There were several notable developments in the second quarter of 2021 affecting class actions, particularly in the area of Article III standing. The Supreme Court issued a trio of key decisions: (i) one makes it more difficult for plaintiffs to demonstrate Article III standing and confirms that all class members must show such standing to recover damages; (ii) a second clarifies the defenses available to securities litigation defendants at the class certification stage; and (iii) the third blocks the FTC from seeking restitution in certain cases, leading the FTC to announce plans to partner with state attorneys general. Meanwhile, the Ninth Circuit warned that settlements should not be approved if there is evidence of collusion. And a pair of decisions from the Eighth Circuit may make it more difficult for plaintiffs to certify classes in that circuit.
1. Supreme Court Confirms That Every Class Member Must Have Article III Standing To Recover Damages.
The Supreme Court’s decision in TransUnion LLC v. Ramirez, 2021 WL 2599472 (U.S. June 25, 2021), is one of the most significant class-action decisions from the Supreme Court in recent years. It confirms that “every class member must have Article III standing in order to recover individual damages” in a class action. It also expands the scope of the Court’s earlier Article III standing decision in Spokeo, Inc. v. Robins, 578 U.S. 330 (2016), holding that “the mere risk of future harm, without more, cannot qualify as a concrete harm in a suit for damages.” The Court did not decide whether the typicality requirement of Rule 23 had been satisfied when the named plaintiff had Article III standing but most of the class did not; instead, the Court asked the Ninth Circuit to address that issue on remand.
Ramirez offers a basis for potentially powerful class certification defenses for defendants, especially when facing statutory claims based on conduct that has had limited, if any, actual impact on putative class members. The need to determine whether every putative class member has suffered the requisite concrete harm necessary to demonstrate Article III standing may create individualized issues that predominate over common ones. Even if the named plaintiff has Article III standing, the fact that other putative class members do not have standing may mean that the plaintiff’s claims are atypical of the class.
The Court’s opinion also casts doubt on recent decisions from federal appellate courts finding that a mere risk of harm is sufficient to generate Article III standing for damages claims. For example, prior to Ramirez, the Second Circuit recently concluded that plaintiffs could establish Article III standing “based on an increased risk of identity theft or fraud following the unauthorized disclosure of their data.” McMorris v. Carlos Lopez & Assocs., LLC, 995 F.3d 295, 301 (2d Cir. 2021). That conclusion appears in tension with the Supreme Court’s conclusion that “the mere risk of future harm, without more,” is not enough to establish standing.
2. Supreme Court Provides Guidance on Strategies Defendants Can Use To Defeat Class Certification in Securities Lawsuits.
Defendants facing securities class actions received some help from the Supreme Court, which clarified the showing defendants must make to defeat class certification. In Goldman Sachs Group, Inc. v. Arkansas Teacher Retirement System, 141 S. Ct. 1951 (2021), the Court held that a court cannot certify a class in a securities lawsuit without considering “all evidence” relevant to price impact. That evidence, the Court held, includes the generic nature of a misrepresentation. The Court also held that defendants bear the burden of showing by a preponderance of the evidence a lack of price impact at class certification but emphasized that placing this burden on defendants will rarely make much difference in most cases.
3. Following Ruling That It Lacks the Power To Seek Restitution, Federal Trade Commission Announces Plans To Seek Legislative Fix and Partner with State Attorneys General.
The Supreme Court dealt a blow to the Federal Trade Commissions’s power to seek federal court orders forcing defendants to pay restitution, holding in a unanimous opinion that Congress did not intend for the FTC to wield the authority to collect restitution or disgorgement of ill-gotten gains under the Commission’s Section 13(b) power to ask district courts for injunctions against illegal conduct. See AMG Capital Management, LLC v. Federal Trade Commission, 141 S. Ct. 1341 (2021). The Supreme Court’s opinion noted, however, that the FTC retains authority to seek restitution through administrative proceedings, such as by conducting a full proceeding before an FTC administrative law judge. In response to the decision, then-acting FTC Chairwoman Rebecca Kelly Slaughter stated that the agency would ask Congress to enact a legislative fix and seek more partnerships with state attorneys general.
4. The Ninth Circuit Will Closely Scrutinize Post-Certification Settlements for Indicia of Collusion Under Rule 23(e).
In Briseño v. Henderson, 998 F.3d 1014 (9th Cir. June 1, 2021), the Ninth Circuit reminded courts that they should closely scrutinize both pre- and post-class certification settlements for indicia of collusion pursuant to Federal Rule of Civil Procedure 23(e). The parties had settled a case on a classwide basis after a class had been certified, but ConAgra paid out $1 million to the class and $6.85 million in attorneys’ fees. The Ninth Circuit indicated that the settlement had evidence of collusion: plaintiffs’ counsel received a disproportionate share of the settlement, the parties agreed to a clear-sailing provision on attorneys’ fees, and ConAgra was permitted to receive the remaining funds if the court reduced the agreed-upon attorneys’ fees.
5. The Eighth Circuit Issues a Pair of Decisions Making It More Difficult for Classes To Be Certified.
In Ahmad v. City of St. Louis, 995 F.3d 635 (8th Cir. 2021), the Eighth Circuit held that a Rule 23(b)(2) class seeking injunctive relief requires even greater cohesiveness than a Rule 23(b)(3) class seeking damages. A class of plaintiffs sued the City of St. Louis under section 1983 for constitutional violations that occurred during protests. But because the named plaintiffs lacked unifying traits (one was a protestor, one recorded the protest, and a third merely observed) and did not experience the same harms, a class could not be certified.
Then, in Ford v. TD Ameritrade Holding Corp., 995 F.3d 616 (8th Cir. 2021), the Eighth Circuit reversed class certification of an improper “fail-safe” class. The proposed class was defined to include only customers who were harmed by the defendant’s alleged failure to seek best execution—thus, membership in the class depended on having a valid claim on the merits. This so-called “fail-safe class” was impermissible, the court held, because “it allows putative class members to seek a remedy but not be bound by an adverse judgment.”
If you have any questions concerning the material discussed in this update, please contact the following members of our Class Actions Litigation practice.
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