SHB Recognized in Best Lawyers Firm Rankings


U.S. News & World Report and Best Lawyers have named Shook, Hardy & Bacon to their annual list of Best Law Firms.

Shook received two national Tier 1 rankings, for Commercial Litigation and Mass Tort Litigation/Class Action – Defendants (it is surely a coincidence that those are the primary areas of your humble blogger), and 12 total national rankings. 

In addition, seven of Shook’s offices received 21 Tier 1 metropolitan rankings and 42 total metropolitan rankings in the three-tiered list. Shook’s Metropolitan Tier 1 rankings include the office of your author, Philly, for FDA Law, and Mass Tort Litigation / Class Actions - Defendants.

The complete rankings appear in U.S. News & World Report’s  Best Law Firms report.



SHB Partner Gets ILR Award

Very pleased to note for our loyal readers that my partner from Shook, Hardy & Bacon Washington D.C., Co-Chair of the Public Policy Group Mark Behrens received the 2015 U.S. Chamber Institute for Legal Reform Individual Achievement Award. Mark accepted the award at the organization’s 16th Annual Legal Reform Summit on October 27 at the U.S. Chamber of Commerce headquarters in Washington, D.C.

The annual Legal Reform Awards honor individuals whose outstanding work has contributed to improving the U.S. civil justice system. Mark was recognized in particular for his advocacy before state legislatures and courts, and his years of writing and briefing on liability issues. For the past 25 years, he has worked to improve the civil justice system; his efforts contributed to the passage of landmark reform legislation in Ohio, Oklahoma, Arizona and West Virginia. 


Abandonment Issues in an MDL

The defendant in a medical device MDL recently flagged an important and thorny issue that impacts many if not most MDL's.  And it has to do with bellwether trials and the selection of bellwether plaintiffs.

As we have noted, bellwethers come from the notion that it is highly unlikely, sometimes impossible, that all or even most cases in a multidistrict litigation will go to trial.  The theory is that properly selected bellwether plaintiffs can provide crucial information for the court and the parties that can contribute meaningfully to resolution of the overall litigation.  The selection of bellwether plaintiffs, accordingly, can advance or retard this goal.

Courts and commentators have identified all measure of bellwether selection processes, using multiple different criteria, ranging from random selection, to selection by the court, to suggestions by the parties for selection by the court, a draft system of selection by the parties, and more.  Under almost any selection process, a potential monkey wrench toss occurs based on the fact that a selected plaintiff may, for many reasons, decide not to pursue his or her claim.  Particularly, if a selected plaintiff would not be a good strategic choice for plaintiffs' counsel or the other plaintiffs, there is tremendous incentive to abandon the claim in some fashion rather than have the trial.

Such abandonments/dismissals create a number of issues, with concerns of plaintiffs gaming the system, of remaining cases not meeting as well the goals of the bellwether process, and of delay. The latter arises because, often, only a subset of cases within the MDL are selected for case-specific discovery, and sometimes only a further subset of those are selected for full trial work-up. Thus the loss of bellwether cases to voluntary dismissal can necessitate a further round of work.  For example in In re: Cook Medical, Inc. Pelvic Repair System Products Liability Litigation, MDL No. 2440 (S.D. W.Va. 5/19/15) (responding to serial abandonment by plaintiffs of their own selections by ordering 253 more cases into the pool).

Defendants' brief in In Re: Zimmer Nexgen Knee Implant Products Liability Litigation, No. 1:11-cv-05468 (N.D. Ill.) is instructive: apparently more than a dozen bellwether plaintiffs were abandoned as they came up for trial. MDL courts have employed various methods to try to minimize this, such as use of Lone Pine-type orders, loss of draft picks or extra draft picks to the other side (so instead of alternating plaintiff and defendant choices, there may be two selections in a row by one side). None of those procedures are fully effective.

Here, defendant moved to compel participation (leading to dismissal); and then moved to preclude any future withdrawal or dismissal that was linked to any failure on the part of the plaintiff attorney to timely screen the case thoroughly.

It will be interesting to see the reaction and further development of deterrence.


TSCA Reform Bill May Move Forward

The U.S. Senate appears to be moving closer to acting on a bill that would update the Toxic Substances Control Act. We have posted about this long effort several times

A version of the bill was passed by the House last June (TSCA Modernization Act, H.R. 2576), and the Senate version (now known as the "Frank Lautenberg Chemical Safety for the 21st Century Act" after the late Senator from NJ) came out of the Environment and Public Works Committee in the Spring. Recently the number of Senate co-sponsors jumped to approximately 60, suggesting movement may come. 

Both versions are intended to update TSCA, and the Senate bill will likely include  increased funding for EPA from fees on industry,and simplification of the waiver process for states. Possible sticking points include the degree of preemption of state law, a feature that really is necessitated by the need to have some national uniformity.


Federal Court Rejects Jurisdiction Over French Manufacturer

A federal court in Mississippi has rejected the assertion of personal jurisdiction over a French medical device company.  See Arnoult v. CL Med. Sarl, No. 14-00271 (S.D. Miss. 9/21/15).

In this product liability case. plaintiff (a Mississippi resident) alleged that the product, a mid-urethral sling for treatment of stress urinary incontinence, caused her to suffer injuries. The I-STOP was manufactured in France by defendant CLMS, a French corporation. CLMS exported the device to the United States, where it was distributed by defendant Uroplasty. Plaintiffs brought design and warning defect claims under the Mississippi Products Liability Act, as well as claims for negligence, breach of express and implied warranties, fraud, fraud by concealment,  negligent  misrepresentation, negligent infliction of emotional distress, and loss of consortium.

Various motions were filed, including a motion to dismiss by CLMS.

The court noted that when a nonresident defendant moves to dismiss for lack of personal jurisdiction, the plaintiff bears the burden of establishing the district court’s jurisdiction over the nonresident. A plaintiff must satisfy this burden by presenting a prima facie case for personal jurisdiction. E.g.,  Unified Brands, Inc. v. Teders, 868 F. Supp. 2d 572, 577 (S.D. Miss. 2012).  The district court is not limited to consult only the assertions in the plaintiff’s complaint; rather, the district court may consider the contents of the record at the time of the motion, including affidavits.

The Due Process Clause, said the court, permits the exercise of personal jurisdiction over a nonresident defendant when (1) that defendant has purposefully availed himself of the benefits and protections of the forum state by establishing minimum contacts with the forum state; and (2) the exercise of jurisdiction over that defendant does not offend traditional notions of fair play and
substantial justice. Unified Brands, 868 F. Supp. 2d at 577. Plaintiffs argued that CLMS had enough contacts with Mississippi to confer specific jurisdiction. Specific jurisdiction exists when the defendant has purposefully directed his activities at residents of the forum, and the litigation results from alleged injuries that arise out of or sufficiently relate to those activities. Clemens v. McNamee, 615 F.3d 374, 378 (5th Cir. 2010).

In this circuit, the court is to apply a three-step analysis to determine specific jurisdiction: (1) whether the defendant has minimum contacts with the forum state; (2) whether the plaintiff’s cause of action arises out of or results from the defendant’s forum related contacts; and (3) whether the exercise of personal jurisdiction is fair and reasonable. See Jackson v. Tanfoglio Guiseppe S.R.L., 615 F.3d 579, 585 (5th Cir. 2010).  The court’s inquiry thus focuses on the relationship among the defendant, the forum, and the litigation.  Walden v. Fiore, 134 S. Ct. 1115, 1121 (2014). The relationship must arise out of contacts that the defendant himself creates with the forum state, and the contacts must be with the forum state itself, not the defendant’s contacts with persons who reside there.  Further, a
defendant’s relationship with a plaintiff or third party, standing alone, is an insufficient basis for jurisdiction. Due process requires that a defendant be haled into court in a forum based on his own
affiliation with the state, not based on the random, fortuitous, or attenuated contacts he makes by interacting with other persons affiliated with the state.

Plaintiffs here apparently relied on a stream-of-commerce theory of specific jurisdiction, the controversial and yet to be clarified branch of cases involving a product sold or manufactured by a foreign defendant, and plaintiffs argue that the minimum contacts requirement is met so long as the court finds that the defendant delivered the product into the stream of commerce with the expectation that it would be purchased by or used by consumers in the forum state.  Not all courts accept this approach, and some part of the Supreme Court are skeptical.  Even under this approach, the defendant’s contacts must be more than random, fortuitous, or attenuated, or of the unilateral activity of another party or third person.

Here, plaintiffs argued that it was foreseeable to CLMS that its products would end up in Mississippi because it entered into a distribution agreement with Uroplasty to market and sell those products in the United States. But plaintiffs failed to prove the terms of the actual distribution agreement between CLMS and Uroplasty – to show it provided the foreign manufacturer with adequate notice that its products were being marketed in the forum.  Furthermore, there was no evidence here of a product specifically manufactured for an industry located in the state of Mississippi. Finally, plaintiffs alleged that only four of the devices were sold to patients in Mississippi.

For these reasons, the court found that plaintiffs’ allegations fell short of the mark. Plaintiffs'  argument was more attenuated, relying on inference-upon-inference without sufficient evidence to connect CLMS to the state of Mississippi.

Since plaintiffs alleged that only four of the devices were sold to patients in Mississippi, this case was very close to – if not within – the category of cases governed by the plurality opinion in J. McIntyre Machinery, Ltd. v. Nicastro, 131 S. Ct. 2780 (2011) (a single, isolated sale is not sufficient to confer personal jurisdiction, even if it was anticipated). 

The court concluded that plaintiffs had not carried their burden.


Federal Court Rejects Class Action on 23(a) Grounds

A federal court in Massachusetts federal court recently denied class certification to consumers who claimed their wood-plastic composite decks were defective. See Anthony Pagliaroni et al. v. Mastic Home Exteriors Inc. and Deceuninck North America LLC, No. 1:12-cv-10164 D. Mass. 9/22/15). Readers may find the analysis of the Rule 23(a) factors of typicality and commonality useful.

Oasis is a manufactured composite decking material made of wood flour, high-density polyethylene (“HDPE”) and micro ingredients such as talc.  Plaintiffs submitted a report by experts opining on a defect in the material and the alleged cause of Oasis’s failure in the decks.  Importantly, they concluded that Oasis “suffers from the common defect of excessive water absorption” that results in swelling, cupping and cracking of the product. Thus, plaintiffs alleged that defendant misrepresented the composition of Oasis, and that the product failed to comply with building codes. 
(Defendant marketed Oasis using a variety of written marketing materials, including print
advertisements, brochures, website materials, tear sheets, physical samples and point of purchase
displays that varied from material to material and year to year.)

The product initially came with a ten-year limited warranty. The warranty stated that Oasis “products will not crack, split, splinter, or suffer structural damage due to termites, insects, or fungal decay.” The warranty excluded damage done by various specific factors, such as improper installation. The ten-year warranty was not transferrable. Mastic changed this warranty in 2006, extending the period to twenty-five years and making the warranty transferrable to future homeowners. 

Plaintiffs also submitted an expert report purporting to set forth a formula to calculate damages as measured by the repair or replacement costs to homeowners. This formula was based upon the size of the deck and its location, with additional considerations pertaining to the scope of damage and the surrounding landscape. The damages report posited that an inspector could identify
which deck components require replacement by placing a sticker on each damaged component
and taking photographs of the entire deck. Plaintiffs asserted that this formula could be
applied uniformly to estimate damages.

The court rejected Daubert challenges, finding the issues with the common defect opinion went to the weight of the testimony, not its admissibility.

Plaintiffs then moved to certify a class defined as all individuals and entities that own homes, residences, buildings, or other structures physically located in the states of Massachusetts, Minnesota, New York, and Oregon in which Oasis decking is or has been installed. The Court noted that it must conduct a rigorous analysis of the prerequisites established by Rule 23 before certifying a class.  In doing so, a court may probe behind the pleadings to formulate some prediction as to how specific issues will play out.  In re New Motor Vehicles Canadian Export Antitrust Litig., 522 F.3d 6, 17 (1st Cir. 2008) (internal citations and quotation marks omitted). This is because the class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff’s cause of action.

The Court focused first on commonality. In light of Wal-Mart, the possibility of a yes or no answer to a class-wide question is inadequate to establish commonality. Plaintiffs must show that the proposed common questions will lead to answers "apt to drive the resolution of the litigation,” meaning that they “will resolve an issue that is central to the validity of each one of the claims in one stroke.” Wal-Mart, 131 S.Ct. at 2551. Plaintiffs offered five questions to show commonality and were correct that the five questions offered could be answered yes or no for the entire class. However, further inquiry is necessary to determine whether these answers would drive the resolution of any of plaintiffs’ causes of action.

Plaintiffs asserted express warranty claims, governed by § 2-313 of the Uniform Commercial Code, which provides that any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.  First, plaintiffs argued that defendant Mastic breached an express warranty about the product’s durability, an another about the limited warranty. The Court concluded that plaintiffs had not offered a common question that would drive the resolution of the litigation under either of these express warranty theories, because determining which, if any, representations became a basis of the bargain with a plaintiff would be driven by individualized proof, especially in light of the fact that there was a multi-tiered distribution system and defendant did not sell Oasis directly to homeowners.

 Regarding implied warranty, and fitness for ordinary use, the Court observed that some consumers received Oasis decks that were alleged to be unfit for ordinary use, whereas others have had no performance problems with their decks. In light of this record, whether a particular Oasis deck fails ordinary expectations for use was not a common question susceptible to class-wide proof or determination.

None of the common questions proposed by plaintiffs could generate answers that could drive the resolution of the unjust enrichment claims either. To resolve these claims, individual plaintiffs would need to demonstrate that due to the condition of their decks and notwithstanding any warranty payments offered by defendants (and accepted or rejected by Plaintiffs), the plaintiff conveyed on defendants a benefit that would be unjust for defendants to retain.

Regarding the consumer fraud claims, these laws require a showing of injury and causation. See
Tyler v. Michaels Stores, Inc., 464 Mass. 492, 503, (2013); LensCrafters, Inc. v. Vision World,
Inc., 943 F. Supp. 1481, 1488 (D. Minn. 1996); City of New York v. Smokes-Spirits.Com, Inc.,
911 N.E.2d 834, 838 (N.Y. 2009). Questions of injury and causation are not amenable to common resolution for this proposed class, where the record raises individualized questions of proof as to whether an Oasis owner has actually suffered any injury, whether that injury has already been remedied by the Oasis warranty program and whether a particular representation or action by defendants caused that owner’s damages. Hence, insufficient commonality.

The Court also concluded that given the breadth of the proposed class definition the named
plaintiffs had not met the typicality requirement, for several reasons. First, the named plaintiffs
alleged that they suffered failure of their Oasis decks, whereas most class members have not
reported any problems with their Oasis decks, so the alleged injury suffered was not common.
There is no legally cognizable injury in a product defect case, regardless of whether the claim is
for fraud, violation of consumer protection statutes, breach of warranty, or any other theory,
unless the alleged defect has manifested itself in the product used by the claimant, observed the Court.

Next, the named plaintiffs were also atypical of the class because the four named plaintiffs
either did not accept the warranty payments offered to them by defendants or were deemed
ineligible for warranty compensation due to installation error, whereas most class members who
submitted claims for damage to their Oasis decks accepted warranty payments, some of which
payments included costs beyond those covered by the warranty program such as labor costs.

Finally, the breadth of the proposed class definition presented additional problems. The
class included purchasers of Oasis and transferee owners who purchased a building that already
had Oasis installed. The named plaintiffs were all direct purchasers of Oasis decks and their
theory of liability would differ from the claims of a transferee owner who did not view
any representations by Mastic about Oasis and did not select or pay for Oasis.

Class certification denied.


Court of Appeals Rejects Nuisance Class

The Eighth Circuit recently reversed class certification in a recent environmental case. See Smith v. ConocoPhillips Pipe Line Co., No. 14-2191 (8th Cir., 9/15/15).

Defendant owned a petroleum products pipeline which runs through the town of West Alton, Missouri. After a leak in the line was discovered way back in 1963, its source was repaired, but the contamination at the leak site allegedly was not fully remediated. In 2002, contaminants allegedly from the leak were discovered in a family residence in the area. Defendant purchased and demolished this property as well as others affected by the leak. In cooperation with the Missouri Department of Natural Resources, Phillips fenced in the area around the leak site and set up monitoring wells to track any spread of pollutants. This action was filed in 2011 on behalf of a putative class of nearby landowners alleging that the contaminated site is a nuisance. The district court certified the class on the theory that possible "pockets of contamination" existed within the identified area.

The class plaintiffs presented expert  evidence, including Dr. Patrick Agostino, a Ph.D in geology. Dr. Agostino explained that leaked contamination is pulled downward by gravity and spreads out, thus shifting over time. According to his testimony, the contamination in West Alton spread both to the north and south of the leak site; it was then pulled downward until it reached the water table and contaminated the groundwater. Based on his analysis, Dr. Agostino concluded that the resulting plume of contamination could have been “considerably larger” in the past than currently, and that it would therefore have affected other properties outside the contamination site. Discovery also included sampling of the contamination site and nearby properties.

The district court certified the class seeking nuisance based damages and injunctive relief. In its certification order the court relied on evidence that contaminants had been shown in some monitoring wells, that the pollution was continually shifting, and that it could not “rule out the possibility that pockets of contamination exist.”

To show the Rule 23 requirement of commonality, the plaintiff must demonstrate that the class members have suffered the same injury. On appeal, Phillips argued that the lack of proof of contamination spread throughout the class land shows there is no class-wide injury. Absent the injury of actual contamination, it argued, plaintiffs could not meet the Rule 23 requirements of commonality or typicality. The key contaminant chemicals had not been shown to be on land owned by the class members. 


The court of appeals saw a contemporary consensus reached by persuasive authority on the meaning of common law nuisance in the context of environmental contamination, requiring physical contact or impact or invasion.  Thus, the panel concluded that the putative class fear of contamination spreading from the West Alton leak site to harm their property is not a sufficient injury to support a claim for common law nuisance in the absence of such proof. So there was a crucial lack of commonality defeating class certification.


Court Hangs Up On Cell Phone Class Action

A Texas federal court recently denied class certification to a group of cell phone customers who alleged they were sold defective models. See Shane Galitsky et al. v. Samsung Telecommunications America LLC, No. 3:12-cv-04782 (N.D. Tex. 9/11/15).

Plaintiffs brought a putative class action against Samsung on behalf of hundreds of thousands of California consumers who purchased allegedly defective Galaxy S mobile phones. Plaintiffs alleged that four models suffered from a common hardware defect that could cause them to randomly freeze, shut down, reboot, and power off while in standby or sleep mode, rendering the phones unfit for their intended use and purpose.  The suit included claims under federal and California law for breach of express warranty; breach of implied warranty; violations of the Song-Beverly Consumer Warranty Act (“Song-Beverly Act”), Cal. Civ. Code § 1792 (West 2009); violations of the MagnusonMoss Warranty—Federal Trade Commission Improvement Act (“Magnuson-Moss Act”), 15 U.S.C. § 2301 et seq.; violations of the Consumers Legal Remedies Act (“CLRA”), Cal. Civ.
Code § 1750 et seq. (West 2009); violations of the California Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200 et seq. (West 2008); and common law claims for assumpsit and quasi-contract. Several of those claims were kicked out on motions to dismiss.

Plaintiffs then filed for class certification on the remaining warranty and consumer fraud claims. The court's analysis focused on the  Rule 23(b) requirements of “predominance” and “superiority,” which require that common questions “predominate over any questions affecting only individual members,” and that class resolution be “superior to other available methods for fairly and efficiently adjudicating the controversy.” Rule 23(b)(3).  The court noted that the class action is an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only. To come within the exception, a party seeking to maintain a class action must affirmatively demonstrate his compliance with Rule 23. The Rule does not set forth a mere pleading standard. Rather, a party must not only be prepared to prove that there are in fact sufficiently numerous parties, common questions of law or fact, typicality of claims or defenses, and adequacy of representation, as required by Rule 23(a). The party must also satisfy through evidentiary proof at least one of the provisions of Rule 23(b).

“To decide whether there is a class-wide basis for deciding the predominant issues, [the court] must first ascertain which are the predominant issues that must be decided on a class basis.” Gene and Gene LLC v. BioPay LLC, 541 F.3d 318, 326 (5th Cir. 2008). The court must identify the substantive issues that will control the outcome of the case, assess which of these issues will predominate, and determine whether these issues are common throughout the proposed class. Id. A class plaintiff cannot merely point to a so-called “common course of conduct” without also demonstrating whether the common course of conduct provides a class-wide basis for deciding the predominant class issues of fact and law. And in order to predominate, common issues must constitute a significant part of the individual cases.

In analyzing whether a class certification motion satisfies the predominance requirement, the court also “must consider how a trial on the merits would be conducted if a class were certified.” See  Sandwich Chef of Tex., Inc. v. Reliance Nat’l Indem. Ins. Co., 319 F.3d 205, 218 (5th Cir. 2003). “This, in turn, entails identifying the substantive issues that will control the outcome, assessing which issues will predominate, and then determining whether the issues are common to the class, a process that ultimately prevents the class from degenerating into a series of individual trials.” Bell Atl. Corp. v. AT&T Corp., 339 F.3d 294, 302 (5th Cir. 2003) (citation and internal quotation marks omitted). “Considering whether ‘questions of law or fact common to class members predominate’ begins, of course, with the elements of the underlying cause of action.” Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804, 131 S.Ct. 2179, 2184 (2011) (quoting Rule 23(b)(3)).  The failure to satisfy the predominance requirement is sufficient of itself to warrant denying class certification.

Plaintiffs argued that their legal claims focused on defendants' conduct; that all plaintiffs got the same warranty; that the alleged defect was common to all phones. But the facts revealed that certain class members who experienced uninitiated power off or freezing of the phone may not be covered by the Warranty; for each class member whose phone exhibited the alleged power-off issue, Samsung was entitled to introduce evidence that, as to that class member’s phone, there was another, more likely cause of the power-off issue (including a cause not covered by the Warranty). Thus the determinative question of whether the alleged breach can be established via class-wide proof must, given the particular facts of this case, be answered in the negative, said the court.

While plaintiffs alleged a common design issue, the court noted that plaintiffs will not be able to prevail on their breach of express warranty claims merely by presenting class-wide proof that all Galaxy S phones contained the same alleged defect. Rather, under California law, it would be necessary for plaintiffs to prove that each individual class member’s Galaxy S phone experienced the power-off issue as a result of the allegedly defect, and that this occurred during the one-year Warranty period. This showing could not be made through proof of a common design defect that, for any given class member’s phone, may or may not have caused that phone to malfunction at all,
or to have malfunctioned during the one-year Warranty period. Instead, it would be be necessary
for plaintiffs to introduce individual evidence for each member of the proposed class establishing that the alleged defect caused that particular class member’s phone to experience the power-off
defect within Warranty period.

Individual issues also predominated with respect to the Warranty precondition that a phone purchaser return the phone to an “authorized phone service facility” during the applicable warranty period.  Accordingly, no class member could recover for breach of the Samsung Warranty unless the member first established that he or she returned the phone to an authorized phone service facility during the warranty period. Any trial of plaintiffs’ express warranty claims would require the jury to determine, for each individual class member, whether and when that class member returned the phone to an authorized phone service facility.

Although the presence of individualized issues will not necessarily prevent certification, there must be some underlying common question whose resolution would constitute a significant part of the individual cases. Only mini-trials can determine the issues, so the court held that the predominance requirement of Rule 23(b)(3) was not satisfied regarding the warranty claims.

On the UCL claims, the court held that plaintiffs could not establish through class-wide proof the amount that Samsung should disgorge from profits earned from sales of the Galaxy S phones, because Samsung would be entitled to present at trial that most class members received some benefit from their phones—indeed, that many class members received the full benefit from their phones. Plaintiffs could not establish that awarding class members the full amount by which Samsung profited from its sale of the phones correlated, in any way, to the amount necessary to restore to each class member that which Samsung obtained by its allegedly unfair practices. Awarding class members the full amount that Samsung profited could possibly be achieved on a class-wide basis, but this method would result in the award of non-restitutionary disgorgement for many of plaintiffs’ proposed class members, which California law does not permit. 

The court also concluded that plaintiffs had not met their burden of establishing that the award of restitution damages presented a common issue that can be determined on a class-wide basis. The methods that plaintiffs proposed for awarding restitution damages to individual class members actually would require the jury to decide, inter alia, for each individual class member, whether he or she received any value from his or her Galaxy S phone.

Certification motion denied.


First Circuit Rejects Use of Rule 68 Offer to Moot Class

Just an FYI for our loyal readers involved in class action work that the First Circuit is the latest federal appeals court to reject a defendant's attempt to moot a proposed a class action by an offer of judgment to the lead plaintiff.  See Bais Yaakov of Spring Valley v. ACT Inc., No. 14-1789 (1st Cir. 8/21/15).

The case arose from alleged unsolicited facsimiles reminding plaintiffs of testing deadlines and test sites, sent in violation of the federal Telephone Consumer Protection Act ("TCPA"), 47 U.S.C. § 227, and an analogous New York state law.  Defendant tendered to Bais Yaakov an offer for judgment under Federal Rule of Civil Procedure 68. And later moved to dismiss this lawsuit for lack of subject matter jurisdiction, arguing that its unaccepted and withdrawn Rule 68 offer fully resolved any case or controversy between the parties, rendering Bais Yaakov's claims moot. The district court denied ACT's motion to dismiss, holding that an unaccepted offer of judgment did not moot Bais Yaakov's claim. The district court accepted ACT's contention that the offer, had it been accepted before it was
withdrawn, would have provided Bais Yaakov with everything to which it would have been entitled on its individual claim, had it prevailed.

The question of whether an unaccepted offer for individual relief in a putative class action moots the action is a question of law that the court of appeals reviewed de novo.  Plaintiffs seeking to pursue a lawsuit brought in a representative capacity must prove their authorization to bring the lawsuit. For example, a person who is not a guardian cannot sue as such, and so on. Unlike most other representative plaintiffs, however, plaintiffs seeking to proceed as representatives of a class under Rule 23 must show both that they are members of the class and that they adequately represent the class. Fed. R. Civ. P. 23(a).  Against this background, ACT advanced "a nifty stratagem" for defeating motions for class certification: offer only the named plaintiff full payment for its individual claims, and then move to dismiss the suit as moot before the court has a chance to consider whether the plaintiff should be allowed to represent the putative class. In recent years, this stratagem has become a popular way to try to thwart class actions, said the court.

The First Circuit observed this strategy seemed to run against the grain of the Supreme Court's holding in Deposit Guaranty National Bank v. Roper, 445 U.S. 326, 340 (1980). Plaintiff argued that under this precedent, Bais Yaakov had a continuing economic interest in the controversy: the interest in sharing attorney's fees with other class members, and the interest in a possible incentive award for serving as a lead plaintiff.  But the court questioned whether this was a sufficient interest.  It also rejected plaintiff's argument that its interest in having a class certified is enough to defeat ACT's mootness argument.  

In order to decide whether an unaccepted Rule 68 offer triggers mootness, the court concluded it must first decide that a plaintiff who has refused such an offer has "received complete relief," such that there remains no individual case or controversy sufficient to satisfy Article III. Five circuit courts that have considered such an argument recently have rejected  it. See Hooks v. Landmark Indus., Inc., No. 14-20496, 2015 WL 4760253, at *3-4 (5th Cir. Aug. 12, 2015); Chapman v. First Index,
Inc., Nos. 14-2773 & 14-2775, 2015 WL 4652878, at *2-3 (7th Cir. Aug. 6, 2015); Tanasi v. New Alliance Bank, 786 F.3d 195, 199-200 (2d Cir. 2015), Stein v. Buccaneers Ltd. P'ship, 772 F.3d 698, 704-05 (11th Cir. 2014), Diaz v. First Am. Home Buyers Prot. Corp., 732 F.3d 948, 954-55 (9th Cir. 2013).

The issue may be before the Supreme Court. See Campbell-Ewald Co. v. Gomez, 135 S. Ct. 2311, 2311 (2015) (No. 14-857) (granting petition for certiorari seeking review of the questions of whether a case becomes moot when a plaintiff receives an offer of complete relief on his claim, and whether the answer to that question differs in a putative class action); see also Petition for Writ of Certiorari,
Campbell-Ewald, ___ U.S. ___, (No. 14-859), 2015 WL 241891, at *i (filed Jan. 16, 2015).

In the interim, the court of appeals agreed with the Second,  Fifth, Seventh, Ninth, and Eleventh Circuits that an unaccepted Rule 68 offer cannot, by itself, moot a plaintiff's claim. The court took this position because, when employed as ACT hoped to employ it here, an unaccepted Rule 68 offer is "a red herring: it does not, in itself, provide any relief." And nothing in Rule 68--or any other rule--contemplates use of a rejected offer to secure dismissal of a case. To the contrary, Rule 68 expressly specifies what happens to a rejected offer: it is deemed to be "withdrawn," and it is "not admissible except in a proceeding to determine costs." Fed. R. Civ. P. 68(b).


No-Injury Class Rejected by State Supreme Court

Last week, the Ohio Supreme Court ruled in Felix v. Ganley Chevrolet, Inc., No. 2015-Ohio-3450 (Aug. 27, 2015), that courts cannot certify class actions that include uninjured members, as such a class will fail to satisfy predominance.

In this case, a trial court had certified a class action of all consumers who purchased vehicles from a dealership through a contract that included an unenforceable arbitration provision. The trial court did so even though there was no evidence that any class member, aside from the class representative, had a dispute with the dealership and had experienced an injury. The trial court eventually awarded each consumer $200 in damages.  

The Court identified several key principles. Class action suits are the exception to the usual rule that litigation is conducted by and on behalf of only the individually named parties. Comcast Corp. v. Behrend, 133 S.Ct. 1426, 1432 (2013), citing Califano v. Yamasaki, 442 U.S. 682, 700-701 (1979). To fall within that exception, the party bringing the class action must affirmatively demonstrate compliance with the procedural rules governing class actions. Id., citing Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541, 2551-2552 (2011).  The United States Supreme Court has insisted that courts give careful consideration to the class certification process, holding that Rule.23 is not “a mere pleading standard.” Dukes, 131 S.Ct. at 2551.  Rather, the party seeking class certification must affirmatively demonstrate compliance with the rules for certification and be prepared to prove that there are in fact sufficiently numerous parties, common questions of law and fact, etc.

Next, plaintiffs bringing consumer fraud (OCSPA) class action suits must allege and prove that actual damages were proximately caused by the defendant’s conduct.  See Konarzewski v. Ganley, Inc., 8th Dist. Cuyahoga No. 92623, 2009–Ohio–5827 (“class action plaintiffs must prove actual damages under the CSPA”). Thus, proof of actual damages is required before a court may properly certify a class action. Searles v. Germain Ford of Columbus, L.L.C., 10th Dist. Franklin No. 08AP-728, 2009-Ohio-1323; see also Butler v. Sterling, Inc., 2000 WL 353502, *4 (6th Cir. Mar. 31, 2000); Johnson v. Jos. A. Bank Clothiers, Inc., 2014 WL 4129576, *3-4 (S.D. Ohio Aug. 19, 2014). These requirements in Ohio are consistent with the majority of decisions by other states’ appellate courts, which also hold that plaintiffs who bring private causes of actions under their states’ consumer-protection statutes are required to plead and prove actual damages or injury.  See, e.g., Meyer v. Sprint Spectrum  L.P., 45 Cal.4th 634, 642-643, 88 Cal.Rptr.3d 859, 200 P.3d 295, (2009); Wallis
v. Ford Motor Co., 362 Ark. 317, 327-328, 208 S.W.3d 153 (2005); Tietsworth v.  Harley-Davidson, Inc., 270 Wisc.2d 146, 169, 677 N.W.2d 233 (2004); Frank v. DaimlerChrysler Corp., 292 A.D.2d 118, 741 N.Y.S.2d 9, 12-13 (2002); Yu v. Internatl. Business Machines Corp., 314 Ill.App.3d 892, 845-846, 732 N.E.2d 1173 (2000); Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wash.2d 778, 783-784, 792, 719 P.2d 531 (1986).

Third, plaintiffs in class action suits must demonstrate that they can prove, through common evidence, that all class members were in fact injured by the defendant’s actions. In re Rail Freight Fuel Surcharge Antitrust Litigation—MDL No. 1869, 725 F.3d at 252. Although plaintiffs at the class certification stage need not demonstrate through common evidence the precise amount of
damages incurred by each class member, Behrend, 133 S.Ct. at 1433, they must adduce common evidence that shows all class members suffered some injury. In re Rail Freight Fuel Surcharge Antitrust Litigation at 252, citing Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 623–624, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997), and Messner v. Northshore Univ. HealthSystem, 669 F.3d 802, 815-816 (7th Cir.2012).  This inquiry into whether there is damage-in-fact is distinct from the inquiry into actual damages: fact of damage pertains to the existence of injury, as a predicate to liability; actual damages involves the quantum of injury, and relate to the appropriate measure of individual relief.  See Martino v. McDonald’s Sys., Inc., 86 F.R.D. 145, 147 (N.D.Ill.1980). Even if determining the amount of damages does not defeat the predominance inquiry, a proposed class action requiring the court to determine individualized fact of damages does not meet the predominance standards of Rule 23(b)(3). See In re Live Antitrust Litigation, 247 F.R.D. 98 (C.D.Cal.2007) (recognizing the
distinction between demonstrating the fact of damages and the amount of damages); Catlin v. Washington Energy Co., 791 F.2d 1343, 1350 (9th Cir.1986) (“[T]he requirement that plaintiff prove
‘both the fact of damage and the amount of damage * * * are two separate proofs.’ ”)

If a class plaintiff fails to establish that all of the class members were damaged, there is no showing of predominance under Civ.R. 23(b)(3). See Behrend, 133 S.Ct. at 1432; see also Cullen v. State Farm Mut. Auto. Ins. Co., 137 Ohio St.3d 373, 2013-Ohio-4733, 999 N.E.3d 614.  Indeed, a key purpose of the predominance requirement is to test whether the proposed class is sufficiently cohesive to warrant adjudication by representation, observed the Court.  Perhaps the most basic requirement to bringing a lawsuit is that the plaintiff suffer some injury. Apart from a showing of wrongful conduct and causation, proof of actual harm to the plaintiff has been an indispensable part of civil actions. See Schwartz & Silverman, Common Sense Construction of Consumer Protection Acts, 54 U.Kan.L.Rev. 1, 50 (2005).

Based on these principles, the Court held that all members of a class in class action litigation alleging violations of the OCSPA must have suffered injury as a result of the conduct challenged in the suit.  Here, the class, as certified, failed because there was no showing that all class members suffered an injury in fact. The broadly defined class encompassed consumers who purchased a vehicle through a purchase contract that contained the unconscionable arbitration provision. But there was absolutely no showing that all of the consumers who purchased vehicles through a
contract with the offensive arbitration provision were injured by it or suffered any damages at all.
Finally, the trial court’s holding that it could award $200 to each member of the class as a matter of the trial court’s discretion is "based on a fiction."