Almost one year ago, we wrote  about the impact of Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016) on Fair and Accurate Credit Transaction Act (FACTA) class actions and offered practical pointers for defendants confronting FACTA class claims. As we explained, because often the only “harm” from alleged FACTA violations is a theoretical increase in the risk of a potential future injury, such as identity theft, FACTA plaintiffs have difficulty meeting Article III’s injury-in-fact requirement. On March 8, 2019, the Third Circuit Court of Appeals issued its highly anticipated decision in another FACTA case, Kamal v. J. Crew Group, Inc., 2019 WL 1087350, which continues the post-Spokeo trend of requiring a plaintiff to allege more than some speculative, theoretical threat of future harm to establish Article III standing from a FACTA violation.

Third Circuit Reinforces That FACTA Class Actions Remain Ideal Targets for Spokeo ChallengesFACTA strictly—which is to say, draconically—forbids merchants from printing more than the last five digits of a credit or debit card number on any electronically printed receipt provided to the card holder at the point of sale, and provides potentially onerous penalties for violations. Ahmed Kamal, the putative class representative, alleged that J. Crew printed the first six and last four digits of his cards on three separate transactions in 2014 and 2015. After his original complaint was dismissed for failure to allege a concrete injury, Kamal asserted in an amended complaint that he was injured by J. Crew’s disclosure of his private information and by a resulting increased exposure to future identity theft or credit card fraud.  The district court, relying on Spokeo, dismissed the case, ruling that Kamal failed to identify an injury-in-fact sufficient to confer Article III standing. Kamal’s privacy concerns, in the court’s eyes, fell short of recognized privacy interests and instead amounted to a “bare procedural violation divorced from any concrete harm,” and the court determined that J. Crew’s actions had not materially increased Kamal’s risk of identity theft or fraud. Kamal disagreed and appealed.

On appeal, the Third Circuit, following the Supreme Court’s instruction in Spokeo, analyzed whether Kamal’s alleged injuries of disclosure of private information and increased risk of identity theft or fraud enjoyed a “close relationship” to any harms that traditionally have provided a basis for common law privacy torts and breach of confidence. Kamal argued that he faced a real risk of identity theft because the first six digits identified his issuing bank and card type and that the receipts further identified his card issuer by name. The court declined to exalt this possibility of future events into a present injury. It noted that the information was not disclosed to a third party. Indeed, it appeared only on a printed receipt provided to Kamal. The Third Circuit recognized that receiving a printed copy of your own credit card number is not an injury that bears a “close relationship” with harms that traditionally provide a basis for analogous common law claims. Similarly, the court found Kamal’s argument that J. Crew created a risk of identity theft or card fraud unpersuasive. Notably, the risk could only be material if the receipts fell into a nefarious third party’s hands, and only if that third party would be able to obtain the remaining card digits and the expiration date, security code or other information needed to use the card—none of which had occurred in that case. The court declined to find a concrete injury from this “speculative chain of events.”

The lack of a “close relationship” between the alleged injuries and the harms associated with analogous common law claims led the Third Circuit to hold that Kamal lacked Article III standing to bring the FACTA class action. But there is a procedural wrinkle worth highlighting: The Third Circuit vacated the district court’s order dismissing the lawsuit with prejudice—even though Kamal had requested the order with prejudice as a final order for appeal—and remanded the case for the limited purpose of entering an order of dismissal without prejudice. The Third Circuit reasoned that because Kamal did not have standing, the district court lacked subject matter jurisdiction over decisions on the merits over the case and, therefore, it was improper to grant a dismissal for lack of standing with prejudice.

Kamal reinforces several of the main takeaways for defendants that we set forth in our previous post:  (1) Class actions based on federal statutory violations may be vulnerable to concrete injury, Article III standing challenges, particularly where, as in Kamal and many other FACTA class actions, the alleged harm is a theoretical, conjectural increase in the risk of future injury; and (2) even if the court does not ultimately dismiss the case, contesting plaintiffs’ allegations of injury on Spokeo grounds may result in individualized allegations of harm ultimately helpful to oppose class certification. But Kamal also shows the limits of a successful jurisdictional challenge, as the Third Circuit’s decision to remand the case shows. Several conflicting strategic considerations inform how companies can best challenge federal statutory class actions, and there is no one-size-fits-all solution.

TIME STOPS FOR NO ONE: The Supreme Court Addresses Timeliness Issues in Two Separate Class CasesThe U.S. Supreme Court suddenly seems to have a little time on its hands. Or at least on its mind. In two different class action cases on its docket this week, the question at hand was timeliness.

First, in Nutraceutical Corp. v. Lambert, the Supreme Court ruled that Rule 23(f)’s 14-day time limit for filing a Rule 23(f) petition for permission to appeal from an order granting or denying class certification is not flexible and is not subject to equitable tolling. The window for filing a Rule 23(f) petition opens when the certification order is entered and slams shut exactly 14 days later, at least absent a motion to reconsider filed within that 14-day window.

Plaintiff’s counsel seemed to have a little judicial help in getting themselves wrapped around the timeliness axle. The case was filed as a class action alleging misleading marketing of a dietary supplement in contravention of California law. The trial court initially granted class certification, but on February 20, 2015, changed its mind and decertified the class. At a status conference 10 days later, would-be class counsel informed the district judge that plaintiff would be filing a motion to reconsider. The trial court told plaintiff to file any such motion on or before March 12, a deadline that was some 20 days after the decertification order. However, neither plaintiff nor the court mentioned anything about a 23(f) appeal. Plaintiff’s counsel filed a motion to reconsider on March 12, and the trial court denied it on June 24, 2015. Fourteen days after that, plaintiff’s counsel filed a 23(f) petition with the Ninth Circuit.

The Ninth Circuit tried to cut plaintiff’s counsel some slack. It ruled that the time limit of Rule 23(f) was not jurisdictional, and therefore was subject to equitable tolling. The court found that the plaintiff qualified for equitable tolling because his counsel “informed the [District Court] orally of his intention to seek reconsideration” within Rule 23(f )’s 14-day window, relied on the district court’s sua sponte March 12 deadline for filing reconsideration, and “otherwise acted diligently.” Therefore, the petition for permission to appeal would be deemed timely. For good measure, the Ninth Circuit also granted permission to appeal and reversed the decertification order.

But the Supreme Court said “not so fast.” It agreed that Rule 23(f)’s time limit is not jurisdictional, but explained that was not the end of the story. “Whether a rule precludes equitable tolling turns not on its jurisdictional character but rather on whether the text of the rule leaves room for such flexibility.” Here, Federal Rules of Appellate Procedure 2 and 26(b) expressly combine to remove Rule 23(f) appeals from among those provisions of the rules that may be suspended in the discretion of the appellate court, the latter stating that a court of appeals “may not extend the time to file . . . a petition for permission to appeal.” This was the end of the inquiry as far as SCOTUS was concerned. The very textualist opinion was unanimous and was written by Justice Sotomayor.

The opinion notes, but pointedly does not endorse, the fact that every circuit court to address the issue so far has ruled that a motion for reconsideration filed within the 14-day window after the order on class certification postpones the time for 23(f) appeal. But this is not a matter of tolling, the court explained: A “timely motion for reconsideration filed within a window to appeal does not toll anything; it renders an otherwise final decision of a district court not final for purposes of appeal.” Interestingly, the court also punted back to the Ninth Circuit two arguments the plaintiff made that his appeal was timely even without equitable tolling. The first was his argument that even if his motion for reconsideration was not filed within 14 days of the decertification order, it was filed within the time allowed for reconsideration motions, and a timely reconsideration motion should cause the time to appeal to run from the disposition of the reconsideration motion, not from the original order decertifying the class. The second was his argument that the denial of reconsideration was itself an order subject to 23(f) appeal as an order denying class certification. All of these reserved questions will surely be litigated, and in time could end up back in front of the Supreme Court.

Meanwhile, in Rotkiske v. Klemm, the High Court just agreed to decide whether the one-year statute of limitations for class and individual claims brought under the Fair Debt Collection Practices Act begins to run from the moment of the violation or from the plaintiff’s discovery of the facts giving rise to the violation. The Third Circuit says it runs from the moment of violation regardless of the time of discovery. The Fourth and Ninth Circuits disagree. The issue is important to class action practice because the FDCPA is one of those many “gotcha” statutes that offer classwide statutory damages for technical violations, and a discovery rule could reopen endless events of the past to fresh litigation today.

We will continue to monitor the ripples from both of these cases.

They Don’t Call It the Wild West for Nothing: The Ninth Circuit Reverses Denial of Class Certification because Trial Court Kept out Inadmissible EvidenceThe Ninth Circuit’s decision not to grant en banc rehearing in Sali v. Corona Regional Medical Center should all but guarantee that the issue of expert testimony at the class certification stage is heading to the Supreme Court.

Sali involved a declaration that was created by a paralegal at one of the firms representing the plaintiffs and then offered to establish typicality under Rule 23(a)(3). The paralegal purported to analyze various time entries, and offered opinion testimony that the named plaintiffs’ claims were typical of the class members’ claims. Everyone agreed that the declaration was not admissible. The district court kept the spreadsheet out and, because the plaintiffs had no other evidence of typicality, declined to certify the class. The plaintiffs appealed.

The Ninth Circuit reversed. Instead of engaging directly on the issue of whether the declaration was inadmissible, it decided that the district court should not have considered the question of admissibility at all, stating “[i]nadmissibility alone is not a proper basis to reject evidence in support of class certification.” In place of the bright-line rule of admissibility, the Ninth Circuit proposed a sliding scale where the district court should consider whether the evidence could conceivably be offered in admissible form at trial—but that at the class certification stage, admissibility problems merely go to the weight of the evidence, not whether it should be considered.

The Ninth Circuit frequently referred to the admissibility standard as “formalistic” or overly restrictive. For example, in noting that the paralegal declaration was the only evidence of typicality, the Ninth Circuit called the district court’s evidentiary standard “narrow” and said the remaining evidence “tells us nothing about the satisfaction of the typicality requirement”—which is why the district court denied class certification for lack of evidence of typicality.

This decision has far-reaching consequences.

  • First, the practice-point takeaway is that defendants in the Ninth Circuit cannot rely on evidentiary objections alone to avoid class certification. Instead, they must engage on the merits of the plaintiff’s evidence while simultaneously pointing out any admissibility problems that exist. Defendants must also consider making their own record affirmatively showing that the class cannot be certified.

 

  • Second, allowing inadmissible evidence tilts what are supposed to be the neutral scales of justice decidedly in favor of class certification. By expanding the relevant record to include matters that could never be admitted as evidence or as expert testimony, the Ninth Circuit’s rule all but invites plaintiffs to rely on unfounded theories, unsupportable conclusions, or incompetent witnesses. While it is hoped that district courts will continue to use their discretion to certify only such classes as are supported by sufficient evidence, the Ninth Circuit’s decision will of course lead to more classes being certified in that circuit, particularly when that court seems to believe that the Rules of Evidence and Rules of Civil Procedure are excessively “formalistic” and “narrow” and therefore to be applied sparingly.

 

  • Third, this issue is now likely to head to the United States Supreme Court because the circuits have irreconcilably split on this issue. The Ninth Circuit has adopted the loosest rule of admissibility, while the Eighth Circuit has also held evidence need not be admissible to be considered at class certification (In re Zurn Pex Plumbing Prods. Liab. Litig., 644 F.3d 604, 611 (8th Cir. 2011)). On the other side, the Third, Fifth, and Seventh Circuits have required district courts to decide admissibility questions at class certification—at least when it is critical to certification issues (In re Blood Reagents Antitrust Litig., 783 F.3d 183, 187 (3d Cir. 2015) — “We join certain of our sister courts to hold that a plaintiff cannot rely on challenged expert testimony, when critical to class certification, to demonstrate conformity with Rule 23 unless the plaintiff also demonstrates, and the trial court finds, that the expert testimony satisfies the standard set out in Daubert”; Unger v. Amedisys Inc., 401 F.3d 316, 325 (5th Cir. 2005) — “When a court considers class certification based on the fraud on the market theory, it must… base its ruling on admissible evidence”; Messner v. Northshore Univ. Health Sys., 669 F.3d 802, 812 (7th Cir. 2012) — requiring a district court to make “a conclusive ruling on any challenge to that expert’s qualifications or submissions before it may rule on a motion for class certification” when the expert’s testimony is “critical”). Unpublished opinions from the Sixth and Eleventh Circuits also require admissibility as a threshold (see In re Carpenter Co., 2014 WL 12809636, at *3 (6th Cir. 2014); Sher v. Raytheon Co., 419 F. App’x 887, 890 (11th Cir. 2011)). Given that the Ninth Circuit’s opinion candidly acknowledges that “[o]ther circuits have reach varying conclusions” on this issue and that the dissent from the denial of en banc rehearing notes that Sali “puts our court on the wrong side of a lopsided circuit split,” this circuit split calls for resolution. Indeed, the Ninth Circuit appears to have split with itself in Sali, given that a different panel of the court had previously held that evidence must be admissible to be considered at class certification in Ellis v. Costco Wholesale Corp., 657 F.3d 970 (9th Cir. 2011).

 

  • Fourth, when the time comes, we anticipate that the Supreme Court will reject the Ninth Circuit rule. Analagous dicta from Wal-Mart Stores, Inc v. Dukes already signaled which way the court is likely leaning: “The District Court concluded that Daubert did not apply to expert testimony at the certification stage of class-action proceedings. We doubt that is so….” Moreover, the Comcast decision turned on the evidentiary value of expert testimony admitted by the District Court. If the Supreme Court shared the Ninth Circuit’s view, it likely would not have attached such significance to the scope of the expert’s opinion in that case. Indeed, the Supreme Court has repeatedly stated that Rule 23 is not a mere pleading standard, yet the Ninth Circuit has effectively converted it to such.

 

  • Lastly, hiding beneath the larger issues in this case is a lesson about the importance of local rules. It is possible that the Ninth Circuit’s analysis in this case is driven by the Central District of California’s local rules that require a plaintiff to move for class certification within 90 days of commencing a putative class action. That compressed timeline does not allow for much discovery on the evidence supporting the class certification prerequisites, and virtually requires a truncated evidentiary record. While Rule 23 requires deciding class certification as soon as practicable, 90 days is too fast for most cases, particularly those of any complexity. Class certification can be dipositive of a case in practice and so should not be rushed. Had the local rules allowed adequate time for discovery, the District Court could have relied on a more mature record and applied evidentiary standards more akin to summary judgment.