Seventh Circuit Rejects Bright-Line Rule Prohibiting Certification of Consumer Fraud Classes, Affirming the Certification of a Six-State set of Sub-Classes. Consumers brought class action against Pella for defective windows. The district court certified a (b)(2) class of owners whose windows had not yet manifested a defect in order to declare the right of replacement under the warranty. The district court also certified six state sub-classes under (b)(3) for consumers who had already suffered damage from the defect. In a Per Curiam, the Seventh Circuit affirmed. "Pella relies on various decisions from this circuit reversing the grant of class certification in consumer fraud actions to draw the broad conclusion that consumer fraud cases are inappropriate for class treatment as a general matter. But those cases did not opine that class certification was never appropriate in consumer fraud cases, only that it was inappropriate in the circumstances before it."  As to proximate causation, the Court explained that: "Under the district court's plan, class members still must prove individual issues of causation and damages. While it is almost inevitable that a class will include some people who have not been injured by the defendant's conduct because at the outset of the case many members may be unknown, or the facts bearing on their claims may be unknown, this possibility does not preclude class certification." Finally, the Court rejected challenges on Seventh Amendment grounds and with respect to manageability. Pella Corp v. Saltzman, 606 F.3d 391 (7^th Cir. 2010).

U.S. Supreme Court Holds that Arbitration Panel Exceeded Authority in Ordering Class-wide Arbitration Where Agreement Was Silent on the Issue. In an alleged price-fixing dispute between parties who had entered into an arbitration agreement, the parties stipulated that the arbitration clause was "silent" with respect to class arbitration. After hearing argument and evidence, including testimony from experts regarding arbitration customs and usage in the maritime trade, the arbitrators concluded that the arbitration clause allowed for class arbitration. The U.S. Supreme Court held, however, that the arbitrational panel had exceeded its authority. "Rather than inquiring whether the FAA, maritime law, or New York law contains a ‘default rule’ under which an arbitration clause is construed as allowing class arbitration in the absence of express consent, the panel proceeded as if it had the authority of a common-law court to develop what it viewed as the best rule to be applied in such a situation. While the interpretation of an arbitration agreement is generally a matter of state law, the FAA imposes certain rules of fundamental importance, including the basic precept that arbitration is a matter of consent, not coercion. A party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so." Stolt-Nielsen v. AnimalFeeds International, 130 S.Ct. 1758 (2010).

U.S. Supreme Court Finds New York Statutory Penalty Case Eligible for Class Treatment under Rule 23, despite the Anti-Class Provisions of New York Law. In a plurality opinion authored by Justice Scalia, the U.S. Supreme Court held that a suit against Allsate for statutory interest properly filed in Federal Court could be certified under Federal Rule 23, despite the language of New York Civil Practice Law 901(b), which precludes a class action to recover civil penalties.  The majority rejected the argument that the provision was "substantive" under either Erie or the Rules Enabling Act because it transformed a $500 dispute into a $5 million case. "Allstate's aggregate liability" the Court said, "does not depend on whether the suit proceeds as a class action. Each of the 1,000-plus members of the putative class could bring a freestanding suit asserting his individual claim. It is undoubtedly true that some plaintiffs who would not bring suits for the relatively small sums involved will choose to join a class action. That has no bearing, however, on Allstate's or the plaintiffs' legal rights."  Interestingly, Justice Scalia also rejected Allstate's argument that Rule 23 neither explicitly nor implicitly empowers a Federal Court to certify a class action in each and every case where the Rule's criteria are met. "That is exactly what Rule 23 does: It says that if the prescribed preconditions are satisfied, 'a class action may be maintained' - not 'a class action may be permitted.' Courts do not maintain actions; litigants do. The discretion suggested by Rule 23's 'may' is discretion residing with the plaintiff."  While opening Federal Courts to class actions that cannot proceed in State Court may produce forum shopping, that is the inevitable result of the uniform system of Federal Procedure created by Congress. Shady Grove v. Allstate, 130 S.Ct. 1431 (2010).

Judge Posner Rejects Notion that Class Members Must be Identified at Certification Stage. In class action against PIMCO under the Commodity Exchange Act, Judge Posner of the U.S. Seventh Circuit Court of Appeals rejected the defendants’ argument that the district judge was required to determine which class members had suffered damages. “Putting the cart before the horse in that way would vitiate the economies of class action procedure; in effect the trial would precede the certification. It is true that injury is a prerequisite to standing. But as long as one member of a certified class has a plausible claim to have suffered damages, the requirement of standing is satisfied. A class will often include persons who have not been injured by the defendant's conduct; indeed this is almost inevitable because at the outset of the case many of the members of the class may be unknown, or if they are known still the facts bearing on their claims may be unknown. Such a possibility or indeed inevitability does not preclude class certification. If the class definition clearly were overbroad, this would be a compelling reason to require that it be narrowed.” Kohen v. PIMCO, 571 F.3d 672 (7th Cir. 2009).

U.S. Fourth Circuit Reverses Denial of Certification in Racial Discrimination Case. African American employees of Nucor brought a class action alleging (1) a pattern or practice of disparate treatment against African Americans with respect to promotions; (2) a subjective promotion procedure which allows white supervisors to make promotion decisions, with a disparate impact on African Americans; and (3) hostile work environment. The U.S. Fourth Circuit Court of Appeal held that the district court’s denial of certification was an abuse of discretion. First, the Court held that the direct evidence of discrimination established commonality, irrespective of the statistical analysis. Next, the Court held that the plaintiffs’ statistical evidence was sufficient. "The question before the district court was not whether the appellants have definitively proven discrimination" the Court emphasized, "rather, the question was whether the basis of appellants’ discrimination claims was sufficient to support class certification." Finally, the Court rejected the argument that a conflict existed among classmembers who would be competing for the same promotions should injunctive relief be granted. The Court suggested that the case could be bi-furcated, to address liability first. "If, at the second stage of the proceeding, conflicts need to be resolved with regard to promotions, the district court can do so then." Brown v. Nucor Corp., 576 F.3d 149 (4^th Cir. 2009).

Louisiana Supreme Court Reinforces Common Causation as Critical to Certification of Mass Tort Actions. Property owners filed class action against railroads and city/parish, alleging that inadequate box culverts installed and maintained by railroad, combined with inadequate drainage facilities, caused flooding. Following Ford v. Murphy Oil, the Louisiana Supreme Court rejected class certification. “In requiring common causation in a mass tort cases, we point out that this does not mean that the amount or extent of damages must be common to all class members. The mere fact that varying degrees of damages may result from the same factual transaction and same legal relationship or that class members must individually prove their right to recover does not preclude class certification. However, in order to meet the common cause requirement, each member of the class must be able to prove individual causation based on the same set of operative facts and law that would be used by any other class member to prove causation. For example, the cause of flooding must be the same for each member of the class, and if there is more than one cause of flooding, each of these causes must be the same for each class member.” Brooks v. Union Pacific, 2008-2035 (La. 5/22/2009), 13 So.3d 546.

Third Circuit Clarifies Local Controversy Requirements for Remand under CAFA. Plaintiffs originally filed a class action in the Superior Court of New Jersey against six automobile insurance providers. Three New Jersey insurers were voluntarily dismissed; at the time of removal, the remaining defendants were Allstate NJ, a New Jersey corporation, and GEICO and Liberty, which were not. The proposed class for equitable relief includes “all persons currently insured by Defendants under a policy issued in New Jersey” (with a damages sub-class). In applying the Local Controversy Exception, the U.S. Third Circuit found that the district court erred in considering the three New Jersey defendants who had been dismissed: “the local controversy exception applies only to defendants remaining in an action.” The Third Circuit then followed the other Circuits in determining that once jurisdiction is established, the burden shifts to the plaintiffs to establish the exception for purposes of remand. The Court, however, rejected the argument that “every member of the proposed plaintiff class must assert a claim against the local defendant. Because only Allstate NJ insureds can assert claims against Allstate NJ - the only local defendant presently in the action - many members of the proposed plaintiff class would not assert claims against the local defendant in this case.” Rather, the exception “does not require that the local defendant’s alleged conduct form a basis of each claim asserted; it requires the alleged conduct to form a significant basis of all the claims asserted. While assessing the quantity of claims based on the local defendant’s alleged conduct may be useful to the analysis, the significant basis provision does not establish an absolute quantitative requirement. Nor is it necessary to imply such a quantitative requirement to make sense of the provision, for a party’s conduct may form a significant basis of an entire set of claims even if some claims within the set are not based on that conduct.” The Court then rejected Liberty’s argument that the “principle injuries” provision was not satisfied. “Liberty argues that the District Court must interpret this provision to require that principal injuries resulting from the alleged conduct and any related conduct of each defendant be incurred in the state in which the action was originally filed.” To the contrary: “The provision invokes ‘the alleged conduct or any related conduct’ in the disjunctive. As such, it is satisfied either 1) when principal injuries resulting from the alleged conduct of each defendant were incurred in the state in which the action was originally filed, ‘or’ 2) when principal injuries resulting from any related conduct of each defendant were incurred in that state. In the instant case, the alleged conduct comprises the failure to insure or pay for diminished value claims in New Jersey. Plaintiffs are all citizens of New Jersey, the insurance policies were issued in New Jersey, and the putative class would be comprised of members with insurance policies issued in New Jersey. To the extent there are any injuries resulting from the alleged conduct, those injuries were incurred in New Jersey. Hence, the principal injuries provision is satisfied.” Kaufman v. Allstate New Jersey, 561 F.3d 144 (3d Cir. 2009).

Court of Federal Claims Holds that American Pipe Does Not Apply to Opt-In Classes. In case by landowners seeking compensation for railroad taking, Judge Miller of the Court of Federal Claims held that “putative class members are not able to use statutory tolling to allow them to opt into a class action filed under Rule of the Court of Federal Claims after 28 U.S.C. §2501 expires because of two significant differences from American Pipe, Crown Cork, and Stone Container. First, RCFC 23 is not statutory and is not incorporated by reference in 28 U.S.C. § 2501. Second, 28 U.S.C. § 2501 has been defined by the Supreme Court, most recently in John R. Sand & Gravel, as being jurisdictional in nature and more absolute and rigid than other statutes of limitation, whereas the statutes of limitation in American Pipe, Crown Cork, and Stone Container have not been characterized in that manner. The Rules of the Court of Federal Claims are procedural rules adopted by the court and cannot extend or limit the jurisdiction of the Court of Federal Claims. The statute of limitations applicable to the Court of Federal Claims does not incorporate any rules of the court into the statute. There is no statute to statutorily toll. Putative members of an opt-in class action in the Court of Federal Claims must opt in before the expiration of 28 U.S.C. § 2501. See Fauvergue v. U.S., 86 Fed.Cl. 82 (Fed.Cl. 2009).

Eighth Circuit Rules that Preponderance of the Evidence is the Appropriate Standard for Establishing Removal Jurisdiction under CAFA. Declining to impose a "legal certainty" requirement where the plaintiff alleges (but does not formally stipulate to) an amount below the jurisdictional limit in the original complaint, the U.S. Eighth Circuit Court of Appeals held that the preponderance of the evidence stadard applies under CAFA. “To require a different quantum of proof depending on whether or not the complaint pleads damages with specificity may have unintended consequences. Different states have varying pleading requirements. Iowa, for example, does not permit any mention of specific damages. Arkansas on the other hand lacks such a prohibition. Were we to adopt the removal framework proposed by Bell, defendants within the same circuit would be subject to varying burdens of proof upon removal based solely on differing state pleading requirements.” Once the removing party has established by a preponderance of the evidence that the jurisdictional minimum is satisfied, remand is only appropriate if the plaintiff can establish to a legal certainty that the claim is for less than the requisite amount. Bell v. Hershey Co., 557 F.3d 953 (8th Cir. 2009).

Third Circuit Addresses “Class” v “Merits” and Further Articulates Burden of Proof under Rule 23 in Hydrogen Peroxide Antitrust Litigation. In price-fixing action against key players in the hydrogen peroxide industry, the U.S. Court of Appeals for the Third Circuit clarified three elements of the class certification procedure: First, the plaintiff must make not merely a “threshold showing” but rather an actual showing, by a preponderance of the evidence, that the requirements of Rule 23 have been met. Second, the court must resolve all factual or legal disputes relevant to class certification, even if they overlap with the merits, and including disputes which touch on the elements of the cause of action. (The determination as to a Rule 23 requirement, the Court explained, is made only for purposes of class certification, and is not binding on the trier of facts, even if that trier is the class certification judge.) Third, the court’s obligation to consider all relevant evidence and arguments extends to expert testimony, whether offered by a party seeking class certification or by a party opposing it. See In re Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305 (3rd Cir. 2009).

Louisiana Fourth Circuit Applies Article 596 as Written. A Citizens policyholder who suffered damage in Hurricane Katrina (in August of 2005) argued that her suit filed in February of 2008 was timely, due to the pendency of putative class actions which, as originally defined, encompassed her claims. Applying Louisiana Code of Civil Procedure Article 596 as written, a five-judge panel unanimously concluded that prescription had been interrupted by the pendency of the class actions, (at least until certification was denied in the first, and substantially narrowed in the second). The court seems to suggest that its previous decision in Katz may have been implicitly overruled by the Louisiana Supreme Court in State v. All Property and Casualty Insurance Companies, in which the court “found that contractual prescriptive periods can be subject to interruption. In the case sub judice, however, the interruption of a contractual prescriptive period is irrelevant because Ms. Pitts' interests were represented as a putative class member in Buxton and Chalona, which were filed within one year from the date of damage.” Pitts v. La. Citizens, No.2008-1024 (La. App. 4th Cir. 1/7/09), 4 So.3d 107.

U.S. Fifth Circuit Clarifies Application of American Pipe to Certified versus Putative Classes. The plaintiff in a suit for racial discrimination had been the member of a class that had been conditionally certified in Missouri. The Missouri court subsequently dismissed the action, which dismissal was ultimately affirmed by the U.S. Eighth Circuit Court of Appeal. The plaintiff alleged that the statute had been tolled under American Pipe until the dismissal order was affirmed by the court of appeal. The U.S. Fifth Circuit noted an important distinction between the members of a certified class and the putative members of a putative class. “The district court’s refusal to certify the class is tantamount to a declaration that only the named plaintiffs are parties to the suit. Thus, the putative class members had no reason to assume that their rights were being protected. When a class is certified, however, the district court has necessarily determined that all of the Rule 23 factors are met. From that point forward, unless the district court later decertifies the class for failure to satisfy the Rule 23 factors, members of the certified class may continue to rely on the class representative to protect their interests throughout the entire prosecution of the suit, including appeal.” Taylor v. UPS, 554 F.3d 510 (5th Cir. 2008).

Seventh Circuit Rejects Untimely Intervention of Sophisticated Classmember Despite Tolling under American Pipe. “A motion to intervene in order to appeal the termination of a class action is not governed by the statute of limitations applicable to the original suit. We do not read United Airlines as establishing an inflexible rule that a motion to intervene in a class action to appeal an earlier order in that action is always timely. A district judge has discretion in deciding whether a motion to intervene is timely, and he did not abuse that discretion in this case when he refused to allow belated intervention by a sophisticated litigant with a large stake who had no good excuse for failing to seek intervention (or bringing its own suit) years ago, who violated the spirit albeit not the letter of the statute of limitations, who appears to have acted for strategic reasons, and whose attempt to intervene delayed a settlement, thus further delaying the conclusion of an already protracted litigation.” See Larson v. JP Morgan Chase, 530 F.3d 578 (7th Cir. 2008).

U.S. Supreme Court Holds that Direct “Reliance” by Plaintiff is Not Required for Civil RICO Claim. In a Civil RICO case, the defendants argued that because the alleged pattern of racketeering activity consisted of acts of mail fraud, the plaintiffs must show that they relied on the fraudulent misrepresentations. “This they cannot do, because the alleged misrepresentations - attestations of compliance with the single simultaneous bidder rule - were made to the county, not plaintiffs. The county may well have relied on defendants’ misrepresentations when it permitted them to participate in the auction, but plaintiffs, never having received the misrepresentations, could not have done so. If reliance is required, it must be by virtue of §1964(c), which provides the right of action. But it is difficult to derive a first-party reliance requirement from §1964(c), which states simply that ‘any person injured in his business or property by reason of a violation of Section 1962' may sue for treble damages. The statute provides a right of action to ‘any person’ injured by the violation, suggesting a breadth of coverage not easily reconciled with an implicit requirement that the plaintiff show reliance in addition to injury in his business or property. Moreover, a person can be injured ‘by reason of’ a pattern of mail fraud even if he has not relied on any misrepresentations.” With respect to the requirement for proximate cause, the Court held, (among other things), that “there is no general common-law principle holding that a fraudulent misrepresentation can cause legal injury only to those who rely on it. The Restatement provision cited by petitioners certainly does not support that proposition. It provides only that the plaintiff's loss must be a foreseeable result of someone’s reliance on the misrepresentation. It does not say that only those who rely on the misrepresentation can suffer a legally cognizable injury.” See Bridge v. Phoenix Bond & Indemnity Co., 128 S.Ct. 2131 (2008).

Sixth Circuit Rejects Argument that Common Issues of Damages Must Predominate in Antitrust Case. After trial, the defendants argued, among other things, that the plaintiffs “did not meet the ‘predominance of common questions’ requirement of Rule 23(b)(3) because damages could not be calculated on a class-wide basis.” Rejecting this argument, the U.S. Sixth Circuit Court of Appeals noted that “Columbia erroneously assumes that the issue of damages must predominate. To the contrary, ‘predominance is a test readily met in certain cases alleging violations of the antitrust laws,’ because proof of the conspiracy is a common question that is thought to predominate over the other issues of the case. Indeed, we have never required a precise mathematical calculation of damages before deeming a class worthy of certification. Here, the district court found that the ‘allegations of price-fixing and market allocation ... will not vary among class members.’ Accordingly, the court found that the ‘fact of damages’ was a question common to the class even if the amount of damages sustained by each individual class member varied. We, therefore, find no error in the district court’s analysis.” See In re Scrap Metal Antitrust Litigation, 527 F.3d 517 (6th Cir. 2008).

Court Prohibits Defendant from Making Potentially “Coercive” Settlement Offers to Putative Classmembers. “A defendant has a right to communicate settlement offers directly to putative class members. However, a defendant may not abuse that right. Cases in which courts have conditioned the transmission of settlement offers involve class members in an inherently coercive dependent relationship with the defendant and/or settlement offers for less than that sought in the lawsuit. Here, the relationship between Jeld-Wen and its customers, as well as the attending circumstances, appear to create a potentially coercive relationship or situation.... The Court recognizes that Jeld-Wen has been communicating with its customers for years regarding its repair and replacement program and that those communications began well before the class action lawsuit was filed. Hence, the Court does not find any nefarious motive for issuing the letter in question. And, in the context of the ancestry of this case, the undersigned understands that Jeld-Wen must make business decisions as a result of the litigation. However, as noted previously, Jeld-Wen’s intent does not drive the Court's determination of whether the situation requires intervention. Instead, it is the overall potential effect that the letter has on the integrity of the class action lawsuit. The Court finds that the communication threatens the proper functioning of the litigation, as it has a tendency to suggest to the reader that needed repairs will be made only if the customer opts out of the class action. Any such suggestion, regardless of Jeld-Wen's intent in writing the letter, has the potential to have a misleading and coercive effect on putative class members.” See Jones v. Jeld-Wen, Inc., 250 F.R.D. 554 (S.D.Fla. 2008).

Texas Supreme Court Rejects Argument that Class Representative Who "Splits" Claims is Inadequate Per Se. In suit brought by royalty owners, plaintiffs sought to certify three subclasses: (1) royalty owners alleging breach of an implied covenant to market under the leases; (2) royalty owners alleging breach of gas royalty agreements (GRAs); and (3) royalty owners alleging breach of an implied covenant by assessing an unreasonably high service fee to its marketing affiliate, thereby reducing income to the royalty owners. While affirming decertification of Subclasses 1 and 3 on predominance grounds, the Texas Supreme Court reversed decertification of Subclass 2, concluding that “the pricing provisions of the GRAs are unambiguous and may be construed classwide for royalty owners who executed substantially identical GRAs.” In its decision, the Court also rejected the notion “that class representatives who split the claims of the class are per se inadequate. Courts do not dictate the strategies parties must follow in litigation nor do they instruct litigants which claims or defenses they should, or should not, bring. As in other legal actions, however, class litigants are subject to the consequences of their choices and the doctrine of claim preclusion may bar future litigation of claims that they decide not to pursue in the current suit. If the class representatives do not assert at the trial court all claims for damages arising from the leases which could have been litigated before the trial court, the unasserted claims may be precluded by res judicata in subsequent litigation. The tactical and strategic decisions to structure the lawsuit are theirs; the implications of their actions are established by law. The court of appeals summarily concluded the ‘willingness of the class representatives to abandon claims for the sake of achieving commonality’ means the representatives cannot adequately represent the class, and thus the trial court abused its discretion in certifying. Under that approach, class representatives would always risk being inadequate representatives if they did not assert all possible claims for each individual class member. At the same time, though, class representatives bringing excessive numbers of individual claims may burden their ability to satisfy the typicality and predominance requirements. The choice of claims to pursue or abandon is one relevant factor in evaluating the requirements for class certification such as typicality, superiority, and adequacy of representation. Trial courts should assess the class action requirements in light of res judicata’s preclusive effect on abandoned claims when considering whether to certify a class.” See Bowden v. Phillips Petroleum, 247 S.W.3d 690 (Tex. 2008).

Judge Posner Reverses Denial of Certification Premised on Mootness of Proposed Representative's Claims. Wisconsin apparently allows the graduates of in-state law schools to be admitted into practice without taking the bar exam. An out-of-state plaintiff brought a putative class action challenging this practice under the Commerce Clause. After the suit was dismissed, and the plaintiff lodged an appeal, he learned that he had passed the bar exam. Judge Posner, writing for the Seventh Circuit, confirms the basic principle that: "If, on the one hand, the class in a class-action suit is certified before the named plaintiff's claim becomes moot, the mooting of his claim does not doom the suit. Since the named plaintiff is the representative of the unnamed class members, the evaporation of his claim no more bars him from continuing in that capacity (provided a class has been certified), than a lawyer is barred from representing a litigant just because the lawyer himself has no dispute with the defendant. The named plaintiff who no longer has a stake may not be a suitable class representative, but that is not a matter of jurisdiction and would not disqualify him from continuing as class representative until a more suitable member of the class was found to replace him. If, on the other hand, the named plaintiff's claim becomes moot before the class is certified, the suit must be dismissed because no one besides the plaintiff has a legally protected interest in the litigation.” Then, addressing the case at hand: “What if the district court denies the plaintiff's motion to certify a class, the plaintiff appeals from that denial, and his appeal is pending when his substantive claim evaporates?” The court concludes that: “The appeal is not moot, because unless and until the appellate court affirms the denial of the motion to certify a class, there may be people other than the plaintiff with a legally protected interest in the suit-namely the unnamed members of the class.” Wiesmueller v. Kosobucki, 513 F.3d 784 (7th Cir. 2008).

Fourth Circuit Rejects Attempt to Vacate Arbitration Award to Opt-Out Class for Claims Brought under FLSA. "The apparent conflict between the AAA Class Rules and the FLSA §16(b) provision would necessarily be resolved in favor of an 'opt-in' procedure if the consent requirement of §16(b) is a substantive right, not waivable by an arbitration agreement." Although the defendant's references to the text and legislative history of the FLSA "reassure us of Congress's intention that the 'opt-in' procedure should apply in arbitration as in court proceedings, they fail to also convince us that Congress expressly intended that the 'opt-in' procedure could not be waived by the parties' agreement to an alternate procedure." See Long John Silver v. Cole, 513 F.3d 345 (4th Cir. 2008).

Sixth Circuit Affirms Certification of Federal Communications Act Claims. Plaintiffs brought suit against CenturyTel for deceptive billing practices under the Federal Communications Act, the FCC's Truth-in-Billing Act, and State Law. The district court certified Plaintiffs claims and granted judgment on the pleadings as to the Federal claims. Affirming, the U.S. Sixth Circuit Court of Appeals rejected defendant's challenge to typicality. "Whether the customer authorized her enrollment in WireWatch or benefitted from the plan's service, despite being billed for the service under a misleading description, goes only to the issue of damages and does not preclude a finding that the typicality requirement is satisfied." In a related challenge to predominance, the court noted that plaintiffs could establish that each class member was injured by CenturyTel's violation by showing that each class member paid for WireWatch during the period when the service was billed under the misleading description. "CenturyTel admitted that it did send some bills to customers that contained this language, and an inventory of CenturyTel's billing records could disclose which customers paid their bills in full, which would include a payment for fees associated with WireWatch. On appeal, CenturyTel argues that 'only those customers who can establish that they did not want or request the WireWatch service can establish CenturyTel's liability.'" The court disagreed. "True, each class member will have to show that she did not enroll in WireWatch, but that is relevant, as the district court concluded, to the issue of damages and not liability. Thus, Plaintiffs should be able to establish liability for the class as a whole because the misleading description used by CenturyTel violated the Act, and class members were injured by that violation when they paid their telephone bill, which included a charge for WireWatch under a misleading description." See Beattie v. CenturyTel, Inc., 511 F.3d 554 (6th Cir. 2007).

Denying Rehearing, the Ninth Circuit Reaffirms Dukes Class Action of Female Employees against Wal-Mart for Gender Discrimination. Withdrawing and superseding its prior opinion, (474 F.3d 1214), U.S. Ninth Circuit Court of Appeals, held that: (1) opinion evidence of plaintiffs' expert sociologist concerning gender stereotyping by employer was properly considered by district court on issue of commonality; (2) district court did not abuse its discretion when it relied on plaintiffs' expert statistician‘s interpretation of statistical data as part of its commonality analysis; (3) district court did not abuse its discretion when it credited plaintiffs' anecdotal evidence as supporting finding of commonality; (4) district court did not abuse its discretion in determining that employer's subjective decisionmaking supported finding of commonality; (5) district court did not abuse its discretion in holding that plaintiffs satisfied commonality requirement; (6) district court acted within its discretion in finding that plaintiffs satisfied typicality requirement; (7) district court did not abuse its discretion in concluding that class action was maintainable on basis that claims for declaratory or injunctive relief predominated; and (8) class action could proceed in way that was both manageable and in accordance with due process. "The parties agree that this is the largest class certified in history. The district court was cognizant of this when it concluded that the class size, although large, was not unmanageable. Indeed, the district court acknowledged that, 'while courts possess wide discretion to flexibly respond to manageability issues that may arise during the course of a class action, this Court must be confident that such issues will not be of such a magnitude as to defy its ability to oversee this case in a responsible and reasonable manner.' At this pre-merits stage, we express no opinion regarding Wal-Mart's objections to the district court's tentative trial plan (or that trial plan itself), but simply note that, because there are a range of possibilities - which may or may not include the district court's proposed course of action - that would allow this class action to proceed in a manner that is both manageable and in accordance with due process, manageability concerns present no bar to class certification here." In Hilao v. Estate of Ferdinand Marcos, 103 F.3d 767 (9th Cir. 1996), the court "was presented with some of the same objections to its trial plan as Wal-Mart presents here. 'While the district court's methodology in determining valid claims is unorthodox, it can be justified by the extraordinarily unusual nature of this case. "Due process," unlike some legal rules, is not a technical conception with a fixed content unrelated to time, place and circumstances. The interest of the defendant that is affected is at best an interest in not paying damages for any invalid claims. The statistical method used by the district court obviously presents a somewhat greater risk of error in comparison to an adversarial adjudication of each claim, since the former method requires a probabilistic prediction (albeit an extremely accurate one) of how many of the total claims are invalid. Hilao's interest in the use of the statistical method, on the other hand, is enormous, since adversarial resolution of each class member's claim would pose insurmountable practical hurdles. The “ancillary” interest of the judiciary in the procedure is obviously also substantial, since 9,541 individual adversarial determinations of claim validity would clog the docket of the district court for years. Under the balancing test, the procedure used by the district court did not violate due process.'" Because the court found no reason why a similar procedure could not be employed, "we conclude that there exists at least one method of managing this large class action that, albeit somewhat imperfect, nonetheless protects the due process rights of all involved parties." See Dukes v. Wal-Mart, 509 F.3d 1168 (9th Cir. 2007).

Ninth Circuit Affirms Class Certification in Fraud Case. In affirming the certification of a class of investors, the Ninth Circuit Court of Appeals rejected the defendant's argument that "a fraud case involving materially differing oral representations is not amenable to class treatment" where the “center of gravity” of the fraud "predominates over details of individual communications." The court, citing California law, went on to noted that "common issues do not necessarily fail to predominate simply because reliance must be shown. While Mirkin v. Wasserman rejected a presumption of reliance on a class-wide basis when the same omission had not been communicated to each class member, the court continued to recognize that when the same material misrepresentations have been communicated, an inference of reliance may arise as to the entire class." See Jenson v. Fiserv Trust Co., 256 Fed.Appx. 924, 2007 WL 4163889 (9th Cir. Nov. 26, 2007).

Second Circuit Vacates Class Settlement for Lack of Jurisdiction over Unregistered Copyright Claims. In a class action arising from the unauthorized electronic reproduction of various works by freelance writers who contracted with publishers to author works for publication in print media but to retain the copyrights in those works, a settlement was vacated by the U.S. Second Circuit Court of Appeals due to lack of jursdiction over the overwhelming majority of claims, which arise from the infringement of unregistered copyrights. While the Supreme Court the Court has held that §1367(a) confers supplemental jurisdiction in a diversity class action over state law claims that fail to satisfy §1332(a)'s amount-in-controversy requirement, so long as at least one claim satisfies that requirement, and all the other claims are part of the same case or controversy, "the Court has never held that §1367(a) confers supplemental jurisdiction over jurisdictionally-deficient federal claims asserted together with another, jurisdictionally-proper claim." See In re Literary Works Electronic Copyright Litigation, 509 F.3d 116 (2d Cir. 2007).

U.S. Fifth Circuit Reduces Appeal Bond Required of Objectors to Class Action Settlement. A class settlement was reached in a case against Honda alleging that odometers overstated actual mileage. Several class members objected on disparate grounds, including that the settlement provides no compensation to class members who sold or traded their vehicles. The district court overruled this objection, and required any objector who appealed to post a bond for costs on appeal of $150,000. The U.S. Fifth Circuit Court of Appeal reduced the bond to $1,000. "The settlement agreement makes no provision for the payment of pre-judgment interest on the benefits Honda has agreed to pay, and the settlement does not become effective, by its terms, until any appeals are concluded." In addition, while the Federal Rules of Appellate Procedure permit a court of appeals to award damages and costs for a frivolous appeal, "there is no provision in the rules of procedure for a district court to predict that an appellate court will find an appeal frivolous and to set a bond for costs on appeal based on an estimate of what 'just damages' and costs the appellate court might award." Finally, the court recognizes that "there are competing, significant interests when an objector appeals a proposed class settlement. In some circumstances objectors may use an appeal as a means of leveraging compensation for themselves or their counsel. The detriment to class members can be substantial. On the other hand, imposing too great a burden on an objector's right to appeal may discourage meritorious appeals or tend to insulate a district court's judgment in approving a class settlement from appellate review. However, the circumstances of the present case do not require us to consider the extent of a district court's authority to address these considerations." See Vaughn v. American Honda Motor Company, No.07-41056, 2007 WL 3182068 (5th Cir. Oct. 31, 2007).

U.S. Second Circuit Rejects Settlement Allocation Due to Inherent Conflict within Class of Self-Funded and Insured Plans. After determining that at least one class representative had standing under Article III to assert ERISA claims on behalf of her plan, (see 433 F.3d 181 (2d Cir. 2005)), the U.S. Second Circuit Court of Appeals remanded for re-allocation a settlement between Merck-Medco and a class of all client ERISA Plans. Some of the self-funded plans objected to the settlement on the basis that the class had not been adequately represented, as there existed an inherent conflict between self-funded and insured plans. "While we do not here decide whether the self-funded plans in fact suffered greater injury, we think it proper to allow them to raise their claims as part of a separate subclass. The self-funded plans dispute any recovery to the insured or capitated plans, yet none of the class representatives is part of an exclusively self-funded plan that could adequately advance this position. Because of the antagonistic interests apparent in the class should be adequately and independently represented, we remand to the District Court for certification of a subclass encompassing the self-funded plans." See Central States v. Merck-Medco, No.04-3300 (2d Cir. Oct. 4, 2007). [Note - Steve Herman, on behalf of the Herman Mathis PBM Co-Counsel Group, represented the intervenors who supported Article III standing yet objected to the settlement on adequacy grounds.]

ABA Ethics Committee Confirms that Counsel Can Contact Putative Classmembers Prior to Certification. The ABA Standing Committee on Ethics and Professionalism determined that, prior to class certification, defense counsel may contact putative class members without seeking permission from attorneys for the named plaintiffs; however, defense counsel must comply with Model Rule 4.3, which regulates attorney contact with unrepresented persons. The Committee also determined that plaintiff's counsel has the same rights and obligations. See ABA Formal Opinion 07-445.

Second Circuit Holds that an Assignee Can Serve as Class Representative. The U.S. Second Circuit Court of Appeals, in an antitrust case, rejected the defendants’ argument that plaintiffs who had been assigned claims lacked standing as they had suffered no “injury” and were inadequate representatives because they were not technically “members” of the class. Addressing the policy considerations, the court observes that “irrespective of the extent to which the named representatives’ interests are or are not in fact antagonistic to the interests of other members of the class in this particular case – a matter on which it is premature for us to express a view – we do not think that they are necessarily antagonistic solely because they are assignees of Western Pacific's and EqualNet's interests in the class action that they are pursuing. The unhappy consequences of permitting ‘trafficking’ (to use the defendants’ characterization) in causes of action, thereby permitting one person who has suffered no injury to pursue actions in the stead of another solely to maximize his or her personal monetary return, are not fanciful.” But they are not categorically forbidden. “The defendants’ arguments and the district court’s conclusions as to the transferability of the ability to represent a class fail to account for the countervailing value of allowing an assignee to stand in the shoes of the assignor before a court. This case might be termed a ‘textbook example’ of that value in the bankruptcy context.” Further, the court reversed the district court’s finding that individual issues predominated over common issues. “If the plaintiffs' single formula can be employed to make a valid comparison between the but-for fee and the actual fee paid, then it seems to us that the injury-in-fact question is common to the class. Otherwise, it poses individual ones. The district court did not determine which expert is correct. We leave this question for it to resolve on remand.” See Cordes & Co. v. A.G. Edwards, No.06-2143, 2007 WL 2594477 (2d Cir. Sept. 11, 2007).

New Jersey Supreme Court Reverses National Certification of Vioxx Third-Party Payor Class. Declining to expressly decide whether the New Jersey Consumer Fraud Act could be applied to all members of a nationwide class, the court reversed on Predominance, concluding that “each third-party payor, relying on PBMs and P & T Committees, made individualized decisions concerning the benefits that would be available to its members for whom Vioxx was prescribed.” Addressing the reliance issue, the court noted that, while traditional “reliance” was not required under the CFA, the plaintiffs were nevertheless required to demonstrate “ascertainable loss.” Yet, “to the extent that plaintiff intends to rely on a single expert to establish a price effect in place of a demonstration of an ascertainable loss or in place of proof of a causal nexus between defendant's acts and the claimed damages, however, plaintiff's proofs would fail. That proof theory would indeed be the equivalent of fraud on the market, a theory we have not extended to CFA claims.” The court further reversed on the issue of Superiority, due to the size and sophistication of the entities and the amounts they were claiming. See International Union of Operating Engineers v. Merck & Co., 2007 WL 2493917 (N.J. Sept. 6, 2007).

California Supreme Court Rejects Class Arbitration Waiver in Employment Agreement where Class Device Necessary to Vindicate Rights. Taking up the question of whether class arbitration waivers in employment arbitration agreements may be enforced to preclude class arbitrations by employees whose statutory rights to overtime pay have allegedly been violated, the California Supreme Court concluded that, “at least in some cases, the prohibition of classwide relief would undermine the vindication of the employees’ unwaivable statutory rights and would pose a serious obstacle to the enforcement of the state’s overtime laws.” In concluding that the specific classwide arbitration ban at issue was against public policy, the court noted that individual awards in wage and hour cases tend to be modest; that a current employee who individually sues his or her employer is at greater risk of retaliation; and that some individual employees may not sue because they are unaware that their legal rights have been violated. “Of course” the court acknowledged, “in cases like the present, the trial court would be comparing class arbitration with the individual arbitration methods the employer offers, rather than comparing individual with classwide litigation. We do not foreclose the possibility that there may be circumstances under which individual arbitrations may satisfactorily address the overtime claims of a class of similarly aggrieved employees, or that an employer may devise a system of individual arbitration that does not disadvantage employees in vindicating their rights. But class arbitration waivers cannot, consistent with the strong public policy behind section 1194, be used to weaken or undermine the private enforcement of overtime pay legislation by placing formidable practical obstacles in the way of employees’ prosecution of those claims.” See Gentry v. Superior Court, No.S141502. 2007 WL 2445122 (Cal. Aug. 30, 2007).

Ninth Circuit Holds That Tolling Under American Pipe Is Unavailable to a Plaintiff Who Files Individual Suit Prior to Class Determination. Addressing the question of whether American Pipe permits tolling for a plaintiff who files a separate action pending class certification, the U.S. Ninth Circuit Court of Appeals shares “the prevailing view that precluding tolling in this situation satisfies the judicial economy concerns of American Pipe without jeopardizing protections that exist for plaintiffs who opt out of the class. We should not allow a plaintiff to file an individual suit, which is in essence a signal that the plaintiff is opting out of a class, and then simultaneously give the same plaintiff class action benefits.” Tolling, the court continued, is “‘not intended to be a tool to manipulate limitations periods for parties who, intending all along to pursue individual claims, assert reliance on the proposed class action just long enough to validate their otherwise time barred claims.’ Accordingly, we hold that this individual who filed a separate suit pending a decision on class certification loses the benefit of any statute of limitations tolling under American Pipe.” See In re: Hanford Nuclear Reservation Litigation, No.05-35648, 2007 WL 2302365 (9th Cir. Aug. 14, 2007).

U.S. District Court in Florida Denies Remand under CAFA Where Plaintiff Amends to Add New Claim. A U.S. District Court in the Southern District of Florida found that class action was "commenced" after the effective date of the Class Action Fairness Act ("CAFA"). The court rejected the adoption of McAtee v. Capitol One, 479 F.3d 1143 (9th Cir. 2007) in which the U.S. Ninth Circuit Court of Appeal indicated that the "relation back" principle was inapplicable to amended complaints for removal purposes under CAFA, (establishing, under California law, that an action is "commenced" when the original complaint is filed). Applying Florida's relation-back caselaw, however, the court found that "the amended complaint adds an entirely new claim. First, Plaintiffs expand the class definition beyond what was contemplated in the original complaint. Second, the amended complaint addresses customers who were charged an ETF when the amount of the ETF exceeded the remaining monthly service charges under the contract. Finally, the amended complaint adds a claim for injunctive relief." Accordingly, the motion for remand was denied. See Waldman v. Cingular Wireless, No.07-80081, 2007 WL 1970858 (S.D.Fla. July 3, 2007).

U.S. Second Circuit Holds Tolling Under American Pipe Extends to Putative Classmembers who File Individual Suits Prior to Decision on Certification. Reversing a district court holding that the statute of limitations was not tolled as to individual actions filed by putative classmembers prior to a ruling on class certification, the U.S. Second Circuit Court of Appeals reasoned that "the theoretical basis on which American Pipe rests is the notion that class members are treated as parties to the class action 'until and unless they received notice thereof and chose not to continue.' Because members of the asserted class are treated for limitations purposes as having instituted their own actions, at least so long as they continue to be members of the class, the limitations period does not run against them during that time. Once they cease to be members of the class - for instance, when they opt out or when the certification decision excludes them - the limitation period begins to run again on their claims." See In re: Worldcom Securities Litigation, No. 05-6979, 2007 WL 2127874 (2d Cir. July 26, 2007).

U.S. Fifth Circuit Affirms Standing, Yet Rejects Certification Due to Choice-of-Law Issue, in Breach of Warranty Case. In a class action for breach of warranty against a car manufacturer relating to a defective airbag-deployment device, the U.S. Fifth Circuit rejected the defendant's argument that there was no Article III standing, unless and until a plaintiff had suffered an actual "injury" due to improper deployment. "Although plaintiffs do not assert physical injuries (either their own or those of other persons), they do assert their own actual economic injuries. Plaintiffs allege that each plaintiff suffered economic injury at the moment she purchased a DeVille because each DeVille was defective. Plaintiffs further allege that each plaintiff suffered economic injury arising from GM's unreasonable delay in replacing their defective SISMs. Plaintiffs seek recovery for their actual economic harm (e.g., overpayment, loss in value, or loss of usefulness) emanating from the loss of their benefit of the bargain." The Court, however, reversed class certification due to lack of predominance, given what the Court found to be a conflict in the laws of the various states on express and implied warranty. "Many of the variations in state law raise the potential for the application of multiple and diverse legal standards and a related need for multiple jury instructions. For some issues, variations in state law also multiply the individualized factual determinations that the court would be required to undertake in individualized hearings. Specifically, the laws of the jurisdictions vary with regards to (1) whether plaintiffs must demonstrate reliance, (2) whether plaintiffs must provide notice of breach, (3) whether there must be privity of contract, (4) whether plaintiffs may recover for unmanifested vehicle defects, (5) whether merchantability may be presumed and (6) whether warranty protections extend to used vehicles. Plaintiffs failed to articulate adequately how these variations in state law would not preclude predominance in this case." See Cole v. General Motors Corp., 484 F.3d 717 (5th Cir. 2007).

U.S. Fifth Circuit Rejects Basic and Affiliated Ute Presumptions with Respect to Third-Party Financial Institutions, De-Certifying Class in Enron Securities Case. In a class action against banks and other financial institutions alleged to have conspired with Enron to manipulate profits, the U.S. Fifth Circuit Court of Appeal rejected a presumption of reliance, on the basis that the banks were not jointly and severally liable for the statements and omissions of Enron under the PSLRA and Central Bank. In addition to effectively resolving 10(b) liability on the merits as a precursor to the reversal of class certification, the Court curiously notes that, while "the plaintiffs are likely correct that the market for Enron securities was efficient and that inherent in that conclusion is the fact that the market price reflected all publicly available information," the "factual probability that the market relied on the banks' behavior and/or omissions does not mean that plaintiffs are entitled to the legal presumption of reliance." As noted by Judge Dennis, concurring: "The majority is, of course, correct in some sense - if the banks engaged in no conduct within the reach of Section 10(b), then the plaintiffs cannot prevail against them in a class action. But the plaintiffs' inability to proceed under such circumstances would have nothing to do with the need to prove reliance on an individual basis. When this court decides, on a common, classwide basis, as the majority does today, that the banks' alleged conduct is non-actionable as a matter of law, it is dubious to then claim that we are actually finding only that individual issues of reliance predominate over common issues. Under the majority's reasoning, individual questions of reliance do not predominate; rather, reliance is simply irrelevant, because no plaintiff can, on an individual or a class basis, establish that the banks engaged in any actionable conduct." Judge Dennis suggests that the case should be remanded for further consideration of classes or sub-classes more appropriately tailored to the alleged conduct of the particular defendant at issue. The majority sppears to have foreclosed any such consideration. See Regents of the University of California v. Credit Suisse First Boston, 482 F.3d 372 (5th Cir. 2007).

Louisiana Appellate Court Upholds Award to Certified Class of Smokers for Establishment of Court-Supervised Cessation Program. Reviewing an award of $591 Million to a certified class of smokers for cessation assistance, the Louisiana Fourth Circuit Court of Appeal rejected the tobacco industry's renewed arguments that the class should be de-certified due to the individualized issues of causation, reliance, and other "Due Process" concerns. Although reducing the damages to $279 Million, the court found that the plaintiffs had proved causation and damage to the class as a whole, and that the "reliance" issues were distinguishable from those as were present in cases such as Banks v. New York Life. Defendants' Application for Rehearing having been denied, both sides are expected to seek writs from the Louisiana Supreme Court. See Scott v. American Tobacco Co., No. 2004-2095 (La. App. 4th Cir. 2/7/07), 949 So.2d 1266. [Note - Russ Herman and HHKC served as Lead Trial Counsel in the Scott case. Steve Herman served on the Trial Team as well as Co-Chair of the Briefing Committee. Following the verdict, they were named Finalists Trial Lawyers of the Year by TLPJ in 2005.]

Second Circuit Rules that Percentage Fees Should be Awarded on the Entire Fund Made Available to Claimants. In an anti-trust case, a cy pres distribution was made on unclaimed funds. The Second Circuit reversed the District Court's fee award, which was limited to a percentage of the funds actually distributed to the class. "In this case, the District Court calculated the percentage of the Fund on the basis of the claims made against the Fund, rather than on the entire Fund created by the efforts of counsel. We hold that this was error.... The entire Fund, and not some portion thereof, is created through the efforts of counsel at the instigation of the entire class. An allocation of fees by percentage should therefore be awarded on the basis of the total funds made available, whether claimed or not." The court, in this regard, rejected application of the PSLRA, which only applies to securities class actions. Further, the court noted that, even if the PSLRA were to apply, "the statute speaks in terms of a percentage of damages 'actually paid to the class.' But the entire fund created by the efforts of counsel presumably is 'paid to the class,' even if some of the funds are distributed under the Cy Pres Doctrine." Finally, the court rejected application of the fee restrictions contained in CAFA, which are limited fee awards in "coupon settlement cases." Masters v. Wilhelmina Model Agency, Inc., 473 F.3d 423 (2d Cir. 2007).

Second Circuit Clarifies Appropriate "Class" vs. "Merits" Inquiry at Certification Stage. In a decision reversing the certification of six class actions against underwriters for Federal Securities violations, the U.S. Second Circuit Court of Appeals took the opportunity to explain (at least that panel's well-reasoned view of) the apparent split of authority regarding a court's ability to consider the "merits" at the class certification stage. First, the panel addresses the U.S. Supreme Court's statement in Eisen that "we find nothing in either the language or history of Rule 23 that gives a court any authority to conduct a preliminary inquiry into the merits of a suit in order to determine whether it may be maintained as a class action” by noting that the "oft-quoted statement from Eisen was made in a case in which the district judge's merits inquiry had nothing to do with determining the requirements for class certification" and hence "there is no basis for thinking that a specific Rule 23 requirement need not be fully established just because it concerns, or even overlaps with, an aspect of the merits." The panel then notes that the 2003 Amendments to Rule 23(c)(1)(A) and (c)(1)(C) "arguably combine to permit a more extensive inquiry into whether Rule 23 requirements are met than was previously appropriate." In light of the foregoing, the panel concluded that: (1) a district judge may certify a class only after making determinations that each of the Rule 23 requirements has been met; (2) such determinations can be made only if the judge resolves factual disputes relevant to each Rule 23 requirement; (3) the obligation to make such determinations is not lessened by overlap between a Rule 23 requirement and a merits issue, even a merits issue that is identical with a Rule 23 requirement; (4) in making such determinations, a district judge should not assess any aspect of the merits unrelated to a Rule 23 requirement; and (5) a district judge has discretion to circumscribe both the extent of discovery and the scope of the hearing in order to assure that a class certification motion does not become a pretext for a partial trial of the merits. See In re IPO Sec. Lit., 471 F.3d 24 (2d Cir. 2006).

Illinois and Pennsylvania Courts Reject Class Action Bans in Arbitration Agreements as Unconscionable. The Illinois Supreme Court was recently joined by a Pennsylvania Superior Court in holding that class action bans in consumer contracts of adhesion are void as unconscionable. See Thibodeaux v. Comcast, 912 A.2d 874 (Pa. Super. 2006), and, Kinkel v. Cingular Wireless, 857 N.E.2d 250 (Ill. 2006).

Second Circuit Rejects Castano and Approves of Issue Certification under Rule 23(c)(4). Plaintiffs were misdemeanor detainees subject to a blanket strip search policy. The detainees requested Rule 23(b) certification solely on the issue of liability. The district court would not certify as to liability in the absence of a showing of predominance under Rule 23(b)(3), and, the defendants having conceded liability, the district court determined that such concession removed common liability issues from the predominance analysis. The Second Circuit reversed. After noting that "variations in the sources and application of a defense will not automatically foreclose class certification," the Court then concluded that a court may employ Rule 23(c)(4)(A) to certify a class on a particular issue even if the action as a whole does not satisfy the (b)(3) predominance requirement. The circuit court further concluded that defendant's concession of liability did not eliminate common issues. Finally, the court determined that denial of certification was an abuse of discretion, as common issues of liability predominated under Rules 23(b)(3) and (c)(4)(A). See Augustin v. Jablonsky (In re Nassau County Strip Search Cases), 461 F.3d 219 (2d Cir. 2006).

Several Circuit Courts Shift Burden to Plaintiff to Prove that the Local Controversy Exception under CAFA Applies. While many courts have now held that the defendant carries the burden of establishing removal jurisdiction under CAFA, the Fifth, Seventh, and Eleventh Circuits have held that the burden then shifts to the plaintiff to prove that the Local-Controversy or Home-State Exception applies. See Hart v. FedEx Ground, 457 F.3d 675 (7th Cir. 2006); Frazier v. Pioneer Arms, 455 F.3d 542 (5th Cir. 2006); Evans v. Walter Industries, 449 F.3d 1159 (11th Cir. 2006).

Supreme Court of New Jersey Strikes Down Class-wide Arbitration Ban as Unconscionable. The plaintiff filed a putative class action under the New Jersey Consumer Fraud Act and other State Laws arising out of a short-term, single advance, unsecured loan of $200, with an effective APR of 608.33%. The standard form loan agreement signed by plaintiff called for “binding individual (and not class) arbitration.” The Court found that the presence of the class-arbitration waiver in the consumer arbitration agreement rendered it unconscionable, concluding that the public interest at stake in denying the ability of consumers to effectively pursue their statutory rights overrode defendants’ right to seek enforcement of the class-arbitration ban. The unconscionable provision was severable, presumably resulting in a claim for class-wide arbitration. Muhammad v. County Bank of Rehoboth Beach, 2006 N.J. LEXIS 1154 (Aug. 9, 2006).

Third Circuit Remands Certification Due to District Court’s Failure to Identify the Specific Claims, Issues or Defenses Subject to Class Treatment. In consolidated class actions against HealthNet brought under ERISA with respect to the alleged manipulation of URC’s, the court of appeal approved of the Class Definition itself, but nevertheless remanded for further definition of the claims, issues or defenses certified for class treatment under Rule 23(c)(1)(B). The court observed that: “At the conclusion of this type of opinion, or in an accompanying certification order, the court typically states that it is certifying the following class,’ or uses some equivalent language, followed by a block paragraph describing precisely those individuals to be included as part of the relevant class or classes. Although examples of common claims, issues, or defenses presented by the case may be discussed as part of the court’s commonality, typicality, or predominance analysis, certification orders and memoranda are most often devoid of any clear statement regarding the full scope and parameters of the claims, issues or defenses to be treated on a class basis as the matter is litigated.” The court then concluded that Rule 23, as amended, “requires more specific and more deliberate treatment of the class issues, claims, and defenses than the practice described above has usually reflected. More specifically, in our view, the proper substantive inquiry for an appellate tribunal reviewing a certification order for Rule 23(c)(1)(B) compliance is whether the precise parameters defining the class and a complete list of the claims, issues, or defenses to be treated on a class basis are readily discernible from the text either of the certification order itself or of an incorporated memorandum opinion.” Wachtel v. Guardian Life Ins. Co. of America, 453 F.3d 179 (3d Cir. 2006).

Seventh Circuit Stresses Responsibility of District Court to Appropriately Assess Value of Claims in Considering Fairness of Settlement. After a proposed settlement had been rejected by the Seventh Circuit, counsel went to the well a second time, making minor improvements to the deal. Though appreciating the district court’s thoughtful and well-reasoned analysis with respect to other objections, the court of appeal was nevertheless troubled by the proper valuation of the claims. The court of appeal noted that district courts must “‘exercise the highest degree of vigilance in scrutinizing proposed settlements of class actions’ to consider whether the settlement is ‘fair, adequate, and reasonable, and not a product of collusion.’ Indeed, the district court judge functions as ‘a fiduciary of the class, who is subject therefore to the high duty of care that the law requires of fiduciaries.’ As a general principle, a district court should evaluate, among other things, the probability of plaintiff prevailing on its various claims, the expected costs of future litigation, and hints of collusion.” Because at least a subset of the subclass receiving no relief would appear to have statutory damage claims of $25-$35 under Massachusetts law, the case was remanded a second time for further consideration. “In basic terms, a claim analysis under these circumstances would require consideration of (1) the probability of the information-sharing class having grounds of recovery under any applicable law; (2) the probability of such favorable law applying to the entire information-sharing class (rather than differing subsets); and (3) the probability of winning on the merits.” Thus, on remand, the district court was asked to consider and analyze the full cross-section of potentially applicable state law and arrive at a clearer estimate of the potential value of the information-sharing class’ claims. Mirfasihi v. Fleet Mortg. Corp., 450 F.3d 745 (7th Cir. 2006).

Ninth Circuit Discusses "Mass Action" Provisions in CAFA. In a case arising out of exposure to DBCP brought in California, a case which had been removed initially on Federal Question grounds, (and remanded), was removed a second time, under CAFA, based on answers to contention interrogatories. The court held that CAFA did not shift the burden to the plaintiffs to establish that there is no removal jurisdiction, and that Dow, the defendant, did not meet its burden. At the same time, the court took the opportunity to discuss the ambiguities in the "mass action" provisions of CAFA. "'The term "mass action" means any civil action... in which monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiffs' claims involve common questions of law or fact, except that jurisdiction shall exist only over those plaintiffs whose claims in a mass action satisfy the jurisdictional amount requirements under 1332(a).' Is the proviso part of the definition of 'mass action' or an independent provision? The mystery deepens when considering how the individual jurisdictional requirement relates to 1332(d)(2)-(10): What happens if individual remands under the 1332(a) proviso bring the aggregate amount in controversy below $5,000,000, or the number of plaintiffs below 100, or destroys minimal diversity? The text of the statute does not specify whether each of these requirements looks to 'plaintiffs in a mass action' or to 'plaintiffs in a mass action over whom the district court has jurisdiction.' Finally, Congress's use of the word 'removable' in the text of 1332, a statute establishing original jurisdiction, blurs what had previously been a clear distinction between jurisdiction and removal statutes, and thus obscures the reach of jurisdiction over mass actions. Because Congress did not refer to original jurisdiction in either the mass action provision itself, or in 1453, the text does not answer the important question of when there is original federal jurisdiction over mass actions, and what the scope of that original jurisdiction might be. This gap casts into doubt the interaction between the mass action provision and a host of other statutes that assume original jurisdiction as a starting point." Declining to resolve the statutory construction issue, the court concluded that "any decision regarding jurisdictional discovery is a discretionary one, and is governed by existing principles regarding post-removal jurisdictional discovery, including the disinclination to entertain 'substantial, burdensome discovery on jurisdictional issues.' Applying those established principles, the district court's refusal to accept the proposal that 1,160 plaintiffs located in and around Panama answer contention interrogatories while the case is otherwise put on hold was not an abuse of discretion." See Abrego v. The Dow Chemical Company, 443 F.3d 676 (9th Cir. 2006).

First Circuit Refuses to Enforce Classwide Arbitration Ban. Two sets of plaintiffs, cable service subscribers, sued defendant, a cable provider, alleging that prices plaintiffs paid were inflated as a result of anticompetitive practices. The plaintiffs challenged the mandatory arbitration provisions in the subscriber agreements which: (1) limited discovery; (2) shortened the statute of limitations; (3) bar recovery of treble damages; (4) prevent recovery of attorney's fees; and (5) prohibit the use of class mechanisms. With respect to the class waiver issue, the court found that, unlike Green Tree Financial and Pacificare, the ban was clear and explicit and therefore could not be left to interpretation by the arbitrator. Then, after acknowledging decisions out of the Third, Fourth, Seventh, and Eleventh Circuits enforcing consumer arbitration clauses barring the use of class devices (class action and/or class arbitration), the court noted two important distinctions. "First, attorney's fees and costs were either recoverable by the plaintiffs who contested the arbitral forum on the basis of the class arbitration ban, or the fees and costs issue was moot.... Second, in all four decisions, the plaintiffs raised claims against banks or other financial lenders primarily under TILA." The same rationale, the court found, did not necessarily apply to complex and costly antritrust cases. After quoting from the Ninth Circuit's decision in Ting v. AT&T, the court concluded that a prohibition on the class mechanism would essentially shield Comcast "from private consumer antitrust enforcement liability, even in cases where it has violated the law. Plaintiffs will be unable to vindicate their statutory rights.... The social goals of federal and state antitrust laws will be frustrated because of the 'enforcement gap' created by the de facto liability shield." Finally, based on the language contemplating severance, the court, rather than throwing out the entire arbitration provision as void, severed out the bar on classwide arbitration. See Kristian v. Comcast, 446 F.3d 25 (1st Cir. 2006).

Fifth Circuit Holds that Addition of Unrelated Defendant Constitutes "Commencement" for CAFA Removal Purposes. Braud v. Transport Service Company of Illinois, 445 F.3d 801 (5th Cir. 2006). [See also: Knudsen v. Liberty Mutual Insurance Co., 435 F.3d 755 (7th Cir. 2006), discussed infra.]

New Jersey Court of Appeal Affirms Nationwide Certification of Third-Party Payor Claims Against Merck for Vioxx. Plaintiff accused Merck of misrepresenting the safety of Vioxx in violation of the N.J. Consumer Fraud Act. The Taft-Hartley Fund alleged that it, and other third-party payors, would not have covered the high costs of the drug on its formulary had Merck disclosed the true safety and efficacy. Judge Higbee certified a nationwide class of all third-party payors in the fifty states and the District of Columbia who have paid any person or entity for the purchase of Vioxx since May 1, 1999. Merck only challenged predominance and superiority, arguing that the consumer fraud laws of the various payors’ home states must be applied to evaluate their claims and that each payor must separately establish causation and ascertainable loss. Following Varacallo, the Appellate Division rejected individualized proof of “reliance” under the Act in favor of a mere “causal nexus” between the misrepresentation and the loss. On the choice-of-law question, the court focused on the importance of deterrence, and, after recounting all of the decisions made by Merck in the state, concluded that New Jersey law could be applied to all claims. International Union Local 68 v. Merck & Co., 384 N.J. Super. 275, 894 A.2d 1136 (App. Div. 2006), rev'd,2007 WL 2493917 (N.J. Sept. 6, 2007)[see above]].

U.S. Supreme Court Rules that SLUSA Preempts State Law Claims for Fraudulently Inducing Plaintiffs to Hold on to Securities. Dabit, a former Merrill Lynch broker, filed a class action on behalf of brokers who held on to certain stocks, and encouraged their clients to do so, longer than they should have. Dabit complained, under Oklahoma law, that Merrill Lynch disseminated misleading research thereby manipulating stock prices. In addition to their own losses, the brokers also lost commission fees when their clients took their business elsewhere. The Supreme Court held that the Securities Litigation Uniform Standards Act of 1998, which precludes class actions based upon State Law alleging a misrepresentation, omission, or manipulative or deceptive practice “in connection with the purchase or sale of a covered security” (15 U.S.C. §§78bb(f)(1)), preempted any attempt to certify claims that the plaintiffs held on to the stock too long. The Court noted that it was not considering the issue of whether Dabit’s lost commission claims escaped preemption. The Court also insisted that it had not lost sight of the general presumption that Congress does not cavalierly pre-empt State Law causes of action; “that presumption” the Court commented, “carries less force here than in other contexts because SLUSA does not actually pre-empt any state cause of action. It simply denies plaintiffs the right to use the class action device to vindicate certain claims. The Act does not deny any individual plaintiff, or indeed any group of fewer than 50 plaintiffs, the right to enforce any state-law cause of action that may exist.” Merrill Lynch v. Dabit, 126 S.Ct. 1503 (2006).

Seventh Circuit Wrestles With Itself Over the Question of When an Amendment to State Court Pleadings Qualifies as a “Commencement” for CAFA Removal Purposes. In Phillips v. Ford, Judge Posner framed the issue as follows: “‘A routine amendment to the complaint does not commence a new suit.’ But is adding a plaintiff to a class action suit ‘routine’? We said in Schorsch that ‘a defendant added after [CAFA’s effective date] could remove because suit against it would have been commenced after the effective date, and tacking a wholly distinct claim for relief onto an old suit likewise might commence a new proceeding.’ An amendment that merely changed the definition of and hence membership in the class was ‘routine,’ but we noted that the suit remained one between the original parties. No named plaintiffs had been added; the alteration of the class had added just new, unnamed class members.” Because, the Court concluded, “Illinois in effect allows named plaintiffs to be substituted with relation back (‘in effect’ because the formal rule is that the filing of a class action tolls the statute of limitations for class members, so that they can if necessary be substituted for the named plaintiffs, without being barred by reason of the passage of time since the suit was filed), the addition of such plaintiffs in the two cases before us did not commence new suits.” In Knudsen v. Liberty Mutual, however, a different panel, in a decision authored by Judge Easterbrook, concludes that a new action is “commenced” under CAFA when simply a “novel” claim is added against the same defendant or defendants. In that case, Plaintiffs alleged that Liberty Mutual paid too little on claims for medical services under workers’ compensation and casualty policies. All three plaintiffs were covered by Liberty Mutual Fire Insurance Company; but the suit named only its corporate parent, Liberty Mutual Insurance Company. After an unsuccessful removal, the plaintiffs asked the state court to hold Liberty Mutual responsible for all policies issued by any subsidiary or affiliate. When a nationwide class was certified, Liberty Mutual removed again. The Court acknowledged that, under Illinois law, a new contention relates back to the original complaint (and hence is not a new ‘claim for relief ‘ or ‘cause of action’) when the original pleading furnishes the defendant with notice of the events that underlie the new contention. However, because the original complaint did not put Liberty Mutual on notice that it was going to be responsible as alter ego for the conduct of its affiliates and subsidiaries, it was a “new” claim “commenced” after CAFA’s effective date. Compare Phillips v. Ford Motor Co., 435 F.3d 785 (7th Cir. 2006); with, Knudsen v. Liberty Mutual Insurance Co., 435 F.3d 755 (7th Cir. 2006). [See also: Pubell v. Merck, 434 F.3d 1070 (8th Cir. 2006) (addition of named plaintiff falling within original class definition “related back” under State Law and was therefore “commenced” prior to CAFA); and, Braud v. Transport Service Company of Illinois, 445 F.3d 801 (5th Cir. 2006), discussed supra.]

Divided Sixth Circuit Panel Follows Allison. - A divided panel of the Sixth Circuit followed the Allison decision, reversing a (b)(2) certification of gender discrimination claims brought by prison guards. It appears from the decision that, in addition to class-wide injunctive relief, the named plaintiffs sought damages for themselves but not on behalf of the class. Rejecting certification, the court suggested that plaintiffs in Title VII cases have the choice of proceeding under Rule 23(b)(3) in actions for money damages or under Rule 23(b)(2) in actions for declaratory or injunctive relief alone or in conjunction with compensatory and punitive damages that inure to the group benefit of the class as a whole. Judge Keith, dissenting, urged the court to follow the Second Circuit’s decision in Robinson, suggesting the possible use of a “hybrid” (b)(2)/(b)(3) certification, wherein liability and damages portions of the trial are bi-furcated, and the plaintiffs are afforded opt-out rights with respect to their claims for monetary damages. Reed v. Ohio Dept. of Rehab. & Corrections, 435 F.3d 639 (6th Cir. 2006).

Oregon Supreme Court Applies Inference of “Reliance” or Causation in Punitive Damage Case Against Tobacco Industry. In reviewing the propriety of a punitive damage verdict under Campbell and Gore, the Oregon Supreme Court rejected Philip Morris’ argument that there was no evidence that its fraud caused injury to other residents of the State of Oregon. “In essence, Philip Morris is claiming that one cannot reasonably infer that anyone was actually fooled by its 40-year advertising campaign directed to thousands of Oregonians. Yet even the simplest assessment of human nature, viewed in light of the designedly addictive properties of cigarettes, tells any reasonable person that those lies would have been very persuasive. We think that such an appreciation of human nature fairly may be attributed to jurors, including the ones who heard this case. Moreover, Philip Morris's own conduct belies its protestations. As a for-profit corporation, it would not spend over 40 years of time, effort, and money to deceive people, unless it thought it was succeeding.” Williams v. Philip Morris, 127 P.3d 1165, 1170 n.1 (Ore. 2006). [See also: Williams v. Philip Morris, 48 P.3d 824, 830-831 (Oregon App. 2002) (finding sufficient proof of “reliance” or causation as to Williams individually) (review denied, 61 P.3d 938 (Ore. 2002), vacated, on other grounds, 540 U.S. 801 (2003)).] [Note - The U.S. Supreme Court recently granted certiorari to review the 2006 Oregon Supreme Court decision. No. 05-1256, 126 S.Ct. 2329 (2006).]

The First Circuit Holds in two Companion Cases that the Fraud-on-the-Market Presumption of Reliance in Securities Cases Does Not Depend Upon the Accuracy of Market Price, But Only Informational Efficiency. “The fraud-on-the-market presumption of reliance does not depend on the accuracy of the market price, and whether it mirrors the best possible estimates, in light of all available information, of the actual economic values of securities in terms of their expected risks and returns. Rather, this presumption depends on whether the market price of the stock reflects all available information, such that an investor can be deemed to have indirectly relied on the misrepresentation. Whether the stock was ‘worth’ more or less in some fundamental value sense, while arguably relevant to the efficiency inquiry, is not essential to it. While fundamental value efficiency may be the more comprehensive of the two concepts, encompassing both speed and accuracy, efficiency is not an all-or-nothing phenomenon. For purposes of establishing the presumption of reliance, therefore, investors need only show that the market was informationally efficient, not fundamental value efficient.” See Bowe v. PolyMedica Corp., 432 F.3d 1 (1st Cir. 2005), and, Stuebler v. Xcelera.com, 430 F.3d 503 (1st Cir. 2005).

New Supreme Court Justice Samuel Alito involved in several noteworthy class action decisions. Judge Alito participated in Yang v. Odom, 392 F.3d 97 (3rd Cir. 2004), cert. denied, 125 S.Ct. 2294 (2005) (holding that American Pipe tolls the filing of successive class actions if the deficiency in the original class is based on deficiencies in the class representative, as opposed to a finding that the claims were not suitable for class treatment); Brown v. Philadelphia Housing Authority, 350 F.3d 338 (3rd Cir. 2003) (while the mooting of a class representative’s claims does not moot the entire action because the class acquires a legal status separate from the interest asserted by its named plaintiff, there can be no “implied” certification in lieu of the formal requirements of Rule 23); Fotta v. Trustees, 319 F.3d 612 (3rd Cir. 2003) (district court properly denied certification in ERISA case by participants seeking interest on benefits wrongfully withheld or denied, as the District Court would have to determine whether the Fund wrongfully withheld or wrongfully delayed payment for each class member); and, Holmes v. Pension Plan of Bethlehem Steel, 213 F.3d 124 (3rd Cir. 2000) (affirming the denial of two proposed classes on mootness grounds and on the grounds that, while the necessity for calculation of damages on an individual basis should not preclude class determination, an individualized inquiry into liability was required).

State-wide certification against credit reporting agency for the unauthorized sale of personal information affirmed. Plaintiffs brought suit for Louisiana residents whose credit information was sold by TransUnion to third parties in violation of the Fair Credit Reporting Act, 15 U.S.C. §1681, et seq, pursuant to the enforcement provisions of Louisiana Revised Statute 9:3571.1(G)(3). The court of appeal rejected TransUnion’s arguments that the suit was effectively preempted by parallel litigation in the Federal Courts. The filing of a similar class action in Federal Court by the same counsel did not render plaintiff inadequate, nor did the FTC’s administrative enforcement action preclude a finding of superiority. The court also rejected the defendant’s argument that individual issues predominated under Banks v. New York Life: “The exact information sold and the buyers of this information will not be the same for each individual but all the individuals would have the same basic complaint that their legally protected privacy interests had been violated.” See Andrews v. TransUnion Corp., 2004-2158 (La. App. 4th Cir. 8/17/2005), 917 So.2d 463, writ denied. See also, In re Trans Union Corp. Privacy Lit., MDL No. 1350, 2005 U.S.Dist.LEXIS 17548 (N.D.Ill. Aug. 17, 2005)(certifying class of Illinois consumers for statutoy damages under the FCRA). [NOTE - Steve Herman and Herman Herman Katz & Cotlar LLP represent Mr. Andrews and the Louisiana class.]

District courts disagree as to who bears the burden under CAFA; Seventh, Ninth and Eleventh Circuits place burden on removing party. Judge Alice-Marie H. Stotler, sitting in the United States District Court for the Central District of California, held that the plaintiff, seeking remand, must bear the burden of establishing the lack of Federal Court jurisdiction under the Class Action Fairness Act, specifically 28 U.S.C. 1332(d). Because the legislative history evidences a clear intent to expand Federal Jurisdiction over class actions, the court found, the named plaintiffs bear the burden of establishing that the case should be remanded to State Court. See Berry v. American Express Publishing, 381 F.Supp.2d 1118 (C.D.Cal. 2005). [But see: Ninth Circuit decision in Abrego, infra.] Judge O’Neill, sitting in the Eastern District of Pennsylvania, disagrees. Quoting Supreme Court precedent: “Resort to legislative history is only justified where the face of the Act is inescapably ambiguous.... Where, as here, Congress adopts a new law incorporating sections of a prior law, Congress normally can be presumed to have had knowledge of the interpretation given to the incorporated law, at least insofar as it affects the new statute.” Judge O’Neill, therefore, refused to “assume that, with the Judiciary Committee's understanding of the operation of diversity jurisdiction, Congress was unaware that Courts have uniformly placed the burden of proof on a removing defendant.” See Schwartz v. Comcast Corp., No. 05-2340, 2005 U.S.Dist.LEXIS 15396 (E.D.Pa. July 29, 2005). The Seventh Circuit, on October 20, 2005, ruled that the legislative history could not supplant the existing body of statutory interpretation. The Court then addressed the more difficult question of what a defendant must do to satisfy its burden under the "legal certainty" test. "The complication" the Court recognized, "is that a removing defendant can't make the plaintiff's claim for him.... Thus part of the removing party's burden is to show not only what the stakes of the litigation could be, but also what they are given the plaintiff's actual demands." In the case at issue, the defendant's admission that 3,800 unsolicited ads were sent was sufficient to establish that the amount in controversy exceeded $5 million. See Brill v. Countrywide Home Loans, 427 F.3d446 (7th Cir. 2005). The Ninth and Eleventh Circuits recently agreed that CAFA did not shift the burden to the plaintiffs. See Abrego v. The Dow Chemical Company, 443 F.3d 676 (9th Cir. 2006); and, Miedema v. Maytag, 450 F.3d 1322 (11th Cir. 2006).

In an Unpublished Decision, the California First Appellate District Strikes Arbitration Clause Banning Class Actions as Unconscionable. After the issue was remanded by the California Supreme Court [118 P.3d 1017] for further consideration in light of Discover Bank v. Superior Court, the First Appellate District, in an unpublished decision, determined that the mandatory arbitration provision precluding class treatment was procedurally unconscionable as the amendment was provided through a bill insert, and was substantively unconscionable as in furtherance of “a scheme to deliberately cheat large numbers of consumers out of individually small sums of money.” Parrish v. Cingular Wireless, No. A105518, 2005 Cal.App.Unpub.LEXIS 9021 (Cal. App. 1st Dist. Oct. 3, 2005), modified, 2005 Cal.App.Unpub.LEXIS 10022 (Cal. App. 1st Dist. Nov. 2, 2005); see also, Discover Bank v. Superior Court (2005) 36 Cal.4th 148, 30 Cal.Rptr.3d 76. [See also: Tamayo v. Brainstorm, No. 02-15724, 2005 U.S. App. LEXIS 20669 (9th Cir. Sept. 21, 2005) (under California law, class-action waivers in arbitration clauses contained in contracts of adhesion are unconscionable).]

Fifth Circuit clarifies meaning of “inconsistent or varying adjudications” and again rejects the use of (c)(4) to certify a “composite” class. A class action was brought by landowners in Louisiana, Mississippi and Texas against Entergy, alleging that the company engaged in unauthorized transmission of voice, data and video communications across their land. The plaintiffs argued that certification was appropriate under all three subsections of 23(b), or that, in the alternative, a “composite” (or “hybrid”) should be certified under (b)(2) for liability with opt-out provisions for damages under (b)(3). Affirming the district court’s denial of certification under 23(b)(1), the court explained that “the landowners have failed to put forward any scenario under which this litigation might establish incompatible standards of conduct. At worst, Entergy might be found liable to some landowners and not liable to others, forcing it to negotiate with victorious plaintiffs for the right to continue transmitting telecommunications over their property, or to reroute its transmissions. Were this to happen, Entergy's obligations to various landowners would vary, but they would not be inconsistent. That is, it would not be the case that Entergy could not satisfy one judgment without contradicting the terms of another.” Following Allison, the court again blended the test for “coherence” under (b)(2) and the test for “predominance” under (b)(3) into effectively one test to determine whether damages were susceptible to mathematical formula or would require individualized mini-trials. Finally, the court reiterated that, in order to certify a “hybrid” or “composite” class, the action, taken as a whole, must satisfy the requirements of (b)(3). See Corley v. Orangefield Independent School District, 152 Fed. Appx. 350, 2005 U.S. App. LEXIS 22139 (5th Cir. Oct. 17, 2005).

Former Supreme Court nominee Harriet Miers was noted advocate for tort reform. As observed in Business Week, “One segment of American society is cheering the appointment of Harriet Meyers: Big Business. The addition of Roberts, who spent years as a corporate litigator, was heartening to them. The prospect of Miers, who has defended the likes of Microsoft Corp. and Walt Disney Co. and has been a leading advocate for tort reform, has many executives downright giddy.” On the front lines of the tort reform revolution in Texas, Miers supported Nathan Hecht for the Texas Supreme Court in 1988, and Raul Gonzalez in 1994. Miers was then hired by the Texas Civil Justice League to lobby for punitive damage caps and limitations on medical malpractice claims. “In recent years, as the top White House lawyer, Miers has been intimately involved in the Administration’s drive to limit jury awards, create an asbestos claim trust fund, and pass business-friendly rules for class actions. In April she spoke at an annual meeting of the American Tort Reform Association, delivering a crowd-pleasing rallying cry to take on the plaintiffs’ lawyers.” See Woellert, “Business May Get More Days in Court” Business Week, Oct. 17, 2005, p.44.

Eighth Circuit reverses Silzone Heart Valve certification. The Minnesota District Court certified a medical monitoring class under (b)(2) and a national class of consumer claims under the Minnesota Consumer Protection Statutes under (b)(3). The Eighth Circuit found that the medical monitoring claims lacked coherence and could not be certified. With respect to the consumer claims, the Court did not preclude the possibility of certification, but reversed and remanded the certification order, requiring the District Court t conduct the choice-of-law analysis required by Shutts v. Phillips Petroleum. See Silzone Heart Valve Prod. Liab. Lit. v. St. Jude, 425 F.3d 1116 (8th Cir. 2005).

Ohio appellate court certifies class of policyholders. A class action was filed against Security Union Title Insurance Company alleging a systematic and illegal overcharge in premiums for title insurance policies in residential refinancing transactions. The trial court found that common issues did not predominate, as it would have to be determined on a case-by-case basis that plaintiff or his or her agent provided a copy of the plaintiff’s prior policy, (as ostensibly required under the Security policy). The court of appeal reversed, concluding that the trial court had prematurely attempted to address the substantive merits of defendant’s claims. Pointing to the certification of similar claims in New York, the court found that “the collective issues of Security Union's practice involving the distribution of their mandated discounted refinance rates predominate over any transaction-by-transaction differences of individual consumers.” See Dubin v. Security Union Title Ins. Co., 2005 Ohio 3482 (Ohio App. July 7, 2005).

Third Circuit draws line on “piggy-backing”. The U.S. Third Circuit held that American Pipe would toll the filing of successive class actions if the deficiency in the original class is based on deficiencies in the class representative, as opposed to a finding that the claims were not suitable for class treatment. Yang v. Odom, 392 F.3d 97 (3d Cir. 2004), cert. denied, 125 S.Ct. 2294 (2005).

Class action websites can solicit information from potential clients without fear of disclosure, Ninth Circuit holds. A class action firm posted a Paxil Withdrawal Litigation Initial Contact intake form on its website to gather information from potential class members or their loved ones. The person submitting information expressly acknowledged that he or she was not seeking legal advice nor entering into a formal attorney-client relationship. The court held, nevertheless, that “potential clients must be able to tell their lawyers their private business without fear of disclosure, in order for their lawyers to obtain honest accounts on which they may base sound advice and skillful advocacy.... The changes in law and technology that allow lawyers to solicit clients on the Internet and receive communications from thousands of potential clients cheaply and quickly do not change the applicable principles.” See Barton v. SmithKline Beecham, 410 F.3d 1104 (9th Cir. 2005).

Second Circuit rejects (b)(1) certification under "limited punishment" theory absent a fund with a "definitely ascertained limit" as required under Ortiz. Judge Weinstein previously certified a mandatory no-opt-out class under Rule 23(b)(1) for all smokers with respect to claims for punitive damages. The certification was based on a "limited punishment" theory, under which "the limited fund involved would be the constitutional cap on punitive damages, set forth in BMW v. Gore and related cases." While the Second Circuit acknowledged the possibility of a "constitutional cap on total allowable aggregate punitive damage awards," the court noted that it was ultimately unclear whether successive punitive damage awards, each passing constitutional muster, could reach a point beyond which no additional punitive damages could be awarded. Assuming, arguendo, that such a limit exists, plaintiffs, nevertheless, could not meet Ortiz's burden of establishing the inadequacy of the fund, given "the totals of the aggregated liquidated claims and the fund available for satisfying them, set definitely at their maximums." The court additionally expressed concerns that the assessment of punitive damages prior to an actual determination of compensatory damages might run afoul of State Farm v. Campbell's requirement that the punitive damage award bear a sufficient nexus to the actual and potential harm to the plaintiff class, and that it will be reasonable and proportionate to those harms. In re: Simon II Litigation, 407 F.3d 125 (2d Cir. 2005).

JAMS clarifies its policy when companies seek to preclude class actions through arbitration. Last fall, JAMS declared that it was inappropriate for a corporation to bar its customers or employees from being part of a class action in an arbitration clause. JAMS later withdrew that policy, (after being pressured by angry corporations). Now JAMS has clarified its current policy: "Until either the United States Supreme Court decides the issues or lawmakers create a consistent legislative policy, JAMS will resolve all issues relating to class action arbitration preclusion clauses on a case-by-case basis in accordance with the law of the jurisdiction in which the arbitration is to take place. In consumer cases, if the arbitration agreement is found to contain a class action preclusion provision, then JAMS will follow the law in the jurisdiction where the arbitration is to take place. If there is no clear law within the jurisdiction regarding the validity of a class action preclusion clause, JAMS will apply the clause as written and will not administer the case as a class action unless a court declares the class action preclusion clause unenforceable."

Federal Judicial Center releases class action study on choice of forum in class action litigation. Willging & Wheatman, An Empirical Examination of Attorneys' Choice of Forum in Class Action Litigation (Federal Judicial Center 2005).

Lead plaintiff's acceptance of settlement offer did not moot claims of entire class. Judge Arthur Spatt of the Southern District of New York ruled on March 14, 2005 that a class action initially filed in May of 2003 could proceed with a new class representative. While the Equitable's motions to dismiss the original complaint were pending, the original plaintiff instituted a NASD arbitration against the broker who sold him his annuity, and the he accepted a settlement which included a release of Equitable. Defendant supplemented its motion to dismiss with these additional grounds, while a new plaintiff sought to intervene. A motion for class certification had never been filed. Recognizing the general rule that the entire action is mooted where the class representative's claims are settled prior to certification, the court noted that the filing of a motion for class certification will generally preserve the controversy under the theory that the certification "relates back" to the filing of the complaint. Class claims are also preserved, the court held, where, as here, there is no "realistic and reasonable opportunity" to move for class certification, (as no answer had ever been filed and the Federal Rules do not "require or encourage premature certification determinations"). Eckert v. The Equitable Life Assur. Soc'y of the U.S., 277 F.R.D. 60 (S.D.N.Y. 2005).

CAFA does not apply to pending cases filed prior to enactment. A suit is "commenced" for purposes of the Class Action Fairness Act when it is originally filed in a court of competent jurisdiction. Pritchett v. OfficeDepot, Inc., 404 F.3d 1232 (10th Cir. 2005). The Seventh and Ninth Circuits agree. See Bush v. Cheaptickets, Inc. 425 F.3d 683 (9th Cir. 2005), and, Schillinger v. Union Pacific, 425 F.3d 330 (7th Cir. 2005).

Class Action Fairness Act goes into effect February 18th. The Federal Class Action Fairness Act ("CAFA") confers Federal Jurisdiction over all class actions in which there is "minimal diversity" (i.e. diversity between any defendant and any plaintiff or member of a pleaded or certified class) and the amount in controversy is more than $5 million, including court-awarded fees in fee-shifting cases and/or the value of injunctive relief. The Act also confers Federal Jurisdiction over "mass actions" with minimal diversity wherein the claims of at least 100 plaintiffs are proposed to be tried jointly on the grounds that they involve common questions of law or fact. (Jurisdiction in "mass actions" only extends to those plaintiffs whose individual claims reach the ordinary $75,000 amount in controversy requirement, and such actions cannot be transferred to an MDL or other court without consent of the majority of plaintiffs.) Class actions are subject to remand where: (i) the aggregate membership of all putative class members of all proposed classes is less than 100; (ii) the primary defendants are States or State Officials; (iii) at least two-thirds of the class and all primary defendants are residents of the forum state; (iv) case involves a single-state or contiguous-state single-incident "mass disaster" or other action; and (v) case involves certain securities or internal governance claims. The District Court has the discretion to remand cases in which more than one-third and less than two-thirds of the class members are citizens of the forum state. 28 U.S.C. §§ 1332(d) and 1453.

Eleventh Circuit largely rejects Castano in affirming nationwide RICO class against major HMOs by physicians. In affirming certification of RICO claims of all medical doctors providing services to any person insured by one of the major HMOs from 1990 thru the date of certification, the U.S. Eleventh Circuit Court of Appeals rejected the Fifth Circuit's statement in Castano that "a fraud class action cannot be certified when individual reliance will be an issue"; rather, due to the nature of the misrepresentations,"the circumstantial evidence that can be used to show reliance is common to the whole class." The Eleventh Circuit also rejected Castano's "immature tort" theory, noting that, "There is no reason why, even with so-called 'immature torts,' district and circuit courts cannot make necessary determinations under Rule 23 based on the pleadings and whatever evidence has been gathered through discovery." The panel then rejected the pronouncements in cases like Rhone-Poulenc and Castano to the effect that "the fate of an entire industry cannot be left in the hands of a single jury." The Court stated "if their fears are truly justified, the defendants can blame no one but themselves. It would be unjust to allow corporations to engage in rampant and systematic wrongdoing, and then allow them to avoid a class action because the consequences of being held responsible for their misdeeds would be financially ruinous." Finally, the Court rejects Castano's idea that class certification, in and of itself, is a form of "judicial blackmail". The Court noted that, "while affirming certification may induce some defendants to settle, overturning certification may create similar 'hydraulic' pressures on the plaintiffs, causing them to either settle or – more likely – abandon their claims altogether... Because one of the parties will generally be disadvantaged regardless of how a court rules on certification, this factor should not be weighed." Klay v. Humana, 382 F.3d 1241 (11th Cir. 2004), cert. denied, 125 S.Ct. 877 (2005).

Fifth Circuit reverses denial of certification in burial life insurance cases. A district court judge in the Eastern District of Louisiana denied certification in a case brought by African American policyholders who received less benefits than whites with comparable policies. The plaintiffs sought certification of a (b)(2) class for injunctive and associated relief, yet affording notice and opt-out rights to members of the putative class. Adopting the practical approach taken in Allison, the Fifth Circuit (reversing the district court's denial of certification) refused to engage in a theoretical discussion about whether the relief sought was "legal" or "equitable" in nature, but rather, sought to determine whether the relief owed to each classmember could be calculated according to standardized formulas, objectively derived from the defendants' own business records, without the necessity for subjective inquiries or other individualized determinations. While noting a defect in the plaintiffs' class definition, the Court recognized that "holding the plaintiffs to the plain language of their definition would ignore the ongoing refinement and give-and-take inherent in class action litigation, particularly in the formation of a workable class definition. District courts are permitted to limit or modify class definitions to provide the necessary precision." The court also rejected the defendants' argument that statute of limitations issues precluded class certification. "To hold that each class member must be deposed as to precisely when, if at all, he learned of defendants' practices would be tantamount to adopting a per se rule that civil rights cases involving deception or concealment cannot be certified outside of a two-year or three-year period.... Such a result foreclose use of the class action device for a broad sub-set of claims, a result inconsistent with the efficiency aims of Rule 23." The Court indicated that the defendants' "constructive notice" theory can be determined on a class-wide basis. Bratcher v. National Standard Life, 365 F.3d 408 (5th Cir.), cert. denied, 125 S.Ct. 277 (2004).

Fourth Circuit approves of certifying "issues" under Rule 23(c)(4). Purchasers and beneficiaries of a multi-employer health care plan brought claims growing out of the plan's collapse. The U.S. Fourth Circuit Court of Appeals rejected the defendants' argument that the necessity for individualized damage determinations should defeat certification. Of particular interest, however, is the Court's discussion of Rule 23(c)(4). The Fifth Circuit, in cases such as Castano and Allison, had appeared to have squarely rejected the use of Rule 23(c)(4) as a way of certifying discreet issues for class treatment, even where the predominance and superiority requirements of Rule 23(b)(3) had not been satisfied. Initially, the court in Gunnells notes that "Rule 23 explicitly envisions class actions with individualized damage determinations," citing the 1966 Advisory Committee Notes, which indicate that "Rule 23(c)(4) permits courts to certify a class with respect to particular issues and contemplates possible class adjudication of liability issues with 'the members of the class... thereafter... required to come in an individually prove their respective claims.'" The court then remarked that "the dissent's approach – that a court first determine 'that an action as a whole satisfies the predominance and superiority requirements'... simply ignores Rule 23(c)(4)'s express command." Noting further that "several courts and a number of distinguished commentators have explicitly endorsed a broad issue-specific predominance analysis." With respect to the Fifth Circuit decisions, the panel found that they do not require that "the action as a whole" – i.e. all causes of action against all parties – must satisfy the predominance requirement, but merely that "a cause of action, as a whole, must satisfy Rule 23(b)(3)'s predominance requirement" before Rule 23(c)(4) is available. Accordingly, conditional certification of the class was affirmed. Gunnells v. Healthplan Services Inc., 348 F.3d 417 (4th Cir. 2003), cert. denied, 124 S.Ct. 2837 (2004).

Stephen J. Herman, Esq.

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[Note - The views expressed on this law blog / blawg relating to class actions are the observations of Steve Herman as a practicing attorney and are not intended to represent the views of Herman Herman Katz & Cotlar, Herman Mathis, LTLA, LAJ, ATLA, AAJ, Public Justice, TLPJ, Loyola Law School, the Civil Justice Foundation, or any other organization.]


Updated on June 27, 2010