Class Action Settlements

A Look Back at Significant Developments in Class Action Law in 2017From the standpoint of class action practice, 2017 was as important for what did not happen as for what did.  Here are some of the highlights and lowlights of the 2017 class action scorecard, with a look forward to how the impact of some of those developments may be felt in 2018.

A brave new world for personal jurisdiction

If you got out of law school more than a decade or so ago, most of what you learned about personal jurisdiction is now obsolete.  The once determinative “minimum contacts” analysis has now all but gone the way of the human tail. Whatever remains of it is fairly insignificant at this point.  What matters now is the “general” versus “specific” jurisdiction dichotomy. In simplified terms, to the extent the defendant is being sued specifically for sales or other conduct in the forum state, specific jurisdiction perhaps attaches. Otherwise, the defendant is likely subject to suit only where it is incorporated or has its principal place of business.  This lesson was driven home in Bristol-Myers Squibb v. Superior Court of California, San Francisco County, 582 U.S. ___ (2017), where a large number of nonresident plaintiffs joined a large number of resident plaintiffs in a mass action alleging tort claims associated with the drug Plavix.  In an 8-1 decision, the Supreme Court ruled as a matter of substantive due process that there was personal jurisdiction over BSM only as to the claims of the resident plaintiffs.  The prevailing wisdom, and the view of a majority of courts to address the issue since this decision came down, is that the same analysis applies to class actions (e.g., LDGP, LLC v. Cynosure, Inc., Case No. 15 C 50148 (N.D. Ill. Jan. 16, 2018); McDonnell v. Nature’s Way Prods., LLC, No. 16-cv-5011 (N.D. Ill. Oct. 26, 2017); Spratley v. FCA US LLC, No. 3:17-cv-62 (N.D.N.Y. Sept. 12, 2017); In re Dental Supplies Antitrust Litig., No. 16-cv-696 (E.D.N.Y. Sept. 20, 2017); Plumbers’ Local Union No. 690 Health Plan v. Apotex Corp., No. 16-cv-665 (E.D. Pa. July 24, 2017); Jordan v. Bayer Corp., No. 4:17-cv-865 (E.D. Mo. July 14, 2017)).  The effective result would seem to be that a corporation can now be subjected to nationwide class certification only in its home states.  Smart corporations now domiciled in class-friendly jurisdictions will now therefore evaluate whether there is reason to relocate their domicile and principal place of business to more defendant-friendly jurisdictions.

Spokeo produces mixed results for subject matter jurisdiction in statutory damages class actions

It has been more than a year and a half since the Supreme Court handed down its landmark Spokeo, Inc. v. Robins, 578 U.S. ___ (2016) decision, which made clear that Article III requires all plaintiffs to have suffered a “concrete” injury to bring suit in federal court.  Unfortunately, in that time, Spokeo has not become the statutory class action panacea that the defense bar hoped for—and, as we documented in a previous blog post, lower courts attempting to apply Spokeo have done so in often confusing and inconsistent ways.  Spokeo’s application to claims brought under some of the most frequently sued-under federal consumer protection statutes provide a good illustration of this.  For example, courts have reached mixed results when it comes to applying Spokeo to alleged FDCPA violations.  Mere technical timing FDCPA violations, such as a slight delay in sending a required notice that does not result in any prejudice, are almost certainly insufficient to confer Article III standing.  But the outright denial of information may be sufficient, even where there are no allegations that the denial caused any real harm.  Or maybe not.

Alleged FACTA violations have also generated mixed results, including divergent views on whether printing a credit card expiration date is alone sufficient to confer Article III standing (compare Meyers v. Nicolet Rest. Of De Pere, LLC, 843 F.3d 724 (7th Cir. 2016) with Deschaaf v. Am. Valet & Limousine Inc., 234 F. Supp. 3d 964 (D. Ariz. 2017)).  And perhaps most confused is how courts have applied Spokeo to FCRA claims.  For example, in Dreher v. Experian Information Solutions, Inc., the Fourth Circuit held that the failure to provide the sources of credit information on the plaintiff’s credit report was not, by itself, a sufficiently concrete harm to confer Article III standing; a plaintiff must show that the denial of information has caused him “‘real’ harm with an adverse effect.”  In sharp contrast, in In re Horizon Healthcare Services Inc. Data Breach Litigation, the Third Circuit refused to require any showing of harm or a material risk of harm from an alleged FCRA violation, holding instead that in creating a private right of action to enforce the FCRA, Congress demonstrated its judgment that any “violation of FCRA causes a concrete harm to consumers.”  The only relative consistency:  TCPA violations—which generally result in the plaintiff’s phone line being tied up and ink and paper being used—are almost always sufficient to confer Article III standing.

Unfortunately, it doesn’t look like the Supreme Court will provide additional guidance any time soon about how to determine whether an alleged statutory violation has resulted in a sufficiently “concrete” injury for Article III standing purposes.  Earlier this week, the Court denied the Spokeo defendants’ cert petition, which had sought review of the Ninth Circuit’s decision on remand that the plaintiff’s alleged injury in that case—dissemination of false credit information that may have actually improved the plaintiff’s credit score—was sufficient to confer standing under Article III.

The Circuit split over ascertainability gets even deeper

2017 saw the Ninth Circuit join the Sixth, Seventh, and Eighth Circuits in rejecting the (until recently) long-settled notion that Rule 23’s “numerosity” requirement implicitly contains a requirement that the class be ascertainable in an administratively feasible way before a class can be certified.  To varying degrees, these courts endorse concepts like “fluid recovery” and self-identification through affidavits in addition to finding that Rule 23 does not require that the actual class member be known before proceeding past certification to the merits.  This of course presents all sorts of due process concerns for class defendants, who protest the unfair settlement pressure, one-way res judicata effect, and due process problems associated with kicking the class member identification problem to the very end of the class litigation timeline.  The Second, Third, and Eleventh Circuits all still require some meaningful degree of ascertainability.  This is an issue class defendants will want to be sure to preserve if they find themselves in a jurisdiction hostile to the ascertainability requirement.  Class defendants in jurisdictions hostile to an ascertainability requirement will also want to recast any ascertainability problem as one of commonality, predominance, and/or superiority.

American Pipe re-fitting

In a pair of cases, the Supreme Court used 2017 to answer some long unsettled questions relating to class action tolling under American Pipe and Construction Co. v. Utah, 414 U.S. 538 (1974), and Crown, Cork & Seal Co. v. Parker, 462 U.S. 345 (1983).  The American Pipe rule generally holds that the statute of limitations is tolled for the claims of class members during the pendency of a class action until certification is denied or abandoned.  In California Public Employees’ Retirement System v. ANZ Securities, Inc., et al., 137 S. Ct. 2042 (2017), the Supreme Court held that there is no such tolling with regard to rules of repose, and in China Agritech, Inc. v. Resh, Dkt. No. 17-432, it granted cert to resolve a circuit split over whether such tolling applies only to subsequent individual claims by class members or also to successive class actions by class members.

The Congressional Review Act trumps the CFPB’s effort to prevent financial institutions from utilizing class waivers

In 2017, the CFPB finally made good on its threat to ban financial entities from utilizing arbitration clauses with class waivers to avoid or limit class actions. A few weeks later, both houses of Congress invoked the Congressional Review Act to nullify this CFPB rule.  President Trump then signed the nullification resolution, which under the CRA has the effect of prohibiting the CFPB from attempting any similar rule again.  Bradley’s Class Action team chair Mike Pennington was a principal author of DRI’s written comments opposing the CFPB rule.

New amendments to Rule 23 proposed to become effective in December 2018

In 2017, a set of settlement-related amendments to Rule 23 were formally set in motion, on a track likely to make them effective this December. The amendments front-load the evidentiary proof and modernize the notice and objection procedures necessary to achieve so-called “preliminary approval” and “final approval” of a class settlement. On behalf of DRI, Bradley’s Class Action team members Mike Pennington (whose hearing transcript is available here), Scott Smith, and John Parker Sweeney all submitted written comments and testified in public hearings before the Advisory Committee on Civil Rules and its Rule 23 Subcommittee regarding these and other proposed amendments to Rule 23.

SCOTUS holds that voluntary dismissal cannot be used as a tool to seek mandatory appellate review of class certification denials

In Microsoft v. Baker, a unanimous Supreme Court closed a loophole recognized in some circuits that permitted class action plaintiffs to seek immediate appellate review of an adverse class certification decision by voluntarily dismissing their claims with prejudice.  The practical effect of the Court’s ruling is that class action plaintiffs no longer have a mechanism for seeking immediate mandatory appellate review of class certification denials.  Instead, to obtain interlocutory review, plaintiffs must rely on either Rule 23(f), 28 U.S.C. § 1292(b), or a writ of mandamus, all of which give circuit courts discretion on whether to hear an appeal.

Judge Posner retires after nearly 40 influential years on the bench

Arguably the country’s most influential non-Supreme Court jurist ever, Judge Richard Posner retired abruptly from the Seventh Circuit in September 2017.  During his nearly 40 years on the bench, he had tremendous impact in shaping legal views and discourse on a host of issues.  Rule 23 was no exception, as Judge Posner’s views on the appropriateness of class certification have become deeply ingrained in the collective legal consciousness.  For example, relatively early in his career as a jurist, Judge Posner authored several opinions that reigned in class certification excesses, recognizing that plaintiffs often use class certification of dubious claims as a tool to extract “blackmail settlements.”  Notably, in In re Rhone-Poulenc Rorer Inc., 51 F.3d 1293 (7th Cir. 1995), Posner is credited with sounding the death knell for the class treatment of personal injury class actions.

More recently, Judge Posner authored opinions permitting class certification where the class action device was seen by him as the most efficient (and, as a practical matter, only) tool for resolving the class members’ disputes.  As Posner stated in Carnegie v. Household International, Inc., 376 F.3d 656 (7th Cir. 2004), which affirmed certification of a settlement-turned-litigation class, if the individual claims in a putative class are of sufficiently low value, then the “realistic alternative to a class action” may not be “17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.”  Most recently, Judge Posner overturned a series of class action settlements that offered little benefit to the class but huge fees to class counsel (see, e.g., In re Walgreen Co. Stockholder Litig., 832 F.3d 718 (7th Cir. 2016); Redman v. Radioshack Corp., 768 F.3d 622 (7th Cir. 2014); Eubank v. Pella Corp., 753 F.3d 718 (7th Cir. 2014)).  Judge Posner’s immense impact on class action litigation will not be soon forgotten.

SCOTUS to clarify SLUSA’s application to class claims brought under the Securities Act of 1933

Currently pending before the Supreme Court is Cyan, Inc. v. Beaver County Employees Retirement Fund, No. 15-1439 (filed May 24, 2016), which concerns the preemptive scope of the Securities Litigation Uniform Standards Act of 1998 (SLUSA).  By way of refresher, SLUSA preempts all state law causes of action for fraud in connection with the purchase or sale of securities—any such fraud claim must be based on federal law, i.e., the Securities Act of 1933 or the Securities Exchange Act of 1934.  At issue in Cyan is whether SLUSA also divests state courts of jurisdiction to hear class action claims brought under the Securities Act of 1933 (e.g., claims based on fraudulent misrepresentations or omissions in a registration statement).  Federal courts already have exclusive jurisdiction over claims brought under the Securities Exchange Act of 1934 (e.g., 10b-5 securities fraud claims).

Oral argument in Cyan occurred on November 28, 2017, although it only revealed the Court’s complete confusion about how to interpret SLUSA, which was (aptly) described as “obtuse,” “odd,” and, by Justice Alito, “gibberish.”  The Justices’ confusion has been mirrored in the state and lower federal courts, which have reached wildly inconsistent and chaotic results on the issue.  If the Court rules in Cyan’s favor, then all class claims under the Securities Act will have to be brought in federal court, subject to the procedural strictures of the PSLRA.  But if the Court rules in the plaintiffs’ favor, then investors will be able to avoid the PSLRA by filing their Securities Act claims in more favorable state court jurisdictions.  The Solicitor General has also entered the fray, advocating for a hybrid position: that SLUSA permits plaintiffs to bring Securities Act claims in state court, but also permits defendants to then remove those claims to federal court, should they so choose.  We anticipate a decision in the first half of 2018.

A welcome narrowing of the scope of the TCPA

As everyone reading this blog well knows, the TCPA has become a boon for the consumer protection plaintiffs’ bar.  This shouldn’t be surprising, given the TCPA’s (mostly) strict liability, statutory damages of at least $500 per violation (and up to $1500 for “willful” violations), and no damages cap.  Fortunately, however, a pair of D.C. Circuit cases may be beginning to reverse the tide.  First, was the D.C. Circuit’s decision in Bais Yaakov of Spring Valley v. FCC, 852 F.3d 1078 (D.C. Cir. 2017), which struck down an FCC rule that had required senders of faxes to include opt-out notices on all messages, even though the statute itself only required such notices on non-solicited messages.  Now, pending before the D.C. Circuit is ACA International v. FCC, Case No. 15-1211 (D.C. Cir., filed Nov. 25, 2015), which challenges the validity of the FCC’s broad and oft-criticized interpretation of what constitutes an Automatic Telephone Dialing System, as well as FCC rules concerning the identity of the “called party” in the reassigned number context and the means by which a called party may revoke consent.  How the D.C. Circuit resolves ACA International could potentially have a huge impact on stemming the tide of rampant TCPA class actions.

The Fairness in Class Action Litigation Act stalls in the Senate

Finally, the House passed H.R. 985, also known as the “Fairness in Class Action Litigation” Act, in March 2017 by a largely party-line vote.  We have already discussed in detail how the current version of the bill could potentially change class action litigation—and made proposals to improve the bill.  Thus far, the Senate has taken no action on the bill, just as the Senate took no action on an earlier and more modest version of the Fairness in Class Action Act previously passed by the House.  It remains to be seen whether the bill will be revisited this year, although currently there does not appear to be any political momentum to do so.  If the bill does not become law by the end of 2018, then the legislative process will go back to square one.

Due Process Strikes Back: Alabama Supreme Court Vacates $124M Class Settlement Attorneys’ Fee AwardThe Alabama Supreme Court recently vacated a substantial $124 million attorneys’ fee award in connection with a class action settlement (Lawler v. Johnson et al., No. 1151347, — So. 3d –, 2017 WL 4707517 (Ala. Oct. 20, 2017)). Lawler sets some important guideposts for attorneys’ fees in future class settlements in Alabama. The opinion also establishes that settlement objectors need not intervene as parties to have standing to appeal denial of objections. Litigants considering settlement of a class case, and their counsel, should take note.


Lawler involved a claim arising out of the settlement of securities fraud litigation in 1999. The plaintiffs in the Lawler case alleged that the class in the earlier securities litigation was defrauded because the defendant and its insurer did not accurately disclose the amount of insurance available to settle the case. The Lawler litigation ultimately resulted in a $310 million class action settlement in May of 2016 that included an award by the trial court of fees to class counsel in the amount of 40 percent of the recovery, or $124 million.

A few more background facts are in order. The trial court’s preliminary approval order and “long-form” notice to class members that were posted to the settlement website (both approved by the trial court) provided that all objections to the settlement, including objections to class counsel’s fee request, had to be made in writing and on or before July 22, 2016. The order and long-form notice required class counsel to file their fee application by July 29, 2016, a week after the deadline for objections. The long-form notice advised only that class counsel would seek an attorney’s fee, to be paid out of the settlement proceeds, in an amount “not to exceed 40% of the settlement amount plus expenses not to exceed $3,000,000.”  No additional information about fees was disclosed prior to July 29, 2016, when class counsel filed their fee application requesting an award of 40 percent, or $124 million.

The “short-form” notice mailed to class members was inconsistent with the preliminary approval order and long-form notice with respect to the timing of objections. The short-form notice stated that class members could object to the settlement “by filing a written objection and/or by appearing at the settlement hearing.” The Supreme Court viewed this language as giving class members the option of doing either in order to timely object to any aspect of the settlement. No specific date for objections (other than appearance at the approval hearing) was set out in the short-form notice, though it did direct class members to the settlement website and long-form notice, which, as noted above, provided for a July 22 deadline for objections.

The schedule approved by the trial court and set out in the long-form notice required class members to make their objections to the fee request before class counsel was required to file their fee application. This meant that class members wanting to object to the fee request would have to do so without knowing the exact amount of the request, the amount of time expended by class counsel, or the nature of the work done by class counsel, and without having an opportunity to conduct discovery with respect to the fee request. Several objectors filed objections to the fee component of the settlement prior to the July 22 deadline. At least one objector filed an objection after the deadline and appeared at the approval hearing through his counsel. At the approval hearing, class counsel offered only generalized information regarding the time spent on the case and the specific work performed.

Following the approval hearing, the trial court approved the settlement as proposed, awarded class counsel the fees requested, and overruled all objections to the fee request. Several objectors appealed the attorney’s fee award to the Alabama Supreme Court.

The Ruling

The Supreme Court, in a lengthy opinion, overturned the trial court’s approval of the fee award and remanded for further proceedings.

  • The Court held, first, that objectors need not have been intervenors (none of the appellants had sought to intervene as parties) to have standing to appeal the denial of their objections to a class settlement. In so doing, the Court adopted the rationale of the U.S. Supreme Court in Devlin v. Scardelletti, 536 U.S. 1 (2002), and applied that ruling to all class actions, not just to those in which class members do not have the right to opt out.
  • Second, the Court held that objectors had the right to rely on the short-form notice, and that objections asserted at the fairness hearing could not be found untimely since that notice advised that class members could object “by filing a written objection and/or by appearing at the settlement hearing.” The significance of this holding is that ambiguities in and inconsistencies between various forms of notice given to class members will likely be construed in favor of objectors.
  • Third, the Court held that it “is irregular and indeed unlawful” under the due process clause to require objections to class counsel’s fee request before the fee application is required to be filed. The Court rejected the argument that, because class members were told the award could be “up to 40%” of the settlement, they could have timely objected to the “expected request.”
  • Fourth, the Court found that these procedural errors were not harmless, notwithstanding that objectors had full access to the filed fee application prior to the approval hearing and thus were able to respond to it at the hearing. The Court held that the time period between the filing of the fee application and the approval hearing (10 days or five business days) did not provide the objectors sufficient time to prepare their objections to the fee application. The Court noted that 10 days “surely borders on what due process requires.”
  • Fifth, the Court also noted that the fee application did not provide specifics regarding the amount of time expended by class counsel and the nature of the work that was done. The court concluded that class members were entitled to this information before making their objections and that the trial court should consider the information in making its fee award.

Reverse Auction Ploy by Competing Class Counsel Creates Right of Intervention by Class Members Whose Settlement Demands Were UnderbidIn a case that reveals the darker aspects of what can sometimes be an ugly competition for the class counsel role, the Eleventh Circuit rendered an opinion last week finding that a group of plaintiffs were entitled to intervene in a class action settlement by a rival group of plaintiffs.

In Technology Training Assocs., Inc. v. Cin-Q Autos., Inc., a group of plaintiffs and their class counsel filed a class action similar to one already pending, then immediately announced a $20 million settlement. The class claims involved unsolicited “junk” faxes sent to over 180,000 recipients in alleged violation of the Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227. The plaintiffs who had filed the earlier (and still pending) similar class action moved to intervene pursuant to Rule 24, Fed. R. Civ. P., alleging that the defendant and the second group of plaintiffs were collusively settling on more favorable terms with the second plaintiff group, in what is known as a “reverse auction,” to knowingly undercut the higher demands of the first group. The motion to intervene argued that the second group of plaintiffs were inadequately representing the intervenors’ interests because some of those second plaintiffs’ claims were (or could be) barred by the statute of limitations, unlike the claims of the intervenors, which gave the second group of plaintiffs greater incentive to reduce their demands. The district court, however, denied the movants’ motion to intervene, finding that the movants could object at the “fairness hearing” rather than intervene.

In reversing the district court, Chief Judge Carnes, writing for the court, noted that Rule 24’s right to intervene was independent of Rule 23’s procedural protections such that “Rule 23’s procedural protections” did not “mean the movants fail to satisfy Rule 24(a)(2)’s third prong[,]” as the district court found.  In light of this finding, the court went further and analyzed whether the movants for intervention had satisfied their burden of showing that the settling plaintiffs’ representation of the movants’ interest “may be” inadequate. The court found that the movants had met this “minimal” burden, agreeing that the settling plaintiffs had a greater incentive to settle because their claims may be barred by the statute of limitations, an issue the movants did not have.

Even more telling, though, was the court’s finding that the record evidence showed that “plaintiffs’ counsel … deliberately underbid the movants in an effort to collect attorney’s fees while doing a fraction of the work that movants’ counsel did.” Slip Op. at 10. This evidence included some damning emails exchanged between counsel for the defendants and counsel for the low bidding plaintiffs. The court stated that this evidence not only showed that the settling plaintiffs’ (and their counsel’s) interests were aligned with the defendant, such that “plaintiffs cannot be expected to adequately represent the movants’ interests[,]” but also that such a “desire to grab attorney’s fees instead of a desire to secure the best settlement possible for the class” constituted a violation of counsel’s “ethical duty to the class.” (citing Am. Bar Ass’n, Ethical Guidelines for Settlement Negotiations § 4.2.2 (2002)).

The Eleventh Circuit’s decision in Technology Training Assocs., Inc. should serve as another warning to settling litigants that reverse auction settlements are likely to draw increased judicial skepticism, and that communications in the course of such reverse auctions may well become evidence against the settlement.