Second Circuit Explains Home State Exception in CAFA

The Second Circuit recently weighed in on CAFA, and its  home state exception. See Gold v. N.Y. Life Ins. Co., No. 12-2344-cv (2d Cir., 9/18/13).

Not our usual mass tort context, and more up the alley of our colleague Bill Martucci, but plaintiff filed a complaint alleging wage and hour violations against his former employer, New York Life, individually and on behalf of a putative class of agents. The case was litigated for a number of years, and in 2012, New York Life moved to dismiss the complaint based on CAFA’s home state exception. Concluding that the exception applied, the district court dismissed the complaint. Gold appealed, contending that New York Life had waived the home state exception by failing to raise it within a reasonable time. The Second Circuit held that CAFA’s home state exception is not jurisdictional and must be –and in this case was– raised within a reasonable time.

CAFA confers original federal jurisdiction over class actions involving (1) an aggregate amount in controversy of at least $5,000,000; and (2) minimal diversity, i.e., where at least one plaintiff and one defendant are citizens of different states. 28 U.S.C. § 1332(d)(2). CAFA includes several exceptions, including the home state exception which provides that: “[a] district court shall decline to exercise jurisdiction . . . over a class action in which . . . two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed.” 28 U.S.C. § 1332(d)(4)(B).

While plaintiff argued this exception was jurisdictional, the court found that the “‘decline to exercise’” language “‘inherently recognizes [that] the district court has subject matter jurisdiction’” but must actively decline to exercise it if the exception’s requirements are met. Reviewing this issue de novo, the Second Circuit agreed with the district court’s conclusion, and aligned itself with the Seventh and Eighth Circuits, in concluding that Congress’s use of the term “decline to exercise” means that the exception is not jurisdictional.

But, said the court, motions to dismiss under CAFA’s home state exception must also be made within a reasonable time.  Here, nearly three years after the complaint was filed, New York Life moved to dismiss based on the home state exception. Under most circumstances, the court said it would have some doubts that a delay of this length would be deemed reasonable. But, the application of the exception was, to a certain extent, complicated by the discovery schedule imposed by the district court here. Gold had apparently requested that individual discovery proceed first, followed by class discovery. The trial court agreed, and as a result, class discovery did not start until 2011. New York Life claimed that it learned only through class discovery that more than two-thirds of the class–New York Life agents employed in New York–were New York citizens, and then moved to dismiss based on the home state exception.

The district court held that because of the agreed upon bifurcated discovery plan, New York Life had not had the opportunity to discover the citizenship of class members until it undertook class discovery in 2011 and that, under these circumstances, New York Life’s delay was excused.  While noting that nearly three years may not always be a reasonable time for an employer to determine where its own sales force lives, the district court was in a better position than the court of appeals was to evaluate when New York Life’s motion could have been made, based on its greater familiarity with the course of the litigation, especially scheduling and discovery matters.  Thus, the court of appeals was not prepared to say that the district court abused its discretion. It did note that there are numerous instances where the home state exception was raised much more promptly than it was in this case, and without full blown class discovery.

Asbestos Conspiracy Verdict Overturned

An Illinois appellate court recently affirmed the trial court's decision overturning a significant jury verdict against various defendants accused of conspiring to conceal the dangers of asbestos. See Gillenwater v. Honeywell International Inc., et al., No. 4-12-0929 (Ill. App. Fourth District, 2013).

Plaintiff allegedly contracted mesothelioma as a result of exposure to asbestos in his job as a pipe-fitter. Gillenwater never worked for any of the companies in the appeal, but alleged they had engaged in a civil conspiracy with one another and the distributor to conceal the hazards of asbestos-containing products.  Readers understand that plaintiffs will often allege a conspiracy to draw in deep pocket defendants and to attempt to utilize one defendant's documents against another defendant.  The case went to trial and the jury returned a verdict for significant compensatory and punitive damages against the three defendants.

The court of appeals found that while there was some evidence that these defendants had some knowledge of the risks of asbestos, there was not sufficient evidence for a jury to conclude that they conspired together to conceal that knowledge.  Indeed, plaintiffs had no evidence that defendants Honeywell and Abex ever interacted with the product seller in any way. Honeywell and
Abex appeared to be nothing but bystanders, allegedly committing alleged wrongs that had nothing to do with plaintiff.  

Because a conspiracy requires a conspiratorial agreement between the active wrongdoer and the other conspirators, a logical first step when evaluating a claim of conspiracy is to clearly identify the active wrongdoer, the one whose tortious conduct was the proximate cause of harm to the plaintiff, as distinct from those who harmed the plaintiff more indirectly, merely by allegedly encouraging the active wrongdoer. The court noted that the gist of a conspiracy claim is not the agreement itself, but the tortious acts performed in furtherance of the agreement.  It is important to identify the active wrongdoer, because a conspiracy exists only if the others intentionally assisted or encouraged the tortious conduct of the active wrongdoer.  Here the alleged active wrongdoer was Owens-Corning. 

Plaintiff did present some evidence of interaction between defendant Owens Illinois and Owens-Corning because it manufactured the insulation that was ultimately distributed by Owens-Corning. The court reviewed the other alleged interactions on studies and warnings, shared directors, stock ownership, contracts, etc., in detail. But also noted that those companies terminated their relationship more than a decade before Gillenwater was first exposed to the products. The court cited numerous federal cases for the proposition that once a conspiracy has been terminated, that conspiracy claim cannot be extended by suggesting a second, subsidiary conspiracy to keep the original one under wraps. 

While a conspiracy can be shown by circumstantial evidence, and mere parallel conduct might serve as circumstantial evidence of an agreement under the civil conspiracy theory, it cannot, in itself, be considered clear and convincing evidence of such an agreement among manufacturers of the same or similar products.  Here, the defendants appeared to be engaging in parallel conduct by which they allegedly concealed the dangers of their own asbestos-containing products in order allegedly to maximize their own profits. 

This is not to say it is impossible for companies to have a conspiratorial agreement to continue doing that which is in their economic interest. But here a conspiratorial agreement was unnecessary to explain parallel conduct in continuing to do that which is in their economic interest. They each could be expected to pursue their economic interest on their own individual initiative. For that reason, in the absence of more evidence, it would be pure speculation to posit a conspiracy on the basis of consciously parallel conduct that is in each company’s economic interest; and tort liability cannot rest on speculation, said the court of appeals.

 

Voluntary Dismissal Not A Route To Appellate Review of Class Issue

Getting an appeals court to focus on class decisions- certification, refusal to certify, and decertification - can be crucial to litigants on both sides of proposed class actions. The Third Circuit recently addressed one tactic in this field, finding that putative class members cannot appeal a district court’s class decertification order after having voluntarily dropped their individual claims in the same court.  The court thus dismissed two appeals brought by employees making wage and hour claims against the University of Pittsburgh Medical Center and West Penn Allegheny Health System. See Karen Camesi et al. v. University of Pittsburgh Medical Center et al., No. 12-1446, and Andrew Kuznyetsov et al. v. West Penn Allegheny Health System Inc. et al., No. 12-1903 (3rd Cir. Sept. 4, 2013).

The complaints similarly alleged that proposed class members were not compensated for work performed during meal breaks in violation of the FLSA.  The district court eventually decertifed the collective action. The named plaintiffs did not ask the District Court to certify its interlocutory order for appeal, but, instead, moved under Federal Rule of Civil Procedure 41(a) for “voluntary dismissal of their claims with prejudice in order to secure a final judgment for purposes of appeal.” The district court granted the unopposed motion on January 30, 2012, stating that “Plaintiffs’ remaining claim are hereby dismissed with prejudice in order to allow Plaintiffs to seek appellate review.”

The court of appeals began by considering whether appellants’ voluntary dismissal of their claims with prejudice under Rule 41(a) left them with a final order appealable under 28 U.S.C. § 1291. This question of first impression required the panel to consider the scope of two strands of Third Circuit authority: Sullivan v. Pacific Indemnity Co., 566 F.2d 444 (3d Cir. 1977), in which the court held that a plaintiff may not obtain appellate review after incurring a dismissal for failure to prosecute for the purpose of seeking to appeal an interlocutory class-certification order, and Fassett v. Delta Kappa Epsilon, 807 F.2d 1150 (3d Cir. 1986), in which the court ostensibly permitted plaintiffs to voluntarily dismiss a portion of their case in order to appeal an order of the district court terminating the remainder of their case. In considering the significance of these cases, the court seemed impacted most by the fact that appellants here sought review of only the orders decertifying their collective actions, and did not complain of the “final” orders that dismissed their cases.

Generally, a dismissal with prejudice constitutes an appealable final order under § 1291. See, e.g., In re Merck & Co. Sec., Derivative & ERISA Litig., 493 F.3d 393, 399 (3d Cir. 2007). Furthermore, “[u]nder the ‘merger rule,’ prior interlocutory orders [such as class-certification decisions] merge with the final judgment in a case, and the interlocutory orders (to the extent that they affect the final judgment) may be reviewed on appeal from the final order.” In re Westinghouse Sec. Litig., 90 F.3d 696, 706 (3d Cir. 1996).

But here defendants argued that appellants’ voluntary dismissals of their claims constituted impermissible attempts to manufacture finality, and the Third Circuit agreed.  In Sullivan, the court had noted that a class certification decision, per se, is not an appealable final order under 28 U.S.C. § 1291, but rather is an interlocutory order. Dismissal for failure to prosecute, as an attempt to avoid the court's firm position against interlocutory appeals of class certification determinations, was an impermissible strategy there, because if a litigant could refuse to proceed whenever a trial judge ruled against him, simply wait for the court to enter a dismissal for failure to prosecute, and then obtain review of the judge’s interlocutory decision, the policy against piecemeal litigation and review would be severely weakened. Allowing such a practice would risk inundating appellate dockets with requests for review of interlocutory orders and undermine the ability of trial judges to achieve the orderly and expeditious disposition of cases.

Appellants here had attempted to short-circuit the procedure for appealing an interlocutory district court order that is separate from, and unrelated to, the merits of their case. Appellants could have obtained appellate review of the decertification order by proceeding to final judgment on the merits of their individual claims. Or, appellants could have asked the District Courts to certify their interlocutory orders for appeal. But appellants instead sought to convert an interlocutory order into a final appealable order by obtaining dismissal under Rule 41. If the courts were to allow such a "procedural sleight-of-hand" to bring about finality here, said the court of appeals, there was nothing to prevent litigants from employing such a tactic to obtain review of discovery orders, evidentiary rulings, or any of the myriad decisions a district court makes before it reaches the merits of an action. This would greatly undermine the policy against piecemeal litigation embodied by § 1291, concluded the panel.

Both appeals dismissed for failure of jurisdiction.

Recognition for Class Action Team

As Fall approaches, many of our readers look each week to the college football polls to see if their alma mater or favorite team is ranked. 

Perhaps not with the same frequency, but with similar enthusiasm, we are happy to report that Shook Hardy was recently listed as a  "standout" in Class Action Litigation according to the BTI Litigation Outlook 2014 report by BTI Consulting Group Inc. (Wellesley, Mass.).

In essence, we are ranked in the Top Twenty in one of our favorite areas, class actions, based on interviews with 300 corporate counsel.

Nice to be recognized with some other very fine firms on the list.  But no bowl game looming.

Homeowner Class Decertified Under Statute of Repose

A federal court last week decertified a class of North Carolina homeowners who alleged breach of warranty against the manufacturer of window trim in a short, interesting decision.  See Hart v. Louisiana-Pacific Corp., No. 2:08-cv-00047 (E.D.N.C., 8/30/13).

Trimboard was a product allegedly sold for use on the exterior of homes. Plaintiffs alleged it was defective in design and manufacture because it allegedly would absorb water, warp, and bulge. The court had certified a homeowner class in July, 2011.

Then in July, 2013, the North Carolina Court of Appeals issued an opinion in Christie v. Hartley Const., Inc., 745 S.E.2d 60 (N.C. App. 2013), clarifying the state's statute of repose.  Per the appeals court, the statute bars claims for damages not filed within the repose period, even in the context of an alleged an express warranty that includes a longer term than the repose peiriod.

Defendants moved for decertification, contending that the recent decision of the Court of Appeals meant that the named plaintiffs' claims were barred by the applicable statute of repose under North Carolina law. "Summary judgment is proper if the pleadings or proof show without contradiction that the statute of repose has expired." Bryant v. Don Galloway Homes, Inc., 147 N.C. App. 655, 657 (2001).

It was undisputed that this suit was filed beyond the six-year statute of repose applicable to the claims of the named plaintiffs. Since any action for damages brought outside of the statute of repose is barred, summary judgment was therefore appropriate as to the claims of the named plaintiffs.

That of course raised issues of adequacy of representation, and more importantly, predominance. The task of  determining which absent plaintiffs would be permitted to bring an action for damages would
necessarily require an individualized determination of factors such as "the later of the specific last act or omission of the defendant giving rise to the cause of action or substantial completion of the improvement." N.C. Gen. Stat. § 1-50(a)(5), under the statute. The necessity for such a determination did in fact destroy "typicality, ... predominance, [and] otherwise foreclose class certification." Gunnells v. Healthplan Services, Inc., 348 F.3d 417,427-28 (4th Cir. 2003).

Accordingly, pursuant to Rule 23(c)(1)(3) of the Federal Rules of Civil Procedure and in light of the Court's broad discretion to certify or decertify a class action, Ward v. Dixie Nat. Life Inc. Co., 595 F.3d 164, 179 (4th Cir. 2010), the class certified by the court's July, 2011 order was decertified. 

 

Lone Pine Issue Appealed to State Supreme Court

Defendants in a fracking toxic tort case last week petitioned the Colorado Supreme Court to overrule an appeals court decision which had struck down a Lone Pine order issued by the trial court in the case. See Antero Resources Corp. et al. v. William G. Strudley et al., No. 2013SC576 (Colo. S. Ct.).

Readers may recall that we posted on this case before, describing the significant discovery and cost burdens presented by a case of this nature; the trial court had endeavored to invoke a more efficient procedure than we see in the standard case management order. The court required plaintiffs, before opening full two-way discovery, to make a prima facie showing of exposure and causation, a form of a Lone Pine order. See Lore v. Lone Pine Corp., No. L-33606-85, 1986 WL 635707 (N.J. Sup. Ct. Nov. 18, 1986). The court further determined that the prima facie showing requirement should not prejudice plaintiffs because ultimately they would need to come forward with this data and expert opinion on exposure and causation in order to establish their claims anyway.

Last month, the appeals court struck down the order finding there was no showing of "extraordinary circumstances" to require departure from the civil rules of procedure. Defendants sought an extension of time for filing a petition for writ of certiorari, which the Colorado Supreme Court granted.

Defendants recently filed a petition for writ of certiorari noting that the appeals court’s decision contradicts the many state cases endorsing active case management by trial courts. Those trial courts are vested with wide discretion to adopt non-standard case management procedures and to customize discovery based on the unique circumstances and needs of each case, particularly cases involving complex scientific or technical issues. 

The "good cause” to modify the standard case management order is fact-specific and thus a trial court finding it is entitled to deference on appeal. It unduly handcuffs and hamstrings the trial courts to suggest that it is beyond a trial court’s discretion to enter a modified case management order requiring toxic tort plaintiffs to come forward with basic evidence of exposure, injury and/or causation in an appropriate case.

This is definitely one to watch.

New Article on Lawyer Behavior in Mass Torts

For our readers interested in ethical issues in mass torts, a note that Professor Richard Zitrin from UC Hastings has written an article, "Regulating the Behavior of Lawyers in Mass Individual Representations: A Call for Reform,"  3 St. Mary’s J. on Legal Malpractice & Ethics 86 (2013).

Here's the abstract from SSRN:

Cases in which lawyers represent large numbers of individual plaintiffs are increasingly common. While these cases have some of the indicia of class actions, they are not class actions, usually because there are no common damages, but rather individual representations on a mass scale. Current ethics rules do not provide adequate guidance for even the most ethical lawyers. The absence of sufficiently flexible, practical ethical rules has become an open invitation for less-ethical attorneys to abuse, often severely, the mass-representation framework by abrogating individual clients’ rights. These problems can be abated if the ethics rules offered better practical solutions to the mass-representation problem. It is necessary to reform the current rules, but only with a solution that is both practical and attainable, and with changes that maintain the core ethical and fiduciary duties owed by lawyers to their individual clients, including loyalty, candor, and independent professional advice.