Search Results for: spring class action issues update

The American Antitrust Institute (AAI) seeks to preserve the effectiveness of antitrust class actions as a central and vital component 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, consumers, and workers. This update covers developments since our Summer 2023 update and includes the following new decisions:

• Ascertainability: Evans v. Brigham Young University (BYU), No. 22-4050, 2023 WL 3262012 (10th Cir. May 5, 2023), In re White, 64 F.4^th 302 (D.C. Cir. 2023).
• “Fail-Safe” Class Definitions: In re White, 64 F.4^th 302 (D.C. Cir. 2023), Fitzmorris v. Weaver, 2023 DNH 144 (D.N.H. 2023).
• Incentive Payments: Hawes v. Macy’s Inc., No. 1:17-CV-754, 2023 U.S. Dist. LEXIS 226617 (S.D. Ohio Dec. 20, 2023).
• Mandatory Arbitration Clauses: Fraga v. Premium Retail Services, Inc., No. 21-10751-WGY, 2023 U.S. Dist. LEXIS 215862 (D. Mass. Dec. 5, 2023), Bissonnette v. LePage Bakeries Park St., LLC, 144 S. Ct. 905 (2024).
• Motions to Intervene: Habelt v. iRhythm Techs., Inc., 83 F.4^th 1162 (9th Cir. 2023).
• Attorney’s Fees: In re Wawa, Inc. Data Sec. Litig., 85 F.4th 712 (3d Cir. 2023), Plaintiff-Appellee v. Fieldale Farms Corp. (In re Broiler Chicken Antitrust Litig. End User Consumer), 80 F.4th 797 (7th Cir. 2023).
• Cy Pres: Hyland v. Navient Corp., 48 F.4^th 110 (2d Cir. 2022), Jones v. Monsanto Co., 38 F.4^th 693 (8^th Cir. 2022), Joffe v. Google, Inc. (In re Google Inc. St. View Elec. Communs. Litig.), 21 F.4th 1102 (9th Cir. 2021).

Access the Class Action Issues Update Spring 2024 PDF.

I. CLASSES CONTAINING UNINJURED CLASS MEMBERS 

For several years, we have been following an ongoing debate in the federal courts over the certification of classes containing uninjured class members. In our Summer 2023 update, we noted that Google successfully petitioned for interlocutory appeal of a district court order certifying a class containing uninjured members in In re Google Play Antitrust Litigation, No. 23-15285 (9th Cir. 2023). Google claimed that the district court failed to conduct a “rigorous analysis” to determine whether the presence of uninjured class members defeats predominance under Rule 23. Google argued that, under a rigorous analysis, (1) the plaintiffs must carry the burden of proving the class does not include a “great number” of uninjured class members, and (2) the court must identify and evaluate any individualized issues.

The appeal will not be heard because the parties have settled. Google has agreed to pay Android users $700 million.

II. ASCERTAINABILITY

For several years, we have followed a circuit split over whether Rule 23 contains a heightened ascertainability requirement under which class plaintiffs must plead and prove an administratively feasible mechanism for identifying class members. In our Winter 2022 update, we noted that the Third Circuit, where the heightened ascertainability requirement first gained credence, had been steadily eroding the requirement in a series of cases. However, in our Summer 2023 update, we noted that the court in In re Niaspan Antitrust Litig., 67 F.4^th 119 (3d Cir. 2023), reaffirmed its heightened ascertainability requirement and upheld a denial of class certification on ascertainability grounds. Since that update, the Third Circuit has rejected a petition for en banc rehearing in Niaspan.

As we noted in our Winter 2022 update, the First and Fourth Circuits have joined the Third Circuit in adopting a heightened ascertainablity requirement.[2] The Second, Sixth, Seventh, Eighth, Ninth, and Eleventh Circuits, in contrast, have rejected any heightened ascertainability requirement.[3] The Fifth, Tenth, and D.C. Circuits have yet to explicitly adopt a position.

In May 2023, in an unpublished decision, the Tenth Circuit signaled its awareness of the issue in Evans v. Brigham Young University (BYU), No. 22-4050, 2023 WL 3262012 (10th Cir. May 5, 2023). In upholding a district’s refusal to certify a class of  2020 BYU students who were required to pay the full price of in-person classes despite being forced to attend online during the COVID-19 pandemic, the court alluded to the circuit split on heightened ascertainability. Because the class definition failed with or without a heightened ascertainability standard, however, the court declined to decide the applicable standard.

The D.C. Circuit, in In re White, 64 F.4^th 302 (D.C. Cir. 2023), also alluded to the heightened ascertainability requirement without addressing it. The court recognized a connection between the alleged requirement and the issue of so-called “fail-safe” classes, discussed below in Part III. The lower court had denied class certification for an allegedly fail-safe class of hotel workers who claimed they were improperly denied vested retirement interests, where the merits of the case turned on whether the interests were in fact vested. Citing to Afghan & Iraqi Allies Under Serious Threat Because of Their Faithful Service to the United States v. Pompeo, 334 F.R.D. 449 (D.D.C. 2020), the court observed that defendants’ arguments urging condemnation of fail-safe classes may “strain” against their arguments for adopting the “implied ascertainability requirement that this circuit has never addressed.”

III.       “FAIL-SAFE” CLASS DEFINITIONS

In In re White, the D.C. Circuit also breathed new life into a longstanding circuit split over the viability of fail-safe classes under Rule 23. A class is typically said to be fail-safe if a merits determination is required to determine class membership. Such classes create a risk of unfairness to defendants because individual class members may either win, or, by virtue of losing, be defined out of the class, thereby escaping the bars of res judicata and collateral estoppel.

Many circuits have expressed skepticism of fail-safe classes, but they differ in their treatment. Some, as in In re Nexium Antitrust Litig., 777 F.3d 9 (1st Cir. 2015), have implied there is a rule against fail-safe classes; some, as in Rodriguez v. Countrywide Home Loans, Inc. (In re Rodriguez), 695 F.3d 360 (5th Cir. 2012), reject a rule against fail-safe classes as atextual; and some, as in Messner v. Northshore Univ. HealthSystem, 669 F.3d 802 (7th Cir. 2012), recognize problems with fail-safe classes but encourage lower courts to cure them rather than deny class certification.

In In re White, the D.C. Circuit rejected a rule against fail-safe classes, citing the text of Rule 23. The court explained that “the textual requirements of Rule 23 are fully capable of guarding against unwise uses of the class action mechanism.” It also encouraged courts to cure fail-safe classes, explaining that “the solution for cases like these is for the district court either to work with counsel to eliminate the problem or for the district court to simply define the class itself.” Quoting the Seventh Circuit’s decision in Messner, the court held that “the problem can and often should be solved by refining the class definition rather than by flatly denying class certification.” It continued, “rather than reject a proposed class definition for a readily curable defect based on an unwritten criterion, a district court should either define the class itself or, perhaps most productively, simply suggest an alternate class definition and allow the parties to object or revise as needed.”

In November 2023, a district court in the First Circuit, which some have characterized as maintaining a rule against fail-safe classes, held that this rule, if it exists, does not apply to Rule 23(b)(2) classes in suits for injunctive or declaratory relief. In Fitzmorris v. Weaver, 2023 DNH 144 (D.N.H. 2023), the district court said, “the First Circuit has commented in dicta on the ‘inappropriateness of certifying what is known as a “fail-safe class,”’ but has never held that class certification can be denied on this basis where the requirements of Rule 23 are otherwise satisfied.” The court continued, “Regardless, even if there is an implied prohibition against fail-safe classes, there is no indication that such a prohibition would extend to (b)(2) classes.” The court noted that it could not find any circuit court cases “denying certification of a (b)(2) class that otherwise satisfies the requirements of Rule 23 solely because it constitutes a fail-safe class.” Although it recognized that certifying fail-safe (b)(2) classes can raise fairness concerns, the court held that “the way to guard against these concerns is to ‘apply the terms of Rule 23 as written,’ which are carefully designed to confer sufficient guarantees of fairness on class action defendants.” 

IV. INCENTIVE AWARDS FOR CLASS MEMBERS 

Since our Fall 2020 update, we have been following unusual developments surrounding the legality of incentive awards for lead plaintiffs in class action settlements. In 2020, the Eleventh Circuit in Johnson v. NPAS Sols., LLC, 875 F.3d 1244 (11th Cir. 2020), unexpectedly held that incentive awards paid to lead class plaintiffs—a mainstay of antitrust and other class actions for decades—are unlawful under 19th century Supreme Court precedent. As discussed in our Fall 2022 and Summer 2023 updates, the Ninth Circuit rejected the Eleventh Circuit’s analysis and affirmed the legality of incentive awards in In re Apple Inc. Device Performance Litig., 50 F.4th 769 (9th Cir. 2022).

The First Circuit in Murray v. Grocery Delivery E-Servs. USA Inc., 55 F.4th 340 (1st Cir. 2022), also allowed for incentive payments, explaining that it was “follow[ing] the collective wisdom of courts over the past several decades.” The court reasoned that “incentive payments remove an impediment to bringing meritorious class actions and fit snugly into the requirement of Rule 23(e)(2)(D) that the settlement ‘treats class members equitably relative to each other.’”

As noted in our Summer 2023 update, the Second Circuit has also upheld the legality of incentive awards in the wake of Johnson, although at least one panel appeared to be persuaded by the Eleventh Circuit’s reasoning. In Fikes Wholesale, Inc. v. Visa U.S.A., Inc., 52 F.4th 704 (2d Cir. 2023), the panel found the challenged incentive payment legal under binding Second Circuit precedent but suggested the circuit should reconsider en banc whether incentive payments are legal in light of the precedent cited in Johnson. But in Moses v. The New York Times Company, 79 F.4th 235 (2d Cir. 2023), a different panel rejected the rationale of Johnson and affirmed the legality of an incentive award. Since our last update, the Second Circuit has not addressed the issue en banc. Other district courts in the Second Circuit have followed Moses and rejected Fikes, continuing to allow incentive awards.[4]

The Sixth Circuit has not considered incentive awards since the Eleventh Circuit’s Johnson ruling. However, the district court in Hawes v. Macy’s Inc., No. 1:17-CV-754, 2023 U.S. Dist. LEXIS 226617 (S.D. Ohio Dec. 20, 2023), recently rejected arguments that incentive awards lead to inequitable plaintiff treatment in violation of Rule 23. After surveying other circuit decisions, including Johnson, the court was “persuaded by the consensus of authority” that incentive awards are legal. The district court cited “pragmatic reasons” supporting the use of incentive awards, including inducing named plaintiffs to participate in suits when they would otherwise be economically disincentivized from bringing a legally valid claim.

The Supreme Court has declined to review cases involving the legality of incentive awards three times.

V. CLASS ACTION WAIVERS IN MANDATORY ARBITRATION CLAUSES 

Since our Fall 2016 update, we have been tracking the use of mandatory arbitration clauses in employment agreements, which the Supreme Court upheld in a 5-4 decision in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018). Mandatory arbitration agreements often include forced class action waivers that may prevent class litigation and class arbitration. In our Spring 2019 update, we addressed the Supreme Court’s decision in New Prime, Inc. v. Oliveria holding that the Federal Arbitration Act (FAA) does not compel courts to enforce private arbitration agreements involving “contracts of employment” with “transportation workers,” which are expressly excluded from the FAA’s coverage provided the workers are “engaged in foreign or interstate commerce.”

Since our Fall 2020 update, we have been tracking a circuit split over how the “foreign or interstate commerce” requirement affects the scope of the transportation-worker exclusion, particularly as applied to gig economy workers. In our Summer 2022 update, we noted that the Supreme Court unanimously affirmed the Seventh Circuit in Saxon v. Southwest Airlines, 142 S. Ct. 1783 (2022). Justice Thomas, writing for the Court, held that a “class of workers” under the FAA is defined by the work the workers perform, not the business of their employer. And the class is “engaged in foreign or interstate commerce” for purposes of the FAA exclusion if the workers are “directly involved in transporting goods across state or international borders.” The analysis, the Court held, requires a contextual inquiry into whether the employees “are actually engaged in interstate commerce in their day-to-day work.” To be “engaged in foreign or interstate commerce” under § 1, the class of workers must “play a direct and ‘necessary role in the free flow of goods’ across borders,” which is to say the workers must “be actively ‘engaged in transportation’ of those goods across borders via the channels of foreign or interstate commerce.” The Court said only that “[w]e recognize that the answer will not always be so plain when the class of workers carries out duties further removed from the channels of interstate commerce or the actual crossing of borders.”

The First, Second, Fifth and Ninth Circuits have applied Saxon’s guidance on the FAA exclusion with varying outcomes. The Fifth Circuit in Lopez v. Cintas Corp., 47 F.4th 428 (5th Cir. 2022), held that last-mile delivery drivers did not qualify for the FAA exclusion because they were not involved in “interstate commerce.”  The court reasoned that once the goods at issue arrived at a Houston warehouse and were unloaded, “anyone interacting with those goods was no longer engaged in interstate commerce.”

In contrast, the Ninth Circuit, in Carmona v. Domino’s Pizza, LLC, 21 F.4th 627 (9th Cir. 2021), held that Domino’s last-mile delivery drivers qualified for the FAA exclusion because they are “engaged in a ‘single, unbroken stream of interstate commerce’ that renders interstate commerce a ‘central part’ of their job description.” In October 2022, the Supreme Court vacated and remanded Carmona for further consideration in light of Saxon. Since our last update, the Ninth Circuit, on remand, 73 F.4th 1135 (9th Cir. 2023), has again rejected Domino’s motion to compel arbitration, finding no conflict between the Supreme Court’s decision in Saxon and a previous Ninth Circuit precedent, Rittmann v. Amazon.com, Inc., 971 F.3d 904 (9th Cir. 2020), which had informed the since-vacated opinion. The Ninth Circuit reasoned that the Domino’s drivers were engaged in interstate commerce because they, “like the Amazon package delivery drivers [in Rittmann], transport [interstate] goods for the last leg to their final destinations.”

As discussed in our Fall 2022 update, the Second Circuit in Bissonnette v. LePage Bakeries Park St.,, 49 F.4th 655 (2d Cir. 2022), on rehearing after Saxon, used a different rationale to hold that truck drivers transporting baked goods did not qualify for the FAA exclusion. The court found that moving goods between locations did not qualify the driver as a “transportation worker” under the FAA. According to the court, the decisive fact was that the purchasers of the products at issue were buying the goods, not the movement of them. Employment “in the transportation industry,” according to the Second Circuit, was a necessary (albeit not sufficient) condition for plaintiffs to successfully claim the FAA exclusion.

In March 2023, the First Circuit in Fraga v. Premium Retail Services, Inc., 61 F. 4th 228 (1st Cir. 2023), rejected Bissonnette, creating a circuit split. The court reversed and remanded a lower court decision compelling arbitration for a putative class of merchandisers who delivered their employer’s marketing materials to client stores. The court did not agree that working in the transportation industry is a threshold requirement to qualify for the FAA exclusion. Instead, it emphasized that Saxon focuses on the kind of work done, not the employer. An intrastate trip may be “part of an integrated interstate journey,” and “the contractual relationships among the various actors play an important role in determining” whether that is so.

This approach, the First Circuit explained, is consistent with circuit precedent. In Waithaka v. Amazon.com, Inc., 966 F.3d 10, 26 (1st Cir. 2020), where the last mile delivery drivers had a contractual relationship with Amazon (i.e. the entity engaged in interstate commerce), the deliveries were part of an “integrated” interstate journey. By contrast, in Cunningham v. Lyft, Inc., 17 F.4^th 244 (1st Cir. 2021), where Lyft drivers transporting airline passengers from Logan Airport had no contractual relationship with the airlines, the drivers did not participate in an integrated interstate journey.

Since our last update, the district court on remand in Fraga, No. 21-10751-WGY, 2023 U.S. Dist. LEXIS 215862 (D. Mass. Dec. 5, 2023), in an opinion by former Chief Judge William G. Young, held that the plaintiff class was not protected by the FAA exclusion. Applying the appellate court’s framework, the district court held that the frequency with which workers perform activities closely related to interstate transportation, as well as the intrastate or interstate character of the work, are both relevant. Here, the plaintiffs failed to prove they participated in such activities with “anywhere near the frequency” of the plaintiffs in Saxon, who performed up to three shifts per week, or in Canales v. CK Sales Co., LLC, 67 F.4th 38 (1st Cir. 2023), where the plaintiffs performed at least 50 hours per week. Moreover, the merchandisers’ transportation of advertising materials was an “incidental aspect of their job,” and accordingly it was “not ‘so closely related to interstate transportation as to be practically a part of it.’”

Despite ruling for the employer, the court criticized the current state of U.S. arbitration policy, observing that “[a] majority of the Supreme Court has barred the lower courts from any meaningful role in adjudicating most employer-employee disputes where there is an employer-imposed mandatory arbitration agreement.” The court further lamented that “[w]hat ought be a quick preliminary determination is becoming the main event,” and “[n]o principled distinction exists today among those rights which have unfettered access to courts and juries.” The court observed a “sad irony” insofar as two and one half years of “extensive judicial activity” have passed, none of which have addressed the merits of the dispute, yet “this case would long since have been resolved” if not for the “‘myth’ that arbitration is either faster or cheaper than a well-run federal district court where employees have access to a jury of their peers.”

On April 12, 2024, the Supreme Court ruled in Bissonnette. In a unanimous opinion by Justice Roberts, the Court rejected the Second Circuit’s reasoning, resolving the circuit split in favor of Fraga. Quoting from Saxon, the Court reiterated that the language of Section 1 of the FAA “focuses on ‘the performance of work’ rather than the industry of the employer,” and classes of workers “are connected by what they do, not for whom they do it.” Accordingly, the Court held, “A transportation worker need not work in the transportation industry to fall within the exemption from the FAA provided by §1 of the Act.” The Court vacated the Second Circuit’s opinion and remanded for consideration of alternative grounds raised in favor of arbitration.

VI. CLASS MEMBER MOTIONS TO INTERVENE IN CLASS PROCEEDINGS 

In our Fall 2022 update, we discussed the Fifth Circuit’s holding in Guenther v. BP Ret. Accumulation Plan, 50 F.4^th 536 (5^th Cir. 2022), which addressed grounds for intervention by class members who disagree with the litigation strategy of lead counsel for class plaintiffs. The court found that a successful motion to intervene under FRCP 24(a)(2) depended on overcoming a presumption that the movant and the class plaintiffs “share the same ultimate objective,” and strategic differences were insufficient to mount a successful challenge to the adequacy of the representation.

Since our last update, the Ninth Circuit in Habelt v. iRhythm Techs., Inc., 83 F.4^th 1162 (9th Cir. 2023), also addressed the issue of class member standing to intervene. Habelt was the first filer and original named plaintiff in a securities fraud class action brought under the Private Securities Litigation Reform Act (PLSA). Under the PLSA, the district court selects the lead plaintiff after determining which plaintiff is most capable of adequately representing the interests of the class members, and the court need not select the first filer or original named plaintiff. Here, the district court chose another plaintiff, the Public Employees’ Retirement System of Mississippi (PERSM), over Habelt, and PERSM subsequently amended the complaint. The case was dismissed prior to class certification, and PERSM did not appeal. Habelt then sought to intervene to file an appeal on behalf of the class.

The Ninth Circuit dismissed Habelt’s appeal for lack of jurisdiction. The court held that Habelt lacked standing because the class had not yet been certified, meaning Habelt was not a party when the case was dismissed. After a class is certified, the court explained, “an unnamed member of a certified class may be considered a party for the [particular] purpos[e] of appealing an adverse judgment.” But, the court held, “‘the definition of the term “party”’ does not cover an unnamed class member ‘before the class is certified.’”

Habelt also maintained he was a party insofar as he filed the initial complaint and was listed in the case caption, but the court disagreed. “[T]he caption of an action is only the handle to identify it,” the court explained, and “[f]or that reason, ‘[a] person or entity can be named in the caption of a complaint without necessarily becoming a party to the action.’” Habelt’s having filed the initial complaint was unavailing because the initial complaint was extinguished by PERSM’s amended complaint, which made clear that PERSM was the only operative plaintiff prior to class certification.

VII. CALCULATING ATTORNEYS’ FEES

In our last several updates, we have been following notable circuit court decisions addressing attorney fee awards in class action settlements. In our Fall 2020 update, we noted that the Sixth Circuit n Linneman v. Vita-Mix Corp., 970 F.3d 621 (6th Cir. 2020), aligned itself with the majority of jurisdictions in permitting lodestar calculations of attorney’s fees in coupon settlements. It nevertheless found several flaws with the district court’s approval of such an award. First, the district court gave too much weight to counsels’ affidavits describing their backgrounds, billing rates, and involvement in the case and too little weight to the pre-calculated local billing rates and requested rates claimed by class counsel. In addition, the Sixth Circuit faulted the district court for awarding a multiplier without the appropriate finding of exceptional circumstances, inappropriately including hours class counsel worked after rejecting an arguably reasonable settlement offer and failing to make specific findings about the value of the settlement.

In our Summer 2023 update, we noted that the Ninth Circuit in Lowery v. Rhapsody Int’l Inc., 69 F.4th 994 (9th Cir. 2023),  held that a district court must assess an award of attorney fees relative to the “the actual benefit provided to the class,” not the “maximum that hypothetically could have been paid.” By that metric, a fee award that was thirty times larger than the benefits received by plaintiffs, after adjustments, was unreasonable. In addition, the Second Circuit in Moses v. The New York Times Company, Docket No. 21-2556-cv (2d Cir. August 17, 2023), reversed a district court for finding attorney fees negotiated at arm’s length presumptively fair without due consideration of other independent factors.

Since our last update, the Third Circuit in In re Wawa, Inc. Data Sec. Litig., 85 F.4th 712 (3d Cir. 2023) offered “refreshed guidance” on fee petitions when it vacated a district court’s grant of a fee award based on an inadequate “reasonableness” determination. First, the court determined that the district court was incorrect in assuming that the reasonableness of the fee award must be measured against the entirety of the funds made available to the class. It instructed the lower court to consider a potentially smaller class benefit based on the “amounts distributed to and expected to be claimed by the class.” While the Third Circuit acknowledged that the practice of assessing actual recovery is not required by Rule 23, the court characterized it is a “sensible starting line to begin the fee award analysis.”

Second, the Third Circuit criticized the district court for insufficient scrutiny of side agreements between class counsel and the opposing party. A clear sailing provision that prevented Wawa from challenging class counsels’ fee request, while not an automatic bar to settlement, deserved a “closer look” because it raised concerns about collusion between defendants and class counsel. A fee reversion provision which would have allowed Wawa to reclaim any funds not distributed to the class also should have been investigated even though the provision was removed in the final settlement. The court instructed the lower court to explore whether the provision, even if temporary, “suggests coordinated rather than zealous advocacy.”

In Plaintiff-Appellee v. Fieldale Farms Corp. (In re Broiler Chicken Antitrust Litig. End User Consumer), 80 F.4th 797 (7th Cir. 2023), the Seventh Circuit endorsed a district court’s methodology for determining fee awards by “estimating the terms of the contract that private plaintiffs would have negotiated with their lawyers, had bargaining occurred at the outset of the case (that is, when the risk of loss still existed).” However, the court disagreed with the lower court’s factual evaluation of “what [fee] bargain would have been struck ex ante.” First, the court reasoned, the district court should not have discounted bids by class counsel in other cases on grounds that the bids (1) were made more than seven years prior and (2) were based on declining fee structures disfavored in the circuit. The court said that bids at the start of the litigation are “ordinarily good predictors” of an ex ante bargain. Moreover, it stated that the circuit “has never categorically rejected  […] declining fee scale award structures.” Rather, it has maintained that “the appropriateness of a declining fee scale award structure may depend on the particulars of the case.”

Even bids made by class counsel in the Ninth Circuit, which maintains a “megafund rule,” should not be ignored, according to the court. The Ninth Circuit’s megafund rule automatically limits fees when recovery exceeds a certain size threshold, and the district court found Ninth Circuit bids irrelevant because the Seventh Circuit rejects the megafund fule. The court found that, notwithstanding the artificial fee limits created by the rule, class counsels’ “economic choice” to bid for Ninth Circuit cases reflects a willingness to accept compensation levels that may be probative of the bargain class counsel would have struck ex ante.

VIII. CY PRES 

We last addressed courts’ treatment of cy pres awards in our Fall 2019 update, where we discussed the Supreme Court’s per curium decision in Frank v. Gaos, 139 S. Ct. 1041 (2019). The Gaos case presented the question of whether a settlement is compliant with FRCP 23(e)(2) if it includes a cy pres award but no direct compensation to unnamed class members. The Court did not reach the merits. Rather, it vacated and remanded for a determination whether the plaintiffs had standing. Justice Thomas, dissenting, would have reached the merits and reversed the Ninth Circuit decision approving the cy pres-only settlement. He argued that cy pres-only settlement classes should not be certified because cy pres payments do not benefit the class.

Since then, the Court has declined to take up the issue. In April and May of 2023, it denied cert in two cases raising the same issue, Hyland v. Navient Corp., 48 F.4^th 110 (2d Cir. 2022) and Jones v. Monsanto Co., 38 F.4^th 693 (8^th Cir. 2022). In Hyland, the Second Circuit affirmed the district court’s approval of a class action settlement that provided no monetary relief other than a cy pres award. The court rejected appellants’ arguments that cy pres awards have no benefit to class members. It followed the First, Third, and Ninth Circuits, which recognize and credit an indirect benefit to the class provided there is an appropriate “nexus” between the cy pres award and the plaintiff’s claims. Here, the court held, the nexus requirement was met.

The court also rejected appellants’ arguments that (1) the funds should have been distributed to the class insofar as the class members suffered damages, and (2) the award violates the First Amendment. Here, because the class members did not provide monetary damages releases, they remained free to pursue individual damage actions against the defendant. And this settlement between private parties lacked the requisite state action to support a First Amendment claim.

In Jones v. Monsanto Co., 38 F.4^th 693 (8^th Cir. 2022), the Eighth Circuit addressed challenges to a cy pres award based on the size of the award, First Amendment concerns, and the effect of the award on attorney fee calculations. The court rejected the size-based challenged because (1) sufficient efforts were made to locate more class members and (2) leftover funds need not go to existing class members. Here, the lower court had satisfied its obligation to determine “the measure of class members’ damages and whether they had been fully compensated before granting a cy pres distribution.”

As to the First Amendment challenge, the Eighth Circuit used different reasoning to reach the same result as the Second Circuit in Hyland. The court found that since the residual funds in the settlement did not belong to any individual class members, the distribution of these funds through a cy pres award did not constitute speech.

Finally, the court held that the cy pres award was appropriately included in the total settlement amount for purposes of calculating attorney fees. These funds were available to the class, and the attorneys should not be faulted because some class members did not file claims.

In the aftermath of the Supreme Court’s per curium opinion, the Ninth Circuit has maintained the same approach it adopted in Gaos. In 2021, in Joffe v. Google, Inc. (In re Google Inc. St. View Elec. Communs. Litig.), 21 F.4th 1102 (9th Cir. 2021), the court held that the “indirect benefits the class members enjoy through the cy pres provision,” together with injunctive relief, were sufficient for the district court to find the settlement ‘fair, reasonable, and adequate.’” The court categorically “reject[ed] the suggestion that a district court may not approve a class-action settlement that provides monetary relief only in the form of cy pres payments to third parties.”

In Joffe, the Ninth Circuit also rejected a First Amendment objection. The court held that cy pres awards do not compel class member speech because any member who disagrees may opt-out of the class. The opt-outs have no further claim on the settlement funds, so the award is not their speech. The court also held that cy pres awards may be properly included in the analysis for determining attorney’s fees.

Access the Class Action Issues Update Spring 2024 PDF.

 

[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 https://www.antitrustinstitute.org.  Comments on this update or suggestions for AAI amicus participation should be directed to Kathleen Bradish, kbradish@antitrustinstitute.org.

[2] See In re Nexium Antitrust Litig., 777 F.3d 9 (1st Cir. 2015); EQT Prod. Co. v. Adair, 764 F.3d 347, 358 (4th Cir. 2014).

[3] See In re Petrobas Sec. Litig., 862 F.3d 250, 265 (2d Cir. 2017); Rikos v. The Proctor & Gamble Co., 799 F.3d 497 (6th Cir. 2015); Mullins v. Direct Digital, LLC, 795 F.3d 654 (7th Cir. 2015); Sandusky Wellness Center, LLC v. Medtox Scientific, Inc., 821 F.3d 992, 996 (8th Cir. 2016); Briseno v. ConAgra Foods, Inc., 844 F.3d 1121, 1132-33 (9th Cir. 2017); Cherry v. Dometic Corp., 986 F.3d 1296, 1304 (11th Cir. 2021).

[4] See, e.g., Reyes v. Summit Health Mgmt., LLC, No. 22-CV-9916 (VSB), 2024 U.S. Dist. LEXIS 21061 (S.D.N.Y. Feb. 6, 2024); Kurtz v. Kimberly-Clark Corp., No. 14-CV-1142 (PKC) (RML), 2024 U.S. Dist. LEXIS 8711 (E.D.N.Y. Jan. 17, 2024); Reynolds v. Marymount Manhattan Coll., No. 1:22-CV-06846-LGS, 2023 U.S. Dist. LEXIS 191993 (S.D.N.Y. Oct. 23, 2023).

The American Antitrust Institute (AAI) seeks to preserve the effectiveness of antitrust class actions as a central and vital component 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, consumers, and workers. This update covers developments since our Fall 2021 update.

I. CLASSES CONTAINING UNINJURED CLASS MEMBERS

There is recurring debate in the federal courts over the rules and standards that govern the certification of classes that may contain some class members who were not injured by the defendant’s conduct. In our Fall 2021 update, we noted that the Ninth Circuit vacated a controversial panel decision limiting certification of such classes in Olean Wholesale Grocery Coop., Inc. v. Bumble Bee Foods LLC, 993 F.3d 774 (9th Cir. 2021), and ordered en banc rehearing. The divided panel had held that, in applying Rule 23(b)(3)’s predominance requirement, a district court must find that no more than a “de minimis” number of class members are uninjured to establish common impact. Because the district court did not make such a finding, the panel vacated the class certification order and remanded for further proceedings. Judge Hurwitz, partially dissenting, maintained that neither the text of Rule 23 nor Ninth Circuit precedent permitted the court to create such a requirement.

On April 8, 2022, the en banc court in Olean Wholesale Grocery Coop., Inc. v. Bumble Bee Foods LLC, 31 F.4th 651 (9th Cir. 2022), rejected the vacated panel majority’s reasoning and affirmed the district court’s order granting class certification. The court held that, to determine whether the element of impact is susceptible to classwide proof for purposes of satisfying Rule 23, the proper inquiry is whether the plaintiffs’ evidence “is capable of answering the question whether there was antitrust impact due to the collusion on a class-wide basis.” It is improper, by contrast, to conflate “the question whether evidence is capable of proving an issue on a class-wide basis with the question whether the evidence is persuasive.” Here, the district court did not abuse its discretion or otherwise err, factually or legally, in finding that each class member could attempt to prove impact using common evidence.

With respect to the presence of uninjured class members generally, the court held, “courts must apply Rule 23(b)(3) on a case-by-case basis, rather than rely on a per se rule that a class cannot be certified if it includes more than a de minimis number of uninjured class members.”

Judge Lee dissented from the en banc court’s opinion, joined by Judge Kleinfeld. The two dissenting judges believed the district court’s Rule 23 gatekeeper role required it to resolve the uninjured class member question and deny certification if the number of uninjured class members is more than de minimis. The dissent also argued that the majority created a circuit split with the First and D.C. Circuits, because those courts rejected classes containing more than a de minimis number of uninjured class members in In re Asacol Antitrust Litig., 907 F.3d 42 (1st Cir. 2018), and In re Rail Freight Fuel Surcharge Antitrust Litig.-MDL No. 1869 (Rail Freight II), 934 F.3d 619, 443 U.S. App. D.C. (D.C. Cir. 2019), respectively. The majority countered, in a footnote, that neither court created a per se rule and both continue to look to facts and circumstances to assess predominance and manageability on a case-by-case basis. The exchange is arguably over dicta, because the plaintiffs offered statistical evidence capable of showing harm to all class members. The question whether a class may contain more than a de minimis number of uninjured class members arguably was not properly before the court.

AAI filed numerous amicus briefs at different stages of the case and has published a summary of the en banc opinion. In June, Defendant StarKist sought and received an extension of time to file a petition for certiorari in the Supreme Court. The petition is due August 8, 2022.

II. THE USE OF STATISTICAL EVIDENCE TO PROVE COMMON IMPACT

Since 2016, we have tracked recurring questions over the appropriate class certification standards to be applied when liability and damages are determined on the basis of statistical evidence. In the aforementioned Olean case, the defendants argued that the class plaintiffs’ use of statistical evidence masked substantial differences among class members, partly because the plaintiffs’ reliance on average overcharges obscured the presence of class members who did not pay any overcharge at all and therefore were not impacted by the admitted price fixing. They argued that these differences defeated a showing of predominance.

The vacated Ninth Circuit panel majority had rejected this argument and affirmed the district court’s holding that plaintiffs’ reliance on common statistical evidence was capable of proving classwide impact. Citing the Supreme Court’s holding in Tyson Foods, the panel had ruled that “representative evidence can be relied on to establish a class” so long as it is “closely and carefully scrutinized” for conformance with Rule 23’s requirements. Here, the plaintiffs’ statistical evidence passed muster because (1) an individual plaintiff could have relied on the statistical models to show impact in a hypothetical individual case; (2) there was a sufficient nexus between the plaintiffs’ statistical evidence and their theory of liability, as required by Comcast; and (3) the plaintiffs’ statistical methodology was capable of showing that virtually all class members suffered injury so long as the methodology is sufficiently reliable. Judge Hurwitz, who partially dissented on other grounds, joined this aspect of the vacated panel opinion, and the panel’s treatment of plaintiffs’ statistical evidence offered to prove common impact was not briefed or argued in en banc proceedings.

In its April 2022 en banc opinion, the court again sided with plaintiffs. It held that regression models are widely accepted as a generally reliable econometric technique to isolate the impact of antitrust violations on class members, notwithstanding that they may rely on average overcharges. Importantly, the court also resolved a recurring contest over the meaning of language from the Supreme Court’s Tyson Foods holding, which provides that a statistical model is permissible evidence if “each class member could have relied on [the model] to establish liability if he or she had brought an individual action.” The en banc court explained that “it is irrelevant whether actual sales data shows a specific class member was overcharged by more or less than” the amount of the average overcharge reflected in the regression model. “Rather, the question is whether each member of the class can rely on [the] model to show antitrust impact of any amount.” Here, the court held, “[w]hile individualized differences among the overcharges imposed on each purchaser may require a court to determine damages on an individualized basis, such a task would not undermine the regression model’s ability to provide evidence of common impact.” Thus, the model was sufficient to “sustain liability in individual proceedings” under Tyson Foods.

III. THE MERITS OF AFFIRMATIVE DEFENSES AT CLASS CERTIFICACTION

With respect to not only impact but any other element of antitrust class claims, defendants frequently encourage district courts to decide merits issues that, if resolved unfavorably to plaintiffs, would create individualized questions that may defeat predominance. Plaintiffs typically counter that deciding the merits is improper in such instances because Rule 23 requires only that some elements of the claim be “capable of” proof using common evidence, not that the plaintiffs must win. However, when defendants rely on affirmative defenses to establish individualized issues that may defeat predominance, these roles can be reversed. Plaintiffs sometimes urge the court to reach the merits of the affirmative defense, to show it fails to create individualized issues, and defendants may urge the court to put the merits aside and consider only whether its efforts to mount the defense will undermine the cohesiveness of the class.

The Seventh Circuit recently ruled for the defendants in such a case, but in the process it may have created precedent that will more commonly tend to favor plaintiffs. In Gorss Motels, Inc. v. Brigadoon Fitness, Inc., 29 F.4th 839 (7th Cir. 2022), the putative class brought an action under the Telephone Consumer Protection Act (“TCPA”) seeking statutory penalties as recipients of allegedly unsolicited fax advertisements sent by the defendants. The district court denied class certification on predominance grounds because it believed the defendants’ affirmative defense of solicitation would require numerous individualized mini-trials to sort out which fax recipients had engaged in conduct meeting the definition of “soliciting.” Some class members had arguably provided permission to receive the challenged faxes in person at trade shows; others had arguably done so through a variety of different franchise agreements; and still others through their membership and participation in a national purchasing network. Some arguably provided consent through multiple means.

The plaintiffs argued that, because solicitation is an affirmative defense, the district court erred by failing to impose a burden on defendants at the class certification stage to identify those members of the proposed class who provided express prior permission and to show with specific evidence that a significant percentage of the class is subject to this defense. Moreover, plaintiffs argued, the district court’s analysis failed because it relied on a substantively flawed “implied consent” standard to establish the solicitation defense available under the TCPA.

The Seventh Circuit ruled for the defendants, holding that “it is not the final merits of the permission inquiry that matter for Rule 23(b)(3) purposes; it is the method of determining the answer and not the answer itself that drives the predominance consideration.” The court explained, “The Rule 23(b)(3) predominance requirement inherently requires the court to engage with the merits of the case, yet without deciding the merits.” Thus, the court continued, “[a]t class certification, the issue is not whether plaintiffs [or defendants] will be able to prove these elements on the merits, but only whether their proof will be common for all plaintiffs [or defendants], win or lose.” The court held that the same analysis applies regardless of whether the predominance inquiry is focused on the elements of the claim, which plaintiffs must prove, or an affirmative defense, which the defendant must prove. In either instance, “[t]he judge must examine the evidence for its cohesiveness while studiously ignoring its bearing on merits questions.”

In an unpublished decision denying a defendant’s Rule 23(f) petition, the Sixth Circuit recently ruled for the plaintiffs in such a case, holding that district courts may appropriately probe behind the pleadings to reach merits issues when affirmative defenses are offered to defeat predominance, but that it should not decide them. In In re Louisville-Jefferson Cnty., No. 21-0503, 2022 U.S. App. LEXIS 12150 (6th Cir. May 4, 2022), the class plaintiffs brought civil rights claims against several local government entities in Louisville, Kentucky, alleging Eighth Amendment violations stemming from the unauthorized towing of vehicles and charging of excessive fines for holding them. The defendants argued that their statute-of-limitations defense created individualized questions concerning the legality of the increased fines.

In rejecting the defendants’ argument, the district court relied on plaintiffs’ allegations of a missing memorandum that was required to give plaintiffs notice of the challenged increase in fine amounts, which created material fact questions as to when plaintiffs knew or should have known of the allegedly unlawful increase. If the plaintiffs were to prove their allegations regarding the missing memorandum, then the statute-of-limitations period would not be a bar to the plaintiffs’ claims. The Sixth Circuit affirmed, holding that the district court’s approach properly accorded with the Supreme Court’s holding in Amgen Inc. v. Conn. Ret. Plans & Tr. Funds. The lower court correctly considered the timing question only to the extent it was relevant to determining whether the Rule 23 prerequisites were satisfied, and “[n]ever did the district court’s certification analysis implicate or rely on the substantive merits of Plaintiff’s claims.”

IV. ASCERTAINABILITY

A circuit split persists over whether Rule 23 contains a heightened ascertainability requirement that demands class plaintiffs plead and prove an administratively feasible mechanism for identifying absent class members. In our Spring 2021 update, we noted that the tide of recent decisions has continuously moved against such a requirement, with each of the last six circuits to consider a heightened ascertainability requirement having ruled against it. The Second, Sixth, Seventh, Eighth, Ninth and Eleventh Circuits now reject an administrative feasibility prerequisite, while the First and Third Circuits have embraced some form of a heightened ascertainability requirement. The Fifth, Tenth, and D.C. Circuits have not yet explicitly adopted a position.

In our Fall 2017 update, we noted that the Third Circuit, where the heightened ascertainability theory first gained credence, gave a 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 held that affidavits from class members coupled with other reliable evidence could satisfy the standard.

In our Fall 2020 update, we noted that the Third Circuit continued its retreat in Hargrove v. Sleepy’s LLC, 974 F.3d 467 (3d Cir. 2020). There, the court explained that “all that is required is that [the plaintiffs] show there is a reliable and administratively feasible mechanism,” and gaps in the record “do not undermine the conclusion that all the evidence taken together could at the merits stage be used to determine” the identities of class members.

In our Fall 2021 update, we noted that the Third Circuit agreed to take up its heightened ascertainability standard yet again, this time in an antitrust case. In In re Niaspan Antitrust Litig. No. 21-8042 (3d Cir. docketed Oct. 7, 2021), a pharmaceutical reverse payment case, the district court denied class certification on grounds that plaintiffs had failed to establish an administratively feasible mechanism for identifying class members notwithstanding plaintiffs’ evidence of comprehensive and detailed electronic claims data that could show the identity of every potential class member. The plaintiffs successfully petitioned for interlocutory appeal under Rule 23(f).

The Niaspan case has now been briefed, and oral argument is scheduled for September 6, 2022. AAI submitted an amicus brief explaining the ascertainability inquiry’s derivation from Rule 23 and its appropriate application in the pharmaceutical sector.

V. SPECIFIC PERSONAL JURISDICTION

Since 2017, we have been tracking the lower federal courts’ application of the Supreme Court’s decision in Bristol-Myers Squibb Co. v. Superior Court of California, 137 S. Ct. 1773 (2017) [hereinafter “BMS”], which prevents defendants who are engaged in nationwide conduct from being subject to a mass action by plaintiffs injured both within and outside the forum state if general jurisdiction is lacking and if the defendant otherwise has insufficient contacts with the forum states to establish specific jurisdiction over the claims of some of the plaintiffs in the forum state. That decision has engendered questions as to whether such defendants can be subject to a class action. If not, nationwide or multi-state classes of plaintiffs often might be unable to bring class actions except in a defendant’s home state. Among other things, this would result in significant litigation advantages for corporate antitrust defendants, as well as inefficiency.

In our Spring 2020 update, we explained that the 5th, 7th, and D.C. Circuits all ruled on the issue in the span of a two-week period, and all three held that BMS did not bar nationwide class actions prior to class certification, notwithstanding that specific jurisdiction may be lacking for unnamed class members. The 7th Circuit, in an opinion by Chief Judge Wood in Mussat v. IQVIA, went further than the others in holding affirmatively that BMS does not apply to class actions.

In our Fall 2021 update, we noted that the Supreme Court denied certiorari in Mussat, and two months later, in Lyngaas v. Curaden AG, 992 F.3d 412 (6th Cir. 2021), the 6th Circuit joined the 7th Circuit in holding that “Bristol-Myers Squibb does not extend to federal class actions.” Citing and quoting extensively from Chief Judge Wood’s opinion in Mussat, the court noted that a class action is formally one suit in which a defendant litigates against only the class representative, and, accordingly, precedent does not deem the absent class members to be “parties.” Therefore, the court held, “The different procedures underlying a mass-tort action and a class action demand diverging specific personal jurisdiction analyses.”

Since our last update, the 1st Circuit has followed suit in Waters v. Day & Zimmermann NPS, Inc., 23 F.4th 84 (1st Cir. 2022). The court rejected a novel argument for applying BMS to “collective actions” under the federal Fair Labor Standards Act (FLSA), which are distinct from Rule 23 class actions. Once an action is filed under the FLSA, the statute permits additional plaintiffs to form a collective action by “opting-in.” The defendant argued that out-of-state opt-ins were barred by BMS insofar as FRCP 4(k), which establishes that “[s]erving a summons or filing a waiver of service establishes personal jurisdiction over a defendant,” incorporates the Fourteenth Amendment’s limitation on the jurisdiction of federal courts that proved controlling in BMS.

The 1st Circuit rejected the argument, and in doing so, it left little doubt where it stands on the application of BMS to Rule 23 class actions. Citing favorably to the Sixth Circuit’s opinion in Lyngaas, the court held that “FLSA collective actions and Rule 23 class actions are dissimilar in myriad ways,” but that “[t]he paramount similarity, and the only one that matters for purposes of assessing the district court’s jurisdiction here, is that the named plaintiff in both actions is the only party responsible for serving the summons, and thus the only party subject to Rule 4.” While the holding may be dicta as applied to Rule 23 class actions, the court’s emphasis on only the named plaintiff having “party” status strongly suggests it will follow the logic of Mussat and Lyngaas in refusing to extend BMS to class actions.

In our Fall 2021 update, we noted that a divided Ninth Circuit panel in Moser v. Benefytt, Inc., 8 F.4th 872 (9th Cir. 2021), introduced a new wrinkle. The panel majority in Moser, comprised of Judge Bress and Judge Bybee, held that, because a defendant may not interpose a personal jurisdiction objection to absent class members’ claims prior to class certification, such objections cannot be waived prior to class certification. The panel majority also allowed that, while a personal jurisdiction defense against such class members would be unavailable under Rule 12, it may conceivably be available at the class certification stage under Rule 23. The court said, “Nothing in the Federal Rules somehow requires a district court to assert its power over the claims of putative class members in the face of a class action defendant’s personal jurisdiction objection to class certification. And nothing in the Federal Rules prevents that objection to a plaintiff’s request for class certification from being interposed at the Rule 23 stage, as part of Rule 23 proceedings,” as distinct from Rule 12 proceedings.

Judge Cardone, dissenting, noted that the majority could cite no cases “suggesting personal jurisdiction is relevant to a Rule 23 factor.” Moreover, the Ninth Circuit in Poulos v. Caesars World, Inc., 379 F.3d 654, 672 (9th Cir. 2004), held that “personal jurisdiction and class certification ‘involve the application of different standards.’” Judge Cardone also believed the defendant’s Rule 23 argument had been waived.

Moser was remanded with instructions for the district court to consider the merits of the defendant’s BMS objection to class certification in the first instance. Since our last update, the plaintiff has moved to certify the class, and the defendant has opposed. A decision on remand remains pending.

In June 2022, the Ninth Circuit applied Moser over class plaintiffs’ objection in Owino v. CoreCivic, Inc., 36 F.4th 839 (9th Cir. 2022). After a district court certified three classes of immigrant detainees who alleged federal statutory and state labor code violations against the overseer of a private detention facility, which allegedly forced them to perform labor against their will and without adequate compensation, the defendant overseer appealed, asserting that the district court erred in holding that its personal jurisdiction defense had been waived. The Moser opinion was handed down after the district court’s decision in Owino but prior to the appeal.

The plaintiffs-appellants in Owino argued that Moser was wrongly decided, and that the Moser panel majority improperly relied on out-of-circuit precedent instead of intra-circuit precedent holding that “[p]ersonal jurisdiction is a bread and butter defense to a claim for relief asserted in a pleading, including relief a plaintiff seeks on behalf of a putative class.” The Ninth Circuit panel in Owino did not suggest it disagreed, but the court held that the issue was squarely addressed in Moser and “we have no authority to ignore circuit precedent.” The panel declined to vacate the district court’s class certification order, however, holding that while the defendant retains its personal jurisdiction defense on remand, the district court may consider the personal jurisdiction defense at the appropriate time.

To date, no circuit court has held that BMS bars nationwide class actions in forum states that lack personal jurisdiction over absent class members.

VI. DISCRETIONARY APPEALABILITY UNDER RULE 23(f)

Empirical studies show that 75% of Rule 23(f) petitions to appeal class certification decisions are denied by the appellate court, and most of the denials are accomplished via summary orders. A published or unpublished opinion made available in an electronic database, explaining the reasons for the denial, is reportedly issued in only 10% of cases. Since our last update, however, the Sixth Circuit, in the span of a little over a month, has issued four opinions explaining denials of Rule 23(f) petitions on the merits.

In May, in the aforementioned In re Louisville-Jefferson Cnty. case, the Sixth Circuit explained that Rule 23(f) gives it “unfettered discretion whether to permit the appeal, akin to the discretion exercised by the Supreme Court in acting on a petition for certiorari.” The court explained that it “eschew[s] any hard-and-fast test in favor of a broad discretion to evaluate relevant factors that weigh in favor of or against an interlocutory appeal.” Some of those relevant factors include whether “the case ‘raises a novel or unsettled question,’ the risk to the parties in the absence of interlocutory review, and ‘the posture of the case as it is pending before the district court.’” The court considered, and rejected as unavailing, each of the defendants’ merits arguments that the district court had abused its discretion. Accordingly, it denied the defendants’ petition for interlocutory appeal.

During a one-week span in June, the court issued three more opinions explaining its basis for denying separate Rule 23(f) petitions. In Arends v. Family Sols. of Ohio, Inc. (In re Family Sols. of Ohio, Inc.), No. 21-0303/3375, 2022 U.S. App. LEXIS 16990 (6th Cir. June 17, 2022), the court reemphasized that it eschews any hard-and-fast test in exercising discretion, and it added further that “‘the Rule 23(f) appeal is never to be routine’ and ‘should not become a vehicle for early review of a legal theory that underlies the merits of a class action.’” It also specified that “[f]our factors typically guide our consideration of a Rule 23(f) petition. First, ‘[t]he case that raises a novel or unsettled question may . . . be a candidate for interlocutory review.’  ‘[T]his factor weigh[s] more heavily in favor of review when the question is of relevance not only in the litigation before the court, but also to class litigation in general.’ Second, ‘the likelihood of the petitioner’s success on the merits is a factor in any request for a Rule 23(f) appeal.’ Third, ‘[t]he “death-knell” factor . . . recogni[zes] that the costs of continuing litigation for either a plaintiff or defendant may present such a barrier that later review is hampered.’ Fourth, ‘the posture of the case as it is pending before the district court is of relevance.’” Here, the court considered and rejected the defendant’s arguments that the interlocutory appeal presented novel issues, that the defendant was likely to succeed on the merits, and that review was appropriate to prevent the incursion of unnecessary costs. The court then denied the petition.

In In re Macy’s W. Stores, Inc., No. 22-0303, 2022 U.S. App. LEXIS 17222, at *3 (6th Cir. June 22, 2022), the court again described, in similar terms, its standard of review and the four factors that typically guide its consideration. It added further that “any pertinent factor may be weighed in the exercise of that discretion,” and “[n]ot all factors can be foreseen or stated with particularity.” The defendant, Macy’s, which argued that some of the class members did not actually purchase a bed-linen product at issue that was allegedly the subject of consumer protection violations, maintained that its interlocutory appeal presented novel or unsettled questions because “[n]o federal appellate court has set forth a clear standard for determining whether, and when, named plaintiffs in consumer class-action lawsuits have Article III standing to pursue class claims for unpurchased products.”

The Sixth Circuit rejected the argument and denied interlocutory appeal because “the law in this Circuit is clear” on the role of Article III standing in these circumstances. “‘Once [a plaintiff’s individual] standing has been established, whether a plaintiff will be able to represent the putative class, including absent class members, depends solely on whether he is able to meet the additional criteria encompassed in Rule 23.’” Here, “Macy’s does not dispute that [the named plaintiff] has individual standing to bring her claims against Macy’s based on her purchase[.]” Accordingly, Macy’s standing argument “implicates the requirements of Rule 23(a) and (b), not Article III standing,” and the issue was not sufficiently novel to warrant a Rule 23(f) appeal.

In In re Ascent Res.-Utica, LLC, No. 21-0307, 2022 U.S. App. LEXIS 17437 (6th Cir. June 23, 2022), the court described the standard and the four factors similarly to the Macy’s and Arends courts without further elaboration. The defendant argued that its Rule 23(f) petition should be granted based on the death-knell factor, because the risk of $90 million in damages threatened its “entire business model” and created undue settlement pressure. The court rejected the argument because the defendant’s statements were devoid of any context. “‘[T]he discussion of this factor must go beyond a general assertion,’” the court explained. Because “‘[t]he magnitude of damages is relative to the size of the defendant,’” the defendant “‘should provide the court insight into potential expenses and liabilities.’”

The defendant’s remaining arguments focused on the novelty of issues raised and alleged abuses of discretion by the district court. The Sixth Circuit considered and rejected each argument. It then denied the Rule 23(f) petition.

In March, the Eleventh Circuit also issued an opinion explaining its denial of a Rule 23(f) petition. In Mastercard Int’l Inc. v. Scoma Chiropractic, P.A., No. 22-90004-F, 2022 U.S. App. LEXIS 6844 (11th Cir. Mar. 16, 2022), the court held that it looks to five factors when deciding whether to grant interlocutory appellate review of a district court’s class-certification decision: “(1) whether the district court’s ruling is likely dispositive of the litigation by creating a ‘death knell’ for either the plaintiff or defendant; (2) whether the petitioner has shown a substantial weakness in the district court’s class-certification decision, such that the decision likely constitutes an abuse of discretion; (3) whether the appeal will permit resolution of an unsettled legal issue that is important both to this particular litigation and in and of itself; (4) the nature and status of litigation before the district court; and (5) the likelihood that future events may make immediate appellate review more or less appropriate.” The defendant failed to satisfy any factor.

VII. § 1291 APPEALS AFTER CLASS CERTIFICATION DENIALS

In our Fall 2017 update, we discussed the Supreme Court’s holding in Microsoft v. Baker, 137 S. Ct. 1702 (2017), which prohibited plaintiffs who lose on class certification from converting a district court’s interlocutory order into a final judgment within the meaning of § 1291 by voluntarily 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 what the Court referred to as this “dismissal device.” The Ninth Circuit subsequently heard the appeal and reversed the denial of certification.

Reversing the Ninth Circuit, the 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.

In January, the Sixth Circuit held that plaintiffs who requested that the district court sua sponte enter summary judgment in favor of defendants to create an appealable final order did not run afoul of the Supreme Court’s holding in Baker. In Ohio Pub. Emples. Ret. Sys. v. Fed. Home Loan Mortg. Corp., No. 20-4082, 2022 U.S. App. LEXIS 488 (6th Cir. Jan. 6, 2022), the plaintiffs were denied class certification and the Sixth Circuit denied their Rule 23(f) petition for interlocutory appeal. After the Rule 23(f) denial, the putative class plaintiffs asked the district court to sua sponte enter summary judgment for the defendants, reserving the right to appeal the adverse class certification decision. After the defendants indicated their intent to delay summary judgment proceedings for 18 months and failed to proffer a discovery request for over a year, the district court complied with the plaintiffs’ request. On appeal, the defendants argued that the court’s sua sponte summary judgment grant amounted to “manufactured finality” prohibited by Baker.

Citing and quoting from a 1980 per curium opinion, the Sixth Circuit held that a dismissal solicited by appellants is nonetheless final even if “‘solicitation of the formal dismissal was designed only to expedite review of an order which had in effect dismissed appellants’ complaint.’” The court could find no cases in any federal circuit “that have held that [Baker] prohibits a district court from sua sponte entering summary judgment in similar factual circumstances.”

VIII. CLASS ACTION WAIVERS IN MANDATORY ARBITRATION CLAUSES

Since our Fall 2016 update, we have been tracking the use of mandatory arbitration clauses in employment agreements, which the Supreme Court upheld in a 5-4 decision in Epic System Corp. v. Lewis, 138 S. Ct. 1612 (2018). Such agreements often include forced class-action waivers that may serve to prevent both class litigation and class arbitration. In our Spring 2019 update, we noted that the Federal Arbitration Act (FAA), by its terms, excludes “contracts of employment” with transportation workers from its coverage, provided they are “engaged in foreign or interstate commerce.” The Supreme Court, in New Prime, Inc. v. Oliveira, 139 S. Ct. 532 (2019), unanimously held that the FAA does not compel courts to enforce private arbitration agreements involving workers covered by the exclusion, and the Court also broadly interpreted the FAA’s use of “contracts of employment” to include both employees and independent contractors.

In the wake of New Prime, we noted that Epic Systems apparently will not bar transportation employees or independent contractors in interstate commerce from successfully challenging class-action waivers embedded in arbitration agreements. Since our Fall 2020 update, we have been tracking a circuit split over how the “foreign or interstate commerce” requirement affects the scope of the transportation-worker exclusion, particularly as applied to gig economy workers. In Rittman v. Amazon.com, Inc., 971 F.3d 904 (9th Cir. 2020), which we discussed in our Fall 2020 update, the Ninth Circuit held that local Amazon delivery drivers fell within the exclusion insofar as they hauled goods on the final legs of interstate journeys. The Seventh Circuit, in Wallace v. Grubhub Holdings, Inc., 970 F.3d 798 (7th Cir. 2020)—in an opinion authored by now-Justice Amy Coney Barrett—held that workers seeking to qualify for the exclusion must be connected not simply to the goods, but to the act of moving those goods across state or national borders.

In our Spring 2021 update, we noted that the Ninth Circuit, in the course of denying a mandamus petition in In re Grice, 974 F.3d 950 (9th Cir. 2020), surveyed the recent cases and concluded, consistent with Wallace, that the critical factor in each case “was not the nature of the item transported in interstate commerce (person or good) or whether the plaintiffs themselves crossed state lines, but rather ‘[t]he nature of the business for which a class of workers perform[ed] their activities.’”

We also noted that the Seventh Circuit, in Saxon v. Southwest Airlines, cited approvingly to Wallace and held that transportation workers must be “actively occupied in ‘the enterprise of moving goods across interstate lines’” to be sufficiently engaged in “commerce” in satisfaction of the FAA exclusion. The Seventh Circuit interpreted the scope of work meeting that requirement expansively so as to mitigate the appearance of a circuit split and to maintain consistency with contemporary statutes from the 1920s when the FAA was passed, which recognized that the cargo-loading workers at issue were engaged in interstate transportation if they were unloading or loading cargo onto a vehicle so that it may be moved interstate.

In our Fall 2021 update, we noted that the Eleventh, Ninth and Third Circuits issued opinions following an approach similar to that of Wallace, Grice, and Saxon. We also noted that the losing defendant in Saxon, Southwest Airlines, had petitioned for certiorari. In December 2021, the Supreme Court granted certiorari. It heard oral argument in March, and in June, it issued an 8-0 affirmance, with Justice Barrett recused.

The opinion of the Court, authored by Justice Thomas, holds that a “class of workers” under the FAA is defined by the work the workers perform, not the business their employer is in. And the class is “engaged in foreign or interstate commerce” for purposes of the FAA exclusion if the work renders the workers “directly involved in transporting goods across state or international borders.” The analysis, the Court held, requires a contextual inquiry into whether the employees “are actually engaged in interstate commerce in their day-to-day work.” To be “engaged in foreign or interstate commerce” under § 1, the class of workers must “play a direct and ‘necessary role in the free flow of goods’ across borders,” which is to say the workers must “be actively ‘engaged in transportation’ of those goods across borders via the channels of foreign or interstate commerce.”

The Court held that workers who load cargo on and off airplanes, like Saxon, constitute a class of workers engaged in foreign and interstate commerce and therefore qualify for the FAA exclusion. However, the Court provided scant guidance on what it means to be “engaged in foreign or interstate commerce” more generally. In a footnote, for example, the Court cited both to the 9th Circuit’s opinion in Rittman and to then-Judge Barrett’s opinion for the 7th Circuit in Wallace, which reached divergent conclusions as to similarly situated delivery drivers, but the Court demurred as to which case was decided correctly. The Court said only that “[w]e recognize that the answer will not always be so plain when the class of workers carries out duties further removed from the channels of interstate commerce or the actual crossing of borders.” After Saxon, the FAA exclusion’s applicability may become a case-by-case inquiry for many undefined classes of workers, creating significant litigation uncertainty for both plaintiffs and defendants.

The Court will have the opportunity to provide further guidance, and harmonize the FAA exclusion’s applicability to delivery drivers, if it wishes, after the Ninth’s Circuit holding in Carmona v. Domino’s Pizza, LLC, 21 F.4th 627 (9th Cir. 2021). Shortly after our last update, the Ninth Circuit in Carmona re-affirmed Rittman, holding that Domino’s delivery drivers qualify for the FAA exclusion because they are “engaged in a ‘single, unbroken stream of interstate commerce’ that renders interstate commerce a ‘central part’ of their job description.” The court emphasized that Domino’s is directly involved in the procurement and delivery of interstate goods, and that drivers transport those goods for the “last leg” to their final destinations. That some of the goods were delivered to an intermediate Supply Center and then shipped from intrastate distributors, and that some (but not all) were “altered” at the Supply Center, does not change the result. Domino’s petitioned for certiorari on June 15, 2022. The petition is featured among ScotusBlog’s “petitions of the week” for the week of July 8, 2022.

Since Epic Systems was decided in 2018, several legislative proposals that would fully or partially overturn the decision have circulated, including the Forced Arbitration Injustice Repeal Act (FAIR Act), which was first introduced by Sen. Richard Blumenthal (D-CT) and Rep. Hank Johnson (D-GA) in February 2019, and which we discussed in our Spring 2019 update. In our Fall 2021 update, we noted that, over a two-day span in November, the FAIR Act passed the House Judiciary Committee, and a new bill, the Ending Forced Arbitration of Sexual Assault & Sexual Harassment Act, introduced by Sen. Kirsten Gillibrand (D-NY) and Sen. Lindsey Graham (R-SC), passed the Senate Judiciary Committee. We noted that the Gillibrand and Graham bill does not affect antitrust plaintiffs, but it is nonetheless significant because it would mark the first legislative action to directly limit Epic Systems.

Since our last update, the Gillibrand and Graham bill passed both chambers and was signed into law by President Biden on March 3, 2022. The FAIR Act was reported out of the House Judiciary Committee on March 11, 2022, and a week later, on March 17, it passed the House 220-209, with one Republican, Rep. Matt Gaetz (FL), joining House Democrats in the majority. GovTrack currently predicts that the Fair Act has a 53% chance of being enacted.

IX. INCENTIVE AWARDS FOR CLASS REPRESENTATIVES

In our Fall 2020 update, we discussed the Eleventh Circuit’s decision in Johnson v. NPAS Sols., LLC, 975 F.3d 1244 (11th Cir. 2020), which held that incentive awards paid to lead class plaintiffs—a longstanding feature of antitrust and other class actions—are unlawful under nineteen-century Supreme Court precedent. In our Spring 2021 update, we noted that the Eleventh Circuit entered an order withholding the issuance of the mandate following the plaintiff’s petition for rehearing en banc. In May 2021, the plaintiffs submitted a notice of supplemental authority regarding plaintiffs’ contention that the prohibition on incentive awards conflicts with decisions from every other circuit.

According to the submission, nine district court cases from outside the Eleventh Circuit and seven appellate panels had addressed the legality of incentive awards paid to lead class plaintiffs since the petition for rehearing en banc was submitted. The nine district court decisions had cited to and rejected the Johnson holding, permitting service awards to class representatives. The seven appellate decisions, most of which are unpublished, have affirmed service awards. In a response, the defendant countered that the cited cases are non-binding and did not directly consider the nineteen-century precedent on which Johnson relied.

In our Fall 2021 update, we noted that district courts within the Eleventh Circuit have joined courts outside the circuit in permitting payments to lead class plaintiffs where circumstances allow. In Broughton v. Payroll Made Easy, Inc., No. 2:20-cv-41-NPM, 2021 U.S. Dist. LEXIS 139514 (M.D. Fla. July 27, 2021), the Middle District of Florida narrowly interpreted Johnson as applying only to an incentive award “that compensates a class representative for his time and rewards him for bringing a lawsuit.” The court held that, although the parties’ settlement agreement contained “references to a ‘service award,’” the facts here were distinguishable from Johnson because the parties had clarified in a second amended motion and notice that the lead plaintiff was “receiving additional compensation for executing a supplemental agreement, which contains a much broader release of claims.”

Other district courts in the Eleventh Circuit have denied service awards without prejudice, pending disposition of the Johnson plaintiffs’ en banc rehearing petition. In Cotter v. Checkers Drive-In Rests., Inc., No. 8:19-cv-1386-VMC-CPT, 2021 U.S. Dist. LEXIS 160592 (M.D. Fla. Aug. 25, 2021), for example, the district stated that “it is important to note that the mandate has been withheld in Johnson and a ruling for rehearing en banc is pending.” Accordingly, it followed the lead of its sister courts in the Circuit and denied plaintiffs’ request for service awards without prejudice, but it retained jurisdiction for the limited purpose of revisiting the denial of service awards should Johnson ultimately be overruled.

Since our last update, an Eleventh Circuit panel has declined to apply Johnson. In Dasher v. RBC Bank (USA) (In re 1:09-md-02036-JLK, Checking Account Overdraft Litig.), No. 20-13367, 2022 U.S. App. LEXIS 4277 (11th Cir. Feb. 16, 2022), the court refused to vacate a $10,000 incentive award where the defendant neither objected to the award before the district court nor articulated an argument as to why the award should be invalidated.

At least one district court in the Eleventh Circuit has applied Johnson to bar a service award. In Rosado v. Barry Univ., No. 20-21813-CIV, 2021 U.S. Dist. LEXIS 169196 (S.D. Fla. Sep. 7, 2021), the court held that Johnson barred a $5,000 service award, and it refused to reserve jurisdiction to allow class counsel to renew their request for a service award should Johnson be reversed en banc. Although the court acknowledged that several other district courts have taken this approach, it worried that allowing class counsel to renew their request for the service award in this case might delay the distribution of settlement payments or increase settlement administration costs.

As of this writing, the plaintiffs’ en banc rehearing petition in Johnson remains pending, and a mandate has yet to issue.

X. EMPIRICAL DATA ON ANTITRUST CLASS ACTIONS

In April, Huntington Bank (Huntington) and the UC Hastings Center for Litigation and Courts (UCHCLC) published the 2021 Antitrust Annual Report: Class Action Filings in Federal Court, their fourth annual antitrust report examining empirical information involving the filing and resolution of private antitrust class action lawsuits. The new report covers the years 2009-2021.

The Report shows the number of antitrust class action complaints filed each year, the amount of time they took on average to reach a settlement, the mean and median recoveries, the attorneys’ fees and costs awarded, and the total settlement amounts in each year and overall. It also analyzes the law firms that represented plaintiffs and defendants in antitrust class action settlements, describes cumulative results, and tabulates cumulative totals for claims administrators involved in the settlement process. The report also distinguishes private antitrust enforcement by particular industries, by type of claim, and by type of plaintiff.

Contemporaneous with the report’s publication, AAI and UC Hastings released a commentary examining the report’s key findings, which include the following:

• From 2009-2021, a mean number of 127 consolidated complaints were filed per year, with outlier years as low as 72 and as high as 220.
• From 2009-2021, there were Defendant Wins in 125 cases as a result of judgments on the pleadings, summary judgment, judgment as a matter of law, or trial.
• From 2009-2021, most antitrust class actions that reached final approval did so within 5-7 years.
• The mean settlement amount varied by year from $6 million to $41 million, and the median amount varied by year from $2 million to $16 million.
• The total annual settlements ranged from $225 million to $5.3 billion per year.
• The cumulative total of settlements was $29.3 billion from 2009-2021.

American Antitrust Institute
July 20, 2022

[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 https://www.antitrustinstitute.org. Comments on this update or suggestions for AAI amicus participation should be directed to Randy Stutz, rstutz@antitrustinstitute.org, (202) 905-5420.

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, consumers, and workers. This update covers developments since our Fall 2020 update.

I. CLASSES CONTAINING UNINJURED CLASS MEMBERS

There is recurring debate in the federal courts over the rules and standards that govern the certification of classes that may contain some class members who were not injured by the defendant’s conduct. In our Fall 2016 update, we noted that the Supreme Court’s opinion in Tyson Foods v. Bouaphakeo, 577 U.S. 442 (2016), strongly implied that the presence of uninjured class members does not necessarily defeat class certification.

In our Spring 2020 update, we noted that the Eleventh Circuit in Cordoba v. DirecTV, LLC, 942 F.3d 1259 (11th Cir. 2019), held that individualized questions of standing can be relevant to the predominance inquiry, and that the standing of allegedly uninjured class members presented an individualized question in the Telephone Consumer Protection Act (TCPA) case before the court. We also noted that the Ninth Circuit, in Ramirez v. TransUnion LLC, 951 F.3d 1008 (9th Cir. 2020), in a class action brought under the Fair Credit Reporting Act (FCRA), held that each class member must have Article III standing at the final judgment stage of a class action, subsequent to trial.

In December 2020, the Supreme Court granted certiorari in Ramirez, and in June, in a 5-4 opinion authored by Justice Kavanaugh, a sharply divided Court reversed. But the Court’s controversial holding turned on what it takes for any individual victim of a federal statutory violation to establish standing, not on the timing of the standing inquiry when plaintiffs seek to aggregate claims in a class action.

The majority opinion by Justice Kavanaugh, joined by Justices Roberts, Alito, Gorsuch, and Barrett, held that the vast majority of class members suffered no concrete injury—and lacked Article III standing to bring FCRA claims accordingly—because the parties stipulated that false information contained in their TransUnion credit reports was never distributed to businesses. As a result, it was not possible that they suffered the requisite harm, which the Court defined by analogizing to the tort of defamation. Impassioned dissents authored by Justice Thomas, joined by the Court’s three liberal members, and by Justice Kagan, joined by Justices Breyer and Sotomayor, chastised the majority for “transform[ing] standing law from a doctrine of judicial modesty into a tool of judicial aggrandizement,” and for holding, for the first time, “that a specific class of plaintiffs whom Congress allowed to bring a lawsuit cannot do so under Article III.”

As relevant to antitrust class actions, however, the Court expressly disclaimed any judgment as to the propriety or impropriety of certifying classes containing some class members who may be shown to lack standing at subsequent stages of litigation proceedings. In a footnote, citing the Eleventh Circuit’s decision in Cordoba, the Court said, “We  do  not  here  address  the  distinct  question  whether  every  class  member must demonstrate standing before a court certifies a class.” But the Court did state, “On remand, the Ninth Circuit may consider in the first instance whether class certification is appropriate in light of our conclusion about standing.”

In early April, while the Supreme Court’s decision in Ramirez was still pending (and with potentially important implications for its future disposition on remand), the Ninth Circuit issued its highly anticipated decision in Olean Wholesale Grocery Coop., Inc. v. Bumble Bee Foods LLC, 993 F.3d 774 (9th Cir. 2021), discussed in our Fall 2020 update. In Bumble Bee, a divided Ninth Circuit panel held that, in applying Rule 23(b)(3)’s predominance requirement, a district court must find that no more than a “de minimis” number of class members are uninjured. Because the district court did not make such a finding, the panel vacated the class certification order and remanded for further proceedings. Judge Hurwitz, partially dissenting, maintained that neither the text of Rule 23 nor Ninth Circuit precedent permit the court to create such a requirement.

Although neither the plaintiffs nor the defendants sought en banc rehearing in Bumble Bee, the Ninth Circuit, acting sua sponte, ordered briefing on whether en banc rehearing is warranted and specifically directed the parties to focus on the “de minimis” issue that divided the panel. In May, AAI, which had submitted an amicus brief on the merits, submitted an amicus brief in support of en banc rehearing, identifying several legal and practical problems with the standard the panel majority articulated. As of this writing, the en banc rehearing vote remains pending, and a mandate has yet to issue.

The class plaintiffs have since settled with one of the defendants and moved the Court to begin settlement approval hearings.  Although none of the remaining defendants objected to proceeding with settlement hearings, the district court has refused in light of the Ninth Circuit’s order vacating class certification, noting that, because the panel’s de minimis holding is grounded in predominance and not manageability, it will apply to both settlement and litigation classes if en banc rehearing ultimately is rejected and a mandate subsequently issues.

II. THE USE OF STATISTICAL EVIDENCE TO PROVE COMMON IMPACT

The aforementioned Ninth Circuit opinion in Bumble Bee also has important implications for another recurring question we have tracked for several years: the appropriate class certification standards when liability and damages are determined on the basis of statistical evidence. In Bumble Bee, the defendants argued that the class plaintiffs’ use of statistical evidence masked substantial differences among class members, partly because the plaintiffs’ reliance on average overcharges obscured the presence of class members who did not pay an overcharge at all and therefore were not impacted by the admitted price fixing.

The Ninth Circuit affirmed the district court’s holding that plaintiffs’ reliance on common statistical evidence was capable of proving classwide impact. Citing the Supreme Court’s holding in Tyson Foods, the Ninth Circuit held that “representative evidence can be relied on to establish a class” so long as it is “closely and carefully scrutinized” for conformance with Rule 23’s requirements. Here, the plaintiffs’ statistical evidence passed muster because (1) an individual plaintiff could have relied on the statistical models to show impact in a hypothetical individual case; (2) there was a sufficient nexus between the plaintiffs’ statistical evidence and their theory of liability in accordance with Comcast; and (3) the plaintiffs’ statistical methodology was capable of showing that virtually all class members suffered injury so long as the methodology is sufficiently reliable.

The Bumble Bee panel-majority’s treatment of plaintiffs’ statistical evidence offered to prove common impact has not been briefed in en banc proceedings.

III. DAUBERT AT THE CLASS CERTIFICATION STAGE

When plaintiffs rely on expert testimony at the class certification stage, it is currently unsettled as to whether a court should perform a full Daubert analysis of the expert testimony or instead apply a tailored approach specific to the “rigorous analysis” required to satisfy Rule 23. In antitrust class actions, the Daubert and predominance standards can overlap when expert testimony is used to prove common impact and damages.

In January, in Prantil v. Arkema Inc., 986 F.3d 570 (5th Cir. 2021), the Fifth Circuit held in an environmental case that Daubert analysis is required at the class certification stage when scientific evidence is relevant to the Rule 23 standard. Class plaintiffs filed suit under two environmental statutes alleging adverse health effects and property damage caused by emissions emanating from the defendant’s Texas-based volatile chemical facility in the aftermath of Hurricane Harvey. The class plaintiffs relied upon four experts in seeking class certification, and on the defendant’s motion to exclude, the district court granted the motion as to plaintiffs’ damages expert but nonetheless certified the class. On appeal, the defendant argued that the district court erred in failing to ensure that the three remaining, relied-upon experts passed the Daubert test.

In an opinion by Judge Higginbotham, the Fifth Circuit agreed. Joining the Third, Seventh and Eleventh Circuits, the Fifth Circuit held that “the Daubert hurdle must be cleared when scientific evidence is relevant to the decision to certify.” Adopting Third Circuit reasoning, the Fifth Circuit found the application of Daubert analysis at the certification stage to be a “natural extension” of the need to conduct a “rigorous analysis” to determine whether the proposed class qualified under Rule 23. The court stated that expert testimony that “would not be admissible at trial … should not pave the way for certifying a proposed class.”

According to one analysis, the 8th Circuit holds that a Daubert review is unnecessary at the class certification stage, and the Ninth Circuit holds that Daubert standards do not apply when weighing certification. Another analysis describes the 8th and 9th Circuits as applying a “limited Daubert analysis” in which some inquiry is made into reliability but a finding establishing ultimate admissibility is not required. The Ninth Circuit panel majority in Bumble Bee did not explicitly address the role of the Daubert standard at class certification.

IV. SPECIFIC PERSONAL JURISDICTION

Since 2017, we have been tracking the lower federal courts’ application of the Supreme Court’s decision in Bristol-Myers Squibb Co. v. Superior Court of California, 137 S. Ct. 1773 (2017), which prevents defendants who are engaged in nationwide conduct from being subject to a mass action by plaintiffs injured both within and outside the forum state if general jurisdiction is lacking and if the defendant otherwise has insufficient contacts with the forum states to establish specific jurisdiction over the claims of some of the plaintiffs in the forum state. That decision has engendered questions as to whether such defendants can be subject to a class action brought by such plaintiffs. If not, nationwide or multi-state classes of plaintiffs often might be unable to bring class actions except in a defendant’s home state. Among other things, this would result in significant litigation advantages for corporate antitrust defendants, as well as inefficiency.

In our Spring 2020 update, we explained that the 5th, 7th, and D.C. Circuits all ruled on the issue in the span of a two-week period, and all three held that Bristol-Myers does not bar nationwide class actions prior to class certification, notwithstanding that specific jurisdiction may be lacking for unnamed class members. The 7th Circuit, in an opinion by Chief Judge Wood in Mussat v. IQVIA, went further than the others in holding affirmatively that Bristol-Myers does not apply to class actions.

In January, the Supreme Court denied certiorari in Mussat. Two months later, in Lyngaas v. Curaden AG, 992 F.3d 412 (6th Cir. 2021), the 6th Circuit joined the 7th Circuit in holding explicitly that “Bristol-Myers Squibb does not extend to federal class actions.” Citing and quoting extensively from Chief Judge Wood’s opinion in Mussat, the court noted that a class action is formally one suit in which a defendant litigates against only the class representative, and, accordingly, precedent does not deem the absent class members to be “parties.” Therefore, the court held, “The different procedures underlying a mass-tort action and a class action demand diverging specific personal jurisdiction analyses.”

In our Fall 2020 update, we noted that the 9th Circuit is currently considering this question on interlocutory appeal in Moser v. Health Ins. Innovations, Inc. No. 19-56224 (9th Cir. docketed Oct. 23, 2019). The appeal has now been fully briefed, and oral argument was held on May 13, 2021. A decision remains pending. To date, no circuit court has held that Bristol-Myers bars nationwide class actions in forum states that lack personal jurisdiction over absent class members.

We also noted in our Fall 2020 update that the Supreme Court granted certiorari and heard oral argument in Ford Motor Co. v. Montana Eighth Judicial Dist. Ct., which addressed the “arise out of or relate to” requirement for specific personal jurisdiction. The petitioners sought a strict standard requiring a causal connection between the plaintiff’s claimed injury and the defendant’s contacts with the forum state, which would have raised the stakes as other circuit courts consider whether to apply Bristol-Myers to class actions. If, for example, personal jurisdiction were understood to require that the defendant’s contacts with the forum state must be the but-for or proximate cause of each plaintiff’s claimed injury, as the Ford defendants argued, then nearly all nationwide classes would be left without a venue other than the defendant’s home state.

In March, the Supreme Court unanimously rejected the petitioners’ strict causal connection standard. Justice Kagan’s opinion for the Court, joined by Justices Roberts, Breyer, Sotomayor, and Kavanaugh, held that the “relates to” language in the “arise out of or relate to” requirement “contemplates that some relationships will support jurisdiction without a causal showing.”

Justice Alito, concurring, would have held that “arise out of” and “relate to” are “are not really two discrete grounds for jurisdiction.” He would have reaffirmed the basic minimum contacts standard adopted in International Shoe and thereby “leave the law exactly where it stood before we took these cases.” Justice Gorsuch, in a concurring opinion joined by Justice Thomas, implied that he would have overturned International Shoe and begun creating “a new jurisprudence about corporate jurisdiction” rooted in the Fourteenth Amendment’s original meaning as it pertains to personal jurisdiction.

Although the Court’s holding leaves room for further development of its personal jurisdiction jurisprudence, the majority and concurring opinions arguably should quell concerns that the Court will look to adopt overly stringent causation requirements that could threaten the viability of nationwide antitrust class actions on personal jurisdiction grounds.

V. ASCERTAINABILITY

A circuit split persists over whether Rule 23 contains a heightened ascertainability requirement that demands class plaintiffs plead and prove an administratively feasible mechanism for identifying absent class members. In our Fall 2020 update, we noted that the tide of recent decisions has moved against such a requirement, with each of the last five 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 have embraced some form of a heightened ascertainability requirement. The Fifth, Tenth, and D.C. Circuits have not yet explicitly adopted a position. The Eleventh Circuit had addressed the issue in unpublished opinions but characterized its position as “unresolved.”

In February, in a 3-0 panel opinion authored by Chief Judge Pryor in Cherry v. Dometic Corp., 986 F.3d 1296 (11th Cir. 2021), the Eleventh Circuit joined the majority of circuits in holding that “administrative feasibility cannot be a precondition for certification” under Rule 23. The court reasoned that an ascertainability requirement is implicit in Rule 23’s requirement of a clearly defined class, but administrative feasibility is not. Class membership can be “capable of determination without being capable of convenient determination.” (emphasis in original).  Administrative feasibility therefore has “no connection to Rule 23(a).”

The court did hold that administrative feasibility is relevant to the manageability criterion of Rule 23(b)(3). However, “because Rule 23(b)(3) requires a balancing test, it does not permit district courts to make administrative feasibility a requirement.”

VI. CLASS ACTION WAIVERS IN MANDATORY ARBITRATION CLAUSES

Since our Fall 2016 update, we have been tracking the use of mandatory arbitration clauses in employment agreements, which the Supreme Court upheld in a 5-4 decision in Epic System Corp. v. Lewis, 138 S. Ct. 1612 (2018).  In our Spring 2019 update, we noted that the FAA, by its terms, excludes “contracts of employment” with transportation workers from its coverage, provided they are “engaged in foreign or interstate commerce.” The Supreme Court, in New Prime, Inc. v. Oliveira, 139 S. Ct. 532 (2019), unanimously held that the FAA does not compel courts to enforce private arbitration agreements involving workers covered by the exclusion, and the Court also broadly interpreted the FAA’s use of “contracts of employment” to include both employees and independent contractors.

In the wake of New Prime, we noted that Epic Systems apparently will not bar transportation employees or independent contractors in interstate commerce from successfully challenging class-action waivers embedded in arbitration agreements, but that it remains to be seen how the Court might rule on the validity of such waivers as a matter of contract law where the FAA does not apply.

In our Fall 2020 update, we noted that a circuit split arguably had arisen over how the “foreign or interstate commerce” requirement affects the scope of the transportation-worker exclusion, particularly as applied to gig economy workers. In cases involving Amazon workers, the First and Ninth Circuits held that local delivery drivers fell within the exclusion insofar as they hauled goods on the final legs of interstate journeys, notwithstanding that they did not personally cross state lines. The Seventh Circuit, in Wallace v. Grubhub Holdings, Inc., 970 F.3d 798 (7th Cir. 2020)—in an opinion authored by now-Justice Amy Coney Barrett—held that workers seeking to qualify for the exclusion must be connected not simply to the goods, but to the act of moving those goods across state or national borders.

The Ninth Circuit, in the course of denying a mandamus petition in In re Grice, 974 F.3d 950 (9th Cir. 2020), surveyed the recent cases and concluded that the critical factor in each case “was not the nature of the item transported in interstate commerce (person or good) or whether the plaintiffs themselves crossed state lines, but rather ‘[t]he nature of the business for which a class of workers perform[ed] their activities.’”

In March, the 7th Circuit issued an opinion implying that the 9th Circuit’s statement is correct, and that there may be less to the perceived circuit split than meets the eye. In Saxon v. Southwest Airlines, in a unanimous panel opinion authored by Judge St. Eve, the court reversed a district court order holding that a ramp supervisor who manages and assists workers loading and unloading airplane cargo for Southwest Airlines fell outside the transportation-worker exclusion of the FAA. The court explained that the FAA’s residual phrase—“any other class of workers engaged in foreign or interstate commerce”—“cuts both ways.” A transportation worker need not work for a transportation company, but a person does not become a transportation worker simply because she does work for a transportation company.

Here, the 7th Circuit, citing approvingly to then-Judge Barrett’s opinion Wallace, maintained that transportation workers must be “actively occupied in ‘the enterprise of moving goods across interstate lines’” to be sufficiently engaged in “commerce” in satisfaction of the FAA exclusion. But it interpreted the scope of work meeting that requirement expansively, to avoid “put[ting] ourselves in conflict with the Third Circuit’s approach and in tension with the First and Ninth Circuits’ interpretation of § 1.”

The court held, “Actual transportation is not limited to the precise moment either goods or the people accompanying them cross state lines.” Rather, consistent with contemporary statutes from the 1920s when the FAA was passed, which recognized as much, the “loading and unloading [of]  cargo onto a vehicle so that it may be moved interstate, too, is actual transportation.” In the aftermath of Judge St. Eve’s opinion, district courts in the Seventh Circuit may likewise resort to textualist analyses in determining whether any given class of workers is engaged in “the actual transportation of goods” under the FAA’s transportation-worker exclusion.

According to one analysis, federal courts in the last two years have issued more rulings on whether plaintiffs are transportation workers engaged in interstate commerce—and thus are exempt from the FAA—than they did over the preceding 17 years. Over the past two decades, courts have reportedly decided 92 cases involving worker claims that they are covered by the FAA’s transportation-worker exclusion, with workers prevailing in 30 percent of the cases.

VII. INCENTIVE AWARDS FOR CLASS REPRESENTATIVES

In our Fall 2020 update , we discussed the Eleventh Circuit’s decision in Johnson v. NPAS Sols., LLC, 975 F.3d 1244 (11th Cir. 2020), which held that incentive awards paid to lead class plaintiffs—a longstanding feature of antitrust and other class actions—are unlawful under 19th Century Supreme Court precedent. The court entered an order withholding the issuance of the mandate following the plaintiff’s petition for rehearing en banc. In May, the plaintiffs submitted a notice of supplemental authority regarding plaintiffs’ contention that the prohibition on incentive awards conflicts with decisions from every other circuit.

According to the submission, nine district court cases from outside the Eleventh Circuit and seven appellate panels have addressed the legality of incentive awards paid to lead class plaintiffs since the petition for rehearing en banc was submitted. The nine district court decisions have cited to and rejected the Johnson holding, permitting service awards to class representatives. The seven appellate panels, most of which are unpublished, have affirmed service awards. In a response, the defendant counters that the cited cases are non-binding and did not directly consider the 19th Century precedent on which Johnson relied. As of this writing, the plaintiffs’ en banc rehearing petition remains pending.

VIII. PRIVATE ENFORCEMENT FEATURES OF PROPOSED ANTITRUST LEGISLATION

As we noted in our Fall 2020 update, the majority and minority staffs of the House Antitrust Subcommittee issued dueling reports that found common ground after a year-long investigation into the market power of Big Tech firms, and how the antitrust laws can be strengthened to address it. However, the minority report emphasized that it “would rather see the subcommittee focus on legislation that removes barriers to agency antitrust enforcement rather than private enforcement.”

On June 11, 2021, Subcommittee members introduced five new antitrust bills aimed at curbing the monopoly power of Big Tech firms. Two of the five bills feature private enforcement and parens patriae provisions, as discussed below.

The American Choice and Innovation Online Act, sponsored by Rep. David Cicilline (RI-01) and Rep. Lance Gooden (TX-05), prohibits discriminatory conduct by dominant online platforms. This bill allows for an injured person to recover three-times the damages he or she sustained with simple interest on actual damages during the pendency of the suit, as well as the cost of the suit, including a reasonably attorney’s fee. It also has a parens patriae provision that empowers state attorneys general to bring civil actions to recover on behalf of their injured citizens.

The “Platform Competition and Opportunity Act,” sponsored by Rep. Hakeen Jeffries (NY-08) and Rep. Ken Buck (CO-04), prohibits covered platform operators from acquiring any entity that competes with or can augment the covered platform operator’s existing business. This bill contains private enforcement and parens patriae provisions that are identical to those of the American Innovation and Choice Online Act.

The “Ending Platform Monopolies Act,” sponsored by Rep. Pramila Jayapal (WA-07) and Rep. Gooden, prohibits covered platform operators from selling goods or services on their platforms, and also from vertically or horizontally integrating into any line of business if the platform would have the ability and incentive to favor its own products or exclude rivals. Unlike the aforementioned bills, this bill lacks private enforcement or parens patriae provisions. Enforcement is left to the Department of Justice and the Federal Trade Commission.

The “Augmenting Compatibility and Competition by Enabling Service Switching (ACCESS) Act,” sponsored by Rep. Mary Scanlon (PA-05) and Rep. Burgess Owens (UT-04), enhances standards for data security and data transferability to third-parties. This bill likewise lacks private enforcement or parens patriae provisions and vests enforcement authority solely with the Department of Justice and the Federal Trade Commission.

The “Merger Filing Fee Modernization Act,” sponsored by Rep. Joe Neguse (CO-02) and Rep. Victoria Spartz (IN-05), amends the Hart Scott Rodino Act to increase filing fees for certain large mergers and acquisitions and increases budget appropriations for the Department of Justice and the Federal Trade Commission. There are no enforcement provisions in this bill.

A sixth bill introduced in May, the State Antitrust Enforcement Venue Act, sponsored by Reps. Cicilline, Buck, Neguse, Owens and Sanford Bishop (GA-02), exempts states’ suits brought under federal antitrust law from being consolidated and relocated with private cases by the Judicial Panel on Multidistrict Litigation. In this regard, the bill would put states on equal footing with the federal government when enforcing federal antitrust law. It does not feature any enforcement provisions.

After a 29-hour markup session that ended on June 24, 2021, the House Judiciary Committee advanced all six bills with at least some bipartisan support for each. The American Innovation and Choice Online Act passed 24-20; the Platform Competition and Opportunity Act passed 23-18-1; the Ending Platform Monopolies Act passed 21-20; the ACCESS Act passed 25-19; the Merger Filling Fee Modernization Act passed 29-12; and the State Antitrust Enforcement Venue Act passed 34-7. The legislation is expected to receive a close vote in the full House, and as of this writing it is unclear when it will get to the floor.

Two analogous bills introduced in the Senate in February and April, respectively, lack private enforcement and parens patriae provisions: the Competition and Antitrust Law Enforcement Act of 2021, sponsored by Senator Amy Klobuchar (D-MN), and the Trust-Busting for the Twenty-First Century Act, sponsored by Senator Josh Hawley (R-MO).

 

[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 https://www.antitrustinstitute.org. Comments on this update or suggestions for AAI amicus participation should be directed to Randy Stutz, rstutz@antitrustinstitute.org, (202) 905-5420.

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, consumers and workers. This update covers developments since our Fall 2019 update.

I. Specific Personal Jurisdiction

As we have chronicled in several previous updates, including our Fall 2019 update, the Supreme Court’s 2017 decision in Bristol-Myers Squibb Co. v. Superior Court of California, 137 S. Ct. 1773 (2017), which prevents defendants who are engaged in nationwide conduct from being subject to a mass action by plaintiffs injured both within and outside the forum State if general jurisdiction is lacking, has engendered questions in the lower courts as to whether such defendants can be subject to a class action brought by such plaintiffs.  If not, nationwide or multi-state classes of plaintiffs likely would be unable to bring class actions except in a defendant’s home state.  District courts that have considered the question have split, although a recent study shows that a large supermajority of district courts to consider the question—50 out of 64 opinions—have refused to extend Bristol-Myers to unnamed, out-of-state class members.

Over the span of two weeks in March, three federal circuit courts ruled on the issue, and all three held that Bristol-Myers does not bar nationwide class actions prior to class certification notwithstanding that specific jurisdiction may be lacking for unnamed class members.

In the first case, Molock v. Whole Foods Mkt. Grp., Inc., 952 F.3d 293 (D.C. Cir. 2020), the D.C. Circuit held on March 10, “[a]bsent class certification, putative class members are not parties before a court,” and therefore a motion to dismiss based on putative class members’ lack of specific personal jurisdiction is premature prior to class certification.  The court explained that, in a certified class action, the unnamed class members are parties for some purposes and non-parties for other purposes.  But “putative class members,” by contrast, “are always treated as non-parties” under the Supreme Court’s holding in Smith v. Bayer Corp., 564 U.S. 299 (2011).  The court explained that the party status of putative class members is antecedent to the question of personal jurisdiction, and “it is class certification that brings unnamed class members into the action and triggers due process limitations on a court’s exercise of personal jurisdiction over their claims.”

Judge Silberman, dissenting, would have allowed defendants to seek dismissal of unnamed class plaintiffs’ claims insofar as defendants sought to challenge the named plaintiffs’ entitlement to bring the claims on behalf of the unnamed putative class members.  Judge Silberman also believes that “logic dictates” that Bristol-Myers should be extended from mass actions to class actions, because a class action is “just a species of joinder,” and personal jurisdiction must be satisfied independently for “the specific claims at issue.”  The opinion for the court, written by Judge Tatel and joined by Judge Garland, rejected the characterization of the dismissal motion as a challenge to the named plaintiffs’ entitlement to bring class claims, because the defendant moved to dismiss the nonresident claims for lack of personal jurisdiction and not based on the named plaintiffs’ failure to satisfy Rule 23.

In the second case, decided the day after Molock, on March 11, the Seventh Circuit in Mussat v. IQVIA, Inc., in an opinion by Chief Judge Wood, went further than the D.C. Circuit and affirmatively held that Bristol-Myers does not apply to class actions.  After explaining the Supreme Court’s holding in Devlin v. Scardelletti, 536 U.S. 1 (2002), that “‘[n]onnamed class members … may be parties for some purposes and not for others,’” the court held, “[t]he rules for class certification support a focus on the named representative for purposes of personal jurisdiction.”

In support of this view, Chief Judge Wood observed that Rule 23(b)(3) lists “the desirability or undesirability of concentrating the litigation of the claims in the particular forum” as a factor for certifying damages classes, and that the Committee Note to this provision mentions that a court should consider the desirability of the forum “in contrast to allowing the claims to be litigated separately in forums to which they would ordinarily be brought.”  Accordingly, the court saw “no reason why personal jurisdiction should be treated any differently from subject-matter jurisdiction and venue: the named representatives must be able to demonstrate either general or specific personal jurisdiction, but the unnamed class members are not required to do so.”  Any other rule, said the court, would work “a major change in the law of personal jurisdiction and class actions.”  The defendant subsequently petitioned for en banc rehearing, and, on May 14, the petition was denied.

In the third case, decided March 25, the Fifth Circuit in Cruson v. Jackson Nat’l Life Ins. Co., 954 F.3d 240 (5th Cir. 2020), reversed a district court holding that the defendant had waived a personal jurisdiction defense in a class action after it failed to assert the defense until seven months after Bristol-Myers was decided.  Although the court did not reach the question of whether Bristol-Myers applies to class actions, the court held that waiver could not have applied under the circumstances because “a personal jurisdiction objection was not ‘available’ with respect to the putative claims of unnamed … non-residents.”  Reasoning in the same vein as the D.C. Circuit in Molock, the court held, “Prior to certification, those nonresidents were ‘not yet before the [district] court,’ their possible ‘future’ claims against Jackson were ‘hypothetical,’ and so there was no ‘justiciable controversy between [Jackson] and [them].’”

Quoting the same opinion cited by the D.C. Circuit—Smith v. Bayer Corp.—the court held that allowing a personal jurisdiction objection prior to class certification “would validate ‘the novel and surely erroneous argument that a nonnamed class member is a party to the class-action litigation before the class is certified.’”  The personal jurisdiction objection therefore could not have been waived prior to class certification.

In sum, the federal circuit courts are thus far unanimous in holding that the issue of personal jurisdiction over unnamed class members is not properly before a court prior to class certification.  The Seventh Circuit holds that plaintiffs must establish personal jurisdiction only over named class members, not unnamed members.  To date, no circuit court has held that Bristol-Myers bars nationwide class actions in forum states where general jurisdiction is lacking.

In the Ninth Circuit, the question whether a defendant waives a personal jurisdiction defense by failing to assert it prior to class certification, much like the question resolved in Cruson, is currently on interlocutory appeal in Moser v. Health Ins. Innovations, Inc. No. 19-56224 (9th Cir. docketed Oct. 23, 2019).  The appellants’ opening brief is due July 31, 2020.

In January, the Supreme Court granted certiorari in two consolidated cases, Ford Motor Co. v. Montana Eighth Judicial Dist. Ct., No. 19-368, and Ford Motor Co. v. Bandemer, No. 19-369, addressing the “arise out of or relate to” requirement for specific personal jurisdiction. If the Court adopts a strict standard requiring a causal connection between the plaintiff’s claimed injury and the defendant’s contacts with the forum state, as the petitioners request, the stakes would be raised as other circuit courts consider whether to apply Bristol-Myers to class actions.  If, for example, personal jurisdiction requires that the defendant’s contacts with the forum state must be the but-for or proximate cause of each plaintiff’s claimed injury, then nearly all nationwide classes would be left without a venue other than the defendant’s home state, which would result in significant litigation advantages for corporate antitrust defendants. The Ford cases are currently being briefed, and oral argument will be scheduled during the October 2020 term.

II. Classes Containing Uninjured Class Members

As discussed in our Spring 2017, Fall 2017 and Fall 2018 updates, there is recurring debate in the federal courts over the rules and standards that govern the certification of classes that may contain some class members who were not injured by the defendant’s conduct.  In our Fall 2016 Update, we noted that the Supreme Court’s opinion in Tyson Foods v. Bouaphakeo, 136 S. Ct. 1040 (2016), strongly implied that the presence of uninjured class members does not necessarily defeat class certification.

On November 15, 2019, shortly after our previous update, the Eleventh Circuit in Cordoba v. DirecTV, LLC, 942 F.3d 1259 (11th Cir. 2019), addressed the question of whether the presence of uninjured class members defeats class certification on grounds that the allegedly uninjured members lack Article III standing.  It answered the categorical question in the negative, but it held that individualized questions of standing can be relevant to the predominance inquiry, and that the standing of allegedly uninjured class members presented an individualized question in this Telephone Consumer Protection Act (TCPA) case.

After the defendant, DirecTV, argued that some class members had not informed it that they did not wish to receive unsolicited phone calls that allegedly violated the TCPA, the court first clarified that only the named plaintiffs in a class action must show “that they personally have been injured, not that injury has been suffered by other, unidentified members of the class to which they belong.”  Citing Judge Posner’s opinion in Kohen v. Pacific Investment Management Co. LLC, 571 F.3d 672 (7th Cir. 2009), the court rejected the proposition “that a class action cannot move forward if there are some uninjured members in the class as it is currently defined.”

However, the court, quoting Chief Justice Roberts’s concurrence in Tyson Foods, held that “‘Article III does not give federal courts the power to order relief to any uninjured plaintiff, class action or not.’”  And it held that “at some time in the course of the litigation the district court will have to determine whether each of the absent class members has standing before they could be granted any relief.” Moreover, standing in this TCPA case did indeed present an individualized question. Accordingly, the court vacated and remanded the class certification order and instructed the lower court to consider whether the “significant individualized standing question” defeats class certification on predominance grounds.

A few months later, in February 2020, in another TCPA case, the Seventh Circuit addressed a defendant’s claimed due process interest in ensuring that class members due to receive judgment awards pursuant to a post-trial distribution plan are actually entitled to do so.  In Physicians Healthsource, Inc. v. A-S Medication Sols., LLC, 950 F.3d 959 (7th Cir. 2020), the court held that the defendant’s due process rights were indeed implicated, but only under the unique context of a TCPA claim.  Because “unclaimed money can revert to the defendant in TCPA cases,” the plaintiffs’ argument that a defendant who has already been found to have violated the TCPA has no right to demand evidence that each class member has standing to recover was unavailing.

The court did clarify, however, that the TCPA context was dispositive insofar as each class member’s entitlement to damages was linked to the fine associated with each individual fax.  And the court explained that it was not disturbing the rule, recently articulated in Mullins v. Direct Digital, LLC, 795 F.3d 654 (7th Cir. 2015), that “where damages do not depend on the specific identity of a class member, there is no implication of a defendant’s due process rights.”

Also in February, in Ramirez v. TransUnion LLC, 951 F.3d 1008 (9th Cir. 2020), the Ninth Circuit addressed, as a matter of first impression, the similar question of “who must have standing at the final stage of a money damages suit when class members are to be awarded individual monetary damages.”  The court recognized that “only the representative plaintiff need allege standing at the motion to dismiss and class certification stages . . . and even at the final judgment stage in class actions involving only injunctive relief.”  But it held that “each member of a class certified under Rule 23 must satisfy the bare minimum of Article III standing at the final judgment stage of a class action in order to recover monetary damages in federal court.”  It reasoned: “To hold otherwise would directly contravene the Rules Enabling Act, because it would transform the class action—a mere procedural device—into a vehicle for individuals to obtain money judgments in federal court even though they could not show sufficient injury to recover those judgments individually.”

However, the court recognized implicitly that Article III standing can be proven using common evidence because, here, it was.  The court explained that the plaintiffs’ evidence was sufficient to show that each class member had standing at the final judgment stage because it showed that the defendant’s statutory violation created a “risk of real harm” to plaintiffs’ concrete interests, which is a cognizable intangible harm under the Supreme Court’s holding in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016).

Judge McKeown, dissenting, would have held that the evidence was insufficient to establish a concrete injury-in-fact with respect to absent class members.  In her view, “the hallmark of the trial was the absence of evidence about absent class members, or any evidence that they were in the same boat as [the named plaintiff].”  Judge Mckeown believed “the jury was left to assume that the absent class members suffered the same injury” as the named plaintiff, who had an “unusually sympathetic case,” but that “such conjecture is insufficient to confer Article III standing” on absent class members, whose claims “likely bore little resemblance” to the named plaintiff’s claims.  However, Judge McKeown conceded, “Without doubt, counsel could have offered expert testimony, representative class members, and credit agency protocol to fill this gap.”  In no sense, she made clear, was she suggesting “that evidence must be proffered as to each class member.”

III. The Use of Statistical Evidence to Prove Classwide Damages

In our Fall 2016 Update, we noted that the Supreme Court in Tyson Foods had addressed the question of class certification standards when defendants argue that liability and damages determined on the basis of statistical evidence mask substantial differences among class members.  Without altering its standards, the Court reiterated that “whether and when statistical evidence can be used to establish classwide liability will depend on the purpose for which the evidence is being introduced and on the elements of the underlying cause of action.”

In April, the Third Circuit held that the “rigorous analysis” required by Rule 23 requires courts to resolve the merits of competing expert and factual claims at class certification when a plaintiff relies on statistical averages to prove that common issues predominate over individual issues for purposes of establishing antitrust injury in a market characterized by individualized negotiations.

In In re Lamictal Direct Purchaser Antitrust Litig., 957 F.3d 184 (3d Cir. 2020), after the plaintiffs successfully certified a class of direct purchasers who challenged a brand drug company’s agreement with a generic company not to launch an “authorized generic” version of a drug in exchange for delayed generic entry, the defendants appealed.  The drug companies argued that the plaintiffs would be unable to show that injury was capable of common proof at trial because their expert’s reliance on statistical averages failed to account for the individual negotiations in the market and ignored that the defendant employed a “discounted-brand competition strategy.”  According to the defendants, the district court should not have allowed plaintiffs to rely on these averages for class certification purposes without first resolving both the competing expert reports and competing factual disputes underlying the reports.

Where the market was “characterized by individual negotiations and a discounted-brand competition strategy” that “masks the fact that many—up to one-third of the entire class—” may not have suffered injury by overpaying for the drug, the Third Circuit agreed that a more rigorous analysis was required.  The Court explained, “While averages may be acceptable where they do not mask individualized injury, … we cannot determine whether that occurred here because of the lack of analysis.” The court vacated and remanded so that the district court could analyze the evidence.

IV. Ascertainability

As we have chronicled in several previous updates, the 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 may be abating. 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 have embraced some form of a heightened ascertainability requirement. The Fifth, Tenth, and D.C. Circuits have not yet explicitly adopted a position.  The Eleventh Circuit has addressed the issue but characterized its position as “unresolved” in Ocwen Loan Servicing, LLC v. Belcher, No. 18-90011, 2018 WL 3198552, at *3 (11th Cir. June 29, 2018).

In March, in Walker v. Life Ins. Co. of the Sw., 953 F.3d 624 (9th Cir. 2020), the Ninth Circuit placed a limiting gloss on its principal opinion rejecting a heightened ascertainability requirement, Briseno v. ConAgra Foods, Inc., 844 F.3d 1121, 1133 (9th Cir. 2017).  After a district court certified a class of plaintiffs alleging violations of California’s Unfair Competition Law (UCL) and rejected, citing Briseno, the defendant’s predominance challenge alleging difficulties in identifying class members who necessarily relied on its alleged misrepresentations, the Ninth Circuit held that the district court “may have misapplied” Briseno but that any error was harmless.

The Court explained that Briseno “does not expressly excuse a district court from considering exposure under the predominance rubric”—“Briseno, in fact, did not directly bear on predominance at all” or “preclude consideration of certain issues under predominance.” Although the court limited the scope of its holding to UCL cases, it explained that, in general, it “find[s] wisdom in the Sixth Circuit’s conclusion that a district court’s class-certification analysis would have been ‘equally sufficient,’ ‘regardless of whether th[e] [member-identification] concern [was] properly articulated as part of ascertainability, Rule 23(b)(3) predominance, or Rule 23(b)(3) superiority.’”  Thus, Briseno does not bar courts in the Ninth Circuit from considering class-member identity issues under the predominance rubric.  At the same time, however, the court declined the defendant’s invitation “to impugn the district court’s class-certification analysis by mandating a one-size-fits-all approach,” in which a court is required to consider class-member identity issues under the predominance rubric.  It was sufficient that “the district court considered the key issue—whether each Plaintiff was exposed to, and thereby could have relied on, the deficient illustrations.”

The Supreme Court has repeatedly declined to take up the ascertainability question despite numerous petitions for certiorari.

V. Class Action Waivers in Mandatory Arbitration Clauses

Since our Fall 2016 update, we have been tracking the use of mandatory arbitration clauses in employment agreements, which the Supreme Court upheld in a 5-4 decision in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018).

In January 2020, in Bigger v. Facebook, Inc., 947 F.3d 1043 (7th Cir. 2020), the Seventh Circuit addressed, as a matter of first impression, whether a court may authorize class action notice to individual employees who, according to the defendant, entered valid arbitration agreements waiving their right to join the action.  After a district court authorized notice to putative class plaintiffs who were Facebook employees, Facebook appealed, arguing that notice would misinform most employees—by indicating that they may join the action when, in truth, they are prohibited by a class action waiver—and unfairly amplify settlement pressure.  The court set forth a new framework for district courts evaluating notice challenges of this kind and remanded so that the trial court could apply the new framework.

The court credited risks that plaintiffs “may wield the collective-action format for settlement leverage” and that notice giving “may become indistinguishable from the solicitation of claims,” and it held that a trial court “may not authorize notice to individuals whom the court has been shown entered mutual arbitration agreements waiving their right to join the action.”  However, the court held that, where a plaintiff contests a defendant’s assertion that arbitration agreements bind class members, “[t]he employer seeking to exclude employees from receiving notice has the burden to show, by a preponderance of the evidence, the existence of a valid arbitration agreement for each employee it seeks to exclude from receiving notice.”

The court’s process requires trial courts to first determine whether the plaintiff contests the existence of valid arbitration agreements and holds that a court may not authorize notice to employees if the agreements are uncontested.  However, if a plaintiff contests the defendant’s assertions, the court must permit the parties to submit additional evidence on the agreements’ existence and validity, and “[t]he employer seeking to exclude employees from receiving notice has the burden to show, by a preponderance of the evidence, the existence of a valid arbitration agreement for each employee it seeks to exclude from receiving notice.”  The court added, “To be clear, if the employer does not prove that an employee entered a valid arbitration agreement, then the court may authorize notice to that employee—granted, of course, that the employee is otherwise an appropriate notice recipient.”  The court did not specify the defendant’s burden of production in proving the existence and validity of each arbitration agreement, nor whether the defendant is limited in the costs and delay it may impose on plaintiffs seeking authorization to issue class notice.

In February, in an ironic twist, food delivery company DoorDash sought, and was denied, relief from obligations it incurred under its self-imposed mandatory arbitration agreements so that it could avail itself of the benefits of the class action device.  In Abernathy v. DoorDash, Inc., No. C 19-07545 WHA, 2020 WL 619785 (N.D. Cal. Feb. 10, 2020), counsel for 5,879 DoorDash couriers filed individual arbitration demands pursuant to an arbitration provision imposed by DoorDash in a click-through hiring contract.  At the same time, DoorDash was in the midst of negotiating a class action settlement in a case brought by different counsel challenging the same conduct, which involved the alleged misclassification of workers as independent contractors rather than employees.  After DoorDash sought a stay from answering the arbitration demands so that it could negotiate the class action settlement, Judge Alsup refused the request.  The court explained:

For decades, the employer-side bar and their employer clients have forced arbitration clauses upon workers, thus taking away their right to go to court, and forced class-action waivers upon them too, thus taking away their ability to join collectively to vindicate common rights. . . . The employer here, DoorDash, faced with having to actually honor its side of the bargain, now blanches at the cost of the filing fees it agreed to pay in the arbitration clause. . . .  Instead, in irony upon irony, DoorDash now wishes to resort to a class-wide lawsuit, the very device it denied to the workers, to avoid its duty to arbitrate. This hypocrisy will not be blessed, at least by this order.

In our Fall 2019 update, we noted that, on October 10, 2019, California Governor Gavin Newsom signed California Assembly Bill No. 51, enacting a ban on mandatory arbitration provisions in employment contracts that workers may enforce through private rights of action. However, we observed that it is unclear how the law would fare under a preemption challenge given the Supreme Court’s rulings in AT&T Mobility v. Concepcion and Kindred Nursing Centers v. Clark.  In December, the U.S. and California Chambers of Commerce, along with several trade associations, brought a preemption challenge to the enactment in the Eastern District of California, seeking a permanent injunction.  On February 7, 2020, the district court granted the plaintiffs’ request for a preliminary injunction pending resolution of the merits.  The State of California has since appealed the preliminary injunction order, and briefing is now ongoing in the Ninth Circuit.

In our Spring 2019 update, we noted that Sen. Richard Blumenthal (D-CT) and Rep. Hank Johnson (D-GA) had introduced the Forced Arbitration Injustice Repeal Act (FAIR Act), which would eliminate forced arbitration clauses in employment, consumer (including antitrust) and civil rights cases.  The Senate bill was introduced with 34 co-sponsors and the House bill was introduced with 147 co-sponsors. On September 6, 2019, AAI and ten other organization submitted a letter in support of the Act, arguing that it would restore the ability of antitrust victims to effectively vindicate their Sherman and Clayton Act rights.  On September 20, the House bill passed by a vote of 225-186.  Since then, no action has been taken in the Senate.  Govtrack currently predicts that the bill has a 2% chance of being enacted, down from 47% at the time of our previous update.

VI. Offers of Judgment and Mootness

In our Fall 2016 update, we noted that the Supreme 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.  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.  Our Spring 2019 update noted that the Second Circuit resolved an apparent intra-Circuit split by aligning itself with Chief Judge Wood’s reasoning in Fulton Dental.  No circuit court has held that the Campbell-Ewald hypothetical moots or otherwise defeats a plaintiff’s class claim.

In February, however, in Joiner v. SVM Mgmt., LLC, 2020 IL 124671 (Feb. 21, 2020), the Illinois State Supreme Court declined to follow the federal courts, instead channeling Justice Thomas’s concurrence in Campbell-Ewald, which focused on the law of tenders rather than principles of contract law.  Justice Thomas’s Campbell-Ewald concurrence distinguished between a “mere offer of relief,” which he believed did not moot a case (and which led him to side with the Court’s liberal justices), and “a ‘tender’—an offer to pay the entire claim before a suit was filed, accompanied by ‘actually produc[ing]’ the sum ‘at the time of tender’ in an ‘unconditional’ manner.” Emphasizing differences in the language of the Illinois Code of Civil Conduct relative to the Federal Rules, the state’s highest court held: “When a defendant tenders the relief sought by a named plaintiff prior to a motion for class certification, it does not force the plaintiff to accept a settlement against her will, as plaintiffs argue, but admits liability and satisfies plaintiff’s demand. A live controversy therefore no longer exists, and the court must dismiss the case if no other plaintiff steps into the named plaintiff’s shoes to represent the class.”  The upshot is that, in Illinois, state-court defendants may be able to delay and add costs to class actions through the tactic of “picking off” named plaintiffs prior to class certification.

VII. The Effect of Class Notice on the Scope of Summary Judgment

The Sixth Circuit recently held, in a matter of first impression, that an order granting summary judgment issued after a class has been certified but before the class members receive notice binds only the named plaintiffs and not the unnamed class members. In Faber v. Ciox Health, LLC, 944 F.3d 593 (6th Cir. 2019), after the court upheld the district court’s grant of summary judgment to the defendant following this unique sequencing of proceedings, the defendant argued that the court should remand to the district court for the sole purpose of issuing opt-out notices to class members, at the plaintiffs’ expense.  However, the Sixth Circuit refused, because “[w]hen the defendant moves for and obtains summary judgment before the class has been properly notified, the defendant waives the right to have notice sent to the class, and the district court’s decision binds only the named plaintiffs.”  The court explained that certification notice is a necessary prerequisite for class members to become legally bound, and its ruling was required by the “general rule of movant beware.”  After the defendant’s successful summary judgment motion, the trial court’s certification of the class became a nullity and the case therefore did not need to be remanded for post-judgment notice.

VIII. Fairness and Notice Standard For Settlements Reached Prior to Class Certification

The Ninth Circuit recently addressed the standards a district court must apply in evaluating whether a class action settlement reached prior to class certification is fair, reasonable, and adequate under Rule 23.  In Roes, 1-2 v. SFBSC Mgmt., LLC, 944 F.3d 1035 (9th Cir. 2019), the court reversed and remanded a district court’s settlement approval order for failing to apply “our longstanding precedent requiring a heightened fairness inquiry prior to class certification.”  Among the “numerous problematic aspects of the settlement and subtle signs of implicit collusion that the district court was obligated to—but did not—investigate or adequately address” were (1) a clear sailing agreement, under which the defendants agreed not to object to a fees-and-expense award of up to $1 million, (2) a disproportionate cash distribution to attorneys’ fees, (3) large incentive payments to named plaintiffs seemingly untethered from service to the class, and (4) reversionary clauses that would return unclaimed funds to the defendants.  The court remanded the case to allow the district court to apply the proper standard, but not before expressing “serious doubt” that the settlement meets the standard.

The court also addressed the adequacy of class notice in a case where class members are difficult to reach because of their “‘transient’ nature.”  After the claims administrator sent notice to the class members, who were exotic dancers, by mail, 1,546 of 4,681 notices were returned as undeliverable.  The administrator performed address traces and resent notices, but ultimately a total of 560 notices remained undeliverable. And where mailed notice was deliverable, no follow-up notice was sent, contributing to what an objector had argued was a “low claims rate” of 18.5%.

On de novo review, the court held that the notice program failed to satisfy Rule 23’s “best notice practicable” standard.  It found the notice program’s treatment of former employees, as distinct from current employees, to be “particularly problematic.”  It was troubled that no other means beyond mail were employed to contact former employees notwithstanding acknowledged concerns that former employees would be the most difficult to reach by mail.  Although posters were also hung in nightclubs where dancers work, this notice was reasonably calculated to reach only current employees, according to the court.

IX. Challenges to Nationwide Classes Involving Varying State Laws

In our Spring 2019 and Fall 2019 updates, we discussed the en banc Ninth Circuit opinion in Espinosa v. Ahearn (In re Hyundai & Kia Fuel Econ. Litig.), 926 F.3d 539 (9th Cir. 2019), which overturned a panel opinion vacating a district court’s certification of a nationwide settlement class in a false advertising class action.  The panel had vacated class certification because variations in state law might defeat predominance. The en banc court held that “Subject to constitutional limitations and the forum state’s choice-of-law rules, a court adjudicating a multistate class action is free to apply the substantive law of a single state to the entire class.” The court also confirmed that the party seeking to apply foreign law bears the burden of showing that foreign law, rather than California law, should apply to class claims.

We also noted that the Ninth Circuit in Stromburg v. Qualcomm, Inc., No. 19-15159 (filed Oct. 11, 2018), is currently considering whether state law variations with respect to Illinois Brick-repealer rules defeat predominance, and we described an AAI amicus brief arguing that California’s choice-of-law rules do not prevent the court from applying California’s rule permitting indirect-purchaser suits, which would render antitrust standing a common question under Rule 23.  Oral argument was held on December 2 before Judges Siler, Bybee and Nelson.  On March 3, the court ordered simultaneous supplemental briefing by the parties on whether the appeal should be held in abeyance pending a merits decision in Qualcomm’s appeal of the FTC’s case challenging the same conduct, which is also pending before the Ninth Circuit.  The parties submitted supplemental briefs on March 20.  As of this writing, the court has not yet ruled on whether to hold the appeal in abeyance.

X. DOJ Advocacy in Private Class Action Proceedings

In our Spring 2018, Spring 2019, and Fall 2019 updates, we discussed various interventions in private cases by the Consumer Protection Branch and the Antitrust Division of the Department of Justice (DOJ), including to engage in unprecedented scrutiny of CAFA notices, to interpose multiple objections to private class action settlements, and, recently, to participate directly in the enforcement of a private class action settlement.

In May, in a perhaps cynically titled essay directed to the United Kingdom’s Supreme Court, “Merricks v. Mastercard: ‘Passing On’ the U.S. Experience,” U.S. Assistant Attorney General Makan Delrahim, writing on behalf of the Antitrust Division, revealed that the Trump Administration may embrace many of the most conservative and controversial views on American class action law, treating private class actions with skepticism and hostility.

In Merrick, the UK Supreme Court is poised to address the UK’s collective-action proceedings in indirect purchaser cases, and General Delrahim’s essay states that it “aims to share the United States’ experiences” with collective actions on the topics of class certification and damages distribution.  But in recounting these experiences, the essay focuses on atypical U.S. court cases making it particularly difficult to certify classes.  These courts, for example, have resolved, at class certification, the merits of plaintiffs’ claims and chosen between competing expert models for showing injury and damages, often under the pretense of conducting a “rigorous analysis” of whether Rule 23’s requirements are satisfied.

Citing repeatedly and uncritically to many of the most controversial such opinions, including, for example, In re Rail Freight Fuel Surcharge Antitrust Litig., 934 F.3d 619 (D.C. Cir. 2019); In re Lamictal Direct Purchaser Antitrust Litig., No. 19-1655, 2020 WL 1933260 (3d Cir. 2020); and In re Asacol Antitrust Litig., 907 F.3d 42 (1st Cir. 2018), the essay focuses on ensuring that “the UK Supreme Court properly aligns the incentives for these new private collective-action proceedings,” and warning against “improperly low standards for class certification [that] create a ‘risk of “in terrorem” settlements.’”

In a critique of the essay, Michael Hausfeld, Irving Sher and Laurence Sorkin of Hausfeld LLP argue, “In providing its views of U.S. class action law, the Division’s commentary exalts damage analysis above the importance of recovery for misconduct, and allows economic opinions to control class certification determinations that are fundamentally legal in nature. The Division’s approach fails to acknowledge any of the interests served by meaningful collective redress in competition cases.”

The authors argue that the test for UK collective actions ought to “take[] into account the complexities of calculating loss in competition law claims,” but also should “not prove unduly burdensome for would-be representatives such that valid claims fail, rights to compensation are not vindicated, and the proceeds of anticompetitive conduct remain with the wrongdoer.”

XI. ACPERA Reauthorization

The Antitrust Criminal Penalty Enhancement and Reform Act (ACPERA), enacted by Congress in 2004 and reauthorized in 2010, is scheduled to sunset on June 22, 2020.   On March 3, Senator Lindsay Graham (R-SC) introduced a bill in the Senate, S. 3377, to permanently reauthorize ACPERA.  On May 28, a companion bill was introduced in the House by Congressman Joe Neguse (D-CO), Congressman Jerrold Nadler (D-NY), Congressman Jim Jordan (R-OH), Congressman David Cicilline (D-RI), and Congressman Jim Sensenbrenner (R-WI).

ACPERA has important implications for private enforcement because it defines the rights and obligations of leniency applicants who report criminal wronging to the Department of Justice.  One of the key provisions of ACPERA is its “detrebling relief,” relieving a leniency applicant accepted into the program of treble damages otherwise available to plaintiffs in civil actions arising from the anticompetitive activity of the applicant that is within the scope of the leniency agreement.  Detrebling relief is available, however, only if the applicant cooperates satisfactorily with the private civil damages plaintiff seeking recovery from the applicant’s co-conspirators.  Among other things, the leniency applicant must provide the civil plaintiff a full account of all facts, furnish documents and other items, and submit to interviews, depositions and testimony.

[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 https://www.antitrustinstitute.org. Comments on this update or suggestions for AAI amicus participation should be directed to Randy Stutz, rstutz@antitrustinstitute.org, (202) 905-5420.

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, consumers and workers. This update covers developments since our Fall 2018 update.

I. Consumer Antitrust Classes Dodge More Expansive Limitations on Standing

In May, the Supreme Court issued a 5-4 decision in favor of the plaintiffs in Apple v. Pepper, No. 17-204 (May 13, 2019). The decision preserves consumer antitrust class actions against retail platforms that sell directly to consumers without an intermediary. In his first antitrust opinion authored for the Court, Justice Kavanaugh joined Justices Breyer, Ginsburg, Kagan and Sotomayor in holding that consumers who purchased apps from Apple’s iOS App Store qualify as direct purchasers and thus have standing to sue Apple for monopolization under the Court’s Illinois Brick indirect purchaser rule. Under the rule, direct purchasers have standing under the Sherman Act to recover 100% of alleged overcharge damages caused by an antitrust violator, but indirect purchasers do not have standing to seek damages.

Apple had argued that Illinois Brick bars the consumer-plaintiffs’ claims because app developers set the price at which Apple offers apps for sale in the App Store. Accordingly, Apple argued, any overcharges created by Apple’s alleged monopolization would be “pass-on” damages insofar as they are passed on from developers to consumers through the App Store.  The majority disagreed, siding with the plaintiffs and affirming the Ninth Circuit.  The Court held that Illinois Brick establishes a bright-line rule that permits immediate buyers from an alleged antitrust violator to sue the violator for the full amount of overcharge damages.

The four dissenting justices, in an opinion authored by Justice Gorsuch, argued that the Illinois Brick rule was never intended to turn on contractual privity between the purchaser and the violator. Rather, the dissent believed Illinois Brick rests on the premise that pass-on theories of damages violate proximate cause principles, because they require complex apportionment calculations and lengthy proceedings while permitting recovery for derivative and remote injuries. Notwithstanding that consumers bought apps directly from the App Store, the dissent would have expanded Illinois Brick to shield Apple.

The opinion embraces several arguments that AAI set forth in an amicus brief in support of the respondents, and AAI has since published a commentary examining the implications of the decision.  Among other things, AAI believes Pepper protects against the risk that dominant internet platforms would enjoy de facto immunity from antitrust damages claims by both upstream suppliers and downstream purchasers.  It is also significant because it clarifies that damages claims for overcharges and lost-profits are legally non-duplicative under Illinois Brick—in the sense that they are not “conflicting claims to a common fund”—and that upstream and downstream firms may each independently bring antitrust claims against intermediaries without interference from Illinois Brick.  Moreover, the Court resolved the non-duplicative nature of consumer and supplier claims against intermediaries by interpreting the Clayton Act’s statutory text in a manner that helps reinvigorate the law’s broad mandate encouraging victim recovery.

In our Fall 2018 update, we noted that Pepper was set against the backdrop of a significant policy debate over the prospect of reforming the indirect purchaser rule. The Pepper majority explained that, in light of its ruling in favor of the plaintiffs, it had no occasion to consider the argument for overturning Illinois Brick.  The dissent, for its part, believed the Court lacked “any invitation or reason to revisit [its] precedent.”  It noted that the plaintiffs had disavowed any request to overrule Illinois Brick, and consequently the Court lacked the benefit of the adversarial process in considering a complex rule rooted in 40-year-old precedent.

II. New Developments on Class Action Waivers in Mandatory Arbitration Clauses

In our Fall 2018 update, we also discussed the Supreme Court’s 5-4 decision in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), which held that class action bans included in mandatory arbitration clauses inserted into employment agreements are enforceable under the Federal Arbitration Act (FAA) and do not conflict with the National Labor Relations Act (NLRA).  The National Labor Relations Board (NLRB) and some circuits had held that such waivers are illegal under the NLRA and captured by a saving clause included in the FAA, which makes arbitration provisions valid “save upon such grounds as exist at law or in equity for the revocation of any contract.”

The FAA, by its terms, excludes “contracts of employment” with transportation workers from its coverage, without regard to the saving clause at issue in Epic Systems. In January, the Supreme Court in New Prime, Inc. v. Oliveira, 139 S. Ct. 532 (2019), unanimously held that the FAA does not compel courts to enforce private arbitration agreements involving workers covered by the exclusion. The Court also broadly interpreted the FAA’s use of “contracts of employment” to include both employees and independent contractors. The Court explained that “[w]ords generally should be interpreted as taking their ordinary meaning at the time Congress enacted the statute.” In this case, at the time of the FAA’s adoption, “a ‘contract of employment’ usually meant nothing more than an agreement to perform work.”

In a concurring opinion, Justice Ginsburg agreed that a statute’s words should be interpreted at the time of enactment but noted that Congress also “may design legislation to govern changing times and circumstances.” As an example, she noted that Congress intended for the Sherman Act term “restraint of trade” to have “changing content,” authorizing courts to oversee the term’s “dynamic potential.”

In the wake of New Prime, Epic Systems apparently will not bar transportation employees or independent contractors in interstate commerce from successfully challenging class-action waivers embedded in arbitration agreements. However, it remains to be seen how the Court might rule on the validity of such waivers as a matter of contract law where the FAA does not apply.

In April, the Court also handed down a 5-4 decision in Lamps Plus, Inc. v. Varela, 138 S. Ct. 1697 (2019), which addressed whether class arbitration is available when an arbitration clause is ambiguous as to the availability of class proceedings. In 2010, the Court in Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp., 559 U.S. 662 (2010), held that it is inconsistent with the FAA to impose class arbitration on parties to an arbitration agreement who have not agreed to authorize class proceedings. In the present case, the Ninth Circuit had held that, where an arbitration agreement is ambiguous as to whether the parties authorized class arbitration, the ambiguity should be resolved against the defendant drafter of the agreement. Classwide arbitration was therefore available.

In an opinion by Chief Justice Roberts, the divided Court reversed. The Court held that, under the FAA, an ambiguous agreement cannot provide the necessary contractual basis for concluding that the parties agreed to submit to class arbitration. The Court reasoned that classwide arbitration “is not only markedly different from the ‘traditional individualized arbitration’ contemplated by the FAA, it also undermines the most important benefits of that familiar form of arbitration.” The Court also condemned the Ninth Circuit’s use of the state law contra proferentem doctrine, which counsels that ambiguities in contracts should be construed against the drafter. The majority believed reliance on the doctrine was inappropriate because the doctrine is based on public policy and seeks ends other than the intent of the parties. This, the Court explained, is inconsistent with the foundational principle of the FAA that arbitration is a matter of consent.

The majority opinion drew one concurrence and four dissents.  Justice Thomas, concurring, would have reversed the Ninth Circuit simply because the agreement provides no “contractual basis” for concluding that the parties agreed to class arbitration.

Justice Ginsburg, in a dissenting opinion joined by Justices Breyer and Sotomayor, would have held that the FAA was not designed to govern contracts with such an imbalance of bargaining power, noting the irony in resting a decision that will force employees and consumers to forego important legal rights on the “essentiality of consent.”

Justice Kagan, in a dissenting opinion joined by Justices Ginsburg and Breyer, emphasized that the FAA does not federalize basic contract law. “Under the FAA,” she explained, “state law governs the interpretation of arbitration agreements, so long as that law treats other types of contracts in the same way.” In her view, the agreement’s language providing “any and all disputes, claims or controversies” clearly includes both individual and class variants. But even if the agreement was truly ambiguous, “a plain-vanilla rule of contract interpretation, applied in California as in every other State, requires reading it against the drafter—and so likewise permits a class proceeding here.”

Justice Sotomayor also wrote separately to criticize the majority for pre-empting a neutral principle of State contract law. Justice Breyer wrote separately because he believed the Court lacked jurisdiction insofar as Lamps Plus’s motion to compel arbitration was an unappealable district court order under Section 16(b) of the FAA.

In February, Sen. Richard Blumenthal (D-CT) and Rep. Hank Johnson (D-GA) introduced the Forced Arbitration Injustice Repeal Act (FAIR Act), which would eliminate forced arbitration clauses in employment, consumer, and civil rights cases.  The Senate bill was introduced with 34 co-sponsors and the House bill was introduced with 147 co-sponsors.

III.      Challenges to Nationwide Classes Involving Varying State Laws

In our Spring 2018 update, we noted that a divided Ninth Circuit panel in In re Hyundai and Kia Fuel Economy Litigation, 881 F.3d 679 (9th Cir. 2018), had vacated a district court’s certification of a nationwide settlement class in a false advertising class action on grounds that variations in state law might defeat predominance. The majority held 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. It also held that the predominance requirement under Rule 23 gives plaintiffs 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 panel majority drew heavy criticism from dissenting Judge Nguyen, who argued that it would be unwise to task district courts with raising and resolving choice-of-law issues on their own, and to give plaintiffs the burden of disproving material variances in affected states’ laws. Judge Nguyen believed this would significantly burden overloaded district courts, create a circuit split, and run afoul of the Erie doctrine.

In July 2018, the plaintiffs successfully petitioned the Ninth Circuit for en banc rehearing. And on June 6, 2019, the en banc court sided with Judge Nguyen.  In an opinion authored by Judge Nguyen, the en banc court held that “Subject to constitutional limitations and the forum state’s choice-of-law rules, a court adjudicating a multistate class action is free to apply the substantive law of a single state to the entire class.” The court also confirmed that the party seeking to apply foreign law bears the burden of showing that foreign law, rather than California law, should apply to class claims.

The court explained that, to meet their burden here, the settlement objectors had to satisfy the “three-step governmental interest test.”  Under the test, the party seeking to apply foreign law must prove (1) the law of the foreign state materially differs, (2) a true conflict exists, such that each state has an interest in the application of its own law to the case, and (3) the foreign state’s interest would be more impaired than California’s interest if California law were applied. In Hyundai, no objector argued that California law gave rise to constitutional problems or presented adequate choice-of-law analysis, or otherwise showed that differences in state law precluded certification of a settlement class.

In a dissenting opinion joined by two judges, and joined in part by a third, Judge Ikuta, who had authored the since-vacated panel opinion, argued that a district court has an independent obligation to determine what law applies before certifying a class as part of the requisite “rigorous analysis” required under Rule 23.   And even if the court was not obligated to consider the issue sua sponte, the dissent believed a subset of objectors from Virginia had adequately raised the issue. The dissent also believed the objectors had satisfied the governmental interest test.

The implications of variations in state law in antitrust class actions are currently before the Ninth Circuit on an interlocutory appeal in Stromburg v. Qualcomm, Inc., No. 19-15159 (filed Oct. 11, 2018). The case involves class allegations that Qualcomm monopolized the market for semiconductor chips used in smartphones. After the district court certified an injunctive relief and a damages class, Qualcomm successfully petitioned for interlocutory review of the certification order. The Federal Trade Commission has since won its case against Qualcomm before the same judge in the same district court based on substantially similar allegations.

On interlocutory appeal, Qualcomm argues that state law variations with respect to Illinois Brick-repealer rules defeat predominance. The en banc Third Circuit addressed this issue in the context of nationwide settlement classes in 2011 in Sullivan v. DB Investments, 667 F.3d 273 (3d Cir. 2011) (en banc).  There the court held that variations in State Illinois Brick-repealer rules do not defeat or create any special burden on plaintiffs to establish commonality and predominance under Rule 23. AAI filed an amicus brief in support of the position adopted by the en banc court in that case.

IV. 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 in the non-resident plaintiffs’ states 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.

In our Spring 2018 and Fall 2018 updates, we chronicled a split among district courts over whether to apply Bristol-Myers to class actions where general jurisdiction is lacking, with the majority of districts declining to do so. We observed that courts that do apply Bristol-Myers to class actions tend to emphasize that, under the Rules Enabling Act, due process considerations do not differ as between class and non-class actions. And since nothing in Bristol-Myers precludes its application to class actions, and its rationale otherwise appears broadly applicable, Bristol-Myers is “instructive” in the class-action context.

Courts that do not apply Bristol-Myers to class actions find no authority requiring that specific jurisdiction must be found as to unnamed members of a putative class. Moreover, they note that the Supreme Court has a pre-Bristol-Myers rule, which has not been overruled, that “a forum State may exercise jurisdiction over the claim of an absent class-action plaintiff, even though that plaintiff may not possess the minimum contacts with the forum which would support personal jurisdiction over a defendant.” Knotts v. Nissan North America, Inc., 2018 WL 4922360, *14 (D. Minn. Oct. 10, 2018) (quoting Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 811 (1985)).

Courts declining to apply Bristol-Myers to class actions also have noted that in a mass action, each plaintiff is a real party in interest, whereas in a representative class action only the named plaintiffs are actually named in the complaint. Bristol-Myers itself explicitly “framed its specific jurisdiction analysis at the level of the ‘suit’ and not at the level of the named or unnamed parties.” Id. (quoting Bristol-Myers, 137 S. Ct. at 1780 (“‘[T]he suit’ must ‘aris[e] out of or relat[e] to the defendant’s contacts with the forum.’” (emphasis in original, citations omitted)). These courts thus reason that Bristol-Myers has no application in a class action so long as the “claim[s] being litigated”—i.e., the claims of any named plaintiffs—have the requisite connections to the forum.

At the time of this writing, the applicability of Bristol-Myers to class actions is currently on appeal in four circuit courts: The Seventh Circuit in Mussat v. IQVIA, Inc., No. 19-1204 (7th Cir. filed Feb. 1, 2019); the D.C. Circuit in Mollock v. Whole Foods Market Inc., No. 18-7162 (D.C. Cir. filed Oct. 11, 2018); the Fifth Circuit in Tredinnick v. Jackson National Life Ins. Co., No. 18-40605 (5th Cir. filed June 27, 2018); and the Ninth Circuit in Feller v. TransAmerica Life Ins. Co., No. 18-55408 (9th Cir. filed Mar. 28, 2018). Whole Foods and IQVIA have been briefed. Jackson National has been briefed and argued. The briefing schedule in TransAmerica was vacated pending mediation.

V. 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, when 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.

Our last several updates have chronicled an apparent intra-circuit split on the implications of the hypothetical in the Second Circuit. In Leyse v. Lifetime Entertainment Services, LLC, 679 Fed. Appx. 44 (2d. Cir. 2017) (unpublished), the court 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, and that binding precedent in Tanasi v. New All. Bank, 786 F.3d 195 (2d Cir. 2015), required it to respect the validity of the dismissal, including because the Campbell-Ewald hypothetical expressly left open this scenario. But 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 and held that the district court’s entry of judgment was a “precluded dismissal” that “should not have been entered in the first place.” Without citing or referencing Leyse, the court interpreted Tanasi as “declining to address” the proposition for which Leyse believed Tanasi stood.

Radha Geismann was subsequently 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 as per Leyse and then dismiss the claims with prejudice. Judge Stanton granted the defendant’s request, and the remand decision was appealed to the Second Circuit.

On November 27, 2018, the day after AAI issued its Fall 2018 update, the Second Circuit vacated Judge Stanton’s order and definitively resolved the intra-circuit split.  The court held that a “Rule 67 deposit, by itself, could not have rendered Geismann’s action moot” for the reasons explained by Chief Judge Wood in Fulton Dental. In addition, the court clarified that Tanasi stands for the proposition that a defendant may surrender to “‘complete relief’ in satisfaction of a plaintiff’s claims,” that the district court may then enter default judgment against the defendants, and that after judgment is entered the plaintiff’s individual claims may become moot.  However, a Rule 67 deposit would not afford “complete relief” to a named plaintiff in a class action, because a named plaintiff retains a personal stake in obtaining class certification and nothing forces it to accept a defendant’s valuation of the additional reward that it hopes to earn by serving as the lead plaintiff for the class.  Consequently, the court concluded that “the district court must resolve the pending motion for class certification before entering judgment and declaring an action moot based solely on relief provided to a plaintiff on an individual basis.” It explained that a conclusion otherwise “would risk placing the defendant in control of a putative class action, effectively allowing the use of tactical procedural maneuvers to thwart class litigation at will.”

In our Fall 2018 update, we also noted that a district court in Franco v. Allied Interstate, No. 15-4003 (2nd Cir. filed Apr. 9, 2018), had ruled that an individual plaintiff’s refusal to accept full relief rendered him unable to satisfy the adequacy requirement of Rule 23(a)(4).  In a remarkably hostile opinion, the district judge, the Hon. Katherine Forrest, reasoned that “if plaintiff is willing to forego recovery on his own behalf [to seek class certification], there is no telling how many potential class members he is willing to prejudice for the ‘greater good.’” Judge Forrest concluded that the plaintiff’s rejection of a “considerable offer” without explanation raised “substantial concerns” regarding his adequacy to represent the class or alternatively, that the litigation is “lawyer driven,” in which case the court questioned the plaintiff’s interest in vigorously pursuing the claims of the class. Shortly thereafter Judge Forrest abruptly resigned from the bench and went to work for the litigation department of a large defense firm. In January, the plaintiffs’ petition for interlocutory review was denied by the Second Circuit. In May, the case settled.

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

VI. Cy Pres

In March, the Court issued a per curium opinion in Frank v. Gaos, 139 S. Ct. 1041 (2019), a case we began following in our Fall 2015 update because of potentially important implications for cy pres awards.  The Court did not reach the merits of the question presented, which was: “Whether a class-action settlement that provides no direct relief to unnamed class members, but instead distributes settlement funds to non-parties on a cy pres theory, is ‘fair, reasonable, and adequate’ under Federal Rule of Civil Procedure 23(e)(2).” Instead, following the recommendation of the Trump Administration in an amicus brief, the Court vacated and remanded for a determination whether the plaintiffs lacked standing under Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016).  After oral argument, the Court had ordered supplemental briefing from the parties and the Solicitor General on whether any named plaintiff had alleged claims that were sufficiently concrete and particularized under Spokeo.

Justice Thomas issued a short but controversial dissent, explaining that he would have reached the merits and reversed.  Justice Thomas believes “cy pres payments are not a form of relief to the absent class members and should not be treated as such (including when calculating attorney’s fees).” Among other things, Justice Thomas cited a concurring opinion issued by Chief Judge Edith Jones in Klier v. Elf Atochem North Am., Inc., 658 F. 3d 468 (5th Cir. 2011), which argues that use of cy pres should be barred because it violates constitutional separation of powers principles, and it may violate the Rules Enabling Act and create tension with Article III.  This position represents a radical departure from the consensus positions adopted in the American Law Institute’s Principles of Aggregate Litigation.  However, Justice Thomas also cited Judge Higginbotham’s majority opinion in Klier, which hews closer to the consensus view.

The merits involved an $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. Settlement objectors 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 upheld the settlement and flatly rejected the objectors’ argument on the appropriateness of an all-cy pres award, although a dissenting judge would have required greater scrutiny of the alleged conflict of interest.

Had the Court reached the merits, the Trump Administration would have sided with the objectors.  Absent remand to determine standing, it argued in the alternative that the decision below should be vacated. It contended that “cy pres has little basis in history, creates incentives for collusion [among class counsel and defense counsel], and raises serious questions under Article III.” It suggested that cy pres should be allowed only in rare circumstances.

Because Justice Thomas’s opinion was premised on his willingness to reach the merits, it is unclear where the other justices may stand on the issue of cy-pres-only settlements or cy pres more generally.  Chief Justice Roberts has previously 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).

A similar settlement challenged by the same objectors is currently on appeal to the Third Circuit in In re Google Inc. Cookie Placement Consumer Privacy Litigation, Civ. No. 17-1480 (3d Cir. filed Mar. 7, 2017).  The case was stayed when cert. was granted in Gaos, but the Court has since lifted the stay. In April, the Third Circuit, citing Gaos, ordered supplemental briefing on whether plaintiffs have asserted a sufficiently concrete injury to meet the standing requirements articulated in Spokeo.

VII. Tolling

In our Spring 2018 update, we noted that the Supreme Court voted 9-0 to reverse in China Agritech, Inc. v. Resh, 138 S. Ct. 1800, 1804 (2018), holding that the American Pipe rule, which tolls the statute of limitations during class actions to allow individuals to intervene or pursue individual claims if the class fails, does not permit the maintenance of another class action after the statute of limitations expires.

The question presented in Resh was limited to whether the American Pipe rule applies to successive class actions filed “[u]pon denial of class certification.”  In January, in Painters & Allied Trades Dist. Council 82 Health Care Fund v. Forest Pharm., Inc., 915 F.3d 1, 17 (1st Cir. 2019), the First Circuit gave Resh an expansive reading, holding that American Pipe tolling does not apply to otherwise time-barred class claims even if class certification has not been denied.  The court reasoned that Resh “effectively ruled that the tolling effect of a motion to certify a class applies only to individual claims, no matter how the motion is ultimately resolved.”

In February, the Supreme Court ruled that a Rule 23(f) petition to appeal an order granting or denying class certification, which ordinarily must be filed within 14 days of the district court order, also is not subject to equitable tolling.  In Nutraceutical Corp. v. Lambert, No. 17-1094 (U.S. Feb. 26, 2019), the Court held that the 14-day deadline is mandatory and unalterable if the opposing party objects. The Court believed the Federal Rules of Appellate Procedure “express a clear intent to compel rigorous enforcement of Rule 23(f)’s deadline, even where good cause for equitable tolling might otherwise exist.” The Court left open the question of whether a party can move for reconsideration of a class certification order and then safely file a Rule 23(f) petition within 14 days of the order granting or denying reconsideration.

VIII. Removal Under CAFA

On May 28, the Supreme Court issued a 5-4 decision in favor of the plaintiffs in Home Depot U.S.A., Inc. v. Jackson, No. 17-1471, 2019 U.S. LEXIS 3558 (U.S. 2019). The case involves the right of a defendant named in a counterclaim to remove a class action from state to federal court under the Class Action Fairness Act (CAFA). The case began when Citibank filed a debt-collection action against a North Carolina resident who refused to pay for a water-treatment system he purchased using a Citibank-issued credit card. The resident then brought a counterclaim against Citibank and third-party class action claims against Home Depot and Carolina Water Systems Inc. (CWS), alleging that all three were joint and severally liable for unfair and deceptive trade practices that mislead customers about the water-treatment systems at issue.

In an opinion by Justice Thomas, joined by Justices Breyer, Kagan, Ginsburg, and Sotomayor, the Court held that neither the language of the general removal statute, nor CAFA, permits removal by a third-party counterclaim defendant.

Justice Alito, dissenting, joined by Chief Justice Roberts and Justices Gorsuch and Kavanaugh, would have permitted Home Depot to remove the action to federal court. The dissent lamented the “loophole” created by the Court’s decision, which allows plaintiffs to leverage “a defendant’s routine attempt to collect a debt from a single consumer . . . into an unremovable attack . . . brought on behalf of a whole class of plaintiffs . . .  in the very state courts that CAFA was designed to help class-action defendants avoid.”

IX. Judge-Made Limits on the Timing of Class Settlement Negotiations

In January, Logitech petitioned the Ninth Circuit for mandamus to overturn a controversial standing order of Judge William Alsup of the Northern District of California. The order bars class counsel from entering settlement negotiations until after the class has been certified. Among other things, Logitech’s petition argues that Judge Alsup’s prohibition on settlement negotiations is an unconstitutional prior restraint on its First Amendment rights and conflicts with Rule 23 and established policies favoring class action settlements.

In a statement issued in response to the Ninth Circuit’s invitation to address the petition, Judge Alsup countered that the commercial speech at issue is entitled to less protection.  The “central point” of his order, he explained, is to address the difference between settlements prior and subsequent to class certification. “When a lawyer files a putative class action complaint and negotiates a proposed class-wide settlement before certification is decided,” he explained, “plaintiff’s counsel necessarily negotiates from a position weakened by the uncertainty over whether or not counsel will later win or lose a class certification motion.” At the same time, a defendant can “take advantage of the uncertainty over the outcome of a Rule 23 motion to extract a cheaper settlement while wiping a class-wide liability off its books.”

Judge Alsup believes his policy, by clearing away any doubts about certification, ensures “the claims of absent class members are compromised only on their merits without further discount due to uncertainty over whether plaintiffs’ counsel will win class certification.”

Asked for their views on Judge Alsup’s order, two attorneys on AAI’s Advisory Board disagreed with Judge Alsup’s rationale. Both agreed that it is not unusual for class counsel to make critical decisions on behalf of the class prior to class certification, and that settlement “discounts” are unavoidable on both sides. In addition to “class certification uncertainty,” for example, negotiations are influenced by “motion-to-dismiss uncertainty,” “Daubert uncertainty,” and “trial uncertainty,” to name a few. Both attorneys also questioned the wisdom of expending resources to certify a litigation class for trial if the trial will never happen. At bottom, they believe Judge Alsup’s policy, if widely adopted, would make cases more risky, time-consuming, and expensive. Although class certification considerations can sometimes influence settlement negotiations in unique ways, courts can most appropriately address those considerations in deciding whether to certify a settlement class.

X. DOJ Advocacy in Private Class Action Settlement Proceedings

In our Spring 2018 update, we noted that the Consumer Protection Branch of the Department of Justice (DOJ) intervened to file a statement of interest objecting to a private class action settlement, acting on an obscure provision of CAFA, 28 U.S.C. § 1715, which requires class-action defendants to notify the Attorney General and state officials of proposed class action settlements. 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 filing discussed in our Spring 2018 update appeared to have been spearheaded in part by then-Associate Attorney General Rachel Brand, who came to the DOJ from the Chamber of Commerce, served for eight months, and then left to become Executive Vice President at Walmart.  Since Brand’s departure, however, similar interventions have continued. In May, the DOJ’s Consumer Protection Branch opposed a class action settlement in In re Dial Complete Marketing and Sales Practices Litig., No. 11-md-2263-SM, (D.N.H. filed May 10, 2019). In February, it made a similar filing in Cowen v. Lenny & Larry’s Inc., No. 1:17-cv-01530 (N.D. Ill. filed Feb. 15, 2019). Also in February, it filed an amicus brief opposing settlement in Chapman v. Tristar Prods., Inc., No. 18-3847 (6th Cir. filed Feb. 4, 2019).  According to its website, the Consumer Protection Branch’s mission is to lead the DOJ’s efforts “to enforce laws that protect Americans’ health, safety, economic security, and identity integrity.” Civil Division Assistant Attorney General Jody Hunt has implied that CAFA could be construed as such a law, and that interventions in private class action settlements are justified by the aforementioned notice provision in CAFA.

In May, the Antitrust Division of the DOJ filed a motion to intervene in a private antitrust class action settlement not to object, but rather to help enforce its terms. As part of a proposed settlement agreement among private plaintiffs and Duke University and the University of North Carolina (UNC) resolving allegations that the schools entered no-poaching agreements in which they agreed not to compete in hiring each other’s medical faculty, Duke and UNC are to become bound by an injunction designed to prevent the maintenance or recurrence of any such agreements. The DOJ sought permissive intervention for the limited purpose of joining the settlement and obtaining the right to enforce the injunctive provisions. Assistant Attorney General Makan Delrahim explained, “Permitting the United States to become part of this settlement agreement in this private antitrust case, and thereby to obtain all of the relief and protections it likely would have sought after a lengthy investigation, demonstrates the benefits that can be obtained efficiently for the American worker when public and private enforcement work in tandem.”

XI. Advisory Committee on Civil Rules

Since our Fall 2016 update, we have been regularly tracking 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.

After a lengthy review process culminating in congressional approval, the rules took effect on December 1, 2018.

XII. Proposed Legislation Defeated

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 was concerned the bill would likely eviscerate consumer, antitrust, employment, and civil rights class actions. Because the bill was not signed into law before the conclusion of the 115th congressional term on January 3, 2019, it has expired.  The bill’s sponsor, Richard Goodlatte, did not seek reelection.  The House is now controlled by Democrats, none of which voted in favor of the bill.

XIII. Empirical Data on Antitrust Class Actions

In May, Huntington Bank (Huntington) and the University of San Francisco School of Law (USF) published an inaugural Antitrust Annual Report, which examines empirical information involving the filing and resolution of private antitrust class action lawsuits. The report covers the number of antitrust class action complaints that are filed each year, the amount of time they took on average to reach a settlement, the mean and median recoveries, the attorney’s fees and costs awarded, and the total settlement amounts in each year and overall.

The report also analyzes the law firms that represented plaintiffs and defendants in antitrust class action settlements, describing particular cases as well as some cumulative results, and it tabulates cumulative totals for claims administrators involved in the settlement process. Among other things, the report finds that, cumulatively, plaintiffs recovered $19.3 billion through settlements during the period from 2013-2018. Huntington and USF plan to continue providing similar information on an annual basis.

Contemporaneous with the report’s publication, AAI and USF published a joint commentary examining the implications of the report’s findings. The commentary, The Vital Role of Private Antitrust Enforcement in the U.S., highlights a number of key takeaways from the 2018 Report’s data on antitrust actions (particularly class actions) over the period 2013-2018. These include: (1) private enforcement resources are focused efficiently on violations that harm victims, such as consumers and businesses; (2) private antitrust enforcement continues to be effective, across the board; and (3) private enforcers obtain sizable recoveries associated with large, often global antitrust conspiracies that disrupt commerce and victimize thousands, or even millions, of U.S. consumers.

As we noted in our Spring 2017 update, the FTC announced in November 2016 that, as part of the FTC’s Class Action Fairness Project, initiated under Chairman Tim Muris in 2002, the Commission would study the effectiveness of various class action settlement notice programs. It sent information requests to eight claims administrators, which was to form the basis of a special report. The Commission also proposed two additional studies pursuant to the project: a Notice Study  examining consumer perception and understanding of class action notices and the options they provide to consumers, and a Deciding Factors Study analyzing factors that influence consumers’ decisions to participate, opt out of, or object to a class action settlement.  No further updates have been provided.

 

[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 https://www.antitrustinstitute.org.  Comments on this update or suggestions for AAI amicus participation should be directed to Randy Stutz, rstutz@antitrustinstitute.org, (202) 905-5420.

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.

 

---

[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 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.

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, consumers, and workers. This update covers developments since our Fall/Winter 2022 update.

Class Action Summary (Summer 2023)

Our Summer Class Action Update includes coverage of several new decisions from the first part of 2023, including:

• Uninjured Class Members: Van v. LLR, Inc., 61 F.4th 1053 (9th Cir. 2023), Black v. Occidental Petro. Corp., 69 F.4th 1161 (10th Cir. 2023)
• Ascertainability: In re Niaspan Antitrust Litig. 67 F.4th 118 (3d Cir. 2023).
• Incentive Payments: Fikes Wholesale, Inc. v. Visa U.S.A., Inc., 52 F.4th 704 (2d Cir. 2023); Maribel Moses v. The New York Times Company, Docket No. 21-2556-cv (2d Cir. August 17, 2023).
• Mandatory Arbitration Clauses: Fraga v. Premium Retail Services, Inc., 61 F. 4th 228 (1st Cir. 2023).
• Motions to Intervene: SEC v. LBRY, Inc., 26 F.4th 96 (1st Cir. 2023)
• Attorney’s Fees: Lowery v. Rhapsody Int’l Inc., 69 F.4th 994 (9th Cir. 2023): Maribel Moses v. The New York Times Company, Docket No. 21-2556-cv (2d Cir. August 17, 2023).

I. Classes Containing Uninjured Class Members

In our past several updates, we noted the recurring debate in the federal courts over the certification of classes containing uninjured class members. The landscape has not changed significantly since we last reported on the issue in Fall/Winter 2022, but recent Ninth Circuit decisions and current 23(f) appeals may result in new developments in the second half of this year.

As we noted in the Fall/Winter 2022 update, the Supreme Court denied certiorari of StarKist Co. v. Olean Wholesale Grocery Coop., Inc, leaving intact the Ninth Circuit decision granting class certification.  The Ninth Circuit rejected a “per se” rule that there can only be a de minimis number of uninjured members in favor of a case-by-case analysis of the impact of uninjured class members for class certification. See Olean Wholesale Grocery Coop., Inc. v. Bumble Bee Foods LLC, 31 F.4th 651, 669 (9th Cir. 2022).

Panels in the Ninth Circuit probed what is a sufficient case-by-case analysis under Olean Wholesale in two appeals decided earlier this year.  In Bowerman v. Field Asset Services, Inc., 39 F. 4th 652 (9th Cir. 2022), the court decertified a class of workers claiming withheld overtime pay, noting that it had taken eight days to determine damages for only 11 plaintiffs. It concluded that individualized issues on damage were “prohibitively cumbersome,” and plaintiffs failed to prove that class issues predominated over individualized ones.  In Van v. LLR, Inc., 61 F.4th 1053 (9th Cir. 2023), the Ninth Circuit reached differing conclusions on three arguments the defendant made for decertification based on uninjured class members.  In a case involving improper sales tax charges, the panel rejected an argument that individual damages could be too small to support Article III standing, and it found the defendant had not substantiated arguments that some class members voluntarily paid the incorrect sales tax.  On the other hand, the court found that the defendant had substantiated its argument that some class members received discounts that offset their sales tax payments.  Noting these potentially uninjured class members, it remanded the case to the district court to analyze whether “a class member by member analysis [would] be unnecessary or workable.”

We also note that the Ninth Circuit has certified a 23(f) appeal on class certification in the In re Google Play Antitrust Litigation.  As part of this appeal, the Ninth Circuit will address questions of how to measure the impact of uninjured class members.  Defendant claims that the lower court did not conduct a “rigorous analysis” of the impact of uninjured class members as required by Olean Wholesale.  Defendant’s petition claims that “rigorous analysis” means (1) plaintiffs bear the burden of proving that there are not a “great number” of uninjured class members and (2) the court must identify what individualized injury issues may exist and how they apply to class members. Briefing is expected to be completed this summer.

Other circuits have adopted more bright-line tests.  The First, Fourth, Seventh, Eleventh, and D.C. Circuits stated that a district court should not certify a class if uninjured putative class members exceeded a de minimis number. See e.g., In re Asacol Antitrust Litig., 907 F.3d 42, 47, 54 (1st Cir. 2018); Krakauer v. Dish Network Network, L.L.C., 925 F.3d 643, 658 (4th Cir. 2019); Messner v. Northshore Univ. HealthSystem, 669 F.3d 802, 825 (7th Cir. 2012); Cordoba v. DIRECTV, LLC, 942 F.3d 1259, 1277 (11th Cir. 2019); In re Rail Freight Fuel Surcharge Antitrust Litig., 934 F.3d 619, 624-25 (D.C. Cir. 2019).

Meanwhile, the Second, Third, Fifth, Sixth and Eighth have held that courts should not certify a class with any uninjured class members. See e.g., Barrows v. Becerra, 24 F.4th 116, 128 (2d Cir. 2022); In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 311 (3d Cir. 2008); Bell Atl. Corp. v. AT&T Corp., 339 F.3d 294, 302 (5th Cir. 2003); Rikos v. Procter & Gamble Co., 799 F.3d 497, 505 (6th Cir. 2015); Johannessohn v. Polaris Indus., 9 F.4th 981, 987 (8th Cir. 2021).

Since our last update, the Tenth Circuit has also weighed in on the issue of uninjured class members.  In Black v. Occidental Petro. Corp., the court upheld certification of a class of private landowners holding mineral and oil interests, explicitly rejecting the “no uninjured class member” standard.  69 F.4th 1161, 1185 (10th Cir. 2023) (noting that “[t]he presence of class members who experienced varying degrees of injury, including some who were altogether uninjured, does not bar class certification.”) The Black v. Occidental Petro opinion cites favorably to the Seventh Circuit decision in Messer v. Northshore Unitv. HealthSystem describing a de minimis standard, but the Tenth Circuit did not unambiguously adopt that criterion.

II. Ascertainability

In our previous several updates, we also discussed the circuit split over whether Rule 23 contains a heightened ascertainability requirement that demands class plaintiffs plead and prove an administratively feasible mechanism for identifying absent class members. As detailed in our Spring/Summer 2021 update, the First and the Fourth Circuits have continued to impose an ascertainability requirement.  On the other hand, the Second, Sixth, Seventh, Eighth, Ninth, and Eleventh Circuits have rejected an administrative feasibility prerequisite. As referenced in our Fall/Winter 2022 update, the Fifth, Tenth, and D.C. Circuits have yet to explicitly adopt a position over heightened ascertainability.

Since our last update, the Third Circuit revisited the ascertainability requirement in In re Niaspan Antitrust Litig. 67 F.4th 118 (3d Cir. 2023).  The decision confirms that administrative feasibility remains a prerequisite of ascertainability in the Circuit, despite the apparent softening of the Circuit’s approach in recent decisions.  Those earlier decisions are described in detail in our Fall 2020 and Fall 2017 updates. In the Niaspan decision, the Third Circuit panel wrote that “[t]he ascertainability standard, including the administrative feasibility principle it contains, is true to the text, structure, and purpose of Rule 23 . . . What we call ‘ascertainability’ and ‘administrative feasibility’ is merely the way courts perform that role, a practice familiar under the civil rules.” Id. at 132.  The decision further rejected Appellants’ arguments that other circuits, including the Sixth, Seventh, Eighth, and Ninth Circuits, have dropped the ascertainabilty requirement.  Instead, the decision interpreted those circuit courts as adopting “a separate administrative feasibility requirement . . . through a rigorous analysis of Rule 23’s ‘superiority’ requirement.” Id. at 133-34 n.10.

The plaintiffs in Niaspan have petitioned for reconsideration en banc, and AAI has filed an amicus brief in support of their position. AAI’s brief argues that the Third Circuit panel erred by departing from the Third Circuit’s practical approach to the “administrative feasibility” requirement.

III. Specific Personal Jurisdiction

Since 2017, we have been tracking the lower federal courts’ application of the Supreme Court’s decision in Bristol-Myers Squibb Co. v. Superior Court of California, 137 S. Ct. 1773 (2017) (“BMS”). That decision requires specific jurisdiction over all plaintiffs’ claims in the forum state for a mass action to proceed if there is otherwise no general jurisdiction.  This has raised questions as to whether the same standard will apply to class actions. If so, plaintiffs may be required to bring suits on behalf of nationwide or multi-state classes in a defendant’s home state. This would result in significant litigation advantages for corporate antitrust defendants, as well as inefficiencies.

In our Spring 2020 update, we noted that the Fifth, Seventh, and D.C. Circuits all held that BMS did not bar nationwide class actions prior to class certification, notwithstanding that specific jurisdiction may be lacking for unnamed class members. The Seventh Circuit, in an opinion by Chief Judge Wood in Mussat v. IQVIA, went further than previous circuit courts’ rulings in holding affirmatively that BMS does not apply to class actions.  The Supreme Court denied certiorari in that case.

In our Fall 2021 update, we noted that the Sixth Circuit, in Lyngaas v. Curaden AG, 992 F.3d 412 (6th Cir. 2021), had joined the Seventh Circuit in holding that “Bristol-Myers Squibb does not extend to federal class actions.” Quoting extensively from Chief Judge Wood’s opinion in Mussat, the circuit court noted that a class action is formally a single suit in which a defendant litigates against only the class representative, and the absent class members are therefore not “parties.” The court distinguished BMS by explaining that “[t]he different procedures underlying a mass-tort action and a class action demand diverging specific personal jurisdiction analyses.” Id. at 435.

As described in our Spring/Summer 2022 update, the First Circuit adopted the logic of the Sixth and the Seventh Circuit’s in its decision in Waters v. Day & Zimmermann NPS, Inc., 23 F.4th 84 (1st Cir. 2022).  The Waters decision found that BMS’s jurisdictional requirement did not apply to collective actions under the federal Fair Labor Standards Act (FLSA).  Such actions differ somewhat from Rule 23 class actions because they are “opt-in” rather than “opt-out” collective actions.  But the court cited favorably to the Sixth Circuit’s opinion in Lyngaas, adopting the logic that only the named plaintiff has “party” status.  This strongly suggests the First Circuit will follow Mussat and Lyngaas in refusing to extend BMS to class actions.

As discussed in our last update, the Third Circuit has joined with the First, Sixth and Seventh Circuit in stating that BMS does not apply to Rule 23 class actions, noting that the Supreme Court has “regularly entertained nationwide classes where the [named] plaintiffs relied on specific personal jurisdiction, without taking note of any procedural defects.” Fischer v. Fed. Express Corp., 42 F.4th 366, 375 (3d Cir. 2022). But in the same decision, the Third Circuit split from the First Circuit to find that BMS did apply to FLSA collective actions. It reasoned that the FLSA’s text, the FLSA’s legislative history, and the weight of caselaw favored treating FLSA collective actions “as ordinary in personam suits for purposes of personal jurisdiction” requiring “opt-in plaintiffs […] demonstrate the court has personal jurisdiction with respect to each of their claims Id. at 375.

The Ninth Circuit’s decisions in Moser v. Benefytt, 8 F.4th 872 (9th Cir. 2021) and Owino v. CoreCivic, Inc., 36 F.4th 839 (9th Cir. 2022), have created some confusion in this area with their rulings on waiver of personal jurisdiction when a class is certified.   A divided panel decision in Moser held that personal jurisdiction objections cannot be waived prior to class certification because it is only after certification that defendant can object to absent class members’ claims. Over the dissent of Judge Cardone, the panel majority left open the possibility that personal jurisdiction objections could be available at the class certification stage under Rule 23.  Moser was remanded, and plaintiffs filed a notice of settlement.

In Owino, three plaintiff-classes of immigrant detainees who alleged federal statutory and state labor code violations against the overseer of a private detention facility were certified by the district court. On appeal, the panel applied Moser to find that the district court erred in holding that its personal jurisdiction defense had been waived.  The panel declined to vacate the district court’s class certification order, however, holding that, on remand, the district court may consider the personal jurisdiction defense at the appropriate time.  The Ninth Circuit denied rehearing en banc.

To date, no circuit court has held that BMS bars nationwide class actions in forum states that lack personal jurisdiction over absent class members.

IV. Incentive Awards for Class Representatives

In our Fall/Winter 2022 update, we continued to follow developments related to the Eleventh Circuit’s decision Johnson v. NPAS Sols., LLC. 875 F.3d 1244 (11th Cir. 2020). Johnson held that incentive awards paid to lead class plaintiffs—a longstanding feature of antitrust and other actions—are unlawful under nineteenth-century Supreme Court precedent. In our Spring/Summer 2021, Fall 2021, and Spring/Summer 2022 updates, we noted that numerous district courts both within and outside the Eleventh Circuit, and numerous appellate panels outside the Eleventh Circuit, have rejected, distinguished, or narrowly construed Johnson to allow payment of incentive awards.

In August 2022, the Eleventh Circuit denied en banc rehearing in Johnson. Judge Pryor, joined by Judges Wilson, Jordan and Rosenbaum, authored a lengthy dissent, concluding that “[t]he panel majority opinion fundamentally undermined class action law based on a misinterpretation of two Supreme Court cases,” and “by denying rehearing en banc, our court has struck a lasting blow to class actions as a device for righting wrongs in this circuit.” The dissent also urged that, “[g]iven our failure to act, it will be up to the Supreme Court to overrule or clarify [the 1880s Supreme Court cases] to undo this problem of our making. If the Supreme Court does not act, then I urge either the Advisory Committee on Civil Rules to amend Rule 23 or Congress to enact a statute that explicitly authorizes incentive awards.” Over the dissent for rehearing en banc, the order staying the mandate in Johnson was lifted on October 17, 2022. Although the plaintiff petitioned the Supreme Court for certiorari, the Court denied certiorari in April 2023. As a result, Johnson remains the binding precedent in the Eleventh Circuit.

As we discussed in our Fall/Winter 2022 update, the Ninth Circuit rejected Johnson in In re Apple Inc. Device Performance Litig. 50 F.4th 769, 785 n.13 (9th Cir. 2022). The Ninth Circuit considered the same nineteenth-century cases and held that they did not bar incentive awards. Id. at 785. Rather, the court held that “incentive awards cannot categorically be rejected or approved,” and “[s]o long as they are reasonable, they can be awarded.” Id. at 787. The Ninth Circuit was joined by the First Circuit in affirming the permissibility of incentive awards. See Murray v. Grocery Delivery E-Servs. USA Inc., 55 F.4th 340, 353–54 (1st Cir. 2022).

Recently, the picture was complicated by the Second Circuit’s decision in Fikes Wholesale, Inc. v. Visa U.S.A., Inc., 52 F.4th 704 (2d Cir. 2023).  While the court refused to bar the class representative incentive awards, it did so only because it was compelled to follow its own precedents in Melito v. Experian Mktg. Sols. Inc. and Hyland v. Navient Co. The Second Circuit panel instead agreed in principle with the Eleventh Circuit position, and it concluded that “[s]ervice awards are likely impermissible under Supreme Court precedent,” setting the stage for future challenges. Id.

A different panel in the Second Circuit, however, affirmed the legality of incentive rewards in Maribel Moses v. The New York Times Company, Docket No. 21-2556-cv (2d Cir. August 17, 2023). That panel rejected an argument based on the Eleventh Circuit decision in Johnson not just because of the Circuit’s binding precedent in Melito, but also because it found the Eleventh Circuit’s reasoning unconvincing. The Moses panel wrote that the nineteenth century precedent relied on by the Eleventh Circuit “ha[s] been superseded, not merely by practice and usage, but by Rule 23, which creates a much broader and more muscular class action device than the common law predecessor that spawned the [earlier precedent.]” at 45.  Further, it noted that its decision is consistent with the “overwhelming majority” of circuits in agreeing that district courts are permitted to grant incentive awards.

Although the circuit split appears to be widening, the Supreme Court in April 2023 denied petitions for certiorari to review either the Eleventh Circuit or the Second Circuit’s Fikes decisions on incentive awards.

V. Class Action Waivers in Mandatory Arbitration Clauses

Beginning with our Fall 2016 update, we have been tracking the use of mandatory arbitration clauses in employment agreements, which the Supreme Court upheld in a 5-4 decision in Epic Systems Corp. v. Lewis. 138 S. Ct. 1612 (2018). Mandatory arbitration agreements often include forced-class action waivers that may prevent class litigation and class arbitration. In our Spring 2019 update, we addressed that the Supreme Court’s decision in New Prime, Inc. v. Oliveria held that the Federal Arbitration Act (FAA) does not compel courts to enforce private arbitration agreements involving “contracts of employment” with transportation workers, which are expressly excluded from the FAA’s coverage provided the workers are “engaged in foreign or interstate commerce.” 139 S. Ct. 532 (2019).

Since our Fall 2020 update, we have been tracking a circuit split over how the “foreign or interstate commerce” requirement affects the scope of the transportation-worker exclusion, particularly as applied to gig economy workers. In our Spring/Summer 2022 update, we noted that the Supreme Court unanimously affirmed the Seventh Circuit in Saxon v. Southwest Airlines. 142 S.Ct. 1783 (2022). Justice Thomas, writing for the Supreme Court, held that a “class of workers” under the FAA is defined by the work the workers perform, not the business their employer is in. Id. at 1788–89. And the class is “engaged in foreign or interstate commerce” for purposes of the FAA exclusion if the work renders the workers “directly involved in transporting goods across state or international borders.” Id. at 1789–90. The analysis, the Court held, requires a contextual inquiry into whether the employees “are actually engaged in interstate commerce in their day-to-day work.” Id. at 1788. To be “engaged in foreign or interstate commerce” under § 1, the class of workers must “play a direct and ‘necessary role in the free flow of goods’ across borders,” which is to say the workers must “be actively ‘engaged in transportation’ of those goods across borders via the channels of foreign or interstate commerce.” Id. at 1790. The Court said only that “[w]e recognize that the answer will not always be so plain when the class of workers carries out duties further removed from the channels of interstate commerce or the actual crossing of borders.” Id. at 1789 n.2.

Our Spring/Summer 2022 update noted that the Ninth Circuit’s Carmona v. Domino’s Pizza, LLC held that Domino’s delivery drivers qualify for the FAA exclusion because they are “engaged in a ‘single, unbroken stream of interstate commerce’ that renders interstate commerce a ‘central part’ of their job description.” 21 F.4th 627 (9th Cir. 2021). The losing defendant petitioned for certiorari. In October 2022, the Supreme Court granted the petition but immediately vacated and remanded back to the circuit court for further consideration in light of Saxon. Just recently, the Ninth Circuit ruled on the remanded case, . U.S. App. LEXIS 18578, at *1, *3 (9th Cir. July, 21 2023.  The court again rejected defendant-appellee Domino’s motion to compel arbitration,  finding that the Supreme Court’s decision in Saxon was not irreconcilable with its circuit precedent, Rittmann v. Amazon.com, Inc., 971 F.3d 904 (9th Cir. 2020). As a result, the Ninth Circuit reaffirmed its view that the Domino’s drivers, “like the Amazon package delivery drivers [in Rittmann], transport [interstate] goods for the last leg to their final destinations,” thereby engaging them in interstate commerce. No, 21-55009 2023 U.S. App. LEXIS 18578 at *7

In our Fall/Winter 2022 update, we discussed three decisions that narrowed the kinds of employees covered by the FAA exclusion in light of Saxon. 

First, the Second Circuit vacated a May 2022 panel opinion in light of Saxon and granted panel rehearing in Bissonnette v. LePage Bakeries Park St., LLC. 49 F.4th 655 (2d Cir. 2022). On panel rehearing, the Second Circuit affirmed that the truck drivers did not qualify for the FAA exclusion. Bissonnette v. LePage Bakeries Park St., LLC, No. 20-1681, 2022 U.S. App. LEXIS 27628, at *1 (2d Cir. 2022). The Second Circuit reasoned that, “[a]lthough the plaintiffs spend appreciable parts of their working days moving goods from place to place by truck, the decisive fact is that the stores and restaurants are not buying the movement of the baked goods, so long as they arrive. Customers pay for the baked goods themselves; the movement of those goods is at most a component of total price. The commerce is in breads, buns, rolls, and snack cakes—not transportation services.” Id. at *13.

Second, the Fifth Circuit applied Saxon to limit the scope of the FAA exclusion in Lopez v. Cintas Corp. 47 F.4th 428 (5th Cir. 2022). The Fifth Circuit held that once the goods at issue arrived at a Houston warehouse and were unloaded, “anyone interacting with those goods was no longer engaged in interstate commerce.” Id. at 433. The Fifth Circuit also noted that, unlike either seamen or railroad employees, “the local delivery drivers here have a more consumer-facing role.” Id.

Finally, we reported on the First Circuit’s decision in Immediato v. Postmates, Inc. 54 F.4th 67 (1st Cir. 2022). The First Circuit held that couriers who deliver goods from local restaurants and retailers in trips that typically span a few miles are not exempt under the FAA. Id. at 76. Applying First Circuit precedent and considering Supreme Court precedent contemporary with congressional enactment of the FAA, the First Circuit held that “once an interstate shipment arrives at a local retailer and is ‘there held solely for local disposition and use,’ the goods are no longer considered to be ‘in interstate commerce.’” Id. The court also explained that “engaged in interstate commerce” does not “extend to the intrastate sale of locally manufactured goods.” Id. at 77.

Since our last update, there has been some pushback on this trend, with the 1st and 9th circuits adopting a widened view of the FAA exclusion post-Saxon.  The First Circuit recently issued a decision that breaks with the Second Circuit to clarify that, post-Saxon, a worker need not be in a transportation industry to qualify as a transportation worker for purposes of the FAA exclusion.  In Fraga v. Premium Retail Services, Inc., 61 F. 4th 228 (1st Cir. 2023), the First Circuit emphasized that “the contractual relationships among the various actors play an important role in determining whether an intrastate trip is part of an integrated interstate journey.” It distinguished between FAA excluded workers involved in “last mile” deliveries for Amazon, where Amazon had a contractual relationship with both the transportation service and the end customer, and non-excluded Lyft drivers transporting passengers from Logan Airport, where there was no contractual relationship between the airlines and Lyft.  The Ninth Circuit decision in Caroma v. Domino’s Pizza, LLC is described above.

Since Epic Systems was decided in 2018, several legislative proposals that would fully or partially overturn the decision have circulated, including the Forced Arbitration Injustice Repeal Act (FAIR Act). The FAIR Act was reintroduced in the 118th Congress on April 27, 2023 and is substantially similar to the FAIR Act introduced by Sen. Richard Blumenthal (D-CT) and Rep. Hank Johnson (D-GA) in February 2019, and which we discussed in our Spring 2019 update. Our Spring/Summer 2022 update noted that the FAIR Act was reported out of the House Judiciary Committee on March 11, 2022, and a week later, on March 17, it passed the House 220-209, with one Republican, Rep. Matt Gaetz (FL), joining House Democrats in the majority. The 117th Congress’s FAIR Act was not acted upon in the Senate. The recent iteration of the FAIR Act remains in committee awaiting action.

VI. CLASS MEMBER MOTIONS TO INTERVENE IN CLASS PROCEEDINGS

In our Fall/Winter 2022 update, we addressed the Fifth Circuit’s standard for resolving motions to intervene by class members who disagree with the litigation strategy of counsel for class representatives.

In Guenther v. BP Ret. Accumulation Plan, class plaintiffs sued BP Corporation alleging ERISA violations stemming from BP’s acquisition of Standard Oil and the subsequent conversion of Standard Oil’s employee retirement benefits to BP retirement benefits. 50 F.4th 536 (5th Cir. 2022). After five years of litigation, on the eve of class certification, a class member who had also been involved in separate litigation against BP moved to intervene as of right. The district court, applying the circuit’s four-factor test for evaluating intervention as of right under FRCP 24(a)(2), denied the motion. The class member appealed, challenging only the district court’s finding that the fourth factor—inadequate representation—was unsatisfied. The Fifth Circuit affirmed the district court’s denial of the intervention of right.

The Fifth Circuit explained that the that the movant’s burden in satisfying the fourth factor is “minimal.” Id. at 543. The movant “must only show that the existing representation ‘may be inadequate.’” Id. Here, however, the movant did not make the requisite showing. To ensure that the fourth factor “has some teeth,” the movant “must establish ‘adversity of interest, collusion, or nonfeasance on the part of the existing party.’” Id. To establish adversity of interest, the movant must establish that “its interests diverge from the putative representative’s interests in a manner germane to the case.’” Id. As relevant here, “[d]ifferences of opinion regarding an existing party’s litigation strategy or tactics used in pursuit thereof, without more, do not rise to an adversity of interest.” Id. The court held that intervention as of right was inappropriate because the movant and the class plaintiffs “shared the same ultimate objective” and the movant “lack[ed] a distinct interest that is at risk of being adversely represented.” Id.

The Ninth Circuit in W. Watersheds Project v. Haaland held that the presumption of adequate representation when the intervenor shares the same “ultimate objective” as a party is overcome by a showing “that an existing party cannot or will not make ‘any reasonable argument’ that the intervenor would make if it were a party.” 22 F.4th 828, 841 (9th Cir. 2022).  In that case, the intervenor was able to identify three relevant arguments that the parties had not addressed.

Similar logic was used by the First Circuit to opposite effect in SEC v. LBRY, Inc. Upholding the denial of a motion to intervene, the court held that “[w]hen a proposed intervenor’s objective aligns seamlessly with that of an existing party [,] a rebuttable presumption of adequate representation attaches.” 26 F.4th 96, 99 (1st Cir. 2023). Other circuit courts generally require some showing of conflict to warrant intervention. See e.g., Planned Parenthood of Wisconsin, Inc. v. Kaul, 942 F.3d 793, 799 (7th Cir. 2019); Wineries of the Old Mission Peninsula Ass’n v. Twp. Of Peninsula, Michigan, 41 F.4th 767, 774 (6th Cir. 2022).

Across circuits, it is generally the norm that class members seeking to intervene must make a showing of “conflict” or “adversity” to demonstrate that the existing representation is inadequate.

VII. CALCULATING ATTORNEYS’ FEES

In our Fall 2020 update, we discussed recent case developments governing calculation of  attorneys’ fees. The Sixth Circuit’s decision in Linneman v. Vita-Mix Corp., 970 F.3d 621 (6th Cir. 2020) considered several questions regarding the calculation of attorneys’ fees in class-action settlements. In Linneman, the district court used a lodestar calculation to award $3.9 million ($2.2 million plus a 75 percent upward multiplier) in coupon settlement.

On appeal, defendant argued that district court erred by using a lodestar calculation to calculate fees under a coupon settlement because of § 1712 of the Class Action Fairness Act (“CAFA”). CAFA requires that, “[i]f a proposed settlement in a class action provides for a recovery of coupons to a class member, the portion of any attorney’s fee award to class counsel that is attributable to the award of the coupons shall be based on the value to class members of the coupons that are redeemed.” The Sixth Circuit disagreed and held that the CAFA inquiry “centers on the meaning of the phrase ‘attributable to the award of the coupons’ because only that ‘portion’ of the fees award must be ‘based on the value to class members of the coupons that are redeemed.’” The court recognized a circuit split but noted that the majority of circuits construe the “attributable to” language narrowly and allow lodestar calculations in coupon settlements. A minority view is expressed by the Ninth Circuit which holds that lodestar calculations are not permissible.

Defendant further argued that the district court abused its discretion in calculating the billing rate. The Sixth Circuit agreed. The Sixth Circuit follows the “community market rule,” under which the billing rate “should not exceed what is necessary to encourage competent lawyers within the relevant community to undertake legal representation.”  The court held that the district court ran afoul of the community market rule by relying on counsels’ affidavits describing their backgrounds, billing rates, and involvement in the case, and opting to split the difference between pre-calculated local billing rates and requested rates claimed to “reflect [ ] the national practice and experience” of class counsel.

The Sixth Circuit also concluded that the district court erred in three other respects. First, the district court awarded a multiplier without making a finding of “rare and exceptional circumstances” as required by Perdue v. Kenny A. ex rel. Winn, 599 U.S. 542 (2010). Second, the district court did not exclude hours that class counsel worked after they rejected an arguably reasonable settlement offer. Third, the district court did not make any specific findings about the value of the settlement. Finally, the Sixth Circuit found that awarding counsel post-judgment interest pursuant to 28 U.S.C. § 1961 was not error.

Since our last update, the Ninth Circuit clarified its position on attorney’s fees in Lowery v. Rhapsody Int’l Inc., 69 F.4th 994 (9th Cir. 2023). On appeal, the Ninth Circuit reversed and remanded to the district court that it “should rigorously evaluate the actual benefit provided to the class and award reasonable attorneys’ fees considering that benefit.” Id. at 997. The Ninth Circuit stated that district court “should consider [the] actual or anticipated value to the class members, not the maximum that hypothetically could have been paid to the class.” Id. Furthermore, district courts “should also consider engaging in a ‘cross-check’ analysis of the lodestar method to ensure that the fees are reasonably proportional to the benefit received by the class members.” Id. Ultimately, the Ninth Circuit reminded that “the key factor” is “assessing the reasonableness of the attorneys’ fees” to the benefit to the class members, not that “class action attorneys may devote hundreds or even thousands to a case.” Id. at 1002.

In Lowery, a plaintiffs-class of copyright owners sued defendant for infringement of their musical compositions. As settlement negotiations progressed, the amount the plaintiffs-class would receive decreased to $52,841.05.  Assessing class counsel’s request for $6 million in fees using the lodestar method, the magistrate judge decided to lower fees to  $1.7 million. The Ninth Circuit rejected the $1.7 million in attorneys’ fees because it was thirty times larger than the benefit received by plaintiffs, making it unreasonable in light of FRCP 23. The appeals court also instructed the district court to disregard the “illusory $20 million settlement cap” and instead base its lodestar calculation of attorneys’ fees on the actual $52,841.05 received.

The Second Circuit in the Moses case discussed above also addressed attorney’s fees.  See Maribel Moses v. The New York Times Company, Docket No. 21-2556-cv (2d Cir. August 17, 2023.  Several class members there objected to the award of attorney’s fees in a settlement by the New York Times of claims that its subscription renewal practices violated California disclosure law.  The Second Circuit remanded to the district court for failure to conduct a review of the substantive fairness of the attorney’s fees as required by (1) the 2018 revision of Rule 23(e)(2) and (2) the traditional factors outlined by City of Detroit v. Grinnell Corp., 495 F. 2d 448 (2d Cir. 1974).  The Second Circuit concluded that the district court erred specifically in presuming fairness based on the settlement’s arm’s-length negotiation, and in “not considering the attorneys’ and incentive awards in evaluating the fairness of the settlement.”

Further, the Second Circuit found, contrary to the district court, that CAFA’s coupon settlement provisions applied to the free “access codes” for NYT subscriptions provided to certain class members. It reasoned that the codes were akin to coupons because (1) they required the class members to continue to do business with the defendant, (2) they are valid only for “select products or services,” and (3) lacked the flexibility and the transferability of cash payments.

Access the Class Action Issues Update Summer 2023 PDF.

 

[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.