WebinarOn Tuesday, May 26, 2015 at 12:00 p.m. Central, Jason P. Stiehl, Giovanna A. Ferrari and Jordan P. Vick will present the first installment of the 2015 Class Action Webinar series. They will provide a summary of key decisions from 2014, identify key trends for companies to watch for in 2015, as well as practical “best practices” and risk management for the future.

In 2014, companies saw a major change in the focus and risk of class action litigation. According to one industry survey, the percentage of class actions qualifying as “high risk” or “bet-the-company” tripled from 4.5 percent to 16.4 percent. This no doubt derives from the increase in volume of large settlements and continued increase in volume of suits under statutes with minimum statutory penalties, such as the Telephone Consumer Protection Act (TCPA).

The webinar will be provide insight on:

  • The landscape for in-house counsel, including identifying the legal market spend and risk for class actions
  • Case law and trends from 2014, including:
    • evolving class certification standards post-Comcast
    • increased scrutiny of class settlements
    • continued TCPA filings and large settlements
    • post-Concepcion waiver decisions and the CFPB’s arbitration study
    • standing and privacy/data breach cases
  • Highlights from 2015, including:
    • increase use of motion to strike class allegations
    • CAFA challenges
    • TCPA decisions
    • DirecTV Supreme Court arbitration case
    • International expansion of class action vehicle in Europe
  • Practical considerations and takeaways

register

Registration: there is no cost to attend this program, however, registration is required.

*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.

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

Recently, the United States Court of Appeals for the Seventh Circuit ruled that a plaintiff seeking to remand a putative class action under the Class Action Fairness Act’s (“CAFA”) home-state exception must produce evidence allowing the court to determine the putative class members’ citizenship as of the date the case was removed to federal court.  The court suggested that a plaintiff might meet his or her burden by randomly sampling the citizenship of putative class members and extrapolating those results to the entire putative class.

Case Background

In Myrick v. WellPoint, Inc., the plaintiffs filed a putative class action complaint in Illinois state court, alleging that an Illinois insurer violated state law by withdrawing from the Illinois market in 2002 and cancelling all insurance policies.  The defendants removed the case to federal court pursuant to CAFA.  Thereafter, the plaintiffs sought remand under CAFA’s home-state exception, 28 U.S.C. § 1332(d)(4).  That section provides that a court shall not exercise CAFA jurisdiction if (1) at least two-thirds of the putative class members are citizens of the state in which the case was originally filed; and (2) at least one defendant from whom significant relief is sought, and whose alleged conduct forms a significant basis for the claims asserted, is a citizen of the same state.

The parties disagreed on whether two-thirds of the putative class members were citizens of Illinois.  The plaintiffs argued that the home-state exception was satisfied because:

(1) Defendants’ policy was offered only to persons who represented that they lived in Illinois or, for group policies, to employers who represented that most beneficiaries lived in Illinois; and

(2) assuming that former policyholders left Illinois at the normal rate of 2% per year since 2002, about 87% of the putative class members were Illinois residents when the case was removed.

The district court denied the motion to remand.

The Seventh Circuit’s Decision

On appeal, the Seventh Circuit affirmed.  The court held that the party seeking remand bears the burden of proof under the home-state exception.  Therefore, the plaintiffs “needed to produce some evidence that would allow the [district] court to determine the class members’ citizenships on the date the case was removed.”  Slip Op. at 4. The court concluded that the plaintiffs had failed to produce any evidence of the putative class members’ citizenship.

The court reasoned that the plaintiffs’ arguments rested on suppositions rather than evidence.  The court noted that the plaintiffs expected the court to infer (1) that the policies were only issued to Illinois residents; (2) that all Illinois residents are also Illinois citizens; (3) that the defendants’ policyholders were no more likely to move than the average individual is; and (4) that employers who purchased group policies were all citizens of Illinois.  The court held that “[t]hese propositions may or may not be right, but plaintiffs did not offer any evidence to support them.”  Id.  at 5.

The court rejected the plaintiffs’ argument that they should be excused from proving putative class members’ citizenship because doing so is “simply too expensive.”  Id.  The court stated:  “Lawyers who launch class actions are not in a good position to complain about the expenses they entail; plaintiffs and their counsel must be prepared to meet them or be deemed inadequate representatives.”  Id.  The court further reasoned that Plaintiffs’ burden was not cost prohibitive because they could have relied on random sampling.

The court explained that the plaintiffs could have taken a random sample of perhaps 100 putative class members, determined the citizenship of those in the sample, and extrapolated those results to the putative class as a whole.  Id. at 5-6.  The court noted that, if the sample had yielded a lopsided result, “say, 90% Illinois citizens or only 50% Illinois citizens,” the outcome would have been clear without the need for further evidence.  Id.  If the result was close to the home-state exception’s two-thirds requirement, the court stated that plaintiffs could have done “more sampling and hire[d] a statistician to ensure that the larger sample produces a reliable result.”  Id.

Implications for Businesses

The Seventh Circuit’s decision squarely places the burden to prove citizenship on a plaintiff seeking remand under CAFA’s home-state exception but minimizes that burden by suggesting a plaintiff might randomly sample putative class members to establish jurisdiction.  Unfortunately, the decision leaves many questions unanswered.  For example, the decision does not address whether or to what extent a plaintiff has the right to seek discovery from the defendant on putative class members.  Nor does the decision address whether a plaintiff relying on random sampling must provide expert testimony in support and, if so, whether Daubert applies to that testimony.  Businesses facing a motion to remand under the home-state exception should consider these issues when crafting their defense.

The Ninth Circuit recently held that a declaration from the defendant’s comptroller stating that the defendant’s sales of the challenged product during the class period exceeded $5 million was sufficient to satisfy the amount-in-controversy requirement of the Class Action Fairness Act, 28 U.S.C. § 1332(d)(2) (“CAFA”).   Watkins v. Vital Pharmaceuticals, Inc., No. 13-55755 (9th Cir. July 2, 2013).  The Ninth Circuit reversed the federal trial court’s remand of the action to state court and directed the federal court to exercise jurisdiction over the case.  The decision adds clarity to what evidence may be adduced to establish federal court jurisdiction under CAFA and provides guidance to businesses seeking to remove state court putative class actions to federal court.

Background

Plaintiff Gabe Watkins (“Plaintiff”) filed a putative class action against Vital Pharmaceuticals, Inc. (“Vital”) in California state court alleging that Vital distributed ZERO IMPACT protein bars that were erroneously marketed and labeled as having little to no impact on blood sugar.  Plaintiff asserted California state law claims and alleged a nationwide class of consumers.

Vital removed the action to federal court under CAFA.  CAFA provides an alternative basis for federal court subject matter jurisdiction, but requires, among other things, that the combined claims of all class members exceed $5 million exclusive of interest and costs.  At issue on appeal, was whether the amount-in-controversy requirement was met.

Vital submitted two declarations in support of its assertion that more than $5 million was in controversy.  First, Vital submitted a declaration from its counsel.  Defense counsel’s declaration pointed out Plaintiff’s own allegations in his Complaint regarding the amount in controversy.  Specifically, Plaintiff alleged that “the aggregate damages sustained by the Class are likely in the millions of dollars.”  The declaration also referred to the fact that Plaintiff sought, in addition to damages, restitution, disgorgement of profits, and attorneys’ fees based on sales to thousands of consumers nationwide.  Second, Vital submitted a declaration from its comptroller.  In that declaration, the defendant’s comptroller stated that Vital’s nationwide sales of its ZERO IMPACT bars during the four-year class period exceeded $5 million.

Despite Vital’s showing, the district court remanded the case to state court.  The district court held that Vital did not meet its burden of proving CAFA’s amount in controversy requirement.  The district court found defense counsel’s declaration vague and conclusory and downplayed the sales data as mere averments without mentioning the comptroller’s declaration.

On appeal, the Ninth Circuit agreed with Vital that the undisputed declaration from its comptroller was sufficient to establish that CAFA’s $5 million amount in controversy requirement was met.

Implications

The Vital Pharmaceuticals decision provides guidance to businesses seeking removal of putative class actions from state to federal court under CAFA and to lower courts considering remand of removed cases.  It is unclear, however, whether federal district courts in the Ninth Circuit would reach the same result under different facts and with a more aggressive plaintiff’s attorney.  For example, the Ninth Circuit specifically noted that: (1) the comptroller’s declaration went uncontroverted by Plaintiff; and (2) Plaintiff filed a document stating that he took no position on Vital’s appeal and that he declined to file a brief.  That said, Plaintiff’s counsel here may have recognized and been swayed by the difficulty in challenging the sales data proffered by Vital Pharmaceuticals.

Earlier this month, the Eighth Circuit weighed in on the issue of jurisdiction under the Class Action Fairness Act (“CAFA”), 28 U.S.C. § 1332 (d)(2), in Daniel Raskas v. Johnson & Johnson et al., Marjie Levy v. Pfizer Inc. and Leslie Yoffie v. Bayer Healthcare LLC (“Raskas”)The Court held that the Defendants needed only explain “plausibly” how the amount in controversy may exceed $5 million, which Defendants did sufficiently through tendered affidavits.

Factual Background

Raskas arose out of three separate lawsuits in Missouri state court in October 2012. The Plaintiffs in the case accused Pfizer, Johnson & Johnson and Bayer Healthcare LLC of misleading customers into thinking their products, which include medicines such as Tylenol and aspirin, are ineffective or unsafe if taken after their expiration dates. The Plaintiffs in the three cases argued that the medicines at issue “remain chemically stable and safe if properly stored long after the expiration dates printed on the packaging.” The drug companies allegedly told consumers that they should discard the medicine promptly on the expiration date, and did so for the purpose of raising profits.  Plaintiffs filed a class action on behalf of Missouri customers, alleging “violations of the Missouri Merchandising Practices Act and civil conspiracy, and seeking “orders requiring the drugmakers to accurately disclose the meaning of expiration dates printed on their medications, as well as damages and costs.”

The Defendant drug companies removed the case to the federal district court. In their removal papers, Defendants included affidavits listing their total sales for a five year period in order to establish the amount in controversy required under CAFA.  The Plaintiffs opposed arguing that they only sought damages pertaining to medication that was discarded and replaced, and thus, only a portion of Defendants’ sales were at issue. The district court found the total figures provided by the Defendants were too speculative to establish the required amount in controversy.  As such, the court remanded the case back to state Court.

The Court’s Decision

The Defendants appealed the district court’s decision.  The Eighth Circuit reversed and found in favor of the Defendants. According to the appellate court, Defendants did not need to prove the amount in controversy “beyond all doubt.” Rather, it was acceptable to provide an estimated total. Here, each Defendant’s affidavit detailing the total sales of their respective medications in Missouri met the amount in controversy requirement, and thus, was sufficient to establish the required amount in controversy by a preponderance of the evidence. According to the Court, once the “proponent of federal jurisdiction has explained plausibly how the stakes exceed $5 million, as Defendants have in this case, then the case belongs in federal court unless it is legally impossible for the Plaintiff to recover that much.” Furthermore, the Defendants did not have to provide a formula for calculating damages. According to the Court, “we have specifically rejected the need for this kind of formula or methodology, as it would require a Defendants to ‘confess liability’ for the entire jurisdictional amount.”
 
Implications

Companies defending against class actions should take a note of the Eighth Circuit’s ruling in Raskas, as it provides support and instruction for removing a class action to federal court through CAFA. This decision confirms that Corporate Defendants have a limited evidentiary burden at the removal stage, and reduces the ability of class action Plaintiffs to challenge CAFA jurisdiction.

The United States Supreme Court yesterday dealt a severe blow to putative class-action plaintiffs who want to avoid removal to federal court.  Under the Class Action Fairness Act, 28 U.S.C. § 1332(d), district courts have original jurisdiction over civil class actions when the aggregate amount in controversy exceeds $5 million.  Many class counsel have attempted to avoid removal of their cases to federal court by expressly pleading that the amount in controversy is less than $5 million or that the class will not seek or waives aggregate damages to the extent they exceed $5 million.

In Standard Fire Insurance Co. v. Knowles, No. 11-1450 (Mar. 19, 2013), the Supreme Court unanimously held that such allegations are not dispositive and do not prevent removal.  Because the putative class representatives do not represent absent class members before a class is certified, the Court reasoned, they cannot enter into binding stipulations or make admissions that bind absent class members.  Accordingly, they cannot use artful pleading to reduce the aggregate damages that constitute the amount in controversy for CAFA purposes.

Although class actions in recent years have been filed more frequently in federal rather than state court, the Standard Fire decision certainly benefits class action defendants by eliminating one of the most common grounds for opposing CAFA removal.