Articles from February 2016

A year and a half after it was sued for falsely claiming that its neckties were made in the USA, retailer Lands’ End has agreed to refund its California customers the full purchase price of the neckties as part of a class action settlement. Oxina v. Lands’ End, No. 14-cv-2577-MMA (S.D. Cal., complaint filed Oct. 29, 2014). See Plaintiff’s Motion for Preliminary Approval of Class Action Settlement (Feb. 12, 2016) here. In August 2014, Plaintiff Elaine Oxina purchased a “Kids To-Be-Tied Plaid Necktie” from the clothing retailer’s website. The plaintiff alleged that the website represented that the necktie was “Made in [the] USA,” but the tag on the necktie that Oxina received stated it was “Made in China.” Oxina sued Lands’ End for false advertising and violations of federal and state consumer protection laws.

Following eleven months of litigation on the pleadings alone, the parties agreed to settle Plaintiff Oxina’s claims in exchange for complete relief for the 38 California class members who purchased the neckties during the 4-year settlement period. Under the proposed settlement, Lands’ End will refund class members their purchase price, plus interest at the rate of ten percent per year from the date of purchase. The settlement also provides for $32,500 in attorneys’ fees and expenses.

Although the parties have agreed to settle, the plaintiff initially had lost the battle over the pleadings. Judge Michael Anello previously dismissed (without prejudice) Oxina’s originally pled false advertising claim on the ground that the allegedly false statement “Made in [the] USA” appeared on the website rather than on the necktie itself:

Section 17533.7 sets forth the following: It is unlawful for any person, firm, corporation or association to sell or offer for sale in this State any merchandise on which merchandise or on its container there appears the words “Made in U.S.A.,” “Made in America,” “U.S.A.,” or similar words when the merchandise or any article, unit, or part thereof, has been entirely or substantially made, manufactured, or produced outside of the United States. Plaintiff fails to state a claim under § 17533.7 because she fails to allege that the words “Made in U.S.A.,” or similar words, appeared on the Necktie itself, or on the Necktie’s container. . . . It is clear and unambiguous that the text of § 17533.7 only creates liability where the words “Made in U.S.A.,” or words to that effect, appear on the merchandise, or on the merchandise’s container. It does not create liability for a product that is misleadingly described on a website with the words “Made in U.S.A.” (internal citations and quotations omitted.)

Order Granting Defendant’s Motion to Dismiss, at 13 (available here). The court’s holding suggests that the drafters of Section 17533.7 did not specifically intend for the statute to apply to statements on a merchant’s website. While this cannot be denied, that is because Section 17533.7 was enacted in 1961. The statute’s silence on the issue of internet advertising therefore says nothing about the Legislature’s intent for it to apply to the Internet. Further, because Section 17533.7 applies to print catalogs (see O’Brien v. Camisasca Automotive Mfg., Inc., 73 Cal. Rptr. 3d 911 (2008)) and other forms of advertising, clearly the statute is not limited to statements on merchandise or containers. To rule otherwise is to vitiate the protections afforded by Section 17533.7 to California consumers, who, in greater numbers, purchase goods online rather than in stores. In short, the court’s holding on the necktie false advertising case is too restrictive.

The parties’ joint motion for preliminary approval of the class action settlement is scheduled to be heard by Judge Anello on March 21, 2016.

Authored by: 
Eduardo Santos, Associate
CAPSTONE LAW APC

It is no secret that class action practitioners are facing a more difficult time getting a settlement approved. Not only must settling parties face a proliferation of professional objectors seeking to muck things up, but courts are also under pressure to scrutinize class action settlements more closely. See, e.g., Allen v. Bedolla, 787 F.3d 1218, 1223 (9th Cir. 2015). One recent order illustrates the perils of the approval process. In Banks v. Nissan N. Am., No. 11-2022, 2015 WL 7710297 (N.D. Cal. Nov. 30, 2015) (slip op. available here), the court refused to grant final approval to a settlement to resolve claims for an alleged brake defect in certain Nissan and Infiniti vehicles. The court was particularly troubled by a cap on reimbursements that resulted in some class members recovering only a fraction of their out-of-pocket costs, with “more than one-third of the claimants . . . receiv[ing] a $60 (or less) reimbursement of a $1,000 repair bill.” Id. at 19. The court also criticized the plaintiffs for not detailing the risks of further litigation in their papers, id. at 16, and for a low claims rate. Id. at 18-19.

How to avoid the problem faced by the plaintiffs in Banks? First, if the benefits must be tailored to a narrow class, aim for substantial benefits to each individual class member. As part of a settlement to resolve automotive defect claims, plaintiffs often negotiate nonmonetary relief—a repair program or extended warranty coverage on the defect—to protect a broad group of current car owners. See, e.g., Eisen v. Porsche Cars N. Am., Inc., No. 11-09405, 2014 WL 439006, at *7 (C.D. Cal. Jan. 30, 2014) (approving settlement that included extended warranty coverage and reimbursement). That apparently was not feasible in Banks, as the class vehicles were too old to be covered under warranty. Instead, the Banks plaintiffs reasonably tried to direct the settlement’s benefits to those with out-of-pocket losses—a smaller class. But courts are much more likely to approve a reimbursement program if class members recover a substantial proportion of their out-of-pocket losses. See, e.g., Browne v. Am. Honda Motor Co., No. 09-06750, 2010 WL 9499072, at *12 (C.D. Cal. July 29, 2010) (approving reimbursement of 50 percent of the costs class members previously incurred replacing their brake pads). In stark contrast, the Banks plaintiffs obtained much less remuneration for out-of-pocket losses, failing to overcome the court’s concern that some class members would be recouping only $20 out of $1,000 repair bill under the settlement reimbursement formula.

Second, in seeking final approval, plaintiffs should thoroughly evaluate the risks of further litigation, and explain those risks in detail in their settlement approval motions. This is an important factor for settlement approval. See Churchill Village, LLC v. General Electric, 361 F.3d 566, 575 (9th Cir. 2004). As the Banks decision underscores, courts will not credit generic recitations of an action’s risks in considering whether the settlement is fair to the class. See Banks, at 16.

Third, when a settlement involves a claims process, plaintiffs should make sure as many class members as possible are aware of the settlement’s benefits. For instance, plaintiffs should ensure that updated addresses, such as those maintained in the National Change of Address database, are used for the class notice. Depending on the facts of the case, a plaintiff may also have the class administrator conduct a skip-trace for addresses with undeliverable notices, have reminder postcards sent out, have the administrator host a dedicated settlement website, and/or contact class members directly to educate them on the settlement’s benefits.

The factors detailed above are just a few of many that the court will analyze when evaluating the fairness of a proposed class action settlement; class action practitioners should analyze and weigh these carefully.

Authored By:
Ryan Wu, Senior Counsel
CAPSTONE LAW APC

Last month, in a 6-3 decision, the United States Supreme Court held that an unaccepted offer to settle a named plaintiff’s individual claim in a class action suit does not render the case moot. Campbell-Ewald Co. v. Gomez, No. 14-857 (U.S. Sup. Ct. Jan. 20, 2016) (slip op. available here). Justice Ruth Bader Ginsburg, writing for the majority, held that, in accordance with Rule 68 of the Federal Rules of Civil Procedure, “an unaccepted settlement offer has no force.” Slip op. at 1. The Court found that “like other unaccepted contract offers, it creates no lasting right or obligation.” Id. As such, adversity between the parties continues with the offer off the table and Article III standing persists.

In Campbell-Ewald, plaintiff Jose Gomez brought a nationwide class action alleging that the marketing firm Campbell-Ewald violated the Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227(b)(1)(A)(iii), by sending him unauthorized text messages under its contract with the United States Navy as part of a recruitment campaign. The plaintiff alleged he did not consent to any such text messages and sought treble statutory damages for willful and knowing violation of the TCPA and an injunction against Campbell-Ewald’s involvement in unsolicited messaging. Prior to the class certification deadline, Campbell-Ewald sought to settle the plaintiff’s individual claim by offering him approximately $1,500, thereby satisfying his personal treble-damages claim, and proposed a stipulated injunction that included a denial of liability. Campbell-Ewald also filed a Rule 68 offer of judgment, but the plaintiff did not accept the settlement offer and let the Rule 68 offer lapse. Thereafter, Campbell-Ewald sought to dismiss, arguing that its offer mooted the plaintiff’s individual claim by providing him with complete relief and that he had not moved for class certification prior to his claim becoming moot. Both the district court and the Ninth Circuit found that the plaintiff’s case remained a live controversy and was not mooted when the offer was not accepted.

The Court granted certiorari to resolve a split among the Courts of Appeal and determine whether an unaccepted offer can moot a plaintiff’s claim and thus deprive the federal court of Article III jurisdiction. The Court adopted the analysis of Justice Kagan from her dissent in Genesis HealthCare Corp. v. Symczyk, 569 U.S. __ , 133 S.Ct. 1523 (2013), which is a Fair Labor Standards Act (FLSA) case in which the Court assumed, without deciding, that an unaccepted settlement offer under Rule 68 would render an employee’s individual FLSA claim moot. Writing in dissent, Justice Kagan explained that “[w]hen a plaintiff rejects such an offer—however good the terms—her interest in the lawsuit remains just what it was before. And so too does the court’s ability to grant her relief.” Slip op. at 7. Under this reasoning, “[a]n unaccepted settlement offer—like any unaccepted contract offer—is a legal nullity, with no operative effect.” Id. The Court noted that since Genesis HealthCare, every federal appeals court that has ruled on this issue has adopted Justice Kagan’s analysis.

The Court found that pursuant to basic principles of contract law, the settlement offer and Rule 68 offer of judgment here, once rejected, have no continuing efficacy. The door was left open for a later determination on whether there would be a different result if a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to the plaintiff, rather than just making an offer. Nonetheless, the Court’s decision is useful for class action practitioners, as it forecloses one avenue for defendants seeking early dismissal of class actions via offers of complete relief made to the named plaintiffs. 

Authored By:
Liana Carter, Senior Counsel
CAPSTONE LAW APC

In a recent Northern District of California ruling, Judge Tigar found that the plaintiffs, owners and lessees of certain Ford Escape Hybrid and Mercury Mariner Hybrid vehicles, were entitled to attorney’s fees after Ford Motor Company issued a recall for the very component over which the plaintiffs had recently filed suit. See MacDonald, et al. v. Ford Motor Company, No. 13-02988 (N.D. Cal., Nov. 2, 2015) (slip op. available here) (Ms. MacDonald is represented by Capstone Law APC). The court held that the plaintiffs were entitled to “catalyst fees” for causing Ford to issue the safety-related recall, finding that Ford had failed to rebut the inference that the plaintiffs’ lawsuit motivated Ford to provide the relief. This ruling should make it more difficult for automakers to sidestep consumer lawsuits by “voluntarily” recalling products as soon as suit is filed in an effort to moot the lawsuits.

California’s Code of Civil Procedure section 1021.5 provides that a court may award attorney’s fees to a “successful party” when the action has resulted in the enforcement of an important right affecting the public interest. See Graham v. DaimlerChrysler Corp., 34 Cal. 4th 553, 565 (2004). To be a “successful party,” a plaintiff need not obtain a court-ordered change in the defendant’s behavior; it is enough for the plaintiff’s lawsuit to have catalyzed, or motivated, the defendant to provide the primary relief sought. Id. at 567. “To be a catalyst, the lawsuit must have been ‘a substantial causal factor’ contributing to Defendant’s conduct, though the lawsuit need not be the only cause of Defendant’s conduct.” Slip op. at 6 (emphasis added, internal citations omitted). The plaintiff bears the burden of proving he or she catalyzed the relief.

In a first for automotive class actions, where Ford issued a recall 14 months after the plaintiffs filed a class action, the court found that “the chronology of events raise[d] an inference that the lawsuit must have been ‘a substantial causal factor’ contributing to [Ford’s] decision to recall the Class Vehicles.” Slip op. at 7. According to Judge Tigar, “[o]ne month after this Court issued the order denying in part Ford’s motion to dismiss, Ford reported that it began to look into the MECP [Motor Electronic Coolant Pump] Defect. Less than six months after the Court issued the order, Ford issued a recall on the Class Vehicles.” The court rejected Ford’s proffered explanation as to why it commenced its recall investigation just after the court denied in part its motion to dismiss. Though Ford presented testimony of a data specialist who argued that his workload happened to lighten up at the same time the court issued its order, allowing him to commence the recall, the court dryly noted, “[t]his is just too much of a coincidence to be a coincidence.”

Judge Tigar also rejected another explanation proffered by Ford for the recall. Ford argued that an email from Transport Canada, a Canadian auto safety regulator, and not the plaintiffs’ lawsuit, had triggered its investigation. However, the court found it “unconvincing that an email inquiry . . . about one car stalling in a parking lot would trigger [Ford’s investigation] and subsequent recommendation to recall the Class Vehicles, even though several complaints to the NHTSA and a class action lawsuit did not.” In short, the court concluded that Ford’s evidence failed to overcome the presumption that the plaintiffs’ lawsuit had been a substantial factor in the manufacturer’s decision to initiate the recall, and granted the MacDonald plaintiffs’ motion for fees. Additional briefing regarding the amount of attorneys’ fees that Ford will owe is currently progressing.

Authored by: 
Cody Padgett, Associate
CAPSTONE LAW APC