Consumer Law & Policy Blog

Second Circuit Agrees to Hear Interlocutory Appeal of Judge Weinstein's Class Certification in Massive "Light" Tobacco Case

    By Brian Wolfman   

    The Second Circuit has granted the tobacco industry's request to hear an interlocutory appeal seeking reversal of Judge Jack Weinstein's September 2006 certification of a national class action challenging the industry's deceptive marketing of so-called "light" tobacco products.  (Basically, the plaintiffs allege that the tobacco industry deceived consumers into believing that "light" cigarettes are healthier than ordinary cigarettes.)  After the Wall Street Journal criticized Judge Weinstein's ruling and joked that the judge had been influenced by something he'd been smoking, CL&P contributor Steve Gardner responded, explaining why Weinstein's ruling was "the opposite of radical."

    The Second Circuit had earlier stayed the district court proceedings while it considered whether to hear the appeal, thus putting off the trial, which Weinstein had scheduled for January 2007.  An early trial is now impossible, as the Second Circuit will presumably get full briefing from the parties and amici and set the case for oral argument.

     As explained here, just last year, the Second Circuit overturned another Weinstein class action ruling in the Simon II case.  There, Weinstein had certified a national non-opt-out punitive damages class of people diagnosed with smoking-related disease.  There are significant differences between the "light" tobacco case and Simon II, and we will see if those differences are enough to lead to a different result this time around.

Opening the Door Back Up for Consumer Claims

by Mike Quirk

This is a followup to a panel presentation given at NCLC's Class Action Symposium in Miami earlier this week.  Over the past year, consumers have continued to make progress fighting back against companies that impose mandatory arbitration clauses banning arbitral awards of class-wide relief.  Consumers prevailed on challenges to these clauses before the U.S. Court of Appeals for the First Circuit and the State Supreme Courts of Illinois and New Jersey.  The carefully reasoned decisions of these three courts give consumers the chance to assert federal and state law claims that the class bans would have extinguished.

While these decisions represent important victories for consumers, none is an unqualified victory.  For consumers and their advocates who continue to encounter these clauses, there are at least two important lessons to be taken from the recent appellate decisions.  First, none of these courts holds that class arbitration bans in consumer contracts are per se unenforceable.  Rather, the decisions invalidating the bans turn on particular characteristics of the claims that were before each court.  Second, in assessing the validity of these class bans and whether it would be prohibitive for consumers to bring claims individually, each of the three courts was influenced by different factors.  What follows is a short overview of these decisions to hopefully guide consumers and advocates who will need to rely on these cases as companies continue to hide behind these class arbitration bans.

What Is the U.S. Attorney General Doing with Settlement Notices Under the Class Action Fairness Act?

by Scott Nelson

The Class Action Fairness Act (CAFA) requires that whenever a federal class action filed after the Act's effective date is settled, notice of the proposed settlement must be sent to relevant federal officials, which in most cases means the Attorney General of the United States.  But what does the Attorney General do with these notices?  It seems that is a mystery.

The Senate Judiciary Committee's Report on CAFA says that the point of the notice provision is "to ensure that a responsible ... federal official receives information about proposed class action settlements and is in a position to react if the settlement appears unfair to some or all class members or inconsistent with applicable regulatory policies."  Put another way, the provision is aimed at "adding a layer of independent oversight to prohibit inequitable settlements."  At the same time, however, the Senate Report stresses that the law doesn't actually require the Attorney General to do anything: "it should not be construed to impose any obligations, duties or responsibilities on the federal ... officials who receive notice of a class action settlement."  Thus, whether the notice provisions do any good depends entirely on what (if anything) the officials who receive them decide to do with them.

As far as I can tell, there is virtually no publicly available information about what the U.S. Attorney General does with CAFA settlement notices - who, if anyone, reviews them; what, if any, standards are used in reviewing them; and what, if anything, the AG does once it has reviewed them.  That's perhaps not terribly surprising, because the Department of Justice (unlike the FTC) didn't have any program for reviewing class action settlements before CAFA was enacted, and nothing in CAFA obligated DOJ to institute such a program.  But one might hope that the AG at least does something with the notices he receives.

If anyone has any information on this subject, we'd like to hear about it.  Meanwhile, we've submitted this Freedom of Information Act request to the Department of Justice seeking any documents that set forth the AG's policies and procedures for reviewing CAFA settlement notices, as well as documents indicating how many notices the AG has received and what (if any) actions he has taken as a result.  It's been reported that the California AG has received in excess of 40 CAFA settlement notices since the Act went into effect, so Alberto Gonzales has probably received even more, and there has to be some paper trail indicating what he does with them.

Maybe the CAFA settlement notices just go into some black hole at DOJ - which also has been known to happen with FOIA requests like mine.  But I hope that at least someone at DOJ is looking at these things, and that a fairly simple FOIA request may help shed some light on the subject.  We'll see - but I'm not going to hold my breath in the meantime.

New and Improved NACA Class Action Guidelines

by Charles Delbaum

Class action practitioners should  become familiar with September, 2006 revisions to the National Association of Consumer Advocates’ Guidelines for Litigating and Settling Consumer Class Actions, originally adopted in 1997. The initial Guidelines were published at 176 F.R.D. 370.  The new Guidelines, available at www.naca.net, are 70 single spaced pages. The Guidelines set out best practices governing difficult ethical and practical issues, are replete with fresh insights into important legal issues, and have proved to be persuasive authority to courts.

Eight topics are added, including how to settle a predatory lending class action while protecting homeowners’ rights to resist foreclosure, how to keep class representatives from being “picked off” by offers of individual relief, and preventing defendants from improper ex parte communications with customers who are class members. The revised Guidelines also clarify several existing guidelines, and delete two guidelines because intervening Fed. R. Civ. P. 23 amendments afford adequate direction. See, e.g., In re Educational Testing Service Praxis, 2006 WL 2513005 (E.D. La. 2006).  For reasons of space, this article only briefly reviews certain highlights of the revised Guidelines:

California Supreme Court Grants Review In Important Consumer Protection Cases

    By Brian Wolfman

    CL&P readers may recall that, back on September 15, I blogged about recent California appellate decisions holding that Proposition 64 -- which imposes tighter standing requirements for private litigation under California's consumer protection statutes -- requires plaintiffs to show reliance on a defendant's unfair or deceptive act or practice.  I noted that Public Citizen and the Center for Auto Safety had filed an amicus letter asking the California Supreme Court to review these cases.  That letter explained that a reliance requirement would be antithetical to one of the basic purposes of modern consumer protection statutes: to override the obstacles to proving common-law fraud, one element of which is reliance.

    I'm happy to report that today the California Supreme Court granted review.   We plan to file an amicus brief on the merits.  I will keep you posted.

Speaking of Philip Morris ... An Update on the Schwab Class Action and United States v. Philip Morris

by Scott Nelson

As most readers are probably aware (and as previously discussed in this blog by Stephen Gardner last month here), Judge Jack Weinstein of the Eastern District of New York certified a nationwide class action of light cigarette smokers in a RICO/consumer fraud action against the major cigarette manufacturers on September 25, 2006.  The order also denied summary judgment and set a trial date of January 22, 2007.  For good measure, Judge Weinstein denied certification of his summary judgment ruling for appeal and refused to stay the trial date.

The manufacturers went to the Second Circuit and filed a Rule 23(f) application for interlocutory review of the certification order on October 6, together with an application for a stay of pretrial and trial proceedings pending action on the Rule 23(f) application and resolution of the appeal if the application were granted.  The plaintiffs filed oppositions to both motions (I don't have links, but we'll try to find them).

On October 24, Second Circuit Judge Barrington Parker entered an order granting a temporary stay of pretrial and trial proceedings, pending the Second Circuit's decision whether to grant the Rule 23(f) application.  Otherwise, he referred the motion for stay pending appeal to the panel (whose identity is as yet unknown) that will decide whether to hear the Rule 23(f) appeal.  Then, on October 27, the Second Circuit clerk's office issued a notice to counsel that oral argument on the motion for stay will be heard by the panel on December 5.

Although the scheduled argument is on the motion for a stay, it seems likely that the principal factor determining whether a stay will be granted is whether the court will accept the Rule 23(f) appeal.  The case thus presents the somewhat unusual situation of a full oral argument before a court of appeals over whether it will accept an appeal for briefing and argument.  That the court is hearing argument on the issue also seems to call into question predictions, such as those of the Wall Street Journal, that review and reversal of Judge Weinstein's ruling by the Second Circuit is inevitable.  Meanwhile, the parties evidently won't know whether this massive case will be going to trial in January until December 5 at the earliest.

Meanwhile, on the subject of stays, the D.C. Circuit yesterday granted a stay of Judge Kessler's rulings in United States v. Philip Morris, effectively permitting cigarette companies to continue marketing light cigarettes and engaging in other activities found by Judge Kessler to constitute RICO violations, pending appeal.  The panel of Sentelle, Randolph and Tatel said nothing more to justify their ruling than that "Appellants have satisfied the stringent standards required for a stay pending appeal."   Well, that explains that.

CAFA Jurisdiction: More on Judge Posner's Decision in Santamarina v. Sears

    By Brian Wolfman

    On October 23, 2006, I blogged briefly about Judge Richard A. Posner’s Class Action Fairness Act (CAFA) decision in Santamarina v. Sears, Roebuck & Co.  I described dicta in that case that Judge Posner had offered to his readers “for future reference,” and I suggested that, under his view, federal courts might assume federal jurisdiction under CAFA where none existed.  My earlier post was opaque, so I am writing now to elaborate.   

    Santamarina noted that an erroneous decision not to remand to state court a case removed under CAFA is not “jurisdictional.”   As Judge Posner put it, that kind of error “would not be so grave a mistake—so usurpative an assumption of federal jurisdiction withheld by Congress—that we would have an independent duty to correct it even if no party complained.”  Judge Posner cited no authority for that proposition, and it struck me as unusual.  If “federal jurisdiction is withheld by Congress,” doesn’t that mean that it’s, well, withheld by Congress?  And, if it has been withheld, doesn’t that mean a federal court cannot exercise it?  Let’s explore this a bit.

California District Court Trashes CAFA's "Legislative History"

  by Scott Nelson

The Class Action Fairness Act has, in the 20 months since its passage, been the subject of a large number of reported federal decisions at both the trial and appellate levels, and many of the opinions have relied in interpreting the statute on the Senate Judiciary Committee Report (S. Rep. No. 109-14), which did not appear until after the statute was passed by both houses of Congress and signed by the President.  Some of us have been using every available opportunity to question the authority of such post hoc legislative history.  Now Judge Stephen G. Larson of the U.S. District Court for the Central District of California has picked up on the issue and published an opinion, Lao v. Wickes Furniture Co., _ F. Supp. 2d _, 2006 WL 2879763 (C.D. Cal. Oct. 4, 2006), that strongly suggests that the Senate Report is, as legislative history, not worth the paper it's printed on. 

Significantly, the opinion goes on to disagree with three courts of appeals (the Fifth, Eleventh, and Seventh) on the issue of who bears the burden of proof of establishing the applicability of CAFA's so-called "home state" and "local controversy exceptions."  According to Lao, when a defendant removes under CAFA and is faced with a motion for remand, the defendant has the burden of establishing that federal jurisdiction is not barred by the "home state" and "local controversy" provisions, just as it bears the burden of establishing other elements of CAFA jurisdiction.

Both for its discussion of legislative history and its holding on the burden of proof, the decision may have significant influence on how some of the key CAFA issues percolating through the courts are ultimately resolved.  Moreover, the case itself may be a vehicle for the Ninth Circuit to weigh in both on the legislative history question and the burden of proof, because the defendants have sought leave to appeal within the statutory 7-day deadline.

Seventh Circuit Takes Hard Look at "Coupon" Settlements, Citing CAFA

  by Scott Nelson

As far as I can tell, there are not yet any reported federal decisions that apply the settlement provisions of CAFA, which are found at 28 U.S.C. 1711 - 1715.  (If I'm wrong, I'd love to hear about it.)  But in its recent decision in Synfuel Technologies, Inc. v. DHL Express (USA), Inc., 463 F.3d 646 (7th Cir. 2006), the Seventh Circuit cited what it considered to be CAFA's policy of "heightened scrutiny" of coupon settlements in support of a decision striking down a non-CAFA settlement because the district court did not adequately evaluate its fairness.  The opinion is interesting in a number of respects, a few of which I'll discuss.

More on FJC’s CAFA Data and the “September Surprise”

by guest contributor Tom Willging (Senior Researcher, Federal Judicial Center)

I could say that I am surprised that Brian Wolfman is surprised that I’m surprised by the data we reported (on behalf of the Federal Judicial Center) in September on the early returns from the Class Action Fairness Act, but that could get silly. I did not expect the impact of CAFA to be so immediate and dramatic.

One reason to expect some lag time came from the rumors and anecdotes that plaintiffs’ lawyers were rushing to file cases in state courts before the law was enacted. Granted, they didn’t have much warning and there was no delay in signing the bill, but reports of state court filings suggested that there would be a lull in new filings of class actions in the weeks or months after CAFA went into effect.  What we found instead was an unexpected number of filings and removals in the first four and a half months (the period covered by this interim report).  Before CAFA, some had predicted a modest effect, perhaps to persuade Congress that CAFA would not overburden the federal courts. For example, one estimate from a knowledgeable judge was that CAFA would bring about 300 new cases into the federal courts each year.  What we found is an estimated impact, based on the first four months, of a rate of 370 new filings in or removals to federal court annually. While 370 new cases per year is our best estimate, projecting that rate into the future is uncertain. Assuming that the first four and a half months were atypical, the rate could be far higher. The future rate might even be lower if, for example, some defendants decide that removing certain cases to federal courts constrains their settlement options or otherwise turns out to be not as friendly an environment as they expected. In any event, there is no need to speculate. We will have data in April 2007 that will give a fuller measure of the impact—and maybe more surprises.

Brian is absolutely right that a key question is "What’s happening in the state courts?"  We are up to our elbows and ears in gathering and trying to make sense of the federal data. It would certainly make a difference to know whether or not state court class actions are increasing, decreasing, or staying about the same. But we do not have the resources to study state courts.  No single researcher or entity is in a position to collect data on state court activity in all the states.  Data do not exist in many courts. We have some hope that researchers in individual states might examine any available data in their jurisdictions. Researchers with the California Judicial Council are in the early stage of looking at class action activity in a state that should provide fertile soil for class action research, given its historical level of class action activity.  We are working with those researchers and stand ready to provide them with data on class action activity in California’s federal courts. There are thorny problems of matching cases to avoid double-counting of, say, removed and remanded cases or duplicate filings of identical cases, but those should be surmountable. We ask that you encourage empirical researchers in your home state to undertake similar research. We will gladly cooperate and work with them so that we all end up with a complete picture of the class action landscape after CAFA.