The long, strange journey of former UBS-AG investment banker and qui tam relator Bradley Birkenfeld has reached a resolution, with Birkenfeld being awarded a $104-million payment for his role in providing the IRS with evidence of as many as 4,000 individuals’ tax evasion. The nine-figure award (or “bounty” in qui tam jargon) is believed to be the largest ever of its kind. While relator bounties of up to $100,000 are not uncommon, the $104 million to be paid to Birkenfeld is several orders of magnitude greater than the norm, a function of the substantial value of the information provided by Birkenfeld.

The evidence that Birkenfeld provided to the government resulted in UBS paying upwards of $780 million to settle criminal charges involving secret offshore accounts and being forced to turn over the account information of thousands of alleged tax evaders. Additionally, the publicity surrounding this case is thought to have been a factor in prompting more than 33,000 U.S. taxpayers to voluntarily come forward and admit to having offshore accounts. The IRS has been able to collect more than $5 billion in fees and penalties from these mass confessions.

Birkenfeld’s much-covered saga (most major news outlets have covered the story) is not without a darker controversial side, as he was released from federal prison only last month after serving a two-and-a-half year felony sentence for conspiracy in connection with the same tax evasion as to which he provided evidence.

United States District Court Judge Stefan Underhill has issued a ruling that augments the growing body of law rebuffing defendants’ attempts to use the U.S. Supreme Court’s 2011 decision in AT&T Mobility v. Concepcion to force plaintiffs seeking classwide relief into individual arbitration. See Fromer v. Comcast Corp., No. 09-02076 (D. Conn. Aug. 21, 2012) (ruling on motion to compel arbitration) (available here).

Comcast customer Robert Fromer filed the class action in 2009, alleging that the company violated antitrust laws by bundling its digital voice service with a modem, essentially forcing subscribers to rent the modem. Comcast sought to use Concepcion to force the plaintiff to arbitrate his claims pursuant to the arbitration clause in his subscriber agreement, which included a class action waiver. Judge Underhill denied Comcast’s motion and found the ban on classwide arbitration to be void, since it would “effectively preclude[] Fromer from pursuing federal statutory remedies.” Fromer at 11. Judge Underhill cited the cost of individual litigation versus the potential gain for plaintiffs, stating that “Fromer can expect to recover approximately $1 for every $202 spent in litigation.” Id. at 10.

The ruling follows a similar decision by the 2nd Circuit Court of Appeals (available here) holding that American Express could not invoke its arbitration clause in an antitrust lawsuit filed by merchant customers.

In a decision likely to be influential beyond both its jurisdictional and factual settings, the Second Circuit Court of Appeals has held that securities fraud plaintiffs need not prove that fraud-on-the-market applies in order to satisfy the predominance requirement for certification of a settlement class, the Second Circuit Court of Appeals held. In re Am. Int’l Grp., Inc. Secs. Litig., No. 10–4401 (2d Cir. Aug. 13, 2012) (available here). The influential Second Circuit also underscored the pragmatic doctrine whereby settling class action parties, despite being required to establish most elements of certification to the same degree of proof as in a contested certification motion, are not required to establish the manageability of the settled action. See Slip op. at 21 (“with a settlement class, the manageability concerns posed by numerous individual questions of reliance disappear”).

The unanimous opinion, written by Circuit Judge Gerard R. Lynch, explained that “a Section 10(b) settlement class’s failure to satisfy the fraud-on-the-market presumption does not necessarily preclude a finding of predominance,” and “the fact that the plaintiff class is unable to invoke the presumption, without more, is no obstacle to certification.” Id. at 23-24. Judge Lynch was joined by Circuit Judges Ralph K. Winter and Robert A. Katzman. The three-judge panel members were appointed, respectively, by presidents Obama, Reagan, and Clinton.

Though decided in the context of securities litigation, the American Int’l decision will likely function as a potent counterpoint in any circumstance where a class action settlement objector attempts to invoke the irrelevant “manageability” criterion to urge courts to deny motions for settlement approval.

Almost lost amidst the holiday weekend news vortex, last Friday the United States Supreme Court agreed to hear a case that is likely to add to the Court’s aggressive remaking of class action jurisprudence. See Knowles v. The Standard Fire Ins. Co., No. 11-04044, Petit. for Writ of Certiorari (available here). In addressing the damages threshold under the Class Action Fairness Act of 2005 (CAFA) for invoking federal jurisdiction, Knowles could result in a substantial change in the division of class actions between state and federal courts. See 28 U.S.C. § 1332(d) (“district courts shall have original jurisdiction of any civil action in which the matter in controversy exceeds the sum or value of $5,000,000”). 

The Knowles case addresses whether a named plaintiff can effectively promise to seek less than $5 million in aggregate damages, not just on his own behalf but on behalf of all class members, and thereby prevent the case’s removal under CAFA. In the underlying case, the named plaintiff alleged only state-law claims and filed a stipulation — purportedly binding on all prospective class members — that less than $5 million in aggregate damages would be sought in the action. The Eighth Circuit upheld the plaintiff’s stipulation, even though the defendant was able to show that the amount in controversy, absent the stipulation, would exceed $5 million. The plaintiff accomplished the “legal certainty” requirement by seeking to recover damages for a period shorter than the applicable statute of limitations. Strangely, the defendant’s calculation of the aggregate amount in controversy only exceeded the threshold by a mere $24,150.

Knowles is expected to test the maxim that a plaintiff is the “master” of his or her complaint — all the more with the claims of prospective, not-yet-represented class members also at stake. See, e.g., Brill v. Countrywide Home Loans, Inc., 427 F.3d 446, 449 (7th Cir. 2005) (“[A] removing defendant can’t make the plaintiff ’s claim for him; as master of the case, the plaintiff may limit his claims (either substantive or financial) to keep the amount in controversy below the threshold.”). Existing caselaw appears to affirm the plaintiff’s position that the “master of his/her complaint” principle should be strictly interpreted. Potentially decisive will be how the Court applies the body of authority holding that class counsel functions in something other than a pure stranger relationship vis-à-vis prospective class members, notwithstanding that a formal attorney-client relationship does not attach pre-certification.

The case will be argued sometime this winter, with a decision expected in mid-2013.