Consumer Law & Policy Blog

Sixth Circuit: Class Members Have Right to Appeal Approval of a Class Settlement in Rule 23(b)(3) Opt-Out Cases

by Brian Wolfman

Check out Fidel v. Farley, No. 06-5550 (July 18, 2008), a brand-spanking-new decision from the Sixth Circuit. Farley holds that class member-objectors to an opt-out class action settlement have the right to appeal a district court's approval of the settlement without having intervened in the case. Here's some background:

Settling parties in class actions love to concoct ways to prevent objectors from overturning their settlements. In the bad old days, one of their favorite techniques was to stop objectors from appealing a district court's approval of a settlement by claiming that the objectors needed to intervene before they had "standing" to appeal. A bunch of courts of appeals accepted that argument, but the Supreme Court squarely rejected it in Devlin v. Scardelletti, 536 U.S. 1 (2002). Or so many of us thought. Devlin was a non-opt-out class action, and so, after Devlin, settling parties began arguing that the Supreme Court's ruling did not apply to Rule 23(b)(3) opt-out cases -- that is, to the great majority of class actions! There wasn't a hint in Devlin that was what the Court had in mind, so I figured there was no way that argument was going anywhere. Not quite. Shortly after Devlin, the Arkansas Supreme Court bought the argument in a case under Arkansas Rule 23 (which is based on the federal rule), and the Eighth Circuit claimed in dicta that the argument had "considerable merit."  In 2004, however, the Ninth Circuit had the good sense to hold that Devlin applies to opt-out cases, see Churchill Village, L.L.C. v. General Electric, 361 F.3d 566, 572 (9th Cir. 2004), and now the Sixth Circuit has too.

In case you care, the Arkansas Supreme Court and Eighth Circuit decisions annoyed me. So, I published an article that I'd love someone to read explaining that it is downright nutty to limit Devlin to non-opt-out cases.

More Reading for CAFA Crazies: Ninth Circuit Holds That CAFA Does Not Override Anti-Removal Provision of Securities Act of 1933

In Luther v. Countrywide Home Loans Servicing LP, No. 08-55865 (July 16, 2008), the Ninth Circuit held that the Class Action Fairness Act's broad grant of federal removal jurisdiction over diversity class actions does not override the anti-removal provision of the Securities Act of 1933.  Here's how the court summarized its decision:

Section 22(a) of the Securities Act of 1933 creates concurrent jurisdiction in state and federal courts over claims arising under the Act. It also specifically provides that such claims brought in state court are not subject to removal to federal court. We hold today that the Class Action Fairness Act of 2005, which permits in general the removal to federal court of high-dollar class actions involving diverse parties, does not supersede § 22(a)’s specific bar against removal of cases arising under the ’33 Act.

Seventh Circuit: CAFA Means What It Says About Its Appeal "Deadline"

by Brian Wolfman

For a few weeks now, I've been planning to let you know about the Seventh Circuit's June 11 Class Action Fairness Act (CAFA) decision in Spivey v. Vertrue, Incorporated, No. 08-8009. So, here goes:

In Spivey, Judge Frank Easterbrook broke from all other circuits to have addressed the question and held that 28 U.S.C. § 1453(c)(1) means what it says: A petition for permission to appeal a district court’s remand order under CAFA must be filed with the court of appeals “not less than 7 days after entry of the order.” (emphasis added). Read literally, section 1453(c)(1) means that a petition for permission to appeal a remand order filed during the first six days after the order is entered is untimely. Even the most irrational Congress would not have meant that, so a number of other circuits have held that "less" means "more" -- that is, that a petition for permission to appeal is timely only if it is filed within the first seven days of the remand order. Judge Easterbrook's responds with typical bluntness: "That Congress has written a deadline imprecisely, or even perversely, is not a sufficient reason to disregard the enacted language. ... Turning 'less' into 'more' would be a feat more closely associated with the mutating commandments on the barn’s wall in Animal Farm than with sincere interpretation."

Okay, so now you're thinking that section 1453(c)(1) gives a prospective appellant forever to seek permission to appeal a remand order. Not so, says Judge Easterbrook. He says that 1453(c)(1) is governed by Federal Rule of Appellate Procedure Rule 5(a)(2), which says that a "petition [for permission for to appeal] must be filed within the time specified by the statute or rule authorizing the appeal [see, e.g., 28 U.S.C. 1292(b)], or, if no such limit is specified, within the time provided by Rule 4(a) for filing a notice of appeal." Because that period is 30 days, Judge Easterbrook says that the 30-day period governs CAFA removals. I'm not so sure. Is CAFA really a statute under which "no such time limit is specified?" CAFA is a statute that "authoriz[es] an appeal" of certain class action remand orders, and doesn't section 1453(c)(1) "specif[y]" a time in which the petition "must be filed?" I suppose one could say that "not less than seven days" is so open ended that it is not a time "limit" "specified by the statute," because, read literally, section 1453(c)(1)'s "limit" is limitless. But that may be a stretch. Presumably, FRAP 5(a)(2)'s default rule was aimed at statutes that do not address at all the time period for filing a petition for permission to appeal, not statutes that address it in funky, inelegant ways.

For more on other circuits' rulings on this topic, see an earlier post here.

New Mexico Supreme Court strikes down class-action ban

by Deepak Gupta

On Friday, New Mexico's highest court unanimously handed consumers an important victory, holding that, "in the context of small consumer claims that would be prohibitively costly to bring on an individual basis, contractual prohibitions on class relief are contrary to New Mexico's fundamental public policy of encouraging the resolution of small consumer claims and are therefore unenforceable in this state."  New Mexico joins a unanimous and growing group of state and federal courts in declaring that the Federal Arbitration Act does not preempt such state-law rulings--a question the U.S. Supreme Court refused to hear last month.

The New Mexico case involved allegations that Dell misrepresented the amount of memory in its computers--a misrepresentation that was widespread, but which cost each customer only $10-$20 each.  The opinion has some great language about the value of the class action device in cases involving small consumer claims.  The court recognized that "the class action functions as a gatekeeper to relief when the cost of bringing a single claim is greater than the damages alleged." Dell's class-action ban had "essentially foreclosed the possibility that Plaintiff may obtain any relief," such that "enforcing the class action ban would be tantamount to allowing Defendant to unilaterally exempt itself from New Mexico consumer protection laws." Congratulations go to Paul Bland and Amy Radon of Public Justice, who argued the unconscionability issue as amicus curiae.

Supreme Court Refuses to Hear Class-Action Ban Issue

by Deepak Gupta

  A cutting-edge issue in the world of consumer law--and one that this blog has discussed many times before (see, e.g., here, here, and here)--is the extent to which corporations can enforce class-action bans placed in consumer adhesion contracts. Class-action bans are clauses that purport to strip consumers of the right to seek any classwide relief, whether through class-action litigation or classwide arbitration. 

The question matters because class actions are often the only thing stopping companies like cell phone or cable providers from getting away with practices that cheat large numbers of consumers out of small amounts of money. As Judge Posner has put it, "[t]he realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30." 

This morning, the U.S. Supreme Court rebuffed an attempt by one of corporate America's leading Supreme Court litigators, Carter Phillips, to get the Court to weigh in on the battle over class-action bans. Public Citizen filed the brief in opposition, and we're thrilled at the result.  The Court's decision not to hear the issue is a good sign that, at least as far as class-action bans are concerned, the Supreme Court is going to allow the law to continue to develop in a way that vindicates the rights of consumers and employees to access the courts.  (You can read an Associated Press story about the case here.)

New CAFA Decision From Second Circuit

by Brian Wolfman

In Estate of Pew v. Cardarelli, No. 06-5703-mv (May 13, 2008), the Second Circuit resolved a couple issues under the Class Action Fairness Act (CAFA), which greatly expanded federal diversity jurisdiction over class actions. In Pew, an agricultural supply and marketing cooperative issued money market certificates, which were fixed-interest debt instruments. Later, the co-op stopped selling the certificates and ended its practice of repurchasing them prior to maturity. The co-op then filed for bankruptcy. The purchasers were not thrilled and sued the co-op’s officers and auditor in state court under New York’s consumer protection law, asserting, among other things, that the co-op had misrepresented its financial condition. (An earlier suit by the plaintiffs under federal securities law had been dismissed on the merits.)

The defendants removed the case to federal court under CAFA. The parties agreed that the case was removable unless it came under a particular CAFA exception, 28 U.S.C. 1332(d)(9)(C), which carves out any claim that “relates to the rights, duties (including fiduciary duties), and obligations relating to or created by or pursuant to any security (as defined under . . . the Securities Act of 1933).” The parties also agreed that the money market certificates were “securities” within the meaning of this exception. The district court held that the plaintiffs’ claims fell within the section 1332(d)(9)(C) exception and remanded the case to state court.

The Second Circuit reversed. The court held that the plaintiffs’ claims did not “‘relate[] to the rights . . . and obligations’ . . . ‘created by or pursuant to’ a security [because they were not] claims grounded in the terms of the security itself.” A claim “grounded in the terms of the security itself, the court held, “might arise where the interest rate was pegged to a rate set by a bank that later merges into another bank, or where a bond series is discontinued, or where a failure to negotiate replacement credit results in a default on principal.” But, the Second Circuit concluded, “[t]he present claim–-that a debt security was fraudulently marketed by an insolvent enterprise–-does not enforce the rights of the Certificate holders as holders, and therefore it does not fall within § 1332(d)(9)(C).” In so holding, the Second Circuit relied on a Senate Judiciary Committee Report on CAFA, which asserts that section 1332(d)(9)(C) is limited to claims over the terms of securities. The Second Circuit’s reliance on the Senate Report was a bit odd, since earlier in Blockbuster, Inc. v. Galeno, 472 F.3d 53, 58 (2d Cir. 2006), the Second Circuit had dissed the Report’s legitimacy because it was issued 10 days after CAFA’s enactment. (Go to our prior blog entry to read about the Blockbuster decision.)

Judge Pooler dissented, explaining that the majority’s holding was at odds with CAFA’s plain text. She noted that the plaintiffs’ claim was that the co-op had not paid them the principal and interest on their money market certificates. So, she went on, “[i]f this suit therefore does not solely involve a claim ‘that relates to the rights . . . and obligations relating to or created by or pursuant to’ the [money market] Certificates, I am at a loss to understand why.” She also castigated the majority for relying on the Senate Report for a host of reasons, including that the Report’s statement about the scope of section 1332(d)(9)(C) “simply has no relation to the enacted text.” Hard to quarrel with that.

Speaking of “the enacted text,” this case involved a petition for permission to appeal a district court’s remand order, which, CAFA absurdly says, must be filed with the court of appeals “not less than 7 days after entry of the order.” 28 U.S.C. § 1453(c)(1) (emphasis added to actual statutory text). That means that if you seek permission to appeal in 0, 1, 2, 3, 4, 5, or 6 days after entry of the remand order, your request is premature, but, as long as you wait 7 days, you’re golden. Heck, you can file a whole year later, and you’re still good to go. The Second Circuit in Pew joined every other court of appeals to have rewritten this provision, and held that it means the exact opposite of what it says: a party seeking permission to appeal a remand order must do so “not more than 7 days after entry of the order” (emphasis added to non-existent statutory text).

Third Circuit Ruling On Permissive Class Certification Appeals Under Rule 23(f)

by Brian Wolfman

Federal Rule of Civil Procedure 23(f) says a court of appeals may permit an appeal from a district court order granting or denying class certification if a petition for permission to appeal is filed with the court of appeals within 10 days of entry of the district court’s order. In Gutierrez v. Johnson & Johnson, No. 07-8025 (3d Cir. Apr. 22, 2008), a race discrimination class action, the district court denied class certification, and the plaintiffs moved for reconsideration 30 days later. The district court denied the reconsideration motion, and the plaintiffs petitioned for permission to appeal within 10 days of that denial. The Third Circuit dismissed the Rule 23(f) petition as untimely. The court of appeals noted that regardless of whether Rule 23(f)’s 10-day deadline is “jurisdictional,” it is nevertheless “strict and mandatory” – meaning, presumably, that it will be enforced in virtually every case. The court of appeals dismissed the petition because the plaintiffs did not seek permission to appeal or reconsideration in the district court within 10 days of denial of class certification. I understand the first part of the Third Circuit’s holding. Rule 23(f) says 10 days, and so if you miss the deadline, you’re out of luck. But I don’t understand the second part. The court of appeals said that if the losing party seeks reconsideration within 10 days of the district court’s class certification, then the 10-day time limit disappears and starts anew after the motion for reconsideration is ruled on. Why? What’s a motion for reconsideration anyway? And what’s the origin of the 10-day period for seeking reconsideration? Is it imported from Rule 23(f), which says nothing at all about motions for reconsideration?

Second Circuit: Plaintiffs Have Standing To Pursue Antitrust Case Alleging Collusion By Major Credit Card Companies To Require Arbitation And Ban Consumer Class Actions

by Brian Wolfman

The Second Circuit today issued Ross v. Bank of America, No. 06-04755 (Apr. 25 2008). In this case, the plaintiff credit card holders claimed that the defendant banks conspired in violation of section 1 of the Sherman Antitrust Act to include in their credit card contracts provisions that impose arbitration as the sole method of resolving disputes relating to the credit accounts and purport to ban class actions. The district court held that the plaintiffs lacked Article III standing, principally because the arbitration clauses had not been invoked against the plaintiffs. The Second Circuit reversed. The court held that because the case was based on an antitrust theory (and was not a challenge to the contract provisions themselves), the plaintiffs had suffered an Article III injury. The court noted, among other things, that the conspiracy to require arbitration and ban class actions had undermined the plaintiffs’ choice of contract provisions in the marketplace, and that limitation was a concrete and present injury. As the court of appeals put it, a “card that limits the holder to arbitration is less valuable (all other factors being equal) than a card that offers the holder a choice between court action or arbitration.” The opinion is only 15 pages and is written in plain English. Definitely worth a look.

Second Circuit Rejects Class Certification in "Light" Tobacco Litigation

Last Thursday, the Second Circuit issued McLaughlin v. American Tobacco Company, No. 06-4666 (2d Cir. Apr. 3, 2008), reversing Judge Jack Weinstein's certification of a class including virtually all Americans who had purchased cigarettes labeled as "light" or "lights." Plaintiffs alleged that they were deceived into believing that “light” cigarettes are healthier than “full-flavored” cigarettes. The court of appeals held that the class could not meet Federal Rule of Civil Procedure 23(b)(3)'s requirement that the common questions predominate over the individual questions for a number of reasons, including the need for each plaintiff to show that he or she relied on defendants' deceptions. The court of appeals acknowledged that a district court may partially certify a case on common issues (even where individual questions predominate on other issues) under Rule 23(c)(4), but held that use of that Rule was impermissible in this case because it would not “reduce the range of issues in dispute and promote judicial economy.”

Note that the Supreme Court has granted review in another "light" tobacco case, Altria v. Good, 07-562. That case presents the question whether the plaintiffs' claims are preempted by federal law.

Fifth Circuit Disapproves of Secret Class Action Fees

by Greg Beck

The Decision of the Day covers an interesting Fifth Circuit decision about secret fees in class action settlements. In In re High Sulfer Content Gasoline Products Liability Litigation, Shell Oil had agreed to pay $3.7 million to class members and almost double that as attorneys' fees. To divide up the fees among the 32 firms and 72 lawyers involved in the case, the district court appointed a five-member fee committee, which proceeded to award more than half the fees to its own members. The fee committee also recommended that the district court seal all records related to the disbursement and require all recipients to keep their fee awards confidential.

The Fifth Circuit vacated the award, writing:

On a broad public level, fee disputes, like other litigation with
millions at stake, ought to be litigated openly. Attorneys’ fees, after
all, are not state secrets that will jeopardize national security if
they are released to the public. . . . From the perspective of class
welfare, publicizing the process leading to attorneys’ fee allocation
may discourage favoritism and unsavory dealings among attorneys even as
it enables the court better to conduct oversight of the fees. If the
attorneys are inclined to squabble over the generous fee award, they
are well positioned to comment—publicly —on each other’s relative
contribution to the litigation.