D.C. Circuit Avoids Decisive Ruling on Personal Jurisdiction in Class ActionsWe have repeatedly mentioned the long-awaited decision in Molock v. Whole Foods Market Group, Inc. from the District of Columbia Circuit. While we hoped this opinion would finally provide some circuit-level clarity about how the Supreme Court’s Bristol-Myers Squibb decision applies in the class action context, the court instead largely dodged this issue. There are good and useful aspects to the decision though, and it leaves open the door to applying Bristol-Myers to class action claims. However, the wait for a definitive ruling continues.

A quick refresher on the facts: Molock arose from Whole Foods’ alleged manipulation of its incentive-based bonus program. Current and former employees sued in the District Court for the District of Columbia and brought various state law claims. Importantly, the employees sought to represent a putative class of “past and present employees of Whole Foods” — regardless of where the employees lived. Whole Foods sought to dismiss on multiple grounds, including lack of personal jurisdiction, the denial of which was the subject of this interlocutory appeal.

In a 2-1 split opinion, the D.C. Circuit determined that deciding whether Bristol-Myers applies to class action claims would be premature because the putative class members are not yet parties to the action. As a decision to dismiss putative class members before class certification under Rule 23 would be, in its view, “purely advisory,” the court affirmed the district court’s denial of Whole Foods’ motion to dismiss and remanded the case for further proceedings.

Don’t miss the dissent. Senior Circuit Judge Laurence Silberman criticized the majority’s decision to avoid addressing the Bristol-Myers issue. As he points out, the challenge was not the court’s jurisdiction over the putative class members but was rather a challenge on the named plaintiffs’ entitlement to bring those claims on behalf of putative class members. Judge Silberman explained why Bristol-Myers should apply before class certification at the Rule 12 phase. Any impact on the plaintiffs’ ability to bring class action claims would not be so overwhelming because the claims could still be brought where corporations are subject to general jurisdiction (here, by “driving 110 miles down the road and filing this class action in Wilmington”).

Even though this is not the landmark circuit-level opinion we hoped it would be, there are still important takeaways from Molock.

First, waiting to apply Bristol-Myers until class certification is not our preferred result because it has the potential to impose expansive discovery costs. Judge Silberman pointed out the danger of the majority’s approach as it relates to extensive class discovery. To illustrate, the Molock plaintiffs intend to take discovery of payroll records from more than 200 Whole Foods stores, with the potential to expand the class and add nearly 300 other stores. Compared to the five D.C. stores that would be at issue otherwise, Judge Silberman acknowledged the extreme difference in scope and cost. The majority brushed off this concern because, in their view, “concerns about discovery costs must yield to Supreme Court precedent” and district courts have wide-ranging discretion to limit overly burdensome requests. We see no principled reason to impose the burden of class-wide discovery costs when there are no facts that could support subjecting the defendant to nationwide jurisdiction in a forum.

Second, while Molock is not all good for class defendants, neither is it all bad. If the D.C. Circuit thought that Bristol-Myers could not apply to class actions, it easily could have said so. By not addressing the question, the majority signaled a willingness to apply the same personal jurisdiction rules to class actions as apply in non-representative cases. Indeed, by deferring questions of personal jurisdiction to class certification, the court treated absent class members the same way it treats putative class representatives. If that result bears out, Bristol-Myers applies to class actions.

Finally, the dissent effectively outlines potential arguments for companies to make going forward. Beyond just the negative effects of expansive discovery, Judge Silberman repeatedly pointed out the fallacies in many arguments against applying Bristol-Myers in the class action context. This dissent thus provided a roadmap for arguments that may convince other judges and justices in the future. For now, companies facing class exposure will almost certainly continue to assess the need to move to dismiss under Rule 12(b)(2) at the outset of a case and maintain that objection all the way through class certification.

Shortly, we will examine how the Seventh Circuit, in a decision released the same day as Molock, addressed the application of Bristol-Myers to class actions.

State and Federal Regulators Open Probe into 403(b) Plans for TeachersIn what appears to be a growing trend, state and federal regulators are launching investigations into the sales practices and administration of 403(b) retirement plans for school districts.

Two weeks ago, on January 10, 2020, Delaware Attorney General Kathy Jennings announced a settlement with Horace Mann Investors, Inc., concluding the state’s multi-year investigation into the facts and circumstances relating to over 120 403(b) retirement accounts opened by teachers in 2016 and 2017. The accounts were opened with Horace Mann during the state’s transition of its deferred compensation plans from numerous 403(b) independent service providers to a sole provider, Voya Financial. The Delaware Attorney General’s Investor Protection Unit (IPU) alleged and concluded that one of Horace Mann’s registered representatives engaged in dishonest and unethical practices in violation of the Delaware Securities Act by taking unfair advantage of his customers, who were confused about the transition to Voya Financial, by providing them with inadequate or inaccurate information. IPU also alleged and concluded that Horace Mann failed to sufficiently supervise its registered representative. As part of the settlement, Horace Mann and its registered representative will each pay a fine of $250,000 and make a $50,000 payment for investor education for Delaware educators. Horace Mann will also be required to make settlement payments, compensating over 120 teachers for potential loss earnings.

Delaware’s investigation is the most recent in what appears to be a growing trend by state and federal regulators in cracking down on teacher pension plans. In 2014, the Financial Industry Regulatory Authority (FINRA) announced that it had fined Merrill Lynch, Pierce, Fenner & Smith Inc. $8 million for failing to waive mutual fund sales charges for certain charities and retirement accounts and required the firm to make over $24 million in restitution to more than 13,000 small business retirement accounts and over 3,100 403(b) retirement accounts. A year later, the U.S. Securities and Exchange Commission’s (SEC) Office of Compliance Inspections and Examinations announced a multi-year Retirement-Targeted Industry Reviews and Examinations Initiative (ReTIRE Initiative) that will focus on high-risk areas of registrants’ sales, investment, and oversight processes, with emphasis on select areas where retail investors’ savings for retirement may be harmed.  To that end, in late 2019, the SEC launched a broad investigation into the compensation and sales practices of companies that administer 403(b) retirement plans for school districts. Specifically, the agency is seeking details on how administrators, which serve critical roles in selecting investments for 403(b) plans for teachers, choose investment options and police themselves when conflicts of interest arise. The SEC’s announcement came on the heels of New York’s investigation into whether life insurers and their agents were taking advantage of teachers by selling them potentially high-cost and inappropriate investments in 403(b) retirement savings programs.

Though it is difficult to predict how many other states will follow the lead of the SEC, New York and Delaware, with the ReTIRE Initiative in place and the increased activity by both state and federal regulators, investment advisors and broker dealers should review and reflect upon their policies, procedures and practices relating to the sale and management of their 403(b) plans and consider stepping up their focus in this area.

The Eleventh Circuit last month issued a significant class action opinion in Cordoba v. DirectTV, LLC, vacating a class certified in a TCPA class action and remanding the case.    The issue “I told you never to call me here”: Eleventh Circuit Decertifies TCPA Class Containing Absent Class Members Without Article III Standingunderlying the court’s decision was whether large parts of the class as certified had standing.  Because the plaintiff did not establish that common issues regarding class members’ standing predominated over individualized issues, class certification could not stand.

Plaintiff Cordoba alleged that defendants DirectTV and Telecel (a company hired to do telemarketing for DirectTV) failed to maintain “internal do-not-call lists” and called him 18 times, even after he had demanded not to be contacted.  He sued DirectTV and Telecel under the TCPA and sought to represent two classes, one of which comprised all individuals who received more than one telemarketing call from Telecel on behalf of DirectTV during the time period in which Telecel failed to maintain an internal do-not-call list.  The district court certified both putative classes.  DirectTV sought interlocutory review under Rule 23(f), which the Eleventh Circuit granted as to the internal do-not-call list class.

In reversing class certification, the Eleventh Circuit focused on two main issues: Article III standing and predominance under Rule 23(b)(3).

Standing:  The defendants raised two standing challenges.  First, the defendants argued that under the Supreme Court’s decision in Spokeo, the receipt of an unwanted phone call was not, in and of itself, a sufficiently concrete, particularized injury to satisfy Article III’s “injury-in-fact” requirement.  Second, the defendants argued that even if receipt of an unwanted phone call was an “injury in fact,” that injury was not “fairly traceable” to the alleged violation of the TCPA, i.e., the defendants’ failure to maintain an internal do-not-call list.

On the first issue, the Eleventh Circuit ultimately concluded that receiving an unwanted phone call is by itself, an injury in fact, even if such an injury “might not be significant in the grand scheme of things.”  As the court reasoned, in much the same way as the receipt of an unwanted fax can be an injury in fact by tying up resources and diverting attention, unwarranted phone calls also can be injuries in fact because they “use[] some of the phone owner’s time and mental energy, both of which are precious.”

As for whether that injury was “fairly traceable” to the defendants’ failure to maintain a do-not-call list, the court concluded that the named plaintiff had asked not to be called, so he could fairly trace his injury to Telecel’s failure to maintain an internal do-not-call list.  But the court did not stop with the named plaintiff.  It carried its analysis into the certified class and noted that if an individual “never asked Telecel not to call them again, it doesn’t make any difference that Telecel hadn’t maintained an internal do-not-call list.  Telecel could and would have continued to call them even if it had meticulously followed the TCPA and FCC regulations.”  Thus, for class members that did not request to be added to a do-not-call list, their alleged injuries would not be “fairly traceable” to Telecel’s challenged conduct, and they, therefore, would lack Article III standing.

The court rejected the notion that an “unrestricted telemarketing campaign,” standing alone, could give rise to standing.  It found that such a campaign is the kind of bare procedural harm that Spokeo disallows, and it further found that the critical fact for traceability was whether the class member requested to be added to a do-not-call list.  Each class member’s conduct was therefore relevant (and dispositive on the class certification issue).

Predominance:  Having concluded that members of the class who did not ask DirectTV to stop calling them would lack standing, the court then turned to the “more difficult question” of what role “standing” “plays in the class certification analysis.”  In other words, the court then asked so what?

The court began its analysis by noting that proving absent class member standing is not a requirement of class certification.  Instead, the court held that the case as a whole is justiciable if the named plaintiff has standing and that a class can be certified where the named plaintiff has demonstrated his or her standing, even if it is apparent that absent class members may not have standing.  In so holding, the court departed from the majority of circuits, including the Second, Fifth, Eighth, and D.C. Circuits, which have held that a class that includes members who do not have standing cannot be certified.  Instead, the court seemingly joined the minority rule of the Seventh and Third Circuits, which do not require that absent class members have standing as a prerequisite for class certification.

But that was not the end of the inquiry.  Even though not a prerequisite to class certification, the court recognized that proving the standing of absent class members was still relevant to the analysis because absent class members cannot ultimately recover unless they have standing.  At some point, “each plaintiff will likely have to provide some individualized proof that they have standing — i.e., each plaintiff will have to provide some evidence that he or she called Telecel or otherwise communicated that they did not wish to be called, and their injury is therefore traceable to Telecel’s violation of the law.”  The court recognized that the individualized nature of proving standing posed a “powerful problem” to predominance under Rule 23(b)(3), particularly given that the evidence showed that as few as 5% of the putative class members may have asked Telecel not to call them.

Having identified this problem, the court then found that the district court wholly failed to address it.  The lower court made no findings about how to address traceability, and the Eleventh Circuit found this failure to be an abuse of discretion.

Takeaways: We note several main points from Cordoba.

First, in Cordoba, the Eleventh Circuit has seemingly adopted the approach of the First Circuit in dealing with absent class member standing.  That is, although eschewing the adoption of the bright-line rule that operates in the majority of circuits, whereby a class cannot be certified if it includes absent members without standing, the court nevertheless made clear that individualized issues related to absent class member standing could still defeat predominance; but as in many cases, whether predominance is defeated turns on a determination of how much individual litigation would be too much.  A court could potentially certify a class that includes a few members without standing, provided that sorting the wheat from the chaff will not require too much individualized fact-finding.  (However, as we’ve discussed elsewhere, any procedure whereby class members without standing are not removed until post-judgment could run afoul of the Seventh Amendment.)  But it’s a different story for “a class with potentially many more, even a majority, who do not have Article III standing,” and where identifying those with standing and those without will require individualized proof.

Second, standing challenges under Spokeo, as we have noted before, can be the gift that keeps on giving in class cases, and may have more value at class certification than at the motion to dismiss stage. Spokeo can be a powerful tool to defeat statutory class actions, but it is not necessarily a tool that can be used to obtain a dismissal in all cases.  Instead, by requiring class representatives to demonstrate standing across a class of allegedly similarly-situated members, it makes class certification more fact-intensive and thus more difficult.

Third, this case heightens the importance of ascertainability.  Defendants may consider emphasizing that a plaintiff must demonstrate how it will solve concrete standing problems for the people that fall within the class definition, and a plaintiff cannot carry that burden without producing a class definition that draws clear lines between who is in and who is out. At the same time, though, Cordoba highlights that it may not be sufficient to oppose certification merely by arguing that predominance or ascertainability problems exist, without actually proving that those problems are real. Many courts have rejected defendants’ predominance objections as speculative or hypothetical; be prepared, if possible, to prove that the putative class as defined will include a substantial number of members who lack standing or injury and that it will require lots of individualized proof to determine who is a proper class member.