amnesty International USA, which held that the plaintiff must

demonstrate that the threatened injury is “certainly impending” or there is a “substantial risk” that

the harm will occur.

The divide about the meaning of Clapper will likely continue to deepen, as the U.S. Supreme Court

denied review in early 2018 of the D.C. Circuit’s decision in Attias v. Carefirst, Inc.

SuperValu and Beck. In re SuperValu, Inc.,

the Eighth Circuit considered whether grocery store

shoppers had standing to sue the grocer who allegedly allowed hackers to steal the plaintiffs’

credit and debit card information. The stolen information included defendants’ customers,

including their names, credit or debit card account numbers, expiration dates, card verification

codes, and personal identification numbers.

Based on the theft, plaintiffs alleged that they were therefore subject “to an imminent and real

possibility of identity theft” and forced to spend time monitoring their accounts for illegal activity.

But one plaintiff (David Holmes) specifically alleged that a fraudulent charge appeared on his credit

card statement. The district court dismissed the complaint on the basis that the plaintiffs had failed

to allege an injury in fact sufficient for Article III standing. On appeal, the Eighth Circuit reversed in

part, concluding that although the other plaintiffs did not have Article III standing, Holmes did.

The Eighth Circuit found that the allegedly stolen information did not include any personally

identifying information (e.g., Social Security numbers, birth dates or driver’s license numbers)

and thus “there is little to no risk that anyone will use the Card Information stolen in these data

breaches to open unauthorized accounts in the plaintiffs’ names, which is ‘the type of identity

theft generally considered to have a more harmful direct effect on consumers.’”

The court then

concluded that the risk that the information could be used to commit credit or debit card fraud was

speculative or hypothetical.

1 865 F.3d 620 (D.C. Cir. 2017).

2 870 F.3d 763 (8th Cir. 2017).

Id. at 770 (quotation omitted).

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A SUMMARY OF CLASS ACTION LITIGATION IN 2017

II. Developments in

Class Action Procedure

Similarly, the court rejected the plaintiffs’ claim that they suffered injury by incurring costs to

mitigate their risk of identity theft. “Because plaintiffs have not alleged a substantial risk of future

identity theft, the time they spent protecting themselves against this speculative threat cannot

create an injury.”

The Fourth Circuit in Beck v. McDonald

addressed whether the plaintiffs – patients who received

care at a Veterans Affairs hospital – had Article III standing based on harm from embarrassment,

mental distress, increased risk of future identity theft and mitigation costs after a laptop containing

their personal information was stolen and four boxes with pathology reports went missing. The

Fourth Circuit, like the Eighth Circuit in SuperValu, affirmed the dismissal for lack of subject matter

jurisdiction based on the plaintiffs’ failure to establish standing.

The court began its analysis by noting that “while it is true ‘that threatened rather than actual injury

can satisfy Article III standing requirements,’ ... not all threatened injuries constitute an injury-in-

fact. Rather, ... an injury-in-fact ‘must be concrete in both a qualitative and temporal sense.’”

The

court then noted that the “circuits are divided on whether a plaintiff may establish an Article III

injury-in-fact based on an increased risk of future identity theft.”

The Fourth Circuit, although stating that it would not officially take a side, held that plaintiffs’

specific allegations had not “push[ed] the threatened injury of future identity theft beyond the

speculative to the sufficiently imminent.”

In fact, the court noted, even after “extensive discovery,”

the plaintiffs had uncovered no evidence that the stolen information had been accessed or

misused. Moreover, the court noted, “‘as the breaches fade further into the past,’ the Plaintiffs’

threatened injuries become more and more speculative.”

Thus, the Fourth Circuit joined the line of

cases rejecting standing in data breach cases absent an actual present injury.

CareFirst. In contrast, the D.C. Circuit easily distinguished Clapper in concluding that a group

of plaintiffs had standing to sue following the alleged theft of their medical information – which

included Social Security numbers – during a cyberattack. The court framed the question as

“whether the plaintiffs have plausibly alleged a risk of future injury that is substantial enough to

create Article III standing.”

The court answered this question in the affirmative.

According to the court, when “an unauthorized party has already accessed personally identifying

data on CareFirst’s servers, [ ] it is much less speculative – at the very least, it is plausible – to

infer that this party has both the intent and the ability to use that data for ill.”

Quoting the Seventh

Circuit’s influential decision in Remijas v. Neiman Marcus, the court rhetorically asked: “Why else

would hackers break into a ... database and steal consumers’ private information? Presumably, the

purpose of the hack is, sooner or later, to make fraudulent charges or assume those consumers’

Id. at 771.

5 848 F.3d 262 (4th Cir. 2017).

6 Id. at 271 (citations omitted).

7 Id. at 273.

8 Id. at 274.

9 Id. at 275 (citation omitted).

10 Id. at 626.

11 Id. at 628.

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A SUMMARY OF CLASS ACTION LITIGATION IN 2017

identities.”

II. Developments in

Class Action Procedure

Ultimately, the court held that “by virtue of the hack and the nature of the data that

the plaintiffs allege was taken,” the “risk is much more substantial than the risk presented to the

Clapper court, and satisfies the requirement of an injury in fact.”

Statutory standing cases

Dominating class action standing issues in 2016 was the U.S. Supreme Court’s decision in Robins v.

Spokeo, Inc., 136 S. Ct. 1540 (2016). There, the Court considered what, exactly, the requirement that

an alleged “invasion of a legally protected interest” be “concrete and particularized” means. As noted

in last year’s review, Spokeo was such an unclear decision that both sides counted it as a win.

The defendant in Spokeo, Spokeo Inc., operates an online “people search engine.” After the

plaintiff, Robins, learned that inaccurate information about him was available on Spokeo, he

sued the company for Fair Credit Reporting Act (FCRA) violations on behalf of a putative class.

The district court dismissed this claim, holding that Robins merely alleged that Spokeo violated

FCRA without any injury to him. That, the district court held, was insufficient to allege standing

under Article III.

The Ninth Circuit disagreed. That court held that Robins alleged that “Spokeo

violated his statutory rights.”

According to the panel, Robins’ “personal interests in the handling of

his credit information are individualized,” and thus sufficient to confer Article III standing.

In a much-anticipated opinion, the Supreme Court vacated and reversed the Ninth Circuit’s ruling.

The problem was the Ninth Circuit’s failure to analyze the “concreteness” requirement of an injury

in fact. The panel instead hinged its decision on only the particularized nature of Robins’ alleged

statutory violation. Particularity, the Court explained, was “necessary to establish injury in fact, but

it is not sufficient.”

An alleged injury must also be “concrete.” But beyond this holding, the Court

offered little guidance for the lower courts to decide when an injury is concrete.

Unsurprisingly, the Courts of Appeals have diverged on the level of concreteness required. For its

part, the Ninth Circuit in Spokeo held that the plaintiff had standing under the Supreme Court’s

decision. The Ninth Circuit interpreted Spokeo as requiring a court to decide two questions: “(1)

whether the statutory provisions at issue were established to protect his concrete interests (as

opposed to purely procedural rights), and if so, (2) whether the specific procedural violations

alleged in this case actually harm, or present a material risk of harm to, such interests.”

The court had “little difficulty concluding that the [ ] interests protected by FCRA’s procedural

requirements are ‘real,’ rather than purely legal creations.”

The court explained that “Congress

found that in too many instances agencies were reporting inaccurate information that was adversely

affecting the ability of individuals to obtain employment. In this context, it makes sense that Congress

might choose to protect against such harms without requiring any additional showing of injury.”

12 Id. at 628-29 (quoting Remijas v. Neiman Marcus Grp., 794 F.3d 688, 693 (7th Cir. 2015)).

13 Id. at 629.

14 See http://blogs.reuters.com/alison-frankel/2016/05/16/brace-for-more-class-action-challenges-post-spokeo/.

15 Robins v. Spokeo, Inc., 2011 WL 597867, at *1 (C.D. Cal. Jan. 27, 2011).

16 Robins v. Spokeo, Inc., 742 F.3d 409, 413 (9th Cir. 2014) (emphasis in original).

17 Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1548 (2016).

18 Robins v. Spokeo, Inc., 867 F.3d 1108, 1113 (9th Cir. 2017).

19 Id. at 1114.

20 Id.

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A SUMMARY OF CLASS ACTION LITIGATION IN 2017

II. Developments in

Class Action Procedure

The court also found that the reputational interests FCRA protects bear a close similarity

to interests historically protected by common law torts such as defamation and libel. The

court explained: “Just as Congress’s judgment about an intangible harm is important to our

concreteness analysis, so is the fact that the interest Congress identified is similar to others that

traditionally have been protected. … In short, guided by both Congress’s judgment and historical

practice, we conclude that the FCRA procedures at issue in this case were crafted to protect

consumers’ (like Robins’s) concrete interest in accurate credit reporting about themselves.”

Having concluded that FCRA protects concrete interest, the court still had to consider whether the

plaintiff alleged a violation of those interests. This means that the plaintiff must “allege more than a

bare procedural violation of the statute that is ‘divorced from’ the real harms that FCRA is designed

to prevent.”

Some statutory violations will not affect the consumer’s interest – such as those that

do “not result in the creation or dissemination of an inaccurate consumer report.” And even in

those situations, some “trivial” inaccuracies may not be complete, such as an inaccurate ZIP code

listed on a credit report. But for the Ninth Circuit, “[I]t is clear to us that Robins’s allegations relate

facts that are substantially more likely to harm his concrete interests than the Supreme Court’s

example of an incorrect zip code.”

This is because Robins alleged that the report contained

incorrect substantive information about him, which could be considered by prospective employers

– regardless of whether any employer actually ever considers this information.

The Ninth Circuit’s opinion on remand thus falls on the side of cases holding that Spokeo creates a

low bar for alleging a “concrete” harm. The Second, Third, Fourth and Sixth Circuits agree with the

Ninth Circuit’s formulation.

For example, the Third Circuit in In re Horizon Healthcare Services Inc. Data Breach Litigation held

that the alleged violation of customers’ statutory rights under the FCRA was a de facto injury that

satisfied concreteness requirements for standing. This case arose when two laptops containing

sensitive personal information were stolen from health insurer Horizon Healthcare Services Inc. The

plaintiffs alleged that Horizon was a consumer reporting agency that acted willfully and negligently

in failing to adequately protect their information.

The Third Circuit agreed with the plaintiffs’ argument that “the violation of their statutory right to

have their personal information secured against unauthorized disclosure constitutes, in and of itself,

an injury in fact.”

The court explained that “when it comes to laws that protect privacy, a focus on

economic loss is misplaced”; “[i]nstead, ‘the unlawful disclosure of legally protected information’

constituted ‘a clear de facto injury.’”

The court concluded that because the FCRA gives consumers

a private cause of action to sue a consumer reporting agency that engages in certain prohibited

conduct, and because plaintiffs alleged that Horizon was a consumer reporting agency that engaged

in this prohibited conduct with their information, the consumers had standing.

21 Id. at 1115.

22 Id.

23 Id. at 1117.

24 See Strubel v. Comenity Bank, 842 F.3d 181, 190 (2d Cir. 2016); In re Horizon Healthcare Services Inc. Data Breach Litigation, 846 F.3d 625 (3d Cir. 2017); Dreher v. Experian

Info. Sols., Inc., 856 F.3d 337, 346 (4th Cir. 2017); Lyshe v. Levy, 854 F.3d 855, 859 (6th Cir. 2017).

25 846 F.3d at 634.

26 Id. at 636 (quotation omitted).

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A SUMMARY OF CLASS ACTION LITIGATION IN 2017

II. Developments in

Class Action Procedure

Other circuits have given Spokeo a more robust reading, agreeing that something more than a

technical statutory violation must be alleged. The Seventh Circuit, in Meyers v. Nicolet Restaurant

of De Pere, LLC,

held that Spokeo requires a plaintiff to “allege a concrete injury that resulted

from the violation in his case.” Unlike the Supreme Court, the Seventh Circuit clarified: “In other

words, Congress’ judgment that there should be a legal remedy for the violation of a statute does

not mean each statutory violation creates an Article III injury.” And so it was in Meyers: The mere

fact that Congress decided that receiving a credit card receipt with more than four digits is an

injury was not enough for the plaintiff to sue.

Similarly, in Hancock v. Urban Outfitters, Inc.,

the D.C. Circuit held that the plaintiffs failed

to allege standing based on a department store clerk asking for their ZIP codes, a violation

of a District of Columbia consumer protection statute. The Fifth Circuit in Lee v. Verizon

Communications, Inc.,

rejected a plaintiff’s claim that the breach of an ERISA duty –

mismanagement of the pension plan – alone was sufficient to confer standing. A plaintiff’s

allegation that a cable company retained personal information about him for more than 30 days,

which violates the Cable Communications Policy Act, was not enough to confer standing for the

Eighth Circuit.

And the Eleventh Circuit held that a defendant’s failure to record a satisfaction of

a mortgage within the required 30 days under state statute, absent harm flowing from that failure,

was insufficient.

In light of the varying circuit interpretations and the legion of federal consumer protection statutes

that provide consumer remedies, the Supreme Court’s 2016 decision in Spokeo is likely to spawn

arguments for years to come.

Injunctive relief

For those practicing on the West Coast, the Ninth Circuit’s decision in Davidson v. Kimberly-Clark

Corporation

is a must read. There, the Ninth Circuit resolved, in favor of consumers, a district

court split over Article III standing for injunctive relief in deceptive advertising cases. The court,

taking a pro-consumer stance, held that a plaintiff’s knowledge of the advertising’s falsity or

deceptiveness does not preclude injunctive relief.

In Davidson, the plaintiff alleged that she paid extra for premoistened wipes manufactured and sold

by the defendant, in part because they were advertised as “flushable.” She alleged that although she

stopped purchasing the wipes, she would do so in the future “if it were possible to determine prior

to purchase if the wipes were suitable to be flushed.”

The district court granted with prejudice the

defendant’s motion to dismiss based in part on its finding that the plaintiff lacked Article III standing

to seek injunctive relief because she was unlikely to purchase the wipes in the future.

27 843 F.3d 724, 727 (7th Cir. 2016).

28 830 F.3d 511, 514 (D.C. Cir. 2016).

29 837 F.3d 523, 529-30 (5th Cir. 2016).

30 Braitberg v. Charter Communications, Inc., 836 F.3d 925, 930-31 (8th Cir. 2016).

31 Nicklaw v. Citimortgage, Inc., 839 F.3d 998, 1002-03 (11th Cir. 2016).

32 873 F.3d 1103 (9th Cir. 2017).

33 Id. at 1108.

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II. Developments in

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In reversing the district court’s decision, the Ninth Circuit rejected the district court’s reasoning

that a “previously-deceived-but-now-enlightened plaintiff” consumer lacks Article III standing to

pursue injunctive relief because he or she cannot be deceived again. The court reasoned that “a

previously deceived consumer may have standing to seek an injunction against false advertising

or labeling, even though the consumer now knows or suspects that the advertising was false at

the time of the original purchase, because the consumer may suffer an ‘actual and imminent,

not conjectural or hypothetical’ threat of future harm.” This is because “[k]nowledge that the

advertisement or label was false in the past does not equate to knowledge that it will remain

false in the future.” For example, “the threat of future harm may be the consumer’s plausible

allegations that she might purchase the product in the future, despite the fact it was once marred

by false advertising or labeling, as she may reasonably, but incorrectly, assume the product was

improved.”

The court explained that “anomalies” would result from an opposite holding, i.e., a defendant could

undermine California’s consumer protection statutes and defeat injunctive relief simply by removing

the case from state court. The court concluded, “[B]y finding that these plaintiffs fail to allege

Article III standing for injunctive relief, we risk creating a ‘perpetual loop’ of plaintiffs filing their state

law consumer protection claims in California state court, defendants removing the case to federal

court, and the federal court dismissing the injunctive relief claims for failure to meet Article III’s

standing requirements. On our Article III standing analysis this ‘perpetual loop’ will not occur.”

Because injunctive relief is often the only available remedy to consumers who bring class actions

for false advertising, Davidson is a clear win for consumers.

34 Id. at 1115 (citations omitted).

35 Id. at 1116.

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II.B. Offers of Judgment

II. Developments in

Class Action Procedure

By Blythe G. Kochsiek

By now, it is settled that an unaccepted offer of judgment does not itself moot a case of controversy.

This is true even where the offer affords the plaintiff complete relief, as an unaccepted Rule 68 offer

of judgment is a legal nullity. But what if the defendant actually pays money to the plaintiff or deposits

it with the court? In 2017, courts diverged over whether this suffices to moot a claim.

In Leyse v. Lifetime Entm’t Servs., LLC,

the Second Circuit directly addressed the question

left open by Campbell-Ewald of whether a case would be moot if a defendant deposited the full

amount of the plaintiff’s individual claim and the court entered judgment for the plaintiff in that

amount. In Leyse, the defendant tendered complete relief, and the district court entered judgment

on the plaintiff’s individual claim under the Telephone Consumer Protection Act (TCPA). The

plaintiff argued that the district court erred in entering judgment because he had not accepted the

Rule 68 offer of judgment. The appellate court rejected this argument, noting that a Rule 68 offer of

judgment, “if rejected, may nonetheless permit a court to enter a judgment in the plaintiff’s favor.”

Thus, under the circumstances, the district court was permitted to enter judgment on the plaintiff’s

individual claim.

Relatedly, in Radha Geismann, M.D., P.C. v. ZocDoc, Inc.,

another TCPA case, the district court

allowed the defendant to deposit a total of $20,000 with the court clerk, an amount “far exceeding”

what the plaintiff could recover under the statute. The district court noted that this extinguished

the plaintiff’s personal stake in pursuing a claim, and the defendant could therefore “make a

cognizable, good-faith argument that this case should be terminated.”

The court added, “The

relevant law will no longer be that of contract, offer and acceptance, or Rule 68; it will be the

Constitutional requirement of a case or controversy.”

But in Fulton Dental, LLC v. Bisco, Inc.,

another TCPA case, the Seventh Circuit held that a

defendant cannot use Rule 67, which allows a party to deposit a payment with the court, to avoid

Campbell-Ewald’s holding. In this case, the defendant made an offer of judgment pursuant to

Rule 68 two days before the Supreme Court decided Campbell-Ewald. The defendant then tried

another tactic by moving for leave to deposit with the district court, under Rule 67, the maximum

possible damages the plaintiff could receive. The Seventh Circuit rejected this tactic, noting the

following:

“[W]e see no principled distinction between attempting to force a settlement on an unwilling

party through Rule 68, as in Campbell-Ewald, and attempting to force a settlement on an

unwilling party through Rule 67. In either case, all that exists is an unaccepted contract offer,

and as the Supreme Court recognized [in Campbell-Ewald], an unaccepted offer is not

binding on the offeree.”

36 679 Fed.Appx. 44 (2d Cir. 2017).

37 Id. at 48 (citing Tanasi v. New Alliance Bank, 786 F.3d 195, 200 (2d Cir. 2015)).

38 268 F. Supp. 3d 599 (S.D.N.Y. 2017).

39 Id. at 605.

40 860 F.3d 541 (7th Cir. 2017).

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II. Developments in

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And in Laurens v. Volvo Cars of North America, LLC, which arose out of a purchaser’s claim that

the defendant’s misleading advertising caused the purchaser and class members to pay extra

money for the hybrid version of a car, the Seventh Circuit rejected the defendant’s argument that

its unaccepted, prelitigation offer to refund the entire purchase price of the car to the purchaser

mooted the purchaser’s claim. The appellate court noted the following.

“The only salient differences between this case and Campbell-Ewald are that Volvo made its

offer before Khadija sued, and it communicated the offer through a generic letter instead of

Rule 68’s more formal process. Neither distinction matters. Nothing about Campbell-Ewald’s

reasoning is confined to Rule 68, which is precisely why we extended its holding to Rule 67 in

Fulton Dental, 860 F.3d 541.”

The court concluded that just as with Rules 67 and 68, a party cannot force a contract on an

unwilling party.

41 868 F.3d 622 (7th Cir. 2017).

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II.C. Ascertainability

II. Developments in

Class Action Procedure

By James R. Morrison

2017 saw more developments in the ongoing circuit split regarding Rule 23’s implicit ascertainability

requirement. In a series of cases starting in 2012, the Third Circuit created a heightened ascertainability

requirement that in order for a class to be ascertainable, it must be administratively feasible to

determine the identity of class members.

This is in contrast to other circuits that only require the class

definition to reference objective criteria. In 2015, the First and Eleventh Circuits appeared to follow the

Third Circuit’s lead, requiring administrative feasibility but with little analysis on the topic.

That same year, the Seventh Circuit, in Mullins v. Direct Digital, LLC, rejected the Third Circuit’s

heightened ascertainability requirement, holding that the class definition need only reference

objective criteria.

The Sixth and Eighth Circuits then appeared to join the Seventh Circuit in

rejecting the heightened ascertainability requirement.

Unfortunately for class action defendants, the general trend in 2017 was for circuit courts to reject

or loosen the Third Circuit’s heightened ascertainability requirement, with the Ninth Circuit and

the Second Circuit firmly rejecting the heightened standard. In Briseno v. ConAgra Foods, Inc.,

the Ninth Circuit disagreed with the Third Circuit’s four reasons why a heightened ascertainability

requirement is necessary, specifically: (1) the heightened standard is a necessary tool to ensure

that the class will actually function as a class; (2) the heightened standard protects absent class

members and shields bona fide claimants from fraudulent claims; (3) the heightened standard

prevents individuals from submitting illegitimate claims and diluting the recovery of legitimate

claimants; and (4) the heightened standard is necessary to protect the due process rights of

defendants to raise individual challenges and defenses to claims.

The Ninth Circuit addressed

each rationale, finding them unsupportive of a heightened standard.

First, the Ninth Circuit held that Rule 23(b)(3)’s requirement that a class action be “superior to other

available methods for fairly and effectively adjudicating the controversy” already provides Rule 23

with a manageability requirement.

This would make the heightened ascertainability requirement

duplicative and unnecessary.

Second, the court stated that neither Rule 23 nor the Due Process clause requires notice to each

individual class member.

In the court’s view, this means there is no need for an administratively

feasible manner to determine the identity of class members, a process which the court believed

might bar low-cost consumer class actions because consumers generally do not keep receipts or

other records of low-cost purchases.

42 Marcus v. BMW of N. Am., LLC, 687 F.3d 583 (3d Cir. 2012); Carrera v. Bayer Corp., 727 F.3d 300 (3d Cir. 2013); Byrd v. Aaron’s Inc., 784 F.3d 154, 166 (3d Cir. 2015).

43 In re Nexium Antitrust Litig., 777 F.3d 9, 19 (1st Cir. 2015); Karhu v. Vital Pharm., Inc., 621 Fed.Appx. 945, 947 (11th Cir. 2015).

44 795 F.3d 654, 657 (7th Cir. 2015).

45 Rikos v. Procter & Gamble Co., 799 F.3d 497, 525 (6th Cir. 2015); Sandusky Wellness Ctr., LLC v. Medtox Sci., Inc., 821 F.3d 992, 996 (8th Cir. 2016).

46 844 F.3d 1121 (9th Cir. Jan. 3, 2017).

47 Id. at 1126-31 (discussing Byrd and Carrera).

48 Id. at 1127-28.

49 Id. at 1128-29.

50 See id.

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Third, the court stated that the risk of fraudulent or mistaken claims is low, perhaps to the point of

being negligible, lessening the need for an additional ascertainability requirement.

II. Developments in

Class Action Procedure

Finally, the Ninth Circuit stated that defendants have other mechanisms available to raise individual

challenges and defenses, such as challenging the class representatives’ standing and through the

claims administration process.

Later in the year, the Second Circuit clarified a prior ruling that seemingly supported the Third

Circuit’s position. Specifically, in Brecher v. Republic of Argentina,

the Second Circuit had stated

that “the touchstone of ascertainability is whether the class is ‘sufficiently definite so that it is

administratively feasible for the court to determine whether a particular individual is a member.’”

But on July 7, 2017, the Second Circuit reversed course and firmly rejected the heightened

ascertainability requirement in In re Petrobras Securities, noting a “general consensus” that was

emerging in the circuit courts rejecting the heightened standard.

Days later, on July 11, 2017, in Sandusky Wellness Center, LLC v. ASD Specialty Healthcare Inc.,

the Sixth Circuit declined to weigh in on whether it would require a heightened ascertainability

requirement, stating: “We see no need to add our own opinion to this debate.” Some had

previously considered the Sixth Circuit to be against the heightened standard, based on its ruling

in Rikos v. Procter & Gamble Co.,

where it had stated: “The court must be able to resolve the

question of whether class members are included or excluded from the class by reference to

objective criteria.”

The Sandusky decision places the Sixth Circuit in the “undecided” category.

Just weeks later, the Third Circuit appeared to slightly lessen its heightened ascertainability

requirement by holding that affidavits, in combination with records or other reliable and

administratively feasible means, can meet the ascertainability standard in City Select Auto Sales

Inc. v. BMW Bank of N. Am. Inc.

The use of affidavits as a means of determining class members

is a hot-button issue on ascertainability where the Ninth Circuit allowed use of affidavits,

while the

Sixth Circuit rejected that approach in its two ascertainability-related decisions this past year.

Unfortunately, the United States Supreme Court does not appear eager to resolve this debate

anytime soon, as the Court rejected ConAgra’s petition for writ of certiorari of the Ninth Circuit’s

decision in October 2017.

The defendant in In re Petrobras Securities recently filed its own

petition for certiorari on Nov. 3, 2017, so the Supreme Court will have another opportunity to

consider this issue in the future.

51 Id. at 1129-30.

52 Id. at 1131-32.

53 806 F.3d 22, 24 (2d Cir. 2015).

54 (Quoting 7A Charles Alan Wright & Arthur R. Miller et al., Federal Practice & Procedure § 1760 (3d ed. 1998)).

55 862 F.3d 250, 265 (2d Cir. 2017).

56 863 F.3d 460, 472 (6th Cir. 2017).

57 799 F.3d 497, 525 (6th Cir. 2015).

58 See In re Petrobras Securities, 862 F.3d 250, 265 (2d Cir. 2017) (describing the Sixth Circuit as part of the growing consensus rejecting the heightened ascertainability

requirement).

59 867 F.3d 434, 441-42 (3d Cir. 2017).

60 Briseno 844 F.3d 1121.

61 Sandusky Wellness Center, 863 F.3d 460.

62 138 S. Ct. 313 (Mem), 199 L.Ed.2d 206, 86 USLW 3172, 86 USLW 3176.

BakerHostetler

A SUMMARY OF CLASS ACTION LITIGATION IN 2017

II.D. Personal Jurisdiction

II. Developments in

Class Action Procedure

By Dustin M. Dow

The Supreme Court issued two decisions in 2017 that, at first glance, appeared to have a

significant effect on where class actions could be brought when putative class members are

residents of different states.

In Bristol-Myers Squibb Co. v. Sup. Ct. of Calif., San Francisco Cty.

and BNSF Ry. Co. v. Tyrrell,

the Supreme Court took on the issue of personal jurisdiction. By itself, personal jurisdiction is not a

class-related issue, but both Bristol-Myers Squibb and Tyrrell articulated concepts that could alter

the way attorneys make venue decisions in class actions.

General jurisdiction

In Tyrrell, the Court addressed the general jurisdiction prong of personal jurisdiction. Recall

from civil procedure class that “[a] court may assert general jurisdiction over foreign (sister-state

or foreign-country) corporations to hear any and all claims against them when their affiliations

with the State are so ‘continuous and systematic’ as to render them essentially at home in the

forum State.”

The “at home” forums for a corporate defendant “are the corporation’s place

of incorporation and its principal place of business.”

In “an exceptional case,” a corporate

defendant’s operations in another forum “may be so substantial and of such a nature as to render

the corporation at home in that State.”

Maintaining even extensive operations within a state, however, does not alone satisfy the

exceptional case exception to general jurisdiction. In Tyrrell, the Court held that even though

BNSF operated one of its automotive facilities in Montana and had more than 2,000 Montana

employees and more than 2,000 miles of Montana railroad tracks, BNSF was not subject to

general jurisdiction in Montana.

“BNSF, we repeat,” Justice Ruth Bader Ginsburg wrote for the

8-1 majority, “is not incorporated in Montana and does not maintain its principal place of business

there. Nor is BNSF so heavily engaged in activity in Montana ‘as to render [it] essentially at home’

in that State.”

After all, “[a] corporation that operates in many places can scarcely be deemed at

home in all of them.”

Tyrrell, accordingly, has potential application for class actions because it clarifies that, insofar as

general jurisdiction is concerned, reliance on the named plaintiffs’ residence may not be sufficient

to establish general jurisdiction if the defendant corporation is not otherwise at home in that

venue. The Court issued the Tyrrell opinion in May, with Justice Sonia Sotomayor dissenting. Since

63 137 S. Ct. 1773 (2017).

64 137 S. Ct. 1549 (2017).

65 BNSF Ry. Co. v. Tyrrell, 137 S. Ct. 1549, 1558 (2017) (quoting Daimler AG v. Bauman, 571 U.S. ---, ---, 134 S. Ct. 746, 760 [2014]).

66 Id. (quoting Daimler, 134 S. Ct. at 760).

67 Id. (quoting Daimler, 134 S. Ct. at 761, n.19).

68 Tyrrell, 137 S. Ct. at 1559.

69 Id. (quoting Daimler, 134 S. Ct. at 761).

70 Id.

BakerHostetler

A SUMMARY OF CLASS ACTION LITIGATION IN 2017

then, several courts have relied on Tyrrell to dismiss class actions based on a lack of personal

jurisdiction, in particular general jurisdiction.

II. Developments in

Class Action Procedure

Specific jurisdiction

Less than a month after Tyrrell, the Court decided Bristol-Myers Squibb, on June 19. In an 8-1

opinion, again with Sotomayor dissenting, the Court held that insofar as specific jurisdiction is

concerned, out-of-state mass tort plaintiffs could not rely on the in-state plaintiffs’ contacts with a

defendant to establish specific jurisdiction. That is, for a court to exercise specific jurisdiction, “‘the

suit’ must aris[e] out of or relat[e] to the defendant’s contact with the forum.”

“For this reason,

specific jurisdiction is confined to adjudication of issues driving from, or connected with, the very

controversy that establishes jurisdiction.” In Bristol-Myers Squibb, the Supreme Court held that

where a group of plaintiffs – consisting of 86 California residents and 592 residents from 33 other

states – filed eight separate complaints in a California court, there was no specific jurisdiction

as to the non-California plaintiffs. Justice Samuel Alito wrote, “The mere fact other plaintiffs

were prescribed, obtained, and ingested Plavix in California – and allegedly sustained the same

injuries as did the nonresidents – does not allow the State to assert specific jurisdiction over the

nonresidents’ claims.”

As Alito explained, what matters “is a connection between the forum and

the specific claims at issue.”

Indeed, since Bristol-Myers Squibb, numerous courts have held that, in multi-plaintiff actions,

specific jurisdiction does not extend to party plaintiffs whose allegations do not arise from conduct

that occurred within the forum state.

At the same time, courts have also found means of distinguishing Bristol-Myers Squibb by noting

that it was not a Rule 23 class action and thus has no application in the Rule 23 arena. In October,

an Eastern District of Kentucky court explained that Bristol-Myers Squibb did not control personal

jurisdiction in a Rule 23 class action because “the inquiry for personal jurisdiction lies with the

named parties of the suit asserting their various claims against the defendant, not the unnamed

proposed class members.”

An Eastern District of Louisiana court held similarly in an eight-yearold

products

liability

action,

drawing

a contrast

with

Bristol-Myers

Squibb

because

“citizenship

the

unnamed

plaintiffs

not

taken

into

account

for

personal

jurisdiction

purposes.”

And in

September, a Northern District of California court articulated the difference between mass tort

71 See Blakes v. Dyncorp Int’l, LLC., No. CV 17-00001-BAJ-EWD, 2017 WL 4706891, at *2 (M.D. La. Oct. 19, 2017); State ex rel. Bayer Corp. v. Moriarty, No. SC 96189, 2017

WL 6460354, at *4 (Mo. Dec. 19, 2017) (“Bayer’s contacts with Missouri do not give rise to general personal jurisdiction. Bayer is not incorporated in nor does it have its

principal place of business in Missouri. And although Plaintiffs allege Bayer does substantial business in the state, Daimler, BNSF, and Norfolk held this insufficient to provide

general jurisdiction in Missouri; it is simply not enough to render Bayer ‘at home’ here.”); Jordan v. Bayer Corp., No. 4:17-CV-865 (CEJ), 2017 WL 3006993, at *3 (E.D. Mo. July

14, 2017), reconsideration denied, No. 4:17-CV-00865-AGF, 2018 WL 339305 (E.D. Mo. Jan. 8, 2018).

72 Bristol-Myers Squibb Co., 137 S. Ct. at 1780 (quoting Daimler, 134 S. Ct. at 760) (emphasis in original).

73 Bristol-Myers Squibb Co., 137 S. Ct. at 1781 (emphasis in original).

74 Id.

75 See, e.g., Jordan v. Bayer Corp., No. 4:17-CV-865 (CEJ), 2017 WL 3006993, at *4 (E.D. Mo. July 14, 2017) (“With respect to the other non-Missouri plaintiffs, under BristolMyers,

there

personal

jurisdiction

their

claims

because

there

‘connection

between

the

forum

and

the

specific

claims

issue.’”);

Spratley

FCA

LLC,

No.

317CV0062MADDEP,

2017

4023348,

(N.D.N.Y.

Sept.

12,

2017)

(the

“out-of-state

Plaintiffs

have

shown

connection

between

their

claims

and

Chrysler’s

contacts

with

New

York,

therefore,

the

Court

lacks

specific

jurisdiction

over

the

out-of-state

Plaintiffs’

claims.”);

Dental

Supplies

Antitrust

Litig.,

No.

16CIV696BMCGRB,

2017

4217115,

(E.D.N.Y.

Sept.

20,

2017)

(dismissing

class

antitrust

claims

due

lack

personal

jurisdiction

under

Bristol-Myers

Squibb).

Day

Air

Methods

Corp.,

2017

U.S.

Dist.

LEXIS

174693,

*5-6

(E.D.

Ky.

Oct.

23,

2017).

Chinse-Manufactured

Drywall

Prods.

Liab.

Lit.,

No.

09-2047,

2017

U.S.

Dist.

LEXIS

197612,

*31

(E.D.

La.

Nov.

28,

2017).

BakerHostetler

A SUMMARY OF CLASS ACTION LITIGATION IN 2017

II. Developments in

Class Action Procedure

actions and class actions in holding that Bristol-Myers Squibb applied to mass torts where “each

plaintiff was a real party in interest” but not to class actions where “the ‘named plaintiffs’ are the

only plaintiffs actually named in the complaint.”

Consequently, the varying types of treatment afforded to Bristol-Myers Squibb leave unclear so far

the extent to which its specific jurisdiction treatment affects class actions. At one extreme, courts

could read it to limit nationwide class action jurisdiction to only those forums where the defendant

is at home to be subject to general jurisdiction. At the other end, courts could interpret the case

to apply only in the limited setting of mass torts, with little to no influence over the jurisdictional

boundaries in class actions. The year ahead could offer additional guidance.

78 Fitzhenry-Russell v. Dr. Pepper Snapple Grp., Inc., No. 17-CV-00564 NC, 2017 WL 4224723, at *5 (N.D. Cal. Sept. 22, 2017).

BakerHostetler

A SUMMARY OF CLASS ACTION LITIGATION IN 2017

II.E. Settlements

II. Developments in

Class Action Procedure

By Jessica L. Greenberg

This section explores the past, present and future of certain developments within class action

settlements. First, it explores the effect of a Supreme Court case from 2016 and how it plays out

today. Second, it looks at a current class action settlement agreement and its potential effect on

future class actions. And third, it examines pending legislation, outlining a bill that, if passed, will

impact how class action settlement funds and payments are distributed in the future.

Offers of judgment

You may remember a Supreme Court decision that addressed a defendant’s attempt to moot a

class action plaintiff’s claims pursuant to Rule 68. Although the Court resolved a circuit split in that

2016 case, the Court’s holding only went so far, as it raised – but did not answer – a hypothetical

settlement route that could work to moot a plaintiff’s claims. Defendants have since presented new

arguments and strategies in hopes of satisfying the Court’s hypothetical road map. Other courts

were still split on the issue into 2017, and several of those unsuccessful attempts illustrate that

these efforts will likely continue until the Supreme Court again takes up the issue.

But before diving into some of the unsuccessful attempts of 2017, we provide below a refresher of

the decision that sparked these new attempts.

As mentioned above, in 2016, the Supreme Court resolved a circuit split over whether an

“unaccepted offer to satisfy [a] named plaintiff’s individual claim is sufficient to render a case moot

when the complaint seeks relief on behalf of the plaintiff and a class of persons similarly situated.”

In Campbell-Ewald Co. v. Gomez, the plaintiff filed a class action against the defendant, alleging

violations of the Telephone Consumer Protection Act.

Before the deadline for class certification,

the defendant proposed to settle the plaintiff’s individual claims and filed an offer of judgment

under Federal Rule of Civil Procedure 68.

The defendant offered to pay the plaintiff’s damages

(excluding fees) and to follow a stipulated injunction.

The plaintiff, however, did not accept the

settlement offer and let the Rule 68 submission lapse.

After discussing basic principles of

contract law and analyzing the applicable rules, the Court found that the “plaintiff’s complaint was

not effaced by [the defendant’s] unaccepted offer to satisfy his individual claim.”

And the Court

held that the unaccepted settlement offer had no force.

79 Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663, 667, 669 (2016).

80 Id. at 667.

81 Id. at 668; Federal Rule of Civil Procedure 68 states: “At least 14 days before the date set for trial, a party defending against a claim may serve on an opposing party an offer to

allow judgment on specified terms, with the costs then accrued. If, within 14 days after being served, the opposing party serves written notice accepting the offer, either party

may then file the offer and notice of acceptance, plus proof of service. The clerk must then enter judgment.” Fed. R. Civ. P. 68(a). Further, under the rule, “an unaccepted offer is

considered withdrawn, but it does not preclude a later offer. Evidence of an unaccepted offer is not admissible except in a proceeding to determine costs.” Fed. R. Civ. P. 68(b).

82 136 S. Ct. at 667-8.

83 Id. at 668.

84 136 S. Ct. at 670-72.

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A SUMMARY OF CLASS ACTION LITIGATION IN 2017

II. Developments in

Class Action Procedure

Although the Court held that “an unaccepted settlement offer or offer of judgment does not moot

a plaintiff’s case,” it did not, however, address the result of a different, hypothetical scenario: it

left open the possibility of mootness where “a defendant deposits the full amount of the plaintiff’s

individual claim in an account payable to the plaintiff, and the court then enters judgment for the

plaintiff in that amount.”

Other courts have since addressed other attempts to satisfy this hypothetical, and have continued

to do so throughout 2017. For example, in Fulton Dental LLC v. Bisco Inc., the defendant extended

the plaintiff a settlement offer pursuant to Rule 67 rather than Rule 68.

Through its offer, the

defendant moved for leave to deposit full relief – providing the plaintiff with the maximum amount

of possible damages – with the district court under Rule 67.

But the court was not persuaded

with this alternate route for settlement under Rule 67. While the court noted that the “core purpose”

of Rule 67 “is to relieve a party who holds a contested fund from responsibility for disbursement of

that fund amount to those claiming some entitlement thereto,”

it distinguished that “Rule 67 is not

a vehicle for determining ownership” of the funds deposited in the court’s registry fund.

Further,

the court highlighted that a court’s registry fund is not an account payable to the plaintiff and is

not similar to a bank account in the plaintiff’s name.

Ultimately, the court found “no principled

distinction between attempting to force a settlement on an unwilling party through Rule 68 …

and attempting to force a settlement on an unwilling party through Rule 67”; and that, in either

scenario, an “unaccepted offer is not binding on the offeree” and cannot moot a case.

In addition, while some courts have held that tendering a check can moot a plaintiff’s claims,

others have denied defendants’ attempts to tender a check to the plaintiff.

For example, in Fast v.

Cash Depot Ltd., the plaintiff brought a collective action

against the defendant, alleging violations

of the Fair Labor Standards Act.

Soon thereafter, the defendant realized its miscalculations and

sent current and former employees checks for the money it owed. Importantly, the defendant sent

the plaintiff the money it owed him, in addition to the relevant attorneys’ fees and costs associated

with the plaintiff’s lawsuit. After issuing these payments, the defendant argued that the case

was moot because it paid the plaintiff the full amount of possible recovery. On the other hand,

the plaintiff argued that the case was not moot because he did not cash or deposit the check.

85 Id. at 672; 1 Newberg on Class Actions § 2:15 (5th ed.).

86 860 F.3d 541, 542-3 (7th Cir. 2017). Under Federal Rule of Civil Procedure Rule 67, “If any part of the relief sought is a money judgment or the disposition of a sum of money

or some other deliverable thing, a party – on notice to every other party and by leave of court – may deposit with the court all or part of the money or thing, whether or not that

party claims any of it. The depositing party must deliver to the clerk a copy of the order permitting deposit.” Fed. R. Civ. P. 67(a). Further, “[m]oney paid into court under this

rule must be deposited and withdrawn in accordance with 28 U.S.C. §§ 2041 and 2042 and any like statute. The money must be deposited in an interest-bearing account or

invested in a court-approved, interest-bearing instrument.” Fed. R. Civ. P. 67(b).

87 860 F.3d at 543.

88 Id. at 545 (citing Alston Caribe Inc. v. George P. Reintjes Co., 484 F.3d 106, 113 (1st Cir. 2007)).

89 Id. (emphasis in original).

90 Id.

91 Id.; see also Conrad v. Boiron Inc., 869 F.3d 536 (7th Cir. 2017) (remanding to the district court because an unaccepted offer of settlement cannot moot a case).

92 See Demmler v. ACH Food Companies, Inc., No. 15-13556, 2016 WL 4703875, *4, *8 (D. Mass. June 9, 2016) (finding that the defendant’s actual tender of full relief without

restrictions was sufficient to moot the plaintiff’s claims).

93 Stromberg v. Ocwen Loan Servicing LLC, No. 15-cv-04719, 2017 WL 2686540, *8 (N.D. Cal. June 22, 2017) (holding that the plaintiff’s individual claims were not moot

because the plaintiff rejected the defendant’s check and thus did not receive complete relief for her claims); Fast v. Cash Depot Ltd., No. 16-C-1637, 2017 WL 5158693, *5

(E.D. Wis. Nov. 6, 2017).

94 Courts have applied the Campbell-Ewald reasoning to collective actions. 7 Newberg on Class Actions § 23:43 (5th ed.).

95 2017 WL 5158693, *1.

BakerHostetler

A SUMMARY OF CLASS ACTION LITIGATION IN 2017

The court noted that “a defendant may not force a settlement on an unwilling party” and that

the plaintiff believed that the case was about more than the damages and sought other relief.

II. Developments in

Class Action Procedure

Ultimately, the court held that the offer did not moot the plaintiff’s claims because the plaintiff did

not cash the check, or “otherwise indicate an intent to accept” such settlement offer.

Similarly, some courts have held that a direct deposit into a plaintiff’s account may not be sufficient

to moot a case where the payment does not provide the complete relief sought.

For example,

in Luman v. NAC Marketing, the plaintiff filed a class action seeking relief for various allegations

against the defendants for the products it offered.

The defendants refunded the plaintiff for its

purchases, and the court examined whether the plaintiff’s individual claims for monetary relief were

rendered moot. Although the defendant “did more than simply offer to repay” the plaintiff, the court

held that the claims were not moot because the defendant did not agree to the plaintiff’s requested

injunctive relief. Therefore, because the defendant did not afford the plaintiff the complete relief

requested, the court found that the claims were not moot.

The aforementioned cases demonstrate that this issue is still one to watch, and one that will likely

persist until the Court definitively answers and outlines the hypothetical it raised in 2016.

Data breaches

Data breaches have affected companies and individuals across the United States. And as the

number of data breaches increases, so do the costs.

100

This is because data breaches pose a

serious threat to sensitive and personal information and can cause serious harm to their victims.

Moreover, such exposures typically result in litigation. As you can imagine, the expense of

navigating these post-breach waters can be significant, and the class action settlements paid in

2017 show that these costs keep climbing.

Notably, among the several different categories of information at risk for a breach, healthcare

data arguably stole the 2017 spotlight. This is in part because of the preliminary approval of a

settlement of a class action involving a 2015 data breach of health insurer Anthem Inc. Not only is

the settlement amount the largest in a data breach case to date, but if approved, it will likely impact

future data breaches in the healthcare arena and elsewhere.

In 2015, Anthem acknowledged that it had been subject to a cyberattack that exposed various

sensitive information of approximately 78 million people. After about two years of litigation –

including “two rounds of motions to dismiss, extensive fact and expert discovery, and briefing on

the plaintiffs’ motion for class certification and the parties’ motions to exclude expert testimony” –

the parties presented a proposed settlement to the court.

101

96 Id. at *5.

97 Id.

98 Luman v. NAC Marketing Company LLC, No. 2:13-cv-00656, 2017 WL 3394117, *3 (E.D. Cal. Aug. 8, 2017); but cf. S. Orange Chiropractic Ctr., LLC v. Cayan LLC, No. 1513069,

2016

1441791,

(D.

Mass.

April

12,

2016),

motion

certify

appeal

denied,

2016

3064054

(May

31,

2016)

(concluding

that

the

defendant’s

offer

deposit

check

with

the

court

and

satisfy

all

the

plaintiff’s

claims

mooted

the

plaintiff’s

individual

claims).

2017 WL 3394117, *3.

100 Kirstin Ann Shepard, Christine A. Stoddard, Class Action and Regulatory Settlements Reflect the Rising Cost of Data Breaches, ClassifiedClassAction.com (July 11, 2017) http://

classifiedclassaction.com/class-action-regulatory-settlements-reflect-rising-cost-data-breaches.

101 In re Anthem Data Breach Litigation, No. 15-MD-02617, 2017 WL 3730912, *1 (N.D. Cal. Aug. 25, 2017).

BakerHostetler

A SUMMARY OF CLASS ACTION LITIGATION IN 2017

Under the terms of the settlement, Anthem must establish a $115 million settlement fund.

102

II. Developments in

Class Action Procedure

The

fund will be used to purchase credit monitoring services for the class members, in an attempt to

protect class members from future fraud and promptly detect any identity theft.

103

Alternatively,

class members who already have credit monitoring may choose to receive up to $50 instead.

104

Moreover, a portion of the fund will also be used to pay out-of-pocket expenses incurred as a

result of the breach.

105

In addition, Anthem must upgrade its data security practices and programs

to significantly increase and improve its data monitoring practices.

106

In granting preliminary approval, the court found that the terms of the settlement appeared “to be

the result of serious, informed, noncollusive negotiations conducted … over the course of nearly

three months.”

107

Importantly, if approved, the Anthem settlement may arguably make it possible for plaintiffs in

future cases to argue that they were harmed from a data breach that exposed their personal

information.

108

But the fate of the settlement is uncertain, as several objections have been filed challenging,

among other things, the requested attorneys’ fees. Multiple settlement hearings in 2018 have been

postponed, and it is expected that the court may not rule on the motion for final approval of the

settlement until June.

The Fairness in Class Action Litigation Act of 2017

In the early spring of 2017, House Judiciary Committee Chairman Bob Goodlatte introduced the

Fairness in Class Action Litigation Act of 2017.

109

The Act proposes several significant changes

to class action practice and is currently awaiting its fate in the Senate. Of the several areas facing

changes, class action settlements are among those that would be affected by the Act.

For example, the Act would change the requirements for calculating and paying attorneys’ fees in

class action settlements. Regarding calculations, the Act would limit the amount of attorneys’ fees

to a reasonable percentage of payments actually distributed to and received by class members.

This means that the amount of attorneys’ fees would not be permitted to exceed the total amount

of funds distributed to the class. Moreover, no attorneys’ fees would be permitted to be calculated

or “paid until any distribution of the monetary recovery to class members has been completed.”

110

Further, the Act would require class counsel to submit settlement data reports. Under the Act,

class counsel would have to submit an accounting disclosure to the director of the Federal Judicial

Center and the director of the Administrative Office of U.S. Courts. Included in the accounting

102 In re Anthem Data Breach Litigation, No. 15-MD-02617, 2017 WL 3699869 (N.D. Cal. June 23, 2017).

103 Id.

104 Id.

105 Id.

106 Id.

107 2017 WL 3730912 at *1.

108 Jeff Stone, What Anthem’s Settlement Reveals About Future Data Breach Suits, Wall St. J. (July 3, 2017, 7:10 AM) https://www.wsj.com/articles/what-anthems-settlementreveals-about-future-data-breach-suits-1499080223.

109

H.R.

985,

115th

Cong.

(2017).

110

H.R.

985,

115th

Cong.,

§ 103

(2017).

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A SUMMARY OF CLASS ACTION LITIGATION IN 2017

II. Developments in

Class Action Procedure

would be the following: (1) the total amount paid directly to all class members; (2) the number

of class members who received payments; (3) the actual or approximate total number of class

members; (4) the average amount paid directly to class members; (5) the largest and smallest

amounts paid to class members; and (6) each amount paid to any other person, including class

counsel, and the purpose of the payment. Notably, the payment calculations would not include any

cy pres payments or reversionary funds in a claims-made settlement.

The Judicial Conference would then use this data to create an annual report for Congress and the

public. The report would summarize the distribution of funds paid in class action settlements, and

permit Congress to further analyze trends in class action settlements.

The Act remains pending in the Senate before the Senate Judiciary Committee.

BakerHostetler

A SUMMARY OF CLASS ACTION LITIGATION IN 2017

II. Developments in

Class Action Procedure

By Dustin M. Dow

2017 offered significant development in the bread-and-butter class-action practice areas. In

the employment sector, for instance, the viability of class-action waivers remains the topic de

jour, in large part because of the consolidated cases recently decided by the Supreme Court.

In the antitrust arena, the Department of Justice displayed surprising activity under the Trump

administration that will require significant monitoring throughout 2018 and beyond. And on the

consumer products front, “reliance” emerged as the next frontier for class-litigation battles, with

many lines yet to be drawn.

BakerHostetler

YEAR-END UPDATE

III. Developments by Subject Matter

A SUMMARY OF CLASS ACTION LITIGATION IN 2017

III.A. Employment and Waivers

III. Developments by

Subject Matter

By Dustin M. Dow

In the past year, substantial uncertainty has swirled around employment class actions. When,

for instance, can arbitration agreements provide employers protection from class-wide claims,

and when will those types of agreements be struck down as invalid? How much authority does

the Department of Labor have to set salary thresholds for Fair Labor Standards Act exemptions?

And what kinds of off-the-clock policies will help protect against class claims when employees

intentionally work off the clock? Some of those questions were answered in the past year.

Supreme Court set to rule on validity of class action waivers in

arbitration agreements

In October, the Supreme Court heard oral arguments in a series of consolidated cases that posed

the question of whether Section 7 of the National Labor Relations Act supplants the Federal

Arbitration Act in cases where employees pursue class-wide relief for employment claims despite

the presence of arbitration agreements with class action waivers. In May, the Court clarified that

the NLRA does not override the FAA, and the agreements must be enforced.

In Epic Systems Corp. v. Lewis,

111

which was been consolidated with Ernst & Young LLP v.

Morris

112

and National Labor Relations Board v. Murphy Oil USA,

113

the Court considered whether

employees’ rights to engage in “concerted activities” for “mutual aid or protection” as provided

by Section 7 displaced an arbitration agreement that requires individual resolution of employment

disputes. The consolidated cases had a lengthy history. In 2016, the U.S. Court of Appeals for the

Seventh Circuit created a circuit split with its decision in Lewis v. Epic Systems Corp.,

114

which held

that an arbitration agreement precluding collective arbitration or collective action violates Section

7 of the NLRA, 29 U.S.C. § 157, and is unenforceable under the FAA, 9 U.S.C. §§ 1 et seq. That

put the Seventh Circuit squarely at odds with the Second, Fifth, Eighth, Ninth and Eleventh circuits,

which had previously held that the FAA’s policy of favoring arbitration overrides any concerted

activity rights employees have to class or collective remedies.

In August 2016, however, the Ninth Circuit joined the Seventh Circuit and held, in Morris v. Ernst

& Young U.S. LLP,

115

that despite the FAA, under Section 7 employees have substantive rights to

pursue collective relief that cannot be waived in an arbitration agreement.

The Supreme Court initially granted certiorari in January 2017, and in June, the Department of

Justice changed its position, coming down on the side of employers, in direct contrast to the

NLRB, explaining, “We do not believe that the Board in its prior unfair-labor-practice proceedings,

or the government’s certiorari petition in Murphy Oil, gave adequate weight to the congressional

policy favoring enforcement of arbitration agreements that is reflected in the FAA.” In the interim,

the Sixth Circuit issued a decision that aligned with the Seventh and Ninth circuits, holding that an

111 S. Ct. Case No. 16-285.

112 S. Ct. Case No. 16-300.

113 S. Ct. Case No. 16-307.

114 823 F.3d 1147 (7th Cir. 2016).

115 834 F.3d 975 (9th Cir. 2016).

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arbitration agreement requiring employees to individually arbitrate their claims violates the NLRA’s

protection of the right to engage in concerted activity, which includes a guaranteed right to pursue

collective action.

116

While the DOJ switched positions under the Trump administration, the NLRB did not. In its August

2017 brief, the NLRB made clear that it would not follow the DOJ, by declaring, “The Employers,

recently joined by the Acting Solicitor General, insist on a narrow construction of Section 157

[Section 7] inconsistent with this Court’s NLRA precedent.”

In May, in a 5-4 majority opinion authored by Justice Gorsuch, the Court delivered an unmistakable

conclusion that the NLRA does not contain a class action right that trumps the FAA: “This Court

has never read a right to class actions into the NLRA – and for three quarters of a century neither

did the National Labor Relations Board. Far from conflicting, the Arbitration Act and the NLRA have

long enjoyed separate spheres of influence and neither permits this Court to declare the parties’

agreements unlawful.”

117

Consequently, employers may continue to rely on the enforceability of class and collective action

waivers.

Overtime rule struck down

In August, an Eastern District of Texas court issued a summary judgment order in favor of a group

of 21 states, striking down a May 2016 Department of Labor rule that would have drastically

increased the minimum salary to qualify for a Fair Labor Standards Act exemption. Originally

scheduled for a Dec. 1, 2016, effective date, the rule would have changed the salary threshold

from $24,660 to $47,476 per year.

118

The district court judge, Amos Mazzant, initially issued a nationwide preliminary injunction on Nov.

22, 2016. In entirely striking down the rule in August, he explained that the DOL essentially and

without authority eliminated the FLSA’s duties test for determining exemptions by setting the salary

threshold so high. Following the summary judgment ruling, the DOL dropped its appeal of the

preliminary injunction order.

Yard-man inference is just that – an inference

Recently, the Supreme Court clarified for the second time in a matter of years that in retiree benefit

cases – which are usually class actions – the “inferences” in favor of vesting are not controlling

presumptions.

119

Such inferences, known as Yard-Man inferences due to their origin in the 1983

case, UAW v. Yard-Man Inc.,

120

were rejected by the Court in 2015 when it directed the Sixth

Circuit to decide retiree health insurance benefit cases using ordinary contract principles.

121

However, some Sixth Circuit panels, while paying lip service to the majority opinion in M&G

Polymers USA LLC v. Tackett, continued to find for the retirees based on arguments having no

116 National Labor Relations Board v. Alternative Entertainment Inc., No. 16-1385 (May 26, 2017).

117 Epic Systems Corp. v. Lewis, 584 U.S. ___, ____ (2018).

118 Nevada, et al. v. U.S. Department of Labor, No. 4:16-cv-00731 (E.D. Tex.).

119 CNH Industrial N.V., et al. v. Reese, et al., 583 U.S. ___ (2018) (per curiam).

120 716 F.2d 1476 (6th Cir. 1983).

121 In M&G Polymers USA LLC v. Tackett, 574 U.S. ___ (2015).

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III. Developments by

Subject Matter

basis in contract law. Fractures soon appeared in the post-Tackett case law, with ever more

obvious splits within the circuit itself, and different outcomes in factually indistinguishable cases.

These splits seemed to reach their zenith on April 20, 2017, when the Sixth Circuit issued three

conflicting decisions on the same day, applying different laws and having different outcomes.

122

Not surprisingly, rehearing en banc was sought, but what followed was even more remarkable. In

one opinion denying review, a concurring judge commented, “[A]n intra-circuit split accompanied

by an inter-circuit divide followed by lack of conformity to a Supreme Court decision normally

warranted en banc review,” but that en banc review would be pointless because there wasn’t a

majority of judges ascribing to any one view of the law. In a separate opinion, the dissent noted

that “[o]ur post-Tackett case law is a mess . . . .” Three petitions for certiorari followed. In Cole

v. Meritor Inc., in which the employer prevailed, review was denied. In the Reese case, however,

the Supreme Court reversed and found that the Sixth Circuit had erred in finding for the retirees.

The Court was again required to state that Yard-Man was not good law and that the Sixth Circuit

had simply resurrected the Yard-Man analysis in a new form. The Court specifically rejected the

repackaged Yard-Man analysis, including:

When a contract is silent on the issue of vesting, it does not vest benefits for life.

The general durational clause should be applied when the agreement “does not specify a duration

for health care benefits in particular.”

“If the parties had meant to vest health care benefits for life, they easily could have said so in the text.”

The prior Sixth Circuit case law purporting to “tie” health benefits to pension benefits was wrong.

The Supreme Court remanded the case for further consideration due to that case’s procedural

posture, but it’s not clear what would happen on remand – other than a dismissal – given the

Court’s strong pronouncement on these issues.

Off-the-clock policies can be useful collective-action defenses

The unending proliferation of smartphones throughout the global workplace has led to growing

concern about compensable time when hourly employees use such devices for work while off

duty. Many employers have tried to address the need to pay for such time, and to avoid litigation,

by promulgating procedures for such employees to record and be paid for the hours they work on

mobile devices. Litigation, however, persists when employees, for their own reasons, choose not to

follow those procedures or choose to put in for the additional time.

Whether and to what extent the employer should be responsible for compensating the employee

for such time was the issue in Allen v. City of Chicago.

123

In that case, the city of Chicago provided

BlackBerry devices for officers working in its organized-crime division. Officers who used the

BlackBerrys when off duty, a frequent occurrence due to the nature of their work, could submit

“time due slips” to their supervisors to be paid for that time. Often, however, the officers simply did

not submit those slips and thus were never paid for the time they had spent on their mobile devices

during off hours. Following a six-day bench trial, the trial court entered judgment against the class.

122 Reese v. CNH Indus., N.V., 854 F.3d 877 (6th Cir. 2017) (retirees prevailed); UAW v. Kelsey-Hayes, 854 F.3d 862 (6th Cir. 2017) (retirees prevailed); and Cole v. Meritor Inc.,

855 F.3d 695 (6th Cir. 2017) (employer prevailed).

123 No. 16-1029 (7th Cir. Aug. 3, 2017).

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III. Developments by

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The Seventh Circuit affirmed. It noted that the police department had a reasonable system in

place for the submission of time and was not responsible if the officers chose not to use it. It

distinguished the case from instances in which employees might have been discouraged from

submitting time or where no procedure was in place. It rejected the notion that the department’s

pressure on supervisors to reduce overtime or the concern of officers about the “culture”

constituted a violation.

The court found that the city’s policies were not airtight, and it was particularly concerned about

certain of the department’s policies that were not FLSA-compliant, but the case demonstrates that

having a reasonable procedure can provide a defense for an employer in off-the-clock cases.

Ninth Circuit provides clarity in certain PAGA situations

In 2017, employers, plaintiffs and courts continued to grapple with the difficult issue of the interplay

between the California Private Attorneys General Act and arbitration agreements.

In Aviles v. Quik Pick Express, LLC,

124

the Ninth Circuit panel vacated and remanded a district court

order denying Quik Pick Express LLC’s motion to compel arbitration in a case when PAGA was

just one of several claims brought.

Aviles, a Quik Pick driver, claimed that Quik Pick misclassified him as an independent contractor

instead of an employee, causing him to suffer loss of wages and benefits. Based on this foundation,

Aviles alleged “a smorgasbord of claims ranging from a failure to keep accurate time records to infliction

of emotion [sic] distress” and brought the claims “as an individual and putative class representative, as

a private attorney general, and as all three, depending on the claim.” But Aviles’ contract compelled

him to submit claims to individual arbitration and to waive representative claims. California public policy,

however, prohibits PAGA claims from being waived in an arbitration agreement.

The Ninth Circuit noted that the California Court of Appeals confronted a similar situation in Franco

v. Arakelian Enterprises, Inc.,

125

and maintained the parties’ “contractual expectations as much as

possible by simply restricting the arbitration provision from applying to PAGA claims.” Following

Franco’s lead, the Ninth Circuit ordered the Aviles case remanded with the following directives:

A Grant the motion to compel arbitration on an individual basis with regard to any claim Aviles

“brings on his own behalf (regardless of whether he also putatively represents class members).”

A Enforce the representative-action waiver except for PAGA claims.

A Decline to permit Aviles “to represent any other individual, as a class representative or

otherwise.”

A Stay Aviles’ PAGA claims during the arbitration.

A Finally, if the arbitration of Aviles’ individual claims determines he is an “aggrieved individual”

pursuant to Cal. Lab. Code § 2699, he then can litigate his PAGA claims in court.

So, unlike some earlier decisions, the Ninth Circuit provided an analytical framework for resolving

claims subject to individual arbitration and, at the same time, a means to resolve a viable PAGA

claim in court. Given the continuing uncertainty in this area, having at least a framework may prove

helpful in crafting a manageable case management plan in PAGA/arbitration disputes.

124 No. 15-56951 (9th Cir. Nov. 24, 2017).

125 234 Cal. App. 4th 947, 952-53, 965 (2015).

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III.B. Antitrust

III. Developments by

Subject Matter

By Anthony B. Ponikvar

Antitrust law in 2017

A recent analysis shows that 600 antitrust suits were filed in federal court in 2017.

126

This is the

lowest number since 2011. Id. Despite these numbers, 2017 brought with it a series of high-profile

cases and important developments in the antitrust field.

Successful Government Challenges in 2017

EnergySolutions, Inc.

The DOJ successfully challenged the recent merger attempt between EnergySolutions, Inc., and

Waste Control Specialists LLC, two major players in the nuclear-waste-processing market.

127

At trial, Waste Control Specialists argued that if the acquisition were blocked, the company

would need to be liquidated. However, the U.S. District Court for the District of Delaware was not

impressed, and enjoined the merger. This enjoinment follows the recent trend of courts prohibiting

companies from relying on the “failing firm” defense.

Additionally, this case (Case No. 1:16-cv-01056) may have a lasting impact because of the court’s

analysis of Waste Control Specialists’ efforts to find a buyer other than EnergySolutions. In

essence, the court found that Water Control Specialists and its parent company had not tried hard

enough to find other buyers for the flailing company. The opinion notes that the parent company

talked with only one other potential buyer but did not even obtain a bid.

This ruling could have long-lasting effects because it points to courts requiring that floundering

companies, before they are sold, be seriously shopped around to a spectrum of potential

buyers. This could be catastrophic to companies that do not have the time or resources to

undertake such efforts.

Two Major Wins in the Healthcare Industry

The DOJ started 2017 off with a bang in successfully blocking two megamergers in the healthcare

industry. First, in January, a $37 billion deal between Aetna Inc. and Humana Inc. was enjoined by

a federal judge, who found that the merger would substantially reduce competition for Medicare

Advantage Plans in over 350 counties around the country. The deal was subsequently tabled by

both parties.

128

Following up on its win in January, the DOJ concluded a successful challenge to Anthem’s deal

worth over $50 billion to acquire Cigna.

129

126 Brian Howard, Lex Machina Q4 2017 End of the Year Litigation Update (Lex Machina Jan. 16, 2018), https://lexmachina.com/lex-machina-q4-litigation-update/.

127 U.S. District Court Blocks EnergySolutions’ Acquisition of Waste Control Specialists. (DOJ June 21, 2017), https://www.justice.gov/opa/pr/us-district-court-blocksenergysolutions-acquisition-waste-control-specialists.

128

U.S. District Court Blocks Aetna’s Acquisition of Humana (DOJ Jan. 23, 2017), https://www.justice.gov/opa/pr/us-district-court-blocks-aetna-s-acquisition-humana.

129 U.S. District Court Blocks Anthem’s Acquisition of Cigna (DOJ Feb. 8, 2017), https://www.justice.gov/opa/pr/us-district-court-blocks-anthem-s-acquisition-cigna.

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Looking to 2018

With Trump’s promises of removing regulations and generally decreasing the role of government

as a whole, the Trump administration was predicted by many to play a less active role in mergers.

However, this was not the case in 2017, and based on what we already know, it does not appear to

be the case for 2018 either. Both the DOJ and the FTC enter 2018 with a full slate of action.

The DOJ has publicly stated that it hopes to cut down the time necessary for merger review.

Currently, a review takes the DOJ an average of 11 months to complete, up from seven months in

2011.

130

If the review process is in fact revamped and made more efficient in the coming years, the

strategies and tactics involved in the merger and acquisition market may be implicated and should

be analyzed by all participants in the industry. In addition to this logistical change, the government

has a number of high-profile cases on its dockets for the upcoming year.

What to watch

The Supreme Court and the Rule of Reason

In 2010, the Department of Justice and 17 states sued American Express. The complaints alleged

that American Express’s anti-steering provisions in its contracts with merchants, which prohibit the

merchants from offering discounts to customers who use other credit cards, was an unreasonable

strain on trade.

While the district court agreed with the plaintiffs, the Second Circuit, in Ohio v. American Express,

reversed the lower court’s decision. This reversal was based largely on an error made in the lower

court in evaluating American Express’s conduct in the two-side market. According to the Second

Circuit, the district court improperly looked only at the effects in the merchant market, and did

not adequately consider the market for cardholders. This, according to the court, “ignores the

two markets’ independence” and led to a misapplication of the rule of reason. Under the Second

Circuit’s analysis, the district court failed to consider whether a price increase to merchants would

be used to fund benefits for the cardholders in some way. Because the anti-steering provisions

“affect compensation for cardholders as well as merchants, the plaintiffs’ initial burden . . . was

to show that the [provisions] made all AmEx customers on both sides of the platform – i.e., both

merchants and cardholders – worse off overall.”

The states sought cert from the Supreme Court, arguing that the Second Circuit improperly

merged two distinct markets into one. This, arguably, is contrary to Supreme Court precedent,

which requires the different sides of a two-sided platform to be considered as separate markets for

antitrust purposes.

Guidance from the Supreme Court will bring clarity to the application of the rule of reason to twosided

markets.

This

decision

could

potentially

affect

a wide

variety

industries,

including

credit

cards,

finance,

healthcare

and

more.

130 Melissa Lipman, DOJ Aims to Speed Merger Review Under Trump, Deputy Says (Law360), https://www.law360.com/articles/986235.

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Tronox-Cristal

Acting in line with recent history, the DOJ recently filed suit to stop Tronox’s $2.2 billion acquisition

of Cristal, a chemical mining and processing company.

III. Developments by

Subject Matter

131

Much like other recent challenges,

the DOJ’s complaint focuses on a relatively narrow market (formulation of titanium dioxide) and

argues that bringing together two of three players in that particular market would be harmful to

competition. This approach is consistent with the approach taken in recent actions such as the

Sysco-US Foods and Staples-Office Depot actions.

In addition to the acquisition challenges outlined above, the government has numerous other

pending suits that may have major implications on the field of antitrust law.

Qualcomm

In January, the Federal Trade Commission sued Qualcomm, alleging the company improperly

exerted its dominance over the semiconductor market to receive higher royalties and anti-

competitive licensing terms from cellphone makers.

132

At the center of the FTC’s theory, and of particular import for industry at large, is how the courts

will treat Qualcomm’s licensing policy. Under this policy, Qualcomm has refused to sell its

processors to anybody that does not also agree to the company’s licensing terms. These licensing

terms require customers to pay a separate patent license fee, and pay royalties on devices that

use rival semiconductor chips. This practice is, according to the complaint, not used by any other

participants in the industry, and amounts to an anti-competitive tax being levied on cellphone

makers looking to use non-Qualcomm processers.

Similar actions and investigations have been brought in China, South Korea and Europe, and

Japan is also reportedly investigating Qualcomm’s licensing practices.

Domestic Air Providers

Stemming from a case originally filed in 2009, the multidistrict litigation in the District Court for the

District of Columbia filed against several prominent airlines is likely to make significant progress in

2018. The suit claims the airlines conspired to limit the number of domestic flights in the country

and thus hike prices for consumers. Given the recent consolidation in the airline industry, this

case is sure to be closely watched, and may have broad implications for airline travel and other

consolidating industries in the future.

131 FTC Challenges Proposed Merger of Major Titanium Dioxide Companies (FTC Dec. 5, 2017), https://www.ftc.gov/news-events/press-releases/2017/12/ftc-challengesproposed-merger-major-titanium-dioxide-companies.

132 FTC Charges Qualcomm With Monopolizing Key Semiconductor Device Used in Cell Phones (FTC Jan. 17, 2017), https://www.ftc.gov/news-events/press-releases/2017/01/ftccharges-qualcomm-monopolizing-key-semiconductor-device-used.

The

case

currently

pending

before

the

Northern

District

California

(Case

No.

5:17-cv-00220).

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III.C. Privacy

III. Developments by

Subject Matter

Standing Developments

By James R. Morrison

Continued Spokeo Fallout in 2017

Plaintiffs’ standing to bring suit for increased risk of identity theft and other future harm following

a data incident continued to be a significant debate among federal courts in 2017, particularly

following the United States Supreme Court’s May 2016 ruling in Spokeo, Inc. v. Robins.

133

Article

III standing in federal courts requires a plaintiff to (1) have suffered an injury in fact (2) that is fairly

traceable to the challenged conduct of the defendant and (3) that is likely to be redressed by a

favorable juridical decision.

134

For years, federal courts analyzing data privacy cases have regularly

debated whether an intangible increased risk of future harm such as a risk of identity theft is an

injury in fact sufficient to give a plaintiff Article III standing.

135

Although Spokeo was not a data privacy case, the Supreme Court clarified the standing

requirements for intangible injuries, a topic of considerable interest in data privacy matters, which

frequently involve an alleged increased risk of identity theft. In Spokeo, plaintiff Robins alleged

that the consumer reporting agency Spokeo Inc. had generated a profile containing inaccurate

information about Robins, in violation of the Fair Credit Reporting Act (FCRA).

136

The district

court dismissed Robins’ case, holding that he had not pled injury in fact sufficient for Article III

standing.

The Ninth Circuit reversed, holding that Robins had pled sufficient injury in fact based on

his allegation that Spokeo violated his statutory rights and that Robins’ personal interests in the

handling of his credit information are individualized.

137

The Supreme Court reversed. Specifically, the Court reiterated that for a plaintiff to have pled an

injury in fact, the plaintiff must allege an injury that is both concrete and particularized.

138

While

the Ninth Circuit had found that Robins’ injury was particularized,

139

it failed to analyze whether his

injury was “concrete.”

140

In the process, the Supreme Court articulated new guidelines for how to

determine when an injury is concrete.

Spokeo Fueled Both Sides in Debate Over Standing for Increased Identity Theft Risk.

Spokeo’s articulated requirements for what makes an injury concrete gave fuel to both sides of

the debate over whether an increased risk of identity theft is an injury in fact. On the one hand, the

Supreme Court stated that a concrete injury must be “de facto,” “must actually exist” and must be

133 136 S. Ct. 1540, 194 L. Ed. 2d 635 (2016), as revised (May 24, 2016).

134 Id. a t 15 47.

135 Compare, e.g., Krottner v. Starbucks Corp., 628 F.3d 1139, 1142-43 (9th Cir. 2010) (increased risk of future identity theft sufficient for Article III standing); Katz v. Pershing, LLC,

672 F.3d 64, 80 (1st Cir. 2012) (increased risk of identity theft insufficient for Article III standing).

136 Id. at 1544.

137 Id. at 1544-45.

138 Id. at 1545.

139 A particularized injury must affect the plaintiff in a personal and individual way. Id.

140 Id.

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“real” and not “abstract.”

141

Further, Article III standing requires a concrete injury even in the context

of a statutory violation.

142

III. Developments by

Subject Matter

These statements help defendants seeking to require a plaintiff to allege

more than a merely speculative injury.

On the other hand, the Supreme Court clarified that “‘[c]oncrete’ is not, however, necessarily

synonymous with ‘tangible.’”

143

The Court stated, in addressing whether an intangible injury is

sufficient to provide standing, “It is instructive to consider whether an alleged intangible harm

has a close relationship to a harm that has traditionally been regarded as providing a basis for

a lawsuit in English or American courts.”

144

Likewise, Congress’ judgment is also instructive

and important.

145

The Court also clarified that risk of real harm can, in some cases, satisfy the

requirement of concreteness.

146

These statements help plaintiffs seeking redress from increased

risk of future harm.

After Spokeo, Circuit Courts Remain Divided Regarding Whether Increased Identity Theft Risk Is a

Concrete Injury.

When applied to data privacy cases, Spokeo has not led to a consensus among the circuit courts

that have since addressed whether an intangible risk of future identity theft is an injury in fact. Five

circuit courts addressed this issue in 2017, and reached varying results. Specifically, the Third and

D.C. circuits held that an increased risk of identity theft following a data incident was a sufficient

injury in fact.

147

In contrast, the Second, Fourth and Eighth circuit courts held that an increased risk

of identity theft was not an injury in fact sufficient for Article III standing.

148

The Circuits Holding Increased Risk of Identity Theft Is Injury in Fact

In In re Horizon Healthcare Services Inc. Data Breach Litigation, the Third Circuit held that plaintiffs

had alleged an injury in fact in a putative class action against a health insurer after its laptops

containing personal information of more than 839,000 individuals were stolen.

149

In particular,

the Third Circuit held that an alleged statutory violation of the FCRA, the same statute applied

in Spokeo, was a sufficiently concrete injury without any additional harm.

150

The Third Circuit

reasoned that Congress enacted the FCRA to prevent the unauthorized dissemination of private

information and a violation of the FCRA alone was a concrete injury.

151

The other two circuits that held data incident victims had standing after Spokeo focused not on

Spokeo’s proclamations regarding statutory violations, but rather on whether the plaintiffs had

141 Id. at 1458 quoting Black’s Law Dictionary 479 (9th ed. 2009), Webster’s Third New International Dictionary 472 (1971), Random House Dictionary of the English Language 305

(1967).

142 Id. at 1549.

143 Id.

144 Id.

145 Id.

146 Id.

147 In re Horizon Healthcare Services Inc. Data Breach Litigation, 856 F.3d 625 (3d Cir. 2017); Attias v. Carefirst, Inc., 865 F.3d 620 (D.C. Cir. 2017).

148 Beck v. McDonald, 848 F.3d 262 (8th Cir. 2017); Whalen v. Michaels Stores, Inc., 689 Fed.Appx. 89 (2d Cir. 2017); In re SuperValu, Inc., 870 F.3d 763 (8th Cir. 2017).

149 856 F.3d at 629-30.

150 Id. at 640-41.

151 Id.

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alleged a “substantial risk of harm” of future identity theft.

152

The D.C. Circuit found standing where

hackers had breached an insurer’s computer system and stolen personal information.

153

III. Developments by

Subject Matter

That

court stated in Attias v. Carefirst, “Here, … an unauthorized party has already accessed personally

identifying data on Carefirst’s servers, and it is much less speculative – at the very least, it is

plausible – to infer that this party has both the intent and the ability to use that data for ill. … [A]

substantial risk of harm exists already, simply by virtue of the hack and the nature of the data that

the plaintiffs allege was taken.”

154

The Circuits Holding Increased Risk of Identity Theft Is Not Injury in Fact

In contrast, the Second, Fourth and Eighth circuits held that an increased risk of identity theft was

insufficient to be an injury in fact. For example, in In re SuperValu, Inc., the Eighth Circuit held that

plaintiffs whose credit- and debit-card data was stolen by hackers of the defendant’s grocery store

computer network had not alleged an injury in fact.

155

The Eighth Circuit focused on the fact that

none of the plaintiffs had alleged that their card information had been misused, card information

is less likely to be used in a harmful manner than is other personal information such as a Social

Security number, and most breaches have not resulted in detected incidents of identity theft.

156

Unlike in Attias, the mere fact that data had been stolen was insufficient to provide a concrete

injury under the Eighth Circuit’s analysis. The Second Circuit similarly found no concrete injury in

Whalen v. Michaels Stores, where the plaintiff’s credit card had been compromised by hackers

at Michaels Stores but no fraudulent charges were actually incurred on her account before she

canceled her compromised card.

157

In Beck v. McDonald, the Fourth Circuit drew a distinction between when a thief intentionally

targets personal information compromised in data breaches and when a thief steals a laptop that

happens to contain personal information but there is no evidence the thief ever used or intended to

use the personal information.

158

In Beck, a Veterans Affairs (VA) Medical Center laptop containing

unencrypted personal information was stolen in 2013 and boxes of patient records went missing

in 2014.

159

Plaintiffs whose information was compromised brought suit against the VA secretary,

claiming that they had suffered an enhanced risk of identity theft.

160

The Eighth Circuit held that

their risk of future identity theft was too speculative, noting that the passage of time with no

reported identity theft made their claim more and more speculative.

161

Conclusion

As seen in the five 2017 circuit court cases addressing whether the increased risk of identity theft

is an injury in fact, data incidents can be fact specific, which may impact whether the increased

152 Attias v. Carefirst, Inc., 865 F.3d 620 (D.C. Cir. 2017).

153 Id.

154 Id. at 628-29.

155 870 F.3d 763 (8th Cir. 2017).

156 Id. at 770-771.

157 689 Fed.Appx. 89, 89-91 (2d Cir. 2017).

158 848 F.3d 262, 274 (8th Cir. 2017).

159 Id. at 267.

160 Id.

161 Id. at 274.

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III. Developments by

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risk of identity theft moves beyond speculative and into the concrete injury required by Spokeo.

Likewise, some circuit courts appear more willing than others to accept an increased risk of

identity theft as being a concrete injury. One can expect that this issue will continue to be a

significant debate in 2018 and beyond.

Merits Decisions

By Matthew D. Pearson

Even if the allegations in a complaint sufficiently allege an “injury in fact” for purposes of Article III

standing, that does not mean the complaint has sufficiently alleged “cognizable injury,” an element

of most state law claims.

162

What is required to state a “cognizable injury,” however, often depends

on the applicable state law. For example, in Illinois, courts “have repeatedly held that,” in data

breach cases, “a cardholder’s mere allegation of an unauthorized charge, unaccompanied by an

out-of-pocket loss, is not sufficient to state an actionable injury.”

163

In Iowa, “[t]he well-established

general rule is that a plaintiff who has suffered only economic loss due to another’s negligence has

not been injured in a manner which is legally cognizable or compensable.”

164

Based on these differences in standards, the Eighth Circuit in Kuhns v. Scottrade, Inc., 868 F.3d

711, 718 (8th Cir. 2017), affirmed the dismissal of the plaintiff’s breach-of-contract claim, not

because the plaintiff lacked Article III standing (indeed, the Eighth Circuit concluded he did), but

because the plaintiff “failed to plausibly allege the actual damage that is an element of a breach of

contract claim.”

For that reason, plaintiffs in 2017 continued to rely (or, in some cases, began relying) on novel

damages theories, including (1) loss of value in PII, (2) mitigation expenses and (3) lost time, each

with mixed results.

Value of PII

In 2017, courts continued to find Article III standing based on allegations that the PII disclosed

necessarily lost a portion of its value as a result of being disclosed. Following the rationale set forth

in In re Anthem, Inc. Data Breach Litigation, 2016 WL 3029783, at *14 (N.D. Cal. May 17, 2016), and

Svenson v. Google, Inc., 2015 WL 1503429, at *5 (N.D. Cal. April 1, 2015), the court in In re Yahoo!

Inc. Customer Data Sec. Breach Litig. (“Yahoo”), No. 16-MD-02752-LHK, 2017 WL 3727318, at *14

(N.D. Cal. Aug. 30, 2017) held that “Plaintiffs’ allegations that their PII is a valuable commodity, that

a market exists for Plaintiffs’ PII, that Plaintiffs’ PII is being sold by hackers on the dark web, and

that Plaintiffs have lost the value of their PII as a result, are sufficient to plausibly allege injury arising

from the Data Breaches.”

However, at least one court reached the opposite conclusion when determining whether the loss

of value in one’s PII constitutes sufficient injury under a common-law negligence claim. In Savidge

v. Pharm-Save, Inc., No. 3:17-CV-00186-TBR, 2017 WL 5986972, at *4 (W.D. Ky. Dec. 1, 2017), the

162 In re SuperValu, Inc., Customer Data Sec. Breach Litig., No. 14-MD-2586 ADM/TNL, 2018 WL 1189327, at *12 (D. Minn. March 7, 2018) (“Although this allegation is sufficient

to allege an injury in fact for purposes of Article III standing, it does not provide a basis for the Court to draw a reasonable inference that Holmes suffered monetary loss and thus

a cognizable injury as the result of the charge.”).

163 Id. at *11.

164 Veridian Credit Union v. Eddie Bauer, LLC, No. C17-0356JLR, 2017 WL 5194975, at *3 (W.D. Wash. Nov. 9, 2017).

BakerHostetler

A SUMMARY OF CLASS ACTION LITIGATION IN 2017

III. Developments by

Subject Matter

plaintiffs argued that “their PII … constitutes property,” that their PII had been damaged “by losing

the sales value of that information,” and that, as a result, they were “entitled to recover for any injury

to their PII that they … sustained because of Defendants’ unauthorized disclosure.” The court

disagreed, finding that the plaintiffs had “not adequately allege[d] how the value of their PII has

been diminished, nor that they would have attempted to sell their PII in the future.”

165

The differences in the rulings in Yahoo and Savidge suggest that any motion to dismiss filed by

a defendant should argue that the plaintiff both (1) lacks Article III standing and (2) has failed to

establish alleged cognizable injury under the relevant state-law claims.

Mitigation Measures

Some (but not all) courts remained skeptical of claims that, as a result of the breach, plaintiffs were

forced to pay for credit monitoring services. For example, the Fourth Circuit in Beck v. McDonald,

848 F.3d 262, 276-77 (4th Cir.), cert. denied sub nom. Beck v. Shulkin, 137 S. Ct. 2307, 198 L. Ed.

2d 728 (2017), held that “these self-imposed harms cannot confer standing.”

However, mitigation measures can be sufficient to establish standing (or, in the case of state-law

claims, “cognizable injury”) if they were taken in response to a “certainly impending” threat or one

that had already occurred. Remijas v. Neiman Marcus Grp., LLC, 794 F.3d 688, 694 (7th Cir. 2015)

(“Mitigation expenses do not qualify as actual injuries where the harm is not imminent.”); see also

Savidge v. Pharm-Save, Inc., No. 3:17-CV-00186-TBR, 2017 WL 5986972, at *5 (W.D. Ky. Dec. 1,

2017) (“In recent years, a growing number of Courts have recognized that the purchase of credit

monitoring services and the costs expended to deal with fraudulent activity following the theft of

PII, when spent with the knowledge that stolen information has already been misused,

can constitute cognizable injuries.” (emphasis added)).

In fact, in Yahoo, the court denied the defendant’s motion to dismiss for lack of standing on

the grounds that mitigation expenses can constitute injury, and did so without even discussing

whether the risk of identity theft was “imminent.”

166

Lost Time

Plaintiffs have also alleged that time spent monitoring their credit constitutes sufficient “cognizable

injury.” However, in Whalen v. Michaels Stores, Inc., 689 F. App’x 89, 91 (2d Cir. 2017), the Second

Circuit upheld the dismissal of the plaintiff’s complaint because, among other reasons, the plaintiff

“pleaded no specifics about any time or effort that she herself had spent monitoring her credit,”

instead choosing to rely on the conclusory allegations that “consumers must expend considerable

time on credit monitoring, and that she and the Class suffered additional damages based on the

opportunity cost and value of time that [she] and the Class have been forced to expend to monitor

their financial and bank accounts” (internal quotations omitted).

Causes of Action

Just as plaintiffs are trying out new theories on damages, they are asserting new causes of action

in data breach cases.

165 Savidge, 2017 WL 5986972, at *4.

166 Yahoo, 2017 WL 3727318, at *16.

BakerHostetler

A SUMMARY OF CLASS ACTION LITIGATION IN 2017

Rise in Breach of an Implied Contract or an Implied Term in an Express Contract

As breach-of-contract claims are more frequently being dismissed at the pleading phase, plaintiffs’

counsel are beginning to assert, in conjunction with their breach of contract claims, claims for (1)

breach of an implied contract and (2) breach of an implied term in an express contract.

III. Developments by

Subject Matter

Breach of an implied contract has become prevalent in payment card breaches, where a customer

purchases something from the defendant using his or her debit or credit card but never enters

into a written agreement with the defendant, and in employment cases, where there is either no

employment contract or one that does not discuss data security.

167

Implied contracts are “inferred from the facts and circumstances of the case,” and often turn on

the defendant’s statements and conduct. Torres v. Wendy’s Int’l, LLC, No. 616CV210ORL40DCI,

2017 WL 8780453, at *3 (M.D. Fla. March 21, 2017). For example, in the payment card arena, courts

have found that where a defendant “invited its customers to pay for their purchases with credit

cards containing confidential information,” the defendant implicitly agreed “that [it would] protect its

customers’ confidential information as a reasonable and prudent merchant would.” Id. Similarly, in the

employment context, where the defendants collected the plaintiffs’ “W-2 information … so that [the]

[d]efendants could verify [the plaintiffs’] identities, provide them with compensation, and … complete

records for tax purposes,” the court found that the defendants “implicitly promised … that they would

take adequate measures to protect their sensitive and personal information.” Savidge v. Pharm-Save,

Inc., No. 3:17-CV-00186-TBR, 2017 WL 5986972, at *9 (W.D. Ky. Dec. 1, 2017).

A claim for breach of an implied term in an express contract is similar to a claim for breach of an

implied contract, except that a written contract between the plaintiff and the defendant already

exists. Instead of alleging that the defendant’s conduct and/or statements give rise to an implied

contract for data security, the plaintiffs argue that the defendant’s conduct and/or statements give

rise to an implied term for data security that should be inserted into the pre-existing contract. See

In re Banner Health Data Breach Litig., Case No. 2:16-cv-02696-PHX-SRB (D. Ariz. 2016).

Unfortunately for defendants, both the terms of an implied contract and the duties imposed by an

implied term are generally considered to be a question of fact. Castillo v. Seagate Tech., LLC, No.

16-CV-01958-RS, 2016 WL 9280242, at *8 (N.D. Cal. Sept. 14, 2016) (“The existence of an implied

contract is an issue of fact.”); Anderson v. Hannaford Bros. Co., 659 F.3d 151, 159 (1st Cir. 2011)

(find that “[t]he existence of such an implied contract term is determined by the jury …”). Therefore,

defendants may face a more difficult time dismissing these claims at the pleading phase.

Negligence and the Economic Loss Doctrine

Although these are not new claims, plaintiffs are attempting to expand the scope of negligence

claims where, in the past, they would rely on breach of contract. These claims, however, are being

met with resistance, from both defendants and the court. Recently, the Seventh Circuit issued

a ruling in Cmty. Bank of Trenton v. Schnuck Markets, Inc. (“Schnuck”), No. 17-2146, 2018 WL

1737126, at *7 (7th Cir. April 11, 2018), in which it upheld the dismissal of the issuing-bank plaintiffs’

negligence claims under the “economic loss doctrine,” despite the fact that the defendant never

167 See, e.g., In re SuperValu, Inc., 870 F.3d 763, 767 (8th Cir. 2017) (payment card case); In re Target Corp. Data Sec. Breach Litig., 66 F. Supp. 3d 1154, 1157 (D. Minn. 2014)

(same); In re Michaels Stores Pin Pad Litig., 830 F. Supp. 2d 518, 522 (N.D. Ill. 2011) (same); Anderson v. Hannaford Bros. Co., 659 F.3d 151, 155 (1st Cir. 2011) (same); Savidge

v. Pharm-Save, Inc., No. 3:17-CV-00186-TBR, 2017 WL 5986972, at *9 (W.D. Ky. Dec. 1, 2017) (employment case); Castillo v. Seagate Tech., LLC, No. 16-CV-01958-RS, 2016

WL 9280242, at *2 (N.D. Cal. Sept. 14, 2016) (same).

BakerHostetler

A SUMMARY OF CLASS ACTION LITIGATION IN 2017

III. Developments by

Subject Matter

entered into an agreement with the issuing-bank plaintiffs. Analyzing both Illinois and Missouri

law, the Seventh Circuit found that because “[t]he plaintiff banks and [defendant] all participate

in a network of contracts that tie together all the participants in the card payment system,” that

“network of contracts imposes the duties plaintiffs rely upon and provides contractual remedies

for breaches of those duties.”

168

And, “in deciding to join the card payment system,” both the

defendant and the issuing-bank plaintiffs agreed to a specified system of risk allocation and

remedies.

169

Thus, according to the Seventh Circuit, the issuing-bank plaintiffs should not be

permitted to “correct the purely economic defeated expectations of a commercial bargain” by

imposing on the defendant tort liability.

170

Bailment Claims

Plaintiffs have also begun asserting claims for “bailment” in data breach cases. Generally, “a

bailment claim requires either a contract of bailment or a bailment implied by law.”

171

An implied

bailment exists when a “person delivers personal property to another person or entity for a specific

purpose with an implied agreement that the property shall be returned or accounted for when this

special purpose is accomplished or retained until the bailor reclaims the property.”

172

Therefore,

similar to breach of an implied contract claim, plaintiffs argue, an “implied bailment” is created

when PII, PHI or PCI is provided to the defendant.

Liability on a bailment theory, however, rests on the bailee’s failure to return the bailed personal

property as agreed, or to return it in an undamaged condition.

173

Id. The bailment theory, thus,

requires a transfer of possession and custody of the bailed property.

174

Id.

In Galaria, the court held that the plaintiffs had failed to state a claim for bailment because they

had “not alleged that they transferred control or custody of their personal identifiers to Defendant

with the expectation that Defendant would hold them for some purpose and then return

them undamaged to Plaintiffs.”

175

Indeed, in the data breach context, the likelihood that any

plaintiff transferred her PII, PHI and/or PCI to the defendant with such an expectation is low, if not

nonexistent. Therefore, courts are likely to continue dismissing such claims.

176

168 Schnuck Markets, Inc., 2018 WL 1737126, at *7.

169 Id.

170 Id. at *9.

171 Galaria v. Nationwide Mut. Ins. Co., No. 2:13-CV-118, 2017 WL 4918634, at *2 (S.D. Ohio Oct. 31, 2017), report and recommendation adopted, No. 2:13-CV-118, 2017 WL

6375803 (S.D. Ohio Dec. 13, 2017).

172 Id. (internal quotations omitted).

173 Id.

174 Id.

175 Galaria, No. 2:13-CV-118, 2017 WL 4918634, at *2 (emphasis added).

176 See Target, 66 F. Supp. 3d at 1177 (“Even if Plaintiffs are correct that intangible property such as their personal financial information can constitute property subject to bailment

principles, they have not – and cannot – allege that they and Target agreed that Target would return the property to them.”).

BakerHostetler

A SUMMARY OF CLASS ACTION LITIGATION IN 2017

III. Developments by

Subject Matter

Data Breach Class Certification Developments

By Arielle L. Brown

2017 brought the first data breach class action to achieve class certification as well as the first

time a Court of Appeals remanded a data breach class action settlement for reasons related to the

sufficiency of the class.

In Smith v. Triad of Alabama, LLC, the district court concluded that plaintiffs had met the

requirements for certification of their proposed class of all patients who’d had their blood drawn

by a medical provider that sent it to be tested by Flowers Hospital (otherwise known as Triad

of Alabama, LLC).

177

The lawsuit stemmed from a 2014 criminal case in which a phlebotomist

employed by Flowers Hospital stole the personal information of patients and used it to file

fraudulent tax returns. In granting the plaintiffs’ motion for class certification, the court rejected the

defendant’s argument that the class was not ascertainable because it included persons whose

identities were stolen but not affirmatively misappropriated. Ultimately, the court certified a pair of

subclasses to distinguish between patients who had received the defendant’s “notice of privacy

practices” and those who had not.

In May of last year, the United States District Court for the District of Minnesota renewed a

certification motion by a class of consumers stemming from the 2013 Target data breach.

178

The

class initially certified by the district court was defined to include “[a]ll persons in the United States

whose credit or debit card information and/or whose personal information was compromised as

a result of the [2013 Target] data breach.” Although no class members objected when the district

court preliminarily certified the settlement class, between the district court’s preliminary and

final orders certifying the class and approving the settlement, a class member objected to the

settlement class on the grounds that it did not meet the basic class prerequisites under Federal

Rule of Civil Procedure 23(a). Specifically, the class member argued that class members like

himself who were ineligible for monetary compensation made up a “zero-recovery subclass,” and

that because no named plaintiff belonged to this purported subclass, the court should certify a

separate subclass with independent representation. The Eighth Circuit reversed the district court’s

class certification decision, finding that the district court had not sufficiently examined whether

the lead plaintiff was an adequate representative for the putative class.

179

On remand, the Eighth

Circuit specifically instructed the district court to consider “whether an intraclass conflict exists

when class members who cannot claim money from a settlement fund are represented by class

members who can.” On May 17, 2017, the district court approved certification of the class action

for a second time, stating that the required “rigorous analysis” confirmed the adequacy of class

representation and revealed no intraclass conflict that would render the settlement unfair.

177 Smith v. Triad of Alabama, LLC, No. 1:14-CV-324-WKW, 2017 WL 3816722 (M.D. Ala. Aug. 31, 2017), modified in part on reconsideration 2017 WL 3816722 (M.D. Ala. Aug.

31, 2017) (modifying the class definition but otherwise denying the defendant hospital’s motion to reconsider the class certification order).

178 In re Target Corp. Customer Data Sec. Breach Litig., No. MDL 14-2522 (PAM), 2017 WL 2178306 (D. Minn. May 17, 2017).

179 In re Target Corp. Customer Data Sec. Breach Litig., 847 F.3d 608, 612 (8th Cir. 2017).

BakerHostetler

A SUMMARY OF CLASS ACTION LITIGATION IN 2017

III.D. Consumer

III. Developments by

Subject Matter

By Matthew D. Pearson

“Momentum to buy” gains no momentum

Once a bastion of consumer class-action defense, “reliance” appears to be the next pleading

requirement to fall under attack. In last year’s review, we discussed Veera v. Banana Republic LLC,

6 Cal. App. 5th 907 (Ct. App. 2016), review denied (March 29, 2017), a case in which the California

Court of Appeal permitted the plaintiffs to pursue a consumer class action despite the fact that

the plaintiffs did not allege, and could not allege, that they relied on any misrepresentation by the

defendant – at least not under the standard that hundreds, if not thousands, of defendants had

used to defeat consumer class actions in the past.

In Veera, the California Court of Appeal concocted a new “method” by which plaintiffs could prove

reliance: “momentum to buy” (6 Cal. App. 5th at 922). The court found that although the plaintiffs

were informed before they made the purchase that the product they were purchasing was not on

sale, the “40 percent off” signs that were posted throughout the store created in the plaintiffs a

“momentum to buy,” which was sufficient to establish both (1) reliance and (2) economic injury. (Id.

at 920-921.)

Those following Veera were hopeful that the California Supreme Court would rectify the ruling and

return “reliance” to its rightful place. They were wrong. On March 29, 2017, the California Supreme

Court denied Banana Republic’s petition for review, establishing, for the time being, “momentum to

buy” as an accepted way of proving reliance.

But has “momentum to buy” really become the death knell to reliance? The jury is still out. Since

it was decided, Veera has been cited by only four cases, and by none for the proposition that

“momentum to buy” is a viable method of establishing reliance.

180

Moreover, the term “momentum

to buy” appears in no cases decided throughout the United States in 2017.

Retailers should not, however, take the relative dearth of “momentum to buy” cases as a sign

of things to come. Veera is still in the throes of litigation. Should it result in a hefty verdict for the

plaintiff, “momentum to buy” could become the next big trend in consumer class actions.

“Momentum to buy” in an online world

With a reported 40 percent of internet users in the United States stating that they purchased items

online several times per month, and 20 percent claiming to have made online purchases on a

weekly basis, it is only a matter of time before novel theories of reliance (like “momentum to buy”)

make their way into the e-commerce realm.

180 The four cases are 1500 Viewsite Terrace LLC v. Pickford Escrow Inc., No. B256246, 2017 WL 4309755 (Cal. Ct. App. Sept. 28, 2017); Delman v. J. Crew Grp. Inc., No. CV 169219-MWF

(ASX),

2017

3048657

(C.D.

Cal.

May

15,

2017);

Petkevicius

NBTY

Inc.,

No.

314CV02616CABRBB,

2017

1113295

(S.D.

Cal.

March

24,

2017);

and

FCA

LLC

Monostable

Elec.

Gearshift

Litig.,

No.

16-MD-02744,

2017

5495091

(E.D.

Mich.

Nov.

15,

2017).

BakerHostetler

A SUMMARY OF CLASS ACTION LITIGATION IN 2017

III. Developments by

Subject Matter

Although not yet seen, the argument can be easily hypothesized. A consumer receives an email

stating that all items on the website are on sale. The consumer navigates to the website, browses

the available products, selects what he wants to purchase, begins the checkout process and then

realizes that the item he selected is actually full price. Certainly, the consumer has built up at least

some “momentum to buy.”

But Veera may suggest otherwise. The rationale set forth by the California Court of Appeal in

Veera focused not only on the “momentum to buy” but also on the societal pressures associated

with deciding not to buy something while standing at the checkout counter. As the dissent noted:

“The majority opinion repeatedly states the plaintiffs raised a triable issue of fact on actual reliance

because, even though they learned the 40 percent discount did not apply to their items, their

embarrassment and frustration led to them feeling pressured to buy clothes at full price anyway.”

(Veera, 6 Cal. App. 5th at 926.)

That same “pressure” is arguably not present in an online transaction. Assuming the consumer is

shopping from his personal computer or his mobile phone, the likelihood of anyone knowing that

he decided not to purchase the item because it was not on sale is slim to none. There is no cashier

to judge him, nor are there other customers waiting in line behind him. For all intents and purposes,

he alone knows why he chose not to purchase the item.

Again, whether the lack of “pressure” is sufficient to defeat the “momentum to buy” theory of

reliance is yet to be seen. But given the frequency with which the Veera court cited the plaintiffs’

“embarrassment” and “frustration,” it certainly is a strong argument.

Online complaints and the “duty to disclose”

The internet provides an efficient and relatively cost-effective method for retailers to communicate

directly with consumers. Consumers can research a retailer’s various products and make informed

decisions. Consumers can post questions and receive answers about a product’s specifications

and features. But they can also post complaints, and in 2017, at least one court imputed

knowledge of those complaints to the retailers, whether the retailers saw them or not.

In Borkman v. BMW of N. Am. LLC, No. CV162225FMOMRWX, 2017 WL 4082420 (C.D. Cal. Aug.

28, 2017), the plaintiff sued BMW for, among other things, failing to disclose that her 2013 Mini

Cooper S contained a defect in its oil filter housing. According to the plaintiff, although the “oil filter

housing is located in an extremely high-temperature area of the engine,” its gaskets were “made of

material that is prone to premature wear and deterioration when exposed to heat.” (Id. at *1.)

BMW moved to dismiss the plaintiff’s complaint based on, among other things, the plaintiff’s failure

to allege that BMW knew or should have known of the defect prior to the plaintiff purchasing the

vehicle. (Id. at *5.) The court disagreed. (Id.)

Citing eight consumer complaints that were posted on the National Highway Traffic Safety

Administration (NHTSA) website and 12 consumer complaints that were posted on third-party

websites – only three of which actually predated the plaintiff’s purchase – the court held that the

plaintiff’s allegations “plausibly demonstrate that BMW knew of a defect at the time [the plaintiff]

purchased her vehicle.” (Id.) Notably, the court never once mentioned whether BMW had actually

seen or been made aware of the complaints. See also Argabright v. Rheem Mfg. Co., 258 F. Supp.

BakerHostetler

A SUMMARY OF CLASS ACTION LITIGATION IN 2017

III. Developments by

Subject Matter

3d 470, 488 (D.N.J. 2017) (holding that online complaints from 2009 and early 2010 about the

defendant’s product, predating the plaintiffs’ purchases, conceivably address the element of the

defendant’s knowledge).

Retailers may be tempted to see the silver lining in the holding of Borkman. If online complaints

can be held to put a retailer on notice of an alleged defect (and, in turn, impose on it the duty

to disclose), those same complaints could also put the consumer on notice of the defect. They

should avoid that temptation.

In 2013, the Ninth Circuit in Diaz v. First Am. Home Buyers Prot. Corp., 541 F. App’x 773 (9th Cir.

2013), refused to impute to the plaintiff knowledge of the allegedly concealed practices “by virtue

of online consumer complaints.” (Id. at 775.) According to the court, “[t]he fact that the complaints

were in the public domain did not place [the plaintiff] on constructive notice.” (Id.) And even if they

did, the Ninth Circuit held, the plaintiff “would have been justified in treating them as the opinions of

unhappy customers rather than assuming them to be true.” (Id.)

As with most aspects of the law that involve the internet, the question of whether consumer

complaints can be held to put a retailer on notice of an alleged product defect is still evolving.

Obviously, where the complaints are posted, to whom they are made, the frequency with which

they are made and their substance will all affect the answer. But as more and more consumers are

turning to the internet to voice their grievances, retailers should be cognizant of the fact their duty

to disclose could depend on online chatter.

BakerHostetler

YEAR-END UPDATE

IV. Conclusion

A SUMMARY OF CLASS ACTION LITIGATION IN 2017

IV. Conclusion

By Sam Camardo

Class actions are alive and well. Spokeo has not been the bar to statutory standing theories that

many portended it would be. Data-breach class actions continue to proliferate, and plaintiffs’

persistence in bringing these cases, despite early standing and damages hurdles, has paid

dividends. Now, a court is more likely than not to permit a consumer’s complaint against a

breached entity to proceed beyond the Rule 12 stage. And in a rare class-certification decision, an

Alabama federal court held that a data-breach case was certifiable despite the individual causation

and damage issues that would necessitate mini-trials. Similarly, defendants took a hit in California

when the California Supreme Court declined to overrule the appellate court’s “momentum to buy”

holding, which allowed consumers to skirt the individualized issues of reliance that typically prevent

certification of fraud-based claims.

But not all was bad for defendants in 2017. The Supreme Court handed down two personal

jurisdiction cases – Bristol-Myers Squibb and Tyrrell – that should give defendants ammunition

to break up multi-plaintiff cases brought in states where they are not headquartered. And while

consumer data-breach cases have been going poorly for defendants, claims brought by issuing

banks may be curtailed in light of the Seventh Circuit’s holding that the economic loss rule is tailormade

bar

those

claims.

Last year and the beginning of 2018 saw rapid development in class action jurisprudence. Given

the continued rise of class action claims, we can expect the following year to be just as fruitful. We

will continue monitoring these developments to ensure that you are best prepared to make sense

of this ever-developing area of the law.

BakerHostetler

Baker & Hostetler LLP - Sam Camardo, Dustin M. Dow, Arielle L. Brown, Jessica Greenberg, James Morrison, Matthew Pearson and Anthony Ponikvar

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