Articles from June 2012

A district court judge in the Southern District of New York has certified a class of benefit plans alleging that they lost money when fiduciaries placed investments with the now-incarcerated Bernard Madoff. See In re Beacon Assocs. Litig., No. 09-CV-00777 (S.D.N.Y. May 3, 2012) (order on motion to certify class) (available here).  Plaintiffs allege that Ivy Asset Management (“Ivy”) breached its fiduciary duty to the plans principally by failing to perform due diligence on Bernard L. Madoff Investment Securities LLC (“Madoff Securities”), particularly in light of the extraordinary rates of return claimed by Madoff, well above the historical returns for even the most successful investors.  See Order at 2-4.  Moreover, plaintiffs allege that J.P. Jeanneret Associates, Inc. (“JPJA”), was negligent in its lax supervision of Ivy’s work.  See id.

On the pivotal commonality determination, Judge Leonard B. Sand found questions common to the entire class, thus satisfying this prerequisite.  Id. at 12.  He determined that (1) whether Ivy was acting as a fiduciary when it invested benefit plan assets in Madoff Securities, and (2) whether Ivy breached the attendant duties to the plans when it invested despite the implausible rates of return claimed by Madoff, were among the common questions capable of determining liability.  Id. at 9-12.

While the numerosity element is rarely seriously contested, defendants raised issues in this case that might have precluded certification; the plaintiff class consists of only 29 plans, at the lower end of the federal numerosity threshold.  See id. at 6-9.  However, Judge Sand held that numerosity was to be assessed with reference to the plans’ roughly 100 trustees — easily satisfying the requirement — rather than the 29 plans.  Id.  Thus, despite agreeing with the defendant that the number of plans is pertinent, Judge Sand concluded that because the numerosity analysis focuses on whether joinder is practicable, and joinder of the 100 trustees would not be practicable, numerosity was satisfied.  Id.  Moreover, in dicta potentially useful to plaintiffs moving to certify small classes, the court also took issue with the defendant’s contention that 29 plans could not satisfy this prerequisite, stating that the geographic dispersal of the plans could in fact support numerosity.  See id. at 8.

Just as a conflict emerged within the California Court of Appeal as to the validity of California’s unconscionability doctrine following the U.S. Supreme Court’s AT&T Mobility v. Concepcion decision, a similar clash may be developing among California’s federal courts.  Northern District Judge Claudia Wilken has denied a defendant’s attempt to compel arbitration, chiefly on the ground that the at-issue arbitration agreement is unconscionable under California law.  See Trompeter v. Ally Financial Inc., No. 12-00392 (N.D. Cal. June 1, 2012) (order denying defendant’s motion to compel arbitration and motion for stay) (available here).

In Trompeter, Judge Wilken rejected the argument that the Federal Arbitration Act (FAA) preempted plaintiffs’ unconscionability claims and that the court therefore had no discretion to deny enforcement of the at-issue arbitration agreement.  Judge Wilken instead determined that “[m]ultiple elements render the agreement procedurally and substantively unconscionable,” and found the agreement to be void under California law.  Order at 17.  Judge Wilken specifically distinguished Kilgore v. KeyBank, National Ass’n, 673 F.3d 947 (9th Cir. 2012), in which the Ninth Circuit dismissed state public policy interests prohibiting the arbitration of particular types of claims and held that the FAA trumped such rationales.

Looking ahead to the probable review of this issue by the California Supreme Court, the Trompeter ruling gives encouragement to those who have advocated a narrow application of Concepcion, embodied most prominently in Brown v. Ralphs Grocery Co., 197 Cal. App. 4th 489 (2011).  By contrast, the recent Iskanian decision (expected to be taken up by the California Supreme Court) embraced an expansive reading of Concepcion. See Iskanian v. CLS Transp. Los Angeles, LLC, ___ Cal. App. 4th ___ (2012).

California’s Second Appellate District has affirmed a trial court’s order which interpreted AT&T Mobility v. Concepcion, compelled arbitration, and dismissed the claims of a certified class. This ruling has created a split that the California Supreme Court might ultimately have to resolve. See Iskanian v. CLS Transp. Los Angeles, LLC, ___ Cal. App. 4th ___ (2012), available here.

The Court of Appeal held that “the Concepcion decision conclusively invalidates the Gentry test [promulgated in Gentry v. Super. Ct., 42 Cal. 4th 443 (2007)].” Slip op at 8. In Concepcion, the U.S. Supreme Court expressly overruled the California Supreme Court decision in Discover Bank v. Super. Ct., a consumer class action in which the at-issue arbitration agreement had been stricken as unconscionable. Whether Concepcion also pertained to wage and hour class actions remained unclear, as it was Gentry that had articulated the unconscionability test applicable in the context of wage and hour claims. In holding Gentry overruled, Iskanian is in conflict with at least two other Court of Appeal decisions.

First, Brown v. Ralphs Grocery Co. (197 Cal. App. 4th 489 (2011)) held that claims for civil penalties brought pursuant to PAGA, the California Labor Code’s Private Attorneys General Act, are outside the ambit of Concepcion, and the California Supreme Court subsequently declined to review Brown, rendering the decision final. Yet the Iskanian court rejected this decision, the three-judge panel noting, “we disagree with the majority’s holding in Brown. We recognize that the PAGA serves to benefit the public and that private attorney general laws may be severely undercut by application of the FAA. But we believe that United States Supreme Court has spoken on the issue, and we are required to follow its binding authority.” Slip op. at 15.

Second, although the Second Appellate District held in Kinecta Alternative Financial Solutions, Inc. v. Super. Ct. (___ Cal. App. 4th ___ (2012)) that Gentry “appears to remain the binding law in California,” the Iskanian panel unequivocally states in its holding that Gentry was overruled by Concepcion. See slip op. at 8.

The Iskanian court also rejected the National Labor Relations Board’s decision in D.R. Horton (357 NLRB No. 184 (2012)), which held that a mandatory waiver of class claims imposed by an employer, requiring that individual arbitration be the sole means of resolving employment-related disputes, violated the National Labor Relations Act. See slip op. at 11-12.

A petition for review and spirited exchange of amicus briefs are expected.

Securities Class Action Services has released its annual list of the top 50 securities firms (the “SCAS 50”).  The top 10 firms for 2011 are as follows: 

1. Bernstein Litowitz Berger & Grossmann
2. Robbins Geller Rudman & Dowd
3. Labaton Sucharow
4. Kessler Topaz Meltzer & Check
5. Hagens Berman Sobol Shapiro
6. Grant & Eisenhofer
7. Cohen Milstein Sellers & Toll
8. Lovell Stewart Halebian Jacobson
9. Milberg
10. Wolf Haldenstein Adler Freeman & Herz

The full list is available here. The Bernstein Litowitz firm claimed the top spot with over $1.3 billion in total settlement proceeds from 13 settlements (the third-highest number overall), including a $208.5 million settlement with Washington Mutual. The firm’s average of nearly $106 million per settlement was one of only three per-settlement averages of $100 million or more, and is second only to Lovell Stewart’s nearly $119 million average (based on a single settlement with PIMCO). The three firms topping the SCAS 50 — Bernstein Litowitz, Robbins Geller and Labaton Sucharow — accounted for more than half of all securities settlements in 2011.