Posts belonging to Category Certification Rulings

A California district court judge granted certification in a class action against Countrywide Financial.  The plaintiffs allege that the home mortgage giant, now owned by Bank of America, engaged in deceptive practices while selling billions of dollars in mortgage-backed securities.  See Maine State Retirement System v. Countrywide Financial Corp., No. 2:10-cv-00302 (C.D. Cal. Nov. 16, 2011) (order granting class certification) (available here).  The class consists of all persons and entities that bought Countrywide’s mortgage-backed securities before January 14, 2010, and includes participants in several public employee pension plans.  Id.

The certified class can now pursue claims that Countrywide and its investment banks made misleading statements and omissions in connection with the issuance of highly risky mortgage-backed securities, which were secured by mortgages virtually certain to result in defaults.  See Second Amended Complaint, Maine State Retirement System v. Countrywide, No. 2:10-cv-00302 (C.D. Cal., filed Dec. 6, 2010), ¶¶ 4-10.  The inevitable mortgage defaults revealed that the properties underlying the mortgages were worth materially less than the loans issued to the borrowers, and that the borrowers were unable to cover the outstanding mortgage balances.   Id. at ¶¶ 10-17. 

The class certification order came after Countrywide stipulated to a proposed class in conformity with the judge’s previous rulings in the case, thereby cutting short protracted legal argument over class certification.  See Maine State Retirement System v. Countrywide Financial Corp., No. 2:10-cv-00302 (C.D. Cal. Nov. 16, 2011) (order granting class certification).

A federal judge has granted class certification in a lawsuit alleging that consumers relied on false representations by defendant Smoking Everywhere regarding the purported safety of its electronic cigarettes.  See Mathias v. Smoking Everywhere, Inc., No. 09-cv-03434 (E.D. Cal. Oct. 25, 2011) (order granting class certification motion) (available here).  This sets the stage for a potentially sizeable recovery for Californians who bought the $49.95 “starter kit” in reliance on claims that electronic cigarettes are non-toxic and a safe alternative to smoking conventional cigarettes.

The operative complaint alleges that Smoking Everywhere falsely advertised its electronic cigarettes as non-hazardous, and failed to warn consumers that the product contains carcinogens and other toxins.  Id. at 3-4.  The certified class comprises all California residents who bought the Smoking Everywhere product from December 2005 to October 2011, and seeks damages and injunctive relief pursuant to California’s Consumer Legal Remedies Act and Unfair Business Practices Act.  Id. at 1 and Class Action Complaint for Injunctive Relief and Restitution, Mathias v. Smoking Everywhere, Inc., No. 09-cv-03434 (E.D. Cal. filed Dec. 10, 2009).

The nascent but growing electronic cigarette industry—estimated to generate $100 million in annual gross revenues—has also been a target of state and federal government officials.  In August of 2010, Smoking Everywhere settled a lawsuit brought by the Oregon Attorney General, which resulted in Smoking Everywhere altogether discontinuing retail sales in Oregon.  The U.S. Food and Drug Administration has also been involved in litigation around the FDA’s attempts to regulate Smoking Everywhere and other electronic cigarette manufacturers.

California Central District Judge James V. Selna has granted certification of a nationwide class alleging violations of California’s consumer-protection statutes in connection with prepaid telephone calling cards.  See Galvan v. KDI Distribution, Inc., No. 08-cv-0999 (C.D. Cal. Oct. 25, 2011) (order granting class certification motion) (available here).  The plaintiff alleges that the defendant misrepresented the total number of calling minutes consumers would receive with the purchase of the defendant’s prepaid calling cards.  Id. at 2.

The detailed and closely reasoned decision is notable in several respects, foremost the application of California law to the nationwide class.  See id. at 19-20.  The court reasoned that because California law is not in conflict with the laws of other states where KDI operates (at least as it pertains to the issues presented in this case), and KDI’s primary place of business is in California, California law would be most appropriate to apply to the class.  Id. at 20.  

The court also rejected the defendant’s argument that individualized showings of reliance precluded class certification by rendering individual issues of law and fact predominant.  See id. at 15.  The court thus reinforced the trend among trial and appellate courts to find a presumption of reliance as to absent class members in cases where, as here, the basis of the class’s claims is false advertising and misrepresentations made by the defendant, and the alleged misrepresentations are material.  

Finally, the court substantially credited the plaintiff’s proposed trial plan.  Id. at 17.  The plaintiff proposes to establish class-wide liability through a combination of documents already produced by the defendant, legal and economic expert testimony, and “limited individual inquiries” to establish damages and proper measures of restitution.  Id. 

The Ninth Circuit recently held that proof of the materiality of misrepresentations alleged in a securities fraud class action is not a prerequisite to class certification. Connecticut Retirement Plans and Trust Funds v. Amgen Inc., No. 09-56965, 2011 U.S. App. LEXIS 22540, *15-16 (9th Cir. Nov. 8, 2011) (citing, inter alia, Erica P. John Fund v. Halliburton, 131 S. Ct. 2179 (2011)) (available here). Rather, the court found that materiality is to be resolved during the post-certification “merits” phase, stating,  “[a]s for the element of materiality, the plaintiff must plausibly allege—but need not prove at this juncture—that the claimed misrepresentations were material. Proof of materiality . . . is a merits issue that abides the trial or motion for summary judgment.” Id. at *3.

The John Fund and Connecticut Retirement decisions are likely to have implications beyond their immediate application to securities cases. There is an increasing trend toward a presumption of reliance in consumer class actions, akin to the reliance presumption that has been adopted in securities class action jurisprudence since the landmark decision in Basic v. Levinson, 108 S. Ct. 978 (1988). Current consumer class action decisions closely resemble the case law leading to Basic v. Levinson. See generally Wolph v. Acer, 272 F.R.D. 477 (N.D. Cal. Mar. 25, 2011) (class-wide reliance presumed from showing that misrepresentation is material); Fitzpartick v. General Mills, No. 10-11064, 2011 U.S. App. LEXIS 6047 (11th Cir. Mar. 25, 2011) (same); Cole v. Asurion Corp., 267 F.R.D. 322 (C.D. Cal. 2010) (same). As the doctrine of presumed reliance in consumer class actions evolves and matures, therefore, it is reasonable to expect that courts will also adopt the view that proof of materiality is a post-certification, merits determination.