Last week, the Seventh Circuit Court of Appeals declined to rehear en banc a panel decision against Neiman Marcus over a credit card data breach, cementing its ruling that plaintiffs have Article III standing to bring a class action for the time and cost spent resolving fraudulent charges and safeguarding their accounts from future fraud. Remijas, et al. v. Neiman Marcus Group, LLC, No. 14‐3122 (7th Cir. Sept. 17, 2015) (order available here). In July 2015, the panel had reversed an Illinois district court’s dismissal for lack of Article III standing, and remanded the case. Remijas, No. 14‐3122 (7th Cir. July 20, 2015) (slip op. available here).

In a consolidated first amended complaint filed in June 2014, the Remijas plaintiffs alleged that their credit card information had been compromised in the 2013-2014 breach of the luxury retailer’s payment systems, which affected approximately 350,000 customers, over 9,000 of whom experienced fraudulent charges. U.S. District Judge James Zagel granted the Neiman Marcus’s motion to dismiss exclusively on Article III standing grounds, finding that because Neiman Marcus had offered a free year of credit monitoring for certain store customers and any unauthorized charges complained of would be reimbursed, the plaintiffs had not suffered “injuries” sufficient to confer standing. The Court of Appeals reversed, reasoning that the prophylactic costs that cardholders might incur, such as a credit or identify theft monitoring subscription and replacement card fees, “easily qualif[y] as . . . concrete injur[ies]” and that there are “identifiable costs associated with the process of sorting things out.” Slip op. at 7, 11.

Citing Clapper v. Amnesty Int’l USA, 133 S. Ct. 1138 (2013), the panel stated, “Customers should not have to wait until hackers commit identity theft or credit-card fraud in order to give the class standing, because there is an ‘objectively reasonable likelihood’ that such an injury will occur.” Slip op. at 9 (internal citations omitted). In Clapper, the Supreme Court held that the possibility of the government intercepting communications with suspected terrorists (under the Foreign Surveillance Act) was insufficient to confer constitutional standing. Distinguishing Clapper, the Remijas court found identity theft to be a foreseeable consequence of a data breach and that plaintiffs have standing to bring claims for the time and expense taken to prevent such fraud, unlike the alleged and speculative harm in Clapper. Id. at 8-11.

On August 3, 2015, Neiman Marcus filed a petition for rehearing en banc, which was summarily denied on September 17, 2015. The denial of the defendant’s petition for rehearing reinforces the holding that data breach victims have Article III standing to sue based on the possibility of future, imminent injuries and loss of time and money spent on preventative measures against such injuries, thus depriving data breach defendants of the oft-asserted standing argument.

Authored by: 
Mao Shiokura, Associate
CAPSTONE LAW APC

Last month, in an opinion authored by Chief Judge Carl Stewart, the Fifth Circuit Court of Appeals ruled that an unaccepted Rule 68 offer, or “pick off” settlement, does not moot a named plaintiff’s individual or class claims. Hooks v. Landmark Industries, Inc., No. 14-20496 (5th Cir. Aug. 12, 2015) (slip opinion available here). The Third, Fourth, Sixth, Seventh, and Tenth Circuits have held that a complete Rule 68 offer moots an individual’s claim, while the Second, Ninth, and Eleventh Circuits have held than an unaccepted offer cannot moot an individual’s claim. Slip op. at 8 (internal citations omitted). Since Justice Elena Kagan’s dissent in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013), nearly every circuit has considered this issue. In Genesis, Justice Kagan argued that an unaccepted offer of judgment cannot moot a case.

In January of 2012, the plaintiff in Hooks filed a class action against Landmark, alleging that the defendant operated automated teller machines (“ATMs”) that charged withdrawal fees of $2.95, but failed to post notice of the fee on or at the ATM, as required by the Electronic Fund Transfer Act, 15 U.S.C. § 1693, which provides for statutory damages of $1,000 for each violation. Under the Federal Rules of Civil Procedure 68, the defendant made an offer of judgment to settle the plaintiff’s statutory damages claim for $1,000, plus costs and reasonable attorney fees through the date of acceptance of the offer. Hooks rejected the offer. Landmark then moved to dismiss, and the federal district court granted the motion, finding that the unaccepted offer mooted the plaintiff’s individual and class claims. However, the Court of Appeal reversed the dismissal, cautioning the lower court’s ruling “would serve to allow defendants to unilaterally moot named-plaintiffs’ claims in the class action context—even though the plaintiff, having turned the offer down, would receive no actual relief.” Slip op. at 9. Citing Genesis, the panel stated that they found the reasoning of the Ninth and Eleventh Circuits (both post-Genesis rulings) more persuasive and held that an unaccepted Rule 68 offer to a representative in a class action is a “legal nullity, with no operative effect.” Id. at 8 (internal citations omitted).

Though the Fifth Circuit acknowledged that the United States Supreme Court will be considering the exact issue in Gomez v. Campbell-Ewald Co., 768 F.3d 971 (9th Cir. 2014), cert. granted, 135 S. Ct. 2311 (2015), the panel stated that “[t]he parties have not requested a stay pending the outcome of that case, and due to uncertainty of timing and nature of resolution, we ordinarily do not wait in such situations.” Slip op. at 7, n6. Gomez, a class action case involving unsolicited text messages in violation of the Telephone Consumer Protection Act, is set for oral argument before the Supreme Court on October 14, 2015.

Authored by: 
Mao Shiokura, Associate
CAPSTONE LAW APC

Gallup, Inc. has agreed to pay up to $12 million to settle three separate class actions which alleged that the Washington D.C.-based pollster violated the Telephone Consumer Protection Act of 1991 (“TCPA”) by autodialing class members’ cell phones without their prior consent. Soto v. The Gallup Organization, Inc., No. 13-61747 (S.D. Fla., complaint filed Aug. 12, 2013). See Plaintiffs’ Motion for Preliminary Approval of Class Action Settlement (May 15, 2015) available here, Settlement Agreement (May 15, 2015) here, and Order Granting Preliminary Approval (June 16, 2015) here.

Congress passed the TCPA in response to consumer complaints about invasive telemarketing practices, including “robodialing,” or the use of automatic telephone dialing systems (“ATDS”) to deliver artificial or prerecorded voice messages. Among other practices, the TCPA prohibits “a[] person . . . [from making] any call (other than a call made for emergency purposes or made with the prior express consent of the called party) using any [ATDS] or an artificial or prerecorded voice . . . to any telephone number assigned to a . . . cellular telephone service.” 47 U.S.C. § 227(b)(1). The TCPA directs the Federal Communications Commission (“FCC”) to prescribe implementing regulations, and creates a private cause of action for individuals to receive $500 in damages for each violation, or treble damages for all “willful” and “knowing” violations.

The Soto plaintiffs alleged that Gallup robodialed over 6.9 million cell phones during the class period. These calls were allegedly placed using an ATDS that had the capacity to store or produce numbers and dial them at random. Under the preliminarily approved settlement, Gallup agreed to establish a $12 million settlement fund, including $4 million in attorneys’ fees and costs, $2.5 million in settlement administration costs, and $2,000 incentive awards to each of the three plaintiffs. The $5.5 million balance will be divided evenly among all class members who submit claims for payment. Based on previous settlements, the parties anticipate that participating class members will receive between $25 and $80 per claim.

According to the FCC, TCPA complaints comprise the largest category of informal complaints filed with the agency. See FCC Encyclopedia, Quarterly Reports-Consumer Inquiries and Complaints, Top Complaint Subjects. The FCC received “approximately 63,000 complaints about illegal robocalls each month” during the fourth quarter of 2009, and “[b]y the fourth quarter of 2012, robocall complaints had peaked at more than 200,000 per month.” See Federal Trade Commission Staff’s Comments on Public Notice DA 14-1700 Regarding Call Blocking, CG Docket No. 02-278, WC Docket No. 07-135, at 2 n.5 (Jan. 23, 2015). The FTC also reports that, “[f]rom October 2013 to September 2014, [it] received an average of 261,757 do-not-call complaints per month, of which approximately 55% (144,550 per month) were complaints about robocalls.” Id. at 2 n.4. TCPA litigation is likewise on the rise. According to one estimate, “TCPA lawsuits were up 116 percent in September 2013 compared to September 2012. Echoing that trend, year-to-date TCPA lawsuits have increased 70 percent in 2013.”

Authored By:
Eduardo Santos, Associate
CAPSTONE LAW APC

In a recent opinion, the Ninth Circuit Court of Appeals underscored the distinction between class actions and representative claims brought under the California Private Attorneys General Act (“PAGA”), holding that PAGA claims cannot be aggregated with class claims in order to obtain jurisdiction under the Class Action Fairness Act of 2005 (“CAFA”). Yocupicio v. PAE Group, LLC, No. 15-55878 (9th Cir. July 30, 2015) (slip op. available here). CAFA provides for federal jurisdiction over class actions where the amount in controversy exceeds $5 million. Prior to a line of cases including Yocupicio, Baumann v. Chase Inv. Servs. Corp., 747 F.3d 1117 (9th Cir. 2014), and Urbino v. Orkin Servs. of Cal., Inc., 726 F.3d 1118 (9th Cir. 2013), federal district courts had generally aggregated the claims of individual class members, including any relief sought for non-class claims (such as PAGA claims), in order to determine whether the jurisdictional threshold was met.

In her complaint, Plaintiff Yocupicio alleged multiple violations of the California Labor Code against her employer, PAE Group, on behalf of herself and a putative class of other employees, along with a representative claim under PAGA. PAE removed the case to federal court, alleging that the amount in controversy exceeded CAFA’s $5 million threshold. The defendant reached this calculation by combining class claims valued at $1.6 million with a $3.25 million PAGA claim and adding reasonable attorney’s fees. The district court denied the plaintiff’s motion to remand.

The Ninth Circuit reversed the district court’s decision and remanded, finding that the lower court had failed to properly consider CAFA’s legislative history, which clearly distinguishes between class actions and other representative actions. According to the panel, CAFA’s focus on “class actions” shows that Congress did not intend to grant jurisdiction over all representative actions; thus, the panel held that the statute grants federal jurisdiction only when the class claims alone meet the $5 million threshold. Slip op. at 7-8. In addition, the court held that the class claims could not be brought in federal court under supplemental jurisdiction since there was no independent complete diversity of citizenship with respect to the PAGA claim.

The crux of this opinion is succinctly summarized in a footnote, which points out the common mischaracterization of representative actions as being the same as class actions for all intents and purposes: “No doubt all class claims are representative in nature. However, not all representative claims are class claims; to say that they are would be a logical fallacy.” Slip op. at 6 n.6, citing Washington v. Chimei Innolux Corp., 659 F. 3d 842, 848 (9th Cir. 2011).

Authored By:
Rebecca Labat, Partner
CAPSTONE LAW APC