Nothing emphasizes the impermanence of just about everything as Hawaii – where Bexis is right now on vacation.  On Kauai, Bexis had a boat drop scheduled to Kalalalu Beach, for three days on the Kalalau Trail, all permits obtained.  But several months ago, the heavens opened, and the Na Pali Coast received over an inch of rain an hour for more than a day.  A large number of avalanches, floods, and sinkholes ensued.  The road washed out in numerous places, as (more importantly) did people’s homes – so the best trail in Kauai is closed indefinitely.

That’s not even the worst of it. At least there are plans (on Hawaiian time) to reopen both the road and the trail.  But our favorite resort on the Big Island has been closed for several years.  The Kona Village Resort was damaged by the same 2011 tsunami caused all that horrible destruction in Japan.  For almost a decade, it has been abandoned on the shore at Kaupulehu tied up in layers of debt and litigation.  Although now there’s a rumor that it might reopen in 2019 – we’ve seen those before, so we’ll believe it when we see it.

But even that’s not the worst of it.  Our last trip to the Big Island, we swam in some lovely naturally heated tide pools.  We won’t be able to do that again.  They’re now covered by hundreds of feet of lava from the “Fissure 8” eruption that started on May 2, 2018.  In a geologically active area such as Hawaii, even the land itself is impermanent.

Impermanence is also a legal phenomenon.   Long-time readers of the blog may recall a series of posts from the Mark Herrmann era describing how the two of us fought an ultimately losing battle during the American Law Institute’s Aggregate Litigation Principles Project to keep the ALI from endorsing the practice of “cy pres.”  Not-so-long-time readers might be wondering, “what the heck is that?”  Here’s our description of cy pres from an earlier post:

For those of you new to all this, “cy pres” is the name given to schemes – virtually exclusively in class actions – whereby courts take money supposedly belonging to class members that class counsel can’t or won’t (due to expense) identify and give it to non-class members (mostly charities) who were not damaged in any way by the claimed conduct of the defendants. We know of no legal power invested in the judiciary to take money away from supposedly injured litigants and give it to persons who are essentially bystanders.  There are methods of doing this.  When done privately, it’s called “theft.”  Publicly, it would involve the powers to tax, appropriate, and levy fines, which belong to branches of government other than the judiciary.  We further believe that use of cy pres to facilitate class actions violates the Rules Enabling Act, since procedural rules (such as Rule 23) can’t change the substantive law.  There’s not much more “substantive” than taking money supposedly belonging to injured litigants and giving it to non-parties.

The result was Principles of Aggregate Litigation §3.07 (ALI 2010), entitled “Cy Pres Settlements,” which seemed to enshrine into black-letter law the doctrine that it’s OK to give away purported class members’ money to whatever charity the judge and the lawyers decide to favor.

We kept up a rear-guard battle against cy pres, however, helping draft a proposal for Lawyers for Civil Justice to amend Fed. R. Civ. P. 23 to abolish cy pres. That was a long shot, since the very judges whose power cy pres augmented would have to approve such a change.  Also, were heartened by Chief Justice Roberts’ concurring opinion in Marek v. Lane, 134 S.Ct. 8 (2013), suggesting that the Supreme Court might also have concerns about this peculiar institution.

Then, last May, the Supreme Court granted certiorari in a case we had previously described as a “poster child” for cy pres abuse.  In re Google Referrer Header Privacy Litigation, 869 F.3d 737 (9th Cir. 2017).  This appeal, now called Frank v. Gaos, No. 17-961, 138 S. Ct. 169 (April 30, 2018), features just about everything we don’t like about cy pres:

  • Excessive counsel fees – class counsel stands to walk away with fully 38% of the settlement as fees.  869 F.3d at 747.
  • Lack of classwide recovery – the court declared the entire settlement “non-distributable” because, even without opposition, neither the class members nor their damages could be determined.  Id. at 742.
  • Excessive cy pres – nothing is more excessive than 100% − six uninjured charities took 100% of what class counsel left behind, and the 129 million supposedly injured class members took nothing.  Id. at 743.
  • Rampant conflict of interest − Three of the charities were law schools – and they all had ties to counsel in the case.
  • Litigation industry self-perpetuation – cy pres recipients were expected solicit more lawsuits by “educat[ing]” the public and “publiciz[ing]” privacy issues.  Id. at 746-47.

By now, with briefing completed, we thought we’d take a look at the arguments that are being made to the Supreme Court in opposition to the use of cy pres class action settlements.

First and foremost is the petitioner’s brief, filed by friend-of-the-blog Ted Frank.  As we expected, he pulls no punches about the impropriety of a procedure that we’ve said amounts to judicially sanctioned theft.  The brief starts off by describing cy pres as “one of the most notorious devices used to create the illusion of compensation.”  Id. at 2.  “All the money went to class counsel and to favored nonprofit organizations affiliated with class counsel and the defendant.”  Id.  Petitioner seeks (pp. 15-16) five cy pres-related holdings from the Court:

  1. A settlement that compromises a class’s claims, but seeks to pay class counsel an amount disproportionate with the actual and direct benefit to the class, is not fair or reasonable under Rule 23(e).

Here, the fundamental fact of Due Process is, that “settlement-fund proceeds, having been generated by the value of the class members’ claims, belong solely to the class members.”  Neither courts nor counsel can “divert that property to third parties.”  Id. at 17.

All that courts need to accomplish this result is to apply a simple principle to the Rule 23 fairness hearing: regardless of whether a settlement is “adequate,” it is not fair or reasonable if the settlement pays attorneys’ fees that are disproportionate to the actual and direct benefit realized by the class compromising its claims.

Id. at 21.  Cy pres provisions are a means to “structure the deal to obfuscate the true [a]llocation . . . by larding the [settlement] analysis with hypothetical class recoveries and amorphous ‘benefits’ that ultimately have little value to the class.”  Id. at 23.

First, basing a fee award solely on the “size of the cy pres fund” allows “class attorneys . . . to reap exorbitant fees regardless of whether the absent class members are adequately compensated.”  Id. at 28.  Second, cy pres is “an enticing settlement feature for lawyers interested in promoting their own personal political or charitable preferences.”  Id. at 29.  The brief contains several examples of such conduct.  Id. at 29-30.  Second, with “no resistance from class attorneys,” defendants can even use cy to “benefit themselves” by directing funds to their preferred charities.  Id. at 30.  Again, several concrete examples are discussed.  Id. at 30-33.  Third, cy pres awards to non-parties “fail to redress class members’ alleged injuries for which they are waiving their rights.”  Id. at 33.  Here, another of our primary gripes comes into play.  “Rule 23 cannot operate to ‘abridge, enlarge or modify any substantive right,’” id., but altering who owns what is as “substantive” an application as we can think of.  More examples.  Id. at 33-35.  Fourth, cy pres “permit[s] otherwise unthinkable class certifications” and “induce[s] plaintiffs to pursue doubtful class claims” because they can settle without proving causation or damages. Id. at 35.

[C]y pres incentivizes both the bringing of otherwise unprofitable “strike suits” that would be infeasible to litigate due to unmanageability or questionable merit and their settlement on terms mutually agreeable to class counsel and the defendant.

Id.  A “class action that yields fees for class counsel and nothing for the class − is no better than a racket.” Id. at 36 (quoting In re Walgreen Co. Stockholder Litigation, 832 F.3d 718, 724 (7th Cir. 2016)).  Fifth, cy pres results in subsidizing the “political . . . preferences of class counsel or the defendant without regard to the views of “a substantial proportion, or even a majority, of class members.

Requiring class members to surrender their rights to subsidize speech by a third party that he or she does not wish to support raises serious First Amendment concerns.

Id. at 36.  If a union can’t even collect dues from its own members because of their First Amendment rights, see Janus v. AFSME, Council 31, 138 S. Ct. 2448, 2478 (2018) (“draw[ing] the line at . . .requir[ing] all employees to support the union irrespective of whether they share its views”), how can a court impose a charitable donation on unknown class members?  Sixth, cy pres “often create the appearance or reality of judicial conflicts of interest.”  Id. at 37.  “[A]n open-ended cy pres doctrine is fundamentally incompatible with the judicial role” of “providing relief to claimants . . . who have suffered, or will imminently suffer, actual harm.”  Id. at 38.

Petitioner also argues that all-cy-pres settlements simply cannot be approved under Rule 23:

Any settlement, like this one, that provides no direct benefit to the class, cannot be approved.  “Because the settlement yields fees for class counsel and zero benefits for the class, the class should not have been certified and the settlement should not have been approved.”

Id. at 39 (quoting In re Subway Footlong Sandwich Marketing Litigation, 869 F.3d 551, 557 (7th Cir. 2017)).  We would go further, since we don’t think any cy pres settlements should be approved.  Indeed, the existence of a cy pres component is an admission that, even with no legal opposition, plaintiffs are unable to prove causation or damages.  Such suits should not be brought.  We have criminal prosecutors and other governmental entities to handle such cases.  “[N]early every consumer class-action settlement leaves over 90%, and often over 99%, of the class uncompensated.”  Id. at 45.  We don’t need civil lawyers who are perversely incentivized through cy pres to do as little work as they can possibly get away with.

  1. Cy pres awards are inappropriate in class-action settlements where it is feasible to distribute settlement proceeds to class members.  Whether it is feasible to distribute settlement proceeds is determined by whether such relief can be distributed to some identifiable class members . . .  and not whether the proceeds could be distributed to every potential class member.

Plaintiffs, who have resolutely opposed any ascertainability prerequisite to class certification, do a backflip when it comes to cy pres and settlement.  “Under the standard set by the Ninth Circuit, it is not considered ‘feasible’ to provide any compensation to class members when it would be infeasible to compensate all of them.”  Petitioner’s br. at 49 (emphasis original).  This is using ascertainability to prevent compensation of class members.  “[I]t is nearly always feasible to distribute settlement funds to some class members.”  Id. at 50 (emphasis original).  “[C]y pres distribution when distribution to some of the class is possible is ‘contrary to the interests’ of the class.”  Id. at 51 (quoting In re BankAmerica Corp. Securities Litigation, 775 F.3d 1060, 1068 (8th Cir. 2015)).  Using cy pres to take money from any class members when some are identifiable thus violates class counsel’s “fiduciary duty to class members.”  Id. at 50-51.

  1. If a class-action settlement cannot provide direct relief to the class, the settlement class cannot be certified.

Again, we agree, even though we might go further.  If “it is somehow impossible to make any distribution to the class, that simply suggests that it was error to certify this settlement class.”  Petitioner’s br. at 52.

In short, the class action is not “superior to other available methods for fairly and efficiently adjudicating the controversy” because every single class member is worse off than if they opted out and reserved their claims to litigate individually.

Id. at 53.  That’s what a zero-dollar settlement like this one means.  Class members are giving up something and not getting anything.

  1. If cy pres is to be permitted at all, there should be strict restrictions against the payment of money to recipients with any significant current or prior relationship with the parties, attorneys, or judge.

In particular, this argument rejects “distribution of cy pres funds to class counsel’s alma mater instead of the class.”  Petitioner’s br. at 54.  This is just another questionable practice enabled by the creation of a “remedy” that is outside of both the law and the rules, and thus essentially ungoverned.

The better rule is to require settling parties to have the burden to demonstrate that neither the court nor any “party has any significant prior affiliation with the intended recipient that would raise substantial questions about whether the selection of the recipient was made on the merits.”

Id. at 55-56 (quoting – ironically – Principles of Aggregate Litigation §3.07, comment b).  Once again, bright line, prophylactic rules are best.  The potential for conflict of interest is simply too great to allow any cy pres award to an entity with ties to the litigants or to the court.

  1. At a minimum, courts should substantially discount cy pres distributions relative to direct payments to class members for purposes of calculating attorneys’ fees based on a percentage of the recovery.

In one paragraph, petitioner’s final argument is that the “indirect and attenuated” – if any – value of a cy pres settlement to any class member requires that such payments “should at least be heavily discounted in the fee calculation to better align incentives.”  Petitioner’s br. at 56-57.

If even a quarter of these arguments succeed, then cy pres distributions of class action settlements will – quite rightly in our view – be cast into the proverbial dustbin of history.  Perhaps Congress, or a state legislature for a state class action, could create such a remedy, but they haven’t.  Our bottom line is that no authority currently exists to allow courts, with or without the connivance of counsel, to take money belonging to certain persons (here, absent class members) and give that money to other persons (here, lawyer-selected charities) without the express approval of the original owners.

As one might expect, the Frank case also produced a bunch of interesting amicus briefs.  Since we spent much longer than we had expected on Ted’s brief, our rundown of the objector-side amici will be significantly briefer – but we’re providing links so anyone interested can read them in their entirety.

Of greatest interest, of course, is the position taken by the government itself – as to which we find a lot to like:

United States of America

The cy pres question need not be reached because Spokeo casts substantial doubt on whether the class representatives suffered sufficiently significant injury to confer Article III standing.  Brief at 11-15.

Cy pres as used in the trust area is irreconcilable with its use in class-action settlements.  Id. at 16-17.

Cy pres raises serious concerns where class members receive no compensation.  Id. at 18.

Cy pres raises serious concerns about collusion against the interests of absent class members.  Id. at 19-20.

Cy pres raises serious concerns about conflicts of interest by counsel and even courts.  Id. at 20.

Cy pres raises serious concerns about the creation of new, extra-statutory remedies.  Id. at 20-21.

Cy pres is improper unless it redresses the specific injuries of the plaintiff class.  Id. at 22-26.

Cy pres is improper when there is any non-arbitrary way of distribution to class members.  Id. at 26-28.

Cy pres distributions should be discounted, ideally entirely, in calculating attorneys’ fees.  Id. at 28-32.

In a nutshell, here are the highlights of other important amicus curiae briefs in Frank v. Gaos:

State Attorneys General – eighteen of them

Cy pres in consumer class actions diverts money away from injured consumers, aggravating the original problems, and should not be recognized.  Brief at 4-8.

Cy pres settlements circumvent statutory and judicial class action standards in violation of the Rules Enabling Act.  Id. at 8-11.

Once again, the Ninth Circuit is out of line.  Id. at 11-13.

Cy pres-only settlements should be per se invalid.  Id. at 13-16.

Cy pres awards should be disregarded in the calculation of attorneys’ fees.  Id. at 16-20.

Chamber of Commerce of the USA

If class actions were better policed at the front end, by denying class certification to no-injury class actions in the first place, the problems with cy pres settlements would never have arisen.  Brief at 5-11.

Cy pres settlements would not be needed if courts properly enforced Rule 23’s commonality and predominance requirements.  Id. at 11-13.

Injury should not be presumed for purposes of class certification.  Id. at 14-15.

Cy pres settlements are symptomatic of meritless, but expensive, class action litigation.  Id. at 16-18.

Conflicts between class counsel and absent class members are inherent in cy pres settlements.  Id. at 18-22.

If allowed at all, cy pres settlements should be strictly regulated.  Id. at 22-26.

Lawyers for Civil Justice

Cy pres awards are inherently inconsistent with Rule 23’s requirement that settlements be “fair, reasonable, and adequate.”  Brief at 9-10.

Cy pres, as it previously existed in non-adversarial trust law, has nothing to do with adversary class actions.  Id. at 11-14.

Cy pres is an improper exercise of judicial power under Article III of the constitution.  Id. at 14-18;

Cy pres violates the Rules Enabling Act by permitting fines against defendants not recognized by substantive law.  Id. at 18-20.

If otherwise permitted, cy would violate the Due Process rights of absent class members.  Id. at 20-21.

Compelling diverse class members to finance speech by either plaintiff-side or defendant-side advocacy groups violates the First Amendment.  Id. at 21-22.

The existence of a cy pres award indicates that the action itself cannot support class certification.  Id. at 23-24.

Cato Institute & Americans for Prosperity

Cy pres violates the Due Process and First Amendment rights of absent class members whose property is being taken and given to charities for the purpose of plaintiff-side advocacy.  Brief at 4-7.

Constitutional rights could be better protected by requiring opt-in class actions.  Id. at 8-10.

Cy pres inevitably leads to self-dealing and violation of professional ethics by class counsel.  Id. at 12-15.

Class counsel use cy pres to increase personal gain at the expense of absent class members.  Id. at 16-18.

Defendants utilize cy pres to lower settlement costs.  Id. at 18-19.

Cy pres erodes judicial neutrality through conflicts of interest in selecting recipients.  Id. at 19-20.

Zero dollar class actions cannot be “superior” to anything.  Id. at 21-22.

There are always better alternatives to cy pres awards.  Id. at 22-24.

Cy pres is a disguise for parties and courts to lobby for special benefits.  Id. at 24-25.

Once again, the Ninth Circuit is out of line.  Id. at 25-29.

Compelling diverse class members to finance speech by either plaintiff-side or defendant-side advocacy groups violates the First Amendment.  Id. at 29-34.

Manhattan Institute for Policy Research

Unlike cy pres in the trust area, which is legislatively recognized, cy pres in the class action context is not based on any recognized grant of power.  Brief at 7-13.

Cy pres violates the Rules Enabling Act by modifying substantive legal remedies.  Id. at 14-15.

Payments to charities are not a remedy recognized by substantive law.  Id. at 16-21.

Cy pres is only allowable where recognized by substantive law.  Id. at 21-23.

Center for Constitutional Jurisprudence & Atlantic Legal Foundation

A class action that cannot deliver any relief to class members does not present an Article III “case or controversy.”  Brief at 4-6.

Compelling diverse class members to finance speech by either plaintiff-side or defendant-side advocacy groups violates the First Amendment.  Id. at 6-8.

Center for Individual Rights

Compelling diverse class members to finance speech by either plaintiff-side or defendant-side advocacy groups violates the First Amendment.  Brief at 3-6.

Opt-out class actions violate the First Amendment.  Id. at 6-10.

New Jersey Civil Justice Institute

Cy pres converts Rule 23 class actions into a substantive remedial scheme.  Brief at 2-8.

An all-cy pres settlement cannot be “superior” under Rule 23 standards.  Id. at 9-16.

There are a couple of other briefs filed by persons with more narrow interests related to copyrights or internet privacy that we don’t think would be of sufficient interest to our members to bother with.

Finally, in accordance with the parties’ agreed-upon schedule, that appears to have been adopted by the Court, the pro-cy pres forces won’t start filing their briefs until the end of August.  With that schedule, it is quite possible that oral argument will occur before the end of the year.

This post comes solely from the Cozen O’Connor side of the blog.

 

The MDL court in the Testosterone Replacement Therapy (“TRT”) litigation involves more than just individual product liability cases. It includes a class action. In particular, a single named plaintiff, Medical Mutual of Ohio (“MMO”), seeks to represent a class of third-party payers (“TPPs”)—entities such as health benefit plans and HMOs—who will claim to have suffered economic damages when they reimbursed payments for medically inappropriate TRT prescriptions. The prescriptions were medically inappropriate, MMO argues, because they were the result of the class’s reliance on misrepresentations about the safety and efficacy of off-label uses for TRT. MMO wants the putative class to get its money back. And more. It wants treble damages and legal fees under RICO (it also asserts state-law negligent misrepresentation claims).

Now, in a class action, sameness is important. As viewed by plaintiffs’ attorneys, sameness is everything. The more sameness, the better. Differences, on the other hand, are deadly. They kill class actions. Accordingly, when a plaintiff files a motion to certify a class, like MMO did here, the briefing relentlessly focuses on sameness. And the defendants, you can be assured, focus on the differences. And then the court decides.

And in this instance, the Court saw a whole lot of differences. Med. Mut. of Ohio v. Abbvie Inc., 2018 WL 3586182 (N.D. Ill. July 26, 2018).

We’ll start with experts. MMO put up an expert to say that TPPs act the same way with regard to drugs listed on their formularies, in particular that TTPs usually make formulary changes “only once they receive notice” from FDA about safety or efficacy concerns. Id. at 11. If this sounds over-simplified and likely not true, it’s because it is. But MMO had an expert give this opinion because, if it were accepted, MMO could then argue that defendant misled the class by hiding data and risks before the FDA issued any notice. The problem for MMO, however, is that plaintiff’s expert didn’t have the data to support this opinion. He just said it:

But an opinion must be connected to the existing data by more than the ipse dixit of the expert. An expert’s opinions may be inadmissible because there is simply too great an analytical gap between the data and the opinion offered. That is the case here.

Id.

The court also rejected this expert’s opinion that the defendants interacted with all TTPs in the same way using “the same common promotional strategies.” Id. at *12. Among other deficiencies, the record showed that the expert reached his opinion before beginning his work. He relied on materials selected and gathered by the plaintiff’s attorneys and allegations in MMO’s complaint, not his own investigation. Id.

Plaintiff also put up a causation and damages expert—the well-traveled Dr. Meredith Rosenthal—who performed a regression analysis to show that the defendants’ alleged misrepresentations damaged all TPPs in the same way. The flaw in the analysis, however, was that it purported to measure the effect of the alleged misrepresentations on doctors and patients. In other words, it focused on direct-to-consumer and physician promotion, not promotion to and contact with the TPPs, the would-be class members asking for their money back. Id. at *8-9. This didn’t work. Proximate causation requirements for RICO claims are stringent. Evidence of anything less than a direct causal connection to the plaintiff’s injury fails. The court found Dr. Rosenthal’s opinion to be irrelevant and simply ignored it. Id. at *10.

The court next set its sights on the “adequacy” requirement of a class action, in particular whether MMO itself could be an adequate class representative. Anything that could subject MMO to unique or unusual defenses—differences from other class members—could render MMO an inadequate class representative. The court found two big problems for MMO. First, MMO appeared to react belatedly and ineffectively to a notice that the FDA was investigating the safety of TRT with regard to heart attack, strokes and death. In particular, MMO did not institute a prior authorization requirement for the reimbursement of TRT prescription payments until four years after the notice, and made a number of admitted missteps along the way. Id. at *14. Second, and maybe related, its formulary management practices did not include an annual clinical evaluation of safety and efficacy of the drugs on its formulary. The court found, with the help of testimony from a defense expert, that these practices did not meet industry standards and could subject MMO to unusual defenses. Id. at *15. The Court held “that MMO is an inadequate class representative and on that basis denies MMO’s motion for class certification.” Id.

Not done there, the court also held that the plaintiff did not meet the predominance requirement of a class action, concluding instead that individual issues will predominate over common questions of law or fact. Id. In other words, there wasn’t enough sameness to dominate the individuality. For instance, MMO could not “show that each TPP actually received defendants’ alleged misrepresentations. Id. at *16. The court found that this was an individualized inquiry, varying by TPP:

Namely, defendants highlight evidence demonstrating that whether a TPP receives sales calls and clinical information from defendants depends on the number of beneficiaries the TPP insures; whether the TPP permits or prohibits meetings with drug manufacturers as a matter of policy; whether the TPP prefers to hear only business information, only clinical information, or both; and whether the TPP adopts formularies without modification from a [pharmacy benefit managers].

Id.

The court rejected MMO’s argument that it should infer that all TTPs received the misrepresentations because “defendants spent millions on promotional efforts aimed at TPPs . . . including standardized promotional materials”—a kind of fraud-in-the-air theory. Id. at *17. Finding ample reason to doubt that the promotional materials were standardized, the court reasoned that “one would need to know what particular representations a TPP received in order to assess whether that TPP was exposed to half-truths.” Id. That’s “TPP-by-TPP proof,” the very antithesis of class treatment. Id.

On reliance, the court held that individualized issues would also predominate over common issues, persuaded by defendants’ evidence that the formulary management process was complex, not standardized:

Defendants point to evidence tending to show that TPPs’ formulary and utilization management decisions are complex and individualized. Some TPPs do not meet with drug manufacturers at all and are thus unlikely to rely on information from them. Some TPPs use PBMs but customize the PBMs’ standardized formularies. Other TPPs, including MMO for much of the class period, adopt their PBMs’ formularies without modification but make their own utilization management decisions.

Id. at *18.

In short, the court found a lot of reasons to deny class certification. You can find even more in the court’s opinion, which we recommend for your reading list. It is a template for how to defend against these type of TPP class actions.

Greetings, August!  These are called the Dog Days of Summer, but a lot more gets done this month than you might think.  Sure, we usually take our vacation in August.  And yes, there are some especially silly official days in August, e.g. Wiggle Your Toes Day (6th), Sneak Some Zucchini onto Your Neighbor’s Porch Day (8th), Bad Poetry Day (18th), and Frankenstein Day (30th).  But for some reason, August has figured mightily in the history of intellectual property.  Copyrights were filed for The Wonderful Wizard of Oz on August 1, 1900, and for “Hey Jude” on August 30, 1968.  Philo Farnsworth patented the television on August 20, 1930 (and yet August is a month full of reruns). 

 

Who are we kidding?  You are probably on a beach as you read this, or at least wishing you were on a beach.  So we’ll keep today’s discussion short and light.  (Almost as short and light as the district court’s analysis that drew scorn from the Second Circuit in the case we review below.)  After you read this little post, feel free to stick it into a blender with tequila, Grand Marnier, lime juice, and ice, and press “puree.”

 

Earlier this week we mentioned Langan v. Johnson & Johnson Consumer Companies, Inc., – F.3d -, 2018 WL 3542624 (2d Cir. July 24, 2018), a case that said some very useful things about class certification when there are plaintiffs from multiple states.  It is not a drug or device case, but it makes the point that when the laws of many different states are implicated for many different plaintiffs, aggregated treatment might not be such a good idea.  The plaintiff in Langan alleged that baby products were labeled “natural” when they were not. The complaint claimed that this labeling was deceptive and violated the Connecticut Unfair Trade Practices Act (CUTPA) as well as the state consumer protection laws (charmingly referred to as “mini-FTC acts”) of twenty other states, and sought to certify a plaintiff class covering many states.  (Permit us a brief, but utterly characteristic moment of cynicism:  many states = many plaintiffs = huge attorneys’ fees.)     

 

The district court certified a class of consumers who purchased two baby bath products.  (For some reason, baby sunscreens were omitted from the class.)  The plaintiff petitioned for permission to appeal pursuant to Federal Rule of Civil Procedure 23(f), and the Second Circuit granted leave.  The appeal was directed against the district court’s conclusions that (1) the plaintiff had Article III standing to bring a class-action claim on behalf of consumers in states other than Connecticut, and (2) the state laws in the other states are sufficiently similar to support certifying the class. 

 

An appellate court will overturn class certification if the district court abused its discretion.  That is not an easy standard for an appellant to meet.  But it was met here.  The Second Circuit was not receptive to the standing argument, but did conclude that the district court did not adequately analyze whether the multiplicity of applicable laws meant that common legal issues did not predominate over individual legal issues.  The district court found predominance of common issues because the “minor differences” the defendant  identified among the various state consumer protection laws would not “overwhelm the questions common to the class” given that “[a]ll the states have a private right of action for consumer protection violations, allow class actions, and have various other important similarities.”  The district court’s discussion of this issue occupied a single paragraph.  Brevity can be the sole of wit.  But sometimes not. 

 

The Second Circuit held that the issue of the effect of the various state consumer laws on predominance rated a bit more analysis than that solitary paragraph. Under Rule 23(b)(3), the district court has a “duty,” before certifying a class, to “take a close look” at whether the common legal questions predominate over individual ones.  District courts “must do more than take the plaintiff’s word that no material differences exist.”  As you would expect, both parties had submitted “complicated and conflicting summaries of the state consumer protection laws in eighteen states” to the district court.  The district court’s resolution of this dispute wasn’t merely, er, concise (Cursory? Dismissive?).  Worse, in the view of the Second Circuit, the district court did not “sufficiently engage” with the defendant’s “arguments about reliance, instead concluding that ‘it appears’ that none of the states’ high courts have insisted on reliance.  The other identified differences – including whether intent to deceive is required, and whether causation can be presumed – were not discussed.”  The district court’s  opinion was not a “close look.”  It was more like a no look.    

 

Accordingly, the Second Circuit remanded the case to the district court “to conduct a more thorough analysis” and “to carefully analyze the relevant state laws, decide whether subclasses are appropriate, reconsider the predominance questions, and explain in greater detail its conclusion on that question.”  That is no small effort, and perhaps it will force the district court to confront the complexities of the variations among the state consumer laws, and realize that class certification would be a messy mistake. 

 

Just as we finished this post, the summer issue of the ABA section of Litigation publication, Litigation News, plopped on our desk.  There is an article in that issue that is pertinent to today’s post:  S. Carr, “Slamming the Brakes on Nationwide Class Actions,” 43 Litigation News No. 4, pp. 4-5  (Summer 2018).  More beach reading.      

 

The other day Law 360 published a piece, “Bristol-Myers Unlikely To Shake Up Class Action Landscape,” which opined that, “in the end, the effect of Bristol-Myers on the national class action landscape is likely to be minimal.”  One basis for that conclusion was “[I]t is unlikely that a majority of federal appellate courts will find that Bristol-Myers applies in class action cases.”  To support that proposition, the article states:

To date, an apparent majority of district courts, including in the Eleventh, Fifth, Ninth and District of Columbia Circuits, have held that Bristol-Myers has no application to a class action, as opposed to a mass tort action.

The article cites: Becker v. HBN Media Inc., ___ F. Supp.3d ___, 2018 WL 3007922, at *2 (S.D. Fla. June 6, 2018) (“The Court is persuaded [that] . . . Bristol-Myers does not apply to class actions”); Sanchez v. Launch Technical Workforce Solutions LLC, 297 F. Supp.3d 1360, 1369 (N.D. Ga. 2018) (“Bristol-Myers simply reaffirms controlling due-process law and does not apply to federal class actions”); Molock v. Whole Foods Market, Inc., 297 F.Supp.3d 114, 126 (D.D.C. 2018) (“the court agrees with Plaintiffs and concludes that Bristol-Myers does not apply to class actions”); In re Morning Song Bird Food Litigation, 2018 WL 1382746, at *5 (S.D. Cal. March 19, 2018) (“the Court finds Bristol-Myers inapplicable to this suit which involves a class action”); Casso’s Wellness Store & Gym LLC v. Spectrum Laboratory Products Inc., 2018 WL 1377608, at *5 (E.D. La. March 19, 2018) (“the Court does not construe Bristol-Myers as barring its exercise of jurisdiction over the purported nonresident plaintiffs’ claims in the instant putative class action”).

As contrary authority, the article cites two cases: DeBenardis v. NBTY Inc., 2018 WL 461228, at *2 (N.D. Ill. Jan. 18, 2018) (“it is more likely than not based on the Supreme Court’s comments about federalism that the courts will apply BMS to outlaw nationwide class actions . . . where there is no general jurisdiction over the Defendants”), and Wenokur v. AXA Equitable Life Insurance Co., 2017 WL 4357916, at *4 n.4 (D. Ariz. Oct. 2, 2017) (“The Court . . . lacks personal jurisdiction over the claims of putative class members with no connection to Arizona”).

We found that sort of odd, as in our last look at this issue – way back on January 26, 2018 – found the caselaw to stand at 12-2 in favor of applying Bristol-Myers Squibb Co. v. Superior Court, 137 S. Ct. 1773 (2017), to curtail multi-jurisdictional class actions where the effect of certification would be a class of non-resident plaintiffs suing a non-resident corporate defendant.  None of the cases cited in the 360 article as restricting BMS due process principles was decided at that point, whereas both of the cases extending BMS due process to all state-law litigation had been and therefore were cited in our prior post.

Could the law really have shifted so drastically over the last few months?

The answer is no.

The first thing we need to do is not compare apples and oranges.  This blog is concerned, first and foremost, with product liability litigation.  That means we’re interested mostly in litigation that has its roots in state – not federal – law and is in federal court due to diversity jurisdiction.  Thus, our most recent post was about “the issue of BMS and nationwide class actions under state law.”  Our previous post likewise examined “our prediction . . . that personal jurisdiction would become a major obstacle to nationwide class actions based on state laws.”  The emphasis added in both instances is to underscore that we’re not concerned with class action litigation brought under federal statutes.  We have a separate post examining the caveat in BMS about federal Due Process under the Fifth Amendment.  Our main takeaway from that post is that due process in diversity cases is analyzed under the Fourteenth Amendment as construed in BMS.

Of the six cases cited in the 360 article, 3½ involved federal statutory claims:  Becker, 2018 WL 3007922 (Telephone Consumer Protection Act), Sanchez, 297 F. Supp.3d 1360 (Fair Credit Reporting Act), Casso, 2018 WL 1377608 (Telephone Consumer Protection Act), and Morning Song Bird, 2018 WL 1382746 (RICO & state consumer protection statutes).  So right there, we subtract three of the six from the article’s list because they don’t involve what we care about.  We also chide the court in Morning Song Bird for failing to distinguish between the state and federal claims in its analysis.

By contrast, almost all (but two) of the cases we cited in our prior posts involve state-law causes of action:

In favor of applying BMS to state-law class actions:

DeBernardis v. NBTY, Inc., 2018 WL 461228 (N.D. Ill. Jan. 18, 2018) (consumer protection); LDGP, LLC v. Cynosure, Inc., 2018 WL 439122 (N.D. Ill. Jan. 16, 2018) (consumer protection and common law); McDonnell v. Nature’s Way Products, LLC, 2017 WL 4864910 (N.D. Ill. Oct. 26, 2017) (consumer protection); Wenokur, 2017 WL 4357916 (D. Ariz. Oct. 2, 2017) (insurance); Spratley v. FCA US LLC, 2017 WL 4023348 (N.D.N.Y. Sept. 12, 2017) (economic loss product liability); Plumbers’ Local Union No. 690 Health Plan v. Apotex Corp., 2017 WL 3129147 (E.D. Pa. July 24, 2017) (consumer fraud); Famular v. Whirlpool Corp., 2017 WL 2470844 (S.D.N.Y. June 7, 2017) (consumer protection and warranty); Demedicis v. CVS Health Corp., 2017 WL 569157 (N.D. Ill. Feb. 13, 2017) (consumer fraud); Bauer v. Nortek Global HVAC LLC, 2016 WL 5724232 (M.D. Tenn. Sept. 30, 2016) (economic loss product liability); Matus v. Premium Nutraceuticals, LLC, 2016 WL 3078745 (C.D. Cal. May 31, 2016) (consumer protection); Demaria v. Nissan N.A., Inc., 2016 WL 374145 (N.D. Ill. Feb. 1, 2016) (consumer protection).

Opposed to applying BMS to class actions:

In re Chinese-Manufactured Drywall Products Liability Litigation, 2017 WL 5971622 (E.D. La. Nov. 30, 2017) (product liability); Fitzhenry-Russell v. Dr. Pepper Snapple Group, Inc., 2017 WL 4224723 (N.D. Cal. Sept. 22, 2017) (consumer protection).

So, before we commence any new research of our own, the tally is 11 (2d, 3d 6th, 7th, & 9th Circuits) to 4 (5th, 9th & DC Circuits) in favor of applying a single due process standard to personal jurisdiction questions to all courts applying state law.

The research isn’t hard to do.  Look at all cases that cite BMS and mention “class action,” and separate the wheat (state-law claims) from the chaff (everything else).

We found six additional cases supporting application of BMS due process principles to state-laws class actions not cited in the 360 article.  In an OTC drug case, the court declared:

Nothing in Bristol-Myers suggests that it does not apply to named plaintiffs in a putative class action; rather, the Court reaffirmed a generally applicable principle − that due process requires a “connection between the forum and the specific claims at issue.”  That principle applies whether or not the plaintiff is a putative class representative.

Al Haj v. Pfizer Inc., 2018 WL 1784126, at *6 (N.D. Ill. April 13, 2018).  In Chavez v. Church & Dwight Co., 2018 WL 2238191 (N.D. Ill. May 16, 2018), a food-related, consumer fraud action, the court determined that “[n]othing in Bristol-Myers suggests that its basic holding is inapplicable to class actions; rather, the Court announced a general principle − that due process requires a ‘connection between the forum and the specific claims at issue.”  Id. at *10 (citation and quotation marks omitted).  Chavez also rejected the notion that absent class members should simply be ignored:

Further, the Court is unpersuaded by the reliance of some district courts on the fact that the citizenship of unnamed class members is disregarded for purposes of determining diversity − that is, subject matter − jurisdiction.  The question here is not whether this Court has subject matter jurisdiction, but whether, consistent with due process, this Court may exercise specific personal jurisdiction over a defendant with regard to claims that have no connection with this state beyond their similarity to claims asserted by other plaintiffs who are residents of this state.

Id. at *11. See Hickman v. TL Transportation, LLC, 2018 WL 3388307, at *7 & n.2 (E.D. Pa. July 12, 2018) (“Plaintiffs have not presented any reason for distinguishing Bristol-Myers from this [state-law] action”; distinguishing federal-law class actions); In re Samsung Galaxy Smartphone Marketing & Sales Practices Litigation, 2018 WL 1576457, at *2 (N.D. Cal. March 30, 2018) (dismissing non-resident named plaintiffs under BMS); Anderson v. Logitech, Inc., 2018 WL 1184729, at *1 (N.D. Ill. March 7, 2018) (“[A] nationwide class action is not significantly different from a mass tort suit involving a multitude of individual claims.  The putative nationwide class action claims are stricken.”); Howe v. Samsung Electronics America, Inc., 2018 WL 2212982, at *4 (N.D. Fla. Jan. 5, 2018) (“Rule 23 does not expand a court’s personal jurisdiction over a defendant.  Absent a statute providing otherwise, a defendant who is not subject to personal jurisdiction on an individual claim also is not subject to jurisdiction on a class-action claim.”).

What about additional courts refusing to apply BMS to state-law class actions?

Zero, zilch, nada.

Beyond the 3½ cases in the 360 article, we found nothing – at most, plaintiffs managed to delay consideration of personal jurisdiction until some later time, such as class certification.  E.g., Blitz v. Monsanto Co., 2018 WL 1785499, at *2 (W.D. Wis. April 13, 2018).

So the tally now stands at 17 (from the 2d, 3d 6th, 7th (lots), 9th & 11th Circuits) to the same 4 (5th, 9th & DC Circuits).

Moreover, even as to federal statutory class actions, it’s breakeven, at best for class action plaintiffs seeking to evade BMS.  Our additional results are:

Pro-BMS:  Practice Management Support Services, Inc. v. Cirque du Soleil, Inc., 301 F. Supp.3d 840, 864-66 (N.D. Ill. 2018); Garcia v. Peterson, No. CV H-17-1601, 2018 WL 3496740, at *8 (S.D. Tex. July 20, 2018); America’s Health & Resource Center, Ltd. v. Promologics, Inc., 2018 WL 3474444, at *4 (N.D. Ill. July 19, 2018); Jackson v. Bank of America, N.A., 2018 WL 2381888, at *6-7 (W.D.N.Y. May 25, 2018); Horowitz v. AT&T, Inc., 2018 WL 1942525, at *15-16 (D.N.J. April 25, 2018).  That’s five additional cases.

Anti-BMSGarcia v. Peterson, ___ F. Supp.3d ___, 2018 WL 3496740, at *8 (S.D. Tex. July 20, 2018); Tickling Keys, Inc. v. Transamerica Financial Advisors, Inc., 305 F. Supp. 3d 1342, 1350-51 (M.D. Fla. 2018); Morgan v. U.S. Xpress, Inc., 2018 WL 3580775, at *5-6 (W.D. Va. July 25, 2018); Weisheit v. Rosenberg & Assocs., LLC, 2018 WL 1942196, at *5 (D. Md. April 25, 2018).  Four more cases.

We strongly agree, however, with the second premise of the 360 article, that BMS might not have much additional overall effect because it is already “extremely difficult” for plaintiffs to pursue multi-state class actions under the predominance criteria of Rule 23.  Indeed, the recent opinion in Langan v. Johnson & Johnson Consumer Cos., ___ F.3d ___, 2018 WL 3542624 (2d Cir. July 24, 2018), underscores precisely that point:

We are not convinced that the district court here undertook the requisite considered analysis of the variations in state law and the potential need for subclasses that might result from those variations. Although both parties submitted complicated and conflicting summaries of the state consumer protection laws in eighteen states, the district court’s analysis consisted of one paragraph.  In that paragraph, it is our view that the district court did not sufficiently engage with [defendant’s] arguments about reliance, instead concluding that “it appears” that none of the states’ high courts have insisted on reliance. The other identified differences − including whether intent to deceive is required, and whether causation can be presumed − were not discussed. . . .  We believe that more precise and greater depth of analysis is required to comport with the “close look” required by the precedent.  Accordingly, we remand the case to the district court to conduct a more thorough analysis.

Id. at *8 (citations omitted).

The practical difference is, however, significant.  Dismissal for lack of personal jurisdiction is a Rule 12 motion, which may be made before a defendant has to incur the time and expense of discovery.  Application of BMS to class actions is largely a legal question, so we on the defense side have an obligation to our clients to try to get rid of as much of a case as possible as early as possible.  So even if the net result wouldn’t be much different, we’d rather not have to wait until Rule 23 comes into play.

This post comes only from the Cozen O’Connor side of the blog.

 

Plaintiffs’ lawyers wanted to file a class action premised on the recovery of costs spent monitoring and replacing allegedly defective defibrillators manufactured by St. Jude Medical LLC. And they wanted to file it in Illinois. So they recruited a putative class representative, a union health benefits trust, and they filed their complaint, ASEA/AFSCME Local Health 52 Health Benefits Trust v. St. Jude Medical LLC, in Illinois federal court. But they then ran into a problem. St. Jude is not from Illinois. It is a Delaware LLC with Minnesota headquarters. In the post-Bauman personal jurisdiction world, St. Jude is considered to be at “home” only in those two states, not Illinois. So the Illinois court did not have general jurisdiction over St. Jude. Nor did it have specific jurisdiction. The health benefits trust plaintiff, ASEA, didn’t buy the St. Jude defibrillators in Illinois, nor did its beneficiaries have them implanted there. It didn’t matter that St. Jude marketed and sold defibrillators in Illinois. That fact doesn’t create the connection needed for specific jurisdiction. 2018 WL 3022670, at *4 (N.D. Ill. June 18, 2018). So the Illinois court could not exert personal jurisdiction over St. Jude.

But the plaintiffs’ lawyers thought they had a way around that. St. Jude had been recently acquired by Abbott Laboratories. And Abbott is at “home” in Illinois. It is incorporated and headquartered there. So the plaintiffs’ lawyers asked the court to look to St. Jude’s parent, not St. Jude itself, in determining personal jurisdiction. The problem with that approach, however, was that St. Jude is a limited liability company. The very name of that type of business entity—“limited liability company”—tells you how our legal system treats it. Holders of membership interests in a limited liability company are shielded from liability for the company’s debts and judgments. The only way around that general rule is to successfully assert an “alter ego” theory, generally known as piercing the corporate veil. If ASEA could do that, the court could then ignore St. Jude’s independent existence as a company and treat Abbott as the real defendant, thus presumably creating personal jurisdiction. And, while that approach might sound promising for the plaintiffs’ lawyers, the Illinois court very quickly reminded them of how hard—how very, very hard—it is to succeed on an “alter ego” claim.

Since St. Jude Medical LLC was formed in Delaware, Delaware law applied to the “alter ego” analysis. And Delaware law does not lightly lift the corporate veil. It requires an intensive inquiry into whether the company is in fact a sham that is rife with serious financial improprieties and management manipulation intended to defraud the people with which the company does business. It is only found in rare cases:

Under Delaware law, courts disregard the corporate form only in exceptional cases. Determining whether to do so requires an intensive inquiry which takes into consideration (1) whether the company was adequately capitalized for the undertaking; (2) whether the company was solvent; (3) whether corporate formalities were observed; (4) whether the controlling shareholder siphoned company funds; and (5) whether the company functioned as a façade for the controlling shareholder. In addition to these factors, Delaware’s courts have required an element of fraud or similar injustice in order to pierce the corporate veil.

Id. at *3 (citations omitted). And because an alter ego claim is generally based in fraud, courts often apply a heightened pleading standard.

So pleading an “alter ego” claim is extraordinarily difficult. ASEA did not come close. Rather than plead particulars of a sham financial structure and non-existent management, ASEA pointed to surface level actions and statements by St. Jude’s parent, Abbott, all of which are the types of actions ordinarily seen in the workaday world of a corporate holding structure.

For instance, plaintiff alleged that Abbott itself claimed responsibility for the recall of the defibrillators, issued updates on the recall using the Abbot name, communicated with the FDA using the Abbott name, took over the defibrillator manufacturing facility, advertised that “St. Jude Medical is now Abbott,” shared officers, managers and facilities with St. Jude, and even stated that St. Jude’s operations are controlled by Abbott. Id. These allegations are based on the faulty premise that Abbott’s “control” of St. Jude creates an alter ego claim. It does not. Abbott owns St. Jude. It is expected to control it. “Controlling shareholder” is presumed in the very Delaware test quoted above. And so exertion of control does not satisfy the alter ego inquiry. The real test is whether St. Jude was operated, or controlled, as a sham entity with inadequate capitalization and make-believe management for the purpose of defrauding others. And, as the court held, the plaintiff’s allegations addressed none of this:

These allegations do not call into question St. Jude’s capitalization, solvency, or recognition of corporate formalities. Cf. City of Greenville, Ill. v. Syngenta Crop Prot., Inc., 830 F. Supp. 2d 550, 563 (S.D. Ill. 2011) (piercing the corporate veil where evidence showed that the subsidiary company’s board unanimously rubber-stamped the parent company’s recommendations on a regular basis without discussion and where the subsidiaries employees were sometimes directly managed by employees of the parent company). Nor do they suggest that Abbott was siphoning or diverting funds from St. Jude. At most, the allegations in the complaint suggest that Abbott sometimes spoke on behalf of St. Jude or sometimes represented that it had succeeded St. Jude. See LaSalle Nat. Bank v. Vitro, Sociedad Anonima, 85 F. Supp. 2d 857, 865 (N.D. Ill. 2000) (Nordberg, J.) (“Personal jurisdiction is based on actual evidence of control … rather than on a corporation’s general descriptions. Promotional statements made on a public website do not precisely convey the operative corporate structure.”). Absent more, however, the allegations do not suggest that unfairness or injustice has resulted from the relationship between St. Jude and Abbott, as would be necessary to justify piercing the corporate veil under Delaware law. Doberstein v. G-P Indus., Inc., No. CV 9995-VCP, 2015 WL 6606484, at *4 (Del. Ch. 2015).

Id.

With the plaintiff unable to pierce the corporate (really, LLC) veil, the Illinois court was back to where it started, which is with no personal jurisdiction over St. Jude: “Accordingly, this Court does not have general jurisdiction over St. Jude because it is not “at home” in the state of Illinois. Id. It dismissed the action for lack of personal jurisdiction.

We expect this to be the ordinary outcome in attempts by plaintiffs’ lawyers to establish personal jurisdiction through an alter ego theory in drug and device cases. Not only is such a claim extraordinarily hard to plead and harder to prove, but drug and device cases usually involve large pharmaceutical and medical device companies with well-established, well-advised corporate structures. Under those circumstances, it will be rare that plaintiffs’ lawyers will be able to piece together the type of extraordinary facts necessary to successfully plead and prove an alter ego claim.

This DDL blogger happens to have a relatively new teenager in the house. And said teen has been working on an assignment related to the novel by Lois Lowry, “The Giver.” If you are unfamiliar with the book or the more recent movie adaptation (and if you only know the movie, we recommend the book as the former doesn’t dig deep enough into the source material’s thought-provoking ideas), it is about a seemingly utopian society without war, poverty, pain, or suffering. This state of perfection is achieved through sameness. Everyone dresses the same, speaks the same, acts the same. The goal is to eliminate all conflict and for no one to feel uncomfortable. And to achieve this, free will and freedom of choice are non-existent.

The book’s themes have made for some very interesting dinner table debates about the benefits and drawbacks of sameness. While we’ve managed to identify the obvious benefits, we also always find the benefit comes at a price that we are typically not willing to pay. Sacrificing the ability to feel love to also not have to endure feeling pain. Sacrificing human life so that there is no hunger. So, in this DDL household, sameness has come under considerable attack and it is no surprise that individuality is being championed by the teen (and parent too, with some limitations).

And as we transition from home life to work life, we couldn’t help but acknowledge the parallel as we again find ourselves the advocates of individuality over sameness. This time it’s about a flawed class rather than a dystopian society.

In Andre v. Alere, 2018 U.S. Dist. LEXIS 69045, *3 (S.D. Cal. Apr. 24, 2018), putative class representatives allege that defendants’ marketing of its INRatio products was deceptive and misleading and that defendants are therefore liable under various state’s consumer protection laws. The INRatio products are handheld devices used to monitor blood clotting time in people taking warfarin. Class certification was originally denied back in December as to both a nationwide class and as to alleged state-specific sub-classes. Id. at *4-5. Plaintiffs sought reconsideration as to the six sub-class states (Colorado, Florida, Georgia, Maryland, New York, and Pennsylvania). They allege that based on new facts they can satisfy Federal Rule of Civil Procedure 23(b)(3)’s predominance requirement as to the learned intermediary doctrine, statute of limitations, and damages. The court disagreed.

For a class to be certified, Rule 23(b)(3) requires that “the question of law or fact common to class members predominate over any questions affecting only individual members.” And the court’s analysis is a “rigorous” one that can extend beyond the pleadings. Id. at *6.

Plaintiffs, for the first time in their reply brief, argued that the learned intermediary doctrine did not apply to their claims for several reasons. First, they alleged it does not apply because they are alleging a design defect claim not a failure to warn claim. But, that argument didn’t align with the allegations of their complaint which were about omissions and representations – i.e. failure to warn. Id. at *14. Nor did plaintiffs’ cite any authority for learned intermediary not applying to design defect claims. Id. Next plaintiff argued that the learned intermediary doctrine doesn’t apply where only economic injuries are sought. But again, they offered no legal support for their contention. Id. Finally, plaintiffs argued that because the INRatio product is user-operated, the doctrine doesn’t apply. On this point, it appears plaintiffs and defendants submitted competing examples of how prescribed medical devices that involve some patient operation are treated and concluded plaintiff’s argument was not persuasive. Id. at *15. Regardless of whether the patient has to be the one to use the device daily, it still had to be prescribed by his/her physician warranting application of the learned intermediary doctrine.

So, since the learned intermediary doctrine is applicable, Plaintiffs had to argue that it is subject to “common proof.” They did this by alleging that defendants “failed to warn any physicians.” Id. at *7-8 (emphasis added). But, as defendants argued, the inadequacy of the warning is only part of the equation. Plaintiffs must also show that “the inadequate or lack of warnings were the proximate cause of Plaintiffs’ injuries.” Id. at *8. The court cites at least one case from each of the six states at issue to support the proximate cause arm of the learned intermediary rule. Id. at *10-11. What all of those cases have in common is the conclusion that “proximate cause determination will ultimately lead to individual inquiries into each doctor’s experience with the product.” Id. at *12. Inquiries such as the extent of the physician’s knowledge of the risks and side effects and the source of that knowledge; and whether the physician stands by his/her prescribing decision; and the physician’s individualized medical decision based both on his/her knowledge of the product and of the patient. Id. at *12-13. While warning adequacy might be subject to common proof, individuality predominates on the issue of specific, proximate causation. Also, plaintiffs couldn’t point to a single case where class certification was granted involving the learned intermediary doctrine.

Class certification was also denied due to the lack of predominance as to damages and the statute of limitations. Again, individuality can’t be ignored.

On damages, plaintiffs put forth a full-refund model under California law and argued that it satisfied predominance and that a state-by-state analysis was not necessary. Id. at *16-17. The court, however, found that the cases plaintiffs relied on were not that black and white. See id. at *17-19 (analyzing plaintiff’s cases).      It was not enough to summarily conclude that predominance was satisfied as to all because it was satisfied as to some. The required “rigorous analysis”

is not satisfied by merely arguing that courts in some of the six states allow for a full refund model. Plaintiffs have failed to specifically demonstrate that each of the six sub-class states’ consumer protection statute and claims for implied breach of warranty in four sub-class states are connected to their theory of damages or that these state law causes of action damages provide for a full refund recovery.

Id. at *21. Plaintiffs had to show sameness among the six states, which it failed to do.

As to statute of limitations, plaintiffs argued that because each of the six states recognizes equitable tolling and/or the discovery rule, “then necessarily common proof will prevail over individualized questions” because no plaintiff knew until the product was recalled that the product was defective. Id. at *22-23. But plaintiffs ignore that both equitable tolling and the discovery rule require consideration of whether the plaintiff acted with due diligence – an individualized inquiry. Id. at *23. The court gives an example from the complaint of one of the putative class representative’s experiences with the device that should have alerted him to an issue before recall and points out that plaintiffs have not addressed how equitable tolling or the discovery rule would apply in that situation. Id. at *24. Since it cannot be determined if the statute would be tolled for all plaintiffs from the date of recall, individual issues predominate over common ones.

In “The Giver” sameness is a metaphor for the lack of truth and diversity. The destroyer of creativity, free will, joy, happiness, and love. The things that make life worth living. In DDL world individuality may not be the meaning of life, but it’s enough to ward off class actions which certainly makes us happy.

Last September, we criticized a 2-1 decision out of the Ninth Circuit, In re Google Referrer Header Privacy Litigation, 869 F.3d 737 (9th Cir. 2017), calling it a “poster child” for cy pres abuse in class actions.  Read the entire post for all the gory details, but briefly, the class action settlement in Google Referrer:

  • Let counsel have a whopping 38% of the settlement as fees.
  • Declared the entire settlement “non-distributable” because, even without opposition, neither the class members nor their damages could be determined.
  • Gave 100% of the settlement funds as cy pres to six uninjured charities, and 0% to the 129 million estimated supposedly injured class members.
  • All three of the law school cy pres recipients had ties to counsel in the case.
  • The cy pres recipients were to educate and publicize supposed internet privacy issues – in other words, to act as a breeding ground for further litigation of this sort.

We closed that post by recommending, “[w]e think this is a case that should go to the United States Supreme Court.”  We don’t say that often (only about DesianoNeurontinBartlett, Bristol Myers-Squibb, and Fosamax, that we can recall offhand) – six times in eleven years.

Well, we’re pleased to report that yesterday the United States Supreme Court accepted a certiorari petition in the case, rechristened as Frank v. Gaos, No. 17-961, 2018 WL 324121 (U.S. Apr. 30, 2018).  The SCOTUSBlog story is here.  The order granting certiorari is here.  The question presented is:

Whether, or in what circumstances, a cy pres award of class action proceeds that provides no direct relief to class members supports class certification and comports with the requirement that a settlement binding class members must be “fair, reasonable, and adequate.”

See Certiorari petition.  We are cautiously optimistic that the result in Frank will be the disavowal or severe limitation of cy pres distributions in class actions.

We’ve always been against the concept of class action tolling:  that merely by filing a class action – the class action does not have to have any merit – a class action lawyer magically stops the running of the statute of limitations for everybody in the class.  To us, this gives Fed. R. Civ. P. 23 a substantive effect, which violates the Rules Enabling Act (you can read more about that, here, and here, in other contexts).  It also confers an automatic one-way benefit on putative class members, although in other circumstances the class action lawyers perpetrating this sleight of hand will cheerfully tell courts that “no class exists before certification.”

The Supreme Court first allowed class action tolling in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), an antitrust case, ostensibly to “further[] the purposes of litigative efficiency and economy,” so that no “protective litigation” (by plaintiffs fearing their own claims would be time barred) would clog up the federal courts.  Id. at 553-54.  The impact on defendants would be minimal, suggested the majority, because “[d]uring the pendency of the [certification] determination . . ., which is to be made ‘as soon as practicable after the commencement of an action,’ potential class members are mere passive beneficiaries.”  Id. at 552 (quoting former Rule 23(c)(1)).

We had hopes that this rule, being “specifically grounded in policies of judicial administration,” Smith v. Bayer Corp., 564 U.S. 299, 314 n.10 (2011), would be abolished after its encouragement of inequitable gamesmanship became clear, and once other, less prejudicial methods of judicial administration to address protective filings – such as the inactive dockets widely used in asbestos litigation – were invented.  However, the Court dodged abolition in California Public Employees’ Retirement System v. ANZ Securities, Inc., 137 S. Ct. 2042 (2017), holding only that American Pipe did not apply to statutes of repose . Id. at 2052-53.  The Court did, however, point out that concern about protective filings was much “overstated.”  Id. at 2054 (“courts, furthermore, have ample means and methods to administer their dockets and to ensure that any additional filings proceed in an orderly fashion”).

In any event, all of the Supreme Court’s class action tolling cases, American Pipe, supra, Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983), and Chardon v. Soto, 462 U.S. 650 (1983), involved successive suits in the same jurisdiction – federal-question cases brought in federal court.  So-called “cross-jurisdictional” class action tolling, is much worse, and has intruded at times directly into our sandbox (although thankfully, class action have largely gone extinct in personal injury cases).  As we said in an earlier post:

“Cross-jurisdictional” tolling, on the other hand, refers to allowing a failed class action filed in jurisdiction “A” to toll the statute of limitations on an individual action later filed by a putative class member in jurisdiction “B.”  In a lot of cases that means a state court action filed after a failed federal court class action.  In other cases it means filing an individual action in one state after class certification is denied in a different state.  In either case, the policy of avoidance of protective filings doesn’t work.  In fact, the opposite is true.  A liberal tolling rule only invites more suits to be filed in the jurisdiction that has it.  Thus, even on its own terms, cross-jurisdictional tolling based upon meritless class actions doesn’t make sense.

Thus, going back to the Bone Screw litigation, we have vehemently criticized cross-jurisdictional class action tolling.  Back then plaintiffs asserted that statutes of limitations all over the country were tolled by a baseless class action, In re Orthopedic Bone Screw Products Liability Litigation, 1995 WL 273597 (E.D. Pa. Feb. 22, 1995), in which certification was denied and no appeal even attempted.  Even this relatively quick adjudication took almost 14 months (from 12/30/93, when the class action was filed until denial of certification on 2/22/95).  We litigated cross-jurisdictional tolling to favorable results in Maestas v. Sofamor Danek Group, 33 S.W.3d 805, 808-09 (Tenn. 2000), and Wade v. Danek Medical, Inc., 182 F.3d 281, 287-88 (4th Cir. 1999), while also appearing as amicus curiae in Portwood v. Ford Motor Co., 701 N.E.2d 1102, 1104 (Ill. 1998).  Given that cross-jurisdictional class action tolling inherently involves litigation in one state attempting to toll the statute of limitations in another state, this issue can also be framed as one implicating states-rights, and where one of the courts is federal, federalism.

Over time most states have recoiled from cross-jurisdictional class action tolling.  Largely because of our Bone Screw experience, we maintain a scorecard on the issue.  According to our list, 35 jurisdictions (Alabama, Alaska, Arizona, Arkansas, California, Colorado, DC, Florida, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Mexico, New York, North Carolina, Oklahoma, Oregon, Pennsylvania, Puerto Rico, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, Wyoming) reject cross-jurisdictional class action tolling; one state (Michigan) allows it where the original class was certified; and six or seven states (Delaware, Hawaii, Montana, New Jersey, Ohio, West Virginia, and maybe Connecticut) allow tolling even for meritless, out-of-state class actions.  We do not credit a couple of LIBOR decisions in which that court blatantly ignored state law.

One of the states that does recognize cross-jurisdictional class action tolling is Delaware.  See Blanco v. AMVAC Chemical Corp., 67 A.3d 392, 398-398 (Del. 2013).  A recent Delaware Supreme Court decision throws into sharp relief why such tolling is a bad idea, and offensive not only to the statute of limitations, but also to the very judicial efficiency considerations that such tolling purports to further.  See Marquinez v. Dow Chemical Co., ___ A.3d ___, 2018 WL 1324178 (Del. March 15, 2018).  Marquinez is a poster child for delay – the very sort of stale and desultory litigation that is why statutes of limitations exist in the first place.  “The plaintiff-appellants (“the plaintiffs”) worked on banana plantations in Costa Rica, Ecuador and Panama at various times in the 1970s and 1980s.”  The first purported class action wasn’t filed until 1993, in Texas.  Marquinez, 2018 WL 1324178, at *2.  Then the following things happened:

  • Removal to federal court on the basis of the Foreign Sovereign Immunities Act (one defendant was owned by a foreign government).
  • MDL consolidation in federal court.
  • Dismissal on forum non conveniens in 1995, with a “return jurisdiction” caveat – if any foreign country ruled no jurisdiction, then plaintiffs could come back to Texas.
  • The forum non conveniens ruling denied as moot all pending motions, including class certification.

Id. at *1-2.  That’s two years of post-litigation delay – between 1993 and 1995 class certification was never ruled upon.  Don’t forget that the “1970s and 1980s” claims were already at least 13 years old before the initial suit was filed.

Plaintiffs really didn’t want to be in federal court – a sure sign of substantively weak litigation.  They appealed the exercise of Foreign Sovereign Immunities jurisdiction all the way to the United States Supreme Court.  Id. at *2.  that appeal took until 2001.  Id.   Then the plaintiffs, accompanied by their lawyers, reluctantly went home.  “[T]hey were unable to prosecute their claims in other countries” so they returned to Texas, where they sought to resurrect their claims under the “return jurisdiction” caveat.  Id.  While that was going on, the Supreme Court rejected Foreign Sovereign Immunities jurisdiction in another case involving identical litigation in another state.  See Dole Food Co. v. Patrickson, 538 U.S. 468 (2003).

So in 2003 – ten years after the original class action was filed, and between 23 and 33 years after the actual events claimed in the suit, the case was remanded to Texas state court.  Then the following things happened:

  • Defendants sought to have the case thrown out due to plaintiffs’ failure to comply with prerequisites to their exercise of “return jurisdiction” rights.
  • The “return jurisdiction” provision, along with the entire forum non conveniens ruling, was declared void for want of subject matter jurisdiction.
  • Plaintiffs again moved for class certification, this time under Texas state law.
  • Defendants removed to federal court a second time, under CAFA.
  • CAFA removal failed because the litigation pre-dated CAFA.

Marquinez, 2018 WL 1324178, at *2-3.  Finally, “[o]n June 3, 2010, class certification was denied in Texas state court.” Id. at *3.

At this point plaintiffs had had enough of Texas.  They started creating satellite litigation.  In mid 2011 one plaintiff filed an individual action in Delaware state court and others filed a class action in federal court in Louisiana.  Id.

Finally, less than a week before two years elapsed after the Texas denial of class certification – on May 31, and June 2, 2012 – two new class actions were filed in Delaware federal court.  Id.

But….

Plaintiffs had screwed up, or so it appeared.  The identical suit being already pending for a year in Louisiana, the Delaware federal court dismissed the Delaware action under the “first filed rule.”  Id.  That was appealed, and eventually reversed by the Third Circuit sitting en banc.  See Chavez v. Dole Food Co., 836 F.3d 205 (3d Cir. 2016) (en banc).

While that was going on, the remaining plaintiffs (those not already litigating in Louisiana (after fleeing Texas)) were dismissed on the statute of limitations.  The District Court in Delaware “h[e]ld[] that class action tolling stopped in July 1995 when [the original court] dismissed the case for forum non conveniens.”  Id. That was in 2014.  Those plaintiffs appealed.  The Third Circuit punted the matter, on certification, to the Delaware Supreme Court.

As in Blanco, the Delaware Supreme Court seemed unduly frightened by the prospect of “placeholder” suits:

If members of a putative class cannot rely on the class action tolling exception to toll the statute of limitations, they will be forced to file “placeholder” lawsuits to preserve their claims. This would result in wasteful and duplicative litigation.

Marquinez, 2018 WL 1324178, at *4 (quoting Blanco, 67 A.3d at 395).

Did the court not look at its own description of this litigation’s ridiculously long procedural history?  Between 1993 when the action was first filed, and denial of class certification in mid-2010 not a single “placeholder” suit was filed in Delaware state or federal court.  That was despite plaintiffs’ extended lack of success in advancing the litigation.

Although nowhere mentioned in Marquinez, the Delaware statute of limitations for tort cases is two years.  10 Del. C. §8119.  Making a mockery of that legislative judgment, Marquinez held that the pendency of a meritless class action can toll the statute of limitations for many multiples of that two-year period – here 17 years, or 8½ times the statutory period – because a “clear and unambiguous” rule is necessary:

[A] clear and unambiguous rule avoids uncertainty over the starting and ending dates for statutes of limitation in cross-jurisdictional class action tolling cases.  Thus, we adopt a rule that furthers the certainty interest − cross-jurisdictional class action tolling ends only when a sister trial court has clearly, unambiguously, and finally denied class action status.

Marquinez, 2018 WL 1324178, at *5.

The mind boggles.  Seventeen years hardly corresponds to the assumption in American Pipe that class certification will be decided “as soon as practicable after the commencement of an action,” and indeed those words don’t even appear in Rule 23 any longer.  Justice Stewart, who wrote American Pipe, would no doubt be appalled.  Seventeen years is more than half the time of Justice Stewart’s tenure on the Supreme Court.

The Delaware statute itself imposed a “clear and unambiguous” rule – two years.  Is the Delaware Supreme Court going to abolish the discovery rule, fraudulent concealment and all the other factbound doctrines that toll the statute of limitations in certain situations, and thus have created uncertainty?  Defendants argue for “clear and unambiguous” rules all the time (e.g., product identification, affirmative prescriber warning causation testimony, relative risk of two).  Why here, in a situation that is certain to make Delaware the dumping ground for Latin American toxic tort litigation.

And is this rule even “clear and unambiguous”?  The Texas plaintiffs never appealed the 2010 class certification denial.  What if they had?  Does “sister trial court” then morph into an further need for certainty, tolling the statute of limitations until the first state’s denial has been “clearly, unambiguously, and finally” been affirmed on appeal?

Marquinez demonstrates why courts should never start down the slippery slope of cross-jurisdictional class action tolling.  Right after proclaiming its “clear and unambiguous” rule, the decision plunges into the minutiae of the Texas litigation, spending seven paragraphs parsing through what the Texas court’s “return jurisdiction” language – in an order void for lack of subject matter jurisdiction – must have meant.  Marquinez, 2018 WL 1324178, at *6-7.  In so doing Marquinez ended up disagreeing with two other courts also forced into that exercise by plaintiffs’ satellite litigation.  Id. at *8-9 (“respectfully disagree[ing] with the Fifth Circuit’s and the Hawai’i Supreme Court’s application of class action tolling”).  If Delaware had rejected cross-jurisdictional class action tolling in the first place, none of that Talmudic exercise would have been necessary.

Judicial efficiency is hardly furthered by forcing the courts of one state to comb through the proceedings of litigation filed elsewhere in an effort to figure out when exactly plaintiffs should not be required to rely on an arguably meritless class action filing for fear that it won’t be certified.  As Marquinez demonstrates, that exercise itself can lead to disparate results.  And now what happens?  The litigants get to engage in the costly, and probably impossible, task of piecing together what happened in the forests and fields of Latin America 40-some years ago when Nixon was president and we though Watergate was as bad as things could get.  There are some cases where no litigation is the correct answer.  If the courts of these plaintiffs’ home countries weren’t willing to entertain this litigation, there is no good reason for Delaware, or any other state, to become the dumping ground for the Third World’s unwanted lawsuits.  Like Justice Stewart, we know a bad result when we see it.

Maybe it doesn’t matter.  Maybe, between Bauman and BMS, would-be non-resident class-action plaintiffs won’t be able obtain personal jurisdiction to file the same lawsuit over and over again in different jurisdictions (here, at least Texas, Louisiana, and Hawai’i before Delaware).  Maybe courts will resort to forum non conveniens to throw these Latin American cases out for good.  See Aranada v. Philip Morris, USA, Inc., ___ A.3d ___, 2018 WL 1415215 (Del. March 22, 2018) (similar overseas chemical exposure case pitched for inconvenience, even though another forum not available).  Maybe the Supreme Court will again re-examine American Pipe, and at least do away with piling meritless class actions on top of other meritless class actions.

But conversely, Bauman and BMS also mean that Delaware, as the “home” of many large corporations, will be assuming outsized importance in the litigation landscape.  Delaware courts are going to have enough to do without being required to sift through the detritus of other jurisdictions’ failed class action litigation.

Finally, there’s a message here for any other jurisdiction considering cross-jurisdictional class action tolling – don’t go there.  Don’t go anywhere near there.

 

 

We have written a lot about personal jurisdiction and class actions, and we have particularly questioned how, after BMS, anyone could proceed with a nationwide class action applying state law in a forum where there is no general personal jurisdiction over the defendant.  We are not the only ones posing this question, but as has so often been the case, Bexis has led the way with two extraordinarily useful posts surveying the cases.  You can review these must-read posts here and here.  You can also get Bexis’ Washington Legal Foundation white paper on the topic here.

The issue is whether a court can exercise specific personal jurisdiction over claims asserted on behalf of out-of-state class members.  Take for example a putative nationwide class action in which a California class representative sues a New York defendant in California in connection with goods purchased in California.  Can this class representative purport to represent absent class members who reside and purchased goods outside California?  We think the answer clearly is no, since those non-Californians cannot establish specific personal jurisdiction over the New York defendant in California.

Most courts agree with us, and judging from our prior posts, the issue is often decided on a motion to dismiss. But is a motion to dismiss the only way to invoke BMS and its limitations on specific personal jurisdiction in a nationwide class action?  If you move fast, you can probably use BMS to oppose class certification, which is what happened last week in another Illinois case, Practice Management Support Services, Inc. v. Cirque du Soleil, Inc., No. 14 C 2032, 2018 WL 1255021 (N.D. Ill. Mar. 12, 2018).  In Practice Management, an Illinois company filed a nationwide class action in Illinois under the Telephone Consumer Protection Act (“TCPA”) against a Canadian company after received a fax advertising a circus performance in Illinois.

The case had been proceeding in federal court for several years, apparently including briefing on the plaintiffs’ motion for class certification, when the Supreme Court decided BMS.  The defendants therefore filed a supplemental brief asserting that BMS “prevents this Court from asserting personal jurisdiction over the Defendants with respect to the claims of putative class members located outside of Illinois” and that the case was therefore relevant to class certification. Id. at *15.

The district court agreed with the defendants, and its marquee holding is that BMS’s limitations on specific personal jurisdiction apply to class actions in federal court.  After citing other district judges who had so found, the district court made this broad ruling:

This Court agrees with these courts. Indeed, it [is] not clear how [Plaintiff] can distinguish the Supreme Court’s basic holding in Bristol-Myers simply because this is a class action.  The Supreme Court has emphasized that “Rule 23’s [class action] requirements must be interpreted in keeping with Article III constraints, and with the Rules Enabling Act, which instructs that the [federal court] rules of procedure ‘shall not abridge, enlarge, or modify any substantive right.’” Amchem Prods. v. Windsor, 521 U.S. 591, 592 (1997) . . .  The Supreme Court held in Bristol-Myers that the Fourteenth Amendment’s due process clause precludes nonresident plaintiffs injured outside the forum from aggregating their claims with an in-forum resident. Bristol-Myers, 137 S. Ct. at 1781.  Under the Rules Enabling Act, a defendant’s due process interest should be the same in the class context.

Id. at *16. This reasoning is essentially bulletproof, and the district court’s holding is bookended by another significant ruling—that the defendants did not waive their personal jurisdiction challenge. Id. at *17.  Remember, the defendants litigated this case in the Illinois federal court for years, and they did not raise personal jurisdiction in their answers.  But here, BMS was a game changer.  The district ruled that a personal jurisdiction challenge would have been futile before BMS and that the defendants “timely raise[d] their personal jurisdiction defense in a motion that timely followed the Supreme Court’s decision.” Id. Because other defendants sued before BMS are surely in a similar position, the district court’s no-waiver holding should not be overlooked.

If you stopped reading here, you would have the gist of Practice Management.  But the plaintiffs made other arguments, too.  They argued that the district court could exercise jurisdiction over a nationwide class under Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985), where the Supreme Court held that courts could exercise personal jurisdiction over absent class member’s claims without violating the class members’ due process rights. Id. at *16.  But that is apples and oranges.  The issue in Practice Management was the defendants’ due process rights.  An absent class member has the right to notice and opt out before being bound to a class judgment.  A defendant whose objection to jurisdiction is overruled is being compelled to answer the out-of-staters’ claims and has no choice.  That’s a big due process difference.

The plaintiffs also argued that BMS left open the question of whether the Fifth Amendment’s due process clause imposed the same restrictions on the exercise of personal jurisdiction by a federal court.  We are aware of a handful of district judges who have bought this argument, and suffice it to say that we do not agree that due process under the Fifth Amendment is fundamentally different from due process under the Fourteenth Amendment when it comes to personal jurisdiction.  In Practice Management, it did not matter:  The TCPA does not authorize nationwide service of process and looks to state law for limitations on personal jurisdiction in any event. Id. at *16.  Thus, BMS applies.

The district court therefore followed BMS and ruled that it did not have jurisdiction over nonresidents’ claims:  “Because these nonresidents’ claims do not relate to defendants’ contacts with Illinois, exercising specific personal jurisdiction over defendants with respect to them would violate defendants’ due process rights.” Id. at *18.

The practical impact of this ruling is that this class action is now limited to Illinois only. In the portion of the order that we have not discussed, the district court granted class certification.  But instead of a class of fax recipients from anywhere, the district court redefined the class to include Illinois residents who received faxes in Illinois.  Maybe that is small consolation, but it is consolation nonetheless, and by raising their challenge when they did, the defendants created a published order on personal jurisdiction that will help us all.  We will be sure to thank them when the circus is over.

Class actions hold our interest, even though we do not see them all that often anymore in the drug and medical device space. Maybe we are the rubbernecking motorists who can’t resist slowing down to gaze at someone else’s fender bender.  Maybe we are the children at the zoo who rush to the reptile house to gawk at creatures charitably described as unsightly.  Or maybe it’s because class actions are such odd ducks.  Our civil litigation system is conceived around concepts of due process.  Yet, a class action defendant can be compelled under threat of state authority to pay money to people who have never proved a claim or an injury, and an absent class member can be bound to the result of a proceeding in which he or she has never appeared.  What could possibly go wrong?

We expect many of you are like us, so we have gathered here a trio of significant class action opinions that caught our eye over the last few weeks. All hail from California.  All are important for unique reasons.  None involves drugs or medical devices, but the opinions are relevant generally to class settlements, expert opinion, and standing to appeal—topics that readily cross over.  So, without further delay, here we go.

Nationwide Class Settlements and Choice of Law: In re Hyundai and Kia Fuel Economy Litig., No. 15-56014, 2018 WL 505343 (9th. Cir. Jan. 23, 2018).  We will start with the opinion that has received the most attention and is probably the most important—the Ninth Circuit’s opinion reversing a nationwide class settlement because the district court did not consider the impact of varying state law. Id. at **12-13.  The procedural history for these multiple class actions resulting in a nationwide settlement is long and dizzying.  The important point is that the district court certified a settlement class that offered benefits to class members (automobile purchasers allegedly defrauded by representations regarding fuel mileage) and substantial fees to class counsel.

However, in certifying the class, the district court overly relied on a well-worn principle—that the inquiry on whether common issues of law predominate is relaxed with a settlement class.  Because the district court was certifying a class for settlement only, it ruled that a choice-of-law analysis was unnecessary. Id. at *11.

That was the district court’s mistake. As the Ninth Circuit explained:

Because the Rule 23(b)(3) predominance inquiry focuses on “questions that preexist any settlement,” namely, “the legal or factual questions that qualify each class member’s case as a genuine controversy,” a district court may not relax its “rigorous” predominance inquiry when it considers certification of a settlement class.  To be sure, when “[c]onfronted with a request for settlement-only class certification, a district court need not inquire whether the case, if tried, would present intractable management problems, for the proposal is that there be no trial.” But “other specifications of the Rule—those designed to protect absentees by blocking unwarranted or overbroad class definitions—demand undiluted, even heightened, attention in the settlement context.

Id. at *5 (emphasis added, citing Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997)).  The district court’s error therefore was threefold.  First, it failed to conduct a choice-of-law analysis to determine the controlling substantive law. Id. at *12.  Second, the district court failed to acknowledge that laws in various states materially differed from California law.  Third, the district court did not consider whether material variations in state law defeated predominance under Rule 23(b)(3).

This is not to say that the district court lacks discretion on remand to certify another nationwide settlement class. We do know, however, that the district court will have to subject any newly proposed nationwide settlement to choice-of-law analysis and will have to decide whether state laws differ and whether any differences defeat the predominance of common legal issues.

Class Certification and Admissibility of Expert Opinions: Apple, Inc. v. Superior Court, No. D072287, 2018 WL 579858 (Cal. Ct. App. Jan. 29, 2018). Our second case held that a trial court can consider only admissible expert opinion evidence submitted in connection with a class certification motion and that California has only one standard for admissibility of expert opinion, Sargon Enterprises, Inc. v. University of So. Cal., 55 Cal. 4th 747 (2012).  In other words, Sargon applies at the class certification stage, a point about which we have often wondered, but for which we never had a clear answer.

Until now.  We wrote about Sargon here when it came out in 2012.  The opinion moved California away from its unique “Kelly/Leahy” test and toward a more Daubert-like standard.  In the new California Court of Appeal case, the trial court certified a class of consumers, but expressly refused to apply Sargon to the declarations of the plaintiffs’ experts. Id. at *1.  You will not be surprised to learn that the experts in question were damages experts who offered the opinions that damages could be calculated on a classwide basis.  Id. at **2-5.  Over multiple rounds of briefing, the defendant objected to the opinions and urged the trial court to apply Sargon.  The plaintiffs resisted.

In the end, the trial court ruled that “[t]he issues [the defendant] raises with respect to the materials Plaintiffs’ experts will rely upon in forming their opinions and whether Plaintiffs’ experts’ analyses rely on accepted methodologies and whether the analyses are correct are issues for trial.” Id. at *6.  The court therefore certified the class. Id.

In reversing, the California Court of Appeal issued a very straightforward holding:

[T]he court may consider only admissible expert opinion evidence at class certification.  The reasons for such a limitation are obvious.  A trial court cannot make an informed or reliable determination on the basis of inadmissible expert opinion evidence.  And certifying a proposed class based on inadmissible expert opinion evidence would merely lead to its exclusion at trial, imperiling continued certification of the class and wasting the time and resources of the parties and the court.

Id. at *8 (internal citations omitted). The Sargon case involved expert opinion presented at trial, but the Court of Appeal saw “no reason why Sargon should not apply equally in the context of class certification motions.” Id. at *9.

Moreover, although the plaintiffs argued that the result would have been the same even if the trial court had applied Sargon, the Court of Appeal disagreed.  The experts’ opinions were crucial to the trial court’s order, and there were significant individual issues for each consumer that the experts attempted to brush over. Id. at *11.  The Court of Appeal found that if the trial court had applied Sargon to these opinions, “there is a reasonable chance it would have excluded these declarations and found plaintiffs’ showing to be lacking.” Id. The Court of Appeal found similar deficiencies with the experts’ estimate of the size of the class, making it “difficult to see on the current record how plaintiffs’ formula could be found reliable.” Id. at *12.

Class Actions and Standing to Appeal: Hernandez v. Restoration Hardware, Inc., No. S233983, 2018 WL 577716 (Cal. Jan. 29, 2018). Our final class action opinion for today is Hernandez v. Restoration Hardware, where the issue was whether an unnamed class member has standing to appeal from a class action judgment under California procedure.  The California Supreme Court decided that an unnamed class member does not have standing to appeal without first intervening as a party in the trial court.  In Hernandez, the plaintiff sued a retailer for violating credit card laws, and after several years of litigation, the trial court certified a class and held a bench trial resulting in a substantial award.  An unnamed class member received notice of the class action, but she neither intervened as a party nor opted out.  Instead, her attorney filed a notice of appearance on her behalf. Id. at *1.

The controversy began when class counsel requested a 25 percent fee. Again the absent class member did not formally intervene, but instead appeared through counsel at the fairness hearing and argued mainly procedural points. Id. at *2.  The trial court nonetheless granted the fee request, and the unnamed class member appealed. Id. at *3.

In holding that the unnamed class member was not a “party aggrieved” and had no standing to appeal, a unanimous California Supreme Court followed Justice Traynor’s 75-year-old decision in Eggert v. Pacific Sales S&L Co., 20 Cal. 2d 199 (1942).  The Court’s main point was that absent class members have ample opportunity to become parties of record in class actions, either by filing a complaint in intervention or by filing an appealable motion to set aside and vacate a class judgment. Id. at *4.  This appellant did neither, making her neither a “party” nor “aggrieved.”  The Supreme Court also rejected the invitation to follow Rule 23 of the Federal Rules of Civil Procedure, which gives class members who informally object to settlement the right to appeal. Id. at *5.  The federal approach does not address California’s statutory requirement for appeal, and it cannot be reconciled with the controlling authority, Eggert.  As the California Supreme Court concluded,

Following Eggert and requiring intervention does not discourage unnamed class members from filing a meritorious appeal.  Rather, it continues a manageable process under a bright-line rule that promotes judicial economy by providing clear notice of a timely intent to challenge the class representative’s settlement action.  Formal intervention also enables the trial court to review the motion to intervene in a timely manner. . . .  By filing an appeal without first intervening in the action however, [the appellant] never became an “aggrieved party” of record to the action as our law requires.

Id. at *7. According to the California Supreme Court, this absent class member made the strategic decision to wait and see if she agreed with the result in the trial court, and that was not sufficient to perfect the right to appeal. Id. The Court also reasoned that the prevailing rule protects against wasteful and meritless objections, recognizes the fiduciary duties of class representatives and their counsel, and respects the doctrine of stare decisis. Id. at **7-8.

There you have it—all you need to know about three important decisions. Someday you might need them.