shutterstock_519689296Seyfarth Shaw is pleased to announce the launch of Carpe Datum Law, a one-stop resource for legal professionals seeking to stay abreast of fast-paced developments in eDiscovery and information governance, including data privacy, data security, and records and information management. Seyfarth’s eDiscovery and Information Governance (eDIG) practice group created Carpe Datum Law to serve as a timely and unique resource for executives and corporate in-house counsel to obtain reports on developments, trends and game-changing decisions in these data-driven areas of the law.

Click here to access the new Carpe Datum Law blogsite.

The Carpe Datum Law blog takes a comprehensive view of the legal and practical aspects of corporate data challenges, reflecting the broad strength across the spectrum of data law by Seyfarth’s veteran 14-lawyer eDIG practice group, which has served clients since 2004. Regular readers will benefit from its comprehensive perspective and guidance on how the law is adapting to the interrelated challenges of keeping corporate data secure and in compliance with data privacy laws, adapting to new best practices in information governance, and maintaining defensible data preservation, collection and review when eDiscovery is required.

Carpe Datum Law is a must-read for anyone expected to stay ahead of the curve on how best to manage the growing risks in these areas, in particular:

  • C-Level Executives whose portfolios of responsibility include managing risks with respect to their corporate data
  • In-House Counsel responsible for eDiscovery, data and cybersecurity, data privacy compliance and/or the enterprise’s information governance
  • eDiscovery, IT, IT Security and Privacy Managers who work closely on these issues with their organization’s executives and legal teams
  • Consultants, Academics and Thought Leaders who must stay up-to-speed on legal developments in order to serve their organizational clients

Whether steering policy or implementing it, Carpe Datum Law provides well-informed news and analysis that will keep you and your team up-to-speed. From judicial decisions implementing the new eDiscovery amendments to the Federal Rules of Civil Procedure to guidance on compliance with the upcoming European Union General Data Protection Regulation, Carpe Datum Law provides the news and seasoned analysis you would expect from Seyfarth’s eDIG group.

Carpe Datum Law can be accessed at www.carpedatumlaw.com.

Also By Robert T. Szyba, and Ephraim J. Pierre

Seyfarth Synopsis: In deciding Spokeo v. Robins, the U.S. Supreme Court reaffirmed that plaintiffs seeking to establish that they have standing to sue must show “an invasion of a legally protected interest” that is particularized and concrete — that is, the injury “must actually exist.” Bare procedural violations are not enough.supreme-court

Today, the U.S. Supreme Court issued its long awaited decision in Spokeo, Inc. v. Robins, No. 13-1339 (U.S. 2016), which we have been watching closely for its possible dramatic implications on the future of workplace class action litigation.

In a 6 to 2 opinion authored by Justice Samuel A. Alito, Jr., the Supreme Court held that the Ninth Circuit’s injury-in-fact analysis under Article III was incomplete. According to the Supreme Court, of the two required elements of injury in fact, the Ninth Circuit addressed only “particularization,” but not “concreteness,” which requires a plaintiff to allege a “real” and not “abstract” injury. Nevertheless, the Supreme Court took no position on the correctness of the Ninth Circuit’s ultimate conclusion: whether Robins adequately alleged an injury in fact.

Based on its conclusion, the Supreme Court vacated the Ninth Circuit’s ruling and remanded for further consideration consistent with the Opinion. Justice Thomas concurred, while Justice Ginsburg (joined by Justice Sotomayor) dissented.

Given the stakes and the subject matter, the ruling is a “must read” for corporate counsel and all employers.

The Case’s Background

This ruling is likely to have substantial impact on class action litigation overall, as we have discussed in our prior posts here, here, and here.

In Spokeo, the issues focused on the Fair Credit Reporting Act (“FCRA”), which requires that consumer reporting agencies (“CRAs”) follow reasonable procedures to assure maximum possible accuracy of its consumer reports (15 U.S.C. § 1681e(b)), issue specific notices to providers and users of information (1681e(d)), and post toll-free phone numbers to allow consumers to request their consumer reports (1681b(e)).

The purported CRA in this case was Spokeo, Inc. (“Spokeo”), which operates a “people search engine” — it aggregates publicly available information about individuals from phone books, social networks, marketing surveys, real estate listings, business websites, and other sources, which it organizes into comprehensive, easy-to-read profiles. Notably, Spokeo specifically states that it “does not verify or evaluate each piece of data, and makes no warranties or guarantees about any of the information offered . . .,” and warns that the information is not to be used for any purpose addressed by the FCRA, such as determining eligibility for credit, insurance, employment, etc.

In July 2010, Plaintiff Thomas Robins filed a putative class action alleging that Spokeo violated the FCRA because it presented inaccurate information about him. He alleged that Spokeo reported that he had a greater level of education and more professional experience than he in fact had, that he was financially better off than he actually was, and that he was married (he was not) with children (he did not have any). But beyond identifying the inaccuracies, he did not allege any actual damages. Instead, he argued that Spokeo’s alleged FCRA violation was “willful” and therefore he sought statutory damages of between $100 and $1,000 for himself, as well as for each member of the purported nationwide class.

The district court dismissed the case, finding that “where no injury in fact is properly pled” a plaintiff does not have standing to sue. In February 2014, the U.S. Court of Appeals for the Ninth Circuit reversed, holding that the “violation of a statutory right is usually a sufficient injury in fact to confer standing” and that “a plaintiff can suffer a violation of the statutory right without suffering actual damages.”

In its petition for certiorari, Spokeo posed the following question to the Supreme Court: “Whether Congress may confer Article III standing upon a plaintiff who suffers no concrete harm and who therefore could not otherwise invoke the jurisdiction of a federal court, by authorizing a private right of action based on a bare violation of a federal statute.” Spokeo highlighted a circuit split, as the Fifth, Sixth, and Seventh Circuits previously lined up with the Ninth Circuit’s approach, while the Second, Third, and Fourth Circuits generally disagreed and required an actual, concrete injury.

After being granted certiorari, Spokeo argued that the Ninth Circuit’s holding was inconsistent with the Supreme Court’s precedents, the Constitution’s text and history, and principles of separation of powers. More specifically, Spokeo argued that Robin’s bare allegations of FCRA violations, without any accompanying concrete or particularized harm, were insufficient to establish an injury in fact, and thus failed to establish Article III standing.

Robins responded that the Supreme Court’s precedent established that Congressmay create private rights of action to vindicate violations of statutory rights that are redressable through statutory damages.

The U.S. Solicitor General also weighed in, appearing as an amicus in support of Robins, and argued that the Supreme Court should focus on the specific alleged injury — the public dissemination of inaccurate personal information — and, specifically, the FCRA. The Government argued that the FCRA confers a legal right to avoid the dissemination of inaccurate personal information, which is sufficient to confer standing under Article III.

The Supreme Court’s Decision

Writing for the majority on the Supreme Court, Justice Alito held that Ninth Circuit failed to consider both aspects of the injury-in-fact requirement under Article III when analyzing Robin’s alleged injury, therefore its Article III standing analysis was incomplete. Slip. Op. at *8. The Supreme Court determined that to establish injury in fact under Article III, a plaintiff must show that he or she suffered “an invasion of a legally protected interest” that is both “concrete and particularized.” Slip. Op. at *7. For an injury to be “particularized,” it “must affect the plaintiff in a personal and individual way.” Id. “Concreteness,” the Supreme Court found “is quite different from particularization.” Id. at *8. A concrete injury must “actually exist” and must be “real” and not “abstract.” Id.

The Supreme Court further stated that concreteness includes both easy to recognize tangible injuries as well as intangible injuries. Id. at 8-9. The Supreme Court instructed that when considering intangible injuries, “both history and the judgment of Congress play important roles.” Id. In particular, Congress may identify intangible harms which meet Article III’s minimum requirements. Id.Nevertheless, the Supreme Court cautioned that plaintiffs do not “automatically” meet the injury-in-fact requirement where the violation of a statutory right provides a private right of action. Id. Thus “Robins could not, for example, allege a bare procedural violation divorced from any concrete harm, and satisfy the injury-in-fact requirement of Article III.” Id. The Supreme Court also added that the “risk of real harm” may also satisfy the concreteness requirement, where harms “may be difficult to prove or measure.” Id.

Viewing the FCRA in light of these principles, the Supreme Court recognized that while Congress “plainly sought to curb the dissemination of false information by adopting procedures designed to decrease that risk . . .[,] Robins cannot satisfy the demands of Article III by alleging a bare procedural violation.” For example, the Supreme Court noted it would be “difficult to imagine how the dissemination of an incorrect zip code, without more, could work any concrete harm.” Id. at * 11.

Justice Thomas concurred, reviewing the historical development of the law of standing and its application to public and private rights of action, finding the standing requirement a key component to separation of powers.

Justice Ginsberg, joined by Justice Sotomayor, largely agreed with the majority, but nevertheless dissented. She departed from the majority’s reasoning on the issue of concreteness, but based on the injury alleged, not on the fact that concrete harm wasn’t required. Id. at *3 (Ginsberg, J., dissenting). Under her analysis, Justice Ginsberg would have found that the nature of Robin’s injury was sufficiently concrete because of his allegation that the misinformation caused by Spokeo “could affect his fortune in the job market.” Id. at *3-5 (Ginsberg, J., dissenting).

Implications For Employers

Spokeo can be interpreted as a compromise – with some useful language and reasoning for employers to use in future cases. While the Supreme Court avoided a broader question of Congress’s ability to create private rights of action and other weighty separation of powers issues, it announced the proper analytic framework for assessing the injury-in-fact requirement under Article III. The Supreme Court provided some good news for employers, consumer reporting agencies, and other corporate defendants, as well as potential plaintiffs with respect to class action litigation under a variety of federal statutes, including the FCRA. In particular, the Supreme Court was clear that alleged injuries must be both particular and concrete, meaning that injuries must be “real” and not “abstract.” Thus, a mere procedural violation without any connection to concrete harm cannot satisfy the injury-in-fact requirement of Article III.

However, the Supreme Court may not have shut the door on lawsuits alleging intangible injuries based on violations of statutory rights. While the Supreme Court’s opinion today may discourage some consumer, workplace, and other types of class actions seeking millions in statutory damages, potential litigants will likely have to be more creative in how they frame alleged injuries tied to violations of statutory rights.

Spokeo also transcends the employment context, as the constitutional requirement of Article III applies in all civil litigation. Plaintiffs seeking to file lawsuits in other regulated areas, such as under ERISA, the Americans with Disabilities Act, as well as a host of other statutes are likewise affected by today’s decision. Without particularized, concrete injury, federal jurisdiction is beyond the reach of plaintiffs seeking statutory damages for technical violations.

This blog was cross-posted with our Workplace Class Action Blog:

www.workplaceclassaction.com

 

A seemingly innocuous recruitment text message from the United States Navy has led to the official unraveling of a tactic long-used and widely-favored by defendants to escape a class action lawsuit before class certification. In a 6-3 decision, the United States Supreme Court rejected the argument that an unaccepted settlement offer or offer of judgment moots a plaintiff’s claim and thus a class action as well.

Background and Procedural History

In Campbell-Ewald Company v. Gomez, Petitioner, Campbell-Ewald Company, was retained by the United States Navy to conduct a multimedia recruitment campaign aimed at young adults. One branch of this campaign included sending text messages to potential recruits encouraging them to consider the Navy. The Navy approved the text messages as long as they were only sent to those who “opted-in” to receive marketing materials.

Campbell then contracted with another company, Mindmatics LLC, to identify cell-phone users between 18 and 24 years old who had consented to receiving text messages from the Navy. In May of 2006, Mindmatics transmitted the Navy’s recruitment text to over 100,000 recipients.

One of those recipients was the Respondent, Jose Gomez. Gomez was, at the time, a 40-year-old man who had not consented to receiving text messages from the Navy. Gomez alleged that Campbell violated the Telephone Consumer Protection Act (TCPA), which “prohibits any person, absent the prior express consent of a telephone-call recipient, from “mak[ing] any call . . . using any automatic telephone dialing system . . . to any telephone number assigned to a paging service [or] cellular telephone service.” 47 U.S.C. §227(b)(1)(A)(iii).

Gomez filed a class action complaint in the District Court for the Central District of California seeking treble and statutory damages, costs, and attorney’s fees, as well as an injunction against Campbell’s involvement in unsolicited messaging.  Prior to the deadline for filing a motion for class certification, Campbell made a Rule 68 offer of judgment that included paying Gomez his costs excluding attorneys’ fees, $1,503 per message received and an injunction which barred Campbell from sending text messages in violation of the TCPA, but denied any liability. Gomez did not accept the offer. Before Gomez filed his motion for class certification, Campbell filed a motion to dismiss, arguing the district court lacked subject matter jurisdiction over the matter since no case or controversy remained now that Gomez had been provided with complete relief for his injury, and thus the putative class claims also became moot. The district court denied the motion.

Campbell subsequently filed a motion for summary judgment, arguing the U.S. Navy enjoys sovereign immunity from the TCPA and that as a contractor for the Navy, Campbell acquired that immunity. The district court agreed and dismissed the case. The Ninth Circuit Court of Appeals reversed the lower court, holding that Campbell was not entitled to sovereign immunity and that an unaccepted Rule 68 offer of judgment does not moot an individual claim or a class action. The Supreme Court granted certiorari to settle a disagreement amongst the courts of appeals as to whether a Rule 68 offer of judgment does or does not moot a plaintiff’s claim.

The Supreme Court Opinion

Adopting Justice Kagan’s reasoning from her dissenting opinion in Genesis HealthCare Corp. v. Symczyk (in which the Court reserved the issue of whether an offer of judgment moots a claim) the Court found that, “[w]hen a plaintiff rejects such an offer—however good the terms—her interest in the lawsuit remains just what it was before. And so too does the court’s ability to grant her relief. An unaccepted settlement offer—like any unaccepted contract offer—is a legal nullity, with no operative effect.”

The Court further reasoned that once the offer expired, the parties remained adversaries, as both retained the same stake in the litigation they had at the outset. The Court noted that Rule 68 provides that an unaccepted offer is only admissible when determining costs, and for no other reason.

Since Gomez’s individual claim still stood, the Court ruled “a would-be class representative with a live claim of her own must be accorded a fair opportunity to show that certification is warranted.”

Of note, however, is the caveat offered by the Court at the end of its analysis, in which it reserves ruling on a hypothetical situation in which “a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount.”

The Court also rejected Campbell’s sovereign immunity argument, determining that it did not follow the Navy’s implicit instructions to confirm the messages complied with the TCPA.

Conclusion and Implications

The Supreme Court’s ruling settles once and for all the effect of an unaccepted Rule 68 offer of judgment or settlement offer on a plaintiff’s claim. However, the Court appears to have left the door cracked for defendants via its unanswered hypothetical on the possibility of depositing the full amount of plaintiff’s claim into a bank account payable to the plaintiff. While it is unclear how the Court would rule in such a case, it will not likely be long before a defendant tests the waters.

On Monday, the U.S. Supreme Court issued its highly-anticipated opinion in  DirecTV, Inc. v. Imburgia et al., 577 U.S. ___ (2015), which reaffirmed its ruling in AT&T Mobility LLC v. Concepcion, 56 U.S. 333 (2011), dealing yet another blow to California Courts’ attempts to invalidate class action waivers.

Background

The plaintiffs in Imburgia filed their lawsuit in 2008, arguing that class action arbitration waivers were per se unenforceable in California under Discover Bank v. Super. Ct., 36 Cal. 4th 148, 162-163 (2005).  Under the Discover Bank rule, California courts were free to find such provisions, when contained consumer contracts of adhesion, unconscionable and to rule that they should not be enforced. Id.

The DirecTV service agreement at issue in Imburgia provided for arbitration of customer disputes and included a class action waiver but also stated that “[i]f . . . the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire [arbitration waiver] is unenforceable.”  While the Imburgia case was pending, the Supreme Court issued its decision in Concepcion, which ruled that the Discover Bank rule was preempted by the Federal Arbitration Act (“FAA”).  Despite Concepcion, the California Court of Appeals still found the class action waiver provision in the DirecTV service agreement unenforceable under the theory that the parties had chosen the law of California to govern at the time of drafting and, absent federal preemption, California law would not enforce such provisions.

Opinion

Justice Breyer delivered the opinion of the Court, which began with this “elementary” lesson:  “The Federal Arbitration Act is the law of the United States, and Concepcion is an authoritative interpretation of that Act.  Consequently, the judges of every State must follow it.”  (Slip Op. at 5). Unsurprisingly, the Supreme Court went on to rule that the California Court’s failure to do so indicated that it was not placing arbitration contracts “on equal footing with other contracts” and had therefore run afoul of the FAA.  (Id. at 10-11).

Justice Ginsburg and Justice Sotomayor dissented, opining that, given the specific language of the service agreement and the fact that it was drafted before Concepcion, the state court was free to interpret the contract as it had, and to find the class action arbitration waiver unenforceable.  (See Ginsburg Dissent at 3).  They also lamented that the Court’s recent decisions in Concepcion and Italian Colors had effectively deprived “consumers’ rights to seek redress for losses” and “insulated powerful economic interests.”  (Id. at 10-11).

Implications

Imburgia eliminates any doubt as to the enforceability of class action arbitration waivers.  Retailers and service providers wishing to avoid class action claims are encouraged to include them in their contracts and to be aggressive in enforcing them in litigation, even in the face of arguably ambiguous language.

By:  Robert Milligan and D. Joshua Salinas

California’s Auto-Renewal Law (Cal. Bus. & Prof. Code § 17600 et seq.) has given rise to a recent torrent of new lawsuits in California, many brought on a putative class action basis, targeting businesses that offer subscription based goods or services to California consumers. With few published decisions analyzing and interpreting the statute since its enactment in 2010, businesses often face a high degree of uncertainty and potential legal exposure when addressing demand letters threatening legal action or lawsuits seeking class certification.
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Scope and Application

California’s Auto-Renewal Law applies, with certain exceptions, to any arrangement where a paid subscription or purchasing agreement is automatically renewed until the consumer cancels. Simply put, the purpose of the statute is to require businesses to disclose their subscription terms in a clear and conspicuous manner, including cancellation information, and obtain affirmative consent before charging consumers debit or credit cards on a recurring basis. It is important to note that it applies to not only online subscriptions, but also those procured through hard copy (e.g. paper) and audio (e.g., telephone) methods. The statute arose from an effort to end the practice of charging consumers, without their explicit consent, for continuing products or services (e.g., magazine and music subscriptions).

A wide array of companies providing subscription-based services have already been hit with such lawsuits, including media and entertainment providers (e.g., SiriusXM, Hulu, Spotify), data storage providers (e.g., DropBox), monthly “box” and food delivery services (e.g., BirchBox, Blue Apron), theme parks (e.g., SeaWorld), and dating service providers (e.g., Tinder).

Several cases brought under this statute are currently being challenged at the pleading stage, some cases have been settled on a class-wide basis, and at least one case was granted class certification.

Compliance

The following terms must be disclosed in a clear and conspicuous manner before the subscription or purchasing agreement is fulfilled and in visual proximity (or temporal proximity for voice/audio offers) to the request for consent to the offer:

  1. That the subscription or purchasing agreement will continue until the consumer cancels;
  2. The description of the cancellation policy that applies to the offer;
  3. The recurring charges that will be charged to the consumer’s credit or debit card or payment account with a third party as part of the automatic renewal plan or arrangement, and that the amount of the charge may change, if that is the case, the amount to which the charge will change, if known;
  4. The length of the automatic renewal term or that the service is continuous, unless the length of the term is chosen by the consumer; and
  5. The minimum purchase obligation, if any.

The business must also provide to the consumer an acknowledgement (which can be provided after the initial order is completed) that is capable of being retained and provides the following:

  1. The automatic renewal of continuous service offer terms;
  2. The cancellation policy; and
  3. A cost-effective, timely, and easy-to-use mechanism for cancellation (e.g., toll free phone number, email address) and information regarding how to cancel.

The Meaning of Clear and Conspicuous

The statute details what constitutes clear and conspicuous written disclosures. Specifically, written disclosures must be “in a manner that clearly calls attention to the language” as follows:

  • in larger type than the surrounding text, or
  • in contrasting type, font, or color to the surrounding text of the same size, or
  • set off from the surrounding text of the same size by symbols or other marks.

In the case of an audio disclosure, clear and conspicuous means “in a volume and cadence sufficient to be readily audible and understandable.”

Affirmative Consent

The statute requires businesses to obtain affirmative consent before charging consumers debit or credit cards on a recurring basis. The statute does not, however, define or address what constitutes affirmative consent.

Free Trials and Material Changes to the Terms of the Auto-Renewal Offer

If the auto-renewal offer provided to the consumer contains a free trial, the business must disclose to the consumer how to cancel before he or she pays for the goods or services.

In the case of a material change to the auto-renewal or continuous service that has been accepted by a consumer, the business must provide the consumer with clear and conspicuous notice of the material change and provide information regarding how to cancel in a manner that is capable of being retained by the consumer.

Remedies

The Auto-Renewal Law’s available remedies have made it attractive for the plaintiffs bar. The statute provides that all civil remedies that apply to a violation of the statute are available. Further, any goods or other products sold without the requisite disclosures are considered an unconditional gift. In other words, consumers may be entitled to refunds (including shipping and handling costs) without having to return their purchases. Many recent lawsuits have been brought as putative class actions under California’s Unfair Competition Laws (Cal. Bus. & Prof. Code § 17200 et seq.), thus increasing the potential amount of exposure especially for businesses that have millions of California subscribers. Some litigants have challenged whether there is a stand-alone cause of action under California’s Auto-Renewal Law. This issue is presently the subject of a demurrer in one closely watched case filed in Santa Clara County state court.

Defenses and Defense Strategies:

  • Good Faith Exception: The statute expressly provides in Section 17604 that a business will not be subject to civil remedies if it “complies with the provisions of this article in good faith.” Unfortunately, there is currently no case law addressing what constitutes “good faith” under the statute. Nonetheless, businesses should seek the advice of competent counsel and take reasonable efforts to ensure compliance with the statute.
  • Enforceable Mandatory Arbitration Provisions and Class Action Waivers: Enforceable mandatory arbitration provisions with class action waivers (such as in Terms of Conditions or Terms of Use policies) may provide an effective strategy to attempt to minimize exposure to class claims brought under the Auto-Renewal Law. See AT&T Mobility v. Concepcion, 563 U.S. 333 (2011). Indeed, some notable auto-renewal cases have been compelled to arbitration. Plaintiffs’ attorneys have also reported being discouraged from bringing such putative class actions when an applicable and enforceable arbitration provision exists.
  • Exemptions: The statute identifies a limited set of businesses exempt from its requirements: (1) businesses with authorization issued by the California Public Utilities Commission (“CPUC”), (2) businesses regulated by the CPUC, Federal Communications Commission, or Federal Energy Regulatory Commission, (3) entities regulated by the Dept. of Insurance, (4) certain alarm company operators, (5) banks, bank holding companies, credit unions, and other financial institutions licensed under state or federal law, (6) service contractor sellers and service contract administrators regulated by the Bureau of Electronic and Appliance Repair.
  • California Resident: At least two federal district courts have dismissed at the pleading stage claims brought by non-California residents under the Auto-Renewal Law. These courts have expressly held that the statute limits recovery to only California citizens.
  • No Actual Damages: In Robins v. Spokeo, No. 13-1339, the United States Supreme Court is presently considering whether a plaintiff can maintain a class action suit seeking damages for technical legal violations in which there was no actual injury to the plaintiff, only statutory damages available. Similarly, suits alleging violations of Section 17600 are also susceptible to this argument asserting that plaintiffs lack standing to maintain such suits.

Implications

Companies that utilize auto-renewal services for sales of goods or services in California should scrutinize their disclosures provided both before and after transactions. The disclosure requirements are intricate, but good faith compliance and enforceable arbitration provisions may nonetheless minimize potential liability.

WebinarOn Wednesday, October 21 at 12:00 p.m. Central, Jay W. Connolly, Joseph J. Orzano and Kristine Argentine will present Seyfarth’s third installment of our 2015 Class Action Webinar Series. The presenters will discuss the current state of labeling class action litigation that has targeted food, beverage, nutrition and other industries in recent years. This webinar will provide an overview of the labeling class action landscape complete with discussion of the background giving rise to the wave of litigation and labeling claims commonly targeted by the plaintiffs’ bar. In addition, the panel will discuss the latest trends in pleading challenges, class certification, and settlements in the labeling context.

Specific topics will include:

  • Labeling Litigation Background:  How We Got Here
  • Hot Issues:  Common Marketing Claims Being Challenged
    • Organic
    • All Natural, “100% Natural,”  “Nothing Artificial” & Related Claims
    • Evaporate Cane Juice
    • Made In The USA/Place of Origin
    • Nutritional Content Disclosures/Upcoming Menu Requirements
    • “Healthy”
    • GMOs
  • How Courts Are Treating Challenges to Labeling Claims
    • Challenging the Complaint Up Front:  What Has Worked And What Hasn’t And Why
    • Challenging Attempts By Plaintiffs to Certify a Class:  Court Treatment of Certification Issues in the Labeling Context
  • Trends in Labeling Litigation Settlements

If you have any questions, please contact events@seyfarth.com.

*CLE Credit for this webinar has been awarded in the following states:  CA, IL, NJ and NY. CLE Credit is pending for GA, TX and VA. Please note that in order to receive full credit for attending this webinar, the registrant must be present for the entire session.

There is no cost to attend this program, however, registration is required. To register for this webinar, please click here.

 

For lawyers who frequently litigate class action lawsuits, whether or not the named plaintiffs have standing to bring a claim is one of the first issues that is analyzed and considered.  Plaintiffs’ lawyers often look for named plaintiffs that have suffered easily identifiable damages, while defense lawyers often rely on standing defenses to ward off costly class action cases.data-breach-warning-label

Background

In order to have standing under Article III of the United States Constitution, potential plaintiffs must be able to show that the injury suffered is (1) concrete, particularized, and actual or imminent, (2) fairly traceable to the challenged action, and (3) redressable by a favorable ruling.  These three factors have been subject to much debate and judicial review.  In recent years, standing has been frequently litigated in cases where plaintiffs claim that they were injured due to someone gaining access to their confidential or private information.

In 2013, the United States Supreme Court attempted to provide guidance on standing questions in the digital age in the case of Clapper v. Amnesty International.  In Clapper, the plaintiffs challenged the constitutionality of section 702 of 50 U.S.C. § 1881a, the Foreign Intelligence Surveillance Act (“FISA”).  Section 702 was added by the FISA Amendments of 2008 and permits the Attorney General and the Director of National Intelligence to conduct warrantless wiretapping of telephone and email communications of certain persons located outside the United States.  Plaintiffs contended that the FISA violated their fourth amendment rights because plaintiffs may have confidential communications with non-United States persons who are subject to surveillance under FISA.

In ruling that the plaintiffs did not have standing to challenge the statute, the Supreme Court made several impactful statements that have resonated with the lower courts.  With respect to the first standing element that the injury suffered must be concrete, particularized, and actual or imminent, the Supreme Court stated that the “threatened injury must be certainly impending to constitute injury in fact.”  Since the plaintiffs could only speculate as to whether their conversations would be intercepted, the first standing element was not met. The court found that allegations of possible future injury are not sufficient.  Alternatively, plaintiffs argued that they have already suffered a concrete injury because they were undertook costly and burdensome measures to protect the confidentiality of their communications.  The Supreme Court found that plaintiffs could not “manufacture standing merely by inflicting harm upon themselves” and that fear is insufficient to create standing.

Clapper was considered a win by many retailers who were vulnerable to large class action suits by customers following incidents of privacy breach.  In many district court cases, relying on the reasoning in Clapper, retailers were able to successfully dismiss claims where customers claimed that their confidential information was exposed to hackers, but were unable to articulate a concrete and imminent injury, as opposed to a hypothetical future injury, had already occurred.

Decision

The Seventh Circuit, however, took a more expansive view of standing in Remijas v. Neiman Marcus Group, LLC.  In mid-December 2013, Neiman Marcus suffered a data breach caused by hackers.  The banking information of approximately 350,000 may have been compromised.  Neiman Marcus notified all customers and offered one year of free credit monitoring and identity-theft protection.  The plaintiffs in Neiman Marcus, filed suit relying on a number state data breach laws for relief.  Neiman Marcus’s motion to dismiss for lack of standing was granted by the district court and plaintiffs appealed to the Seventh Circuit.

The Seventh Court reversed, and held that plaintiffs did have standing to proceed against Neiman Marcus.  The class of plaintiffs contained persons who experienced fraudulent charges on their accounts, and those that did not.  With respect to plaintiffs who experienced fraudulent charges, Neiman Marcus argued that they had not suffered actual injuries because they were reimbursed.  The court found this argument unavailing because there are identifiable costs associated with “the process of sorting things out.”  With respect to the plaintiffs who have not yet seen fraudulent charges on their accounts, the Seventh Circuit said those plaintiffs had standing because there was a “substantial risk” of future harm.  The Seventh Circuit stated that Clapper does not foreclose any use whatsoever of future injuries to support Article III standing.  Notably, the Seventh Circuit also referenced the fact that Neiman Marcus offered one year of credit monitoring and identity-theft protection as a reason for concluding that the risk of harm is not “so ephemeral that it can be safely disregarded.”

Implications

The ruling in Neiman Marcus is at odds with prior, lower court precedent interpreting Clapper.  Nevertheless, it will likely be cited as a leading authority on the scope of Clapper and the issue of standing in data breach cases.  Retailers should be aware of the ruling in Neiman Marcus and its implications, as it arguably makes the standing hurdle easier to overcome for plaintiffs in data breach or privacy cases.  Retailers should also be mindful that “good-will” policies, such as notification to customers of a data breach and offering of credit monitoring services, may be considered by the Court in its reasoning to find that plaintiffs have standing.  The business benefits of these “good-will” policies need to be weighed against the litigation costs when formulating company strategies.

The reach of the Seventh Circuit’s ruling in Neiman Marcus has yet to be tested, but we anticipate that it will spawn more litigation and lengthier cases as more plaintiffs file suit and survive past motions to dismiss based on standing.  We will continue to provide updates on this topic if more circuit courts weigh in on this important issue.

On September 1, 2015, California enacted Senate Bill 633 (“SB 633”), loosening the state’s restrictions on “Made in USA” labeling.  Under existing law, codified at Cal. Bus. & Prof. Code § 17533.7, a product may not be sold or offered for sale in California as “Made in U.S.A” if the product, or any article, unit, or part of the product, has been entirely or substantially made, manufactured, or produced outside of the United States.  In other words, Section 17533.7 requires that a product—including each of its individual components (no matter how small)—be entirely or substantially made, manufactured, or produced domestically to qualify for use of a “Made in U.S.A.” or similar label.ca_capitol_modernrelics_creativecommons

SB 633, which goes into effect on January 1, 2016, amends Section 17533.7 to provide exemptions to the “Made in U.S.A.” labeling prohibitions if: (1) all the foreign components of the product constitute no more than 5% of the final wholesale value of the manufactured product; or (2) all the foreign components of the product constitute no more than 10% of the final wholesale value of the manufactured product, and the manufacturer of the product shows that it can neither produce the components in the United States, nor obtain the components from a domestic source.

SB 633 should come as a welcome relief to many companies doing business in California.  The bill more closely aligns California law with the less restrictive domestic content standards for use of the “Made in U.S.A.” designation in all other states and under federal law.  The amendment, therefore, should reduce the complications and costs faced by businesses selling products in California that are lawfully labeled as “Made in U.S.A.” in the rest of the country.

Similarly, because SB 633 effectively repeals California’s stricter—and unique—100% domestic sourcing requirements, companies may also be able to rely on the new law to dispose of pending lawsuits.  Under the “statutory repeal” rule, when a pending action rests solely on a statutory basis, and a final judgment has not been entered, the amendment or repeal of that statute without a savings clause will terminate all pending actions based on that statute.  Younger v. Superior Court, 21 Cal. 3d 102, 109 (1978); Callet v. Alioto, 210 Cal. 65, 67–68 (1930).  Because a claim alleging violations of Section 17533.7 is wholly dependent on that statute, companies litigating “Made in U.S.A.” claims may be able to argue that the enactment of SB 633 terminates those actions in which a final judgment has not been entered.

Regardless, the enactment of SB 633 should reduce the number of lawsuits brought in California against manufacturers or retailers over their “Made in U.S.A.” labeling of products containing negligible foreign content.  And for many companies doing business in California, such a prospect should elicit a sigh of relief.

Under what circumstances does a person give his “prior express consent” to be contacted on his cellphone by a creditor? The Sixth Circuit recently examined that very question in Hill v. Homeward Residential, Inc., where it determined that consent exists if the debtor gives a cellphone in connection with an existing debt and that the number need not be provided during the initial transaction forming the debit.  No. 14-4168 (6th Cir. Aug, 21, 2015). How-Many-Mortgage-Payments-Can-I-Miss-Before-Foreclosure-300x199

Background

In Hill, Plaintiff initially obtained a mortgage in 2003 and provided his home and work phone numbers on the initial application. Plaintiff subsequently cancelled his home phone and replaced it with his cell phone. When Plaintiff’s mortgage was transferred to Defendant Homeward Residential, he contacted the company to alert them that his primary phone number was now his cellphone number. Plaintiff subsequently fell behind on his payments, attempted to work out a loan modification, and ultimately defaulted on his mortgage.  Plaintiff repeatedly provided Defendant with his cellphone in connection with these transactions.  Plaintiff also provided express written consent for Defendant to call his cellphone.

Defendant allegedly called Plaintiff regarding his mortgage 482 times between 2009 and 2013, 176 of which were with an autodialing device. Plaintiff sued Defendant for using auto-dialing devices to contact him without his consent, in violation of the TCPA.   Cross motions for summary judgment were denied by the district court. At trial, the jury returned a verdict for Defendant. Plaintiff appealed, arguing amongst other things, that the jury instruction on “prior express consent” was too broad.

The Sixth Circuit Opinion

The Sixth Circuit ruled that the following jury instruction, set forth below, was not “confusing, misleading, or prejudicial”:

“Prior express consent means that before Defendant made a call to Plaintiff’s cellular telephone number, Plaintiff had given an invitation or permission to receive calls to that number. Autodialed and prerecorded message calls to wireless numbers that are provided by the called party to a creditor in connection with an existing debt are permissible as calls made with the ‘prior express consent’ of the called party.”

The Sixth Circuit found the jury instruction to be consistent with the legal definition of prior express consent found in various FCC rulings, which held a creditor does not violate the TCPA when it calls a debtor who has provided his number in connection with an existing debt. While Plaintiff attempted to argue that “prior express consent” must be given during the transaction that resulted in the debt owed, which in this case was the initial mortgage issued in 2003, the Court did not agree. Instead, the Court ruled that a person gives “prior express consent” if he gives a company his cellphone number before it calls him. Of further note, the Court did not distinguish between regular and autodialed calls in the context of prior express consent, ruling “once a debtor gives his consent to be called on his cellphone, the creditor can use automated calls to that number.”

Implications

The Sixth Circuit’s ruling provides important clarity as to when and how a person can give prior express consent to being contacted on their cellphone. An equally important take-away is the Court’s finding that a consumer does not need to specifically consent to auto-dialed calls.