Posts belonging to Category Caselaw Developments

Too often, an objection to a class action settlement is, rather than a bona fide objection, a gambit by a law firm that has stood on the sidelines and hopes to extract a nuisance settlement from the larger, more established firm that negotiated the settlement. At best, settlements are delayed. At worst, fees are cut and returned to settling defendants, with no benefit at all to the class members.

The Ninth Circuit recently injected some much-needed reason into the objection process with its ruling in Glasser v. Volkswagen of America, No. 09-56618, 2011 U.S. App. LEXIS 9943 (9th Cir. May 17, 2011). Above all, Glasser clarifies the prevailing assumption that being a class member necessarily implies an unfettered entitlement to object. “In the class action context, simply being a member of the class does not automatically confer standing to challenge a fee award to class counsel—the objecting class member must be “aggrieved” by the fee award.” Glasser at *7-*8.

The at-issue settlement provided entirely for injunctive relief, whereby Volkswagen agreed to make disclosures about its “smart keys” that the underlying lawsuit, first filed in Los Angeles Superior Court and then removed to federal court under CAFA, had alleged were lacking. Specifically, the named plaintiff alleged that buyers of cars using the smart keys, which require computer programming and typically cost more than conventional keys, were not sufficiently informed as to either the expense or the difficulty attendant to getting replacements. See Glasser at *2. The objector, class member David Murray, argued that the attorney fees were excessive and that the settlement’s benefits were merely “illusory” and, in any event, the case lacked merit. Murray asked that the awarded fees of $417,663.75 be significantly reduced below the lodestar amount. Glasser at *5-*7.

The three-judge Ninth Circuit panel ruled that none of Murray’s specific objections gave rise to circumstances that would confer standing. For instance, his contention that the purportedly “excess” fee award would cause Volkswagen to pass costs along to customers failed to satisfy the “irreducible minimum” of an actual or imminent injury for Article III standing under the leading case on standing in federal courts, Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992). And because the settlement was not styled as a “constructive common fund,” there was no basis for arguing that the fees directly depleted the class members’ recovery. Glasser at *10-*11.

By flatly prohibiting an objection that was little more than a generalized, indirect grievance about the settlement, Glasser is a modest victory for the fair and efficient administration of class action settlements.

The U.S. Supreme Court recently reversed the Second Circuit with a 5-3 vote (Justice Kagan did not participate), holding that corporate whistleblowers cannot bring lawsuits on the basis of information they get from a Freedom of Information Act (FOIA) request because such information is a “report.”  See Schindler v. Kirk, 179 L. Ed. 2d 825 (2011).

The qui tam relator had alleged that his former employer submitted false claims in its federal contracts on the basis of information that his wife obtained through FOIA requests.  Schindler v. Kirk at 833.  The federal Qui Tam Act bars suits to recover falsely or fraudulently obtained federal payments where those suits are “based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media . . . .”  31 U.S.C. § 3730(e)(4)(A) (footnote omitted).  Justice Clarence Thomas’ majority opinion found that the incriminating information derived from FOIA requests constituted a “report,” thereby foreclosing the lawsuit, seemingly irrespective of the truth of the underlying allegations.  Id. at 835-836.

With legal reasoning at least as extensive and compelling, the Second Circuit had concluded the FOIA-derived information to not be a “report.”  Yet the Thomas majority opinion, referencing an amicus brief submitted by the U.S. Chamber of Commerce, offered this justification: “[A]nyone could identify a few regulatory filing and certification requirements, submit FOIA requests until he discovers a federal contractor who is out of compliance, and potentially reap a windfall in a qui tam action under the FCA.”  Id. at 838.

In other words, a citizen might identify a law, submit a FOIA request to confirm compliance with the law, find that there is in fact a violation of the law, and thereafter “reap” precisely the “windfall” that the Qui Tam Act provides for.

The full Schindler v. Kirk opinion is available here.

In 1925, apparently responding to mass hostility toward arbitration agreements, Congress passed the Federal Arbitration Act (FAA), which expressly codified the enforceability of contractual arbitration provisions, “save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. It is this “saving clause” that provided the most formidable logical obstacle to the AT&T v. Concepcion majority’s creation of a plausible rationale for its holding.

Later, California pioneered the doctrine of unconscionability in both its common law and its statutory law, codifying the judicial authority to refuse enforcement of an unconscionable contract in California Civil Code section 1670.5(a) (and leaving no doubt as to the State’s policy choice about unconscionable contracts). Thus, the FAA’s “saving clause” would appear to quite straightforwardly apply, to the extent that California’s unconscionability doctrine bars the enforcement of all unconscionable contracts, not just contracts with arbitration provisions deemed unconscionable.

Faced with this reading of the FAA’s plain text, the Scalia-authored AT&T majority opinion offers what would be at best a C-plus exam answer, with a convoluted analogy to a case finding “unconscionable or unenforceable as against public policy consumer arbitration agreements that fail to provide for judicially monitored discovery.” AT&T v. Concepcion, 131 S. Ct. 1740, 1747 (2011). Expounding on the same idea, the opinion notes that “[o]ther examples are easy to imagine.” Id. No doubt they are, but this raises the question: How exactly is it that California Civil Code section 1670.5(a) doesn’t apply equally to all contracts? Section 1670.5 would seem to be the exemplar of a statute that puts contracts to arbitrate on “equal footing” with other contracts—the very equality that those who campaigned against arbitration abuse sought in fighting for and passing the FAA.

Yet after meandering through the implications of imagined statutes and implicitly conceding that California’s unconscionability doctrine does in fact apply equally to all contracts, the AT&T opinion simply concludes that as an “obstacle” to arbitration, the doctrine is preempted by the FAA—notwithstanding that the text of the FAA’s “saving clause” contains no such proviso. With an unexplained departure from his strict constructionist, stick-to-the-text jurisprudence, Scalia finds endorsements of arbitration’s efficiency in its legislative history sufficient to graft the necessary exception onto the FAA saving clause—ironic in light of Scalia’s embrace of the principle that “the act cannot be held to destroy itself.” Id. at 1748. In that the only way to deal with the FAA’s saving clause was to destroy it, though, that’s exactly what happened.

The full AT&T v. Concepcion opinion is available here.

Building on the trend in which consumer class actions increasingly adopt a doctrine of presumed reliance, Northern District Judge Jeffrey White recently certified a nationwide class in Wolph v. Acer, No. 09-01314 (N.D. Cal. filed Mar. 25, 2009). Other courts have embraced the same presumption of reliance, which as a practical matter typically defeats defendants’ most potent predominance arguments, to the effect that class treatment would be too unwieldy were it to entail an individualized inquiry into each class member’s motivation for buying the product. See, e.g., Fitzpatrick v. General Mills, No. 10-11064, 2011 U.S. App. LEXIS 6047 (11th Cir. Mar. 25, 2011) (adopting presumption of reliance as to purported health benefits of yogurt); Cole v. Asurion Corp., 267 F.R.D. 322 (C.D. Cal. 2010) (granting certification on omission-based liability theory); Wolin v. Jaguar Land Rover North America, 617 F.3d 1168 (9th Cir. 2010) (reversing denial of certification where district court abused discretion; common questions predominated as to defendant’s duty to disclose information a reasonable consumer would deem material).

By obviating the individualized causation inquiries that the defendants had argued precluded certification, the Fitzpatrick, Cole, Wolin and, now, Wolph courts have articulated what can fairly be called an established doctrine, at least as to consumer class actions.

The Wolph v. Acer plaintiffs alleged that the notebook computers they bought from Acer frequently froze, crashed, and required re-starting (which was typically slow), owing to an inherently deficient memory capacity. See cert. order at 1-2. The defendant’s opposition to certification argued a lack of ascertainability, typicality and adequacy, each of which was dispatched with relative ease. See Id. at 3-12. It was the defendant’s predominance argument, and specifically that the plaintiffs were not entitled to a class-wide presumption of reliance or causation under California’s consumer protection statutes, that plainly engaged the bulk of Judge White’s consideration, as he ultimately rejected the predominance defense, holding that individualized reliance on specific misrepresentations is not required, and that the standard for demonstrating class-wide reliance is presumed from a showing that the misrepresentation is material. Id. at 14.

The certification order is available here.