Articles from March 2013

The U.S. Supreme Court has issued a 5-4 decision applying the Wal-Mart v. Dukes mandate, which compels federal district court judges to undertake a “rigorous” analysis of expert witness testimony when ruling on class certification motions, in the antitrust context. See Comcast v. Behrend, 569 U.S. ___ (2013) (available here).

Specifically, the Court has held that where an expert offers an antitrust damages model that incorporates three rejected theories of antitrust liability along with the lone liability theory that would have been adjudicated at trial, class certification must be denied. Slip op. at 2 (“A [damages] model that does not attempt to measure only those damages attributable to that theory cannot establish that damages are susceptible of measurement across the entire class for Rule 23(b)(3) purposes.”). Thus, the much-anticipated Comcast decision proved to be a relatively narrow application of already-established Dukes jurisprudence to the admissibility of expert testimony. As such, “the opinion breaks no new ground on the standard for certifying a class action under Federal Rule of Civil Procedure 23(b)(3).” Slip op. dissent at 3 (Ginsburg and Breyer, JJ., dissenting).

Even as a decision focused on the standard for admitting expert testimony at the class certification stage, Comcast falls well short of breaking new ground, as the Daubert criteria governing expert testimony were not applied to Rule 23 class certification motions, as had been widely speculated. Rather, the expert’s damages model was found deficient because, the plaintiff and expert conceded, “the model did not isolate damages resulting from any one theory of antitrust impact.” Slip op. at 4. Indeed, it is likely that even a pre-Dukes analysis would have found this particular expert testimony inadequate, as it consisted of regression analysis that, it was undisputed, lacked the sine qua non of regression analysis: isolating the influence of a particular independent variable.

As in Dukes, the proposed class in Comcast was unusually sprawling, even by class action standards, entailing “four theories of liability and 2 million subscribers located in 16 counties.” Slip op. at 10. The case arose in the often arcane area of antitrust law, casting further doubt on the decision’s ability to radically remake class actions. While the defense bar declared victory, it was in conspicuously muted terms, as with McDermott Will & Emery partner David L. Hanselman, Jr. who, quoted in Law360, observed merely that “[t]he court held that individualized issues of damages may preclude class certification; it did not hold that individualized issues of damages will always or necessarily preclude class certification.”

Once again, a court of law has weighed in on a case that has serially addressed the major issues in current class action jurisprudence. This time, the case was before the Second Circuit, where the panel considered the defendant’s appeal of a district court’s denial of its motion to compel arbitration. See Parisi v. Goldman, Sachs & Co., No. 11-5229 (2d Cir. Mar. 21, 2013) (available here).

In mid-2011, the at-issue motion to compel arbitration was referred to a Southern District of New York Magistrate Judge, who held the Federal Arbitration Act’s (FAA) preference for arbitration to be subordinate to federally-created statutory rights, and determined that the arbitration clause in plaintiffs’ contract with the defendant must be invalidated because arbitration would preclude the plaintiffs from vindicating a statutory right. See Chen-Oster v. Goldman, Sachs & Co., No. 10-6950, 2011 U.S. Dist. LEXIS 73200 (S.D.N.Y. Jul. 7, 2011) (“Chen-Oster I”). Then, in 2012, District Judge Leonard B. Sand denied the defendant’s motion to strike class allegations. See Chen-Oster v. Goldman, Sachs & Co., No. 10-6950 (S.D.N.Y. Jul. 17, 2012) (“Chen-Oster II”).

Parisi, aka Chen-Oster III, is the Second Circuit’s disposition of the defendant’s appeal of the denial of its motion to compel arbitration in Chen-Oster I. At issue in the appeal was the contention of the named plaintiffs, three female Goldman Sachs employees, that they had a substantive right under Title VII to pursue a “pattern-or-practice” discrimination claim, which is only available to class plaintiffs. The plaintiffs argued that because they cannot proceed on a class-wide basis in arbitration without the defendant’s consent, they must be permitted to proceed in court as a class action. See Chen-Oster I at *10-15. However, in holding that “there is no substantive statutory right to pursue a pattern-or-practice claim,” the Second Circuit reversed Chen-Oster I. See Parisi at 4.

While acknowledging that there are instances when the FAA must yield to federally-created statutory claims, the Second Circuit determined that plaintiffs’ purported pattern-or-practice claim is not eligible to join certain antitrust claims and claims related to statutorily-authorized damages in trumping the FAA: “The availability of the class action Rule 23 mechanism presupposes the existence of a claim; Rule 23 cannot create a non-waivable, substantive right to bring such a claim. Since private plaintiffs do not have a right to bring a pattern-or-practice claim of discrimination, there can be no entitlement to the ancillary class action procedural mechanism.” Parisi at 7 (internal citations omitted).

The Second Circuit relied heavily on the Supreme Court’s Wal-Mart v. Dukes decision in deciding Parisi, thus making it unlikely that this issue will be considered, much less reversed, by the U.S. Supreme Court. However, if the past is any indication, this is not the last we will be hearing of the Chen-Oster case.

Related Articles:  Chen-Oster: Distinguishing Concepcion;  Chen-Oster v. Goldman Sachs: Court Distinguishes Dukes, Denies Motion to Strike Class Allegations

The U.S. Supreme Court recently issued a ruling likely to influence the many motions for remand filed by prospective class action plaintiffs seeking, under the Class Action Fairness Act (CAFA), to have their cases sent back to state court due to an insufficient dollar amount in controversy to trigger federal jurisdiction. The opinion held that a pre-certification stipulation not to seek damages exceeding CAFA’s $5 million jurisdictional minimum ought to have been disregarded by the district court when it ruled on a plaintiff’s motion to remand. See The Standard Fire Ins. Co. v. Knowles, 568 U. S. ___ (2013) (slip opinion available here).

In Knowles, the plaintiff filed a class action in Arkansas state court alleging that Standard Fire underpaid homeowners’ insurance claims. The operative complaint confined the class definition to Arkansas residents and alleged only causes of action arising under Arkansas law. On that basis, the plaintiff stipulated that the class would seek less than $5 million in damages, and the Eighth Circuit found the stipulation binding and held that federal CAFA jurisdiction could not be exercised. Slip op. at 2.

In this, the Supreme Court’s first extended, substantial ruling on CAFA, the majority focused on whether such a stipulation could bind absent class members, and held that it could not. The Court reasoned that “[t]he stipulation Knowles proffered to the District Court . . . does not speak for those he purports to represent . . . because a plaintiff who files a proposed class action cannot legally bind members of the proposed class before the class is certified. See Smith v. Bayer Corp., 564 U. S. ___, ___ (2011).” Slip op. at 3-4.

Apart from the core holding that absent class members cannot be bound to a recovery cap stipulation, Knowles will also likely affect some of the case law typically cited in remand battles, in particular Lowdermilk v. United States Bank, N.A., 479 F.3d 994 (9th Cir. 2007). Plaintiffs seeking remand regularly cite Lowdermilk for the proposition that defendants removing under CAFA must establish the amount in controversy “to a legal certainty.” Although Lowdermilk is not expressly overruled in Knowles, leading plaintiffs’ counsel have observed that Lowdermilk might not be long for this world. Moreover, Knowles intimates that plaintiffs’ counsel ought to be circumspect in undertaking anything that purports to limit the potential recovery, as such a tactic could redound to a finding of inadequacy as to the named plaintiff. See slip op. at 5 (“[A] court might find that Knowles is an inadequate representative due to the artificial cap he purports to impose on the class’ recovery.”).

In contrast to other recent U.S. Supreme Court decisions deemed defeats by the plaintiffs’ bar, Knowles was a unanimous decision, with the opinion written by a stalwart of the Court’s four-member left-leaning bloc, Justice Stephen Breyer.

While the attack on class and other representative actions continues under the cover of advancing “the liberal policy favoring arbitration,” courts continue to articulate a sensible class action jurisprudence in response to mass wrongs where no particular victim has a rational incentive to seek an individual remedy. For instance, a Colorado federal court recently took up whether a defendant employer in a conditionally-certified FLSA action should be permitted to meet with prospective class members to discuss the pending allegations of unpaid wages during the employees’ class opt-in period. See Stransky v. HealthOne, No. 11-2888 (D. Colo. Mar. 7, 2013) (order granting motion for injunctive relief). The court held that the employer’s conduct was impermissible, and found this behavior to be “misleading, confusing, coercive and improper.” Order at 14.

In assessing whether the communications with the prospective class members were “misleading, confusing, or coercive,” the court gave primary emphasis to that portion of the defendant’s scripted message read to the employees pertaining to attorney’s fees: “If the court ultimately rules in plaintiffs’ favor, the attorneys at Bachus and Schanker will be entitled to fees for representing you and other members of the conditional class, which in this case will likely be deducted from any final award, should there be one.” Order at 11-12. On that basis, the court concluded that “Defendant’s statement that attorneys’ fees will likely be deducted from the final award unequivocally misrepresents the law and misleads Opt-in Plaintiffs into believing that if they prevail, their award will be significantly reduced to pay attorneys’ fees.” Order at 12.

The unusually potent, multi-part remedy for plaintiffs included: (1) a prohibition on the employer’s communications with prospective class members “about this case and the claims or defenses in this action until after the opt-in period has closed”; (2) a corrective notice, to be incorporated into the notice of conditional certification; and (3) the opportunity for the plaintiff to recover attorneys’ fees incurred in connection with moving against the prohibited communications. Order at 15-18.