Articles from October 2012

In re Checking Account Overdraft Litigation: Wells Fargo Loses Motion to Compel Arbitration

While the other defendants in the massive In re Checking Account Overdraft Litigation class action opted to settle, Wells Fargo instead gambled that it could force the plaintiffs into arbitration, in an attempt to avoid the massive payouts made by the other banks. So far, that tactic has not worked out for Wells Fargo. Now, the bank is facing the prospect of paying a nine-figure settlement, as the Eleventh Circuit has upheld the trial court’s denial of Wells Fargo’s motion to compel arbitration. See Garcia v. Wachovia Corp., ___ F.3d ___, (11th Cir. Oct. 26, 2012) (available here). See also In re Checking Account Overdraft Litig., No. 09-2036 (S.D. Fla. filed June 10, 2009) (Bank of America Notice of Settlement; U.S. Bank Joint Notice of Settlement).

The Court of Appeals affirmed the district court’s holding in all respects, agreeing that Wells Fargo acted contrary to an intention to arbitrate and that it would not have been futile for Wells Fargo to have moved to compel arbitration.  Wells Fargo’s now-dissolved subsidiary, Wachovia Bank, was also rebuffed in its attempt to compel arbitration, with the district court finding that Wachovia had waived its right to arbitrate.

Wells Fargo was given two opportunities by the district court to file a motion to compel arbitration, in November 2009 and April 2010, but declined to do so. Garcia at 4-5. “Wells Fargo even told the district court that . . . it ‘did not move for an order compelling arbitration . . . nor does it intend to seek arbitration of [plaintiffs’] claims in the future.’” Id. at 5. However, like many similarly situated defendants, Wells Fargo saw an opportunity with the Supreme Court’s issuance of AT&T v. Concepcion, and just two days later filed a motion to dismiss the five putative class actions in favor of arbitration or, in the alternative, to stay the proceedings pending arbitration. Id. at 5-6.

Wells Fargo argued that it did not waive its right to compel arbitration because, prior to Concepcion, a motion to compel arbitration would have been futile, since state laws made it impossible to enforce agreements to arbitrate on an individual (rather than classwide) basis. Id. at 6. However, the court ruled that such a motion would not have been futile, since Wells Fargo had a colorable argument: that the Federal Arbitration Act preempted state laws that barred enforcement of the arbitration agreements. Id. at 12-13. The court noted that the Concepcion decision itself demonstrates that such an argument could have been successful. Id.

Whether this ruling will lead to a settlement benefitting consumers remains to be seen, but the Wells Fargo plaintiffs appear to have scored a major victory.

Aleman v. AirTouch: California Appellate Court Clarifies Death Knell Doctrine, Class Certification Rules

California’s Second Appellate District has clarified the proper application of the “death knell” doctrine to denials of class certification, and in the process has carved out an exception to the general rule proscribing successive class certification motions. See Aleman v. AirTouch Cellular, No. B231142, ___ Cal. App. 4th ___ (Sept. 20, 2012) (available here). The unanimous opinion, certified for publication, thus provides important guidance for practitioners navigating California’s rules pertaining to appealing denials of class certification and determining when multiple class certification motions are, and are not, permissible in California trial courts. In particular, Aleman is clear in its holding that, where class certification is denied without prejudice, the death-knell doctrine may not be invoked to allow an appeal. Aleman thus also underscores that, notwithstanding the general rule that a plaintiff may only bring one class certification motion in a California trial court, it is a permissible exercise of a trial court’s discretion to deny certification without prejudice and subsequently allow successive class certification motions.

In the underlying wage and hour class action, employees who worked at AirTouch stores and mall kiosks alleged violations concerning both split shift and reporting time pay. See slip op. at 2-3. The plaintiffs moved for class certification while issues bearing on the split shift and reporting time claims were on appeal. See slip op. at 6-7. The trial court denied the class certification motion, but did so “without prejudice” to the plaintiffs bringing a subsequent class certification motion, after the disposition of the pending appeal. Id. Additionally, the trial court provided express guidance as to the first class certification motion’s weaknesses, noting that the plaintiffs would have to reconcile potential intra-class conflicts to satisfy the adequacy requirement. See slip op. at 7.

Rather than awaiting the resolution of the appeal concerning the split shift and reporting time issues, the plaintiffs appealed the trial court’s denial of class certification, thereby giving rise to the central legal question in Aleman: Was the plaintiffs’ appeal a proper invocation of the “death-knell” doctrine? See slip op. at 29-31. The Aleman panel answered in the negative, formulating a bright-line rule that where class certification is denied without prejudice, an interlocutory appeal is not appropriate: “The death knell has not yet sounded. The remaining plaintiffs’ ability to pursue class certification has not been terminated. Because the denial order was without prejudice, the remaining plaintiffs are free to move for class certification again.” Slip op. at 30.

Therefore, it is critical for practitioners, when a California state trial court judge denies class certification “without prejudice,” to establish on the record (as in Aleman) that the trial court will in fact exercise its authority to hear a second class certification motion. See slip op. at 29 (“The court made clear that plaintiffs would be able to bring a new motion.”). A similar record in which the trial court’s intentions are unambiguous coupled with citation to Aleman should suffice to overcome a defendant’s argument based on the abundant authority holding that, in California state court, plaintiffs may move only once for class certification. See, e.g., Stephen v. Enterprise Rent-A-Car, 235 Cal. App. 3d 806 (1991) (explaining that California’s strict one-certification-motion rule necessitates applying the death-knell doctrine).

Bayer Multidistrict Litigation: $15 Million Settlement in Consumer Class Action

Pharmaceutical giant Bayer Corporation has agreed to settle a consolidated class action involving its allegedly misleading marketing of particular varieties of aspirin. The litigation has been ongoing since 2008, and plaintiffs’ position received a substantial boost when the defendant’s motion to dismiss was denied in March 2010. See In re Bayer Corp. Combination Aspirin Prods. Mktg. & Sales Practices Litig., 701 F. Supp. 2d 356 (E.D.N.Y. 2010) (order denying motion to dismiss) (available here).

The plaintiffs allege that Bayer Aspirin with Heart Advantage and Bayer Women’s Low Dose Aspirin + Calcium were sold without FDA approval and without proof that the medications were safe and effective as advertised. Specifically, the plaintiffs contend that consumers were overcharged as a result of their reliance on representations on product packaging touting benefits to cardiac health that had not been properly established.

The court preliminarily approved the proposed settlement in an order dated July 23, 2012. Pending final court approval, plaintiffs will benefit from a $15 million settlement fund, out of which they will receive reimbursements of between $4 and $6 for each purchase of the at-issue products. The order granting preliminary approval is available here.

LivingSocial Agrees to $4.5 Million Settlement of Consumer Class Action

LivingSocial, a website which sells discount vouchers on items ranging from yoga classes to racecar driving lessons, has agreed to settle a class action lawsuit alleging that the company violated consumer-protection laws that mandate a minimum five-year redemption period for gift certificates. See In re LivingSocial Mktg. & Sales Practices Litig., No. 11-0472 (D.D.C.). The Joint Motion for Preliminary Approval of Settlement is available here.

LivingSocial issues its vouchers in the form of gift certificates marketed as “group coupons.” The plaintiffs allege that LivingSocial attempted to circumvent consumer-protection laws by misleading purchasers into believing that they must redeem the gift certificates prior to the printed expiration dates (often just weeks from the date of purchase) or else lose the entire value. This was allegedly done in order to accelerate the redemption of gift certificates and to induce additional gift certificate purchases.

The proposed settlement requires LivingSocial to modify its practices so that the vouchers it issues will not expire for at least five years from the date of purchase, consistent with the federal Credit Card Accountability Responsibility and Disclosure Act of 2009. The Credit CARD Act mandates that LivingSocial and similar companies, such as the popular Groupon site, abide by the longer of the five-year limit or the limit set by state law.

The multi-district litigation comprises five class actions filed by consumers in California, Washington, Florida, and the District of Columbia, which were consolidated in the United States District Court for the District of Columbia. The proposed settlement awaits judicial approval as the action enters the notice phase, pursuant to Federal Rule 23.