Class Action Litigation Update: Key Developments From First Quarter 2021
April 8, 2021, Covington Alert
There were several notable developments in the first quarter of 2021 affecting class actions. The Supreme Court issued significant decisions regarding personal jurisdiction and TCPA class actions and heard oral argument in a case that has the potential to create significant hurdles to plaintiffs seeking to certify classes that contain many class members who lack Article III standing. Multiple decisions also addressed whether evidence offered at class certification must be admissible, as well as the threshold requirements under Rule 23. And in the latest development involving the enforceability of arbitration clauses in California, the Ninth Circuit allowed a business to enforce its arbitration agreement to defeat a lawsuit in California seeking public injunctive relief where the arbitration agreement authorized the arbitrator to award equivalent relief.
The Supreme Court Considers Article III Standing Issue that Could Create Significant Hurdles to Class Certification.
On March 30, the Supreme Court heard oral argument in TransUnion LLC v. Ramirez, which presents the question of whether a damages class can be certified if the vast majority of the class suffered no actual injury. This question has taken on heightened significance due to the proliferation of plaintiffs seeking statutory damages for technical violations of privacy laws with no resulting injuries. Ramirez therefore has the potential to create significant hurdles to class certification, especially in cases brought under statutes that allow statutory damages.
Ramirez involves a lawsuit awarding $40 million (in statutory and punitive damages) for violations of the Fair Credit Reporting Act, predicated on the allegation that TransUnion incorrectly flagged class members as suspected terrorists and criminals on their credit reports. At oral argument, several Justices expressed support for TransUnion’s argument that this case largely presents a “no harm, no foul” situation for the vast majority of class members that never had their credit reports disclosed to third parties, with several Justices expressing doubt that these class members suffered the type of concrete harm required to confer Article III standing under Spokeo. But several Justices also suggested that TransUnion’s disclosure of the other class members’ credit reports to third parties may be enough to confer standing for those individuals, perhaps signaling that the class could be narrowed but not defeated entirely. A decision is expected by the end of June.
The Supreme Court Clarifies the Forum Connections Required for Personal Jurisdiction.
The Supreme Court’s decision in Ford Motor Co. v. Montana Eighth Jud. Dist. Ct., 2021 WL 1132515 (U.S. Mar. 25, 2021), could make it more difficult for defendants to challenge personal jurisdiction, by holding that specific jurisdiction does not require a but-for causal link between the defendant’s forum activities and the plaintiff’s injury.
The plaintiffs in Ford allegedly suffered injuries from accidents involving Ford’s vehicles, and they sued Ford in their home states where the accidents occurred. Ford sought to dismiss the suits for lack of personal jurisdiction, because Ford assembled, designed, and first sold the plaintiffs’ vehicles in other states. The Supreme Court unanimously disagreed. To establish specific jurisdiction, the Court held that a plaintiff’s injury must “arise out of or relate to” the defendant’s forum activities, and the phrase “relate to” indicates that a causal connection is not required. Ford’s in-state contacts—including its extensive marketing, sales, and servicing of the vehicle models at issue—established a “close enough” connection with plaintiffs’ claims to support jurisdiction.
While the decision establishes that businesses likely can be sued in the states where they market, sell, and service the product at issue, uncertainty remains for those businesses with less substantial forum contacts. The Court noted that “real limits” apply to the “relates to” standard, but the decision does not provide clear guidance on what those limits might be, leaving the task of identifying those limits for another day.
The Supreme Court Adopts Narrow Interpretation of TCPA Autodialer Definition, Resolving Circuit Split.
In a decision expected to present significant obstacles to class-action lawsuits brought under the Telephone Consumer Protection Act (TCPA), the Supreme Court adopted a narrow interpretation of a key statutory term in Facebook, Inc. v. Duguid, 2021 WL 1215717 (U.S. Apr. 1, 2021).
The TCPA imposes consent requirements on making phone calls or sending text messages using an “automatic telephone dialing system” (autodialer). The meaning of this key term spawned a torrent of lawsuits—and a circuit split—over whether the TCPA regulates systems that have the capacity to dial only a prescribed list of phone numbers, or if such systems must have the capacity to dial numbers using a random or sequential number generator. The Supreme Court adopted Facebook’s interpretation of the TCPA, holding that, to qualify as an autodialer under the TCPA, a system “must use a random or sequential number generator.”
The Ninth Circuit Holds That More Than a "De Minimis" Number of Uninjured Class Members Defeats Predominance.
While the Supreme Court considers in Ramirez what impact the inclusion of uninjured class members has on class certification, the Ninth Circuit weighed in on the debate by holding in Olean Wholesale Grocery Coop., Inc. v. Bumble Bee Foods LLC, 2021 WL 1257845 (9th Cir. 2021), that the presence of more than a "de minimis" number of uninjured class members in a proposed class can defeat predominance. The panel refused to adopt a bright-line rule on what constitutes a de minimis number of uninjured class members, although it cited a D.C. Circuit decision which suggested that a class could not be certified if 5-6% of the proposed class was uninjured. In the antitrust case at hand, the defendants offered evidence that 28% of the class suffered no injury, and the Ninth Circuit held that predominance would not exist if more than a quarter of the class had not suffered any injury. It also held that the movant has the burden of proving by a preponderance of the evidence that the predominance standard is satisfied. The panel decertified the class and remanded the case so that the district court could resolve the parties' factual dispute concerning the number of uninjured class members.
The Fifth and Sixth Circuits Deepen Circuit Split as to Whether a Class Certification Motion Can Rely on Inadmissible Evidence.
The Supreme Court has not yet addressed whether evidence offered in support of class certification must be admissible. The Fifth and Sixth Circuits became the latest federal appellate courts to weigh in on the issue, taking opposite approaches that deepen an existing circuit split. In Prantil v. Arkema, Inc., 986 F.3d 570 (5th Cir. 2021), the Fifth Circuit joined three circuits in holding that the Daubert standard governing the admissibility of expert opinions at trial applies with “full force” at class certification. The panel reasoned that the need to apply Daubert at class certification is a “natural extension” of the Supreme Court’s admonition in Dukes to conduct a “rigorous analysis” under Rule 23. But the Sixth Circuit rejected this line of reasoning in Lyngaas v. Curaden Ag, 2021 WL 1115870 (6th Cir. 2021), siding with two other circuits in holding that evidence offered in support of class certification need not be admissible. The decision’s holding was limited to the non-expert evidence at issue, but the panel relied on decisions addressing expert evidence, signaling that its reasoning may apply equally to such evidence.
The Eleventh Circuit Holds that Ascertainability Does Not Require Proof of Administrative Feasibility.
Ascertainability and the standard for it remains a hotly contested issue. In Cherry v. Dometic Corp., 986 F.3d 1296 (11th Cir. 2021), the Eleventh Circuit joined four other circuits in rejecting a heightened standard that would require proof of an administratively feasible method to identify absent class members. The panel acknowledged that some circuits—including the Eleventh Circuit in an unpublished, non-binding decision—have adopted this heightened standard. However, the panel concluded that administrative feasibility is not an “inherent aspect” of ascertainability, reasoning that “[class] membership can be capable of determination without being capable of convenient determination.” At the same time, the Eleventh Circuit paved a path for defendants to continue making administrative feasibility arguments, holding that such arguments continue to have relevance to Rule 23(b)(3)’s manageability criterion while cautioning that administrative feasibility alone will “rarely, if ever, be dispositive.”
The Seventh Circuit Gives Teeth to the Numerosity Requirement.
Challenges to the numerosity requirement are rare, but a recent Seventh Circuit decision shows that the requirement may still have some teeth. In Anderson v. Weinert Enterprises, Inc., 986 F.3d 773, 778 (7th Cir. 2021), the Seventh Circuit affirmed an order denying certification of a proposed class consisting of 37 employees alleging wage violations on numerosity grounds. The panel emphasized that the controlling numerosity inquiry is the practicability of joinder, and that inquiry is “fact and circumstance dependent.” Because all but two of the employees lived within a 50-mile radius of the courthouse, and there was no evidence that the named plaintiff would have difficulty coordinating with the other two employees, the panel held that joinder would not be impracticable and that the numerosity requirement therefore was not met.
The Second Circuit Affirms Decertification of Class because of Counsel’s “Woefully” Inadequate Representation.
District courts often are reluctant to interfere with a plaintiff’s choice of counsel. A recent case illustrates that there are limits to that reluctance when evaluating the adequacy of class counsel. In Jin v. Shanghai Original, Inc., 990 F.3d 251 (2d Cir. 2021), the Second Circuit affirmed a district court’s sua sponte order decertifying a class on the eve of trial based a record “replete with counsel’s shortcomings,” including counsel’s proposal to reduce the number of testifying class members from 34 to 2. The district court decertified the class in response, holding that class counsel was not fairly and adequately representing the interests of the class. The Second Circuit’s decision echoed the district court’s reasoning, stating that class counsel’s representation “fell woefully short of the skilled and zealous representation expected of class counsel under Rule 23(g), justifying decertification.”
The Seventh Circuit Reaffirms the Importance of the Commonality Requirement.
A recent Seventh Circuit decision reaffirmed the need for district courts to closely scrutinize the threshold commonality requirement for class certification. In Howard v. Cook Cty. Sheriff's Off., 989 F.3d 587 (7th Cir. 2021), the Seventh Circuit reversed a district court’s order certifying a class of female correctional workers alleging a hostile work environment claim against Cook County for failing to prevent sexual harassment from male inmates. The class “cannot stand,” the panel reasoned, because the approximately 2,000 class members are too diverse with no common question that unites them. In holding that the commonality requirement was therefore not met, the panel rejected the plaintiffs’ proposed common question: whether the severity or pervasiveness of sexual harassment supports a hostile work environment claim. The panel explained that this question will not generate the required common answers because the severity of sexual harassment each class member endured will vary, particularly given that the sexual harassment was most heavily concentrated within a few divisions of the massive jail complex.
Putative Class Members Pursuing Parallel Litigation Must Follow a District Court’s Instructions to Opt Out of a Settlement.
It is well settled that putative class members must follow a district court’s instructions for opting out of a settlement, or else they are bound by the settlement. In Matter of Navistar MaxxForce Engines Mktg., Sales Practices, & Prod. Liab. Litig., 2021 WL 925805 (7th Cir. 2021), the Seventh Circuit reaffirmed this well-settled rule, holding that two class members’ pursuit of parallel litigation in state court did not excuse their failure to follow the district court’s opt-out instructions. The panel refused to adopt a more lenient rule under which any “reasonable indication” of a desire to opt out is sufficient. Such a rule, the panel reasoned, could pose difficult questions about what is “reasonable,” making class actions “difficult if not impossible to administer.” Putative class members must instead “do what they had been told or bear the consequences of inaction.” Because the two class members ignored the district court’s opt-out instructions, they were bound by the settlement, which included a release barring their parallel litigation in state court.
Arbitration Provisions Barring Consumers from Acting as a Private Attorney General Do Not Violate the McGill Rule.
In California, class action plaintiffs often attempt to sidestep arbitration provisions with class action waivers by arguing that the provisions are unenforceable because they prohibit public injunctive relief, and therefore violate California’s so-called McGill rule. In DiCarlo v. MoneyLion, Inc., 988 F.3d 1148 (9th Cir. 2021), the Ninth Circuit held that arbitration provisions prohibiting consumers from “acting as a private attorney general”—where a plaintiff seeks relief on behalf of the general public—do not run afoul of the McGill rule if public injunctive relief is available through arbitration. The panel reasoned that public injunctive relief is available in an individual lawsuit under California law without a plaintiff acting as a private attorney general. Because the arbitration provision at issue in DiCarlo also authorized an arbitrator to “award all injunctive remedies available in an individual lawsuit under California law,” and therefore allowed the arbitrator to issue public injunctive relief, the agreement did not violate McGill.
If you have any questions concerning the material discussed in this update, please contact the members of our Class Actions Litigation practice.
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