Articles from May 2016

A recent decision by Judge Dean D. Pregerson of the Central District of California, Falco, et al. v. Nissan North America, Inc., bodes well for plaintiffs seeking to certify a car defect class action. No. CV 13-00686 (C.D. Cal. April 5, 2016) (slip op. available here) (Mr. Falco is represented by Capstone Law APC). Judge Pregerson rejected several of the auto manufacturer defendant’s most popular tropes, namely, that the plaintiffs cannot identify a “single” common defect, that most class members did not experience the defect, that the defect is not safety-related, and that the plaintiffs cannot establish a cognizable damages theory.

The Falco plaintiffs alleged that the class vehicles (various model year Nissan Pathfinder, Maxima, Quest, Altima, Xterra, and Frontier vehicles) all suffered from a defectively designed Timing Chain Tensioning System that was prone to fail prematurely and that posed a safety risk. Nissan opposed certification claiming that there was no single defect, and therefore no commonality, because Nissan had issued various iterations of the slack guide in the Tensioning System with different parts over time. Citing the Ninth Circuit’s decisions in Chamberlan v. Ford Motor Co., 402 F.3d 952 (9th Cir. 2005), and Wolin v. Jaguar Land Rover N. Am., LLC, 617 F.3d 1168 (9th Cir. 2010), the court held that “[i]n these consumer defect cases, commonality can be found in the very legal and factual question of the defect[]” where “the same defect is alleged across all class vehicles, and the assertion is supported by sufficient evidence . . . .” Slip op. at 11. Similarly, the court held that the predominance requirement was satisfied because “[t]he actual proof of common defect, or Defendant’s knowledge and subsequent actions, go to the merits of the claim, but common evidence will be used to prove the claim either way.” Id. at 19.

The district court also rejected Nissan’s claims that (1) there were individual issues regarding each class member’s knowledge about the defect based on information available on the Internet, (2) that “the vast majority [of class members] never experience a timing chain problem,” and (3) that the defect was not safety-related and was simply a “noise that consumers may not find troublesome.” Slip op. at 18. Concluding that common issues predominate, the court reasoned, “the evidence cited by Plaintiffs in their moving papers is sufficient at the this stage of the case to make out allegations common among the class as to the alleged vehicle defects, the effects of the alleged defect could have on the vehicle in terms of safety, and Nissan’s knowledge of the defect.” Id. at 19. With respect to class-wide damages, the court found that the plaintiffs sufficiently provided a common damages formula based on the average cost of repair. It noted that that class members spent money “that they would not have needed to spend had Nissan either disclosed the effect or repaired itself. Thus, return of the average cost of repair would provide restitution to these class members because they have already spent that money to repair or diagnose their vehicles.” Id. at 30. Additionally, the court stated that by receiving restitution under the fraud and breach of warranty claims, “the class would be getting the benefit of their bargain because they would be put in the same position they would have had the car not been sold with the defective timing chain system—it is the cost necessary to make the vehicles conform to the value Plaintiffs thought they were getting in the price tendered.” Id. at 31.

Nissan has sought permission to appeal Judge Pregerson’s decision pursuant to Federal Rule of Civil Procedure 23(f), which the plaintiffs have opposed. If the Falco decision stands, the opinion, together with the plaintiffs’ briefing on the motion, will provide a roadmap for rebutting defendants’ key arguments in opposition to class certification in a car defect action. 

Authored By:
Jordan Lurie, Of Counsel
CAPSTONE LAW APC

On January 15, 2016, the U.S. Supreme Court granted Microsoft’s petition for a writ of certiorari in Baker, et al. v. Microsoft Corporation, a Ninth Circuit Court of Appeals decision which allows plaintiffs in a class action lawsuit to appeal an order denying class certification after the named plaintiffs voluntarily dismiss their claims with prejudice. See No. 12-35946, 797 F.3d 607 (9th Cir. 2015) (slip op. available here). Following the passing of Justice Antonin Scalia, oral argument in Baker was postponed until next term, possibly in an effort to avoid issuing a ruling with an eight-Justice Supreme Court.

In Baker, the plaintiffs alleged that a design defect in the Xbox caused game discs to become scratched from movements of the Xbox during game play. Slip op. at 6. U.S. District Court Judge Richard Martinez deferred to the earlier class certification denial order in a consolidated case in the same district court, In re Microsoft Xbox 360 Scratched Disc Litig., No. C07-1121 (W.D. Wash. Oct. 5, 2009), which had denied the plaintiffs’ motion for class certification (reasoning that individual questions of causation and damages precluded certification) and granted Microsoft’s motion to strike the class allegations based on comity. Slip op. at 10-11. The Baker plaintiffs sought permissive review under Federal Rule of Civil Procedure (FRCP) 23(f) which was denied by the Ninth Circuit. The plaintiffs then voluntarily dismissed their individual claims, and filed a notice of appeal pursuant to 28 U.S.C. § 1291.

The Ninth Circuit reversed the district court, reasoning that while individual factors may affect when disc damage occurred and how extensive it was, they do not affect whether the Xbox was sold to consumers with a design defect. Slip op. at 15. More significantly, the court found appellate jurisdiction under 28 U.S.C. § 1291 existed, distinguishing a stipulated, voluntary dismissal of an individual claim from a failure to prosecute claims, as in Huey v. Teledyne, Inc., 608 F.2d 1234 (9th Cir. 1979), finding that a plaintiff who engages in the former has given up a valuable right and created “an adverse and appealable final judgment,” whereas a plaintiff engaged in the latter has forfeited their right to appeal the denial of class certification. Id. at 12-13, n.4. Exercising mandatory appellate jurisdiction, the appeals court remanded to the district court for further proceedings. Microsoft petitioned the Ninth Circuit for rehearing en banc, which was denied on July 20, 2015.

The Ninth Circuit’s decision provided a much-needed shortcut to the appeals process for class action plaintiffs, who would otherwise have to seek an interlocutory appeal under FRCP 23(f), which appellate courts grant sparingly, or wait for a final judgment, effectively ending any meaningful right to appeal class certification in many cases. Some see the Ninth Circuit decision as a revival of the “death knell” doctrine that some federal appellate courts recognized as grounds for appeal under 28 U.S.C. § 1291 several decades ago, which allowed appeals for denial of class certification when the denial would “end the lawsuit for all practical purposes.” Eisen v. Carlisle & Jacquelin, 370 F.2d 119, 120 (2d Cir. 1966). However, the doctrine was abandoned in Coopers & Lybrand v. Livesay, 437 U.S. 463 (1978), where the Supreme Court found orders regarding class certification not independently appealable prior to judgment under 28 U.S.C. § 1291. Congress then responded to the Coopers & Lybrand decision by allowing the Supreme Court to provide for appeals to interlocutory decisions under 28 USC § 1292(e), and, in 1998, the Supreme Court adopted FRCP 23(f). However, due to the infrequent usage of Rule 23(f), Congress’ attempt to fill the void of the “death knell” doctrine was largely ineffective until the Baker case.

Instead of creating grounds for interlocutory appeal, Baker allows plaintiffs to appeal class certification upon voluntarily dismissing their claims, effectively replacing one way of demonstrating the case had ended for all practical purposes with another. Slip op. at 12 (citing Berger v. Home Depot USA, Inc., 741 F.3d 1061, 1065 (9th Cir. 2014)). Circuit courts are split on this issue, as there is case law forbidding voluntary dismissal as a vehicle for appellate review in the Third, Fourth, Seventh, Tenth, and Eleventh Circuits, but case law permitting such dismissal as a vehicle for appellate review in the Second and Ninth Circuits. It is difficult to predict how the Supreme Court will rule, especially after the passing of Justice Scalia, who historically had been hostile towards class actions. Both plaintiffs’ and defense counsel will have to await oral argument next term for an indication of the direction the Supreme Court may take.

Authored by: 
Ishan Dave, Associate
CAPSTONE LAW APC

In Chen v. Allstate Insurance Co., Allstate asked the Ninth Circuit Court of Appeals to answer the hypothetical question raised in Campbell-Ewald v. Gomez, 136 S. Ct. 663 (Jan. 20, 2016) (previously covered on the ILJ here): whether a defendant can defeat a class action by depositing the full amount of the named plaintiff’s individual claim in an escrow account payable to the plaintiff, followed by entry of judgment for the plaintiff in that amount, thereby mooting the plaintiff’s individual claims. No. 13-16816 (9th Cir. April 12, 2016) (slip op. available here). Holding that such a tactic does not moot the class’s claims under Article III, the Ninth Circuit declined to direct the district court to enter judgment on the named plaintiff’s individual claims before he had a fair opportunity to move for class certification.

Plaintiff Florencio Pacleb sued Allstate for violations of the Telephone Consumer Protection Act stemming from automated calls made to his cell phone without his consent. In April of 2013, before a motion for class certification had been filed, Allstate initially made Plaintiff Pacleb a Rule 68 offer of judgment in the amount of $20,000 (including reasonable attorneys’ fees and costs accrued to date), which allegedly more than satisfied his individual claim. When the two named plaintiffs did not accept the offer within 14 days, Allstate then filed a motion to dismiss the plaintiffs’ entire case for lack of subject matter jurisdiction, arguing that, under Gomez v. Campbell-Ewald Co., 768 F.3d 871 (9th Cir. 2014), the district court should be required to enter judgment against Allstate and order payment to the plaintiff. While the motion to dismiss was pending, the other named plaintiff accepted the offer, though Pacleb did not; then, the district court denied Allstate’s motion. After the Supreme Court decided Campbell-Ewald, Allstate took the additional step of depositing the $20,000 in a bank escrow account and offering to cease sending Pacleb non-emergency telephone calls and text messages.

On appeal, Allstate argued that the judgment to which it consented would offer complete relief to the plaintiff and that the district court should be compelled to enter judgment on those terms, thus mooting the plaintiff’s individual claims and rendering the remaining class allegations insufficient to preserve a live controversy. The Ninth Circuit agreed with Allstate’s first contention only (that the offer of relief was apparently “complete”), but affirmed the district court’s denial of their motion to dismiss. The court noted that even if the district court entered judgment affording Pacleb complete relief on his individual damages and injunctive relief claims, effectively mooting those claims, Pacleb would still be able to seek certification under Pitts v. Terrible Herbst, Inc., 653 F.3d 1081 (9th Cir. 2011). Pitts held that a plaintiff could continue to represent a class despite a settlement offer for complete individual relief from defendant, as long as the plaintiff could still file a timely motion for class certification at the time the offer was made. Chen now expands the logic of Pitts from mere settlement offers to actual monetary deposits and holds that, even if Pitts were not binding and Allstate could moot the plaintiff’s individual claims, the plaintiff could still seek class certification despite the absence of a live individual claim. Following the circuit’s prior analysis in Gomez, the panel determined that Pitts remained good law after the Supreme Court’s decision in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013), because Genesis Healthcare concerned collective actions brought under the Fair Labor Standards Act rather than class actions under Rule 23 (of the Federal Rules of Civil Procedure) and that “courts have universally concluded that the Genesis discussion does not apply to class actions.” Id. at 16 (internal citations omitted).

Second, assuming Pitts was not controlling and Allstate could moot the plaintiff’s individual claims for damages and injunctive relief, the court rejected Allstate’s attempt to moot the action prior to a fair opportunity to move for class certification. The Chen court noted that placing funds in an escrow account was not the same as the actual receipt of all relief by a plaintiff and concluded that the depositing of funds into an escrow account was not enough to moot the claim because the plaintiff did not yet have the money in his possession. Lastly, the Ninth Circuit considered whether to order the district court to enter judgment before the plaintiff has had an opportunity to move for certification and concluded that doing so would be inconsistent with Campbell-Ewald:

. . . Campbell-Ewald clearly suggests it would be inappropriate to enter judgment under these circumstances. As Campbell-Ewald explained, “[w]hile a class lacks independent status until certified, a would-be class representative with a live claim of her own must be accorded a fair opportunity to show that certification is warranted.” Campbell-Ewald, 136 S. Ct. at 672. Accordingly, when a defendant consents to judgment affording complete relief on a named plaintiff’s individual claims before certification, but fails to offer complete relief on the plaintiff’s class claims, a court should not enter judgment on the individual claims, over the plaintiff’s objection, before the plaintiff has had a fair opportunity to move for class certification.

Id. at 22-23 (internal citations omitted). Thus, the appeals court affirmed the district court’s ruling and denied Allstate’s motion to dismiss for lack of subject matter jurisdiction, a victory for the plaintiffs’ bar foreclosing defendant “pick-off” tactics in the Ninth Circuit.

Authored by: 
Daniela Saspe, Associate
CAPSTONE LAW APC

On March 22, 2016, the Supreme Court affirmed a district court’s class certification decision following the $2.9 million judgment against Tyson Foods. Tyson Foods, Inc. v. Bouaphakeo, No. 14-1146 (U.S. Sup. Ct. March 22, 2016) (slip op. available here) (previously covered on the ILJ here). Tyson had been sued under the Fair Labor Standards Act of 1938 (FLSA) for failing to pay workers at a pork processing plant for time spent donning and doffing protective gear required for their jobs. Following certification as a collective action under 29 U.S.C. §216 and as a class action under Rule 23 of the Federal Rules of Civil Procedure, the jury awarded $2.9 million to the class. Tyson appealed to the 8th Circuit Court of Appeals and lost; Tyson filed a cert petition in the Supreme Court, which was granted.

In the Supreme Court, Tyson argued that the class action judgment should be reversed because the case should not have been certified. It also argued that judgment should be reversed because the plaintiffs identified no distribution mechanism that would not improperly compensate those class members who were not entitled to payment because they did not work more than 40 hours per week. The Supreme Court rejected Tyson’s bid to overturn the certification order and remanded to the district court for a determination of how the proceeds would be disbursed.

The plaintiffs’ problem, which they ultimately overcame, related to off-the-clock nature of the claims: Tyson’s time records did not demonstrate the amount of time necessary to don and doff the protective gear. Slip op. at 5. To prove damages, the Tyson plaintiffs retained Dr. Kenneth Mericle, an industrial relations expert, to conduct an observational study, which included 744 videotaped observations demonstrating that the average donning and doffing time was 18 minutes a day for employees in the cut and retrim department and 21.23 minutes per day for the kill department. A second expert, Dr. Liesl Fox, analyzed time records to identify whether or not the average donning and doffing time would result in more than 40 hours/week and by how much. Dr. Fox’s opinion was that there was $6.7 million in aggregate, uncompensated overtime. Slip op. at 7.

Tyson argued against the plaintiffs’ methods of using average donning and doffing times, since individual employees could have spent less (or more) time, and suggested a categorical rejection of using statistical evidence to approximate damages in such cases. Slip op. at 9. However, the Supreme Court rejected Tyson’s categorical argument, finding that such evidence has been used historically and often provides “the only practicable means to collect and present relevant data.” Id. at 10 (internal citations omitted). Critically, the Supreme Court relied on Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1946), which held that, where an employer does not maintain records of uncompensated time worked, the employee’s “just and reasonable inference” of the time worked would be accepted, with the burden then shifting to the employer to show either the actual time worked or negate the reasonableness of the inference. Slip op. at 11-12. In Tyson, as in Anderson, there were not sufficient records for the employees to rely on to establish the amount of time spent donning and doffing. Thus, “[i]n FLSA actions, inferring the hours an employee has worked from a study such as Mericle’s has been permitted by the Court so long as the study is otherwise admissible [under Fed. Rules Evid. 402 and 702].” Id. at 15.

Tyson also argued that there was no way to apportion damages, especially where the jury ultimately rejected the plaintiffs’ damages estimates, ultimately awarding a number less than half of what Dr. Fox found. Slip op. at 16. Thus, the defendant argued, there was no way to determine which class members the jury was considering when it awarded damages. The Supreme Court ultimately remanded this issue to the district court for a determination of how to separate out of the jury’s aggregate damages the individual award payments to uninjured class members, allowing Tyson to raise the same argument before the district court.

Thus, the Court affirmed, holding that plaintiffs may use statistical evidence to demonstrate class certification under Rule 23 and to prove classwide liability.

Authored by: 
Matthew Theriault, Partner
CAPSTONE LAW APC