Class Actions: How to Avoid and, if Needed, Defeat Them

Transcription

1 Class Actions: How to Avoid and, if Needed, Defeat Them Cooley LLP Bill Donovan, Partner Becky Tarneja, Associate September 27 & 28, 2017 attorney advertisement Copyright Cooley LLP, 3175 Hanover Street, Palo Alto, CA The content of this packet is an introduction to Cooley LLP s capabilities and is not intended, by itself, to provide legal advice or create an attorney-client relationship. Prior results do not guarantee future outcome.

2 Bill Donovan Head of Los Angeles litigation practice Former in-house counsel at Fortune 50 company Trial Attorney at DOJ 2

3 Overview Class Actions Basics Avoiding Class Actions Class Action Trends How To Beat Class Actions 3

4 Overview Class Actions Basics Avoiding Class Actions Class Action Trends How To Beat Class Actions 4

5 Class Actions Basics: What Is a Class Action? What? Lawsuit brought by one or more persons on behalf of themselves individually and a class of people who allegedly have been harmed in a similar manner Statewide or nationwide Why? Plaintiffs: often when individual damages are low, but collective damages are high Plaintiffs counsel: more money; potential to change business practices How? Specific rules aimed at determining whether the lawsuit can be maintained as a class action prior to reaching the merits 5

6 Class Actions Basics: The Federal Rules Federal Rule of Civil Procedure 23 State rules generally track Federal Rule 23 California Code of Civil Procedure when the question is one of common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all California Rules of Court et seq. Largely track Federal Rule 23 and look to Rule 23 for guidance when CA silent Differences than federal e.g., California does not permit an interlocutory appeal of a class certification decision 6

7 Class Actions Basics: The Federal Rules Numerosity: Size of the class makes joinder impracticable No set number, but generally more than forty is sufficient Commonality: Named plaintiffs share at least one question of fact or law with the prospective class Typicality: Named plaintiff s claims (i) stem from the same event/course of conduct as other class members claims and (ii) are based on the same legal theory Adequacy of Representation: Both the named plaintiff(s) and proposed class counsel Named plaintiff and her counsel (i) have any conflicts of interest with other class members and (ii) will prosecute the action vigorously on behalf of the class 7

8 Class Actions Basics: The Federal Rules 3 types of class actions under Rule 23(b) 1. (b)(1): Prejudice from separate actions (Mandatory Class) Incompatible standards of conduct or Impairment of rights of class members to protect their interests 2.(b)(2): Defendant acted in a manner applicable to the class generally such that injunctive or declaratory relief is appropriate to the class as a whole (Mandatory Class) 3.(b)(3): Questions of law or fact common to the class predominate and class treatment is superior Seek monetary damages Common issues must constitute a significant aspect of the action Plaintiff must demonstrate a class action is superior to other actions 8

9 Class Actions Basics: Pending Legislation Fairness in Class Action Litigation Act of 2017, H.R. 985 U.S. House of Representatives passed on March 9, 2017 (without committee hearings) Would amend Rule 23 Proof that each class member has the same extent of injuries Administratively feasible way to identify class members Conflicts-of-interest provision for class counsel and named plaintiffs Limits and controls distribution of fees to class counsel Discovery stay pending preliminary motion practice Requires appeals courts to accept appeals of class action rulings May not be enforceable due to House s procedure in passing the bill 9

10 Class Action Basics: California v. Federal California: Broader laws and regulations Consumer protection laws Unfair Competition Law ( UCL ) (Cal. Bus. & Prof. Code et seq.) gives teeth to unlimited claims, with 4-year statute of limitations Limit class-action waivers (despite SCOTUS decision) McGill v. Citibank, 2 Cal. 5th 945 (2017): Cannot waive right to seek public injunctive relief in any forum provided by California consumer protection laws i.e., UCL, False Advertising Law ( FAL ) (Cal. Bus. & Prof. Code et seq.), or Consumer Legal Remedies Act ( CLRA ) (Cal. Civ. Code 1750 et seq.) 10

11 Class Action Basics: California v. Federal Federal: Conservative Supreme Court Spokeo, Inc. v. Robins (2016): Must allege a concrete injury for Article III standing, including to allege a violation of a statutory requirement AT&T Mobility LLC v. Concepcion (2011): Federal Arbitration Act ( FAA ) preempts state laws precluding arbitration clauses class-action waivers Wal-Mart Stores Inc. v. Dukes et al. (2011): Commonality required employees to show general policy of discrimination Comcast Corp. v. Behrend et al. (2013): Must show damages can be measured on a classwide basis at the certification stage (but largely limited to antitrust) Proposed Fairness in Class Action Litigation Act of

12 Class Actions Basics: Other Group Actions Multi-District Litigation ( MDL ) Plaintiff files an individual case involving the same subject as other pending cases Enable courts to fairly and efficiently administer cases involving the same subject 28 U.S.C. 1407: When civil actions involving one or more common questions of fact are pending in different districts, such actions may be transferred to any district for coordinated or consolidated pretrial proceedings. Technically may be transferred to any federal district 12

13 Class Actions Basics: Other Group Actions How do you obtain an MDL? File a motion to transfer with the Judicial Panel on Multidistrict Litigation Motion must contain multiple actions with common questions of fact pending in 2 districts Judicial Panel transfers if (i) for the convenience of parties/witnesses and (ii) will promote just and efficient conduct of actions Number of pending actions Whether parties favor centralization Predominance of common questions in the underlying actions Whether pretrial issues already completed Complexity of common questions Same plaintiffs or plaintiffs counsel are involved Overlapping class action claims 13

14 Overview Class Actions Basics Avoiding Class Actions Class Action Trends How To Beat Class Actions 14

15 Avoiding Class Actions: Prevention An ounce of prevention is worth a pound of cure. Benjamin Franklin 15

16 Avoiding Class Actions: Prevention Action items: Implement compliance program, either on your own or in conjunction with outside counsel Monitor case developments Train your employees Respond to risk accordingly CLRA letter or similar threat 16

17 Avoiding Class Actions: Prevention 17

18 Avoiding Class Actions: Prevention United incident as an example 18

19 Avoiding Class Actions: Prevention What went wrong? Bad policies Let staff bump paying passengers Let people board oversold flight Too little money offered for seat Bad implementation No common sense in dragging him off flight United was victim in part of their subcontractors police and United Express PR made the problem worse, not better 19

20 Avoiding Class Actions: Compliance Program Action Items: Robust legal governance, risk management, compliance Stay on top of developments and trends Fluid communication between legal and management Self-monitoring/audits monitor complaints to customer service, returns, or warranty claims Train customer service team to carefully listen for complaints that could lead to litigation and report any issues to legal and risk management Address individuals complaints promptly Investigate complaint 20

21 Avoiding Class Actions: Arbitration/Limited Warranty Clause Action Items Cont.: Include limited warranty/limited liability clause Consider arbitration clause with class action waiver AT&T Mobility v. Concepcion, 563 U.S. 333 (2011): FAA preempts state laws (CA s) that prohibits class-action waivers in arbitration agreements McGill v. Citibank, No. S (Cal. Apr. 6, 2017): Arbitration agreements that waive right to public injunctive relief are contrary to CA public policy and unenforceable under CA law But can arbitrate damages claim Make arbitration clause and waiver conspicuous Include in terms of service 21

22 Avoiding Class Actions: Respond to Demand Letter What should you do if you receive a demand letter? Take it seriously Many demand letters will result in class litigation Engage counsel Timely respond 22

23 Overview Class Actions Basics Avoiding Class Actions Class Action Trends How To Beat Class Actions 23

24 Class Action Trends: Overview Examples of Prevalent Class Actions in Recent Years: False advertising / product labeling Product defect Website accessibility TCPA Gift cards Shipping charges Data breaches Employment 24

25 Class Action Trends: False Advertising / Labeling Advertising / Labeling Claims: food and consumer goods products (e.g., healthy, national origin, under fill); any other allegedly misleading statements Brought under consumer protection statutes in CA UCL, FAL, CLRA UCL (Unfair Competition Law) Very broad when in doubt, sue under UCL No monetary damages injunctive relief or restitution 3 prongs: Unlawful borrows from violations of other statutes, rules, or regulations Fraudulent ordinary consumers likely to be deceived Unfair split in authority re: three tests balancing, tethering (Cel-Tech), FTC 25

26 Class Action Trends: False Advertising FAL (False Advertising Law) Unlawful to make or disseminate... any statement, concerning... property or [] services... which is untrue or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading Reasonable members of the public likely to be deceived No monetary damages injunctive relief or restitution 26

27 Class Action Trends: False Advertising CLRA (Consumer Legal Remedies Act) Prohibits 24 business practices Applies to consumer transactions involving the sale or lease of goods or services Actual, statutory, and punitive damages Mandatory attorney s fees Plaintiff must provide notice before filing suit company has 30 days to correct alleged violations But cannot pick off named plaintiff Benson v. S. Cal. Auto Sales, Inc., 239 Cal. App. 4 th 1198 (2015): Plaintiff could not obtain attorney s fees or costs after rejecting company s settlement offer 27

28 Class Action Trends: False Advertising Action Items: Review all relevant regulations (e.g., FDA) Scrutinize all advertising statements (e.g., on labels or websites) Have outside counsel review statements before dissemination Monitor class-action trends for popular theories of suit Test consumer impact of commonly litigated words Do you need to make statement? Pay attention to notice letter Can avoid class action 28

29 Class Action Trends: Website Accessibility > 240 lawsuits in 2016 nationwide re: websites inaccessible to blind and visually impaired Americans with Disabilities Act ( ADA ) (42 U.S.C et seq.) Title III: prohibits discrimination against disabled in places of public accommodation 9 th Circuit: requires nexus between website and the service of a physical place of accommodation (cf. 7 th Circuit) Website may violate ADA if unequal access to services available at physical store But see Cullen v. Netflix, Inc., 880 F. Supp. 2d 1017 (N.D. Cal. 2012): Title III does not apply to Netflix because no nexus to a physical location Also applies to mobile apps Also: flat touch screen card-reading devices (v. textured keys) Force visually impaired to reveal PIN numbers to cashiers 29

30 Class Action Trends: Website Accessibility Action Items: Implement screen-reader technology Update website as technology changes DOJ guidance expected in 2018, but has indicated web content accessibility guidelines ( WCAG ) 2.0 contain reasonable requirements Ensure excellent customer service for visually impaired Retain an expert to ensure compliance Look for ADA issues in emerging technologies 30

31 Class Action Trends: TCPA Telephone Consumer Protection Act of 1991 ( TCPA ) (47 U.S.C. 227 et seq.) Statutory damages and injunctive relief $500 to $1500 per violation Automatic telephone dialing system ( ATDS ) (47 U.S.C. 227(a)(1)) (1) The term automatic telephone dialing system means equipment which has the capacity (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers Must prove defendant (1) called a cellular telephone number, (2) using an ATDS, (3) without the recipient s prior express consent Significant D.C. Circuit TCPA decision expected soon Given the complexity of the TCPA, engage counsel immediately if you are doing any telephonic advertising 31

32 Class Action Trends: Gift Cards In California, > 150 gift card cases in state and federal court from Primarily re: redemption for cash or remaining balances in several instances where the company did not think the balances were gift cards California Law (Cal. Civ. Code ) Must provide cash back to purchaser/holder of gift card with a balance less than $10 No expiration date or service fee Does not apply to, e.g., general use cards, prepaid calling cards, free awards, loyalty/promotional cards, discounted cards for fundraising, or cards for food Federal Credit Card Accountability Responsibility and Disclosure Act of 2009 ( CARD ) No expiration date < 5 years Right to obtain a replacement card for value at expiration UCL, CLRA, FAL May be liability for failing to disclose gift card fees, conditions, and restrictions 32

33 Class Action Trends: Gift Cards Action Items: Ensure compliant policies Check compliant language on gift cards and at point of sale Train managers and salespersons on policies Ensure proper technology to issue cash redemptions Litigation generally has low damages, but plaintiffs usually seek injunctive relief 33

34 Class Action Trends: Shipping Charges Charges that exceed actual cost of shipping and handling Claims under UCL, CLRA, common law fraud Theory: Violate guidance by Data & Marketing Association, which recommends that [p]ostage, shipping, or handling charges, if any, should bear a reasonable relationship to actual costs incurred Reasonable consumer would be deceived Not sold as advertised So far, little success Reider v. Electrolux Home Care Prods., Inc. (C.D. Cal. 2017): Case dismissed McCoy v. Omaha Steaks Int l, Inc. (L.A. Superior 2017): Pending 34

35 Class Action Trends: Shipping Charges Action Items: Conspicuously display disclosures of shipping & handling ( S&H ) options Require customers to affirmatively select S&H option Be careful not to make misleading representations about S&H costs But no requirement to, e.g., track USPS fees S&H broader 35

36 Class Action Trends: Data Breaches E.g.: > 140 lawsuits filed against Target after data breach; large numbers already filed against Equifax Lawsuits brought under myriad theories California UCL, CLRA, common-law fraud, breach of contract, constitutional, invasion of privacy, negligent misrepresentation Stored Communications Act ( SCA ) (18 U.S.C et seq.) Suits by consumers, financial institutions, insurers, shareholders, employees, etc. 36

37 Class Action Trends: Data Breaches Action Items: Be proactive otherwise, not a question of if, but when California: Must use reasonable security procedures and practices... to protect personal information from unauthorized, access, destruction, use, modification, or disclosure. Federal: Security requirements for financial services and health care industries Various security standards: Set forth measures organizations should take Engage a specialist Continually update technology (e.g., authentication, encryption, etc.) Use caution handling sensitive data In event of a breach, immediately engage counsel California laws on how to handle data breaches (Cal. Civ. Code , ) Litigation: Did consumer suffer an injury in fact? 37

38 Class Action Trends: Employment California Labor Code Wage/overtime violations (Cal. Labor Code 1194) Meal and rest breaks (Cal. Labor Code 512) Also UCL, fraud, conversion Federal Fair Labor Standards Act ( FLSA ) (29 U.S.C. 216(b)) Hit record high in 2016 Minimum wage/ off-the-clock Overtime Misclassification of positions Unpaid wages, liquidated damages, attorney s fees, costs, interest Dukes v. Wal-Mart Stores, Inc., 131 S. Ct (2011): Must offer significant proof of a general policy of discrimination for commonality 38

39 Class Action Trends: Employment Action Items: Extensive training for HR and managers Regularly update employee handbooks Enact written meal/rest policy Adopt effective time-keeping measures Conduct wage-and-hour audits When in doubt, engage counsel 39

40 Overview Class Actions Basics Avoiding Class Actions Class Action Trends How To Beat Class Actions 40

41 How to Beat Class Actions: Overview Jurisdiction removal, arbitration, class action waiver Attack the plaintiff Attack the claims Defeat class certification Disprove allegations / merits defense Settlement Litigation discovery, trial (rare) 41

42 How to Beat Class Actions: Jurisdiction Removal Class Actions Fairness Act (2005) ( CAFA ) Expands diversity jurisdiction to permit removal of certain class actions brought under state law in state courts to federal district courts Federal courts generally better for defendants 3 requirements to remove under CAFA Class > 100 members At least 1 plaintiff and 1 defendant are citizens of different states Amount in controversy > $5 million Consider whether to remove state-court class actions that meet CAFA requirements Factors that may impact the decision early settlement; does plaintiff have injury-in-fact; court/judge 42

43 How to Beat Class Actions: Jurisdiction Arbitration Motion to compel arbitration FAA (Federal Arbitration Act); California Arbitration Act ( CAA ) Arbitration agreement waives class claims Federal and California public policy favoring arbitration Is arbitration clause enforceable E.g., Is clause conspicuous such that a reasonable person would notice? Particular inquiry for online agreements Are plaintiff s claims within the scope of the agreement? 43

44 How to Beat Class Actions: Attack the Plaintiff Standing Reliance Injury Relationship with counsel Suitable class representative 44

45 How to Beat Class Actions: Attack the Claims Motion to dismiss (demurrer in CA) Rule 12(b)(6): Do alleged facts in complaint state a plausible claim for relief? Named plaintiff must state a claim on his/her own E.g.: Did consumer herself suffer harm? Purchase product? Rely on advertising? Spokeo, Inc. v. Robins, 136 S.Ct (2016): Plaintiff alleging a violation of a statutory requirement must allege a concrete injury for Article III standing Concrete injury : Must be real, and not abstract Rule 9(b): Imposes a higher pleading standard on fraud-based claims Plead facts re: the who, what, when, where, and how of fraudulent conduct Applies to state-law claims grounded in fraudulent conduct Rule 12(f): Motion to strike class definition 45

46 How to Beat Class Actions: Attack the Claims Injury-in-fact Proposition 64 Injury-in-fact for standing (cannot sue on behalf of public) Kwickset Corp. v. Superior Court, 51 Cal. 4th 310, (2011): UCL/FAL injury-in-fact requirement includes actual reliance on the allegedly deceptive or misleading statements Reasonable consumer test governs UCL, FAL, and CLRA claims Puffery Reliance Preemption Accuracy of statement Materiality Damages/Restitution 46

47 How to Beat Class Actions: Defeat Class Certification Plaintiff has burden of demonstrating 4 requirements of Rule 23(a) and at least 1 of Rule 23(b) 23(a): Numerosity, commonality, typicality, adequacy of representation 23(b): Type of class actions Evidentiary motion: Deposition transcripts, documents, declarations, and expert reports If motion for class certification granted, defendant may appeal Federal: Discretionary petition CA: No appealable order; reviewed for abuse of discretion by petition for writ of mandamus 47

48 How to Beat Class Actions: Settlement Timing: After receipt of demand and before filing of lawsuit Before dispositive motion Before and after class certification decision At any time Preliminary discovery of name plaintiff(s) Mediation Two types: Individual and class-wide settlement (monetary and/or injunctive relief) 48

49 How to Beat Class Actions: Class-Wide Settlement Types E.g., direct benefit; claims made; common fund; floor/ceiling Requires court approval Rule 23(e): Whether settlement is fair, reasonable, and adequate to interests of class Three-step process Preliminarily approval hearing: Is settlement within the range of acceptable settlements? Notice: Notice and terms of the settlement provided to class members Time for class comment, opt out, objection, or participation in settlement Class administrator can be expensive Fairness hearing: All interested parties afforded an opportunity to be heard Show why objectors lack merit 49

50 Conclusion Comments/Questions? 50

51 Class Actions: How to Avoid and, if Needed, Defeat Them Cooley LLP Bill Donovan, Partner Becky Tarneja, Associate September 27 & 28, 2017 attorney advertisement Copyright Cooley LLP, 3175 Hanover Street, Palo Alto, CA The content of this packet is an introduction to Cooley LLP s capabilities and is not intended, by itself, to provide legal advice or create an attorney-client relationship. Prior results do not guarantee future outcome.