Posts belonging to Category Motion Practice

The Sixth Circuit has issued a counterweight to the recent spate of anti-class-action decisions coming from federal courts. In In re: Vertrue Inc., a three-judge panel held that the statute of limitations for the claims of putative class members may be tolled in a subsequent class action when there was no ruling on class certification in a prior class action. See In re: Vertrue Inc. Marketing and Sales Practices Litig., No. 10-3928 (6th Cir. Apr. 16, 2013) (slip opinion available here).

This case and numerous related cases had a long, meandering decade-plus procedural history before arriving in the Sixth Circuit, which has appellate jurisdiction over federal trial-level courts in Kentucky, Michigan, Ohio, and Tennessee. The plaintiff first filed the action in the Southern District of California in 2002, seeking to represent a national class who bought membership programs purporting to provide discounts on purchases, but that in fact functioned to lure consumers with “bait” products. Slip op. at 2-4. The plaintiff alleged that when customers called the company to buy the bait product, they were deceived into believing that free materials would be sent to them in the mail. Id. Vertrue would then mail a membership card and place a recurring annual charge of $60-$170 on the customer’s credit card, which would only be removed if the customer navigated hard-to-follow procedures for cancellation. Id.

The California district court dismissed the action without having ruled on class certification. Slip op. at 3-4. In response, plaintiffs filed 13 state court actions across multiple jurisdictions, which were consolidated in the Northern District of Ohio. Slip op. at 4-5. The Ohio federal court held that the claims were tolled as a result of the Southern District of California proceeding and that the state court claims therefore were timely filed, which occasioned the appeal to the Sixth Circuit. Slip op. at 5. The Sixth Circuit affirmed the tolling, relying on Supreme Court authority allowing for unnamed plaintiffs to preserve their individual claims while class action lawsuits are pending. The court explained that refusing to recognize the claims of unnamed class members would lead to inefficiency because the class members would then be forced to file individual actions to preserve any state law claims whose statutes of limitations might otherwise expire while a federal class action is pending. See slip op. at 11-12.

The unanimous three-judge panel affirmed the district court’s holding that both the plaintiffs’ federal and state law claims were timely asserted, and that the plaintiffs’ claims were tolled under American Pipe & Constr. Co. v. Utah, 414 U.S. 538, (1974). Circuit Judge Julia Smith Gibbons reasoned that “Vertrue has failed to explain how the efficiencies sought by American Pipe tolling would be advanced if putative class members were forced to file individual state law actions to preserve any state law claims whose statutes of limitations might run during the course of class proceedings.” Slip op. at 11.

In sensibly preserving the rights of consumers whose claims have never been adjudicated or denied class certification, the decision marks a clear victory for consumers, and, in contrast to some recent decisions affecting class actions, one grounded in Supreme Court precedent.

In a ruling likely to be as unpopular with defendants wishing to settle class actions as with the plaintiffs’ bar, the Ninth Circuit has found fault with modest $5,000 incentive payments to the four named plaintiffs/class representatives in a class action alleging that credit agencies erroneously included debts discharged through bankruptcy in the settling class members’ credit reports. See Radcliffe v. Experian Info. Solutions, Inc., No. 11-56376 (9th Cir. Apr. 22, 2013) (slip opinion available here). Despite the common and widely-approved practice of providing service payments to class representatives beyond what they are entitled to as class members (in recognition of their time and effort spent being deposed, assisting with written discovery, etc.), the Ninth Circuit reasoned that the $5,000 payments created a conflict of interest because they “significantly exceeded in amount what absent class members could expect to get upon settlement approval.” Slip op. at 9. Consequently, after nearly eight years of litigation, the three-judge panel altogether threw out a $45 million settlement among the three major credit-reporting agencies and class members whose credit reports contained discharged debts.

The parties negotiated a settlement that reflected the various circumstances of the 15,000 class members and the different damages resulting therefrom. Specifically, class members denied employment as a result of the erroneous credit reports would receive $750; those denied a mortgage or housing rental would receive $500; and those denied an auto loan, $150. Slip op. at 11. Even those class members who suffered no adverse consequences at all would receive a nominal $26 payment. Slip op. at 11-12. The settlement further provided that the class representatives, like the settling defendants, would not object to the negotiated payment schedule. Slip op. at 18. It was the provision whereby the class representatives would not object to the payments that the Ninth Circuit took issue with, as the panel reasoned that the class representatives would have a financial disincentive to push their lawyers to attempt to negotiate greater payments to the settling class members. See slip op. at 18-19.

Seemingly lost on the panel was the fact that the class representatives had already championed their fellow class members’ interests in negotiations that resulted in payments tailored to the consequences resulting from the defective credit reports. See slip op. at 11-12. Indeed, even those class members who suffered no adverse consequences at all (more than 750,000 of them) would receive $26 “convenience payments.” Slip op. at 12. The panel’s reliance on Staton v. Boeing Co. to support the result is also puzzling. In that case, the 29 class representatives were set to receive a whopping $50,000 each, ten times more than the payments to the Radcliffe class reps.  See Staton v. Boeing Co., 327 F.3d 938, 975 (9th Cir. 2003).

The First Circuit has issued a critical decision both in its ultimate ruling and its reasoning. See In re: Neurontin Marketing & Sales Practices Litig., No. 11-1806 (1st Cir. Apr. 3, 2013) (slip opinion available here). In a decision written by Chief Judge Sandra Lynch, the unanimous three-judge panel reversed the district court’s grant of summary judgment and denial of class certification. See slip op. at 24-25.

In the underlying case, plaintiffs alleged that doctors prescribing the anti-seizure drug Neurontin were deceived by the defendant, pharmaceutical giant Pfizer, with respect to “off-label” uses for which Neurontin is not formally approved. The district court repeatedly rejected the plaintiffs’ use of widely-accepted statistical methods, including multiple regression, to prove causation. The First Circuit panel rejected the defendants’ argument that the plaintiffs’ use of aggregate evidence precluded class treatment. See slip op. at 20-22.

The plaintiffs’ expert had shown by regression analysis that essentially all Neurontin prescriptions for bipolar disorder were the result of Pfizer’s off-label marketing. In denying the plaintiffs’ second class certification motion, the district court adopted reasoning typically invoked by class action defendants, holding that the plaintiffs’ expert could not offer class-wide causation evidence because the regression analysis did not take account of doctors’ individual prescribing decisions, and only focused on Pfizer’s off-label marketing. See slip op. at 8.

While the second class certification motion was pending, Pfizer filed a summary judgment motion premised on the same causation argument, arguing that the doctor-by-doctor inquiry purportedly required to augment the regression analysis would be “unmanageable.” Slip op. at 13. The district court denied the second class certification motion and granted Pfizer’s summary judgment motion.

The First Circuit reversed both the district court’s entry of summary judgment and denial of class certification, with the centerpiece of the appellate ruling being the panel’s endorsement of the rigorous statistical methods that the district court had rejected. Recognizing that regression analysis is capable of distinguishing the relative causation effects among multiple independent variables, Judge Lynch’s decision noted that the plaintiffs had not relied exclusively on the regression analysis: “[I]n addition to the aggregate statistical evidence, . . . plaintiffs also presented circumstantial evidence that supported an inference of causation”, such as “documents showing that psychiatrists had almost never prescribed Neurontin for bipolar disorder until after Pfizer began its marketing campaign, at which point prescriptions jumped by 1700% in two years.” Slip op. at 20.

The first Circuit’s decision serves as essential guidance for plaintiffs’ counsel in complex litigation requiring sophisticated and rigorous scientific methods in order to confront facile arguments like those advanced by Pfizer, and adopted, repeatedly and emphatically, by the trial court.

The Third Circuit is currently considering whether, under the Class Action Fairness Act (CAFA), removal of a toxic tort class action from state to federal court is proper where it is undisputed that all of the sites alleged to be toxic are within one state or territory. See Abraham v. St. Croix Renaissance Group, L.L.L.P., No. 12-0011 (Dist. V.I. Dec. 7, 2012) (remand order under appeal in Third Circuit, available here).

CAFA expressly provides for “local controversies” to be heard in state, not federal court. The plaintiffs based their remand motion on CAFA’s provision that removal is improper when all claims arise from “an event or occurrence” within a single state (or its territorial equivalent). See order at 4 (“The question presented is whether the allegations as pleaded concerning the continual release of red mud, red dust, and coal dust as well as the friable asbestos over a period of years fit within the meaning of ‘an event or occurrence’ as set forth in [CAFA].”).

The district court found the “event or occurrence” requirement satisfied and ordered the action to be remanded to the Virgin Islands court it was filed in, reasoning as follows: “We think that an event, as used in CAFA, encompasses a continuing tort which results in a regular or continuous release of toxic or hazardous chemicals” and, therefore, “[w]e see no reason to distinguish between a discrete happening, such as a chemical spill causing immediate environmental damage, and one of a continuing nature, such as is at issue here.” Order at 8 (footnote omitted).

Whether the Third Circuit will affirm the district court’s remand order remains to be seen. Last week’s oral argument revealed that there is an apparent consensus on the panel that all pertinent events happened on St. Croix; thus, like the district court, the Third Circuit must determine whether that constitutes a “single event or occurrence.” In addition to the issue of statutory interpretation, the plaintiffs’ counsel argued on appeal that remand is consistent with CAFA’s motivating purpose, which is to send interstate disputes to federal court, but keep genuinely local controversies in state court. The Third Circuit’s ruling is likely to indicate whether CAFA’s primary function is to provide a rational means of dividing complex litigation labor between federal and state courts, or to serve as a device (like arbitration) deployed mainly to frustrate class and representative actions.

The Third Circuit’s decision is expected to issue shortly, possibly by mid-May.