Articles from January 2012

Following the U.S. Supreme Court’s decision in Dukes v. Wal-Mart, the federal circuit courts have re-defined class actions in far less restrictive terms than many had predicted.  Recently, the Seventh Circuit approved the use of economic and statistical evidence to estimate the impact of defendant Northshore University HealthSystem’s anticompetitive conduct on putative class members.  See Messner v. Northshore University HealthSystem, No. 10-2514 (7th Cir. Jan. 13, 2012) (order reversing denial of class certification) (available here).

In Messner, the plaintiffs sought certification of a class of patients and third-party payors who were purportedly charged inflated prices for health care by Northshore.  Slip op. at 2.  The Federal Trade Commission (FTC) previously found that the company had violated federal antitrust law.  Id.  The district court denied plaintiffs’ motion for certification, reasoning that their expert’s methodology could not show uniform price increases across the proposed class, and, consequently, the predominance standard could not be satisfied.  See Slip op. at 26-29.

The Seventh Circuit granted an interlocutory appeal pursuant to Federal Rule 23(f) and concluded that the district court abused its discretion by requiring an impossible degree of commonality.  Slip op. at 3.  The panel noted that “it is important not to let a quest for perfect evidence become the enemy of good evidence.”  Id.  The panel also rejected the district court’s predominance analysis, concluding that its “approach would come very close to requiring common proof of damages for class members, which is not required” at the time of certification.  Slip op at 28. 

The 7th Circuit concluded that the plaintiffs’ proffered expert analysis of post-merger price increases was sufficient to show some common antitrust injury to putative class members.  Slip op. at 26-27.  Notably, the economic and statistical methods used by plaintiffs were also used by the FTC.  Slip op. at 2.

Going forward, Messner may prove useful to plaintiffs in consumer class actions where it is alleged that consumers paid more for an item than they would have, had they been provided with full, accurate information. 

The approval of a $90 million settlement late last year between investors and the embattled M.F. Global company (see Rubin v. MF Global, No. 1:08-cv-02233 (S.D. N.Y. Nov. 18, 2011) (final order and judgment)) appears to have been only the beginning of litigation aimed at the bankrupt derivatives broker.  Last week, farmers representing as many as 38,000 putative class members filed a lawsuit against MF Global and others, including the brokerage house J.P. Morgan, and auditors PricewaterhouseCoopers.  The plaintiffs allege that their accounts were among those raided by M.F. Global in an effort to conceal its massive losses.  See Complaint, Klinker v. J.P. Morgan Chase & Co., No. 9:12-cv-00005 (D. Mont. Jan. 9, 2012) (available here).

The contracts between the putative class members and M.F. Global provided that customer funds would not be commingled with the firm’s monies.  Id. at ¶¶ 8-13.  However, the plaintiffs allege that MF Global lost huge sums in bad investments on European government bonds, and tried to cover its losses by stealing from segregated customer accounts.  Id. at ¶¶ 80-85.  MF Global then purchased additional, distressed European assets with clients’ money.  Id. at ¶ 53.

The Klinker matter is expected to receive considerable media coverage in part because the plaintiffs named MF Globale’s former CEO, John Corzine, as a defendant.  Id. at ¶¶ 26, 37.  Mr. Corzine served as a United States Senator from New Jersey from 2001 to 2006.

In a victory for consumers, California’s Third Appellate District has reversed a trial court’s ruling that granted judgment on the pleadings in favor of the defendants, personal computer manufacturers eMachines and Gateway (collectively, “eMachines”).  See Collins v. eMachines, No. C066092, 5-6 (Cal. Ct. App. Nov. 28, 2011) (available here).  The ruling affirmed that “injury in fact” can be satisfied by alleging as damages the difference between the actual purchase price and the fair market value of a defective product.  Slip op. at 4.  Additionally, the ruling importantly distinguished product defect cases in which warranties are implicated.  See slip op. at 9-12.

The lawsuit arose over allegations that the chip responsible for writing and reading data on eMachines’ floppy disc drives malfunctioned, resulting in lost data and files.  Slip op. at 3.  The plaintiffs allege that the disc drives did not wear out from normal use, but rather were defective at the time of purchase.  Slip op. at 5.  Because the defect existed at the time of purchase, the appellate court rejected eMachines’ claim that the plaintiffs were attempting an “end-run” around warranty laws.  Slip op. at 11.  In contrast to automobile cases in which a defect only manifested after an express warranty period and was therefore not actionable, in this case the plaintiffs experienced problems with their computers both before and after the warranty’s expiration.  Slip op. at 9-12 (distinguishing Daugherty v. Amer. Honda Motor Co., 144 Cal. App. 4th 824 (2006) and Bardin v. DaimlerChrysler Corp., 136 Cal. App. 4th 1255 (2006)).    

The Collins plaintiffs are now expected to proceed with their product defect claims against eMachines principally under California’s Consumer Legal Remedies Act (CLRA) and Unfair Competition Law (UCL).

Embracing a narrow interpretation of the U.S. Supreme Court’s decision in Concepcion, the National Labor Relations Board (NLRB) recently held that a class action waiver was unenforceable under the National Labor Relations Act (NLRA).  D.R. Horton, 357 NLRB No. 184 (Jan. 3 2012) (available here).  At issue was D.R. Horton’s practice of requiring employees to sign an arbitration agreement and class action waiver as a condition of their continued employment.  Id. at 1.  The NLRB held that an agreement proscribing class and representative actions violates section 7 of the NLRA, which gives employees “the right ‘to engage in . . . concerted activities for the purpose of collective bargaining or other mutual aid or protection . . . .’”  Id. at 2, quoting 29 U.S.C. §157.   

In what may be the decision’s most significant divergence from Concepcion, the NLRB held that there was no conflict between the NLRA and the Federal Arbitration Act (FAA).  See id. at 7-13.  The FAA protects the right of parties to arbitrate statutory claims, provided that “a party does not forego the substantive rights provided by the statute.”  Id. at 9.  Because the NLRA provides a right to engage in concerted activity, any waiver of joint, class, or collective actions may not be enforced.  Id. at 9. 

The decision also limited Concepcion to the facts at issue in that case.  The NLRB recognized that the Supreme Court’s holding was influenced by a desire to maximize the efficiencies of informal arbitration proceedings arising from consumer contracts covering thousands of potential claimants.  Id. at 11.  In contrast to the purported logistical difficulties of arbitrating consumer claims, the NLRB emphasized that arbitration of employment class actions would be less cumbersome and more efficient, because employment claims typically involve relatively smaller classes, which are often further divided into subclasses.  Id. at 11-12.  Other employment class actions are likely to benefit from similar reasoning when confronted with Concepcion.