Article III Standing

A Proper Pick-off Play? Conditions on Payment May Make The Difference.

** District Court Judge Construes Campbell-Ewald Giving Daylight to Defendants Wanting to Moot Class Claims  **                                                                                                                                                                                                                    

We’ve recently blogged about the door left open by the U.S. Supreme Court in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663, 193 L. Ed. 2d 571 (2016) for mooting a putative class representative’s claim by the defendant depositing the full amount into an account payable to the plaintiff and the court entering judgment in that amount.  In Chen v. Allstate Ins. Co., No. 13-16816, 2016 WL 1425869, at *1 (9th Cir. Apr. 12, 2016), the Ninth Circuit slammed that door shut, saying, in essence, that a trial court should not enter judgment if the class representative rejects a Rule 68 offer of judgment  in order to pursue relief on behalf of members of a class even if the offer of judgment affords the individual plaintiff complete relief.  2016 WL 1425869, at *9As we noted in a recent post about Chen, while the Ninth Circuit distinguished Allstate’s “reversionary interest” in its money from the situation where a defendant deposited the money into a court registry and could not reclaim it, that distinction is without a difference because Federal Rule of Civil Procedure 67 requires notice to the plaintiff and a court order permitting the deposit giving the plaintiff the right to oppose it on the ground that she does not want the money because she (ahem . . . her lawyers) would rather pursue class relief.

This rather tortured analysis about who owns the money after it has left the defendant’s hands but has not been accepted by the plaintiff stems from three 19th century tax cases where the defendants actually paid the amounts allegedly owed to the State of California into bank accounts in accordance with a California statute that required the State to accept payments in full.  Under those circumstances, “[T]he railroad’s payments had fully satisfied the asserted tax claims, and so extinguished them.” Campbell-Ewald, 136 S. Ct. at 671. Thus, if the money changes hands, the case is over.  This motiff was picked up by the Ninth Circuit in Chen, in which the Court discussed the common law doctrine of tender upon which Rule 68 is based.  The Ninth Circuit noted that, under the tender doctrine, “[T]here may have been occasions when the deposit of money in court could be ‘treated as the equivalent of an actual payment to and acceptance by the plaintiff.’” (Citing, Robert G. Bone, “To Encourage Settlement”:  Rule 68, Offers of Judgment, and the History of the Federal Rules of Civil Procedure, 102 Nw. U.L. Rev. 1561, 1585 (2008)).  Chen, 2016 WL 1425869, at *8.  However, the Ninth Circuit concluded that for the deposit of funds to be treated as payment and acceptance, “the defendant [must] unconditionally relinquish[ ] its entire interest in the deposited funds” — in other words, only when “‘the defendant bids his money an eternal farewell.’” (Quoting H. Gerald Chapin, Code Practice in New York 164 (1918)).  Id.  But it seems a Sisyphean  task for a defendant to unconditionally relinquish its funds when the plaintiff won’t take them.

Just last week, however, the United States District Court for the District of Massachusetts found a way for a defendant to “bid [its] money an eternal farewell” in order to satisfy the demands of a putative class representative even when the class representative declines the payment.  In Demmler v. ACH Food Companies, Inc., No. 15-13556-LTS (D. Mass. June 9, 2016) (Dkt. No. 48), the defendant manufactured Weber barbecue sauces labeled “All Natural” in large lettering on the bottles.  Tragically, these delicious condiments contained caramel coloring.  And as sure as the sun does rise, ACH received a Demand for Relief pursuant to Massachusetts General Law, Chapter 93A §9(3) from the plaintiff’s attorney purporting to represent a consumer class.  ACH responded with a $75 check (statutory damages, trebled) and a letter that included the statement, in the Court’s words, “[T]hat ‘ACH is willing to offer’ a refund, and characterized the check as ‘the extent of [ACH’s] willingness to compromise under the circumstances.’”  Id. at 4.  Importantly, the Court noted that “the letter imposed no conditions or restrictions on the check it enclosed, either in the letter or on the face of the check.”  Id.

The correspondence battle continued between the attorneys, with the plaintiff’s attorney objecting to the tender because it didn’t provide class-wide relief and ACH asserting that the unaccepted $75 payment mooted the case.  Id.  The plaintiff then filed suit.  In a final flourish, defense counsel sent another $75 check — again without condition or restriction — that was, of course, rejected.  It is of some significance that the putative class action did not seek injunctive relief because ACH had stopped labeling its products as “All Natural” eight months prior to receiving the plaintiff’s Demand.  Id. at 5.  The case was thus limited to compensating the putative class and attorney fees.

The barbecue brouhaha came to an abrupt conclusion when the Court granted ACH’s Motion to Dismiss the case as moot.  The Court addressed Campbell-Ewald head on, distinguishing it on the basis that a Rule 68 offer of judgment is a settlement offer while ACH’s twice tender of $75 was a no-strings attached payment.  As the Court found, “This distinction makes all the difference.”  Id. at 6 – 7.  The trio of 19th century tax cases that temporarily vexed the majority in Campbell-Ewald made a brief but important appearance in the Court’s opinion – they were the basis (along with the Supreme Court’s intentionally narrow ruling in Campbell-Ewald) for the Court to hold that “Demmler’s refusal to accept the $75 is immaterial.”    “While ACH did not actually deposit the $75 check in an account payable to Demmler [as did the railroads in the 19th century tax cases] . . . ACH delivered the check to Demmler (or, more precisely, his attorney), entitling him to full possession of the $75.”  Footnote 5 of the Court’s opinion distills Judge Sorokin’s thinking on the issue:  “A defendant might condition, for example, satisfaction on the Plaintiff’s agreement to avoid litigation over whether the claim has become moot.  In such a circumstance, the offer, like a Rule 68 offer, does not render the case moot, because that Plaintiff’s is remedied only if it agrees to the mootness determination.” Id. at 8.

After concluding that ACH’s rejected payment to the plaintiff mooted his individual claim, the Court addressed the question of whether ACH’s payment was a pickoff play that might invoke the legally-questionable “inherently transitory” exception to the general rule divined from Justice Kagan’s dissent in Genesis Healthcarei.e., a claim that is “capable of repetition, yet evading review” may not be mooted by the termination (or, in this case, satisfaction) of the putative class representative’s claim.  Without conceding that the First Circuit ascribed to the inherently transitory exception, the Court interpreted First Circuit precedent to require that — if such an exception exists — it does so only when there is some pattern or practice of defense lawyers (either individually or as a group with respect to a specific class of claims) picking off plaintiffs.  Therefore, while it may be the practice of defense lawyers to pickoff plaintiffs in TCPA cases, “Demmler has offered no evidence that any ch. 93A defendants, let alone ACH specifically, has a pattern of engaging in such conduct.” Id. at 13 – 14.

What are the lessons of Demmler?  First and foremost, that Campbell-Ewald has not resolved the issue of whether paying or offering to pay a plaintiff the full value of her claim deprives her of standing as a class representative.  And second, if you’re going to try it, make the payment unconditional and don’t do it a lot.

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Never Surrender – The Ninth Circuit’s Follow-Up to the Campbell-Ewald Anti-Pickoff Rule

** Insurer Fails to Convince Circuit Court that Escrow Payment Moots TCPA Case **                                                                                                                                                                                                                                                                                

Definition of the word escrow from a law text book

As we’ve posted about recently, in February 2016 the U.S. Supreme Court in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663, 193 L. Ed. 2d 571 (2016) resolved a circuit split over whether a defendant can “pick off” the lead plaintiff in a putative class action lawsuit via a Rule 68 offer of judgment that affords the plaintiff with complete relief prior to class certification.  The majority, relying on “first-year law student” contract law, held that if the plaintiff doesn’t accept the offer of judgment – “however good the terms” (i.e., total surrender) — the defendant’s offer is a “legal nullity” and, therefore, the case or controversy remains.  In reaching its decision, the Court felt compelled to distinguish “a trio of 19th-century railroad tax cases” (as if the fact that they were 19th-century railroad tax cases wasn’t enough) where the defendants actually paid the amounts alleged by the plaintiffs to be owed.  The Court did so thusly: “In all three cases, the railroad’s payments had fully satisfied the asserted tax claims, and so extinguished them.” 136 S. Ct. at 671.  This distinction, however, opened a small can of worms.  What if the defendant deposited the full amount of the plaintiff’s claim into an account payable to the plaintiff, and the court then entered judgment in that amount?  While the majority raised this hypothetical, they declined to answer it.

Acting with lightning speed, Allstate Insurance Company — embroiled in a putative TCPA class action in the Northern District of California — deposited $20,000 in a bank escrow account “pending entry of a final District Court order or judgment directing the escrow agent to pay the tendered funds to [the lead plaintiff], requiring Allstate to stop sending non-emergency telephone calls and short message service messages to [the plaintiff] in the future and dismissing this action as moot.”  Chen v. Allstate Ins. Co., No. 13-16816, 2016 WL 1425869, at *1 (9th Cir. Apr. 12, 2016).  Unfortunately for Allstate, the matter was already on appeal to the Ninth Circuit on the Rule 68 offer of judgment issue subsequently decided by the Supreme Court, so the district court wasn’t given first crack at deciding whether to enter Allstate’s proposed judgment.

On April 12, 2016 – before the ink was dry on the Campbell-Ewald opinion – the Ninth Circuit slammed shut the mootness door the Supreme Court left open.  The court first observed that Allstate had not met the Supreme Court’s requirement that the plaintiff actually receive the complete relief offered – Allstate’s money was in escrow and it could get it back.  2016 WL 1425869, at *7.  Allstate rejoined that all the court of appeals needed to do was order the district court to enter its proposed order and the money would be out of its hands for all eternity.  The Ninth Circuit said no.  If the plaintiff doesn’t want complete relief, he shouldn’t be forced to accept it – as long as he’s not bullheaded or crazy.  And “[a] named plaintiff exhibits neither obstinacy nor madness by declining an offer of judgment on individual claims in order to pursue relief on behalf of members of a class.”  2016 WL 1425869, at *9.  While the Ninth Circuit distinguished Allstate’s relationship to its money from the situation where a defendant deposited the money in the court registry and could not reclaim it, the distinction is without a difference because Federal Rule of Civil Procedure 67 requires notice to the plaintiff and a court order permitting the deposit.

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No Standing for NFL Superbowl Ticket Class Action Representatives

the beginning of a football match

 

** Third Circuit Affirms That Purported Class Representative Super Bowl Ticket Buyers Do Not Have Standing To Sue For NFL Ticket Practices That “Forced” Them to Buy Scalped Secondary Market Tickets **                                                                                                                                                                                                                                                        In 2014 a purported class action representatives purchased tickets to the 2014 Super Bowl held at the Meadowlands Stadium in New Jersey – at a price of $2,000.00 each (even though their face value was around $800.00).  Finkelman v. Nat’l Football League, No. 15-1435, 2016 WL 158507, at *1 (3d Cir. Jan. 14, 2016).  Plaintiff alleged that the NFL distributed 99% of tickets to teams, sponsors and the media and that the shortage of general public tickets caused the inflated price.  Id.  He further alleged that New Jersey’s Consumer Fraud Act (N.J. Stat. Ann § 56.8-35.1) in particular the provisions that make it unlawful to withhold more than 5% of tickets to an event from the general public – was violated by the NFL’s ticket allocation practices.  Id.  Plaintiff sued on the theory that this alleged violation of New Jersey law caused him to miss out on a face value ticket and thus forced him onto the inflated secondary market – with the difference between the two prices being his “injury.”  Id.  On the NFL’s motion to dismiss, however, the District Court agreed that there was no Article III standing.  Id.  The Third Circuit affirmed – outlining that Article III requires a fairly traceable injury – i.e. “but for” causation – and the court could not say that but for the NFL’s restrictions Plaintiff still would have been able to buy a face value ticket.  Indeed, the court said that “demand for Super Bowl tickets so far exceed

s supply that [Plaintiff’s] probability of obtaining a face-price ticket in a public sale would have been effectively nil regardless of the NFL’s ticketing practices.”  Id. at *8.  Further, the court disagreed that it could determine whether the high market price was caused by the NFL – “[t]o state the problem succinctly: we have no way of knowing whether the NFL’s withholding of tickets would have had the effect of increasing or decreasing prices on the secondary market . . . [w]e can only speculate—and speculation is not enough to sustain Article III standing.”  Id. at 10.  A second purported class representative did not buy a ticket to the Super Bowl – his allegation was that he was dissuaded from doing so because of the high resale price – and that lost opportunity was his “injury”.  Id. at *6.  This position on standing was treated with greater incredulity by the Third Circuit – the court concluding that Plaintiff’s lack of standing is not a hard call: “[i]f the Court were to credit [plaintiff’s] concept of injury, everyone who contemplated buying a Super Bowl ticket but decided against it would have standing to bring a claim under the Ticket Law. Article III is simply not that expansive.”  Id.  With no standing – to either purported class representative – the Third Circuit affirmed the dismissal.

 

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Supreme Court Alert

No standing street sign in New York.

** Supreme Court Holds in TCPA Case That a Rule 68 Offer or Relief Does Not Moot Class Claims Under Rule 23 ** . . .                                                                                                               

In the case of Campbell-Ewald Co. v. Gomez (No. 14-857), the Supreme Court issued a writ of certiorari to  the Ninth Circuit to resolve a circuit split on the issue of whether a Rule 68 offer of judgment for complete relief to a putative class representative moots his claim thereby preventing him from serving as a class representative under Rule 23See previous post.  The underlying case concerns unsolicited text messages from an advertising company prohibited by the Telephone Consumer Protection Act (TCPA) 47 U.S.C. § 227.  The defendant company offered Mr. Gomez the statutory TCPA remedy (trebled) and even agreed to a stipulated injunction prohibiting it from further violations the TCPA.   Gomez rejected the offer.  The defendant argued that its offer, which provided complete relief, mooted Gomez’s claim and he therefore did not have Article III standing.  The Supreme Court ruled on January 20, 2016 (in a 6-3 decision) that an unaccepted settlement offer does not moot a plaintiff’s case.  Campbell-Ewald Co. v. Gomez, 577 U. S. ____ (2016).  The conservative-leaning court in recent years has issued rulings that put restrictions on class action lawsuits but did not continue that trend in this case.  Justice Ginsburg delivered the opinion of the Court joined by Justices Kennedy, Breyer, Sotomayor, and Kagan with Justice Thomas concurring.  Chief Justice Roberts filed a dissenting opinion, in which Justices Scalia and Alito joined.  Notably, the ruling is limited in scope, with Justice Ginsburg  pointing out that the Court was not deciding how a case would be resolved if the settlement funds had been deposited into an account payable to the plaintiff and the trial court then entered judgment in that amount.  In reaching its determination that a rejected settlement offer does not moot a complaint, the majority pointed to Rule 68’s sanction – that the offeree must pay the offeror’s costs after the offer was made.  This may turn out to be a silver lining for defendants in certain types of class actions, such as consumer cases, where it is unlikely that the class representative will obtain the full amount of his claim if the case were to proceed to trial.  Costs in class action litigation are no small matter.

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The Injunction Conundrum

** Courts Are Inconsistently Grappling With the Question of Whether a Plaintiff Has Standing for an Injunction Prohibiting Misleading Behavior if They are Aware of the Behavior ** . . .                                                                                                                               

An interesting catch-22 exists with respect to injunctive relief in purported consumer class actions in federal court.  If a plaintiff discovers misleading conduct (for example a mislabeled product), her basis for an injunction would be – relief from the company misleading her again!  But if the plaintiff is aware of the false advertising, is it plausible that she would be misled in future?  To quote the old chestnut – “fool me once, shame on you – fool me twice, shame on me.”  By affirmatively pleading the elements of the misleading conduct, doesn’t a plaintiff inherently disqualify  herself from the standing required to seek an injunction in federal court?  This is the argument that won the day in the recent Yakult case in the Central District of California.  Plaintiff in that case, Nicolas Torrent, sued on the allegation that Yakult’s probiotic beverages that claim to have beneficial cultures which “balance [the] digestive system” are misleading because (according to Plaintiff) there is no credible scientific evidence that the probiotics do what Yakult says they do.  Torrent v Yakult U.S.A. Inc., No 8:15-cv-00124-CJC-JCG (C.D. Cal Jan. 27, 2015) (“By definition, healthy people already have a stable digestive health balance of trillions of intestinal bacteria. Yakult, contrary to what defendant advertises, cannot make a healthy person more healthy in terms of digestive health or otherwise.”)  Plaintiff claimed that Yakult violated California’s Unfair Competition Law (UCL) (Cal. Bus. & Prof. Code § 17200 et seq.) and that he was entitled to restitution and injunctive relief.  Id. at ECF No. 32, Second Amended Compl. ¶¶ 14 – 16.  Curiously, though, by the time of the motion for class certification, Plaintiff dropped his demand for restitution or money damages and only asserted a claim for injunctive relief.  Id. at ECF No. 41, Pl.’s Mot. for Class Cert. ¶ 4.  With only the injunction at issue, the lawsuit became a test case of sorts.  In answering the question, the district court was clear that plaintiff did not have standing as there was “[in]sufficient likelihood that [he] will be wronged in a similar way.”  Id. at ECF No. 52, Order (January 5, 2016) citing Los Angeles v. Lyons, 461 U.S. 95, 111 (1983); O’Shea v. Littleton, 414 U.S. 488, 495-96 (1974) (“Past exposure to illegal conduct does not in itself show a present case or controversy regarding injunctive relief … if unaccompanied by any continuing, present adverse effects.”)  The court noted the split within the Central District of California on the standing issue (see In re ConAgra, 302 F.R.D. 537, 573 – 76 (C.D. Cal. Aug. 1, 2014) (collecting cases)) and acknowledged the counter-argument that to deny injunctive relief would upset the enforcement of the UCL – but ultimately decided that it was not the courts’ place to carve out Article III standing exceptions for consumers.  Order at 6 – 8.  On that basis, Rule 23 class certification was denied.  Highlighting the split on this standing issue, a district court in Illinois just a few days later held the opposite.  Leiner v. Johnson & Johnson Consumer Co., Inc., No. 15-c-5876, (N.D. Ill. Jan. 12, 2016).  In this case. plaintiff claimed that Johnson & Johnson violated the Illinois Consumer Fraud and Deceptive Business Practices Act by labeling and advertising two “Baby Bedtime Bath products” as “clinically proven” to help babies sleep better – when it  allegedly knew the products hadn’t been clinically proven to have that effect. Plaintiff sought to represent a class of Illinois purchasers.  The Illinois court aligned itself with courts that have held that consumers don’t forfeit standing by knowing the basis of their claims observing that, without an exception, consumers could never avail themselves of injunctive relief.

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All Eyes on the Supreme Court for Consumer Class Action Lawyers

supreme-court

**The Supreme Court’s 2015 Term Opens With a Series of Cases Important for Consumer Class Action Defendants: Campbell-Ewald v Gomez, Spokeo v Robins and Tyson Foods v Bouaphakeo** . . .                                                                                                                                                                                                                                                          

In recent years, the Supreme Court has handed down victories to the class action defense bar.  In Wal-Mart v. Dukes, 564 U.S. ___ (2011), the Court reversed a California district court certification of a gender discrimination class – raising the bar on commonality questions for plaintiffs.  In Comcast v. Behrend, 569 U.S. __ (2013), the Court again reversed a district court certification – heightening scrutiny on plaintiffs’ methods for alleging class wide damages.  As the 2015 term opens this week, defense counsel around the country eye further potential victories in three key cases.

The first case up is Campbell-Ewald Co. v. Gomez (No. 14-857) on appeal from the Ninth Circuit where the Court will deal with two frequently litigated questions as yet unresolved by the circuits.  Namely, does a Rule 68 offer of complete relief to a plaintiff moot his or her claim and, if so, does it also moot the resulting class claim under Rule 23?  The underlying case concerns unsolicited text messages prohibited by the Telephone Consumer Protection Act (TCPA) 47 U.S.C. § 227.  The TCPA contains a statutory remedy and defendants argued that, to the extent they had offered Plaintiff  the full amount of the statutory remedy (per Rule 68) as relief,  the plaintiff suffered no cognizable Article III damages.  Thus, defendants argue that because the plaintiff suffered no injury,  he has no right to represent a class of people who may have been damaged.  From a practical perspective, the case addresses the question:  Can a defendant “pick off” would be class representatives through Rule 68 offers of judgment thereby destroying the foundation of the class action claim?  As anyone who has defended corporations receiving required pre-litigation notices under consumer protection statutes has observed, plaintiff law firms have become increasingly reticent to disclose the identity of their clients at the notice stage in order to forestall Rule 68 offers of judgment until the putative class action lawsuit has been filed.

The second case is Spokeo Inc. v. Robins, (No. 13-1339) also on appeal from the Ninth Circuit.  This case involves a related question of Article III standing for class representatives.  Spokeo concerns the  Fair Credit Reporting Act, 15 U.S.C. § 1681 (FCRA), which requires consumer credit agencies to take reasonable steps to ensure the accuracy of their published reports.  Plaintiff in a putative class action argued in the Central District of California that results for his name on the Spokeo website contained inaccurate information about plaintiff’s education and professional experience – and that this inaccuracy harmed his employment prospects.   The District Court dismissed, finding that the alleged damages – based on hypothetical impact on his employment – were too speculative to satisfy Article III standing.  The Ninth Circuit reversed, holding that the statutory violation implicitly creates a private cause of action to enforce and that this violation of a statutory right was an “injury” sufficient to confer standing.  The Ninth Circuit Spokeo decision was the latest in a circuit split – on one side the Second and Fourth circuits, which have rejected standing arguments from plaintiffs who alleged bare statutory violations that did not result in any actual harm (Kendall v. Emps. Ret. Plan of Avon Prods., 561 F.3d 112 (2d Cir. 2009); David v. Alphin, 704 F.3d 327 (4th Cir. 2013)); and the Ninth Circuit joining the Sixth and Seventh Circuits, which have come out on the side of recognizing “damages” for private plaintiffs with respect to minor statutory violations.  Beaudry v. TeleCheck Servs, 579 F.3d 702 (6th Cir. 2009); Murray v. GMAC Mortg. Corp., 434 F.3d 948 (7th Cir, 2006).  If the Supreme Court recognizes damages irrespective of actual harm, the impact could be felt more broadly than FCRA – there are numerous similar statutory schemes, including truth-in-lending legislation (15 U.S.C. § 1640(a)); debt collection statutes, (15 U.S.C. § 1692k(a)); as well as various privacy laws (18 U.S.C. § 2710(c)(1); 47 U.S.C. § 551(f)(1)-(2)).

The third case is Tyson Foods v. Bouaphakeo (No. 14-1146) – a challenge to a $5.8 million wage-and-hour judgment in favor of a class of employees at Tyson’s meat packing plant in Iowa.  Tyson’s petition seeks a reversal of the district court and Eight Circuit’s decision to permit liability and damages verdicts to be based – not on an individual analysis of each purported class member – but by extrapolating a statistical average across the board based on the discrepancies observed in a sample class of workers’ hours and pay.  Tyson further appeals on the lack of ascertainability of the class itself – that is, that the certified group (even according to the Plaintiffs’ own expert) included a significant number of people who weren’t underpaid at all.  If successful, the Tyson case will build upon the Court’s disapproval in Wal-Mart of “trial by formula” and provide a significant bulwark against plaintiffs in putative class actions glossing over differences amongst their claimed class in order to achieve certification.

Not surprisingly, this trifecta of cases has generated a significant amount of interest, amicus briefing, and optimistic thinking from the defense bar that momentum is on its side.  The implications are not insubstantial if defendants prevail:  the type of de facto strict liability for statutory compliance created by such class actions will diminish, there will be new avenues to derail cases pre-certification, and the barrier of ascertainable and reliable class wide damages that plaintiff s must hurdle will be reinforced.

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