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The American Antitrust Institute (AAI) seeks to preserve the effectiveness of antitrust class actions as a central component of ensuring the vitality of private antitrust enforcement.[1] As part of its efforts, AAI issues periodic updates on developments in the courts and elsewhere that may affect this important device for protecting competition and consumers. This update covers developments since our Fall 2017 update.

I. Proposed Legislation

In our Spring 2017 update, we provided a detailed review of the Fairness in Class Action Litigation Act of 2017, H.R. 985, which passed the House in a floor vote, 220-201. AAI believes the bill would likely eviscerate consumer, antitrust, employment, and civil rights class actions. There has been no further action since the bill was received in the Senate and referred to the Senate Judiciary Committee on March 13, 2017. If it is not signed into law before the expiration of the current congressional term on January 3, 2019, it would have to be reintroduced in the 116th Congress and pass both houses to become law. Govtrack currently predicts that the bill has a 36% chance of being enacted.

II. Offers of Judgment and Mootness

In Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016), the Supreme Court left open the question of whether a defendant could moot a class action by depositing the full amount of the named plaintiff’s individual claim in an account payable to the plaintiff, where the court then enters judgment for the plaintiff in that amount. In several previous updates, we have tracked the lower courts’ treatment of this hypothetical. Our Fall 2016 update noted that the Third, Sixth, and Ninth Circuits had held that named class plaintiffs may continue to seek class certification even if they no longer have a justiciable claim for individual relief. Our Fall 2017 update noted that the Seventh Circuit in Fulton Dental LLC v. Bisco Inc., 860 F.3d 541 (7th Cir. 2017), in an opinion by Chief Judge Wood, went so far as to hold that a deposit of funds into the court registry does not moot a plaintiff’s individual claim, let alone its class claim, based on principles of contract law.

The Second Circuit, in Leyse v. Lifetime Entertainment Services, LLC, 679 Fed. Appx. 44 (2d. Cir. 2017), had held that a district court could enter judgment in favor of a class representative notwithstanding the plaintiff’s refusal to accept a settlement offer tendered in the amount of its claim, although the court recognized that such a dismissal would not moot the entire case. With respect to the validity of the dismissal, the court cited Second Circuit precedent, including Tanasi v. New All. Bank, 786 F.3d 195 (2d Cir. 2015), and reasoned that the Campbell-Ewald hypothetical expressly left open this scenario. But in our Fall 2017 update, we noted that the Second Circuit subsequently reversed course, apparently creating an intra-circuit split on the validity of such dismissals. In Radha Geismann v. ZocDoc, 850 F.3d 507 (2nd Cir. 2017), on facts similar to Leyse, the court relied on Campbell-Ewald’s treatment of an unaccepted settlement offer as a legal nullity, which led it to hold that the district court’s entry of judgment was a “precluded dismissal” that “should not have been entered in the first place.” The court, without citing or referencing Leyse, interpreted Tanasi as “declining to address” the proposition for which Leyse believed Tanasi stood.

Radha Geismann has since been remanded, and the district court judge, the Hon. Louis L. Stanton, proceeded to work with the defendants in a pre-motion conference to “perfect the Campbell-Ewald hypothetical.” After the pre-motion conference, the defendant sought permission to deposit the full amount owed (and to voluntarily consent to injunctive relief) and file a motion for summary judgment requesting that the court enter judgment, which the defendant believed the court would be permitted to grant under Leyse and then dismiss the claims with prejudice. Judge Stanton granted the defendant’s request. Since our Fall 2017 update, this remand decision has been appealed and briefed in the Second Circuit. Oral argument is scheduled for May 14, 2018 (No. 17-2692).

As of this writing, no circuit court has held that the Campbell-Ewald hypothetical moots a plaintiff’s class claim.

III. Ascertainability

There remains an ongoing circuit split over whether Rule 23 contains a heightened ascertainability requirement that demands class plaintiffs plead and prove an administratively feasible mechanism for identifying class members. The tide of decisions has moved against such a requirement, with each of the last five circuit courts to consider a heightened ascertainability requirement having ruled against it. The Second, Sixth, Seventh, Eighth, and Ninth Circuits now reject an administrative feasibility prerequisite, while the First and Third Circuits (and to a lesser extent, the Eleventh Circuit[2]) have embraced some form of a heightened ascertainability requirement. The Fifth, Tenth, and D.C. Circuits have not yet explicitly addressed the issue.

In our Fall 2017 update, we noted that the Supreme Court refused to enter the fray, declining ConAgra’s petition for certiorari in Briseno v. ConAgra Foods, Inc., 844 F.3d 1121 (9th Cir. 2017) (No. 16-1221). The Court had previously declined cert. petitions in Mullins v. Direct Digital, 795 F.3d 654 (7th Cir. 2015) (No. 15-549), and Rikos v. The Proctor & Gamble Co., 799 F.3d 497 (6th Cir. 2015) (No. 15-835), but Briseno marked the first time it had done so since Justice Gorsuch ascended to the bench.

In November 2017, the losing defendants in In re Petrobras Securities, 862 F.3d 250, 265 (2d. Cir. 2017), where the Second Circuit first aligned itself with the Sixth, Seventh, Eighth, and Ninth Circuits, petitioned the Court for certiorari on the ascertainability question. However, on January 3, 2018, the parties reached a $2.95 billion settlement in the case and proceeded to file a joint motion asking the Court to defer consideration of the petition pending the district court’s decision whether to approve the settlement. On January 16, 2018, the joint motion was granted.

In December 2017, after a district court had denied class certification on a combination of ascertainability, commonality, and predominance grounds, the Third Circuit in Luppino v. Mercedes Benz USA, 2017 WL 6015698 (3d Cir. 2017), affirmed on the basis of commonality and predominance, without discussing the district court’s ascertainability analysis.

IV. Predominance in Nationwide Settlement Classes Involving Varying State Laws

In a class action filed in California by vehicle purchasers alleging that car manufacturers falsely advertised the fuel efficiency of their vehicles’ engines, the Ninth Circuit in In re Hyundai and Kia Fuel Economy Litigation, 881 F.3d 679 (9th Cir. 2018), recently vacated a district court’s certification of a nationwide settlement class on grounds that variations in state law might defeat predominance.

After settlement objectors appealed the district court’s certification order, a divided panel held that the district court erred by failing to apply California’s choice-of-law rules, failing to address evidence that the laws in various states were materially different, and failing to rule on whether material differences in various state laws defeated predominance. Notably, the majority determined that it is incumbent upon a district court to examine for itself the forum state’s choice-of-law rules to determine whether the forum state’s laws or the laws of multiple states apply to the claims. Moreover, because the choice-of-law question implicates satisfaction of the predominance requirement under Rule 23, the majority believed the plaintiff bore the burden “of demonstrating through evidentiary proof that the laws of the affected states do not vary in material ways” so as to preclude a finding of commonality.

The dissent sharply criticized the majority for applying a “newly invented standard” that significantly burdens overloaded district courts, creates a circuit split, and runs afoul of the Erie doctrine. Among other things, the dissent argued that the majority erred by placing the burden “on the district court or class counsel to extensively canvass every state’s laws and determine that none other than California apply,” particularly where, under California’s choice-of-law rules, California law applies unless a foreign law proponent carries the burden of showing otherwise. The dissent saw no basis in Rule 23 to shift the choice-of-law burden from objectors, who were the proponents of applying foreign state law, to class counsel, or to require class counsel to prove a negative. It also believed the burden shift violated the Erie doctrine, because Erie requires that federal courts sitting in diversity jurisdiction must apply the substantive law of the state in which it sits, and California’s choice-of-law rules are substantive law. Finally, the dissent noted that the majority’s ruling was at odds with sister circuits, which place the burden on the objector to prove which law applies. Plaintiffs have filed a petition for rehearing en banc, which has attracted numerous amicus briefs.

In the context of antitrust class actions, the Third Circuit held in 2011 in Sullivan v. DB Investments, 667 F.3d 273 (3d Cir. 2011) (en banc), that variations in state Illinois Brick-repealer rules do not defeat or create any special burden on plaintiffs to establish commonality and predominance. AAI filed an amicus brief in support of the position adopted by the en banc court.

V. Tolling

In our Fall 2017 update, we noted that the Ninth Circuit in Resh v. China Agritech, 857 F.3d 994 (9th Cir. 2017), held that the pendency of an uncertified class action tolls the statute of limitations for subsequent class actions. This extension of the Supreme Court’s rule in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), which tolls the statute of limitations for individual claims, enables unnamed class plaintiffs to later bring a separate individual or class claim when class certification is denied.

The court recognized that allowing unnamed plaintiffs to later bring class actions as named plaintiffs could lead to successive attempts at certifying a class, but the court was satisfied that its holding would not lead to abusive, repetitive filings, because class counsel on contingency fee arrangements have little incentive to bring such cases, and ordinary principles of preclusion and comity will further reduce those incentives. At the same time, the court reasoned that permitting the tolling of class claims where putative class plaintiffs can satisfy Rule 23 and overcome any comity or preclusion obstacles would advance the policy objectives that led the Supreme Court to permit tolling in the first place.

In December 2017, the Supreme Court granted the defendant’s petition for certiorari in Resh on the question of “[w]hether the American Pipe rule tolls statutes of limitations to permit a previously absent class member to bring a subsequent class action outside the applicable limitations period.” Among other things, petitioner argues that permitting the tolling of class claims creates strong incentives for abuse by plaintiffs because the prospect of repetitive claims exacerbates the threat of high discovery costs and extreme liability exposure that already pressure defendants to settle even meritless claims. Petitioner also contends that preclusion will not prevent abusive, repetitive filings because preclusion does not apply to absent class members unless and until a class is certified. Finally, petitioner contends that the comity doctrine would be ineffective because it is too loose and weak.

Respondents counter that petitioner’s policy preference for fewer class actions is better addressed to Congress or the process for amending the Federal Rules of Civil Procedure. In any event the Court already considered and unanimously dismissed petitioner’s policy concerns in Smith v. Bayer Corp., 564 U.S. 299 (2011), as a basis for expanding ordinary res judicata principles in the context of class certification decisions. Moreover, comity is in fact a workable doctrine to adjudicate the kinds of concerns raised by the tolling of class claims, and denying such tolling would lead to inequities.

The Court heard oral argument on March 26, 2018. According to a SCOTUSblog analysis, “most of the justices expressed grave doubts about limiting earlier [tolling] precedents,” which suggests that allowing the tolling of class claims will be deemed permissible. However, several justices did express concern about the prospect of “stacked” class actions when the original such action is dismissed on grounds that it is not suitable for class adjudication.[3]

VI. Specific Personal Jurisdiction

In state court suits where general personal jurisdiction is lacking, plaintiffs must establish specific personal jurisdiction, which requires that the suit arise out of or relate to the defendant’s contacts with the forum. In our Fall 2017 update, we noted that the Supreme Court in Bristol-Myers Squibb Co. v. Superior Court of California, 137 S. Ct. 1773 (2017), strictly interpreted this requirement under a due process and federalism rationale, thereby preventing a group of non-resident plaintiffs from joining with resident plaintiffs in a California mass action where the defendant had extensive forum contacts but the contacts were not related to the non-resident plaintiffs’ claims.

We noted that the upshot of the holding is that defendants who are engaged in nationwide conduct likely cannot be sued by groups of people injured both within and outside the forum State if general jurisdiction is lacking. We also raised the issue, identified in a footnote in Justice Sotomayor’s dissent, whether the Court’s opinion would be extended to class actions in which a plaintiff injured in the forum State seeks to represent a nationwide class of plaintiffs, some of whom were injured outside the forum state.

Since our last update, district courts have split on whether to apply Bristol-Myers to class actions where general jurisdiction is lacking.[4] Courts that have found it inapplicable to class actions have tended to distinguish class actions based on the unique due process considerations reflected in Rule 23, mindful that these due process considerations reflect Congress’s judgment pursuant to an exercise of its constitutional authority. Courts that have found it applicable tend to read Bristol-Myers as articulating a general due process principle, without regard to Rule 23. In the lone antitrust class action where a court took up the question, In re Dental Supplies Antitrust Litig., the district court determined that Bristol-Myers was “instructive” and found personal jurisdiction lacking for one of the four named defendants that had no purposeful availment or direct activity in the forum state. However, the case was permitted to proceed against the remaining defendants.[5]

VII. Settlements that Include States as Class Members

The Third Circuit recently held in In re Flonase Antitrust Litig., 879 F.3d 61 (3d Cir. 2017), that under the Eleventh Amendment, class action settlements precluding further lawsuits could not be enforced against States that have not waived sovereign immunity. After indirect purchasers of Flonase nasal spray sued SmithKline Beecham (d/b/a GlaxoSmithKline) (GSK) alleging state and federal antitrust violations arising from alleged sham citizen petitioning of the Food and Drug Administration, the parties reached a global settlement, to which the State of Louisiana did not object or opt out. However, a year later, the Louisiana Attorney General sued GSK in state court making allegations similar to the class. GSK moved to enforce the class settlement against the State, and the district court denied GSK’s motion. The Third Circuit affirmed.

First, the court held that a motion to enforce a class settlement qualifies as an action “against” a state for Eleventh Amendment purposes because the motion “sought an equitable remedy against a State” insofar as granting relief would enjoin the State from bringing claims released in the class settlement. Second, the State did not waive its immunity simply be receiving a notice of the class settlement provided under the Class Action Fairness Act (CAFA), because “a state cannot waive its immunity merely by receiving notice and failing to act.” Consequently, Louisiana’s state court suit could proceed. GSK petitioned for en banc review but was denied.

The upshot of the decision is that, when unnamed States are included as members of a settlement class, the States’ claims likely cannot be extinguished by enforcing the settlement in federal court. Unless the settlement can be enforced in state court in these circumstances, the decision may make it more difficult for certain class actions to settle, particularly where State claims may be substantial and defendants seek global peace. The parties may have to explore whether affected States are willing to effectively opt into the settlement by explicitly releasing any claims.

VIII. Removal Under CAFA

The Sixth Circuit in Roberts v. Mars Petcare US, Inc., 874 F.3d 953 (6th Cir. 2017), recently held that defendants cannot selectively interpret their dual citizenship to trigger removal under the diversity language in CAFA. Under CAFA, 28 U.S.C. § 1332(d)(2)(a), removal from state to federal court is possible only so long as “any member of a class of plaintiffs is a citizen of a State different from any defendant.” Plaintiffs filed a class action on behalf of Tennessee citizens in Tennessee state court and sought to maintain the action there. The defendant was a citizen of both Tennessee and Delaware and invoked its Delaware citizenship in support of removal to federal court under CAFA, arguing that its Tennessee citizenship was not a bar. The Sixth Circuit held that a defendant cannot ignore its principal place of business (in this case Tennessee) to create diversity under CAFA.

The Court believed the plain language of the statute was equally susceptible to both parties’ interpretations. However, the statutory and historical context were both instructive. First, two of 1332(d)(2)(a)’s “statutory neighbors” consider corporations to be simultaneous citizens of the state in which they are incorporated and the state that serves as their principal place of business, which informs 1332(d)(2)(a). Second, diversity jurisdiction’s historical concern with protecting out-of-state parties from the risk that local fact-finders would favor in-state parties is not implicated where a corporation is subject to suit in the state that serves as its principal place of business.

For the court to rule otherwise, the panel reasoned, CAFA would have to have effectively “granted federal jurisdiction over class actions against two-thirds of all publicly traded companies in the United States as long as the lawsuit is filed outside of Delaware [where public companies are often domiciled for tax and other reasons].” The panel believed such a jurisdictional grant would significantly alter the balance between federal and state courts, and “Congress does not ordinarily hide animals that big in dens so small.”

IX. DOJ Advocacy in Private Class Action Settlement Proceedings

In February 2018, in Cannon v. Ashburn Corp., No. 1:16-cv-01452-RMB-AMD (D.N.J. filed Feb. 16, 2018), the Consumer Protection Branch of the Department of Justice (DOJ) appeared in a private class action to file a statement of interest urging the district court to reject the parties’ settlement agreement. The statement of interest criticized the settlement for failing to meet Rule 23’s fair, reasonable, and adequate standard on grounds that it provided rebate codes of limited value to class members and provided class counsel a fee of $1.7 million, which it claimed was excessive under the circumstances.

Under CAFA, 28 U.S.C. § 1715, class-action defendants are required to notify the Attorney General and state officials of proposed class action settlements. In making its appearance, the DOJ argued that, “While the CAFA notice provision does not grant any specific authority to, or impose any obligation on, federal or state officials, its legislative history shows that Congress intended the notice provision to enable public officials to ‘voice concerns if they believe that the class action settlement is not in the best interest of their citizens.’”

The filing marked the first time the DOJ has made such an appearance in more than a decade and only the third time since CAFA was enacted in 2005. The dearth of such filings was recently explained by DOJ Associate Attorney General Rachel Brand during a Federalist Society Luncheon speech. Brand said that, although DOJ receives over 700 CAFA notices every year, it has rarely acted on them because of “an almost comical story of government bureaucracy.” Mail addressed to the Attorney General, she explained, “goes through multiple mail rooms, each in a different government building and each requiring weeks of processing and sorting.” The mail, she continued, is “then scanned by X-ray machines, which makes any CDs in the package unreadable. And that’s just the mailroom process. On average, it would take 70 days from receipt until a [DOJ] lawyer reviewed the [CAFA] notice. Often, they weren’t reviewed by a lawyer until after the fairness hearing or even after the settlement had been finalized.”

Brand indicated that the DOJ has since begun to fix this process and is now better positioned to review CAFA notices. One week prior to her speech, however, Walmart announced that, after an eight-month tenure as Associate Attorney General, Brand would be leaving DOJ to join the company as an Executive Vice President. It is therefore unclear whether high-ranking DOJ officials will continue to champion close scrutiny of CAFA notices and whether additional interventions may be forthcoming.

X. Class Action Waivers

As we noted in or Spring 2017 and Fall 2017 updates, the Supreme Court granted cert. in Lewis v. Epic Systems Corporation, 823 F.3d 1147 (7th Cir. 2016) (No. 16-285), Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016) (No. 16-300), and Murphy Oil USA, Inc. v. NLRB, 808 F.3d 1013 (5th Cir. 2015) (No. 16-307), which involve the use of mandatory arbitration provisions containing class action waivers in employment agreements. The NLRB (and some circuits) held that such waivers are illegal under the National Labor Relations Act (NLRA) and captured by the FAA’s savings clause, which makes arbitration provisions valid “save upon such grounds as exist at law or in equity for the revocation of any contract.” A decision remains pending, and there have been no further developments since the cases were argued in October 2017.

XI. Cy Pres

In our Fall 2017 update, we noted that the Ninth Circuit in Gaos v. Google, Inc. upheld the parties’ $8.5 million settlement of a privacy claim related to Google search queries where all of the funds were approved to go to cy pres recipients for Internet privacy protection projects, rather than to any of the more than 100 million class members. An objector had argued that a claims process was feasible because only a negligible number of class members would likely submit claims. It also challenged the choice of cy pres recipients because of the affiliation of plaintiffs’ lawyers and Google with the recipients’ institutions. The court flatly rejected the objector’s arguments.

In what is now captioned Frank v. Gaos (No. 17-961), the losing objector has petitioned for certiorari. On March 28, 2017, the petition was distributed for conference on April 13, 2018.

A similar settlement challenged by the same objector is currently on appeal to the Third Circuit in In re Google Inc. Cookie Placement Consumer Privacy Litigation, Civ. No. 12-MD-2358 (SLR) (3d Cir. filed Mar. 7, 2017). The case was argued in November 2017, and a decision remains pending.

XII. Advisory Committee on Civil Rules

As we first reported in our Fall 2016 update, the Standing Committee on Rules of Practice and Procedure of the Judicial Conference of the United States, based on recommendations from the Advisory Committee on Civil Rules, proposed amendments to Rule 23 that (1) require that more information be provided to the district court at the time of class notice; (2) clarify that the decision to send notice is not appealable under Rule 23(f); (3) clarify that Rule 23(e)(1) notice triggers the opt-out period in Rule 23(b)(3) class actions; (4) update Rule 23(c)(2) regarding individual notice in Rule 23(b)(3) class actions; (5) establish procedures for dealing with class action objectors; (6) refine standards for approval of class settlements; and (7) address a Department of Justice proposal to include in Rule 23(f) a 45-day period in which to seek permission for an interlocutory appeal when the United States is a party.

In October 2017, after a review process involving the Advisory Committee on Civil Rules, the Rule 23 Subcommittee to the Advisory Committee, the Standing Committee, and the full Judicial Conference, a package of materials including the rules and relevant excepts from the various committee reports was forwarded to the Supreme Court. If the proposed amendments are approved by the Supreme Court, they will be forwarded to Congress. If approved by Congress, they may become effective as early as December 1, 2018.

 

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[1] The American Antitrust Institute is an independent, nonprofit organization devoted to promoting competition that protects consumers, businesses, and society. We serve the public through research, education, and advocacy on the benefits of competition and the use of antitrust enforcement as a vital component of national and international competition policy. For more information see www.antitrustinstitute.org. Comments on this update or suggestions for AAI amicus participation should be directed to Richard Brunell, rbrunell@antitrustinstitute.org, (202) 600-9640, or Randy Stutz, rstutz@antitrustinstitute.org, (202) 905-5420.

[2] The Eleventh Circuit adopted an administrative feasibility requirement in an unpublished opinion, Karhu v. Vital Pharmaceuticals, Inc., 621 Fed.Appx. 945, 947 (11th Cir. 2015).

[3] Ronald Mann, Argument analysis: Justices dubious about limiting precedent that tolls statutes of limitations to permit “stacked” class actions, SCOTUSblog (Mar. 27, 2018).

[4] Compare Casso’s Wellness Store & Gym, L.L.C. v. Spectrum Laboratory Products, Inc., 2018 WL 1377608 (E.D. La., Mar. 19, 2018) (distinguishing class actions from mass actions and refusing to extend Bristol-Myers to unnamed class plaintiffs); Jackie Fitzhenry-Russel v. Dr. Pepper Snapple Grp, Inc., No. 17-00564, 2017 WL 4224723 (N.D. Cal. Sept. 22, 2017) (same); In Re Chinese-Manufactured Drywall Prods. Liab. Litig., No. 09-02047, 2017 WL 5971622 (E.D. La. Nov. 30, 2017) (same, noting Congress’s Constitutional authority to shape federal court jurisdiction using Rule 23); Swamy v. Title Source, Inc., No. 17-01175, 2017 WL 5196780, at *2 (N.D. Cal. Nov. 10, 2017) (same) with Practice Management Support Services, Inc. v. Cirque du Soleil, Inc., 2018 WL 1255021 (N.D. Ill., Mar. 12, 2018) (“Bristol-Myers applies with equal force in the class action context”); Greene v. Mizuho Bank, Ltd., 2017 WL 7410565 (N.D. Ill. Dec. 11, 2017) (Court announced a general due process principle); In re Dental Supplies Antitrust Litig., No. 16-696, 2017 WL 4217115 (E.D. N.Y. Sept. 20, 2017) (Bristol-Myers is instructive in determining the requisite connection between forum and specific claims); McDonnell v. Nature’s Way Prods. LLC, No. 16-5011, 2017 WL 4864910 (N.D. Ill. Oct. 26, 2017) (same). See also Sloan v. General Motors LLC, 2018 WL 784049 (N.D. Cal., Feb. 7, 2018) (exercising pendent personal jurisdiction).

[5] See Chinese-Manufactured Drywall, 2017 WL 5971622 at *13 (discussing Dental Supplies).

The American Antitrust Institute (AAI) seeks to preserve the effectiveness of antitrust class actions as a central component of ensuring the vitality of private antitrust enforcement.[1] As part of its efforts, AAI issues periodic updates on developments in the courts and elsewhere that may affect this important device for protecting competition and consumers. This update covers developments since Spring 2017.

I. Proposed Legislation

In our March 2017 update, we provided a detailed review of the Fairness in Class Action Litigation Act of 2017, H.R. 985, which passed the House in a floor vote, 220-201. Fourteen Republicans and all House Democrats voted against the bill. AAI believes the bill would likely eviscerate consumer, antitrust, employment, and civil rights class actions.

On March 13, the bill was received in the Senate and referred to the Senate Judiciary Committee. As of this writing, no further action has been taken. The bill does not yet have a sponsor in the Senate. To overcome a filibuster, the bill would require all 52 Senate Republican votes and 8 Democratic votes. Govtrack currently predicts that the bill has a 37% chance of being enacted.

II.       Offers of Judgment and Mootness

In our November 2016 update, we noted that the Court in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016), had left open the question of whether a defendant could moot a class action by depositing the full amount of the named plaintiff’s individual claim in an account payable to the plaintiff, where the court then enters judgment for the plaintiff in that amount. We also noted that, since Campbell-Ewald, the Third, Sixth, and Ninth Circuits had held that named class plaintiffs may continue to seek class certification even if they no longer have a justiciable claim for individual relief.

In our March 2017 update, however, we noted that the Second Circuit in Leyse v. Lifetime Entertainment Services and the Seventh Circuit in Wright v. Calumet City, Illinois had declined to follow this line of cases, albeit on different facts.

In Wright, the Seventh Circuit had held that plaintiffs who accepted a Rule 68 settlement offer no longer had any personal stake in a class litigation unless the settlement agreement expressly preserved that right. Where they hadn’t, the court lacked jurisdiction under Article III.

In June, however, in Fulton Dental LLC v. Bisco Inc., 860 F.3d 541 (7th Cir. 2017), the Seventh Circuit ruled for plaintiffs on the precise Campbell-Ewald hypothetical: an unaccepted settlement offer made under Rule 68 coupled with a deposit of funds into the court registry pursuant to Rule 67. In an opinion by Chief Judge Wood, the court concluded that there was no principled distinction to be drawn between the Campbell-Ewald holding and the Campbell-Ewald hypothetical. The court held that a deposit of funds into the court registry does not moot a plaintiff’s individual claim, let alone its class claim. Among other things, the court noted that these funds do not necessarily belong to plaintiffs, and the court registry is not “an account payable to the plaintiff.” The court also “reconfirmed” that “as long as the proposed class representative has not lost on the merits before a class certification motion is filed, it is not barred from seeking class treatment.”

A month after Fulton Dental, a different Seventh Circuit panel in Conrad v. Boiron Inc., 869 F.3d 536 (7th Cir. 2017), also held that contract law principles prevent an unaccepted settlement offer from mooting a plaintiff’s individual and class claims.

The Second Circuit also has disputed the premise that a plaintiff no longer has a justiciable individual claim under the Campbell-Ewald hypothetical, notwithstanding Leyse. In Leyse, the defendant made an offer to settle the individual claim in full, the plaintiff rejected it, and the district court subsequently entered judgment for the plaintiff on the plaintiff’s individual claim. The Second Circuit held that, because Campbell-Ewald explicitly did not address this factual scenario, it was bound by circuit precedent in Tanasi v. New Alliance Bank, 786 F.3d 195, 198 (2d Cir. 2015), which the Leyse court characterized as “permit[ting] a [district] court to enter a judgment in the plaintiff’s favor” on its individual claim in these circumstances.

But less than a month after our March 2017 update, the Second Circuit reversed course, apparently creating an intra-circuit split on the validity of such dismissals. In Radha Geismann v. ZocDoc, 850 F.3d 507 (2nd Cir. 2017), on facts similar to Leyse, the court reasoned that Campbell-Ewald’s logic resolves this issue in favor of plaintiffs, even if its holding expressly does not. The court held that, insofar as Campbell-Ewald treated an unaccepted settlement offer as a legal nullity, it rendered the district court’s entry of judgment a “precluded dismissal,” and thus “the judgment should not have been entered in the first place” and the plaintiff’s individual claim must necessarily be permitted to proceed. The court interpreted Tanasi as “declining to address this question” and did not cite or otherwise reference Leyse. A month later, a different Second Circuit panel followed Radha Geismann, also without referencing Leyse, in Lary v. Rexall Sundown, Inc., 686 Fed.Appx. 63, 64 (2d. Cir. 2017).

The Leyse court had affirmed dismissal of the plaintiff’s class claims on other grounds, and with respect to plaintiff’s individual claim, it emphasized that an unaccepted offer “does not moot a case—that is, it does not strip the district court of jurisdiction over the case,” even if the district court is permitted to enter judgment. Thus, even if the Second Circuit adopts Leyse going forward on the validity of dismissing a plaintiff’s individual claims, at most it is an open question whether an unaccepted settlement offer could moot a plaintiff’s class claims. If the Second Circuit adopts the Radha Geismann holding going forward, as in Lary, it is clear that it does not, because the plaintiff’s individual claim must be permitted to proceed.

The question of whether and under what circumstances a plaintiff maintains a personal stake in a class action after settling an individual claim was recently before the Supreme Court in Microsoft v. Baker, 137 S.Ct. 1702 (2017), in a different context involving the appealability of certification denials. In June, the majority ruled for the defendants on the appealability question without reaching the mootness issue. However, Justices Thomas, Alito, and Roberts, who concurred only in the judgment, would have held that the certification denial was not appealable because the court lacked jurisdiction under Article III of the Constitution. The concurring justices reasoned that “[c]lass allegations, without an underlying individual claim, do not give rise to a ‘case’ or ‘controversy,’” but rather are “simply the means of invoking a procedural mechanism.” Justice Gorsuch did not take part in the decision, and it is not clear how the four justices who joined Justice Ginsburg’s majority opinion – including Justice Kennedy – might have ruled on this issue if the case were not susceptible to resolution on other grounds.

III.        Ascertainability

In our March 2017 update, we reported on an ongoing circuit split over whether Rule 23 contains a heightened ascertainability requirement that demands class plaintiffs plead and prove an administratively feasible mechanism for identifying class members. In January, the Ninth Circuit in Briseno v. ConAgra Foods, Inc., 844 F.3d 1121 (9th Cir. 2017), had joined the Sixth, Seventh, and Eighth Circuits in rejecting an administrative feasibility prerequisite, while the First, Second, and Third Circuits (and to a lesser extent, the Eleventh Circuit[2]) had embraced some form of a heightened ascertainability requirement.

In October, the Supreme Court refused to enter the fray, declining ConAgra’s petition for certiorari in Briseno. No. 16-1221. The Court had previously declined cert. petitions in Mullins v. Direct Digital, 795 F.3d 654 (7th Cir. 2015) (No. 15-549), and Rikos v. The Proctor & Gamble Co., 799 F.3d 497 (6th Cir. 2015) (No. 15-835), but this was the first time it has done so since Justice Gorsuch ascended to the bench.

In July, meanwhile, the Second Circuit switched sides in In re Petrobras Securities, 862 F.3d 250, 265 (2d. Cir. 2017). The court repudiated the heightened ascertainability “theory” and narrowly cabined contrary precedent in Brecher v. Republic of Argentina, 806 F.3d 22, 24 (2d Cir. 2015), construing Brecher’s ascertainability discussion as dicta. Having concluded that Brecher did not create an independent administrative feasibility requirement for the Second Circuit, the court explicitly declined to adopt one, and instead it “join[ed] a growing consensus that now includes the Sixth, Seventh, Eighth, and Ninth Circuits.” The court reasoned that “an implied administrative feasibility requirement would be inconsistent with the careful balance struck in Rule 23.”

In August, the Third Circuit, where the heightened ascertainability theory was first conceived, gave a slightly more forgiving interpretation in City Select Auto Sales Inc. v. BMW Bank of North America Inc., 867 F.3d 434 (3d Cir. 2017). The court vacated and remanded a district court’s denial of class certification, holding that affidavits from class members coupled with other reliable evidence could satisfy the standard. Concurring Judge Fuentes wrote separately to criticize the “the unnecessary burden on low-value consumer class actions” created by the heightened ascertainability requirement. He suggested that the Third Circuit should join the Second, Sixth, Seventh, and Ninth Circuits in rejecting it.

A week after City Select was decided, however, a district court in the Third Circuit held that indirect-purchaser victims in a drywall price-fixing conspiracy could not satisfy the ascertainability requirement through a combination of affidavits, receipts, purchase records from big box retailers, and photographs of the drywall imprinted with the manufacturer’s name.[3] In addition, the Sixth Circuit in Sandusky Wellness Center, LLC v. ASD Specialty Healthcare, Inc., 863 F.3d 460, 472 (6th Cir. 2017), recently declined to reverse a district court opinion that denied class certification based on a combination of predominance and ascertainability considerations. However, the panel did not embrace the ascertainability requirement for the Sixth Circuit. It saw “no need to add our own opinion to this debate” and affirmed the district court’s denial of class certification on alternative, superiority grounds.

The Fifth, Tenth, and D.C. Circuits have not yet explicitly addressed the issue.

IV.       Appealability of Certification Denials

The Supreme Court in Microsoft v. Baker, discussed above, held that plaintiffs who lose on class certification cannot convert a district court’s interlocutory order into a final judgment within the meaning of § 1291 by dismissing their individual claims with prejudice subject to a right to revive the claims if the class certification decision is reversed on appeal. The issue arose after the Ninth Circuit denied interlocutory review of a district court order denying class certification, and the plaintiffs implemented this “dismissal device.” The Ninth Circuit subsequently heard the appeal and reversed the denial of certification.

Reversing, the Supreme Court held that the final-judgment rule codified in § 1291 requires that finality “be given a practical rather than a technical construction.” Here, permitting the plaintiffs’ dismissal device would subvert the final-judgment rule and Congress’s balanced solution for determining when non-final orders may be immediately appealed. The Court believed the dismissal device invites protracted litigation and piecemeal appeals, undercuts Rule 23(f)’s discretionary regime, and is one-sided in that it allows plaintiffs, but never defendants, to force immediate appeal of an adverse ruling.

V.        Class Action Waivers

In our March 2017 update, we noted that the Supreme Court granted cert. in Lewis v. Epic Systems Corporation, 823 F.3d 1147 (7th Cir. 2016) (No. 16-285), Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016) (No. 16-300), and Murphy Oil USA, Inc. v. NLRB, 808 F.3d 1013 (5th Cir. 2015) (No. 16-307), which involve the use of mandatory arbitration provisions containing class action waivers in employment agreements. The NLRB (and some circuits) held that such waivers are illegal under the National Labor Relations Act (NLRA) and captured by the FAA’s savings clause, which makes arbitration provisions valid “save upon such grounds as exist at law or in equity for the revocation of any contract.” The consolidated cases have now been briefed and argued.

In an exceedingly rare turn of events, the Trump Administration’s Office of Solicitor General (OSG) has switched sides in the middle of the case. Notwithstanding that the SG’s office represented the NLRB in the Murphy Oil petition, it has since filed an amicus brief and orally argued in support of the employers. Principal Deputy Solicitor General Jeffrey Wall stated that, “since the change in administration, the Office reconsidered the issue and has reached the opposite conclusion.”[4] The NLRB received permission from the SG to litigate on its own behalf, thereby pitting an independent federal agency against the Trump Administration’s Department of Justice.

A SCOTUSblog analysis of oral argument predicted that the Court will divide 5-4 along ideological lines, insofar as petitioners appear to have the votes of Justices Kennedy, Roberts and Alito, while respondents appear to have the votes of Justices Breyer, Kagan, Sotomayor and Ginsburg.[5] Justices Thomas and Gorsuch did not ask any questions during oral argument.

In previous updates, we have also been tracking the progress of a preliminary Consumer Financial Protection Bureau (CFPB) rule that would have barred the use of class action waivers in arbitration provisions in consumer financial products and services agreements. On July 19, 2017, the CFPB published its final rule. On July 25, the House voted 231-190 to disapprove the rule under the Congressional Review Act (CRA). On October 24, the Senate voted 51-50 to follow suit, with Vice President Pence casting the tie-breaking vote. On November 1, President Trump signed the joint resolution of disapproval into law.

Under the CRA, passing a resolution of disapproval not only means that the “rule shall not take effect (or continue),” but, in the future, “the rule may not be issued in ‘substantially the same form’ as the disapproved rule unless it is specifically authorized by a subsequent law.” Judicial review of any “determination, finding, action, or omission,” is also prohibited.[6]

We also noted previously that the Centers for Medicare & Medicaid Services (CMS), an agency within the Health and Human Services Department, issued a rule banning the future use of binding pre-dispute arbitration agreements by long-term care facilities participating in Medicare and Medicaid. Several provider groups promptly filed lawsuits challenging the pre-dispute arbitration ban as being in conflict with the FAA, and a district court in Mississippi issued a preliminarily injunction. Shortly afterwards, the CMS issued a memorandum suspending enforcement of the rule. In June, the CMS issued proposed revisions to its rule that would remove the prohibition on pre-dispute binding arbitration agreements but would require various transparency measures in arbitration agreements.

Finally, we noted previously that the Supreme Court granted certiorari in Kindred Nursing Centers, et al. v. Clark, and that the case had been briefed and argued over the winter. The question presented was “[w]hether the FAA preempts a state-law contract rule that singles out arbitration by requiring a power of attorney to expressly refer to arbitration agreements before the attorney-in-fact can bind her principal to an arbitration agreement.” In each of three consolidated wrongful death cases at issue, an agent with power of attorney for the decedent signed admission documents to nursing homes that included an arbitration clause.  The Kentucky Supreme Court, in Extendicare Homes, Inc. v. Whisman, 478 S.W.3d 306, 330 (Ky. 2015), refused to enforce the arbitration clause because it was unwilling to draw the inference that the agent had “authority to waive his principal’s constitutional right to access the courts and to trial by jury.” Rather, it held that “the power to waive generally such fundamental constitutional rights must be unambiguously expressed in the text of the power-of-attorney document.”

In May, in a 7-1 decision written by Justice Kagan, the Court held that the Kentucky Supreme Court’s clear-statement rule violated the FAA by singling out arbitration agreements for disfavored treatment. 137 S.Ct. 1421 (2017). The Court reasoned that, when the Kentucky Supreme Court singled out the waiver of the right to go to court and receive a jury trial for special treatment, “it did exactly what Concepcion barred: adopt a legal rule hinging on the primary characteristic of an arbitration agreement . . . .” In dissent, Justice Thomas stated that he continues to adhere to the view that that the FAA does not apply to state court proceedings. Justice Gorsuch took no part in the decision.

VI.       Tolling

The Ninth Circuit held in Resh v. China Agritech, 857 F.3d 994 (9th Cir. 2017), that the pendency of an uncertified class action tolls the statute of limitations for subsequent class actions, not just individual claims. Under American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), when class certification is denied, an unnamed class member’s individual claims are tolled for the pendency of a class action. This enables an unnamed class plaintiff to later bring a separate individual claim if class certification is denied, even if class certification is denied after the statute of limitations on the individual claim has expired. Resh expands American Pipe to allow unnamed class plaintiffs to later bring a separate individual or class claim when class certification is denied.

The court recognized that allowing unnamed plaintiffs to later bring class actions as named plaintiffs could lead to successive attempts at certifying a class, but the court was satisfied that its holding would not lead to abusive, repetitive filings, because class counsel on contingency fee arrangements have little incentive to bring such cases, and ordinary principles of preclusion and comity will further reduce those incentives. At the same time, the court reasoned that permitting the tolling of class claims where putative class plaintiffs can satisfy Rule 23 and overcome any comity or preclusion obstacles would advance the policy objectives that led the Supreme Court to permit tolling in the first place.

VII.    Cy Pres

After two years, the appeal of the settlement in Gaos v. Google, Inc., originally discussed in our November 2015 update and referenced in our March 2016, November 2016, and March 2017 updates, has been resolved. In August, the Ninth Circuit upheld the parties’ $8.5 million settlement of a privacy claim related to Google search queries where all of the funds were approved to go to cy pres recipients for Internet privacy protection projects, rather than to any of the more than 100 million class members. Objectors had argued that a claims process was feasible because only a negligible number of class members would likely submit claims.  They also challenged the choice of cy pres recipients because of the affiliation of plaintiffs’ lawyers and Google with the recipients’ institutions.

The Ninth Circuit was able to “quickly dispose” of the argument that the district court erred by approving a cy pres–only settlement, holding that such settlements are not only permitted but appropriate where proof of individual claims would be burdensome or it would be costly to distribute damages. The court likewise “easily reject[ed]” the argument that a class action cannot be the superior means of adjudicating a controversy under Rule 23(b)(3) if it results in a non-distributable fund. On the contrary, the court reasoned that the class mechanism can be superior in these circumstances for the same reason a cy pres-only settlement is appropriate: because the litigation would otherwise be economically infeasible.

With regard to the choice of cy pres recipients, the court held that Google’s previous donations to some of the cy pres recipients did not constitute a “significant prior affiliation,” and that while more significant alumni connections may warrant closer scrutiny, the “barebones” allegation that the settlement is tainted because counsel received a degree from a recipient academic institution “can’t be entertained with a straight face” where the affected schools graduate thousands of students a year and there are no allegations of an ongoing or recent relationship between counsel and their alma maters.[7]

A similar settlement challenged by the same objector is currently on appeal to the Third Circuit in In re Google Inc. Cookie Placement Consumer Privacy Litigation, Civ. No. 12-MD-2358 (SLR) (3d Cir. filed Mar. 7, 2017).

VIII.   Advisory Committee on Civil Rules

As we reported in our November 2016 update, the Standing Committee on Rules of Practice and Procedure of the Judicial Conference of the United States, based on recommendations from the Advisory Committee on Civil Rules, published proposed amendments to Rule 23 for public comment in August 2016. The proposed amendments (1) require that more information be provided to the district court at the time of class notice; (2) clarify that the decision to send notice is not appealable under Rule 23(f); (3) clarify that Rule 23(e)(1) notice triggers the opt-out period in Rule 23(b)(3) class actions; (4) update Rule 23(c)(2) regarding individual notice in Rule 23(b)(3) class actions; (5) establish procedures for dealing with class action objectors; (6) refine standards for approval of class settlements; and (7) address a Department of Justice proposal to include in Rule 23(f) a 45-day period in which to seek permission for an interlocutory appeal when the United States is a party.

The comment period on the proposed amendments closed on February 15, 2017.  The draft rules, public comments, and information on three public hearings held in Washington, D.C., Phoenix, AZ, and Dallas/Fort Worth, TX, were then published at Regulations.gov.

Since our March 2017 update, the Advisory Committee on Civil Rules, the Rule 23 Subcommittee to the Advisory Committee, the Standing Committee, and the full Judicial Conference have considered final changes to the proposed rules. In May 2017, The Advisory Committee approved and forwarded the proposed rules to the Standing Committee with very few changes in the rule language and clarifying changes to the committee note. In September 2017, the Standing Committee approved and forwarded the proposed rules to the Judicial Conference with minor changes and revisions aimed at increasing clarity and succinctness. In October 2017, the Judicial Conference forwarded a package of materials including the rules and relevant excepts from the various committee reports to the Supreme Court.

If the proposed amendments are approved by the Supreme Court, they will be forwarded to Congress. If approved by Congress, they will become effective on December 1, 2018.

IX.       Specific Personal Jurisdiction

In state court suits where general personal jurisdiction is lacking, plaintiffs must establish specific personal jurisdiction, which requires that the suit arise out of or relate to the defendant’s contacts with the forum. In June, in Bristol-Myers Squibb Co. v. Superior Court of California, 137 S.Ct. 1773 (2017), the Supreme Court strictly interpreted this requirement under a due process and federalism rationale, thereby preventing a group of non-resident plaintiffs from joining with resident plaintiffs in a California lawsuit where the defendant had extensive forum contacts but the contacts were not related to the non-resident plaintiffs’ claims.

The upshot of the holding is that defendants who are engaged in nationwide conduct likely cannot be sued in state court by groups of people injured both within and outside the forum State if general jurisdiction is lacking. In a footnote, Justice Sotomayor’s dissent stressed that “[t]he Court today does not confront the question whether its opinion here would also apply to a class action in which a plaintiff injured in the forum State seeks to represent a nationwide class of plaintiffs, not all of whom were injured there.” If the Court subsequently were to take that approach, the effect likely would be to limit nationwide antitrust state indirect purchaser class actions to states where defendants are subject to general jurisdiction, and possibly to curtail their deterrence and

The American Antitrust Institute seeks to preserve the effectiveness of antitrust class actions as a central component of ensuring the vitality of private antitrust enforcement. As part of its efforts, AAI issues periodic updates on developments in the courts and elsewhere that may affect this important device for protecting competition and consumers.  This update covers developments since Fall 2016.

I. Proposed Legislation

On March 9, 2017, the Fairness in Class Action Litigation Act of 2017, H.R. 985, passed the House in a floor vote, 220-201.  Fourteen Republicans and all House Democrats voted against the bill. One amendment from the bill’s sponsor, House Judiciary Committee Chairman Bob Goodlatte, R-Va., also passed in a voice vote.

The bill would drastically overhaul the class action device by creating new legal standards for class certification under Rule 23, imposing new reporting and disclosure requirements on class counsel and reducing and delaying their recovery of attorneys’ fees, and stripping the federal judiciary of discretion in a variety of case management and appellate decision-making functions.

H.R. 985 is a sweeping expansion of H.R. 1927, which passed the House 211-188 in January 2016 before stalling upon being referred to the Senate Judiciary Committee. The new bill retains the core feature of the old bill, which requires the party seeking class certification to demonstrate, based on a “rigorous analysis of the evidence presented,” that “each” person in a class has suffered “the same type and scope of injury.”

AAI believes this provision alone likely would eviscerate consumer, antitrust, employment, and civil rights class actions. First, it would apparently prohibit certification of classes containing members who are uninjured for idiosyncratic reasons, which Judge Richard Posner has called an “inevitability” that cannot practically be determined based on evidence available at the certification stage. Kohen v. Pacific Inv. Mgmt. Co. LLC, 571 F.3d 672, 677 (7th Cir. 2009).

Second, if the term “scope” is given its dictionary meaning, it would apparently require that all class members suffer identical damages, which effectively never occurs in price-fixing or monopolization cases because of changing market conditions and different purchasing contexts.[1] Even if such a class were conceivable, class plaintiffs in antitrust class actions often must rely on aggregate statistical evidence to prove damages, which effectively precludes them from making an evidentiary showing that “each” class member suffered identical damages.

H.R. 985 also:

(1) adopts a heightened ascertainability requirement beyond the most restrictive standard applied by any appellate court (discussed below in Part V);

(2) introduces new conflict and third-party-funding disclosure requirements that supersede attorneys’ ethical obligations under the Rules of Professional Responsibility, as well as procedural obligations built into Rule 23(a)’s adequacy requirement and Rule 23(e)’s fairness requirement;

(3) requires class counsel to meet new accounting and reporting obligations to facilitate data analysis by the Federal Judicial Center and Administrative Office of the U.S. Courts;

(4) prevents class counsel who recover damages for victims from receiving fee awards until after a claims administrator has finished distributing class funds;

(5) prevents class counsel from being compensated for securing indirect monetary relief such as cy pres awards on behalf of victims;

(6) caps fee awards for securing monetary relief at a percentage of the amount “directly distributed to and received by” class members, and for most equitable relief at a percentage of the (often difficult-to-measure) “value” of the (often intangible) equitable relief;

(7) prevents federal judges from bifurcating damages and liability phases of class action proceedings to make individualized damages inquiries sufficiently manageable under Rule 23(b)(3) (eliminating so-called “issues classes”);

(8) removes discretion from federal trial judges as to whether to stay discovery during motions to dispose of class allegations;

(9) removes discretion from federal appellate courts as to whether to accept appeals of class certification orders under Rule 23(f), making such appeals automatic and staying cases during their pendency; and

(10) imposes new burdens on class plaintiffs, federal trial and appellate courts, and the Judicial Panel on Multidistrict Litigation (JPML) that restrict or delay their ability to initiate or foster settlement of multi-district litigation, conduct bellwether trials, remand to state court, and accept or deny appeals.

Chairman Goodlatte introduced H.R. 985 on February 9, 2017. Over objections from the Judicial Conference of the United States (which objected to Congress circumventing the Federal Rules Committee), the American Bar Association, many leading class action scholars (including Myriam Gilles, Elizabeth Birch, Howard Erichson, and John Coffee), 121 civil rights organizations, 73 consumer organizations (including AAI), and even the conservative House Liberty Caucus, the bill was favorably reported without a hearing by the House Judiciary Committee on February 15, 2017. A March 1 Rules Committee Print (115-1) combined the bill with H.R. 906, the Furthering Asbestos Claim Transparency Act of 2017, and made conforming changes.

On March 6, 2017, the Congressional Budget Office (CBO) issued a cost estimate finding that the direct costs to plaintiffs’ lawyers of the bill’s fee provisions alone, measured as the annual loss of net income that attorneys would experience in both pending and future cases, would “exceed the threshold established for private-sector mandates in the Unfunded Mandates Reform Act (UMRA) ($156 million in 2017, adjusted annually for inflation) in each of the first five years” they are in effect. UMRA is a 1995 statute designed to curb the enactment of unfunded federal mandates that impose excessive costs and inefficiencies on private enterprises, including law firms.

On March 7, 2017, the House Judiciary Committee issued a report on the bill.

H.R. 985 will now move to the Senate, where Democrats have enough votes to filibuster any controversial legislation, assuming the filibuster is not repealed.  Absent a filibuster, it is unclear whether Senate Republicans will prioritize this bill and whether it will attract enough moderates to muster a simple majority.

In the remainder of this update, we discuss the implications of H.R. 985 in the context of other recent legal, legislative, and policy developments involving the class action device.

 

II. Classes That Include Some Members Who Are Not Injured

In our November 2016 update, we noted that the Supreme Court in Tyson Foods v. Bouaphakeo, 136 S. Ct. 1040 (2016), approved the use of statistical and representative evidence to prove common impact without explicitly deciding whether classes containing uninjured members may be certified. As of this writing, no court has since interpreted Tyson Foods to prevent class plaintiffs from relying on statistical or other representative evidence for purposes of certifying an antitrust class action.

We also noted that the Court in Spokeo v. Robbins, 136 S. Ct. 1540 (2016), did not resolve an apparent circuit split over whether only named plaintiffs must establish Article III standing at the class certification stage or absent class members must do so as well. Some courts had reasoned that individual questions can predominate over common questions because each class member must individually prove concrete and particularized injury to establish Article III standing. Others had held that requiring named plaintiffs to establish that absent class members were injured improperly conflates standing with a plaintiff’s entitlement to relief and ability to satisfy Rule 23. Consistent with our findings in our November 2016 update, courts post-Spokeo have refused to conflate absent class members’ Article III standing with a named plaintiff’s ability to satisfy Rule 23.

H.R. 985 would overrule these aspects of Tyson Foods and Spokeo, and their progeny.  By requiring class plaintiffs to demonstrate that “each” class member suffered “the same type and scope of injury,” the bill would foreclose certification of any class that may contain uninjured members without regard to what Article III or Rule 23 requires.

 

III.      Speculative Individualized Inquiries Proffered to Defeat Predominance

In December, in Bridging Communities Inc. v. Top Flite Financial Inc., 843 F.3d 1119 (6th Cir. 2016), the Sixth Circuit held that that the “mere mention” of a defense that would require individualized inquiry is insufficient to defeat class certification on predominance grounds. In a “junk fax” class action under the Telephone Consumer Protection Act (TCPA), where the defendants “raised the possibility” of consent as a defense to liability, the district court denied plaintiffs’ motion for class certification because it was not persuaded that the issue of consent was subject to generalized proof.

The Sixth Circuit reversed. Although the plaintiffs’ evidence had “not foreclosed” the possibility that some fax recipients gave consent, the court of appeals was “unwilling to allow such speculation and surmise to tip the decisional scales in a class certification ruling.” “Holding otherwise and allowing such speculation to dictate the outcome of a class-certification decision would afford litigants in future cases wide latitude to inject frivolous issues to bolster or undermine a finding of predominance.” Accordingly, the Sixth Circuit found that the district court abused its discretion in permitting defendants to defeat a showing of predominance based on “speculation alone.”

Under H.R. 985, because the “party seeking to maintain . . . a class action [must] affirmatively demonstrate[]” that each class member suffered the same injury, the burden apparently would be entirely on plaintiffs to foreclose the possibility of individualized defenses and not on the defendant to raise non-speculative challenges to predominance.

 

IV.       Offers of Judgment and Mootness

In our Novemer 2016 update, we noted that the Court in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016), had left open the question of whether a defendant could moot a class action by depositing the full amount of the named plaintiff’s individual claim in an account payable to the plaintiff, where the court then enters judgment for the plaintiff in that amount. We noted that results have been mixed at the district court level, but that the federal courts of appeal – including the Third, Sixth, and Ninth Circuits – have largely held that named class plaintiffs may continue to seek class certification despite no longer having a justiciable claim for individual relief. These courts of appeal have done so under the “picking off” exception or the “inherently transitory” exception to mootness, which they have found Campbell-Ewald did not disturb. Some have noted that otherwise “complete” relief is also insufficient in these circumstances insofar as a named plaintiff maintains a personal stake in certifying a class action.

In February, the Second and Seventh Circuits declined to follow this line of cases in Leyse v. Lifetime Entertainment Services, LLC, 2017 WL 659894 (2d. Cir. 2017), and Wright v. Calumet City, Illinois, 2017 WL 656277 (7th Cir. 2017), respectively. The Second Circuit, in a summary order, held that where the district court had entered judgment in favor of a plaintiff notwithstanding the plaintiff’s refusal to accept a settlement offer tendered in the amount of its claim, intra-circuit precedent permitting dismissal in these circumstances is controlling, notwithstanding that the claim is not moot, because Campbell-Ewald expressly left open this precise scenario.^[2]

The Seventh Circuit, on different facts, held that a plaintiff who accepted a Rule 68 settlement offer but had not recovered attorneys’ fees for the class claim no longer had a personal stake in the class action and could not satisfy the Article III case or controversy requirement where the settlement agreement did not expressly preserve his right to appeal the denial of class certification. The question of whether and under what circumstances a plaintiff maintains a personal stake in a class action after settling an individual claim is currently before the Supreme Court in Microsoft v. Baker, 136 S. Ct. 890 (Jan. 15, 2016), in the different context of the appealability of certification denials.

 

V.        Ascertainability

The ongoing circuit split over whether Rule 23 contains a heightened ascertainability requirement that demands class plaintiffs plead and prove an administratively feasible mechanism for identifying class members continues to deepen. As we noted in our November 2016 update, the Sixth, Seventh, and Eighth Circuits have rejected any separate administrative feasibility prerequisite, while the First, Second, and Third Circuits (and to a lesser extent, the Eleventh Circuit[3]) have embraced some form of heightened ascertainability requirement.

In January, the Ninth Circuit in Briseno v. ConAgra Foods, Inc., 844 F.3d 1121 (9th Cir. 2017), joined with the Sixth, Seventh, and Eighth Circuits in repudiating a heightened ascertainability requirement, holding that Rule 23’s enumerated criteria already address the cognizable interests purportedly served by the ascertainability inquiry.  The panel noted that Rule 23’s drafters specifically enumerated “prerequisites” to class certification in Rule 23(a), and read in light of traditional canons of statutory construction, this list must be construed as exhaustive. Moreover, imposing a separate administrative feasibility requirement would render the manageability criterion in Rule 23(b)(3) largely superfluous.

The court also quoted the Supreme Court in Amgen for the proposition that “Federal courts . . . lack authority to substitute for Rule 23’s certification criteria a standard never adopted.”  Although the Third Circuit has justified an administrative feasibility requirement as necessary to avoid compromising the efficiencies that Rule 23(b)(3) was designed to achieve, “Rule 23(b)(3) already contains a specific, enumerated mechanism to achieve that goal,” namely manageability. And considering administrative feasibility “in a vacuum” conflicts with “the well-settled presumption that courts should not refuse to certify a class merely on the basis of manageability concerns,” which the court said “makes ample sense given the variety of procedural tools courts can use to manage the administrative burdens of class litigation,” such as dividing classes into subclasses or certifying issues classes. Finally, the court also rejected arguments that an administrative feasibility prerequisite is necessary to protect absent class members, shield bona fide claimants from fraudulent claims, or protect defendants’ due process rights.

The Tenth Circuit, meanwhile, recently declined to join the fray, rejecting a Rule 23(f) petition in In re Syngenta Ag Mir 162 Corn Litig., 2016 WL 5371856 (D. Kan. 2016), after the district court likewise refused to apply a heightened ascertainability requirement. The Fifth, Tenth, and D.C. Circuits have not yet explicitly addressed the issue.

Notwithstanding that each of the last four circuit courts to consider the question, and the district court in Syngenta, have now rejected a heightened ascertainability requirement, H.R. 985 would mandate it. At the same time, by prohibiting courts from certifying issues classes, the bill would upend existing law in every circuit and remove one of the key procedural tools courts have used to resolve manageability problems.

H.R. 985 also would expand the heightened ascertainability requirement to include not only an administratively feasible mechanism for identifying class members, but also an administratively feasible mechanism for distributing monetary relief “directly to a substantial majority of class members.”  This would likely sound the death knell for consumer antirust class actions, because class members often forego claims to the individually small sums of money available in high-volume, low-dollar price fixing cases. The Advisory Committee on Civil Rules and Standing Committee on Rules of Practice and Procedure of the Judicial Conference of the United States, in their letter opposing H.R. 985, cited the bill’s ascertainability and Rule 23(f) alterations among a list of “significant changes to Rule 23 procedures.”

 

VI.       Appealability of Certification Denials

In our November 2016 update, we noted that the Supreme Court granted certiorari in Microsoft v. Baker, 136 S. Ct. 890 (Jan. 15, 2016), to consider “[w]hether a federal court of appeals has jurisdiction under both Article III and 28 U.S.C. § 1291 to review an order denying class certification after the named plaintiffs voluntarily dismiss their individual claims with prejudice.” We also described the parties’ arguments in merits briefing. Oral argument in this case is now scheduled for March 21, 2017.

If H.R. 985 is enacted, the issue to be decided by the Court may be unlikely to arise in the future as a practical matter.  Because appellate courts would no longer have discretion to deny petitions for interlocutory review of class certification denials, plaintiffs seeking to appeal an order denying class certification would no longer need to voluntarily dismiss their individual claims to convert the class certification decision into a final order. Indeed, appeals of every certification order, whether granting or denying certification, will become routine.  In Vallario v. Vandehey, 554 F.3d 1259 (10th Cir. 2009), which the Tenth Circuit cited in rejecting the Rule 23(f) petition in Syngenta, the court stated that such appeals ought to be discouraged. The court said they are “necessarily disruptive, time-consuming, and expensive for the parties and the courts,” and “may also serve, quite wrongfully, to discourage district courts from reconsidering their class certification orders under Federal Rule of Civil Procedure 23(c)(1)(C).”

 

VII.    Cy Pres

There is currently a circuit split as to whether courts may, must, or must not discount cy pres and other funds unclaimed by class members from the percentage calculation of attorneys’ fees in class actions. The Ninth and Second Circuits strictly hold that district courts are required to consider the full value of the authorized fund, including cy pres, rather than the value of funds actually distributed to class members. The Seventh Circuit holds the opposite – that courts must consider only the value of the funds actually distributed to class members and not the value of funds made available that go unclaimed. In our November 2016 update, we noted that the Sixth Circuit in Gascho v. Global Fitness Holdings, LLC, 822 F.3d 269 (6th Cir. 2016), recently joined the majority of circuits, including at least the Third, Fifth, and Eleventh Circuits, in considering the question on a case-by-case basis.

H.R. 985 would reverse the Second, Third, Fifth, Sixth, Ninth, and Eleventh Circuits and require them to conform to the Seventh Circuit’s minority position. The bill requires that any attorneys’ fee award based on monetary relief must be limited to the percentage of any payments directly distributed to and received by class members.  The bill also goes further and requires that the attorneys’ fee award in these circumstances may never exceed the total amount of money directly distributed to and received by all class members.

The Sixth Circuit in Gascho noted that this rigid approach can lead to perverse results, because it would “have the lasting effect of discouraging the filing of class actions in cases where few claims are likely to be made but the deterrent effect of such a suit would be socially desirable.” The court recognized that the amount allocated to class members in such cases is the appropriate denominator, not the amount received by class members, because large numbers of consumers may simply forego claims for very small sums. As we noted previously, this is particularly true of consumer antitrust class actions. The bill’s fee limitations likely would convert many consumer antitrust class actions into a financially irrational pursuit for class counsel, as the aforementioned CBO cost estimate seems to implicitly recognize.

The appeal of the settlement in Gaos v. Google, Inc., now captioned Holyoak v. Google, No. 15-15858 (9th Cir.) (appeal docketed Apr. 28, 2015), discussed in our November 2015 update and referenced in our March and November 2016 updates, is scheduled for oral argument on March 13, 2017.

 

VIII.   Class Action Waivers

In our November 2016 update, we noted that the Supreme Court could very well take up the legality of inserting mandatory arbitration provisions containing class action waivers into employment agreements. A circuit split was created in May 2016 when Chief Judge Dianne Wood, writing for the Seventh Circuit in Lewis v. Epic Systems Corporation, 823 F.3d 1147 (7th Cir. 2016), broke with the Second, Fifth, and Eighth Circuits in holding that such provisions are unenforceable insofar as they are illegal under the National Labor Relations Act (NLRA) and captured by the saving clause in the Federal Arbitration Act (FAA), which makes arbitration provisions valid “save upon such grounds as exist at law or in equity for the revocation of any contract.”

A second such opinion, adopting and expanding Judge Wood’s reasoning, followed in August by Chief Judge Sidney Thomas, writing for the Ninth Circuit in Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016). Then, in September, a Second Circuit panel in Patterson v. Raymours Furniture Company, Inc., 2016 WL 4598542, at *2 (2d Cir. 2016), held that a similar arbitration clause was enforceable, but only because the court believed it was bound by contrary intra-circuit precedent.  The court stated, “If we were writing on a clean slate, we might well be persuaded, for the reasons forcefully stated in Chief Judge Wood’s and Chief Judge Thomas’s opinions in Lewis and Morris, to join the Seventh and Ninth Circuits and hold that the [arbitration provision’s] waiver of collective action is unenforceable.”

The losing defendants in Lewis and Morris, and the losing plaintiffs in Patterson, separately petitioned for certiorari. On January 13, the Supreme Court granted certiorari in Lewis, Morris, and Murphy Oil USA, Inc. v. NLRB, 808 F.3d 1013 (5th Cir. 2015), a Fifth Circuit case decided in 2015 in which Judge Southwick, writing for a three-judge panel, rejected the National Labor Relations Board’s determination that such provisions unlawfully interfere with employees’ NLRA rights to engage in concerted activity. The three cases have been consolidated before the Court, with merits briefing to begin in late April. Oral argument has been postponed until the October 2017 term, perhaps after Judge Gorsuch becomes the ninth justice.[4]

The Consumer Financial Protection Bureau, which in May 2016 issued a Notice of Proposed Rulemaking (NOPR) that would prevent various consumer financial products and services providers from invoking a pre-dispute arbitration agreement to prevent a consumer from participating in a class action, has yet to issue a final arbitration rule. In our November 2016 update, we noted that the D.C. Circuit’s decision in PHH Corporation v. CFPB, 2016 WL 5898801 (D.C. Cir. 2016), which found the CFPB’s structure as an independent agency to be unconstitutional and required that the Bureau instead “operate as an executive agency,” created a question whether the CFPB’s proposed arbitration rule could now be subject to review by the Office of Information and Regulatory Affairs within the Office of Management and Budget, which could require a cost-benefit analysis, among other things. On February 17, however, the D.C. Circuit granted the government’s petition for en banc rehearing and vacated the panel opinion. The constitutionality of the CFPB’s structure, therefore, is once again an open question. Briefing is set to begin in early March, and argument before the en banc court is scheduled for late May.

We also noted previously that the Centers for Medicare & Medicaid Services (CMS), an agency within the Health and Human Services Department, had banned the future use of binding pre-dispute arbitration agreements by long term care facilities participating in Medicare and Medicaid. Several provider groups had promptly filed lawsuits challenging the pre-dispute arbitration ban as being in conflict with the FAA.  On November 7, 2016, the U.S. District Court for the Northern District of Mississippi issued an order preliminarily enjoining enforcement of the ban.  On December 9, CMS issued a memorandum suspending enforcement of the rule until or unless the injunction is lifted.

Finally, we noted previously that the Supreme Court granted certiorari in Kindred Nursing Centers, et al. v. Clark, 2016 WL 3617216 (Oct. 28, 2016) (No 16-32), on the question of “[w]hether the FAA preempts a state-law contract rule that singles out arbitration by requiring a power of attorney to expressly refer to arbitration agreements before the attorney-in-fact can bind her principal to an arbitration agreement.” In each of three consolidated wrongful death cases at issue, an agent with power of attorney for the decedent signed admission documents to nursing homes that included an arbitration clause.  The Kentucky Supreme Court, in Extendicare Homes, Inc. v. Whisman, 478 S.W.3d 306, 330 (Ky. 2015), had refused to enforce the arbitration clause because it was unwilling to draw the inference that the agent had “authority to waive his principal’s constitutional right to access the courts and to trial by jury.” Rather, “the power to waive generally such fundamental constitutional rights must be unambiguously expressed in the text of the power-of-attorney document.”

The case has now been briefed and argued.  The petitioners’ opening brief on the merits contends that the Kentucky Supreme Court defied the U.S. Supreme Court’s repeated rulings that the FAA preempts state law rules that disfavor arbitration agreements and the FAA’s mandate that courts must place arbitration agreements on equal footing with all other contracts.  The respondents counter that that the FAA does not preempt State law regarding issues of contract formation, and the power of attorney at issue here implicates the scope of the agent’s authority and requires an interpretation as to the intentions and expectations of the principal.

At oral argument, Justice Alito offered that “the context here seems different from the arbitration cases that we’ve had in recent years” insofar as the arbitration provision may “implicate the care of someone who is vulnerable,” and hence “this seems like something that is close to or that it falls [sic] squarely within the police power of a State.” Justice Breyer, however, said “What I really think has happened is that Kentucky just doesn’t like the Federal law.  That’s what I suspect. So they’re not going to follow it.”

The Court questioned counsel for both parties on how to distinguish neutral state applications of contract interpretation that affect arbitration clauses from discriminatory state applications of contract interpretation that do not put arbitration on equal footing. Counsel for the petitioners argued that the standard should require that state contract interpretations do not distinguish a category of contracts based on a characteristic of arbitration. Counsel for the respondents argued that the standard should not allow federal courts to second guess state court interpretations of authority to form and enter arbitration agreements as distinct from already-formed arbitration agreements themselves. The case bears importantly on the limits of the Court’s recent, expansive interpretations of the FAA.

 

IX.       Advisory Committee on Civil Rules

As we reported in our November 2016 update, the Standing Committee on Rules of Practice and Procedure of the Judicial Conference of the United States, based on recommendations from the Advisory Committee on Civil Rules, published proposed amendments to Rule 23 for public comment in August 2016. The comment period closed on February 15, 2017.  The draft rules, public comments, and information on three public hearings held in Washington, D.C., Phoenix, AZ, and Dallas/Fort Worth, TX, are published at Regulations.gov. The Advisory Committee on Civil Rules and the Rule 23 Subcommittee to the Advisory Committee will now consider final changes to the proposed rules and then forward them to the Standing Committee in the spring. If approved by the Standing Committee, they will be forwarded to the Judicial Conference in September. If approved by the Judicial Conference, they will be forwarded to the Supreme Court, and if approved by the Court, then to Congress. If approved by Congress, the proposed amendments would become effective on December 1, 2018.

Notably, H.R. 985 departs markedly from the conclusions and recommendations of the Rule 23 Subcommittee, the Advisory Committee, and the Standing Committee. First, the bill’s “same type and scope of injury” requirement, which the Standing Committee and Advisory Committee have said would overlap and modify the typicality and adequacy requirements of Rule 23(a)(3) and (4), did not even merit placement on the Rule 23 Subcommittee’s preliminary agenda.

Second, the Advisory Committee “decided not to proceed” with amendments involving ascertainability “[g]iven the evolving state of this doctrine in the lower courts, and the initial difficulties the Rule 23 Subcommittee encountered in drafting possible amendments.”

Third, the Standing Committee’s proposed amendments require a flexible approach to determining fee awards in class actions rather than relying exclusively on percentages tied to the monetary relief directly received by the class. The Committee note to paragraphs (C) and (D) of Subdivision (e)(2) states that relief directly delivered to class members “can be an important factor in determining the appropriate fee award,” but “[u]ltimately, any award of attorney’s fees must be evaluated under Rule 23(h), and no rigid limits exist.”

Finally, the proposed amendments also note that settlement funds “often go unclaimed” and cite approvingly to § 3.07 of the American Law Institute, Principles of Aggregate Litigation (2010), which sanctions the use of indirect monetary relief such as cy pres. H.R. 985 would preclude class counsel from relying on cy pres as a basis for compensation.

The Judicial Conference letter in opposition to H.R. 985 states that it has “long opposed direct amendment of the federal rules by legislation rather than through the deliberative process of the Rules Enabling Act,” which “institutes thorough and inclusive procedures . . . to produce the best rules possible through broad public participation and review by the bench, the bar, the academy, and Congress.” The Rules Enabling Act process “undertake[s] extensive study, including empirical research, [to] propose rules that best serve the American justice system while avoiding unintended consequences.”

The American Bar Association’s opposition letter similarly objects to the bill’s circumvention of the Rules Enabling Act.

 

X.        FTC to Study Class Action Settlement Notice

As part of the FTC’s Class Action Fairness Project, initiated under Chairman Tim Muris in 2002, the Commission announced in November 2016 that it will study the effectiveness of various class action settlement notice programs. It has sent information requests to eight claims administrators, which will form the basis of a special report.

The announcement also noted that the Commission has proposed two related studies: the Notice Study, which examines consumer perception and understanding of class action notices and the options they provide to consumers, and the Deciding Factors Study, which analyzes factors that influence consumers’ decisions to participate, opt out of, or object to a class action settlement. The initial comment periods for both studies have closed.

The Judicial Conference Standing Committee’s proposed amendments to Rule 23 include several changes designed to modernize and improve notice to class members.

 

XI.       Class Actions and President Trump’s SCOTUS Nominee

On January 31, 2017, President Trump nominated Neil Gorsuch from the 10th Circuit Court of Appeals to fill the current vacancy on the U.S. Supreme Court. Judge Gorsuch has practiced and taught antitrust law, and he currently serves as Chair of the Advisory Committee on Appellate Rules to the Standing Committee on Rules of Practice and Procedure of the Judicial Conference. On the 10th Circuit, he authored three published antitrust opinions and joined three more. He also joined one unpublished antitrust opinion. None were class actions.

We are aware of 14 non-antitrust class-action opinions authored by Judge Gorsuch since August 2006, when he was appointed to the Tenth Circuit. While many were decided according to underlying substantive law, several raised procedural or other similar issues of the kind addressed in this update.[5]

In Shook v. Board of County Commissioners of County of El Paso, 543 F.3d 597 (10th Cir. 2008), in which a putative class of prison inmates challenged the denial of mental healthcare as a violation of the Eighth Amendment’s ban against cruel and unusual punishment, Judge Gorsuch, relying heavily on the abuse of discretion standard, affirmed a district court’s refusal to certify a Rule 23(b)(2) class. The class lacked “a certain cohesiveness among class members with respect to their injuries,” such that plaintiffs failed to show that defendants acted on grounds generally applicable to the class.  He endorsed the use of subclasses in these circumstances but noted that the parties did not seek them and the court was not obligated to impose them sua sponte.

In Howard v. Ferrellgas Partners, L.P., 748 F.3d 975 (10th Cir. 2014), in a dispute over whether the parties had entered an agreement to arbitrate that would trigger the FAA, Judge Gorsuch held that the parties first must proceed summarily to trial to resolve factual disputes over whether an arbitration agreement was formed, as required by the text of the FAA.

In Hammond v. Stamps.com, Inc., 844 F.3d 909 (10th Cir. 2016), Judge Gorsuch reversed a federal district court order refusing to accept transfer of a class action from state court under the Class Action Fairness Act (CAFA) after defendants had not shown sufficiently convincing evidence that CAFA’s $5 million amount-in-controversy requirement would be satisfied. Judge Gorsuch held that the party seeking removal to federal court under CAFA need not show that “damages ‘are greater’ or will likely prove greater ‘than the requisite amount’ specified by statute,” but “only and much more modestly” that a fact-finder “might conceivably lawfully award” the requisite amount, or that this prospect does not fail a “legally impossible standard.”

In McClendon v. City of Albuquerque, 630 F.3d 1288 (10th Cir. 2011), Judge Gorsuch held that an order withdrawing approval of a class action settlement agreement does not qualify as a “final decision” subject to appeal under 28 U.S.C. § 1291, notwithstanding that a prior decision may have amounted to a final judgment for purposes of Rule 58 of the Federal Rules of Civil Procedure.

In BP America, Inc. v. Oklahoma ex rel. Edmondson, 613 F.3d 1029 (10th Cir. 2010), Judge Gorsuch considered as a matter of first impression under what circumstances the court should exercise its discretion to grant leave to appeal an order remanding a case to state court under CAFA. He adopted an approach followed by the First Circuit and granted the defendant’s request for leave to appeal the district court’s remand order.

AAI issued a statement on the antitrust implications of the nomination of Judge Gorsuch on February 2, 2017.

Comments on this update or suggestions for AAI amicus participation should be directed to AAI Vice President and General Counsel Richard Brunell, rbrunell@antitrustinstitute.org, (202) 600-9640, or AAI Associate General Counsel Randy Stutz, rstutz@antitrustinstitute.org, (202) 905-5420. 

As part of its efforts to promote the vitality of private enforcement in general and to preserve antitrust class actions in particular, the American Antitrust Institute (AAI) issues periodic updates on developments in the courts and elsewhere that may affect this important device for protecting competition and consumers.  This update covers developments since the Fall 2015 update.  Many of these issues were considered at AAI’s 9th Annual Private Enforcement Conference, the audio and materials from which are available here.  Be sure to mark your calendars for AAI’s 10th Annual Private Enforcement Conference, which will be held on November 9, 2016 at the National Press Club in Washington, DC.

I. Classes That Include Some Members Who Are Not Injured

The Supreme Court heard oral argument in Tyson Foods Inc. v. Bouaphakeo, No. 14-1146 (Nov. 10, 2015), an appeal of the jury verdict in favor of a group of plaintiffs in a Fair Labor Standards Act case.  The petitioner (Tyson Foods) challenged a grant of class certification on the ground that liability and damages were determined on the basis of statistical evidence that purportedly masked substantial differences among class members and that the class improperly contained hundreds of members who were, it was argued, not injured.  At oral argument, several Justices seemed disinclined to address the question of uninjured class members because, inter alia, the record did not necessarily establish that there were, in fact, uninjured class members, and in any event, the allocation of damages to individual class members after trial could be taken up on remand and there was nothing unusual about certifying a class that may turn out to include uninjured members.  As for statistical evidence and the use of averages, it seems likely that the Court will rest its decision not on any general principles under Rule 23, but on the requirements of the Fair Labor Standards Act and the rule of Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1946), which allows for reasonable representative proof of damages when the employer fails, as it did in this case, to keep requisite time records (perhaps extending Mt. Clemens to proof of injury as well as damages).  The questioning was much more sharply directed at petitioner’s counsel and was deeply mired in the facts of the case and the reasonableness of the averaging technique followed by plaintiffs’ expert.

There has been much speculation about the potential impact of Tyson Foods on antitrust class actions, particularly given that the Court was holding a certiorari petition raising arguably similar issues in a price-fixing case, Dow Chemical Co. v. Industrial Polymers, Inc., 2015 WL 1043612 (No. 14-1091) (filed Mar. 9, 2015).[1]  As the business press has noted, following Justice Scalia’s death Dow Chemical announced that it reached a settlement, mooting its petition for certiorari.  In a press release, the company explained, “Growing political uncertainties due to recent events within the Supreme Court and increased likelihood for unfavorable outcomes for business involved in class action suits have changed Dow’s risk assessment of the situation.”[2]  Dow Chemical was represented in the Supreme Court by Carter Phillips, who also argued for the petitioner in Tyson Foods.

II. Offers of Judgment and Mootness

In an opinion written by Justice Ginsburg for the four liberal Justices and Justice Kennedy, the Supreme Court held in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016), that a defendant could not moot a class action merely be offering to satisfy the class representative’s individual claim.  Adopting the reasoning of Justice Kagan’s dissent in Genesis HealthCare Corp. v. Symczyk, 133 S. Ct. 1523 (2013), the Court held that an unaccepted offer (whether in the form of a Rule 68 offer or otherwise) was a legal nullity.  Justice Thomas concurred in the judgment under the theory that a common law “tender” required more than a mere offer.  However, the Court expressly did not decide “whether the result would be different if a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount.”  Justice Thomas and the three dissenters (Roberts, Alito, and Scalia) clearly would hold that this form of pick-off maneuver would moot the individual plaintiff’s claim, and the dissenters would not require that judgment be entered or that the defendant admit liability.  Besides leaving open whether and how a payment would moot the class representative’s claim, it remains to be seen whether “complete relief” would have to take into account the class representative’s continued interest in a success fee, attorney’s fees and costs (or sharing fees and expenses with other class members), and injunctive relief as to the class representative and the class.[3]

Following Gomez, a federal district court judge denied a request by the defendants in a proposed class action to deposit funds with the clerk of court under Rule 67 in an amount sufficient to satisfy the named plaintiffs’ individual claims.[4]  Judge Feuerstein denied the request as inappropriate under the Rule and inconsistent with Gomez’s admonition that “a would-be class representative with a live claim must be accorded a fair opportunity to show that certification is warranted.”

III. Ascertainability

Whether Rule 23 contains a heightened ascertainability requirement that bars reliance on customer affidavits to establish class membership continues to attract attention and litigation.  The Supreme Court (post-Scalia) denied certiorari in Mullins v. Direct Digital, 795 F.3d 654 (7th Cir. 2015) (No. 15-549), which rejected the Third Circuit’s restrictive approach to ascertainability in Carrera v. Bayer Corp., 727 F.3d 300 (3d Cir. 2013).  A similar certiorari petition remains pending in Rikos v. The Proctor & Gamble Co., 799 F.3d 497 (6th Cir. 2015) (No. 15-835), in which the Sixth Circuit also rejected Carrera’s heightened ascertainability requirement, albeit in a case in which the Sixth Circuit believed that most sales were made online and so class membership could be determined without relying solely on customer affidavits.  NYU law professor Sam Issacharoff, on behalf of the plaintiffs in both Direct Digital and Proctor & Gamble, wrote in opposition to Direct Digital’s petition, “[w]hat Petitioner presents as a circuit split on an issue of law in reality boils down to a nascent difference in case management approaches.” Brief in Opposition, Direct Digital LLC v. Mullins, No. 15-549, 2015 WL 9488470, *3 (Dec. 29, 2015).

IV. Cy Pres

A divided Ninth Circuit panel recently affirmed the district court’s approval of the class action settlement in Fraley v. Facebook, which involves a $20 million settlement of a privacy claim related to “sponsored stories” where the class exceeded 150 million members.  The settlement provided for an award of $15 for each of the 600,000 class members that submitted claims, with the balance after fees and expenses going to cy pres.  In an unpublished opinion, the Ninth Circuit said that the cy pres award was reasonable “as long as an appropriate nexus existed between the issues underlying the case and the cy pres recipients,” which was evident because the “recipient organizations focus on consumer protection, research, education regarding online privacy, the safe use of social media, and protection of minors—the very issues raised in plaintiffs’ complaint.” 2006 WL 145984, *1 (9th Cir. Jan. 6, 2016).  A further distribution to claimants was not required “in light of the minimal (if any) harm suffered by the plaintiffs.”  In dissent, Judge Bea would allow cy pres only if the district court finds that it is “infeasible to distribute the money directly, such as when identifying the members of the class is exceedingly difficult or costly,” or that “funds are left over after a distribution has been made, and the per-class-member amount remaining is so small as to make a pro rata distribution of funds uneconomical.”  According to Bea, neither condition holds true in this case, and the amount awarded to claimants should have been increased so that it would be expected to exhaust the net settlement fund.

The appeal of the settlement in Gaos v. Google, Inc., No. 15-15858 (9th Cir.) (appeal docketed Apr. 28, 2015), also discussed in the November update, is fully briefed and waiting for oral argument.

V.        Appealablity of Certification Denials

The Supreme Court has granted certiorari to consider “[w]hether a federal court of appeals has jurisdiction under both Article III and 28 U. S. C. §1291 to review an order denying class certification after the named plaintiffs voluntarily dismiss their individual claims with prejudice.”  Microsoft Corp. v. Baker, 2016 WL 205947 (Jan. 15, 2016) (No. 15-457).  The issue arises from a case in which the district court struck class certification allegations on comity grounds (in deference to the denial of certification in another case involving the same allegations), and the Ninth Circuit denied interlocutory review of the order under Rule 23(f).  Thereafter, the named plaintiffs voluntarily dismissed their individual claims and appealed the class certification decision as a final order; the Ninth Circuit allowed that appeal and held that, due to an intervening change in the law, the district court should not have dismissed the class action demand on comity grounds.  Baker v. Microsoft Corp., 797 F.3d 607 (9th Cir. 2015).  Contending that the circuit courts are split 5 to 2 against allowing the “dismissal tactic” to obtain appellate review of certification denials, Microsoft argues in its petition for certiorari that the tactic is inconsistent with Coopers & Lybrand v. Livesay, 437 U.S. 463 (1978), which held that class certification denials were not subject to mandatory appellate review even if the denial is the “death knell” of the case, and with Fed. R. Civ. P. 23(f), which provides for discretionary review of class certification orders.  Respondents argue that the “dismissal tactic” is a common and perfectly lawful practice whereby plaintiffs voluntarily dismiss remaining claims in order to obtain an appealable final judgment.

VI.       Class Action Waivers

In December, the Supreme Court decided DirecTV v. Imburgia, 136 S. Ct. 463 (2015).  The Court held that the California Court of Appeal erred in not enforcing a consumer arbitration agreement where the agreement expressly incorporated state law that would have barred enforcement at the time of the contract but which was subsequently held preempted in AT & T Mobility LLC v. Concepcion.  The Court reasoned that interpreting “state law” to include subsequently invalidated laws discriminated against arbitration agreements.   Justice Thomas dissented, restating his long-held position that the Federal Arbitration Act does not apply to state courts.  Justice Ginsburg, joined by Justice Sotomayor, also dissented, lamenting that the “Court has again expanded the scope of the FAA, further degrading the rights of consumers and further insulating already powerful economic entities from liability for unlawful acts.”  Based on DirecTV, the Court (post-Scalia) granted certiorari, vacated, and remanded in a case in which the Supreme Court of Appeals of West Virginia refused to enforce an arbitration clause challenged as unconscionable where the agreement delegated issues of “arbitrability” to the arbitrator.  Schumacher Homes of Circleville, Inc. v. Spencer Eyeglasses, 774 S.E.2d 1 (W. Va. 2015).

VII.     Proposed Legislation

The “Fairness in Class Action Litigation Act,” H.R. 1927, merged with H.R. 526, the “Furthering Asbestos Claim Transparency Act.”  The new bill passed the House on January 8 by a vote of 211-188.  It is now titled “Fairness in Class Action Litigation and Furthering Asbestos Claim Transparency Act of 2016,” though some are referring to it as the “Frankenbill.”  The bill now goes to the Senate for consideration.  As previously noted, the bill would likely eviscerate consumer, antitrust, employment, and civil rights class actions by barring class certification unless proponents demonstrate, based on a “rigorous analysis of the evidence presented,” that each person in a class has suffered “the same type and scope of injury.”  GovTrack estimates a 21% chance the bill will be enacted.  See https://www.govtrack.us/congress/bills/114/hr1927.

VIII.   Advisory Committee on Civil Rules

The Rule 23 Subcommittee of the Advisory Committee on Civil Rules has further refined the topics for possible amendments to include: (1) “frontloading” in Rule 23(e)(1), requiring information relating to the decision whether to send notice to the class of a proposed settlement; (2) making clear that a decision to send notice to the class under Rule 23(e)(1) is not appealable under Rule 23(f); (3) making clear in Rule 23(c)(2)(B) that the Rule 23(e)(1) notice does trigger the opt-out period in Rule 23(b)(3) class actions; (4) updating Rule 23(c)(2) regarding individual notice in Rule 23(b)(3) class actions; (5) addressing issues raised by “bad-faith” class action objectors; and (6) refining standards for approval of proposed class-action settlements under Rule 23(e)(2).

The Subcommittee is expected to make a final proposed amendment available to the Advisory Committee in April.  If the Advisory Committee approves the draft amendment, it would be sent to the Standing Committee for its review and approval, followed by an official notice and public comment period on the draft rule.

 

Comments on this update or suggestions for AAI amicus participation should be directed to AAI Vice President and General Counsel Richard Brunell, rbrunell@antitrustinstitute.org, 202-600-9640.  Thanks to AAI Research Fellow Art Durst for help in preparing this update.

As part of our efforts to promote the vitality of private enforcement and preserve antitrust class actions in particular, the American Antitrust Institute (AAI) issues periodic updates on developments in the courts and elsewhere that may affect this important device for protecting competition and consumers.

This update covers developments since the Summer 2015 update. Many of these timely issues will be considered at the AAI’s 9th Annual Private Enforcement Conference, which will be held November 18, 2015, at the National Press Club in Washington D.C., and will feature a panel on Developments on Class Certification in the Antitrust Context.

I.         Classes That Include Some Members Who Are Not Injured

The Supreme Court has taken up the question of whether a class may be certified under Rule 23(b)(3) if it includes members who were not injured and have no legal right to any damages. Tyson Foods Inc. v. Bouaphakeo, 765 F.3d 791 (8th Cir. 2014), cert. granted, 135 S.Ct. 2806 (U.S. June 8, 2015) (No. 14-1146).  AAI has been actively involved in this issue.[1]  Although Tyson Foods is a Fair Labor Standards Act case, the issue is important to antitrust class actions because, for instance, statistical models used to show common injury for class certification in cartel cases often predict that some class members may avoid paying overcharges.  Oral argument is scheduled for November 10, 2015.  The Solicitor General filed a brief in support of plaintiffs and will participate in oral argument.

The Supreme Court may not actually reach the question because, from the briefs, it is not clear that it is squarely raised.  Tyson objects to what it describes as a “single-sum class-wide verdict from which each purported class member, damaged or not, will receive a pro-rata portion of the jury’s one-figure verdict.”  However, plaintiffs reject this characterization, noting that “the judgment does not award damages to, or on account of, uninjured people.  The jury was instructed not to award damages to uninjured class members and had the evidence needed to avoid doing so.”

The Solicitor General suggests that the Court dismiss certiorari on this issue as improvidently granted because Tyson concedes that a class can be certified with uninjured members as long as there is some mechanism, prior to judgment, to ensure that uninjured class members do not contribute to the size of the damage award and cannot recover damages (in effect, Tyson argues for a rigorous ascertainability requirement, see below).

Tyson Foods also raises the question of whether class-wide liability and damages can be determined by statistical techniques based on averages.  And as with uninjured class members, the Court may not address this issue in any general way because plaintiffs have adopted a narrow argument. Plaintiffs maintain that representative proof is permitted because the employer failed to keep the time records required by the Fair Labor Standards Act that would have allowed individualized assessment.

II.        Offers of Judgment and Mootness 

The Supreme Court is considering whether defendants can defeat class actions by “picking off” the proposed class representatives with an offer of “complete relief” for the representatives’ individual claims, even when the offer to settle is rejected.  Campbell-Ewald Co. v. Gomez, 768 F.3d 861 (2014), cert. granted, 135 S. Ct. 2311 (U.S. May 18, 2015) (No. 14-857).  This tactic, if permitted, could pose particular risks to small-dollar indirect purchaser class actions.  The Court heard oral argument on October 14, 2015.  The Solicitor General filed a brief in support of plaintiffs and participated in oral argument.

Campbell-Ewald addresses an issue left open in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013), in which a sharply divided Court effectively held that the mootness of a class representative’s claim prior to certification precluded a class action.  The majority in Genesis Healthcare did not reach the question of whether an unaccepted Rule 68 offer mooted the class representative’s claim itself, while the four liberal dissenting Justices took the position that such an unaccepted offer was a legal nullity.  Given the division in Genesis Healthcare, it came as no surprise that the Court appeared sharply divided at oral argument as to whether and how an unaccepted offer of complete relief might moot the individual class representative’s claim.

It would not be surprising if the Court concluded that an unaccepted Rule 68 offer alone did not moot the class representative’s claim.[2] However, there seemed to be some support for the proposition that “complete relief” embodied in a tender and entry of judgment for the plaintiff (over the plaintiff’s objection and without preclusive effect) was permissible and would moot or terminate the plaintiff’s claim. Whether “complete relief” would have to take into account the class representative’s continued interest in a success fee, or in sharing fees and expenses with other class members, remains to be seen.

III.      Ascertainability 

Some courts have adopted a rigorous “ascertainability” requirement as a precondition for class certification, demanding not only that the class definition be based on objective criteria, but also that an “administratively feasible” method must exist for identifying individual class members and ascertaining their class membership.  Recent cases applying a heightened ascertainability requirement include In re Processed Egg Products Antitrust Litig., 2015 WL 5544524 (E.D. Pa. Sep. 18, 2015) (rejecting use of affidavits from consumers), and Brecher v. Republic of Argentina, 2015 WL 5438797 (2d Cir. Sep. 16, 2015) (clarifying that “touchstone of ascertainability is whether the class is sufficiently definite so that it is administratively feasible for the court to determine whether a particular individual is a member”) (internal quotation marks omitted).

A unanimous panel of the Seventh Circuit recently rejected any heightened requirement of ascertainability in Mullins v. Direct Digital, LLC, 795 F.3d 654 (7th Cir. 2015).  The court expressly rejected the Third Circuit’s restrictive approach in Carrera v. Bayer Corp., 727 F.3d 300 (3d Cir. 2013), finding the Third Circuit’s policy reasons for requiring more than affidavits from putative class members to be unpersuasive. Importantly, the Seventh Circuit stated “By focusing on making absolutely certain that compensation is distributed only to those individuals who were actually harmed, the heightened ascertainability requirement has ignored an equally important policy objective of class actions: deterring and punishing corporate wrongdoing.” Mullins, 795 F.3d at 668 (internal quotation marks omitted).

The defendant has filed a petition for certiorari based on a conflict in the circuits. Direct Digital, LLC v. Mullins, 15-549 (docketed Oct. 29, 2015), 2015 WL 6549672.

IV.       Cy Pres

The Ninth Circuit is hearing two appeals involving cy pres awards.  Objectors argue that the cy pres awards are inappropriate under the ALI Principles because they claim it would have been feasible to return some (or more) funds to members of very large consumer classes.  See Gaos v. Google, Inc., No. 15-15858 (9th Cir.) (docketed Apr. 28, 2015); Fraley v. Facebook, Inc., No. 13-16819 (9th Cir.) (argued Sep. 17, 2015).

The Google case involves an $8.5 million settlement of a privacy claim related to search queries where all of the funds were approved to go to cy pres recipients for Internet privacy protection projects, rather than to any of the more than 100 million class members.  The objectors argue that a claims process was feasible because only a negligible number of class members would  likely submit claims.  They also challenge the choice of cy pres recipients because of the affiliation of plaintiffs’ lawyers and Google with the recipients’ institutions.

The Facebook case involves a $20 million settlement of a privacy claim related to “sponsored stories” where the class exceeded 150 million members. A claims process was used, at the urging of the district court, which will result in a distribution of $15 to each claimant, with the remainder going to cy pres.  Nonetheless, the objectors argue that the balance should be returned to claimants.

V.        Class-Action Waivers

The Supreme Court heard oral argument on October 6, 2015, in DirecTV v. Imburgia, 135 S. Ct. 1547 (No. 14-462). The case involves the question of whether a class-action waiver is enforceable in an arbitration agreement that incorporates state law, where the law would bar enforcement but is preempted. During oral argument some Justices expressed frustration with the California courts’ engaging in what the Justices described as a “run around” of Court decisions, but other Justices questioned the power of the Court to rule on a point of state contract interpretation.

On October 7, 2015, the Consumer Financial Protection Bureau announced that it would initiate a formal rulemaking process to regulate arbitration agreements in consumer finance products.  Companies could still have an arbitration clause, but they would have to say explicitly that it does not apply to cases brought on behalf of a class unless and until class certification is denied by the court, or the class claims are dismissed in court.

VI.       Proposed Legislation 

H.R. 1927, the “Fairness in Class Action Litigation Act,” was passed out of committee on June 24, 2015, and is awaiting a floor vote. As previously noted, the bill would likely eviscerate consumer, antitrust, employment, and civil rights class actions by barring class certification unless proponents demonstrate, based on a “rigorous analysis,” that each person in a class has suffered “the same type and scope of injury.”  A comparable Senate bill has yet to be introduced.

VII.     Advisory Committee on Civil Rules 

The Rule 23 subcommittee of the Advisory Committee on Civil Rules has revised and refined its work on possible class action amendments, which it anticipates publishing in draft form in August 2016.  The subcommittee’s agenda book for the meeting of the Advisory Committee, scheduled for November 5-6, 2015, indicates that the subcommittee has narrowed potential amendments to six issues: (1) “frontloading,”[3] (2) excluding preliminary approvals of class certification from immediate appeal, (3) clarifying the trigger for the opt-out period, (4) notice to unnamed class members, (5) handling objections to proposed settlements, and (6) criteria for settlement class certification.

The subcommittee put two issues on hold (ascertainability and Rule 68 “pick off” offers), and recommended removing two other issues (cy pres and issue classes).  With regard to Chief Justice Roberts’ concern about the manner in which cy pres issues have been handled in some cases, the subcommittee noted that the ALI addressed these issues in § 3.07 of its Principles of Aggregate Litigation, and that the courts are increasingly referring to the ALI formulation in addressing these issues.  The subcommittee “concluded that a rule amendment would not be likely to improve the handling of these issues, and that it could raise the risk of undesirable side effects.”

VIII.   Foreign Developments

The U.K. Consumer Rights Act 2015, which amended the Competition Act 1998 to establish “opt out” collective proceedings in competition cases, went into force on October 1, 2015.  The opt-out provision applies only to UK domiciled claimants; however, non-UK domiciled claimants may opt in to such actions.  Whether the law will attract antitrust class action activity in the UK remains to be seen.  UK law continues to prohibit contingency fee agreements related to opt-out collective proceedings, and loser-pays principles still apply.  On the other hand, third-party litigation funding is permitted, insurance is available against an award of costs, and success-fee arrangements are permitted.  Activity under the new law initially may be limited because of transitional rules involving the statute of limitations.

Comments or suggestions for amicus participation should be directed to AAI Vice President and General Counsel Richard Brunell at rbrunell@antitrustinstitute.org or 202-600-9640.

Class actions play a critical role in the enforcement of the antitrust laws, ensuring that the private damages remedy serves its intended function of deterring antitrust violations and compensating victims.[1]  Indeed, a large swath of the harm inflicted by cartels would go unremedied (and hence undeterred) without class actions.  It is no secret that, for many years, the class-action device has been under assault from certain business groups, and that this assault has resulted in judicial decisions making class actions—antitrust and otherwise—more costly and difficult to bring.

II.        Offers Of Judgment And Mootness  
In the upcoming term, the Supreme Court will also consider whether defendants can defeat class actions by “picking off” the proposed class representatives with an offer of complete relief for the representative’s individual claim, even when the offer to settle is rejected.  Campbell-Ewald Co. v. Gomez, 135 S. Ct. 2311 (May 18, 2015) (No. 14-857) (granting certiorari petition).  Specifically, the Court will consider whether a class representative’s claim is mooted by an offer of complete individual relief before the class is certified, an issue left open in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013).  For the reasons stated in Justice Kagan’s dissent for four justices in Genesis Healthcare, an unaccepted offer is a legal nullity that should not moot a class representative’s claim, let alone the claims of the class. Campbell-Ewald involves statutory damages under the Telephone Consumer Protection Act for unwanted text messages.

III.      Ascertainability 
Some courts have adopted a demanding “ascertainability” requirement as a precondition for class certification, requiring not only that the class definition be based on objective criteria, but also that an “administratively feasible” method exists for identifying individual class members and ascertaining their class membership.  The heightened ascertainability requirement has no basis in Rule 23 and poses a particular threat to consumer class actions.

For example, a divided Third Circuit endorsed the heightened requirement in Carrera v. Bayer Corp., 727 F.3d 300 (3d Cir. 2013), in which it vacated certification of a consumer class that would have relied on affidavits of class members in the absence of receipts.  In In re Wellbutrin XL Antitrust Litigation, No. 08-2433, 2015 WL 3970858 (E.D. Pa. June 30, 2015), a pay-for-delay case, the court decertified the indirect-purchaser class because it was not convinced that sufficient records existed or were obtainable to ascertain whether individual consumers were members of the class.  In Jones v. ConAgra Foods, Inc., No. C 12-01633, 2014 WL 2702726 (N.D. Cal. June 13, 2014), the court also found ascertainability was not met in a consumer class that relied on affidavits.  But in Byrd v. Aaron’s Inc., 784 F.3d 154, 171 (3d Cir. 2015), the court reversed the denial of class certification, concluding that “Carrera does not suggest that no level of inquiry as to the identity of class members can ever be undertaken.”

IV.       Cy Pres
Some “tort reform” groups are on a campaign to eliminate or sharply restrict cy pres.[3] While cy pres can be subject to abuse, critics apparently see the elimination or restriction of cy pres as a way to eliminate small-dollar consumer class actions or make them less attractive (for example, by not including a cy pres award in the amount of the recovery for purposes of calculating attorneys’ fees).  Perhaps responding to the criticism, some courts have unnecessarily restricted the use of cy pres as part of class settlements.

For example, In re BankAmerica Corp. Securities Litig., 775 F.3d 1060 (8th Cir. 2015), the court held that the district court erred by not requiring that funds unclaimed after two distributions be redistributed to original claimants, because it was feasible to do so even though original claims process was riddled with problems and delays.  The Chief Justice has expressed skepticism of cy pres as part of class settlements, noting “fundamental concerns surrounding the use of such remedies in class action litigation,” and that in a “suitable case, this Court may need to clarify the limits on the use of such remedies.”  Marek v. Lane, 134 S. Ct. 8 (2013) (Roberts, C.J., concurring in the denial of certiorari).  The AAI has been active in urging a responsible approach to cy pres and will continue to do so in the courts and other forums.[4]

V.        Class-Action Waivers
The AAI has been active in trying to halt the Supreme Court’s march toward making class-action waivers in arbitration agreements per se enforceable.  Our efforts to date have not met with success.  After American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), some critics have predicted the eventual demise of direct purchaser antitrust class actions.  Professor Elhauge makes the point that “Given the Italian Colors decision, it is hard to see why all businesses would not at least insert arbitration clauses into their contracts that preclude class arbitration.”[5]  Others suggest that “producers of almost any product can now bind purchasers to contractual language,” even if the purchasers are indirect, although “empirical evidence does not yet bear out a flight to class action waivers in the consumer and employment context”.[6]

The Supreme Court will take up yet another class-action waiver case, DirecTV v. Imburgia, 135 S. Ct. 1547 (March 23, 2015) (No. 14-462) (granting certiorari petition), which involves the question of whether a class-action waiver is enforceable in an arbitration agreement that incorporates state law where the law would bar enforcement but is preempted.

VI.       Proposed Legislation 
The U.S. House of Representatives is considering H.R. 1927, the “Fairness in Class Action Litigation Act,” which would effectively eviscerate consumer, antitrust, employment, and civil rights class actions.  The bill bars class certification unless proponents demonstrate, based on a “rigorous analysis,” that each person in a class has suffered “the same type and scope of injury.”  The AAI has signed on to letters with numerous public-interest groups opposing the bill.

VII.     Advisory Committee on Civil Rules 
The Rule 23 subcommittee of the Advisory Committee on Civil Rules is considering whether to recommend that work begin on possible class action amendments.  Toward that end, in April 2015 the subcommittee presented “conceptual sketches” of some possible amendments, with the intention of presenting drafts for possible amendments to the full committee at its Fall 2015 meeting.  The sketches cover settlement approval criteria, settlement class certification, cy pres, objectors, Rule 68 offers and mootness, issue classes, and notice.

As referenced above, the AAI submitted a letter on cy pres to the subcommittee, and is participating with a coalition of like-minded groups to monitor and provide input into the process.  So far, the subcommittee’s approach seems even-handed, but critics of class actions have sharply criticized the conceptual sketches.[7]

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Comments or suggestions for amicus participation should be directed to AAI Vice President and General Counsel Richard Brunell at rbrunell@antitrustinstitute.org or 202-600-9640.  For more information about AAI’s Private Enforcement Conference, go to www.antitrustinstitute.org.