What do you get when no one has been injured and the most you can say is that maybe someone received medicine made from an active pharmaceutical ingredient that may have contained—but was never actually observed to contain—a harmless contaminant?  Add to that that you can’t really tell who might have used the product that may (or may not) have been affected.  Why, of course, you get a consumer class action—one where patients received exactly the therapeutic benefit they bargained for and probably did not pay for it themselves anyway, but they still want money.

This is what class actions in the pharmaceutical space often look like—no-injury classes seeking partial or full refunds of the purchases prices for products that worked, but allegedly were not all they were supposed to be.  Take for example a New Jersey case from a couple of months ago, Fenwick v. Ranbaxy Pharmaceuticals, Inc., No. 3:12-cv-07354, 2018 WL 5994473 (D.N.J. Nov. 13, 2018), where the district court denied certification of a putative nationwide class on the basis that it was impossible to ascertain who would be in the class and that individualized issues predominated.

In Fenwick, the defendant voluntarily recalled multiple lots of its generic cholesterol medicine after manufacturing employees noticed blue particles in the raw material used to make the product.  The tiny particles were glass from glass liners on machines used in the manufacturing process, so the manufacturer discarded that batch.  Id. at *1.  Another batch was later shipped from the same facility to another facility, where it was made into pills, which were then sent to the distribution center of 35 different companies.  No one had actually observed particles in this later batch, but the manufacturer nevertheless voluntarily recalled the pills made from the batch and eventually recovered about 85 percent of the bottles shipped.

The rest were distributed to pharmacies, where some portion was further repackaged and dispensed to patients.  Id. at *1-*2.  Exactly who those patients were was anyone’s guess, and whether any of the recalled product was actually affected by any manufacturing issue was similarly a matter of speculation.  The manufacturer and the FDA agreed that the possibility of any health consequences was “extremely low” and that “patients who have the recalled medicine can continue taking it.”  Id. at *1.

Five individuals who allegedly purchased the drug filed a class action purporting to represent a nationwide class of consumers who were not injured and did not even necessarily use a contaminated product.

The heart of the order denying class cert is the district court’s discussion of the ascertainability of the proposed class.  There was a time when federal courts did not necessarily require that plaintiffs prove that it was possible to ascertain a class’s members, but the requirement is now well established.  The district court described it in the following very quotable passage:

Ascertainability functions as a necessary prerequisite (or implicit requirement) because it allows a trial court effectively to evaluate the explicit requirements of Rule 23.  In other words, the independent ascertainability inquiry ensures that a proposed class will actually function as a class. . . .  The ascertainability inquiry is two-fold, requiring a plaintiff to show that: (1) the class is ‘defined with reference to objective criteria’; and (2) there is ‘a reliable and administratively feasible mechanism for determining whether putative class members fall within the class definition.’ . . .  [A]scertainability only requires the plaintiff to show that class members can be identified. . . .  However, a party cannot merely provide assurances to the district court that it will later meet Rule 23’s requirements . . . [n]or may a party ‘merely propose a method of ascertaining a class without any evidentiary support that the method will be successful.’

Id. at *4 (internal quotations and citations omitted).  The gist is that the putative class representatives do not have to identify each class member before moving for class certification, but they have to prove that they can do it through an objective and reliably feasible method.

And that is where the class in Fenwick failed.  The plaintiffs relied on their damages expert, who sampled dispensing information from four retailers and opined that he could identify class members by reference to the timeframe during which recalled and non-recalled pills were available and National Drug Code, the unique FDA number that identifies a drug and its manufacturer.  Id at *6.  This method, however, did not pan out:  It was based on a sample of only four companies; it did not include consumer-level data for most of the companies; it did not identify any individual consumers; and it included consumers who bought pills from non-recalled lots.  Id.  If there were ever a case calling for application of the Daubert reliability standard at the class certification phase, this was it.  Regardless, the opinion was not close to meeting the objective and reliably feasible standard for ascertaining putative class members.

At bottom, it is simply not possible to identify class members based primarily on NDC numbers, at least not without a host of additional information, including “a means to identify consumers.”  Id.  “Plaintiffs have not shown that the data they have provided includes this necessary information.”  Id.

The district court could have stopped there, but it also ruled that the plaintiffs failed to prove that common issues would predominate.  They were purporting to assert claims for breach of implied and express warranties and unjust enrichment on behalf of a nationwide class.  To avoid predominating individual issues inherent in the application of 50 states’ laws, the plaintiffs urged application of New Jersey law to the entire class.  The district court, however, conducted a choice-of-law analysis and concluded that each individual class member’s home state had the most significant relationship to the plaintiffs’ warranty claims.  With the application of multiple states’ laws, common issues could not predominate.

The story here is a lack of ascertainability, and this class died when the plaintiffs’ expert agreed that there is “likely no feasible way to accurately identify” individuals who actually bought the recalled product.  Id. at *8.  The correct result for the correct reason.

We may not know much about skin care, but we know a thing or two about labeling claims.  Whether for a drug, a device, a food, a cosmetic, or some other product, it is necessary to apply some common sense in determining what is or is not in a product’s labeling should give rise to liability.  The court in Browning v. Unilever U.S., Inc., No. SACV 16-02210, 2018 WL 6615064 (C.D. Cal. Dec. 17, 2018), applied a healthy dose of common sense in granting summary judgment for the defendant against consumer fraud and warranty claims by a purported of deceived purchasers.  The product at issue was St. Ives Apricot Scrub and allegations centered on the presence in the product of a powder from the crushed shells of walnut to lend exfoliating power to the scrub.  We will try to keep the nuttiness to a minimum as we discuss the decision.

The court’s introduction gets to the kernel of the dispute:

This “Scrub” is an exfoliant and like all such products is necessarily abrasive. Plaintiffs claim that the Scrub causes “micro-tears” and speeds up the aging process. Plaintiffs allege Unilever failed to disclose the scrub’s negative side effects before selling it to the public and misled consumers into believing it was dermatologist recommended.

Id. at *1.  Before we crack into the analysis, we have a little detour into some things not really spelled out in the decision.  This is probably obvious, but the scrub is used by gently rubbing it into the skin on your wet face and then washing it off.  Under the directions section on the tube of scrub are the ingredients section, which lists “Juglans Regia (Walnut) Shell Powder” right after water.  For those who are curious, these shells come from one of twenty-one species of walnuts.  If a reader or potential consumer were curious enough to look at the website for the product, then it would not be hard to see that Walnut Shell Powder is identified as the second “key ingredient” of the product (after apricot extract) and that the “exfoliation factor” of the product is characterized as “deep.”  With that extra-judicial context, we get back to the meat of the decision. (OK, we will stop with the gratuitous nut references.)

We will start with the second of plaintiffs’ basic claims, that the label was misleading in saying it was “Dermatologist Tested.”  Plaintiffs claimed that statement somehow suggested the product was “recommended” or “approved” by dermatologists, but they acknowledged that the product was tested by dermatologists and the court could read.  Id. at *4.  So, plaintiffs went to a back-up argument that references to testing were misleading without disclosing an alleged risk of the product.  That brings us to the first argument.

The first argument was that the walnut shell powder made the product too abrasive and caused indiscernible micro-tears in the skin that increase the incidence of acne, infection, and wrinkles, which in turn make the skin of users look older faster.  Because this was in the posture of summary judgment, plaintiffs actually offered up evidence like expert declarations, deposition testimony, and even published articles and a study done for litigation by their retained expert.  Viewed in a light favorable to plaintiffs, this evidence “at best show[s] that St. Ives Scrub could, in theory, alter the skin’s surface.”  Id. at *3 (emphasis in original).  However, under California law, “the alleged unreasonable safety hazard must describe more than merely conjectural and hypothetical injuries.”  Id. (internal citation and quotation omitted).  Plaintiffs did not show “that the alleged microtears are a safety hazard” and their experts did not contend the product was “dangerous.”  Id.  So, no injury.

They also did not prove causation:  “Evidence is lacking that St. Ives, and not other products or lifestyle or sun damage or any other factor, produced acne, wrinkles, inflammation, or loss of moisture (even if these were actionable safety hazards).”  Id.  The court considered the consumer complaints offered by plaintiffs to say nothing about causation, especially because they occurred at a low frequency.  Id.  The court also was not impressed by the plaintiffs’ for-litigation study:  “Plaintiff’s short-term clinical study does little to advance Plaintiff’s causation theory or prove their allegations of longer-term skin conditions.”  Id.  Bringing the evidence back to the context of alleged omissions of unreasonable safety hazards of the product from labeling, the court stated:

Again, Plaintiffs haven’t shown that micro-tears themselves (as distinct from potential resulting symptoms, such as wrinkles or acne) are counter to the product’s central function. Indeed, the Scrub was marketed as an exfoliant (Mot. at 25), which implies some intended resurfacing or abrasion. Plaintiffs do not address this issue or offer a description of the central function of a facial exfoliant. There is far too little for a reasonable jury to conclude that the presence of walnut shells neuters that undefined function.

Id.  Contraction notwithstanding, we think this is fine analysis.  As noted above, a little broader look would indicate that this product was not just marketed as an exfoliant, but one for deep exfoliation with the ground up walnut shells as a key ingredient.  People who might want to use a scrub—any scrub, pre-packaged or homemade—might consider in advance whether scrubbing the skin on their face with something with sufficient grittiness to accomplish a scrubbing is what they want.  That is not really a labeling issue.

To cap it off, the purported class reps did not have any injuries.  They just “assume[d] they suffered from micro-tears which they could neither see nor feel.”  Id. at *4.  We have seen uninjured class reps before and the need for a cognizable present injury clearly applies in a range of contexts, including medical monitoring and consumer fraud.  There is nothing nutty about that requirement.

 

We maintain a number of “scorecards” on legal issues where we judge the defense advantage is sufficiently great that including all cases, even if adverse, does not violate our injunction against doing the other side’s research for them.  Three of the scorecards – PMA preemption, generic preemption, and innovator liability, pretty much update themselves from the results of the case alerts we run.

The fourth – cross-jurisdictional class action tolling – is different.  That’s something we’ve been interested in since the Bone Screw litigation.  Back in the early 1990s, the idea of class actions in product liability/personal injury hadn’t become nearly as risible as it is today.  The Bone Screw plaintiffs filed a purported nationwide class action, which lingered in the MDL a while before certification was denied.  See In re Orthopedic Bone Screw Products Liability Litigation, 1995 WL 273597 (E.D. Pa. Feb. 22, 1995) (in our federal class action denial cheat sheet).  Plaintiffs then claimed that this bogus class action tolled the statute of limitations of every state in the country.  That set off a nationwide fight over cross-jurisdictional class action tolling, culminating in victories in Maestas v. Sofamor Danek Group, Inc., 33 S.W.3d 805 (Tenn. 2000), and Wade v. Danek Medical, Inc., 182 F.3d 281 (4th Cir. 1999) (applying Virginia law); amicus victories in Portwood v. Ford Motor Co., 701 N.E.2d 1102 (Ill. 1998), and Ravitch v. Pricewaterhouse, 793 A.2d 939 (Pa. Super. 2002), and a loss (by a different Bone Screw defendant) in Vaccariello v. Smith & Nephew Richards, Inc., 763 N.E.2d 160 (Ohio 2002).

Since cross-jurisdictional class action tolling involves many kinds of litigation – not just prescription medical product liability litigation – it requires a special effort to update.  We did that the other day for the last couple of years, and in so doing we discovered the hijacking effort against the New York statute of limitations mentioned in the title of this post.  As is obvious from the scorecard, for many years New York courts have considered, and rejected, cross-jurisdictional class action tolling in decisions involving state law (federal law involves the execrable American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974) decision).

The first New York case to consider if there should be cross-jurisdictional class action tolling in state-law actions was Singer v. Eli Lilly & Co., 549 N.Y.S.2d 654 (N.Y. App. Div. 1990), in which plaintiffs relied on prior, never-certified class actions to extend a special one-year statutory revival of time-barred DES cases.   Singer relied on Jolly v. Eli Lilly & Co., 751 P.2d 923 (Cal. 1988), to reject cross-jurisdictional tolling. Class action tolling “must not be regarded as encouragement to lawyers in a case of this kind to frame their pleadings as a class action, intentionally, to attract and save members of the purported class who have slept on their rights.”  Singer, 549 N.Y.S.2d at 660 (citation and quotation marks omitted).

Plaintiffs, like the plaintiff in Jolly, had ample opportunity to assert timely claims, but did not. . . .  [T]he mere commencement of the [other] class action did not alert defendants as to the kind of claims alleged by plaintiffs here.  Thus, whether viewed as a failure to give the requisite notice or to satisfy the class membership requirement of the earlier action, the American Pipe tolling doctrine should not be applied here.

Id. (discussion of Jolly omitted).

Likewise, in New York Hormone Replacement Therapy Litigation (Ansley), 2009 WL 4905232 (N.Y. Sup. Nov. 30, 2009), an unsuccessful West Virginia class action could not toll the New York statute of limitations.

[T]his court finds defendants’ arguments persuasive to conclude that the tolling remedy authorized under the American Pipe doctrine is inapplicable here and does so relying on case law from the federal courts sitting in New York.  As defendants note, American Pipe . . . involve[s] limitations periods derived from federal statutes, whereas here only New York law is implicated. . . .  The wisdom of adopting the American Pipe rule in mass tort cases is, to say the least, highly debatable.

Id. at *? (citations and quotation marks omitted).  New York Hormone relied on prior New York precedent involving other state’s statutes of limitations.  See In re Agent Orange Products Liability Litigation, 818 F.2d 210, 213 (2d Cir. 1987) (no cross-jurisdictional class action tolling under Hawaii law); In re Rezulin Products Liability Litigation, 2005 WL 26867, at *3 (S.D.N.Y. Jan. 5, 2005) (same, applying New Mexico law).  See Kaufman v. Sirius XM Radio, Inc., 980 N.Y.S.2d 276 (table), 2013 WL 5429364, at *4 (N.Y. Sup. Sept. 17, 2013) (“well established that American Pipe did not affect state law”; rejecting several arguments for class action tolling under state law) (state court decision).

Soward v. Deutsch Bank AG, 814 F. Supp.2d 272 (S.D.N.Y. 2011), was the first of a string of federal court decisions likewise declining to extend class action tolling to unsuccessful state law class actions brought in other jurisdictions.  Soward – a non-personal injury case − recognized that “the question of ‘whether, and to what extent, the statute of limitations should be tolled by the filing of a putative class action in another jurisdiction’ is purely a question of state law.”  Id. at 281 (quoting Casey v. Merck & Co., 653 F.3d 95, 100 (2d Cir. 2011) (applying Virginia law)).  Finding no basis to “import” an expansion of tort law into New York jurisprudence, Soward held:

Predicting how New York courts would rule on the issue of cross-jurisdictional tolling would be difficult.  The few states that have considered the issue have been split in both their acceptance of cross-jurisdictional tolling and the rationale for their decision.  Furthermore, little authority exists as to how a federal court in this Circuit decides whether a state would allow cross-jurisdictional tolling when that state has not addressed the issue.  Of the federal courts that have considered this issue, most have refused to extend the doctrine into a state that has yet to consider it. . . .  In the face of these overwhelming precedents, I cannot say that New York would adopt cross-jurisdictional tolling and decline to import the doctrine into New York’s law.  This Court will therefore not toll New York’s statute of limitations for the period when the . . . class certification status was pending.

Id. at 281-82 (citations and footnotes omitted).

In Adams v. Deutsche Bank AG & Deutsche Bank Securities, Inc., 2012 WL 12884365 (S.D.N.Y. Sept. 24, 2012), meritless class actions failed to toll the New York statute of limitations on the strength of Soward and the lack of any contrary New York precedent:

Neither party has identified any decision in which a court applying New York law has applied cross-jurisdictional tolling.  However, in a thorough and comprehensive survey of the issue, [Soward] recently declined to import the doctrine of cross-jurisdictional tolling into New York law because it is unclear whether New York courts would adopt this principle Significantly, Plaintiffs acknowledge the decision in Soward, and provide absolutely no argument as to why the Court should apply cross-jurisdictional tolling to the facts of this case or why New York courts would adopt this theory.  Therefore, the Court declines to import this novel and complex feature into New York law, and finds that Plaintiffs are not entitled to tolling of the limitations period based on either [of] the . . . Class Actions.

Id. at *5 (citation omitted).

Similarly, in In re Bear Stearns Cos. Securities, Derivative, & ERISA Litigation, 995 F. Supp.2d 291 (S.D.N.Y. 2014), the court extensively discussed cross-jurisdictional class action tolling in concluding that no such thing was recognized under New York law:

[Plaintiff’s] common law fraud claims are not tolled by the pendency of the Class Action as a matter of New York law.  American Pipe tolling does not apply to [plaintiff’s] state claims because it only applies to federal law causes of action.  In certain circumstances, a New York statute of limitations may be tolled by the pendency of a class action, but New York currently does not recognized tolling where that class action is filed outside New York state court (so-called “cross-jurisdictional tolling”).  Cross-jurisdictional tolling is at issue whenever a court considers the timeliness of state law claims originally filed outside that state’s courts.

Judges in this district have declined to recognize cross-jurisdictional tolling under state law, because such tolling can be applied only if it is clearly recognized by authoritative state court decisions.

Id. at 311 (citations omitted).  Bear Stearns agreed with the “compelling policy reasons against such tolling” expressed in Vincent v. Money Store, 915 F. Supp.2d 553, 569-70 (S.D.N.Y. 2013), a case applying California law:

[U]nless all states simultaneously adopt the rule of cross-jurisdictional class action tolling, any state which independently does so will invite into its courts a disproportionate share of suits which the federal courts have refused to certify as class actions after the statute of limitations has run.

995 F. Supp.2d at 312 (quoting Vincent, 915 F.Supp.2d at 569-70).  “[M]ost [federal courts] have refused to extend the doctrine into a state that has yet to consider it.”  Id. (quoting Soward, 814 F. Supp.2d at 281-82).  With no dispute that “New York courts have not yet spoken authoritatively on this issue,” the Bear Stearns court refused to expand the scope of New York tort law by permitting cross-jurisdictional class action tolling.  995 F. Supp.2d at 312.  Bear Stearns was ultimately affirmed, but without any discussion of cross-jurisdictional class action tolling.  SRM Global Master Fund Limited Partnership v. Bear Stearns Cos., 829 F.3d 173 (2d Cir. 2016).

In Gould v. Helen of Troy Ltd., 2017 WL 1319810 (S.D.N.Y. March 30, 2017), the plaintiff attempted to argue that American Pipe tolled a New York state-law class action by pointing to prior unsuccessful class actions in other states.  Id. at *4.  The Court responded with Kaufman’s observation that “[i]t is well established that American Pipe did not affect state law.”  With no New York law supporting cross-jurisdictional tolling, “[p]laintiff’s New York . . . claims are not tolled by American Pipe.  Id.

Several non-New York courts have likewise recognized that state’s rejection of cross-jurisdictional class action tolling. See In re Cathode Ray Tube CRT Antitrust Litigation, 27 F. Supp.3d 1015, 1022 (N.D. Cal. 2014) (“the Court follows the Southern District of New York in declining to import American Pipe into New York state law”; citing Soward); Romig v. Pella Corp., 2014 WL 7264388, at *5-6 (D.S.C. Dec. 18, 2014) (“there is no indication that New York recognizes cross-jurisdictional class action tolling and the court declines to establish such a rule in the first instance”); Coe v. Philips Oral Healthcare Inc., 2014 WL 5162912, at *5 (W.D. Wash. Oct. 14, 2014) (“Cross-jurisdictional tolling may be permitted where a class action is filed in New York and makes claims under New York state law; it is not, however, permitted where the class action was filed outside of New York and make no New York claims.”).

But after 2014, the attempted hijacking begins.  It occurred in the context of parallel state class action antitrust claims in the LIBOR MDL litigation – demonstrating once again why defendants quite rightly hate MDLs because transferee judges contort the law to expand liability as a tool to force settlement.  There are two LIBOR decisions that recklessly predict that many states – even those with contrary appellate precedent – would allow cross-jurisdictional class action tolling.  See In re LIBOR-Based Financial Instruments Antitrust Litigation, 2015 WL 6243526 (S.D.N.Y. Oct. 4, 2015) (“LIBOR II”); In re LIBOR-Based Financial Instruments Antitrust Litigation, 2015 WL 4634541 (S.D.N.Y. Aug. 4, 2015) (“LIBOR I”).

Contrary to what prior New York decisions held, LIBOR I stated that “States generally recognize some form of class-action tolling.”  2015 WL 4634541, at *127.  That’s simply false, as our scorecard amply demonstrates.  LIBOR I purported to conduct a perfunctory “Erie analysis” without any focus on prior New York law, concluding generally that:

Absent state-specific considerations, we believe the best prediction is that a state would recognize cross-jurisdictional tolling.  The most salient consideration is that the reasoning of American Pipe and analogous state-court cases applies with equal force regardless of whether a class action is filed in the same jurisdiction as the subsequent individual action or in a different jurisdiction.

*          *          *          *

Some federal courts seem to have applied a presumption against cross-jurisdictional tolling out of a concern over federal interference with state policy.  But a proper respect for state judiciaries does not require such timidity.

2015 WL 4634541, at 129-30, citing nothing supportive of these propositions, omitting citations to Erie decision LIBOR I refused to follow.  The same Erie “analysis,” if it can be called that, was followed, verbatim, in LIBOR II.  See 2015 WL 6243526, at *139-40.  As a result, these blatantly result oriented opinions simply refused to follow prior New York precedent on cross-jurisdictional class action tolling:

Soward . . . concluded, “I cannot say that New York would adopt cross-jurisdictional tolling and decline to import the doctrine into New York’s law.”  Relying on Soward (and on other federal cases dealing with non-New York law), Judge Sweet more recently found “compelling” the concern that a state “will invite into its courts a disproportionate share of suits which the federal courts have refused to certify as class actions” by accepting cross-jurisdictional tolling.

We respectfully disagree with our fellow judges’ predictions of New York law.  Specifically, we disagree with our colleagues’ prediction that New York would reject cross-jurisdictional tolling to the extent that those decisions are predicated on floodgate concerns.

LIBOR I, 2015 WL 4634541, at *133-34; LIBOR II, 2015 WL 6243526, at *145 (citations omitted).

The LIBOR decisions thus violated the most fundamental aspect of Erie – that “[a] federal court in diversity is not free to engraft onto those state rules exceptions or modifications which may commend themselves to the federal court, but which have not commended themselves to the State in which the federal court sits.”  Day & Zimmerman, Inc. v. Challoner, 423 U.S. 3, 4 (1975).  The Second Circuit in particular has long cautioned:

[T]he proper function of this Court is to ascertain what New York law is, and not to speculate about what it will be, or in Learned Hand’s felicitous phrase, “to embrace the exhilarating opportunity of anticipating a doctrine which may be in the womb of time, but whose birth is distant.” Spector Motor Service v. Walsh, 139 F.2d 809, 823 (2d Cir. 1943) (dissent), vacated 323 U.S. 101 (1944).  It is certainly not our function to apply the rule we think better or wiser.

Garland v. Herrin, 724 F.2d 16, 17 (2d Cir. 1983) (emphasis added).  In more modern terms, this same inherent Erie conservatism has been expressed as an admonition that “we are mindful that our role as a federal court sitting in diversity is not to adopt innovative theories that may distort established state law.”  Travelers Insurance Co. v. Carpenter, 411 F.3d 323, 329 (2d Cir. 2005) (citation and quotation marks omitted).

Thus the current attempt to hijack the New York statute of limitations through cross-jurisdictional class action tolling began with two essentially identical decisions that ignored prior precedent and made an Erie prediction while turning Erie on its head.

The hijacking continued in Famular v. Whirlpool Corp., 2017 WL 2470844 (S.D.N.Y. June 7, 2017), a purported economic loss class action.  First, the court in Famular claimed “not [to be] aware of a New York state court that has addressed whether New York recognizes tolling based on a case filed outside New York.”  Id. at *7.  Well, we’ve cited three such decisions in this blogpost – Singer, New York Hormone, and Kaufman – so somebody didn’t look very hard.  Second, Famular opted to follow LIBOR, including its subversion of the Erie doctrine:

[Defendant] argues the Court should follow a line of federal cases refusing to apply cross-jurisdictional tolling because New York courts have not recognized cross-jurisdictional tolling. . . .  [T]he bulk of the contrary authority relies on a presumption against cross-jurisdictional tolling.  But the reasoning underlying this presumption is unpersuasive.

First, some courts have suggested that a federal court should not impose a legal doctrine where the state courts have not determined an uncertain issue.  This is sometimes explained by “a concern over federal interference with state policy.”  But this reasoning is unsound because it ignores the federal courts’ duty in these cases.  As the Second Circuit has repeatedly instructed, when New York’s courts have not decided an issue of state law, it is the federal court’s “job to predict how the New York Court of Appeals would decide the issue[]”. . . .  Thus, the Court would be ignoring its duty by adopting a presumption against imposing a legal rule the state courts have not addressed without a reasoned basis for doing so.

Second, [defendant] argues the Court should not recognize cross-jurisdictional tolling based on docket-control concerns.  In [LIBOR], the court convincingly explains that the justification for rejecting cross-jurisdictional tolling − namely, “a risk that a state will attract individual out-of-state plaintiffs after a failed federal class action” − is unpersuasive, at least in New York.

Id. at *7-8 (citations omitted).

That rationale simply not the law – it’s the opposite of the law.  Erie does not give federal courts applying state law a blank check to write on a blank slate.  So we thought we’d take a look at what courts in the Second Circuit have actually “repeatedly instructed.”  For example, how often has the injunction in Travelers v. Carpenter against Erie predictions of “innovative” liability theories been cited?  How about:

[W]e must apply the statute as it has been interpreted and applied by New York’s highest court.  As we have previously explained, “our role as a federal court sitting in diversity is not to adopt innovative theories that may distort established state law.  Instead we must carefully predict how the state’s highest court would resolve the uncertainties that we have identified.”

Runner v. New York Stock Exchange, Inc., 568 F.3d 383, 386 (2d Cir. 2009) (citations omitted); accord National Union Fire Insurance Co. v. Stroh Cos., 265 F.3d 97, 106 (2d Cir. 2001); City of Johnstown, N.Y. v. Bankers Standard Ins. Co., 877 F.2d 1146, 1153 (2d Cir. 1989); Avedisian v. Quinnipiac University, 387 F. Appx. 59, 60 (2d Cir. 2010); Shillingford v. Astra Home Care, Inc., 293 F. Supp.3d 401, 416 (S.D.N.Y. 2018); In re General Motors LLC Ignition Switch Litigation, 2016 WL 3996243, at *2 (S.D.N.Y. July 22, 2016); Versatile Housewares & Gardening Systems, Inc. v. Thill Logistics, Inc., 819 F. Supp.2d 230, 236 (S.D.N.Y. 2011); In re Methyl Tertiary Butyl Ether (MTBE) Products Liability Litigation, 274 F.R.D. 106, 112 (S.D.N.Y. 2011); Empire City Capital Corp. v. Citibank, N.A., 2011 WL 4484453, at *2 (S.D.N.Y. Sept. 28, 2011); Musaji v. Banco do Brasil, 2011 WL 2507712, at *3 (S.D.N.Y. June 21, 2011); Travelers Casualty & Surety Co. v. Dormitory Authority, 735 F. Supp.2d 42, 88 (S.D.N.Y. 2010); Liddle & Robinson, LLP v. Garrett, 720 F. Supp.2d 417, 424 (S.D.N.Y. 2010); Hunt v. Enzo Biochem, Inc., 471 F. Supp.2d 390, 412 n.140 (S.D.N.Y. 2006); Cooper Industries, Inc. v. Agway, Inc., 987 F. Supp. 92, 104 (N.D.N.Y. 1997) (adding, “this Court will not create or extend New York law to recognize such a novel duty; that is the bailiwick of New York’s courts and legislature”). That’s five Second Circuit cases and twice that number of New York district court cases.

And before that formulation, we had the more colorful version originally penned by Judge Learned Hand, and quoted, above, in Garland, 724 F.2d at 17.  The distinctive language makes that proposition particularly easy to search for.  Several additional Second Circuit and New York District Courts have used Judge Hand’s terminology to embrace the principle that Erie precludes the sort of expansive predictions of state law consciously engaged in by the courts in LIBOR and Famular.  See, in addition to Garland:  Hausman v. Buckley, 299 F.2d 696, 704 (2d Cir. 1962); Katt v. City of New York, 151 F. Supp.2d 313, 335 n.17 (S.D.N.Y. 2001), aff’d in pertinent part, 372 F.3d 83 (2d Cir. 2004); Levesque v. Kelly Communications, Inc., 1993 WL 22113, at *6 (S.D.N.Y. Jan. 25, 1993); Eskimo Pie Corp. v. Whitelawn Dairies, Inc., 284 F. Supp. 987, 993 (S.D.N.Y. 1968).

But on the question of cross-jurisdictional class action tolling under New York law, the hijacking of the New York statute of limitations by federal courts determined to facilitate class actions has proceeded apace in 2018.  Chavez v. Occidental Chemical Corp., 300 F. Supp.3d 517, 530 (S.D.N.Y. 2018), reconsideration denied, 2018 WL 620488 (S.D.N.Y. Jan. 29, 2018), became the first case purporting to apply cross-jurisdictional class action tolling in a personal injury action.  Perhaps emboldened by current political practices, Chavez falsely stated that “Courts in this District have split, 2–2, on in their predictions as to whether the New York Court of Appeals would apply cross-jurisdictional tolling as a matter of New York law.”  Id. at 530 (omitting Gould and Adams decisions discussed above).

Fake precedent!

Chavez then followed the Erie error that LIBOR began, also characterizing the refusal to predict “expand[ing]” state-law liability – the position embraced in the seven Second Circuit cases just discussed − as “timidity.”  Id.  “[L]argely for the reason stated in LIBORChavez predicted that that an unsuccessful class action, filed anywhere (the plaintiffs weren’t even Americans), would trump the New York statute of limitations even though more than 17 years had elapsed.  Id. at 532.  At least Chavez agreed to certify the issue to the Second Circuit.  Id. at 538 (“Whether New York law permits cross-jurisdictional class action tolling is both a disputed question of law in this District and an issue whose resolution in plaintiffs’ favor is a necessary predicate to the continued survival of this complex and important multi-national litigation”).  That appeal is pending.  See Chavez v. Occidental Chemical Corp., No. 18-1120 (2d Cir.).

Most recently, Hart v. BHH, LLC, 323 F. Supp.3d 560 (S.D.N.Y. 2018), reconsideration denied, 2018 WL 5729294 (S.D.N.Y. Nov. 2, 2018), described Chavez as “the most recent and persuasive case law in this District.”  Id. at 556.  Following Chavez, Hart needed only one paragraph to conclude that cross-jurisdictional class action tolling, arising from failed Ohio class action, trumped the New York statute of limitations in a warranty class action brought in New York.  Id.

We can only hope that the Second Circuit continues its decades of insistence on Erie conservatism in the Chavez appeal.  However, there’s a possibility that the court won’t even have to reach the question – and for the best of reasons.  In June of this year, while the Chavez appeal was pending, the Supreme Court decided that American Pipe tolling does not allow stacking of one class action after another.  See China Agritech, Inc. v. Resh, 138 S. Ct. 1800, 1811 (2018) (“the Rules do not offer . . . a reason to permit plaintiffs to exhume failed class actions by filing new, untimely class claims”).  Without ever having to consider state law, the Court rejected the perverse practice of seriatim class actions, all based on American Pipe, tolling statute of limitations effectively forever:

[Plaintiffs’] proposed reading would allow the statute of limitations to be extended time and again; as each class is denied certification, a new named plaintiff could file a class complaint that resuscitates the litigation. . . .  [T]he time for filing successive class suits, if tolling were allowed, could be limitless. . . .  Most statutory schemes provide for a single limitation period without any outer limit to safeguard against serial relitigation.  Endless tolling of a statute of limitations is not a result envisioned by American Pipe.

Id. at 1808-09 (citations and footnotes omitted).

All of the recent New York Erie-offending cross-jurisdictional class action tolling decisions − LIBOR, Famular, Chavez, and Hart − were, like China Agritech, class actions seeking to take advantage of the purported tolling effect of an earlier, unsuccessful class action (or, in Chavez, multiple, successive failed class actions).  Thus, they should all independently fall under China Agritech – unless the purveyors of class actions are now going to argue that hypothetical New York cross-jurisdictional class action tolling (not affirmatively recognized by any New York court) is even broader than the federal American Pipe doctrine.  A fortiori, we don’t think that any possible reading of New York law would extend American Pipe to this absurd extreme.  With class action stacking now prohibited under the American Pipe doctrine, assertion of cross-jurisdictional class action tolling on the same theory should decrease considerably.

Finally, the fact that all recent New York cross-jurisdictional class action tolling decisions (including the favorable Bear Stearns and Gould decisions) have involved plaintiffs attempting to stack one class action on another in contravention of American Pipe, should open the eyes of those courts that tend to exhibit almost blind faith in the class action mechanism and seek to extend it in various and sundry ways. This includes similar, concurrent attempts being made to carve out class actions from constitutional Due Process constraints on personal jurisdiction under Bristol-Myers Squibb Co. v. Superior Court, 137 S. Ct. 1773 (2017) (most recently discussed just last week), as well as proponents of cy pres distributions.

Frankly, class actions, at least those seeking money damages, are no longer (if they ever were) instruments for pursuit of social good.  Rather they are tools that the lawyers bringing them use for personal enrichment.  They can bring big, scary-looking lawsuits without even the bother of dealing with real clients.  Rather than benefiting society, they extort huge fees for themselves, and little if anything for the supposed classes, by bringing litigation that, without class actions, would be too trivial for anybody to bother with.  This kind of bottom-feeding litigation is of no benefit to anyone but lawyers.  The kind of “enforcement” these class actions purport to pursue, if needed, can be brought far more efficiently and equitably by law enforcement and/or administrative agencies.  The abusive litigation and legal gamesmanship on a grand scale that Rule 23, and similar state rules, have engendered is why we believe that Rule 23(b) should simply be done away with, and that Congress and other legislative bodies should decide whether (and under what standards) any particular statute, or common-law claim, should support representative litigation.

Bexis saw Bohemian Rhapsody last week and, as a result, is suffering from multiple Queen earworms.  One is from the title song itself – “Caught in a landslide, no escape from reality.”  Come to think of it, that one may also be due to the recent election.  Another one is that great bass riff – da-da-dum dum dum, da-da dum-dum-dum de-de – from “Another One Bites the Dust.”

Speaking of another one biting the dust, the recent decision in Mussat v. IQVIA Inc., 2018 WL 5311903 (N.D. Ill. Oct. 26, 2018), makes mincemeat of a purported nationwide class action against a non-resident defendant under Bristol-Myers Squibb Co. v. Superior Court, 137 S. Ct. 1773 (2017) (“BMS”).  It does so not in the context of a tort claim, but against a suit brought under a federal statute – something called the Telephone Consumer Protection Act (“TCPA”).  Since the TCPA has no provision permitting nationwide service of process, “this Court looks to Illinois law and the Due Process Clause of the Fourteenth Amendment for the applicable limits on its exercise of personal jurisdiction.” Mussat, 2018 WL 5311903, at *4.

First, the plaintiffs tried to avoid the issue with a waiver argument.  But as we discussed in our post on waiver and personal jurisdiction, one can’t waive an unknown defense.  Here, until the aftermath of BMS, class action plaintiffs got away with nationwide class actions against non-resident defendants.  Thus, no waiver occurred:

[Defendant’s] personal jurisdiction defense was not available to it when it moved to dismiss. . . . [N]o court applied the Supreme Court’s [BMS] holding or reasoning to a class action under the Telephone Consumer Protection Act until two days before [defendant] filed its motion to dismiss on other grounds. . . . Following that decision, [defendant\ timely amended its first responsive pleading. . . . [Plaintiff] could not seriously expect [defendant] to know this defense was available to it at the time it could have first raised it.

Id. at *2 (citations omitted).  Dynamite with a laser beam.  Guaranteed to blow your mind.  Anytime!

On the merits, the court in Mussat saw no reasons to distinguish between class actions and mass torts – or between federal and state law – under post-BMS Due Process analysis.  “Taking heed of the Supreme Court’s admonition that the primary concern of the analysis is the burden on the defendant, other district courts applied these principles of specific jurisdiction to federal class actions.  It appears that those courts agree that [BMS] generally applies to bar nationwide class actions in federal court where the defendant allegedly injured the named plaintiff outside the forum.”  Id. at *4. But Mussat involved a harder case; the plaintiff was injured in the forum. The issue was whether an in-state plaintiff seeking to be a class representative could “represent the absent claims of the nonresident and unnamed putative class members who the defendant injured outside the forum.” Id. (citations omitted).

The answer was a resounding “no.”

“[T]he mere fact” that [plaintiff] received two faxes in Illinois “does not allow” for an exercise of “specific jurisdiction over the nonresidents’ claims” with respect to faxes received outside of Illinois because those absent class members’ claims do not relate to [defendant’s] contacts with Illinois.  It follows, then, that exercising specific jurisdiction over [defendant] with respect to the nonresidents’ claims would violate [defendant’s] due process rights.  Therefore, the Court must strike the class definition to the extent it asserts claims of nonresidents.

Id. at *5 (citations to BMS omitted).

Mussat then distinguished a couple of Supreme Court cases:  Califano v. Yamasaki, 442 U.S. 682 (1979), which assumed personal jurisdiction rather than deciding it, and Phillips Petroleum v. Shutts, 472 U.S. 797 (1985), on the same grounds that the Supreme Court had distinguished Shutts in BMS.  2018 WL 5311903, at *5. Read Mussat if you require any more detail about that.

Then we get to the central holdings.  First, to put it bluntly, BMS prohibits nationwide class actions against non-resident corporations.

Following the Supreme Court’s lead in [BMS] and applying its core reasoning here, due process, as an “instrument of interstate federalism,” requires a connection between the forum and the specific claims at issue.  This recognition bars nationwide class actions in fora where the defendant is not subject to general jurisdiction.  Whether it be an individual, mass, or class action, the defendant’s rights should remain constant.

Id. at *5 (BMS citation omitted) (emphasis added).  Second, filing suit as a class action under Fed. R. Civ. P. 23 cannot change the scope of personal jurisdiction.  That would put Rule 23 outside the scope of the Rules Enabling Act:

[T]he Constitution and state law guide the personal jurisdiction analysis, which affects only the forum where this suit may be brought.  That consequence does not run afoul of the Rules Enabling Act.  Conversely, faithfully interpreting the Act here ensures the consistent and uniform application of defendants’ due process rights in class actions under Rule 23, as compared to the maintenance of individual or mass actions.  This construction ensures that Rule 23 − a rule of procedure subject to the Act’s limitations − does not violate the Act by extending the personal jurisdiction of the federal courts to “abridge, enlarge or modify” a “substantive right.”

Id. at *6 (quoting 28 U.S.C. §2072(b)) (emphasis added).

Boom-boom BAM!  Boom-boom BAM!  Boom-boom BAM!  Boom-boom BAM!  We will, we will rock you…..

We’ve always hated the concept of cy pres class action settlements.  A cy pres distribution is an admission that, even without opposition, the plaintiffs cannot prove who was injured and by how much.  Cy pres also takes money supposedly belonging to the injured class and give it to charities not injured by anyone, so the charities can use the money to encourage more litigation.  To us, cy pres not only encourages abusive class action litigations, but violates all kinds of basic legal rules, such as Due Process, the Rules Enabling Act, and the First Amendment (not all absent class members necessarily agree with the views of the charities being allowed to take their money).

We won’t prolong this post with any detailed discussion of what “cy pres” means in this context.  Basically it’s a misapplication of an estates doctrine (legal French beginning with the words “cy pres”) invoked to allow class action settlement funds not to be given to the class at all, because it’s supposedly “too hard” to figure out damages, and the money purportedly owned by the class is given to charities instead.  It’s a gimmick to facilitate class actions that otherwise would fall of their own weight.

We lambasted the cy pres settlement at issue in the pending Supreme Court case, Frank v. Gaos, No. 17-961, as a “poster child” for class action abuse well before the Supreme Court granted certiorari.  It had everything going against it:  class members getting zero, and cy pres charities taking everything (after a huge chunk of attorney fees were removed, of course), the charities were not selected by any set criteria and had connections to the parties or counsel (such as being class counsel’s law schools), use of cy pres money to “increase awareness” of cyber security issues – a euphemism for soliciting more litigation, cy pres being used to bloat the settlement numbers for purposes of calculating attorney fees.

Thus, we thought Frank was the perfect case to cause the Supreme Court to recoil in disgust from a process with no foundation in statute, common law, or rule.

Now Franks has been argued, and we think we were half right.  From their statements, and how they formed their questions, it’s pretty clear that none of the justices liked cy pres – certainly not the 100% version at issue here.  See Transcript at:

  • “[T]here may be a question about whether the trial court adequately determined feasibility.”  Tr. at 5-6 (Sotomayor, J.).
  • “[T]his is a full cy pres award, meaning there’s no direct benefit to the class.”  Id. at 10 (Sotomayor, again).
  • “[I]s any effort made — and would it even be possible — to determine whether every absent class member or even most of the absent class members regard the beneficiaries of the cy pres award as entities to which they would like to make a contribution?”  Id. at 13 (Alito, J.).
  • “So the parties and the lawyers get together and they choose beneficiaries that they personally would like to subsidize?”  Id. at 14 (Alito, again).
  • “I think you either decide the cy pres award provides relief or it doesn’t provide relief.  If it doesn’t provide relief, you don’t get a fee for it.”  Id. at 26 (Roberts, C.J.).
  • “[D]o you think that problem is going to be meaningfully redressed by giving money to AARP?”  Id. at 42 (Roberts, again).
  • “Including a group that engages in — engages in political activity, having nothing to do with the inability of elderly people to conduct searches?”  Id. at 43 (Roberts, again).
  • “[W]here they [the absent class members] get nothing, under those circumstances, . . . what’s happening in reality is the lawyers are getting paid and they’re making sometimes quite a lot of money for really transferring money from the defendant to people who have nothing to do with it.”  Id. at 46-47 (Breyer, J.).
  • “Isn’t it always better to at least have a lottery system, then, that one of the plaintiffs, one of the injured parties gets it [the settlement funds], rather than someone who’s not injured?”  Id. at 51 (Kavanaugh, J.).
  • “But there is the appearance, as the district court said in the hearing, the appearance of favoritism and alma maters of — of counsel.”  Id. at 55 (Kavanaugh, again).
  • “[D]on’t you think it’s just a little bit fishy that the money goes to a charity or a 501(c)(3) organization that [defendant] had contributed to in the past?”  Id. at 56 (Roberts, again).
  • “The appearance problem here . . . is symptomatic of a broader question, which is why is it not always reasonable . . . to try to get the money to injured parties.”  Id. at 58-59 (Kavanaugh, again).
  • “[T]he appearance of favoritism and collusion . . . is rife in these cases.”  Id. at 61 (Kavanaugh, yet again).
  • “And at the end of the day, what happens? The attorneys get money, and a lot of it.  The class members get no money whatsoever.  And money is given to organizations that they may or may not like and that may or may not ever do anything that is of even indirect benefit to them.”  Id. at 63 (Alito, again).

Ouch.  Those are scathing comments from five justices (Thomas, J. rarely says a word) on both sides of the political spectrum, and most of them commented more than once.  So we’re reasonably confident that, if the Court addresses the so-called “cy pres doctrine,” it will not fare well.

But that’s the other half of the problem – standing is a major issue.  Two justices, Gorsuch and Kagan, did not ask any questions about cy pres at all.  They were totally focused on standing.  Standing, in this context, means that none of the plaintiffs, even assuming the privacy of their Internet searches was violated, had established that they had suffered any concrete or distinct harm from the claimed breach.  That may well be a good argument, leading to a standing decision that seriously clips the wings of class actions focused on various breaches of cybersecurity.  During the oral argument, more than half of the Justices were also interested in the standing question. Indeed, at one point they talked over each other in their eagerness to refocus the argument on that issue:

JUSTICE KAGAN: Mr. Frank –

JUSTICE GORSUCH: We – I’m sorry.

JUSTICE KAGAN: Sorry. No, go ahead.

JUSTICE GORSUCH: Oh, please go ahead.

JUSTICE KAGAN: No.

CHIEF JUSTICE ROBERTS: Justice Kagan.

JUSTICE KAGAN: I was going to change the subject.

(Laughter.)

JUSTICE GORSUCH: So was I.

(Laughter.)

JUSTICE GORSUCH: Jurisdiction?

JUSTICE KAGAN: Yes.

JUSTICE GORSUCH: Go for it.

Tr. at 14-15.  Lack of standing, of course, would mean that “the whole class action is thrown out.”  Id. at 17 (Roberts, C.J.).  We’re not going into detail, but from the discussion, it appears that the trial judge’s standing ruling was required by a Ninth Circuit decision that has since been reversed by the Supreme Court, Spokeo, Inc. v. Robins136 S. Ct. 1540 (2016).  See Tr. at 70 (the district court “believed its hands were tied by the Ninth Circuit precedent”).  We also note that, shortly after the oral argument, the Court issued an order requiring supplemental briefing on the standing issue, with such briefing to be completed by December 21, 2018.  Merry Christmas.

A decision dismissing the entire class for lack of standing would be good for privacy class action defendants – and bad for their opponents – but it would leave the doctrine of cy pres free to continue its reign of error in the lower courts.

Or maybe not.

While a decision that the entire class action fails for lack of standing would moot the original question that the Court accepted about cy pres distributions as a settlement tool, there is an exception to mootness where an issue is “capable of repetition yet evading review.”  E.g., Spencer v. Kemna, 523 U. S. 1, 17 (1998).  Since lousy, no-injury class actions and cy pres settlements go together like . . . death and taxes, perhaps, the mootness doctrine might apply here, as invocation of cy pres is indicative of class actions that should never have been brought in the first place because no individualized injury can be proven.

The Court’s request for supplemental briefing is a sign that, rather than remanding, the Court is inclined to address the standing question itself – and if it does that, it could also smack down cy pres even if it concludes standing is absent.  At least we can hope.

What happens when you have a class action where some putative class members suffered an injury while others did not? Can such a proposed class even be certified? The answer depends on whom you ask. The plaintiffs/class representatives will surely point out that whether any individual class member actually suffered a compensable injury is a mere administrative detail that can be sorted out after the fact. Trust us, Judge. Just certify the class, and we’ll make sure the right people get paid.

The defendants on the other hand will emphasize (correctly) that there is this little thing called due process, which prohibits certifying a class where individual class members have contested injuries or no injuries at all. That was the dilemma that the First Circuit addressed in In re Asacol Antitrust Litig., No. 18-1065, 2018 WL 4958856 (1st. Cir. Oct. 15, 2018), and the court came to the correct conclusion that a class that includes uninjured class members cannot be certified. The First Circuit also poured buckets of cold water on questionable concepts of aggregated proof and statistical modeling.

Here is what happened. The plaintiffs sued the defendant claiming that its discontinuation of one drug and introduction of similar substitute drugs violated the consumer protection and antitrust laws of twenty-six jurisdictions. Id. at *1. The district court later certified a class of “all Asacol purchasers who subsequently purchased [the alleged substitute drugs] in one of those twenty-six jurisdictions.” Id.

But here is the rub. In certifying the class, the district court found that approximately 10 percent of the class members (mostly if not entirely third-party payers) had not suffered any injury attributable to the defendants’ alleged wrongful conduct. Id. And here is the further rub. The defendants claimed that uninjured class members actually made up more than 10 percent of the class, and the plaintiffs claimed that the number actually was less. In other words, it was undisputed that some portion of the class had no compensable injury, and the fact of injury was contested for some additional and unknown portion of the class.

The district court determined nonetheless that the uninjured class members could be removed “in a proceeding conducted by a claims administrator.” Id. When someone suggests relying on a post-certification “claims process” to smooth over disputed individual issues in a class action, the red flags start to wave in our heads. The submission of a form to a “claims administrator” is not an adequate substitute for the due process to which defendants are entitled absent an agreement, such as with a class settlement.

Red flags waived in the heads of the First Circuit too, resulting in an opinion reversing class certification. First, there was the issue of standing. The defendants argued that the class representatives had never made purchases within twenty-two of the jurisdictions and thus lacked standing to sue under those states’ laws. Id. at *3. In the First Circuit’s view, the issue was whether the class representatives had the proper incentive to advance claims under all those states’ laws, and it ruled that they did. Id. at **3-5. The only carve out was New York, which uniquely requires proof of deception. Id.

Second, the First Circuit considered Rule 23(c)(3)’s requirement that common issues predominate over individual issues, and this is where this class action failed. It was undisputed that some number above or below ten percent of the certified class suffered no compensable injury. Id. at *6. The district court’s major error was its assumption that it would be possible “to establish a mechanism for distinguishing the injured from the uninjured class members” and that “Class members will be asked to submit a claim form, along with data and documentation that may be deemed necessary for consideration.” Id. at *7.

That process would not be sufficient, in part because “[o]ne can only guess what data and documentation may be deemed necessary, what the formula will be, and how the claims administrator will decide who suffered no injury.” Id. The First Circuit distinguished the situation where class members would establish their claims through “’unrebutted testimony’ contained in affidavits.” Id. (distinguishing In re Nexium Antitrust Litig., 777 F.3d 9 (1st Cir. 2015)). Here, the plaintiffs did not intend to rely on unrebutted testimony to eliminate uninjured class members, and the defendants had expressed their intention to challenge any affidavits that might be gathered. Id. Because such disputed individual issues cannot be resolved under Rule 23, the First Circuit’s “inability to fairly presume that these plaintiffs can rely on unrebutted testimony in affidavits to prove injury-in-fact is fatal to plaintiffs’ motion to certify this case.” Id. at *8.

This is an important holding. The predominance of individual issues should preclude class certification under Rule 23(c) in every instance, and that rule applies with no less force when the predominating individual issue is whether each class member has suffered an injury in fact. It is not sufficient, as the First Circuit held, to certify the class based on vague promises of sorting it out later.

Nor is it acceptable to promise proof of “class-wide impact” through purported expert testimony. According to the plaintiffs, proof of “class-wide impact” would result in some uninjured class members receiving compensation, but it will all “net out” in the end and “should be of no concern” to the defendants. Id. at *9. Such rough justice ignores that when a defendant is not liable to particular individuals because they suffered no injury, the amount of total damages should be reduced. Id. Moreover, when relief depends on determining whether an individual has been injured, the defendant must have an opportunity to challenge each class member’s proof. Id.

Finally, the First Circuit condemned the reliance on statistical analysis at the expense of due process. The following quote is long, but you should read it because it is powerful:

Accepting plaintiffs’ proposed procedure for class litigation would also put us on a slippery slope, at risk of an escalating disregard of the difference between representative civil litigation and statistical observations of tendencies and distributions. Once one accepts plaintiffs’ “no harm, no foul” position there would be no logical reason to prevent a named plaintiff from bringing suit on behalf of a large class of people, forty-nine percent or even ninety-nine percent of whom were not injured, so long as aggregate damages on behalf of “the class” were reduced proportionately. Such a result would fly in the face of the core principle that class actions are the aggregation of individual claims, and do not create a class entity or re-apportion substantive claims.

Id. at *10 (emphasis added). Read that last line again because it re-emphasizes that Rule 23 is a rule of procedure. It does not bestow substantive rights, nor could it alter substantive law—such as laws requiring proof of an injury in fact before someone can sue—without running afoul of the Rules Enabling Act.

The First Circuit here applied the predominance requirement in a way that essentially enforces the requirement of ascertainability—i.e., you can’t certify a class if you can’t ascertain who would be in the class before certification. The First Circuit also walked back from the Neurontin trilogy, which pushed concepts of aggregated proof beyond the breaking point, which we discussed here. Both are welcome developments.

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

 

Today’s story is about a class action, one in which the defendant was sued for labeling its product “No Sugar Added” even though everyone involved, including the plaintiff, understood from the very start that no sugar had been added to the defendant’s product. You can probably already see where this is going.

The named plaintiff in Perez v. The Kroger Co. 2018 WL 4735701 (C.D.C. Sept. 28, 2018), alleged that the defendant, The Kroger Company, improperly labeled its 100% Apple Juice product as No Sugar Added. She hoped to represent a class that would seek financial damages for this alleged misrepresentation under California’s familiar Unfair Competition (“UCL”), False Advertising (“FAL”) and Consumer Legal Remedies (“CLRA”) laws. And she based her claims on an FDA regulation that prohibited food manufacturers from labeling a product as No Sugar Added unless, among other things, the food that the product was intended to resemble, or for which it was a substitute, “normally contains added sugar.” According to plaintiff, sugar is not normally added to apple juice (presumably because apple juice already has enough), so Kroger’s 100% apple juice product was mislabeled as No Sugar Added.

Now, as unsettling as the prospect might be of allowing a product with no sugar added to remain on the market labeled No Sugar Added, plaintiff’s claims nonetheless failed. In fact, plaintiff’s claims did not survive a motion to dismiss. Why? On this blog you should already know that answer about 40% of the time—preemption.

The Nutrition Labeling and Education Act (“NLEA”), an amendment to the FDCA, contains an express preemption clause. It is a strong one. It prohibits any state from enforcing a food labeling requirement—through, say, class action claims under the UCL, FAL and CLRA—that is “not identical to” FDA labeling regulations. Id. at *3. And plaintiff’s interpretation of the FDA’s labeling regulation was not the same as the FDA’s interpretation. The FDA interpreted it much less narrowly.

Plaintiff claimed that, under the FDA regulation, Kroger could use a No Sugar Added label only if sugar is normally added to the specific product that Kroger’s 100% apple juice product was intended to “resemble” or “substitute”—i.e., apple juice. The FDA, on the other hand, expressed a different view in a letter responding to a public interest group of some sort. According to the FDA, the comparison product need not have “the same name or the same juice content.” In the case of Kroger’s 100% apple juice product, this meant that it could be considered a “substitute” for a broader range of products than proposed by plaintiff, including “juice with added sugar, fruit-flavored soft drinks sweetened with sugar, or other sugar-sweetened beverages.” Id. at *6-7.

The district court had to decide whether to accept this FDA interpretation. To do this, the court had to determine whether, under Auer v. Robbins, 519 U.S. 452, 461–62, (1997), the FDA’s interpretation was “plainly erroneous or inconsistent with the regulation.” The court held that it was not. Rather, it found the FDA’s interpretation to be the result of a fair and considered judgment. The court gave the FDA’s interpretation deference and, accordingly, held that plaintiff’s claims were preempted. Id. at *6-7.

Interestingly, plaintiff argued that the court should not defer to the FDA’s interpretation because the FDA had staked out “nothing more than a convenient litigating position.” Id. at *6. That argument, if anything, backfired. The district court was not aware of any litigation actually involving the FDA in which its interpretation of this regulation was at issue. Rather, the FDA stated its interpretation of the regulation in response to the letter from the public advocacy group.

On the other hand, the district court noted that plaintiff’s counsel had, in fact, brought similar claims that were dismissed by other courts. With this history in mind, the court admonished plaintiff’s “counsel to tread carefully in continuing to bring these particular claims.” Id. at *7.

It’s vacation time for many of our colleagues.  Bexis shrewdly commenced a hiking holiday in Kauai, just in time to greet a hurricane.  We were less adventurous.  For us, it was enough to knock back poutine and ice wine and walk the old city walls in Quebec.  There was one excursion to watch the Drug and Device Law Heirs zip-line over a 272 foot high waterfall.   We did not participate.  Our courage is weak, our girth is large, and our parenting skills are sub-par.  Meanwhile, a leading Philly litigator shared photos from his African safari, proving he got within a paw’s swipe of a leopard.  Yikes.  And then there was our cherished friend, an esteemed in-house lawyer, whose family cruise along Alaska included close encounters with whales, wilderness, and  eerie blue ice bergs.  It all looked marvelous. 

 

We’ve been to Alaska once ourselves, but it was only a business trip.  A couple of oil companies, one of which was our client, had a slight disagreement as to who owned how much of certain tracts.  A few inches here or there meant billions of dollars.  The stakes were high but the issues were dull.  We visited  Prudhoe Bay (mile marker zero of the Trans-Alaska pipeline) and the Captain Cook Hotel in Anchorage, where an enormous stuffed Kodiak bear stands guard.  A popular t-shirt said, “Split Alaska in Two and Make Texas the Third Largest State.”  Alaska is full of wild, wonderful things, but not so much litigation.  Our fossil fuel battle was in arbitration, not the court system.  What sane Fortune 100 executive would entrust complex geological issues to twelve jurors?   

 

Maybe there are some riveting cases from Alaska, but we are hard-pressed to think of many.  In any event, when we think of Alaska, we think of its stunning beauty and the rugged individualism of its residents.  (That last sentence is a bit of ham-handed foreshadowing.) 

 

Quick: name the greatest Alaska television show.  (Answer below.)

 

Today’s case, Cole v. Gene by Gene, Ltd., 2918 WL 3980308 (9th Cir. Aug. 21, 2018), originated in Alaska.  It’s pretty interesting, as it involves the intersection of two increasingly important issues: genetic testing and disclosure of private information.  It’s also pretty good, as it resulted in rejection of class certification.  But the issues must have seemed pretty obvious to the Ninth Circuit, as the panel members felt no need for oral argument and determined that the opinion was unworthy of publication in the West Reporter.  The plaintiff, suing on behalf of a putative class of 900 Alaskans, alleged that a company had disclosed DNA results without informed consent and in violation of the Alaska Genetic Privacy Act.  From the very short opinion, we cannot tell much about the nature of the genetic testing that occurred.  We don’t know whether it was of the broadly available spit-in-a-test-tube, mail-it-in, then learn-with-surprise-that-your-family-actually-hails-from-Transylvania sort, or whether it was of a higher order of complexity and significance.  No matter, because genetic testing is going to become more and more prevalent and more and more crucial.  Selection of future drug and device therapies are likely to become more targeted with the help of genetic testing.  Genetic information is valuable information.   But, like all information, it can fall into the wrong hands and be misused. 

 

Back to the case at hand.  In Cole, because there were too many differences among the class members on important issues, the district court declined to certify the class.  Common issues did not predominate over individual issues, and individual litigation looked to be the superior mechanism for resolving the claims.  The plaintiff appealed.   The plaintiff lost.

 

The Ninth Circuit, applying an abuse of discretion standard or review, affirmed the district court.  It held that individualized determinations predominated with respect to the key issues of disclosure, consent, and damages.  For instance, whether a particular customer had private information disclosed varied depending on the terms of release signed by the customer, which of the thousands of genetic “projects” the customer may have joined, the terms of the specific project a customer joined, and what privacy settings the customer chose.  The district court was right that individual issues outnumbered the broad-brush general issue.  Moreover, the district court did not abuse its discretion by denying class certification on superiority grounds. The plaintiff had failed to carry his burden to show that “a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.”  In particular, the damages available to aggrieved customers under Alaska law would be plaintiff-specific.  Couple that intractable fact with the “difficulties inherent in managing a class action featuring such distinct and individualized issues, the limited resources to be saved by certifying a class, and the absence of other pending or duplicative lawsuits in the Alaskan courts, “ and it becomes clear that “individual litigation is a superior mechanism for resolving” the case. 

 

(It is equally clear that Northern Exposure was the best tv show ever set in Alaska.  It was filled with original, sharply drawn characters.  Individuality certainly predominated.  The main character was a doctor from New York who made it through medical school on a loan funded by the state of Alaska.  To repay the loan, he had to practice medicine for a couple of years in a remote Alaska town.  Other characters included an ex-con who was the ultra-philosophical disc jockey in the town’s only radio station, a bush pilot whose former beaus all died gruesome deaths, a cantankerous ex-astronaut, and the owner of the town tavern who was at least 40 years older than his wife, but worried he would outlive her because the men in his family invariably lived past 100 and invariably spent a decade or so as lonely widowers.   The show ran on CBS from 1990 to 1995 and won many awards.  Among those were Emmy and Golden Globe awards for best drama.  The producers were grateful for the awards, but felt obligated to mention that they thought the show was actually a comedy.  In fact, Northern Exposure was one of the first “dramedies,” containing both comedic and dramatic tones.  After the first couple of seasons, a new producer-writer named David Chase joined the staff of Northern Exposure.  Perhaps you have heard of Chase.  Earlier in his career he had worked on The Rockford Files.  Later, he created another show with quirky characters.  It was called The Sopranos.)       

 

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.