As discussed in a post last year, on March 19, 2013, Justice van Rensburg of the Ontario Superior Court of Justice issued an opinion relating to overlapping class action proceedings against IMAX Corporation (“IMAX”) in the United States and Ontario, Canada (the “March 2013 Order”).  In her decision, Justice van Rensburg recognized a U.S. class action settlement with IMAX, which had already been approved by a U.S. Court and amended its previous decision certifying a “global” class of investors that acquired IMAX shares on both the NASDAQ and TSX stock exchanges.  The March 2013 Order amended the definition of the Ontario global class by removing all persons previously within the Ontario global class who decided to participate in the settlement arising out of the parallel U.S. proceedings, and approved by the U.S. Court.  The removal from the Ontario global class of all class members who would partake in the U.S. settlement was a condition of that settlement and prevented any double recovery from both jurisdictions.

Shortly after the decision, Plaintiffs in the Canadian Action appealed the March 2013 Order.

On October 29, 2013, Justice Tzimas of the Ontario Superior Court of Justice issued an order denying the Canadian plaintiffs’ July 29, 2013 motion for leave to appeal the March 2013 Order.  See Silver v. IMAX Corp., [2013] ONSC 1667 (Can. Ont. Sup. Ct. J.), Reasons for Judgment, October 29, 2013.   A copy of that decision can be found here.  In rejecting the Canadian plaintiffs’ motion for leave, Justice Tzimas determined, among other things that, “The amendment of the class would facilitate the exercise of a class member’s litigation autonomy. It would not take anything away. Nobody would be forcing a class member to exercise his option on the day of reckoning in one way or another.  To the contrary, a refusal to amend the class would effectively extinguish the U.S. settlement completely, and therefore, take away the settlement option from the class members who wanted to settle their claim.”  Id. at ¶44.

In November 2013, after the parties in the U.S. Class Action determined that the March 2013 Order is now final and unappealable, Lead Plaintiff in the U.S. Class Action moved the U.S. Court for entry of final judgment.  On November 21, 2013, the Court entered a final judgment dismissing all claims against defendants IMAX, Richard L. Gelfond, Bradley J. Wechsler, Francis T. Joyce and PricewaterhouseCoopers-Canada LLP (the “Final Judgment Order”).   The Final Judgment Order permits the U.S. settlement to be concluded and payments to eligible claimants to proceed.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.

A recent Pennsylvania State Court order granting a defendant’s motion to compel the production of one of the plaintiff’s Facebook log-in credentials found that social media accounts–even if set to private–are fair game in discovery.

In Largent v. Reed, Case No. 2009-1823 (C.P. Franklin Nov. 8, 2011), a personal injury case, the plaintiffs alleged serious and permanent physical and mental injuries, pain and suffering resulting from a motorcycle-automobile accident.

During the deposition of one of the plaintiff’s, Jennifer Largent, the defendant learned that Ms. Largent had a Facebook profile and that she used it regularly. However, she declined to disclose any information about the account and plaintiffs’ counsel advised that it would not voluntarily turn over such information.

Months prior, Ms. Largent’s profile was public, meaning that anyone with an account could read or view her profile, posts and photographs, but she changed her privacy settings to private.

In support of its motion to compel, the defendant claimed that some of Ms. Largent’s posts that had been publicly accessible contradict plaintiffs’ claims and, specifically, that Ms. Largent posted several photographs that show her enjoying life with her family and a status update about going to the gym.

Plaintiff argued that the discovery sought by the defendant was irrelevant, that disclosure of her Facebook account access information would cause unreasonable embarrassment and annoyance, and that such disclosure may violate certain privacy laws.

The Court was not persuaded. As Judge Walsh explained, “[o]nly the uninitiated or foolish could believe that Facebook is an online lockbox of secrets.”

After reviewing a small but growing body of relevant case law, the Court found that “it is clear that material on social networking sites is discoverable in a civil case.” Information posted to the social media site is shared with third parties and, thus, there is no reasonable expectation of privacy in such information. The plaintiffs failed to cite any privacy law applicable to individuals that would shield production. And that, because defendant would bear the cost of investigating plaintiff’s Facebook profile, “this is one of the least burdensome ways to conduct discovery.”

The ruling is well-reasoned and consistent with existing case law, suggesting that this issue is likely to be widely resolved in favor of disclosure.

As such, we believe plaintiffs’ counsel should make discussing their clients’ social media accounts a routine part of their intake procedures depending on their practice areas and that litigants should be aware that setting a Facebook page to “private” does not necessarily mean it will be out of bounds in Court.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.

In Corvello v. Wells Fargo Bank, NA, 11-16234, 11-16242, 2013 WL 4017279 (9th Cir. Aug. 8, 2013) (a copy of the opinion can be found here), the Ninth Circuit reversed the lower Court’s dismissal of two consolidated class action complaints, holding that if a borrower complies with a standardized Home Affordable Modification Program (“HAMP”) trial period plan (“TPP”), the mortgage servicer is contractually required to either offer a permanent modification or promptly notify the borrower, in writing, that he or she does not qualify.

In aligning with the Seventh Circuit’s decision in Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012), the Ninth Circuit rejected Wells Fargo’s argument that the promise to provide a permanent modification is not enforceable where a fully-executed modification may not have been delivered.  Corvello, 2013 WL 4017279 at *4.  Citing Wigod, the Ninth Circuit recognized that banks are “required to offer permanent modifications to borrowers who completed their obligations under the TPPs, unless the banks timely notified those borrowers that they did not qualify for a HAMP modification.”  Corvello, 2013 WL 4017279 at *4.  In reversing the district Court, the Ninth Circuit held in relevant part:

Wells Fargo’s interpretation of the TPP was suspect because it allowed banks to avoid their obligations to borrowers merely by choosing not to send a signed Modification Agreement, even though the borrowers made both accurate representations and the required payments. As the Seventh Circuit put it, Wells Fargo’s interpretation would allow it to “simply refuse to send the Modification Agreement for any reason whatsoever—interest rates went up, the economy soured, it just didn’t like [the Borrower]—and there would still be no breach … turn[ing] an otherwise straightforward offer into an illusion.” Wigod, 673 F.3d at 563

We believe the reasoning in Wigod is sound. Paragraph 2G cannot convert a purported agreement setting forth clear obligations into a decision left to the unfettered discretion of the loan servicer. The more natural and fair interpretation of the TPP is that the servicer must send a signed Modification Agreement offering to modify the loan once borrowers meet their end of the bargain.

 ***

Wells Fargo’s own failure to fulfill the notification obligation does not deprive plaintiffs of the benefits of their agreement.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.

A recent ruling in the United States District Court for the District of Maryland reaffirms a defining characteristic of the collective action.

Potential claimants’ legal rights are preserved unless and until they affirmatively agree to “opt in” to the litigation. They may elect to participate, file an individual lawsuit or do nothing at all.

With class actions, which proceed under Federal Rule of Civil Procedure 23, the situation is reversed. Potential claimants must affirmatively “opt out” of a certified action otherwise their legal rights will be resolved in the litigation.

As such, inaction by potential claimants may result in very different consequences depending on whether the claims are being resolved under the FLSA or Rule 23.

In Vetter v. GEICO General Insurance Company, et al., No. 8:13-cv-00642 (D. Md. Sept. 25, 2013), the court was confronted with a second motion for conditional certification and judicial notice under the FLSA for a group of GEICO Security Investigators who the plaintiffs claimed had been misclassified as exempt and, thus, not owed overtime pay.

Defendants claimed that the plaintiffs were precluded from seeking collective treatment in the latter case because they had previously received notice in a prior case and elected not to participate.

However, the plaintiffs correctly argued that the law is clear that the opt-in provision of FLSA provides for no legal effect on those parties who choose not to participate. Despite the identical nature of the two proceedings, the plaintiffs also argued that a second judicial notice was still appropriate because the prior notice was obviously ineffective to notify potential plaintiffs of their right to opt in to the new case.

The court sided with the plaintiffs and granted the motion for conditional certification and judicial notice.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.

We have another update regarding litigation involving the United States Treasury’s Home Affordable Modification Program (“HAMP”).  See some of our HAMP related posts here, here and here. As explained in some of our prior posts, the HAMP was created by the federal government to combat the national foreclosure crisis. The program was specifically designed to allow eligible homeowners who are about to default on their mortgages to save their homes by modifying the terms of their loans.

The HAMP was supposed to work in the following way. Under the program, mortgagors seeking to reduce their monthly mortgage payments, make an application to their loan servicer and request a loan modification. After a borrower applies for a loan modification, loan servicers are required under HAMP regulations to determine, based on all financial information submitted by the borrower, whether the borrower is eligible for a loan modification which would reduce the borrower’s monthly loan payment. Before a borrower receives a permanent modification, a loan servicer and a borrower enter into a three-month trial period, during which the borrower makes lower monthly payments towards his/her mortgage.

In most cases, the terms of the trial period are governed by a form trial period payment contract (the “TPP”). The TPP usually explains that the lender will send the borrower a permanent modification agreement if: (i) the borrower’s representations about his financial state continue to be true, and (ii) the borrower complies with the terms of the TPP (including making three timely trial payments). The TPP also states that at the end of the three month trial period the loan servicer will provide the borrower with a permanent modification if he/she is qualified, or will send the borrower a written denial if he/she does not qualify.

Back in May 2012, several plaintiffs filed a putative class action complaint in the Eastern District of Pennsylvania alleging that defendants Saxon Mortgage Services, Inc. (“Saxon”) and Ocwen Loan Servicing, LLC failed to permanently modify their mortgage loans after they fully complied with all of their obligations under the TPP. The complaint included claims for breach of contract, breach of the duty of good faith and fair dealing, promissory estoppel, violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, and Violation of the Fair Debt Collection Practices Act.

In its motion to dismiss, defendant Saxon argued that plaintiffs’ had failed to adequately allege that it had a duty under the TPP to provide plaintiffs and other homeowners with permanent modifications.  Based on Saxon’s interpretation of the TPP, it was not obligated to permanently modify plaintiffs’ mortgages until it determined after the trial period was complete that plaintiffs were qualified under the HAMP guidelines.

In an opinion dated May 9, 2013, the Honorable John Padova rejected Saxon’s argument finding that the TPP obligated Saxon, after it returned the executed TPPs to plaintiffs, to provide plaintiffs with permanent modifications as long as the plaintiffs made all of their trial payments on time and their financial information continued to be true and accurate. In his ruling, Judge Padova stated, “[i]n sum, we conclude that Saxon’s theory that the TPP permitted it to determine whether Plaintiffs qualified under HAMP guidelines after the trial period began conflicts with the plain terms of the TPP.”

As part of Saxon’s motion to dismiss, it also argued that plaintiffs’ alleged damages (i.e. payment of increased interest, longer loan payoff times, higher principal balances, deterrence from seeking other remedies to address their default and/or unaffordable mortgage payments, damage to their credit, additional income tax liability and costs and expenses incurred to prevent or fight foreclosure) were not the result of its refusal to provide plaintiffs with permanent modifications, but instead resulted from plaintiffs’ default on the terms of their original mortgages.  The Court rejected Saxon’s argument holding plaintiffs had adequately alleged damages:

If Saxon had provided Plaintiffs with permanent modifications, it is reasonable to infer that they would not have incurred, inter alia, increased principal, interest, and longer loan payoff times that accrued after the end of their trial periods, and may have sought other remedies to address their unaffordable mortgage payments.

Saxon’s motion to dismiss was denied in its entirety and the plaintiffs will now seek class certification.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.  Abbey Spanier is following many of the HAMP related class action lawsuits and will report on any significant litigation developments.

On March 19, 2013, Justice van Rensburg of the Ontario Superior Court of Justice issued an important decision relating to overlapping class action proceedings against IMAX Corporation (“IMAX”) that are currently pending in the United States and Ontario, Canada.  In the opinion, the Ontario Court recognized a U.S. class action settlement with IMAX, which has already been approved by a U.S. Court and amended its previous decision certifying a “global” class of investors that acquired IMAX shares on both the NASDAQ and TSX stock exchanges.  See Silver v. IMAX Corporation, 2013 ONSC 1667 (March 19, 2009, Sup. Ct. J.).  A copy of the Order can be found here. The Canadian decision is significant for practitioners involved in parallel securities class actions in the United States and Canada.

Background to the IMAX Parallel U.S. and Canadian Proceedings

In August 2006, IMAX announced that it was in the process of responding to an informal inquiry from the Securities and Exchange Commission concerning the timing of revenue recognition, and specifically, its application of multiple element arrangement accounting to revenue derived from theater system sales and leases. This disclosure severely impacted the value of IMAX’s stock which dropped by approximately 40% following the announcement.  At that time, IMAX was incorporated under the laws of Canada, duly headquartered in Canada and New York and held a dual-listing on the NASDAQ and TSX stock exchanges.

Following the announcement of the SEC’s investigation, class action lawsuits were commenced in the United States District Court for the Southern District of New York (“U.S. Court”) alleging that IMAX and other defendants made material misrepresentations and omissions regarding revenue recognition for theater systems in violation of the federal securities laws.  The U.S. actions were not the only proceedings triggered by the disclosure of IMAX’s revenue recognition issues.  On September 20, 2006, following the filings of the U.S. class actions, a parallel class action lawsuit captioned Silver v. IMAX Corporation, Court File No. CV-06-3257-00, was filed in the Ontario Superior Court of Justice, Canada (the “Canadian Action”) against IMAX and other defendants alleging, based on substantially identical facts to those alleged in the U.S. actions, that IMAX made material misrepresentations and omissions regarding revenue recognition for theater systems.

After the U.S. actions were consolidated, an amended complaint was filed against the defendants by the lead plaintiff in the U.S. Court. After briefing by the parties, on September 15, 2008, the defendants’ motions to dismiss were denied by the U.S. Court.  See In re IMAX Sec. Litig., 587 F. Supp. 2d 471 (S.D.N.Y. 2008).  Shortly after discovery commenced in the U.S. Action, the lead plaintiff moved for class certification (seeking a global class of investors).  However as a result of the Second Circuit’s decision in W.R. Huff Asset Management Co., LLC v. Deloitte & Touche LLP, 549 F.3d 100 (2d Cir. 2008), several procedural issues surfaced that complicated and derailed the progress in the U.S. Action. In the intervening time period, the Canadian Action started progressing more rapidly and the parties completed class certification discovery and submitted briefing on plaintiffs’ motion for certification of a global class.

On December 14, 2009, the Canadian Court certified the Canadian Action on behalf of  investors worldwide who acquired IMAX’s common stock on the NASDAQ or Toronto Stock Exchange. See Silver v. IMAX Corporation, [2009] O.J. No. 5585, 2009 ON.C. LEXIS 4847 (Dec. 14, 2009, Sup. Ct. J.).  The certified class in the Ontario proceedings was defined as: “All persons, other than the Excluded Persons, who acquired securities of IMAX during the Class Period on the TSX and on the NASDAQ on or after February 17, 2006 and held some or all of those securities at the close of trading on August 9, 2006.” At the time, the Canadian order certifying a “global class” of IMAX investors was unprecedented in Canadian class action procedure.

The U.S. class action was able to get back on track and by November 2011, the parties in the U.S. Action commenced settlement negotiations and reached a final settlement agreement in March 2012. In light of the Supreme Court’s decision in Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010), the settlement class included only those who “purchased or otherwise acquired IMAX shares on the NASDAQ from February 27, 2003 through July 20, 2007” and excluded those who purchased IMAX stock on the Toronto Stock Exchange.  In order to address the overlap between the U.S. class and Canadian class (overlapping class members are those who purchased or acquired their IMAX shares on the NASDAQ between February 17, 2006 and August 9, 2006) the settlement agreement was conditioned on the entry of an order in the Canadian Action that excluded from the Canadian class any investor who did not opt out of the U.S. class (the “Canadian Order”).  If the Canadian Order was not granted, the settlement would not proceed and the parties to the U.S. Action would revert back to their previous litigation positions.

After the U.S. Court preliminarily approved the settlement on March 28, 2012, the IMAX defendants made a motion to the Canadian Court to amend the “global” class definition to exclude from the certified Canadian class all persons who would be bound by a final judgment in the U.S. settlement.

On April 27, 2012, notice was published in the U.S. Action.  The U.S. notice described the parallel U.S. and Canadian class actions, noted the differences in the proceedings and advised all class members (i.e. those who purchased or otherwise acquired IMAX shares on the NASDAQ between February 27, 2003 and July 20, 2007) of their right to remain in the class in the U.S. Action and be eligible to claim their settlement compensation, or to opt-out, and pursue their own individual action, or opt-out and elect to remain instead in the class in the Canadian Action (i.e. those who purchased IMAX securities on the NASDAQ on or after February 17, 2006 and held some or all of those securities on August 9, 2006).  Presumably overlapping class members would opt-out of the U.S. settlement and choose to remain in the Ontario class if they thought that they would receive a better recovery in the Canadian Action.  If an overlapping class member did not opt out of the U.S. Action, they would automatically be bound and deemed to be a member of the class in the U.S. Action and excluded from the Canadian Action.

A fairness hearing to consider the final approval of the U.S. settlement was held in the U.S. Court on June 14, 2012, resulting in an Order dated June 20, 2012 (the “U.S. Fairness Decision”) determining that the U.S. settlement was fair, reasonable and adequate and in the best interests of the U.S. class.  In re IMAX Sec. Litig., No. 06-6128 (S.D.N.Y. June 20, 2012). Although the U.S. settlement was approved, finality of the settlement is contingent on the Canadian Court amending the class definition and the Canadian Order becoming final and unappealable.

The Canadian Court’s March 19, 2013 Order

Approximately a year after the defendants made their motion to the Ontario Court to amend the global class definition, on March 19, 2013, Justice van Rensburg issued a detailed opinion granting the motion.  In granting the defendants’ motion, Justice van Rensburg first determined that under Sections 5(1)(d), 8(3) and 10(1) of the Ontario Class Proceedings Act, 1992, S.O. 1992, c. 6, the Ontario Court had authority to amend its previous order certifying a “global” class.  Justice van Rensburg noted in the opinion that her original decision to certify a global class “contemplated [   ] that this issue could be revisited depending on what occurred in the parallel U.S. proceedings.”  Silver, 2013 ONC 1667, para. 67.

As part of her consideration to amend the certified global class, Justice van Rensburg determined that the Court needed to recognize the U.S. Fairness Decision and consider whether the Canadian Action remained the “preferable procedure” for resolving the claims of overlapping class members who did not opt out of the U.S. Settlement.  Silver, 2013 ONC 1667, para. 83-85.  When determining the issue of recognition, the Court applied the factors from the Canadian Court of Appeal’s decision in Currie v. McDonald’s Restaurants of Canada Ltd., (2005), 74 O.R. (3d) 321 (C.A.).

After applying the Currie analysis, Justice van Rensburg concluded that the test had been satisfied to formally recognize the U.S. Fairness decision because (i) there was a “real and substantial connection” with the claims of the overlapping class members and the U.S. Court; (ii) overlapping class  members were accorded procedural fairness (including adequate notice) by the U.S. Court; and (iii) the overlapping class members’ rights were adequately represented by an appropriate lead plaintiff representative and U.S. class counsel. Silver, 2013 ONC 1667, para. 105-133.  In granting defendant’s motion to amend the class definition, Justice van Rensburg stated:

I have applied the factors from the Court of Appeal’s decision in Currie with respect to when a decision of a foreign court purporting to settle claims of class members that are the subject of parallel proceedings in Ontario, will be given preclusive effect. Having determined that the U.S. Court has a “real and substantial connection” with the claims of the overlapping class members, I have considered whether there was procedural fairness in the treatment of such claims (including the adequacy of notice and representation in the proceedings). Having found that the U.S. Settlement should be recognized, I have considered all of the circumstances, including the current status of these proceedings, before concluding that the Ontario Action is no longer the ‘preferable procedure’ for the determination of the claims of class members whose claims are covered by, and who have not opted out of, the U.S. Settlement. The class definition in these proceedings is amended accordingly.

Silver, 2013 ONC 1667, para. 18.

In opposition to the defendants’ motion, Canadian plaintiffs’ counsel had argued that the U.S. settlement was insufficient, unfair and that granting defendants’ motion would “rip the guts out” of the pending Canadian Action. Silver, 2013 ONC 1667, para. 7. In response to that argument, Justice van Rensburg appropriately observed that:

It is not the function of this court to seek to jealously guard its own jurisdiction over a class proceeding that has been certified here. Such an approach is inconsistent with the principles of comity. It is also not the function of the court to favour or protect the interests of class counsel within this jurisdiction, knowing that they have invested time and resources into the litigation, and that their compensation will depend on the size of the judgment or settlement they are able to achieve. As I have already noted, class action counsel assume significant risks, including the potential that the court may certify a smaller class than that requested. In pursuing an action when there are existing parallel proceedings in another jurisdiction, class counsel are aware that the other action might move more quickly or reach a determination before their own case is decided or resolved.

Id. at para. 179.

As a result of the Canadian Court’s decision, the Canadian class will now be comprised almost entirely of only those who purchased IMAX stock on the TSX.  The certification order dated December 14, 2009 was amended to define the new Canadian certified class as:

All persons, other than Excluded Persons, who acquired securities of Imax during the Class Period on the TSX and on NASDAQ, and held some or all of those securities at the close of trading on August 9, 2006 (the “Class Members”).

“Excluded Persons” means Imax’s subsidiaries, affiliates, officers, directors, senior employees, legal representatives, heirs, predecessors, successors and assigns, and any member of the defendants’ families and any entity in which any of them has or had during the Class Period a legal or de facto controlling interest and all NASDAQ purchasers during the Class Period who did not deliver an opt out notice in the U.S. class action In re IMAX Securities Litigation, Civil Action No. 1:06-cv-06128 (S.D.N.Y.).

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.  As lead counsel in the IMAX U.S. class action, we are extremely pleased with the decision from the Ontario Court.  The plaintiffs in the Canadian Action are currently in the process of appealing Justice van Rensburg’s March 2013 Order.  The decision to grant the defendant’s motion to amend the class will permit the U.S. settlement to be concluded and payments to eligible claimants will proceed once the Canadian Order becomes final and unappealable.

In a recent ruling of the U.S. Supreme Court, Oxford Health Plans LLC v. Sutter, petitioner-defendant Oxford was forced to proceed with class arbitration with respondent-plaintiff John Ivan Sutter.

This case, like other recent rulings of the Supreme Court, has an unusual procedural history, which will limit its applicability to future cases. However, it does provide an important reminder for all parties of the great compromise arbitration represents.

Sutter, a pediatrician, entered into a contract with Oxford, a health insurance company, to provide medical care to members of Oxford’s network and Oxford agreed to pay for those services at prescribed rates. Several years later, Sutter filed suit against Oxford in New Jersey Superior Court on behalf of himself and a proposed class of other New Jersey physicians under contract with Oxford, alleging that Oxford had failed to make full and prompt payments to the doctors, in violation of their agreements and various state laws.

Oxford moved to compel arbitration of Sutter’s claims, relying on an arbitration provision in their contract. The state court granted Oxford’s motion, thus referring the suit to arbitration.

In what must be a regrettable decision on the part of Oxford, the parties agreed that the arbitrator should decide whether their contract authorized class arbitration and the arbitrator determined that it did.

As Justice Alito explained in his concurrence, the arbitrator improperly inferred an implicit agreement to authorize class-action arbitration from the fact of the parties’ agreement to arbitrate and that it is far from clear that absent class members will be bound by the arbitrator’s ultimate resolution of the dispute.

After all, it is well-established that arbitration is a matter of consent, not coercion, and the absent members of the plaintiff class have not submitted themselves to this arbitrator in any way.

Class arbitrations that are vulnerable to such collateral attack allow absent class members to unfairly claim the benefit from a favorable judgment without subjecting themselves to the binding effect of an unfavorable one. However, because Oxford consented to the arbitrator’s authority by conceding that he should decide in the first instance whether the contract authorizes class arbitration, this argument was not available to it.

It is unlikely that other defendants will make the same mistake in light of this ruling, which will limit its impact going forward.

The greater lesson is in the arbitrator’s erroneous analysis of the parties’ contract. Justice Kagan, who wrote for the majority, explained that the potential for such mistakes are the price of agreeing to arbitration. Where an arbitrator’s decision concerns the construction of a contract, it holds, however good, bad or ugly.

In summary, Justice Kagan put it bluntly: “Oxford chose arbitration, and it must now live with that choice.”

In this rare instance, the misfortune of an arbitrator’s grave error fell on a defendant with the wherewithal to appeal the decision to the highest court in our nation, albeit unsuccessfully. More often, however, the misfortune will fall upon plaintiffs who are inexperienced with the arbitration process and whose individual damages do not warrant appeal.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.

Last year we posted several blog posts that covered the wave of class action lawsuits relating to the United States Treasury’s Home Affordable Modification Program (“HAMP”), including the Fletcher litigation against IndyMac Mortgage Servicers, FSB (a division of OneWest Bank, FSB) where Abbey Spanier is lead counsel.  See some of our posts located here, here and here.

HAMP was created by the federal government to combat the national foreclosure crisis. The program was specifically designed to allow eligible homeowners who are about to default on their mortgages to save their homes by modifying the terms of their loans. Despite the government’s noble intentions, HAMP has been criticized and viewed by many people as unsuccessful. One of the many problems with the HAMP was that mortgage service providers often unjustifiably denied requests for permanent modifications by losing paperwork, including documents showing borrowers financial hardship.

A few weeks ago, the Federal Housing Finance Agency (“FHFA”) announced that Fannie Mae and Freddie Mac will offer a new, simplified loan modification initiative to minimize losses and to help troubled borrowers avoid foreclosure and stay in their homes. Under the new initiative, many borrowers who are at least 90 days delinquent will be sent an offer that includes a Trial Period Plan specifying the dollar amount of their new mortgage payment based upon a fixed interest rate, extending the payment terms to 40 years, and providing principal forbearance for certain underwater borrowers.  Only those borrowers with loans more than 12 months old with a mark-to market loan-to-value ratio greater than 80 percent and who have not had two or more previous loan modifications will be solicited for participation in the program.

A key component of the new procedure is that borrowers will not be required to document their hardship or financial situations to receive a permanent modification. Under the program, after the borrower makes on-time payments during the three month trial period and meets necessary criteria, the borrower will receive a permanent mortgage modification. In a press release dated March 27, 2013, the FHFA explained that, “[t]he new Streamlined Modification Initiative eliminates the administrative barriers associated with document collection and evaluation. Eligible borrowers must demonstrate a willingness and ability to pay by making three on-time trial payments, after which the mortgage will be permanently modified.”

The new streamlined loan modification program is only available to those homeowners with loans owned or guaranteed by Fannie Mae or Freddie Mac.  The program will commence on July 1, 2013 and will expire on August 1, 2015.  If you have questions about the new initiative, you can find some helpful answers provided by the FHFA here.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.

In May 2010, minority stockholders of XO Holdings, Inc. (“XO”) brought a class action lawsuit against Carl C. Icahn (the Chairman of XO’s Board), his affiliates and members of the XO Board of directors.  Plaintiffs challenged two transactions which they alleged were the product of a predatory scheme spanning several years by defendant Icahn, to first dilute and ultimately freeze out XO’s minority shareholders and to wrongfully take for his own use and benefit all of XO’s corporate assets including the Company’s net operating losses (“NOLs”) which could be used to offset his tax liability arising from his ownership interest in other companies.

The two challenged transactions ultimately permitted Icahn to acquire 100% of XO’s shares and use of the Company’s NOLs. Plaintiffs alleged that XO minority shareholders suffered damages because their interests were massively diluted and ultimately eliminated by means of defendants’ unfair dealing in violation of their fiduciary duties.

On January 29, 2013, Judge Charles E. Ramos issued an Order substantially denying the defendants’ motion to dismiss and largely upheld the majority of the claims asserted in the class plaintiffs’ sixth amended complaint. In that Order, the Court also denied defendants’ motion for summary judgment in a companion case filed by an individual plaintiff R2 Investments, LDC.

Defendants had argued that the proper standard to be applied to analyzing the challenged transactions is the business judgment rule.  The Court rejected that argument and agreed with Plaintiffs’ view that under Delaware law, the more exacting standard of entire fairness should apply:

“Delaware law clearly provides that ‘[w]hen a transaction involving self-dealing by a controlling shareholder is challenged, the applicable standard of judicial review is entire fairness, with the defendants having the burden of persuasion.’” (Americas Mining Corp. v. Theriault, 51 A3d 1213, 1239 [Del 2012] ).

“[W]hen entire fairness applies, the defendants may shift the burden of persuasion by one of two means: first they may show that the transaction was approved by a well-functioning committee of independent directors; or second, they may show that the transaction was approved by an informed vote of a majority of the minority shareholders” (id. at 1240). “Nevertheless, even when an interested cash-out merger transaction received the informed approval of a majority of minority stockholders or a well-functioning committee of independent directors, an entire fairness analysis is the only proper standard of review” (id.).

The court held that “[t]o obtain the benefit of a burden shifting, the controlling shareholder must do more than establish a perfunctory special committee of outside directors” (id.). Rather, the special committee must “function in a manner which indicates that the controlling shareholder did not dictate the terms of the transaction and that the committee exercised real bargaining power an arms-length” (id.).

“Regardless of where the burden lies, when a controlling shareholder stands on both sides of the transaction the conduct of the parties will be viewed under the more exacting standard of entire fairness as opposed to the more deferential business judgment standard.” (Kahn v. Tremont Corp., 694 A.2d 422, 428 [Del 1997] ).

After reviewing the record in the litigation, the Court determined that “the Plaintiffs have alleged numerous incidents where the Special Committees capitulated to or were limited by Icahn’s demands, including, inter alia, failing to pursue alternative transactions or use those alternatives as leverage in negotiations with Icahn, ignoring the advice of its financial advisers, and allowing Icahn to withhold his financial information from the Special Committees, and consequently, undermine the valuation of the XO NOLs. The resolution of these issues require a trial and testimony from experts and cannot be decided on a motion for summary judgment.”

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.  As lead counsel in the XO class action, we believe that the Court’s decision is a significant victory for former XO minority shareholders and intend to actively litigate this case through trial.

In Frazier v. Castel Ford, Ltd., 2013 WL 265072 (January 24, 2013), the Maryland Court of Appeals put the brakes on a tactic that has gained favor among defendants in class actions—and that has caught the attention of the Supreme Court, for better or for worse—where a defendant attempts to moot the claims of a potential class representative by paying his damages in full at the outset of the case.  This tactic is referred to as “picking off” the class representative.  The court in Frazier held that an attempt to pick off the class representative cannot moot a class action, at least where the plaintiff has not had a “reasonable opportunity” to move for class certification.

Picking off the class representative benefits defendants because they can get out of a class action for the small amount they owe to the class representative (usually a single person), whose claims are typically very small on an individual basis.  This tactic, however, is particularly dangerous because it allows a defendant to thwart the claims of the proposed class, who may never bring their own actions.  Recognizing these principles, the Maryland Court of Appeals held that a defendant cannot defeat a class action by tendering all of the plaintiff’s damages—he must at least be given a “reasonable opportunity” to move for class certification, “including any necessary discovery.”

In Frazier, the plaintiff alleged that the defendant, a Ford dealer, misrepresented the expiration date of his extended warranty by two years.  The plaintiff’s complaint asserted two causes of action—one for violation of Maryland’s Consumer Protection Act, and one for common law fraud.  The plaintiff alleged that he incurred unexpected repair costs that he would not have paid if the warranty lasted as long as the dealer represented.

After plaintiff commenced his action and began to take discovery, the defendant sent him a check for all the damages it claimed he was owed.  Thereafter, the defendant moved for summary judgment and made a motion to deny class certification.  The trial court granted the defendant’s motion for summary judgment on the grounds that the plaintiff’s complaint was mooted by the tender of his damages, and granted the motion to deny class certification because the plaintiff, who had now purportedly been made whole, was not a member of the class he sought to represent.

The Maryland Court of Appeals reversed.  The court noted that the concept of mootness is more flexible in a class action than in an individual case.  The reason for this relaxed mootness standard, the court elaborated, was illustrated by the defendant’s actions: before filing his class action complaint, the plaintiff contacted the dealership and was ignored; the court stated that the defendant made “no effort to rectify the situation until the class action complaint was filed.”  Then, once the complaint was filed, the defendant “immediately took action to moot it by tendering individual damages to the plaintiff . . . before the plaintiff had any reasonable opportunity to seek class certification or to conduct discovery addressed to the merits of class certification.”

The court noted that, if this type of behavior were permitted:

“[M]any meritorious class actions will never get off the ground. It will be particularly tempting to ‘pick off’ a putative class representative in cases where the underlying conduct affected many people but each claim, including the class representative’s, is small or moderate in size—a type of case for which the class action procedure was devised.”

The court noted that other jurisdictions—including the Ninth Circuit and the Third Circuit—had come to the same conclusions, based on substantially similar reasoning.

One practice pointer from this case: the court did not hold that a tender of damages fails to moot a class action in any and all circumstances.  Rather, the court made clear that a class representative cannot be picked off “if the individual plaintiff has not had a reasonable opportunity to seek class certification, including any necessary discovery.”  The court held that the lower court, on remand, could determine whether the plaintiff had an “adequate opportunity to file a timely motion for class certification” and, if so, could permit him to move for class certification.

On Tuesday, the National Labor Relations Board (“NLRB”) appeared before the Fifth Circuit to defend its ruling in In re D.R. Horton, Inc., 357 NLRB No. 184, 2012, WL 36274 (Jan. 3, 2012), which partly excludes employment agreements from the reach of the Federal Arbitration Act (“FAA”) and U.S. Supreme Court’s ruling in AT&T Mobility LLC v. Concepcion, 563 U.S. ___ (2011) .

As I wrote last year in NLRB Finds Class Action Litigation Protected Activity Under NLRA, the D.R. Horton states that employers may not require employees to waive the right to resolve employment-related disputes on a class-wide basis.

However, few district courts have elected to adopt the reasoning espoused by the NLRB in D.R. Horton. One of those cases, Owen v. Bristol Care, Inc., No. 11–04258–CV–FJG, 2012 WL 1192005 (W.D. Mo.Feb. 28, 2012), was recently overturned by the Eighth Circuit, the first appellate court to address the impact of D.R. Horton, in Owen v. Bristol Care, Inc., — F.3d —, 2013 WL 57874 (8th Cir. 2012).

Before the Fifth Circuit, the NLRB argued that the NLRB (and Courts) have long recognized the right of employees to proceed on a collective basis, that Section 7 of the NLRA reflects a Congressional mandate creating such a right and that the courts should not be in a position to dictate to employees how they exercise their Section 7 rights.

Attorneys for D.R. Horton argued that no such rights exists and that the Fifth Circuit should follow the 26 other courts that have found the D.R. Horton ruling unpersuasive.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.

In Menga v. Clark Dodge & Company, Inc., et al., Index No. 650081/2011, the Supreme Court of the State of New York recently denied a bid to compel arbitration of two stockbrokers’ putative class claims alleging failure to pay overtime and impermissible wage deductions, despite the presence of an arbitration provision in their employment agreements.

Deric Menga and Wildred Ignace (the “Plaintiffs”) are stockbrokers for Clark Dodge & Company (the “Defendants”), a brokerage and wealth management services provider.  In their pleading, Plaintiffs allege that the Defendants (1) failed to pay overtime in violation of 12 NYCRR § 142-2.2; (2) took impermissible wage deductions contrary to N.Y. Labor Law § 193; (3) took illegal pay deductions and deductions from wages in violation of N.Y. Labor Law § 198-b; and (4) failed to pay wages and commissions on a timely basis contrary to N.Y. Labor Law § 191.

The Defendants sought to dismiss Plaintiffs’ claims because, among other reasons, Defendants believed Plaintiffs asserted their claims in the wrong forum and should be compelled to arbitrate the dispute before the Financial Industry Regulatory Authority, Inc. (“FINRA”). In support of their argument, the Defendants relied on an agreement signed by the Plaintiffs, which states that Plaintiffs agreed to arbitrate any dispute “that is required to be arbitrated under the rules, constitutions, or by-laws of [FINRA] as may be amended from time to time…”

Defendants’ argument is an attractive one, given the boon employers received under the United States Supreme Court decision AT&T Mobility v. Concepcion, 563 U.S. ___ (2011), which, under limited circumstances, permits employers to force employees to resolve their disputes in arbitration on an individual basis. However, Concepcion concerned the Federal Arbitration Act, 9 U.S.C. § 1, et seq. (the “FAA”). FINRA regulations are not nearly so antagonistic to class proceedings.

It is true, as the Defendants argued, that FINRA Rule 13204(d) prohibits arbitration of class action claims and specifically prohibits enforcement of “any arbitration agreement against a member of a… putative class action with respect to any claim that is the subject of the… class action…” However, that prohibition applies only in an extremely limited set of circumstances: (1) when class certification has been denied; (2) when an existing class has been decertified; or (3) when a member of the certified or putative class has been excluded from the action by either the court or the member’s own determination.

Because none of those conditions had been met with respect to the Plaintiffs, the court denied the Defendants’ attempt to compel arbitration.

Are you considering filing a lawsuit against your present or former employer but have questions about whether an arbitration provision in your employment agreement or some other agreement with your employer requires you to resolve your dispute in arbitration? If so, please tell us your story.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.

Have you ever received unsolicited advertising in the form of a text message? These forms of solicitations may be illegal under the Telephone Consumer Protection Act (“TCPA”) which restricts telephone solicitations and the use of automated telephone equipment. The TCPA also limits the use of automatic dialing systems, artificial or prerecorded voice messages, SMS text messages and fax machines.

In a recent decision in Agne v. Papa John’s International, Inc., et al., No. C10-1139-JCC, 2012 WL 5473719, at *1 (W.D. Wash. Nov. 9, 2012), the court certified a national class of all persons in the United States and a sub-class of all persons in Washington State who were sent text messages advertising Papa John’s pizza by Defendant OnTime4U who were sent such messages by Defendant OnTime4U. The Court found that because Plaintiff’s allegation was not merely that all class members suffered a violation of the TCPA, but rather that all class members were sent substantially similar unsolicited text messages by the same defendants using the same automatic technology, commonality is satisfied. 2012 WL 5473719, at *8.

Defendant OnTime4U, a marketing company, offered to increase the profits of Papa John’s restaurants by sending text message advertisements to their customers. Certain Papa John’s franchisees provided OnTime4U with lists of telephone numbers of customers obtained from Papa John’s proprietary database, the PROFIT system. The text messages that were sent solicited consumers to purchase Papa John’s products and provided the customer with a telephone number corresponding to a particular Papa John’s restaurant along with a promotional code. The Plaintiff, who never gave any Papa John’s entity express consent to send her text messages, received three message sent by OnTime4U. 2012 WL 5473719, at *9.

Papa John’s, relying on the Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), argued that determining whether Papa John’s was sufficiently involved in the market decisions of its different franchises in order to establish liability would require individual inquiries that undermine commonality. The court rejected Papa John’s comparison of Plaintiff’s claim to the allegation in Dukes that Wal-Mart “national” caused or encouraged the local store managers to make discriminatory employment decisions. The Papa John’s court cited to the Supreme Court’s finding in Dukes that “the only corporate policy that the plaintiffs’ evidence convincingly establishes is Wal-Mart’s “policy’ of allowing discretion by local supervisors over employment matters.” To the contrary, in Papa John’s, the Plaintiff came forward with affirmative evidence that Papa John’s had at least a hand in franchisees’ decisions to enlist OnTime4U to send text messages to their customers. For example, Plaintiff submitted email messages from Papa John’s franchise business directors to multiple franchisees encouraging those franchisees to commission text messages from OnTime4U.  Thus, the Court found that the Plaintiff alleged “far more” than an amorphous corporate culture. 2012 WL 5473719, at *8-9.

The Court also rejected Papa John’s challenges that there were three areas where individualized inquiries would overwhelm common issues: (1) consent; (2) questions regarding who actually received messages; and (3) inquiries into Papa John’s liability for various franchisees’ text campaigns. 2012 WL 5473719, at *11. The court found that Defendants’ consent defense could be resolved in one stroke because resolving the legal question of whether a customer’s prior purchase of pizza can be construed as express consent to receive text message advertisements is a common question that will predominate over any individual inquiries. 2012 WL 5473719, at *8. Moreover, since Papa John’s is in the best position to come forward with evidence of individual consent, it will not be precluded from presenting admissible evidence of individual consent if and when individual class members are permitted to present claims. 2012 WL 5473719, at *11. Further, the court concluded that Papa John’s assertion that resolving the common questions regarding its involvement in the campaign will require individual examination of “many interactions” between Papa John’s employees and its franchisees belies its position that it played little or no role in franchisees’ marketing decisions. Finally, the court rejected the legal foundation for Papa John’s argument that individualized issues regarding whether recipients were charged for the text message advertisements will overwhelm common questions because the TCPA does not require plaintiffs to show that they were charged for text message advertisement sent to their cellular phones. Therefore, the Court found that the Plaintiffs had satisfied the predominance inquiry. The Court also found that the Plaintiffs had satisfied the remaining requirements of Rule 23 of the Federal Rules of Civil Procedure.

Have you received unsolicited advertisements via text message? If so, please tell us your story.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.

On July 27, 2010, plaintiff Stacey Fletcher filed a putative class action complaint alleging that the defendant IndyMac Mortgage Servicers, FSB (a division of OneWest Bank, FSB)(“OneWest”) mishandled her application for a mortgage loan modification pursuant to the Home Affordable Modification Program (“HAMP”). The HAMP was created by the federal government in August 2009 to combat the national foreclosure crisis. The program was designed to allow eligible homeowners who are at imminent risk of defaulting on their mortgages to save their homes by modifying the terms of their mortgage loans.

Despite the government’s noble intentions, HAMP has been largely unsuccessful.  (See our March blog post describing the wave of HAMP lawsuits by homeowners against U.S. mortgage lenders and our April post on consent orders that Federal Banking Regulators issued with 14 of the nation’s largest mortgage loan servicers.)

The original complaint alleged breach of contract, promissory estoppel, and violations of the Illinois Consumer Fraud and Deceptive Business Practices (“ICFA”). Specifically, Plaintiff alleged that OneWest’s practices fell into an identifiable pattern of misconduct that is consistent across a wide range of homeowners: OneWest makes a written offer to a pre-qualified homeowner, in which it offers a permanent loan modification if the homeowner makes three monthly trial period payments and complies with OneWest’s requests for documentation. Homeowners execute and submit all of the required documents and make the trial period payments, but OneWest does not live up to its end of the bargain, failing even to respond to applicants, denying permanent modifications without justification, avoiding permanent modifications by losing paperwork, claiming ignorance of payments made and papers submitted, sending out late payment letters and engaging in other evasive conduct which makes it extraordinarily difficult, if not impossible, for homeowners to obtain loan modifications to which they are entitled.  OneWest also applied substantial late fees and other fees to plaintiff and other homeowner accounts and reported those loans as delinquent to credit bureaus, causing damage to their credit scores.

Judge William J. Hibbler of the United States District Court for the Northern District of Illinois originally presided over this case. On June 30, 2011, Judge Hibbler issued an Order substantially denying OneWest’s January 18, 2011 motion to dismiss and largely upheld Plaintiff’s class action claims for breach of contract, promissory estoppel and violations of the ICFA.  Fletcher v. OneWest Bank, FSB, 2011 U.S. Dist. LEXIS 72562 (N.D. Ill. June 30, 2011).

On July 15, 2011, OneWest filed a motion to stay this litigation pending the U.S. Court of Appeal for the Seventh Circuit’s decision in Wigod v. Wells Fargo Bank, N.A., Appeal No. 11-1423 (7th Cir. Feb. 22, 2011). In Wigod, Judge Manning dismissed the plaintiff’s claims stemming from defendant Wells Fargo’s alleged non-compliance with HAMP. Like the Fletcher litigation, plaintiff Wigod’s class action complaint alleged violations of Illinois law under common-law contract and tort theories and under the ICFA.  The district court’s reason for dismissing Wigod’s complaint was primarily that Wigod alleged Wells Fargo had violated HAMP, a federal statute which it determined did not allow for a private right of action. See Wigod v. Wells Fargo Bank, N.A., No. 10 CV 2348, 2011 WL 250501 (N.D. Ill. Jan. 25, 2011). After the Wigod appeal, OneWest argued that a stay was warranted in the Fletcher litigation because the issues raised were virtually identical to those pending before the Seventh Circuit Court of Appeals.  After opposing the motion and filing a motion for a preliminary injunction, Plaintiff consented to a stay so long as the status quo was to be maintained.

On March 7, 2012, the Seventh Circuit issued its opinion in Wigod v. Wells Fargo Bank, N.A., No. 11-1423, 2012 U.S. App. LEXIS 4714 (7th Cir. March 7, 2012).  Relying in part on Judge Hibbler’s June 30, 2011 opinion denying OneWest’s motion to dismiss, the Seventh Circuit reversed the judgment of the Wigod district court on breach of contract, promissory estoppel, fraudulent misrepresentation and ICFA claims.  In its decision, the Seventh Circuit determined that plaintiff Wigod’s state law claims are not preempted or otherwise barred by federal law. In light of the Seventh Circuit’s decision, Plaintiff requested that the stay in this action should be lifted. The Court lifted the stay on March 15, 2012.

On April 24, 2012, Plaintiff filed an amended complaint alleging breach of contract, promissory estoppel and violations of the ICFA.  On May 22, 2012, OneWest made a motion to dismiss Plaintiff’s amended complaint and to strike Fletcher’s class allegations. After full briefing and oral argument by the parties, on October 22, 2012, Judge Sharon Johnson Coleman issued a Memorandum and Order denying OneWest’s motion to dismiss and denying OneWest’s motion to strike Plaintiff’s class allegations.

In light of Judge Coleman’s decision, the case will now proceed.  Abbey Spanier, LLP, is lead counsel in the Fletcher litigation.  We believe that the Court’s decision is a significant victory for homeowners who have been harmed by OneWest’s improper and deceptive practices.  Abbey Spanier intends to litigate this action aggressively.

If you have been harmed by OneWest’s improper practices, please tell us your story here.

Abbey Spanier located in New York City, is a well-recognized national class action and complex litigation law firm.

In previous posts we have emphasized the importance of class actions to individuals seeking to enforce their rights against more powerful corporations, most recently in “Abbey Spanier Comments on the Harm to Individuals Caused by Pre-Dispute Arbitration Clauses.”  As we posted in “Can You Bring an Employment Discrimination Class Action?,” there are even some types of lawsuits that can only be brought as class actions in most jurisdictions.  These lawsuits known as “pattern-or-practice” claims of employment discrimination allege that an employer’s “standard operating procedure” is discriminatory.  In July, the Second Circuit joined the other circuits to have ruled on the issue and held that private individuals can only bring pattern-or-practice claims in the form of class actions.  See Chin v. Port Auth. of N.Y. & N.J., Nos. 10-1904-cv & 10-2031-cv, 2012 U.S. App. LEXIS 14088, at *30-31 (2d Cir. July 10, 2012).

As noted in our post “Can You Bring an Employment Discrimination Class Action?,” last year a magistrate judge in the Southern District of New York (SDNY) denied a motion to compel arbitration of claims that an employer discriminated against women where the employees brought “pattern-or-practice” claims against their employer.  In Chen-Oster v. Goldman, Sachs & Co., 785 F. Supp. 2d 394, (SDNY 2011), Judge Francis found that compelling individual arbitration would deny the plaintiffs the opportunity to vindicate substantive federal statutory rights because “Title VII, as construed in the case law, makes substantively distinct claims available to those victims of alleged discrimination proceeding individually and those proceeding as a class.”  Id. at 409-10.  Thus in the case of pattern-or-practice claims, class actions are not merely procedural devices.

The defendants have appealed the denial of their motion to compel individual arbitration to the Second Circuit Court of Appeals.  The importance of this issue has resulted in a number of amicus briefs including one submitted by The National Employment Lawyers Association (NELA), together with a number of other organizations including the National Employment Law Project (NELP) and the NAACP Legal Defense and Education Fund.  As the brief articulates, “[b]ecause remedies for pattern-or-practice violations are designed to eradicate discrimination at its source, rather than merely provide piecemeal relief to redress individual instances of discrimination that are symptomatic of underlying discriminatory practices, they are critical to achieving Title VII’s broad remedial purposes.”  Brief of Amici Curiae National Employment Lawyers Association, et al., in Support of the Plaintiffs-Appellees and Affimance at 10-11, Parisi v. Goldman, Sachs & Co., No. 11-5229-cv. (2d Cir. July 2, 2012).  Moreover what a plaintiff must prove to establish a pattern-or-practice claim differs from what she must prove to establish an individual claim.  Because the right to bring pattern-or-practice claims is a substantive one the Second Circuit should uphold the lower court.  Employers should not be permitted to escape liability for maintaining a workplace where discrimination is the “standard operating procedure” by requiring their employees to sign away their right to bring pattern-or-practice claims under federal antidiscrimination statutes.

If you believe that you have been the victim of a pattern or practice of discrimination, tell us your story.

In a case brought by Wal-Mart cleaning crew members – illegal immigrants who took jobs with contractors and subcontractors Wal-Mart engaged to clean its stores – the Third Circuit, for the first time, adopted a standard for final certification of collective actions. In Zavala v. Wal-Mart Stores, Inc., No. 11-2381 (3d Cir. Aug. 9, 2012), the Third Circuit affirmed the district court’s decertification of the collective action following discovery into the merits of the plaintiffs’ claims.

It is fairly well settled that two different standards apply for certification of the collective action under the FLSA, one for conditional certification and another for final certification. As the court noted in Zavala, conditional certification at the initial stages of the litigation requires only a “fairly lenient standard” and some courts “require nothing more than substantial allegations that the putative class members were together the victims of a single decision, policy or plan.” However, the Third Circuit found that based on the statutory text of the FLSA, the standard to be applied on final certification is whether the proposed collective plaintiffs are “similarly situated.”

The Third Circuit approved an ad hoc approach adopted by other courts in which all relevant factors are to be considered to make a final determination on a case-by-case basis. Relevant factors to be considered in this analysis include (but are not limited to): whether the plaintiffs are employed in the same corporate department, division, and location; whether they advance similar claims; whether they seek substantially the same form of relief; and whether they have similar salaries and circumstances of employment. Plaintiffs may also be found dissimilar based on the existence of individualized defenses.

The Court resolved what no other Court of Appeals has directly done, answer the question as to the level of proof the plaintiffs must satisfy at final certification of collective actions. The Third Circuit held that the plaintiffs must satisfy their burden by a preponderance of the evidence. Applying this standard, the Third Circuit held that the plaintiffs in Zavala failed to satisfy the “similarly situated” standard.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.

As we previously explained in our May blog post, which covered the N.Y.S. Department of Financial Services Probe Into Force-Placed Insurance, in order to obtain a mortgage, lending banks usually require homeowners to maintain insurance on their property. If a homeowner fails to maintain his/her required insurance, pursuant to the terms of the mortgage agreement, the bank is entitled to forcibly place insurance on the property (i.e. purchase insurance for the home and then charge the homeowner/borrower the full cost of the premium).  Numerous lawsuits have been brought by homeowners against different banks alleging that the forced placed insurance practices are unfair because their lender: (i) purchased exorbitant insurance coverage that costs far greater than the homeowner’s previous coverage; (ii) received commissions or kick-backs from the insurer for the forced-placed coverage; (iii) billed homeowners for additional coverage that was not required under their mortgage agreement; and (iv) allowed the homeowner’s existing coverage to lapse without providing notice that it would purchase force-placed insurance.

Last month, U.S. District Judge Jan E. Dubois of the Eastern District of Pennsylvania denied in part defendants HSBC Mortgage Corporation and HSBC Mortgage Service, Inc.’s motion to dismiss a class action lawsuit involving force-placed insurance.  A copy of the decision can be found here.

In the HSBC litigation, a married couple living in Pennsylvania brought a class action lawsuit against the defendants alleging that the premiums on their force-placed insurance policies were unreasonably high and that defendants profited unlawfully by accepting kickbacks from insurers and purchasing unnecessary insurance policies. Plaintiffs asserted claims for breach of contract, unjust enrichment, and violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law.

In her decision, Judge Dubois tossed plaintiffs’ unjust enrichment and unfair trade practices claims but determined that plaintiffs had alleged sufficient facts to state a claim for breach of the implied covenant of good faith and fair dealing.  The Court explained that:

“The purpose of a force-placement clause is to protect the lender’s interest in the property securing the mortgage loan. Plaintiffs allege a scheme whereby HSBC Mortgage used its power to force-place insurance on the property to gain additional profits at plaintiffs’ expense rather than using such power simply to protect its interest in the property. While section five of the mortgage contract did not require HSBC Mortgage to obtain the cheapest or most cost-effective insurance available, it was not entitled to use its discretion to obtain secret kickbacks on policies or charge plaintiffs for insurance covering periods of time that had passed without damage occurring to the property. Such behavior contravened plaintiffs’ reasonable expectations. For this reason, courts around the country have held in cases with almost identical facts that plaintiffs stated a claim for breach of the covenant of good faith and fair dealing. See, e.g., Kunzelmann v. Wells Fargo Bank, N.A., No. 9:11-cv-81373-DMM, 2012 WL 2003337 (S.D. Fla. June 4, 2012); McNeary-Calloway v. JP Morgan Chase Bank, N.A., No. C-11-03058 JCS, 2012 WL 1029502 (N.D. Cal. Mar. 26, 2012); Williams v. Wells Fargo Bank N.A., No. 11-21233, 2011 WL 4901346 (S.D. Fla. Oct. 14, 2011); Abels v. JPMorgan Chase Bank, N.A., 678 F. Supp. 2d 1273 (S.D. Fla. 2009).”

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.  If your bank/lender has engaged in unfair business practices relating to force-placed insurance, please tell us your story.

Used with permission from Microsoft.

Judge Noel Hillman in the U.S. District Court of New Jersey denied the defendants’ motion to dismiss in a consumer class action suit involving “Skinnygirl Margarita” beverages.  Plaintiffs alleged that the Skinnygirl Margarita drinks were marketed as “all natural” but actually contained a chemical preservative, sodium benzoate.  See Stewart v. Beam Global Spirits and Wine, Inc., No. 11-5149 (D.N.J. June 29, 2012).  The false and misleading marketing campaign occurred in a number of states, including New York and New Jersey.  See id. at 4.  Plaintiffs point out that the chemical preservative when mixed with citric acid can become a potential carcinogen. See id.

Plaintiffs brought claims under New Jersey’s Consumer Fraud Act, in addition to negligent misrepresentation, breach of express and implied warranties, and unjust enrichment.  See id. at 5.  The defendants moved to dismiss the unjust enrichment claim.

In New Jersey, a claim for unjust enrichment requires the plaintiff show that the “defendant received a  benefit and that retention of that benefit without payment would be unjust.”  VRG Corp. v. GKN Reality Corp., 641 A.2d 519, 526 (N.J. 1994). And because unjust enrichment imposes quasi-contractual liability, New Jersey requires “some direct relationship between the parties.”  Callano v. Oakwood Park Homes Corp., 219 A.2d 332, 335 (N.J. 1966).

In Stewart, the court distinguished from a New Jersey Supreme Court case in order to explain New Jersey’s rejection of a bright line rule for the “some direct relationship” element.  In Callano, an individual contracted to purchase a house from a developer.  While the house was being built, the soon-to-be homeowner contracted with a plant nursery to landscape the property.  But the individual never paid the nursery, and he died before he purchased the property.  Callano, 219 A.2d at 334. Thereafter, the developer sold the property to another individual, which included the newly planted shrubbery.  Id.   The developer had no knowledge of the non-payment by the deceased individual.  Id.  The plant nursery sued the developer for unjust enrichment.  In finding no unjust enrichment, the Callano court explained that there were “no dealings with the developer.”  Id. at 335.  The developer was entirely unaware of any agreement between the deceased and the nursery.  See id.  Moreover, the nursery still had a claim against the decedent’s estate.  Importantly, the court emphasized that the developer did not engage in any fraudulent activity.  See id.

After a review of other New Jersey Supreme Court precedent, the court in Stewart held that the “‘some direct relationship’ element of an unjust enrichment claim does not . . . preclude a consumer from ever brining an unjust enrichment claim against a manufacturer simply because the consumer purchased the product . . . from a third-party retailer and not directly from the manufacturer.” Stewart, No. 11-5149, Slip Op. at 18–19.  The court viewed the “some direct relationship” element not as requiring privity but more broadly as a means to limit recover from a defendant “whose involvement is to far removed or too attenuated from the facts” surrounding the plaintiff’s claims.  See id. at 19.  The court pointed out that this manufacturer was not an innocent third-party, according to the plaintiffs’ pleadings.  See id.  The manufacturer engaged in a misleading and fraudulent national marketing campaign consisting of billboards, signs, and print and Internet advertisements.  See id. at 20.  In concluding, Judge Hillman stated, “This court is of the view that it would be inequitable to suggest that the [defendants] can insulate themselves from liability on an unjust enrichment claim simply by asserting that retail sales by liquor stores cut off any relationship between the consumers and the manufacturer.  This is particularly true in this case where plaintiffs cannot seek a remedy directly from the liquor stores based on misrepresentations allegedly made by the [manufacturer defendants] themselves as the to the ‘all-natural’ nature of Skinny Girl Margarita.” Id. at 20–21.

As the court in Stewart points out, a few other courts have reached the same conclusion.  Unjust enrichment claims will survive a motion to dismiss where, in addition to showing the other elements of the claim, some benefit is conferred on the defendant, which may be indirectly conferred on the defendant, e.g., where a product was bought through a retailer after it was previously purchased from a manufacturer.

David Brown is 2012 graduate of New York Law School. He was Executive Editor of the Law Review. He will be a law clerk to the Honorable Robert L. Vining, US District Court, Northern District of Georgia in the Fall of 2012 and has interned at the US Attorney’s Office for the Eastern District of New York.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.

Senator Al Frankin of Minnesota recently introduced a new bill to address the Supreme Court’s decision in Wal-Mart v. Dukes by restoring workers’ ability to challenge discriminatory employment policies and practices.

To bring an action on a class-wide basis requires establishing the four prerequisites of Rule 23(a) of the Federal Rules of Civil Procedure: there are legal or factual questions common to all class members (“commonality”), the class is sufficiently large (“numerosity”), the named plaintiff’s claims are typical of the class claims (“typicality”), and the class would be adequately represented by counsel and the named plaintiff (“adequacy”).

Before Dukes, establishing commonality required showing only that resolution of class members’ claims would depend on resolution of a common issue. It was not necessary to prove the merits of the case at this preliminary stage of litigation. The standard was well-settled and easily met in most cases.

However, since Dukes, the Supreme Court made it harder for workers to use Rule 23 to enforce the nation’s civil rights laws. To establish the commonality prerequisite of Rule 23(a) today requires showing “convincing proof.” This is an evidentiary standard typically reserved for a trial on the merits — not for class certification. As Justice Ginsburg explained in dissent, the Dukes decision “disqualifies the class from the starting gate.”

Indeed, as this blog wrote soon after the opinion was issued, the decision jeopardized employment class actions and collective employment actions as viable avenues of relief for employees.

Senator Frankin’s bill would restore workers’ ability to challenge discriminatory employment practices on a class-wide basis by creating new a judicial procedure called “group actions,” the requirements of which are the same of existed under Rule 23 prior to Dukes.

We at the Abbey Spanier blog applaud the bill. A number of Supreme Court decision have been issued in the past several years that restrict the rights of employees, as well as consumers and investors, to vindicate their rights on a class basis. Corrective legislation, such as Senator Frankin’s bill, is an effective means to take back our rights.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.

In the past, we have written several blog posts about the wave of class action lawsuits relating to the United States Treasury’s Home Affordable Modification Program (“HAMP”), including the Fletcher litigation where Abbey Spanier is lead counsel.  See our posts here, here and here.  HAMP was created by the federal government to combat the national foreclosure crisis. The program was specifically designed to allow eligible homeowners who are about to default on their mortgages to save their homes by modifying the terms of their loans. Despite the government’s noble intentions, HAMP has been largely unsuccessful. Mortgage service providers have been accused of unjustifiably denying permanent modifications by losing paperwork, claiming ignorance of payments made and papers submitted, and engaging in other evasive conduct which makes it extraordinarily difficult, if not completely impossible, for eligible homeowners to obtain loan modifications

On May 30, 2012, the Honorable John R. Padova of the United States District Court for the Eastern District of Pennsylvania denied defendant Saxon Mortgage Services, Inc.’s motion to dismiss plaintiff’s class action claims for breach of contract, promissory estoppel and violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Laws.  Cave v. Saxon Mortg. Servs., 2012 U.S. Dist. LEXIS 75276 (E.D. Pa. May 30, 2012).

In Cave, plaintiffs brought breach of contract and other claims arising out of Saxon’s failure to permanently modify home mortgage loans. The plaintiffs alleged, among other things, that Saxon breached its contract by not offering them a permanent modification at the end of a three month trial period.  Alternatively, plaintiffs’ complaint also alleged that even if plaintiffs were not qualified for a permanent modification, Saxon breached its contract because it did not send them a timely written denial explaining why they were not qualified.  In this case, it took Saxon over a year after plaintiffs applied for a HAMP modification to inform them that they did not qualify.

As part of his detailed decision, Judge Padova determined that plaintiffs had adequately alleged that Saxon breached its implied duty of good faith and fair dealing for failing to perform its obligations under a trial period plan contract in a timely fashion:

We conclude that Plaintiffs have plausibly alleged that Saxon breached its implied duty [of good faith and fair dealing] to perform its TPP obligations in a diligent fashion by not informing them that they did not qualify for a permanent modification until over a year after Plaintiffs applied for a permanent modification, and months after actually determining that Plaintiffs did not qualify.  Indeed, as the TPP contains no express provision stating when Saxon had to send a written denial, the implied covenant of good faith and fair dealing may ultimately be the only aspect of the TPP that Saxon breached.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.  Abbey Spanier is following many of the HAMP related class action lawsuits and will report on any significant litigation developments.

I have previously blogged about decisions in which the U.S. Court of Appeals for the Fifth Circuit and the Ninth Circuit rejected cy pres distributions of remaining funds in class action settlements. Recently, however, the Court of Appeals for the First Circuit, in addressing the procedural and substantive standards for distribution of cy pres funds, affirmed a district court’s decision to award $11.4 million of remaining funds. In re: Lupron Mktg. & Sales Practices Litig., Nos. 10-2494; 11-1329, 2012 U.S. App. LEXIS 8263 (1st Cir. Apr. 24, 2012).

The Lupron litigation was brought by medical patient consumers, insurers and private health care providers alleging fraud in the overcharging for the medication Lupron which is used to treat prostate cancer, among other things. In re Lupron involved a $150 million settlement, of which $40 million was allocated to consumers. The settlement agreement provided that if there were unclaimed monies from the $40 million consumer settlement pool, even after full recovery to the consumer plaintiffs, all unclaimed funds would go into a cy pres fund to be distributed at the discretion of the trial judge. 2012 U.S. App. LEXIS 8263, at *2. Consumers were allowed more than four years to file their claims, but despite these efforts, only about 11,000 individuals filed claims, given the high mortality rate among members of the class. At the conclusion of the claims administration process, approximately $11.4 million remained unclaimed. Id. at *10. Ultimately, on August 6, 2010, the court issued a memorandum and order stating that it had decided to make a cy pres award of all of the unclaimed settlement funds to Dana Farber/Harvard Cancer Center (DF/HCC) to be made in three installments. Id. at *13.

In determining that the district court did not abuse its discretion in issuing the cy pres award, the First Circuit adopted the “reasonable approximation test.” As to whether cy pres distributions reasonably approximate the interests of the class members, the Court set forth a number of factors it considered, but which are not exclusive. 2012 U.S. App. LEXIS 8263, at *29. These include the purposes of the underlying statutes claimed to have been violated, the nature of the injury to the class members, the characteristics and interests of the class members, the geographical scope of the class, the reasons why the settlement funds have gone unclaimed, and the closeness of the fit between the class and the cy pres recipients. Id. Applying this test, the Court rejected the arguments made against the award.

The group of plaintiffs objecting to the cy pres award did so on several bases: (1) that they were entitled to greater distributions in preference to distributions for the benefit of absent class members because they have not received treble damages; (2) that the process used was flawed, including on the grounds that the judge should have recused himself; and (3) that no award can be made to DF/HCC because: (a) its doctors are precluded from being recipients of awards by the terms of the agreement; and (b) the principles of cy pres are violated in that this is not a “next best” award to absent class members because DF/HCC is located in Massachusetts and the research will be primary focused on prostate cancer. 2012 U.S. App. LEXIS 8263, at *26. The Court found that many of these assertions were factually untrue. Id.

First, the Court rejected the plaintiffs’ argument that the remaining funds should have been paid to the 11,000 claimants because the consumer fund was established for the benefit of all consumer purchasers of Lupron and not just those who filed claims and that the district court appropriately determined that the “next best” relief would be a cy pres distribution which would benefit the potentially large number of absent class members. 2012 U.S. App. LEXIS 8263, at *34. The Court found that ordering that the remaining funds be re-distributed would provide those 11,000 claims with an “undeserved windfall” and create a “perverse incentive among victims to bring suits where large numbers of absent class members were unlikely to make claims.” Id. at *37.

Second, with regard to the “next best” requirement, the Court rejected the argument that the “next best” requirement was not met because DF/HCC was in Boston while the injuries are to a national class because it is not the location of the recipient which is key; it is whether the projects funded will provide “next best” relief to the class. Because DF/HCC is required to do work which will have benefits well beyond Boston, the district court did not abuse its discretion in selecting it to receive the cy pres award. The proposal approved by the district court uses a venture capital model to invest in high-impact, high-risk research projects across the globe, with the expectation that promising results will attract grants from more traditional funding sources. 2012 U.S. App. LEXIS 8263, at *38-39.

Although the Court held that there was no abuse of discretion in this process used or as to the selection of the recipient, the Court expressed its concerns that district courts are given discretion by parties to decide on the distribution of cy pres funds. 2012 U.S. App. LEXIS 8263, at *43. While the court acknowledged that the district court attempted to compensate for the parties’ failure to designate recipients in the agreement by taking proposals from the parties and fully involving them in the selection process. But, the choice would have been better made by the parties initially and then tested by the court, against the principles set forth by the Court. Id. at *44.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.

There are still arenas where common sense prevails in the changing world of litigation concerned with the enforcement of contractual arbitration provisions.

The beginning for all discussions on this subject is the axiom that arbitration “is a matter of contract and a party cannot be required to submit to arbitration any dispute which [it] has not agreed so to submit.” Steelworkers v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (1960).

However clear that principal may appear, if the underlying contract is silent or ambiguous with respect to the particular matter in dispute, it is not at all obvious how it should be applied.

In addressing such disputes over the years, the courts have delineated two “interpretive rules” to bridge the gap in the contract. Howsam v. Dean Witter Reynolds, 537 U.S. 79, 83 (U.S. 2002).

Where the dispute arises out of “any doubts concerning the scope of arbitrable issues [it] should be resolved in favor of arbitration.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 (U.S. 1983).

However, the presumption is reversed where the dispute arises out of the question of who should decide arbitrability. First Options v. Kaplan, 514 U.S. 938, 944-945 (U.S. 1995) (“In this manner the law treats silence or ambiguity about the question ‘who (primarily) should decide arbitrability’ differently from the way it treats silence or ambiguity about the question ‘whether a particular merits-related dispute is arbitrable because it is within the scope of a valid arbitration agreement.'”).

Those disputes are resolved by the courts rather than in arbitration. The reason for the different treatment is understandable:

The [former] question arises when the parties have a contract that provides for arbitration of some issues. In such circumstances, the parties likely gave at least some thought to the scope of arbitration. And, given the law’s permissive policies in respect to arbitration, one can understand why the law would insist upon clarity before concluding that the parties did not want to arbitrate a related matter. On the other hand, the [latter] question — the “who (primarily) should decide arbitrability” question — is rather arcane. A party often might not focus upon that question or upon the significance of having arbitrators decide the scope of their own powers.

Id. The question of arbitrability is simply, in the view of the Supreme Court of the United States, too “arcane” an issue to assume the parties have considered it.

For that very sensible reason, in the absence of “clear and unmistakable” evidence of the parties’ intent to the contrary, the courts decide questions of arbitrability. Id. at 944 (“Courts should not assume that the parties agreed to arbitrate arbitrability unless there is “clea[r] and unmistakabl[e]” evidence that they did so.”) (quoting AT&T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 649 (1986)).

Although the liberal federal policy favoring arbitration has been elevated above state law and perhaps even the mandates of other federal statutes, important limitations remain. It is important for litigators and, in particular, class action litigators, to keep the presumptions described above in mind.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.

California’s Second Appellate District held that “unnamed putative members of a class that was never certified cannot be bound by collateral estoppel.” Bridgeford v. Pacific Health Corp., No. B227486, 2012 Cal. App. LEXIS 26, * 1-2 (Cal. Ct. App. Jan. 18, 2012).

Plaintiffs filed a class action alleging wage and hour violations against their employer, Los Angeles Memorial Medical Center, a subsidiary of Pacific Health Corporation.  In a prior class action, another named plaintiff had moved for and lost class certification against the same defendant for substantially the same wage and hour claims. The defendants demurred case on grounds that collateral estoppel barred the plaintiffs from seeking class certification because the issue of class certification was decided against plaintiffs in a prior related action.  The trial court sustained the demurrer, without leave to amend.

Relying on the Supreme Court’s decision in Smith v. Bayer, which held that a District Court’s denial of a Rule 23 class certification motion does not prevent separate plaintiffs from seeking certification in a separate state court action, the Court of Appeal reversed the trial court’s and held that “the denial of class certification cannot establish collateral estoppel against unnamed putative class members on any issue because unnamed putative class members were neither parties to the prior proceeding nor represented by a party to the prior proceeding so as to be considered in privity with such a party for purposes of collateral estoppel.” Accordingly, because the plaintiffs in Bridgeford were not parties to the prior action, they could not be precluded from pursuing their own class claims against the defendant.

This is a good decision for plaintiffs and class actions.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.

A class-action suit against Facebook is underway in the District Court for the Northern District of California.  On February 21, 2012, Magistrate Judge Paul S. Grewal denied a motion for a protective order to prevent the deposition of a plaintiff who is seeking to be dismissed from the case.  Fraley v. Facebook, No. C 11–1726 LHK (PSG), 2012 WL 555071 (N.D. CA Feb. 21, 2012) (Fraley II).

The case concerns the social networking site’s use of members’ names and photos in advertisements as part of its “Sponsored Stories” feature.  Plaintiffs claimed that Facebook misappropriated their images in violation of California’s Right of Publicity Statute (CRPS), Unfair Competition Law (UCL), and the doctrine of unjust enrichment, by using their names and photos in paid advertisements without their consent.  See Fraley v. Facebook, No. 11–CV–01726–LHK, 2011 WL 6303898 (N.D. CA Dec. 16, 2011) (Fraley I).

On December 16, 2011, District Judge Lucy Koh granted in part, and denied in part, Facebook’s motion to dismiss the plaintiffs’ claims.  Fraley I., 2011 WL 6303898. In upholding the claims under the CRPS and UCL, Judge Koh wrote that the plaintiffs “articulated a coherent theory of how they were economically injured by the misappropriation of their names, photographs, and likenesses for use in paid commercial endorsements.” Id. at 14.

In doing so, Judge Koh distinguished the current case from Cohen v. Facebook. No. 10-cv-5282-RS, 2011 WL 3100565 (N.D. Cal. June 28, 2011).  In Cohen, the plaintiffs were unable to show how they had suffered damages when Facebook used their names and images to promote its “Friend Finder” service.  However, in the current case, Judge Koh found that the plaintiffs “made specific allegations that their personal endorsement of Facebook advertisers’ products are worth two to three times more than traditional advertisements on Facebook.”  Fraley I, 2011 WL 6303898, at 29. Their evidence included statements from Facebook executives extolling the effectiveness of using members’ images to promote products to friends who would value their endorsement. Id. at 14–15.

As to the claim for unjust enrichment, California courts have recently held that unjust enrichment is not a stand-alone cause of action in the state.  See, e.g., Hill v. Roll Int’l Corp., 195 Cal. App. 4th 1295, 1307 (2011) (“Unjust enrichment is not a cause of action, just a restitution claim.”).  Therefore, Judge Koh granted Facebook’s motion to dismiss on the third cause of action. Fraley I, 2011 WL 6303898, at 36.

Then, in February 2012, two of the named plaintiffs in the case, Angel Fraley and Paul Wang, sought to withdraw as class representatives.  Fraley based her motion “on privacy concerns and potential embarrassment” from details that could emerge during the proceedings. Fraly II, 2012 WL 555071, at 1.  In addition, Fraley asked for a protective order barring Facebook from conducting her deposition. Id.

Judge Grewal ruled on February 21 that Fraley failed to show good cause for issuing the protective order, holding that her “legitimate desire to protect her privacy does not outweigh the relevance or propriety of [a deposition].” Id. at 3.  Moreover, “by agreeing to be a class representative, she understood that she would have to participate in discovery and provide testimony.” Id.  Following Judge Grewal’s ruling, Judge Koh granted Fraley and Wang’s motion for dismissal on March 13, leaving three plaintiffs remaining as class representatives.  See Fraley v. Facebook, No. 11–CV–01726–LHK, 2012 WL 893152 (N.D. CA Mar. 13, 2012).

The plaintiffs’ brief in support of a motion for class-certification was submitted in early March.  Keep checking this blog for updates on the case, as they develop.

Nicholas Turner is a third year law student at New York Law School.  He is a Notes & Comments editor of Law Review and a John Marshall Harlan Scholar.  Mr. Turner came in second in the 2011 ABA Torts, Insurance, and Compensation Law Section Writing contest.  He was a 2011 Review Editor of the school’s Global Human Rights Bulletin.  Mr. Turner is proficient in French.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.

In our July 2011 blog post, we reported about Judge William J. Hibbler’s decision to deny IndyMac Mortgage Servicers, FSB’s (a division of OneWest Bank, FSB) motion to dismiss a class action lawsuit related to its failure to comply with guidelines established by the Home Affordable Modification Program (“HAMP”).  See Fletcher v. OneWest Bank, FSB, 2011 U.S. Dist. LEXIS 72562 (N.D. Ill. June 30, 2011)(order denying OneWest’s motion to dismiss plaintiff’s class action claims for breach of contract, promissory estoppel and violations of the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”)).  Abbey Spanier is lead counsel in the Fletcher litigation.

On July 15, 2011, OneWest filed a motion to stay the Fletcher litigation pending the U.S. Court of Appeal for the Seventh Circuit’s decision in Wigod v. Wells Fargo Bank, N.A., Appeal No. 11-1423 (7th Cir. Feb. 22, 2011).  In Wigod, Judge Manning dismissed the plaintiff’s claims stemming from defendant Wells Fargo’s alleged non-compliance with HAMP.  Like the Fletcher litigation, plaintiff Wigod’s class action complaint alleged violations of Illinois law under common-law contract and tort theories and under the ICFA.  The district court’s reason for dismissing Wigod’s complaint was primarily that Wigod alleged Wells Fargo had violated HAMP, a federal statute which it determined did not allow for a private right of action. See Wigod v. Wells Fargo Bank, N.A., No. 10 CV 2348, 2011 WL 250501 (N.D. Ill. Jan. 25, 2011). After the Wigod appeal, OneWest argued that a stay was warranted in the Fletcher litigation because the issues raised were virtually identical to those pending before the Seventh Circuit Court of Appeals.  During a status hearing with the Court, plaintiff consented to OneWest’s motion for a stay so long as the status quo was to be maintained.

On March 7, 2012, the Seventh Circuit issued its opinion in Wigod v. Wells Fargo Bank, N.A., No. 11-1423, 2012 U.S. App. LEXIS 4714 (7th Cir. March 7, 2012), a copy of which is located here.  Relying in part on Judge Hibbler’s June 30, 2011 opinion denying OneWest’s motion to dismiss, the Seventh Circuit reversed the judgment of the Wigod district court on breach of contract, promissory estoppel, fraudulent misrepresentation and ICFA claims.  In its decision, the Seventh Circuit determined that plaintiff Wigod’s state law claims are not preempted or otherwise barred by federal law.

In light of the Seventh Circuit’s decision reversing the district court’s decision in Wigod, the Court has lifted the stay in the Fletcher litigation and the case will now proceed.  Abbey Spanier intends to aggressively litigate the Fletcher action and seek compensation for homeowners who have been harmed by OneWest’s deceptive practices.  If you have been harmed by OneWest’s improper practices, please tell us your story here.

In related news, on March 26, 2012, Judge Hibbler unexpectedly passed away at the age of 65.  Abbey Spanier passes along its sincere condolences to Judge Hibbler’s family, friends and colleagues at the Northern District.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.

Used with permission from Microsoft.

The mainstream distribution of music through digital media has been around for over a decade now, yet many questions about the relative rights of record companies and artists in this medium remain unsettled. One indicator of the uncertainty brought on by digital distribution in the music industry is the class action suit brought by Rob Zombie (of Rob Zombie and White Zombie fame), David Coverdale (of Whitesnake), Dave Mason (of Traffic and other groups), and the estate of singer Rick James against Universal Music Group in James ex rel. James Ambrose Johnson, Jr. 1999 Trust v. UMG Recordings.

These all-star plaintiffs allege that Universal Music Group (UMG) improperly withhold royalties from artists by defining digitally distributed sound recordings and “mastertones” (cell phone ringtones) as “sales” and not “licenses.”

Contractually, UMG and other labels set aside dramatically different royalty percentages for the “sale” as compared to the “licensing” of sound recordings. For a “sale,” artists are typically paid between 10 and 20 percent of gross revenues as royalties. The label’s greater percentage reflects the costs associated with manufacturing, shipping, and selling recordings at retail locations. However, for a “licensed” use, the royalty rates are far more favorable to the artists; typically edging closer to a 50-50 split of revenue.

Obviously, this means a lot of money rides on whether or not a particular use is a “sale” or a “license.” The plaintiffs allege that the digital distribution of their sound recordings via digital music services (such as iTunes or Amazon), as “mastertones” (cell phone ringtones, waiting tones, etc.), and through other services were “licenses” of their recordings, not “sales.” After all, the labels’ greater share of royalties associated with “sales” was designed to offset the costs associated with the production, distribution, and sale of physical media like CDs, DVDs, and tapes. In the case of revenues accumulated through digital distribution, there are minimal costs borne by the label in offering the recording to the consumer.

The plaintiffs’ claims rely on the Ninth Circuit case F.B.T. Productions, LLC v. Aftermath Records, decided in September 2010. In F.B.T. Productions, the Ninth Circuit held that agreements that allow “distributors, cellular phone carriers, and other third-parties to. . . produce and sell permanent downloads and mastertones [of sound recordings] in exchange for periodic payments based on volume of downloads. . . [are] ‘licenses.’” In this way, the Ninth Circuit indicated that distribution of physical products were “sales” of copies (with the associated costs for “packaging” and “shipping” and “breakage”), while any digital downloads, cell phone ringtones or waiting tones, or other similar services were to be construed as “licenses.” Despite strenuous objections from music industry groups, the Supreme Court denied certiorari.

This presents a problem for UMG and other music labels, who had previously defined digitally distributed recordings as “sales” and collected their 80-90% “sale” royalties on everything from sound recording downloads through iTunes and Rhapsody to ringtone distribution through Verizon, Sprint, AT&T, and T-Mobile.

Under F.B.T. Productions, these uses are now considered to be “licenses,” and as a result record labels might well owe artists substantial sums of money. In F.B.T Productions, the amount in question was somewhere between $17-20 million in unpaid royalties for a single litigant: the production company who discovered the rapper Eminem. If F.B.T Production’s ruling were to be enforced on a large scale, conservative calculations indicate that labels could owe artists as much as $2.15 billion in royalties from iTunes sales alone!

For their part, UMG and others in the industry claim that the language in the F.B.T. Productions contract was unique to that case, having been drawn up by a small production company instead of using a standard form UMG contract, and that that decision should not apply to agreements that used that stock contract (which would be the vast majority of cases.)

The artists who stand to gain the most from this suit are those older “catalog artists” whose music sells consistently and whose contracts were “form” contracts drafted before the advent of digital distribution. While most modern record contracts include provisions that expressly deal with digital distribution royalties, there are a huge number of contracts with no such provision, as the idea of “digital distribution” on a large scale has only been around for just over a decade.

This is shown by the scope of the current putative class description, which covers “all persons and entities. . . who entered into UMG production or recording arrangements from January 1, 1965 to April 30, 2004.”  This is big news for many such artists. Joyce Moore, the wife of Sam Moore, who sang “Soul Man” and other hits with Sam & Dave in the 1960s, noted in an interview with the New York Times: “This is life-changing. If we were being paid a nickel a download, as opposed to 35 cents — that’s a huge amount of money for a guy that is on a fixed income or has to run up and down the road at 75 years old.”

In surviving UMG’s motions to dismiss and transfer in James ex rel. James Ambrose Johnson, Jr. 1999 Trust v. UMG Recordings this past November, the plaintiffs have won the first major engagement in the dance of motions.  The music industry is watching this case intently. It’s only fitting, then, that such a “rock star” of a case was brought by real rock stars!

Joshua Druckerman is a second-year law student at New York Law School and a member of its Law Review.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.

On February 1, 2012, The United States Court of Appeals for the Second Circuit reversed, for the third time, the District Court’s decision granting American Express’ (“Amex”) motion to compel arbitration pursuant to the Federal Arbitration Act (“FAA”).

The plaintiffs included merchants who were required to pay above-market-rate fees in order to accept payments from customers using American Express cards. The plaintiffs sued in the Southern District of New York, alleging that the fees resulted from a “tying arrangement,” an antitrust violation pursuant to the Sherman Act. In re Am. Express Merchs. Litig., No. 03 CV 9592, 2006 WL 662341 (S.D.N.Y. 2006).

The District Court concluded that plaintiffs’ substantive antitrust claims, as well as the question of whether or not the class action waivers were enforceable, were subject to arbitration and dismissed plaintiffs’ claims.

The plaintiffs appealed.

In In re American Express Merchants Litigation (“Amex I”) the Court of Appeals held that the class action waiver in Amex’s Card Acceptance Agreement was a matter for the court to decide and not subject to arbitration and also held that the class action waiver in the agreement was unenforceable “because enforcement of the clause would effectively preclude any action seeking to vindicate the statutory rights asserted by the plaintiffs.” 554 F. 3d. 300 (2d Cir. 2009).

In Amex I the Court of Appeals ruled that the class action waiver could not be enforced because to do so would grant Amex “de facto immunity from antitrust liability by removing the plaintiffs’ only reasonably feasible means of recovery.”  Citing Green Tree Financial Corp.-Alabama v. Randolph 531 U. S. 79 (2000).

Amex appealed to the Supreme Court.

The Supreme Court vacated the Court of Appeals’ decision and remanded the case in light of Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp. In Stolt-Nielsen the Supreme Court held that parties could not be forced to submit to class-action arbitration unless they had specifically agreed to do so.  On remand, the Court of Appeals held that Stolt-Nelson did not require it “to depart from [its] original analysis” and again reversed the District Court’s decision and remanded the case for further proceedings. In re Am. Express Merchs. Litig, 634 F. 3 187 (2d Cir. 2011) (“Amex II”)

Undeterred, Amex appealed again following the Supreme Court’s decision in AT&T Mobility v. Concepcion.

In Concepcion, the Supreme Court held that the Federal Arbitration Act preempted state laws that prevented defendants from enforcing most class-action waivers found in arbitration clauses. Amex argued that Concepcion overruled the Second Circuit’s prior holding and that the plaintiffs were not entitled to class-action status under the Card Acceptance Agreement.

Once again, the Court of Appeals rejected Amex’s arguments finding that neither
Concepcion, nor Stolt-Nielsen required it to find that all class action waivers to be “per se” enforceable.  The Court of Appeals said that the question on appeals was “whether a mandatory class action waiver clause is enforceable even if the plaintiffs are able to demonstrate that the practical effect of enforcement would be to preclude their ability to bring federal antitrust claims.”

The Second Circuit found if the plaintiffs “are not permitted to proceed in a judicial class action, then, they will have been effectively deprived of the protection of the federal antitrust-law.”

Finding that each “class action waiver must be considered on its merits” is a good decision for plaintiffs; however, we believe that this is not the final word in this case and that the Court of Appeals’ decision will likely be reviewed by the Supreme Court.

Nicholas Turner is a third year law student at New York Law School. He is a Notes & Comments editor of Law Review and a John Marshall Harlan Scholar. Mr. Turner came in second in the 2011 ABA Torts, Insurance, and Compensation Law Section Writing contest. He was a 2011 Review Editor of the school’s Global Human Rights Bulletin. Mr. Turner is proficient in French.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.

Used with permission from Microsoft.

The Fifth Circuit Court of Appeals upheld a decision that found that a mandatory arbitration clause used by 24 Hour Fitness was illusory because it allowed the company to make changes to the policy retroactively. The decision in Carey v. 24 Hour Fitness is a victory for employees who have been subjected to unfair arbitration agreements by their employers.

The plaintiff in Carey was a former sales representative who was employed by the fitness chain in Texas. He filed a class-action suit against the company in the Southern District of Texas on behalf of employees who were allegedly denied overtime pay in violation of the Fair Labor Standards Act.

24 Hour Fitness moved to stay the action and compel arbitration per a provision in the company’s Employee Handbook. The provision stated that “24 Hour Fitness has the right to revise, delete, and add to the” handbook by giving employees written notice. Judge Nancy Atlas rejected the company’s motion, holding that the agreement was unenforceable under state law.

On appeal, the Fifth Circuit affirmed the lower court’s decision. Citing the Supreme Court’s holding in CompuCredit v. Greenwood, the Fifth Circuit acknowledged that federal courts were expected to favor arbitration agreements under the Federal Arbitration Act (FAA). However, as the Supreme Court remarked in AT&T v. Concepcion, federal courts must still look to state contract law in order to determine whether an arbitration agreement existed.

The Fifth Circuit held that under Texas law arbitration agreements are invalid unless they specify that unilateral changes made by an employer will not have a retroactive effect against the employee. Because the 24 Hour Fitness agreement lacked such a restriction, the plaintiff was not bound by the agreement and could pursue his claims in district court.

The decision follows the Fifth Circuit’s holding in Morrison v. Amway in 2008, where the Court “refused to enforce an arbitration agreement that was capable of being retroactively modified.” The Carey court explained that “where one party to an arbitration agreement seeks to invoke arbitration to settle a dispute, if the other party can suddenly change the terms of the agreement to avoid arbitration, then the agreement was illusory from the outset.”

The Court distinguished its holding in Carey and Morrison from its decision in In re Halliburton, where an arbitration agreement was found to be enforceable even though it allowed for unilateral revisions. In that case, the agreement included a “savings clause” that provided that such revisions would not apply to disputes that were already underway.

The Fifth Circuit’s decision in Carey offers a silver lining for plaintiffs after the Supreme Court’s decisions in Concepcion and CompuCredit. Carey demonstrates how plaintiffs can successfully utilize state laws to defeat unfair arbitration agreements that might otherwise stand under the FAA. The California Court of Appeal reached a similar outcome in Sanchez v. Valencia Holding in November 2011, which found that the FAA did not apply to an arbitration agreement that was unconscionable under state law.

Nicholas Turner is a third year law student at New York Law School. He is a Notes & Comments editor of Law Review and a John Marshall Harlan Scholar. Mr. Turner came in second in the 2011 ABA Torts, Insurance, and Compensation Law Section Writing contest. He was a 2011 Review Editor of the school’s Global Human Rights Bulletin. Mr. Turner is proficient in French.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.

As we have discussed several times in this blog, since the Supreme Court’s decision last June in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), defendants in lawsuits throughout the country have asked the courts to de-certify previously certified class actions. Most recently, in In re Motor Fuel Temperature Sales Practices Litigation MDL, 2012 U.S. Dist. LEXIS 6163 (D. Kan. Jan. 19, 2012), the court, after being asked to reconsider its class certification order, determined that Dukes did not affect the classes that had been previously certified. Although the Court did modify the previously certified classes, it was not due to Dukes.

On May 28, 20201, the court in Motor Fuel, certified classes under Rule 23(b)(2) as to the liability and injunctive relief aspects of the plaintiffs’ claims, bifurcated the claims and did not certify plaintiffs’ claims for damages. In that lawsuit, the plaintiffs alleged that because defendants sell motor fuel for a specified price per gallon without disclosing or adjusting for temperature expansion, they are liable under Kansas law for unjust enrichment, civil conspiracy and violating the Kansas Consumer Protection Act. 2012 U.S. LEXIS 6163, at *10-11.

Following the decision in Dukes, Defendants moved for reconsideration and argued that Dukes required the Court to decertify the (b)(2) classes. Specifically, Defendants argued that the plaintiffs’ claims did not satisfy the commonality requirement of Rule 23(a)(2) and do not qualify for class certification. In responding to defendants’ motion, plaintiffs asked the court to redefine the already certified Rule 23(b)(2) classes and to certify classes under Rules 23(b)(3) and (c). Although the plaintiffs asked the court to recalibrate the class definitions, the changes did not affect the court’s original class certification decision.

The court found that although Dukes arguably heightened the commonality requirement and narrowed the permissible scope of classes certifiable under Rule 23(b)(2), it was not fatal to the class action before it. In so finding, the court distinguished Dukes. In Motor Fuel, the plaintiffs alleged a common practice by all defendants that applied to the entire class uniformly. Thus, they alleged the same injury. Although the case involved a large class, the claims do not turn on a number of variables like in Dukes, i.e. different jobs at different levels with difference supervisors in 50 different states governed by different regional policies. The cases differed because Motor Fuel involved a single price that defendants allegedly implemented uniformly with respect to all class members. Because the plaintiffs alleges a common practice that caused class members a common injury, the court determined that, class wide proceedings would “generate common answers apt to drive the resolution of the litigation” and any dissimilarities within the proposed class do not “impede the generation of common answers.” 2012 U.S. LEXIS 6163, at *47-48, citing Dukes, 131 S. Ct. at 2551 (quoting Richard A. Nagareda, Class Certification in the Age of Aggregate Proof, 84 N.Y.U. L. Rev. 97, 131-32 (2009). The Court also held that significant proof that defendants operated under a general policy of selling motor fuel by the gallon without disclosing or adjusting for temperature was sufficient to satisfy the commonality requirement with respect to both the liability and injunctive relief aspects of plaintiffs’ claims. Id. at *47.

In addition to its determination that the previously certified classes are not barred by Dukes, the Motor Fuel court also confronted the question of when issues classes can be certified under Federal Rule of Procedure 23 (c)(4). Pursuant to Rule 23(c)(4), when appropriate, an action may be brought or maintained as a class action with respect to particular issues.

In Motor Fuel, the court had already certified classes under Rule 23(b)(2) as to the liability and injunctive relief aspects of plaintiffs’ claims. Defendants asked the Court to reconsider that ruling and to clarify what constitutes the “liability aspects” of plaintiffs’ claims. In response, plaintiffs asked the Court to certify limited (b)(3) issues classes under Rule 23(c)(4) as to the liability aspects of their three claims. The court noted that the circuit courts are split on whether courts can use issue certification under Rule 23(c)4 to certify a (b)(3) class as to parts of a claim without first finding that the whole claim satisfies the predominance requirements (and presumably all the requirements of) Rule 23(b)(3). The Court noted that the Tenth Circuit had not yet addressed these issues. 2012 LEXIS 6163, at *30. Thus, the Court determined to follow the approach of the Second, Seventh and Ninth Circuits, which have used Rule 23(c)(4) to certify only parts of claims where doing so “would materially advance the disposition of the litigation of the whole.” Id. at *32-33. Although the defendants pointed out that the cases the Court relied on in following the approach of the Second, Seventh and Ninth Circuits were decided before Dukes, they did not argue that Dukes undermined their rationale or persuasive value. Id. at *32. The Court explicitly declined to follow the more strict approach of the Fifth Circuit that has held that “the proper interpretation of the interaction between subdivisions (b)(3) and (c)(4) is that a cause of action, as a whole, must satisfy the predominance requirements of (b)(3) and that (c)(4) is a housekeeping rule that allows courts to sever the common issues for a class trial.” Id. at *30, citing Castano v. Am. Tobacco Co., 84 F.3d 734, 745 n.21 (5th Cir. 1996).

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.

Earlier this year the Supreme Court ruled 8-1 to reverse a decision from the Ninth Circuit and enforce a provision in a credit-card agreement requiring plaintiffs to arbitrate claims over unfair lending practices. The decision in CompuCredit Corp. v. Greenwood is the latest Supreme Court case to limit plaintiffs’ rights under the Federal Arbitration Act of 1925 following its decision last year in AT&T v. Concepcion.

The plaintiffs filed a class-action suit in the Northern District of California against CompuCredit under the Credit Repair Organization Act (the CROA). The CROA applies to credit card companies that cater to low-income people and promise customers a way to build credit history and improve credit scores. Plaintiffs alleged that CompuCredit provided misleading promotional materials and charged hidden fees that totaled more than $250 on average on an initial credit line of $300 in the first year alone.

CompuCredit moved to dismiss the complaint and class certification and enforce a mandatory arbitration clause contained in the customer credit agreement. The District Court rejected the motion, and the Ninth Circuit affirmed, holding that §1679c(a) of the CROA gave plaintiffs “a right to sue” in court in order to enforce the Act’s provisions.  Section 1679c(a) requires companies to include a disclosure in customer agreements stating that: “You have a right to sue a credit repair organization that violates the [CROA].”  Moreover, §1679f  invalidated “[a]ny waiver by any consumer of any protection provided by or any right of the consumer under” the Act, thereby making the arbitration clause unenforceable.

The Supreme Court’s majority voted to reverse the lower courts’ decisions, holding that §1679c(a) did not give the plaintiffs a substantive right to sue, but only the right to “receive the statement” contained in §1679c(a). Therefore, §1679f  did not incorporate the right to sue and did not make the arbitration clause unenforceable.

Additionally, the majority held that other sections of the Act did not give plaintiffs an express right to sue in court because it left the parties free to choose their own forum. Therefore, plaintiffs who sign arbitration agreements must begin their cases there, and may only resort to traditional courts if necessary to enforce or review awards. 

The majority came to its conclusion in light of the strong presumption in favor of arbitration clauses given by the Federal Arbitration Act of 1925 (FAA). The Court acknowledged that the disclosure contained in §1679c(a) of the CROA was “imprecise,” but reasoned that Congress would have specifically invalidated mandatory arbitration clauses in the CROA, if it had intended to do so.

Justice Ginsberg in her dissent argued that §1679c(a) should be read to give plaintiffs the right to sue in court in keeping with the section’s plain meaning because “Congress’ target audience in the CROA is not composed of lawyers and judges accustomed to nuanced reading of statutory texts, but laypersons who receive a disclosure statement in the mail.” Since “a right to sue” typically implies the right to sue in court– not arbitration—consumers should not be able to waive that right, per §1679f. Ginsberg concluded that the majority’s decision would allow companies “to deny consumers, through fine print in a contract, an important right” contained in the CROA.

The outcome in CompuCredit only increases the disadvantage given to plaintiffs under the Court’s holding in Concepion, which undermined state laws protecting consumers against class-action waivers in arbitration clauses. Taken together, the decisions allow credit companies to deny plaintiffs–particularly low-income ones–the benefit of class-action status, while forcing their claims into the forum that is most favorable to the companies.

On this blog we have written extensively on why we need the Arbitration Fairness Act now.

Nicholas Turner is a third year law student at New York Law School. He is a Notes & Comments editor of Law Review and a John Marshall Harlan Scholar. Mr. Turner came in second in the 2011 ABA Torts, Insurance, and Compensation Law Section Writing contest. He was a 2011 Review Editor of the school’s Global Human Rights Bulletin. Mr. Turner is proficient in French.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.

The National Labor Relation Board’s (NLRB) recent ruling in D.R. Horton Inc. answered an important question presented by the U.S. Supreme Court’s ruling last Spring in AT&T Mobility LLC v. Concepcion: does federal policy favoring arbitration apply equally in the consumer and employment contexts?

The NLRB’s response was an emphatic “no,” largely agreeing with arguments advanced by dozens of organizations, including the National Employment Lawyers Association (NELA), dedicated to representing individuals who often cannot safeguard their fundamental labor protections in the workplace without class or collective actions.

Although Concepcion arose in the consumer context, some have construed the Supreme Court’s ruling broadly as stating the Court’s approval of forced arbitration provisions in other contexts, including the employment context. Indeed, the Arbitration Fairness Act, which was first proposed in 2009, was reintroduced in response to the Concepcion ruling and, if passed, will eliminate forced arbitration clauses in consumer, employment and civil rights contexts. As we wrote here last year, Abbey Spanier, LLP supports this legislation.

The particular contractual provision at issue in D.R. Horton required plaintiff and other D.R. Horton Inc. employees to agree, as a condition of employment, that they would not pursue class or collective litigation of claims in any forum, arbitral or judicial. Although the general intent of the Federal Arbitration Act (FAA) manifests a liberal federal policy favoring arbitration agreements, the NLRB found that such a provision runs afoul of the National Labor Relations Act (NLRA).

The NLRA is a 1935 United States federal law that limits the means with which employers may react to workers in the private sector who create labor unions, engage in collective bargaining and take part in strikes and other forms of concerted activity in support of their demands. The NLRA does not apply to workers who are covered by the Railway Labor Act, agricultural employees, domestic employees, supervisors, federal, state or local government workers, independent contractors and some close relatives of individual employers.

In ruling against D.R. Horton Inc., the NLRB concluded that “employees who join together to bring employment-related claims on a class-wide or collective basis in court or before an arbitrator are exercising rights protected by Section 7 of the NLRA,” which provides employees with the right “to engage in… concerted activities for the purpose of collective bargaining or other mutual aid or protection” (29 U.S.C. § 157) and that such “forms of collective efforts to redress workplace wrongs or improve workplace conditions are at the core of what Congress intended to protect by adopting the broad language of Section 7.” Slip Op., p.3.

Likewise, the NLRB found that the prohibition of individual agreements imposed on employees as a means of requiring that they waive their right to engage in protected, concerted activity lies at the core of the prohibitions contained in Section 8, which makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise” of such right (29 U.S.C. § 158(a)(1)). Slip Op., p.5.

The NLRB decision provides a lengthy discussion of the FAA and the Supreme Court precedent, including Concepcion, which you can read in full here, but explains why D.R. Horton seems to diverge as follows: it “rests not on any conflict between an agreement to arbitrate and the NLRA, but rather solely on the conflict between the compelled waiver of the right to act collectively in any forum in an effort vindicate work-place rights and the NLRA.” Slip Op., p.13.

The NLRB got it right and, in our view, restored some order to a corner of jurisprudence cast into disarray Concepcion. To have reached any other result, as the U.S. Supreme Court has recognized, “could frustrate the policy of the [NLRA] to protect the right of workers to act together to better their working conditions.” Eastex, Inc. v. NLRB, 437 U.S. 556, 567 (1978).

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.

Earlier this month, we reported on the decision in Klier v. Elf Atochem North America, Inc., 658 F.3d 468 (5th Cir. 2011), in which the Fifth Circuit rejected a cy pres distribution of the remaining funds in a class action settlement. This may be a growing trend, as the Ninth Circuit also recently rejected a cy pres distribution in a class action against AOL.

In Nachshin v. AOL, LLC, No. 10-5129, 2011 U.S. App. LEXIS 23244 (9th Cir. Nov. 21, 2011), the Court reversed the district court’s approval of the cy pres distributions because it found that the distributions did not comport with the Ninth Circuit’s standards. The Court objected to the distributions because although the donations were made on behalf of a nationwide class, they were distributed to geographically isolated and substantively unrelated charities. In fact, two-thirds of the donations were to be made to local charities in Los Angeles, California.

In August 2009, four plaintiffs brought this class action against AOL on behalf of a putative class of more than 66 million paid AOL subscribers alleging that AOL wrongfully inserted footers containing promotional messages into e-mails sent by AOL subscribers. The parties entered into a voluntary mediation that resulted in a settlement that called for the certification of a settlement class consisting of “all current AOL members.” The settlement required certain remedial measures to be taken by AOL. In addition, all parties agreed that since monetary damages were small and difficult to ascertain, in lieu of a cost–prohibitive distribution of monetary damages, AOL would make a series of charitable donations. Because the more than 66 million class members were geographically and demographically diverse, the parties claimed they could not identify any charitable organization that would benefit the class or be specifically germane to the issues in the case. Thus, the parties agreed that AOL would donate $25,000 to three charities: (1) the Legal Aid Foundation of Los Angeles; (2) the Federal Judicial Center Foundation; and (3) the Boys and Girls Club of America (shared between the chapters in Los Angeles and Santa Monica). In addition, the parties agreed to compensate the class representatives by awarding $35,000 to four charities of the class representatives’ choice, including: (1) New Roads School of Santa Monica; (2) Oklahoma Indian Legal Services; and (3) the Friars Foundation.

The Court found that the cy pres distribution failed to meet any of the standards set forth by that Court in Six (6) Mexican Workers v. Ariz. Citrus Growers, 904 F.2d 1301, 1307-08 (9th Cir. 1990). Specifically, the Court found that the proposed award failed to: (1) address the objectives of the underlying statues; (2) target the plaintiff class; or (3) provide reasonably certainty that any member will be benefited. The Plaintiffs’ claims were brought for breach of electronic communications privacy, unjust enrichment and breach of contract, yet none of the cy pres donations to the Legal Aid Foundation, Boys and Girls Club or the Federal Judicial Center Foundation have anything to do with the objectives of the underlying statutes upon which plaintiffs based their claims. Moreover, even though a small portion of the class members did reside in Los Angeles, there was no indication that those class members would benefit from the donations to the charities in Los Angeles.

In addition, the Court was not persuaded that the size and geographic diversity of the class members made it impossible to select an appropriate charity to receive the cy pres donations within the guidelines set forth by the Ninth Circuit. The Court pointed out that all class members used the internet and their claims against AOL arose from a purportedly unlawful advertising campaign that exploited users’ outgoing email messages. Therefore, the Court posited, the parties should have selected an appropriate charity from a number of non-profit organizations that work to “protect internet users from fraud, predation and other forms of online malfeasance.” Finally, the Court suggested that if a suitable cy pres beneficiary could not be located, the district court should consider escheating the funds to the United States Treasury.

Given these recent decisions rejecting cy pres distributions, counsel should use care in selecting the recipients of any cy pres to ensure that the recipients are substantively and/or geographically related to the Class and its claims in the litigation.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm with a concentration in employment law.

Last year, in our December 2010 blog post, we reported about the “Martin Act” which provides the New York Attorney General with the authority to file civil or criminal charges for fraud in connection with the offer and sale of securities, in and from New York State.  As we explained in that post, for many years, the majority of federal and New York state courts have taken the position that the Martin Act gives exclusive authority to the Attorney General, and thus preempts any private non-fraud common law causes of action (e.g. breach of fiduciary duty, gross negligence, unjust enrichment, negligent misrepresentation) related to the sale of securities.

We also noted that courts were beginning to take a different view of the Martin Act and cited several decisions rejecting the preemption argument. See Anwar v. Fairfield Greenwich Ltd. (“Anwar I”), No. 09 Civ. 0118 (VM), 2010 U.S. Dist. LEXIS 78425 (S.D.NY. July 29, 2010) (finding that the Martin Act does not preempt common law claims); Terra Sec. ASA Konkursbo v. Citigroup, Inc., No. 09 Civ. 7058 (VM), 2010 U.S. Dist. LEXIS 84881 (S.D.N.Y. Aug. 16, 2010) (same); Assured Guaranty (UK) Ltd. v. J.P. Morgan Inv. Mgmt. Inc., No. 603755/08, 2010 N.Y. Slip Op. 8644 (N.Y. App. Div. First Dept. Nov. 23, 2010)(holding that “there is nothing in the plain language of the Martin Act, its legislative history or appellate level decisions in this State that supports the defendant’s argument that the act pre-empts otherwise validly pleaded common-law causes of action.”)

More recently, in cases brought by investors seeking to recover losses related to the Bernard Madoff scandal, New York courts have been unwilling to follow Anwar I or Assured. See In re J.P. Jeanneret Assocs., 769 F. Supp. 2d 340 (S.D.N.Y. January 31,  2011)(dismissing all state law claims as preempted by the Martin Act); Merkin v. Gabriel Capital, L.P., 2011 U.S. Dist. LEXIS 112931 (S.D.N.Y. Sept. 23, 2011)(dismissing non-fraud claims for breach of fiduciary duty, gross negligence (and mismanagement), and unjust enrichment as preempted by the Martin Act).

On December 20, 2011, the New York Court of Appeals (New York’s highest court) issued its decision in Assured Guaranty (UK) Ltd. v. J.P. Morgan Investment Management, Inc. , and held that “the Martin Act does not preclude a private litigant from bringing a nonfraud common-law cause of action.”  No. 227, slip op. at 7 (N.Y. Ct. App. Dec. 20, 2011).   In the 6-0 opinion by Judge Victoria A. Graffeo, the Court of Appeals stated that:

[A] private litigant may not pursue a common-law cause of action where the claim is predicated solely on a violation of the Martin Act or its implementing regulations and would not exist but for the statute.  But, an injured investor may bring a common-law claim (for fraud or otherwise) that is not entirely dependent on the Martin Act for its viability.  Mere overlap between the common law and the Martin Act is not enough to extinguish common-law remedies.

***

We agree with the Attorney General that the purpose of the Martin Act is not impaired by private common-law actions that have a legal basis independent of the statute because proceedings by the Attorney General and private actions further the same goal — combating fraud and deception in securities transactions. Moreover, as Judge Marrero observed recently, to hold that the Martin Act precludes properly pleaded common-law actions would leave the marketplace “less protected than it was before the Martin Act’s passage, which can hardly have been the goal of its drafters” (Anwar v. Fairfield Greenwich Ltd., 728 F Supp 2d 354, 371 [SD NY 2010]).”

Assured Guaranty, slip op. at 10-11.

This landmark decision is a victory for investors and will likely have a wide impact on pending and future class action litigations.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm with a concentration in employment law.

In recent years, New York has received attention for its application of Section 196-d of the Labor Law, which prohibits employers from retaining a gratuity or a charge that purports to be a gratuity. In a 2008 decision, Samiento v. World Yacht Inc., 10 N.Y.3d 70, 79 (N.Y. 2008), the Court of Appeals held that a mandatory service charge may be viewed as a gratuity owed to employees within the meaning of Section 196-d.

However, New York is not the only state with such a law. The Minnesota Fair Labor Standards Act (the “MLFSA”) states that “any gratuity received by an employee . . . is the sole property of the employee.” Like New York, Minnesota law says that mandatory charges may purport to be a gratuity, and cannot be kept by the employer.

Unlike New York’s judge-made law on mandatory charges, Minnesota has a specific regulation that provides that “obligatory charges which might reasonably be construed by the guest, customer, or patron as a sum to be given to the employee as payment for personal services rendered, include, but are not limited to, service charges, tips, gratuities, and/or surcharges which are included in the statement of charges given to the customer.”

In Luiken v. Domino’s Pizza, LLC, Civil No. 09-516 (DWF/TNL), 2011 U.S. Dist. LEXIS 135780 (D. Minn. Nov. 14, 2011), Judge Donovan W. Frank granted a motion for class certification in an action brought by two Domino’s Pizza delivery drivers who alleged that Domino’s retained a $1.00 “delivery charge”, in violation of the MFLSA. The drivers alleged that the “delivery charge” might reasonably be construed by the customer as a sum to be given to the employee who was delivering the pizza.

In opposing class certification, Domino’s argued that common proof would not predominate over individualized proof because an examination must be made into the facts of each transaction. Domino’s argued that each customer’s experience was different, and inquiry must be made into whether a customer had previously ordered from Domino’s, as well as the size of the order the customer made, and whether the customer had any discussions with Domino’s employees about the delivery charge.

Judge Frank dismissed Domino’s argument as “not dispositive” on a class certification motion. Rather, the plaintiffs had shown that the claims of all class members “result from the same alleged injury and are based on the same legal theory: that Domino’s violated the MLFSA by unlawfully retaining delivery driver gratuities as prohibited by the statute.”

Moreover, Judge Frank appeared to recognize that a claim for unlawful retention of mandatory charges is not based on a subjective analysis, but rather is objective, stating: “The Court finds that this claim—including the underlying contention that customers might reasonably have construed the delivery charge as payment to Domino’s delivery drivers for personal services rendered—is capable of classwide resolution. The Court further notes that whether the fact-specific circumstances articulated by Domino’s resulted in a customer’s actual belief that the delivery charge was not a tip for the delivery driver is not an issue the Court will be tasked with deciding.”

The Luiken decision may be persuasive to other courts deciding class certification. Like the MFLSA, the New York Court of Appeals has held that the question of whether a charge purports to be a gratuity is objective, and is to be measured by what a reasonable customer would believe. Although few class certification decisions have been rendered on Section 196-d claims since World Yacht, those courts that have faced the issue have recognized that the Court of Appeals’ reasonable patron test “obviate[es] the need to closely examine each individual customer’s frailties or idiosyncrasies.” Spicer v. Pier Sixty LLC, 269 F.R.D. 321 (S.D.N.Y. 2010). This objective standard should eliminate an argument frequently used by defendants in opposition to class certification: that individual inquiries must be made into each customer’s state of mind.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm with a concentration in employment law.

There has been a  surge in the number of motions to compel arbitration filed in consumer class actions since the U.S. Supreme Court’s ruling in AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011) this spring.

Some may have been warranted, but a surprising number clearly were not.

Concepcion overturned Discover Bank v. Superior Court, 36 Cal.4th 148 (2005), in which the California Supreme Court ruled that an arbitration clause was unenforceable because the subject class action waiver would exculpate Discover Bank from liability for wrongdoing involving small sums of money. Perceived as a bright line rule rendering other similar provisions unenforceable as a matter of law, some claims were litigated although the plaintiff was party to an arbitration agreement. But whether that narrow category of cases should continue to be litigated was cast in doubt on April 27, 2011 when Concepcion was decided.

However, a number of motions to compel purportedly filed in response to Concepcion concerned arbitration provisions that were totally silent as to class arbitration and/or concerned large sums of damages, taking them outside the Discovery Bank rule. Because defendants in those cases were never precluded from moving to compel arbitration in the first instance, such motions were clearly not warranted, at least insofar as their timeliness was tied to the Concepcion ruling.

For example, in an action against the California School of Culinary Arts, Career Education and a number of lending institutions, which the parties had been actively litigating for over three years, defendants filed a motion to compel arbitration immediately following Concepcion, although the arbitration clause at issue did not contain a class action waiver.

The Court found that Concepcion did not excuse the defendants’ failure to file the motion sooner and, as plaintiffs generally urge the courts to do in these cases, focused its analysis on whether the defendants had actually waived their right to arbitration. Vasquez, et al., v. Calif. Sch. of Culinary Arts, Inc., et al., Case No. BC393129, slip op. (Ca. Super. Ct. Nov. 21, 2011).

The Court applied the following standard: “[W]aiver may be found where the party seeking arbitration has (1) previously taken steps inconsistent with an intent to invoke arbitration, (2) unreasonably delayed in seeking arbitration, or (3) acted in bad faith or with willful misconduct.” Id. at 1, citing Davis v. Continental Airlines, 59 Cal.App.4th 205, 211 (1997).

In holding that the defendants had waived the right to arbitration, the Court found that they had taken a range of steps inconsistent with an intent to invoke arbitration, including taking discovery of the plaintiffs. Vasquez, slip op. at 3-4. The extent of the discovery and the costs incurred by the plaintiffs supported a finding of prejudice to the plaintiffs. Id. at 5-6.The defendants’ delay of over three years was unreasonable, particularly given that the plaintiffs had accumulated over $3 million in attorney fess and costs in connection with responding to defendants discovery requests. Id. at 4-5.

Vasquez is just one of many examples of defendants wrongfully attempting to pile on to recent U.S. Supreme Court rulings that, while potentially game-changing within a limited universe, bear no relation whatsoever to the particular claims they are actually defending.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm, with experience opposing motions to compel arbitration.