Seyfarth Synopsis: On May 30, 2019, the Fourth Circuit issued an opinion in Krakauer v. Dish Network, L.L.C., No. 18-1518 (4th Cir. May 30, 2019), that paved the way for TCPA plaintiffs to collect historic awards from unsuspecting defendants. The Fourth Circuit held that TCPA plaintiffs need not show any threshold level of injury to have standing, so long as they prove the statutory elements of a TCPA claim; the TCPA creates a simple cause of action that is “conducive to class-wide disposition” without reference to individualized inquiries; and Dish Network could be held responsible for the actions of its third-party marketer even if it repeatedly admonished the third party against violating the law and its contracts disclaimed any agency relationship.  As a result, companies should be wary of using third parties to conduct telemarketing without appropriate oversight.

Case Background

Plaintiff Thomas Krakauer placed his number on the national Do-Not-Call registry. Nonetheless, he received multiple calls from a company called Satellite Systems Network (“SSN”) trying to sell him the services of defendant Dish Network, L.L.C. Krakauer sued Dish under the Telephone Consumer Protection Act (“TCPA”) on behalf of a class of persons whose numbers had been listed on the registry for at least 30 days and who had received two or more calls on behalf of Dish in the course of a year.

The district court certified the class in 2015. A year later, Dish moved to dismiss for lack of Article III standing, arguing that many or most class members did not experience an injury that would have risen to the level of a cause of action at common law. The district court denied the motion, and the case proceeded to trial.

The district court charged the jury with determining: (1) whether SSN was acting as Dish’s agent when it called consumers; (2) whether SSN made multiple calls to the class members’ numbers within the relevant period; and (3) the appropriate damages award for such calls. The jury returned a verdict for plaintiff on the first two points and assigned damages of $400 per call. The district court then determined, as a matter of law, that Dish acted willfully and knowingly, allowing an award of treble damages “to deter Dish from future violations and . . . give appropriate weight to the scope of the violations.” Krakauer, No. 18-1518 at *29.

Dish appealed the judgment.

The Fourth Circuit’s Opinion

In an opinion by Judge Wilkinson, the Fourth Circuit considered three issues: (1) whether the class as certified had Article III standing to bring claims; (2) whether the district court correctly applied the factors for class certification, especially commonality and predominance, and whether the class was overbroad; and (3) whether Dish was responsible for SSN’s calls, including whether it had acted willfully and knowingly in not remedying SSN’s alleged misconduct. Id. at *10.

Dish argued that many, if not most, class members lacked standing because their injury did not rise to “a level that would support a common law cause of action.” Id. at *13. The Fourth Circuit rejected this argument, relying on the Supreme Court’s guidance in Spokeo, Inc. v. Robins, 136 S.Ct. 1540 (2016). Spokeo held that traditional standing requirements, including a concrete and particular injury, applied to statutory causes of action, and that Congress could not create a cause of action without an underlying injury that would have been cognizable under the common law. The Fourth Circuit found that receipt of repeated, unwanted telephone marketing by someone who had taken steps to avoid such marketing was a type of injury cognizable at common law – an intrusion on privacy. Id. at *13-14 (citing Spokeo, 136 S.Ct. at 1549).

Next the Fourth Circuit addressed the district court’s certification of a class under Rule 23(b)(3), finding that the simple scheme created by Congress avoided the kinds of individualized determinations that “so often plague class actions.” Id. at *16-18. Dish argued that many class members did not have a claim because they were not “subscribers” to telephone service, and only a “subscriber” could place a number on the Do-Not-Call registry. But the Fourth Circuit rejected this argument, noting that the plain text of the statute allowed a private right of action by any “person” who received unwanted calls, not just subscribers, and a non-subscriber living in the house where the call was received could suffer the same privacy intrusion as the subscriber. Id. at *19.

The Fourth Circuit also determined that the class was properly ascertainable because the data on potential class members was found in the call data of the defendant companies and the Do-Not-Call registries. Id. at 22-23.

Left unspoken in the Fourth Circuit’s analysis, however, was how to determine who received the phone call at a given number and thus who experienced the injury. Although the SSN/Dish call data revealed numbers called, it did not necessarily reveal the identity of the persons who received unwanted calls. The Fourth Circuit gave the example of a subscriber wife whose husband received a call and noted that the husband could experience an injury to his right to privacy. Id. at 21. But the Fourth Circuit did not explain how it possibly could identify the husband from the company records and, as a result, how it could provide compensation to the real injured party (the recipient) without an individualized investigation.

This slippage between subscribers and call recipients also muddies the standing inquiry. The Fourth Circuit justifies reading a phone call as an intrusion on privacy because the recipient “took steps to avoid” such calls by placing his number on the Do-Not-Call registry. Id. at 12. But if the recipient is not the subscriber, did he actually take such steps?

Finally, the Fourth Circuit addressed whether Dish could be held liable for SSN’s unwanted calls, a question that turned on whether SSN was acting as Dish’s agent when it made the calls. Dish argued that it was not, pointing to contracts that characterized the relationship as independent and not an agency relationship. Id. at * 27-28. But the Fourth Circuit held that a party’s contractual characterization of the relationship is irrelevant; it is the nature of the relationship that matters. The Fourth Circuit held that it was it was reasonable for the jury to conclude that SSN was Dish’s agent because their contract “afford[ed] Dish broad authority over SSN’s business, including what technology it used and what records it retained” and because Dish claimed to have the right to monitor SSN to ensure compliance with the TCPA. Id. at *27. The Fourth Circuit also held that Dish had knowledge of SSN’s violations of the TCPA, and its failure to act to stop such violations was evidence that SSN was acting within the scope of its authority. Id.

Although Dish argued that it had repeatedly instructed SSN to follow the law in acting on Dish’s behalf, the Fourth Circuit held that these verbal instructions were outweighed by Dish’s “failure to respond to” statutory violations “in any serious way” while it was “profiting handsomely from SSN’s sales tactics. Id. at *28-29.

The Fourth Circuit also approved the district court’s finding that Dish had acted willfully and knowingly. The Fourth Circuit relied heavily on the fact that Dish had notice of alleged violations via “lawsuits and enforcement actions” as well as “consumer complaints” but “did nothing to monitor, much less enforce, SSN’s compliance with the telemarketing laws.” Id. at *31.

Implications

The Fourth Circuit provided ample reason for companies to be cautious in drafting contracts with third-party marketers and overseeing their activities. The Fourth Circuit confirmed that a company can be held liable for the behavior of a contractor making calls on its behalf, even if it “includes certain language in a contract or issues the occasional perfunctory warning.” Id. at *32. A court will “look past the formalities and examine the actual control exercised.” Id. Indeed, contractual language requiring one party to comply with the law and giving the other party the right to monitor compliance may even be viewed as a sign of “control” and agency. Id. at 27. And, if a company has the right to control and to monitor compliance, the failure to do so may be viewed as a willful decision to ignore potential violations of the law. Thus, companies should carefully consider the structure of their contractual relationships.

The Fourth Circuit also relaxed the standard for certification of such claims by suggesting that Congress has a great deal of latitude to intentionally structure consumer protection statutes to be class-friendly and to avoid individualized inquiries. Id. at *18. In the Fourth Circuit’s view, so long as the statutory violation causes some concrete and particular injury, even if it would be viewed as minor or de minimis under the common law, Congress may impose statutory damages for it, and those damages need not be tightly targeted to the magnitude of the injury. As the Fourth Circuit’s seeming conflation of subscribers and call recipients shows, in the case of privacy interests, a strong nexus between the claim and a class member’s own efforts to protect his privacy also may not be necessary. Thus, companies subject to consumer protection statutes like the TCPA should take less comfort in arguments regarding standing or the need for individualized consideration of class members’ injuries.

From Seyfarth’s Workplace Class Action Blog

Seyfarth Synopsis: Defendants can remove lawsuits filed in state courts to federal courts if they meet the statutory requirements for removal under either 28 U.S.C. § 1441(a) or the Class Action Fairness Act. In Home Depot U. S. A., Inc. v. Jackson, No. 17-1471, 2019 WL 2257158, at *2 (U.S. May 28, 2019), the U.S. Supreme Court ruled that Home Depot was not entitled to removal under either provision because it was brought into the lawsuit by a counterclaim filed by the original defendant. According to the Supreme Court, the term “defendant” in the removal statutes refers only to the party sued by the original plaintiff.

Although counterclaim class actions are not the norm, this decision nonetheless restricts removal strategies for certain companies facing class actions in unfavorable state jurisdictions. Companies with multiple business segments, or in the franchise and staffing industries, or companies that regularly initiate lawsuits are more likely to be named as third-party defendants, and inevitably impacted by this decision.

Background

In 2016, Citibank N.A. filed a debt-collection action in North Carolina state court against George W. Jackson, for charges incurred on a Home Depot credit card. In responding to Citibank’s complaint, Jackson asserted a counterclaim against Citibank and third-party class-action claims against Home Depot and Carolina Water Systems (“CWS”).

In these third-party claims, Jackson alleged that Home Depot and CWS had engaged in unfair and deceptive trade practices with respect to the sale of water treatment systems. Citibank subsequently dismissed its claims against Jackson and one month later, Home Depot filed a notice of removal to federal court, citing federal jurisdiction under the Class Action Fairness Act (“CAFA”).

Jackson moved to remand the case to state court and amended his third-party complaint to remove any reference to Citibank. The district court granted Jackson’s motion to remand because Home Depot was not a “defendant” eligible to remove under the CAFA. The U.S. Court of Appeals for the Fourth Circuit affirmed, finding that allowing Home Depot to remove would be inconsistent with its prior interpretations of the CAFA’s removal statute.

Subsequently, the U.S. Supreme Court granted Home Depot’s writ of certiorari.

The Supreme Court Decision

Justice Thomas wrote the majority opinion for the Supreme court, joined by Justices Ginsburg, Breyer, Sotomayor and Kagan. On review, the Supreme Court concluded that the term “defendant’ used in 28 U.S.C. § 1441(a) and the CAFA does not include a third-party counterclaim defendant, such as Home Depot. First, the Supreme Court explained that while Home Depot was a defendant to a claim (i.e., Jackson’s counterclaim), the removal statute refers to ‘“civil action[s],’ not ‘claims.’” Id. at 6. Hence, under “Section 1441(a),” the Supreme Court reasoned, “a counterclaim is irrelevant to whether the district court has ‘original jurisdiction over the civil action.’” Id. The Supreme Court opined that its conclusion was bolstered by language in other removal statutes that either differentiated between a defendant and a third-party defendant, or expressly extended the reach of the statute to include parties other than the original defendant. Id. at 7.

The Supreme Court similarly concluded that “any defendant,” as used in the CAFA was not intended to expand the class of parties who can remove under Section 1441(a). Id. at 9. Instead, the CAFA merely limits certain restrictions on removal that might otherwise apply. In other words, the Supreme Court held that nothing in the CAFA alters Section 1441(a)’s limitations on who can remove.

Based on this reasoning, the Supreme Court ultimately ruled that neither § 1441(a) nor the CAFA permits removal by a third-party counterclaim defendant.

Implications for Employers

Removal should be in the arsenal for any company facing a class action in an unfavorable state jurisdiction. While the Supreme Court’s decision in Jackson undoubtedly restricts this strategy, it does so only in the narrow circumstances where the company faces a counterclaim as a third-party defendant. Fortunately, counterclaim class actions do not come up that often. In the class action context, the decision is likely to have the most impact on companies that regularly bring suits against individuals that may, in turn, result in a class action counterclaim. Hence, companies with multiple divisions or in the franchise and staffing industries face a potential situation in which a related company could initiate a lawsuit, thus giving rise to a third-party counterclaim.

Recently, the Supreme Court of the United States granted certiorari in the matter of Rotkiske v. Klemm. At issue is whether the discovery rule tolls the statute of limitations under the Fair Debt Collections Practices Act (FDCPA). The controversy is centered on the FDCPA statutory text, “the date on which the violation occurs,” 15 U.S.C. § 1692k(d), and whether such language governs in a dispute or the discovery rule tolls the statute of limitations. The discovery rule holds that the statute of limitations begins when the plaintiff knew or should have known of the facts giving rise to his legal claim. In granting certiorari, the Supreme Court weighs in on a split between the Third Circuit and the Fourth and Ninth Circuits.

Background

The plaintiff-petitioner’s claim arises from a debt collection action that dates back to 2008. The defendant, a third-party debt collector, initially filed suit but failed to properly serve the plaintiff because the defendant attempted service at an address where the plaintiff no longer resided. The defendant later withdrew the suit and refiled in 2009. Unbeknownst to the plaintiff, however, someone who resided at his former address accepted service of the second complaint filed in 2009. After failing to appear to defend himself, the debt collector later obtained a default judgment against the plaintiff. A lien was placed on the plaintiff’s credit report. Years later, upon discovering the lien, the plaintiff sued in the Eastern District of Pennsylvania, alleging that the default judgment was obtained in violation of the FDCPA. The defendant filed a motion to dismiss. In his response, the plaintiff argued that the discovery rule should have tolled the statute of limitations, or, alternatively, that the court should equitably toll the limitations period. The district court eventually dismissed the suit finding that the statutory language controlled, i.e., the limitations period starts “from the date on which the violation occurs.” 15 U.S.C. § 1692k(d). On appeal, the plaintiff challenged only the district court’s holding on the discovery rule issue. After a panel hearing but before issuing an opinion, the Third Circuit ordered an en banc hearing.

A Circuit Split: Third Circuit v. Fourth and Ninth Circuits

The Third Circuit’s en banc opinion affirmed the district court’s holding that the FDCPA’s statutory plain language controlled. Judge Hardiman, writing for the court, relied on TRW Inc. v. Andrews, where the Supreme Court explained that courts must begin statutory analyses by analyzing the text itself and then consider context and structure. See 534 U.S. 19, 28 (2001). Judge Hardiman further noted that the Court in TRW recognized that Congress may “implicitly” exclude a broader discovery rule by “explicitly” including a narrower one. 534 U.S. at 28. Stated differently, the narrow plain language Congress included in the FDCPA (“the date on which the violation occurs”) controlled because it clearly foreclosed the possibility of a broader general discovery rule applying. Additionally, the court observed that the practices forbidden under the FDCPA are apparent when they occur and thus do not support the application of the discovery rule. The Third Circuit left open the possibility that equitable tolling may be appropriate under the FDCPA when there is fraudulent, misleading, or self-concealing conduct. The court, however, did not explore this issue because it was not raised on appeal.

In its Supreme Court petition, the Rotkiske plaintiff points to two cases from the Fourth[1] and Ninth[2] Circuits that contravene the Third Circuit’s reasoning. First, in Mangum, the Ninth Circuit panel held that the discovery rule applied in an FDCPA action. In reaching its conclusion, the Ninth Circuit relied on internal circuit precedent concerning the application of the discovery rule to violations of the Fair Credit Reporting Act (FCRA). That precedent was overturned by the Supreme Court in TRW v. Andrews.[3] The Ninth Circuit explained that, while the Supreme Court’s guidance in TRW did cast doubt on the Ninth Circuit’s earlier decision, the Supreme Court’s rationale did not apply in Mangum, which involved the FDCPA, an entirely different statute from the one at issue in TRW. Furthermore, the Ninth Circuit noted that it could not reject preexisting Ninth Circuit law.[4]

Second, in Lembach, the Fourth Circuit issued a non-binding per curiam opinion that also cited the Ninth Circuit’s Mangum decision. The Fourth Circuit likewise held that the general discovery rule applied in an FDCPA action. In so doing, the Fourth Circuit premised its approach on dicta from TRW – that “lower federal courts generally apply a discovery accrual rule when a statute is silent on the issue.” 534 U.S. at 27 (internal citation omitted). However, the Fourth Circuit stressed the factual circumstances that precluded plaintiffs from acting until they discovered the counterfeit signatures that had enabled debt collectors to foreclose on their home. Because Lembach involved fraud and concealment, the decision rests on a somewhat different footing from those involving a “general” discovery rule. See TRW, 534 U.S. at 27 (citing Holmberg v. Armbrecht, 327 U.S. 392 (1946) and allowing for equitable tolling as to fraud and concealment). Thus, it is not clear whether the Fourth Circuit would apply the discovery rule in an FDCPA case lacking fraud and concealment.

Takeaway

It remains to be seen whether the Supreme Court will adhere to the approach announced in TRW and uphold the Third Circuit’s conclusion. If the Supreme Court deviates from its earlier precedent, the consequences for third-party debt collectors could be far reaching. If the discovery rule applies, third-party debt collectors could see liability arise well beyond the apparent one-year statutory limit because, unlike the FCRA, the FDCPA does not include a statute of repose.

Seyfarth Shaw will continue to monitor developments in this matter.


[1] Lembach v. Bierman, 528 F. App’x 297 (4th Cir. 2013).

[2] Mangum v. Action Collection Serv., Inc., 575 F.3d 935 (9th Cir. 2009).

[3] In a separate dispute centered on the discovery rule applying to FCRA violations, the Supreme Court reversed the Ninth Circuit holding that the discovery rule applied to issues involving the FCRA. The Supreme Court explained that the FCRA was not an area of law that “cries out for application” of the discovery rule and explained that the embedded statute of limitations within the statute precluded application of the discovery rule. See 534 U.S. at 28.

[4] Although the Rotkiske plaintiff does not rely on this case, the Eighth Circuit has also found that “[t]he Supreme Court did not in TRW invalidate the presumption of reading the discovery accrual rule into federal statutes.” Maverick Transp., LLC v. U.S. Dep’t of Labor, Admin. Review Bd., 739 F.3d 1149, 1154 (8th Cir. 2014).

Seyfarth Synopsis:  Although the Illinois Supreme Court’s recent decision in Rosenbach v. Six Flags may have upped the ante for employers facing litigation under the Illinois Biometric Information Privacy Act (“BIPA”), a recent bill introduced in the Illinois Senate, SB2134, would remove plaintiffs’ right to bring private causes of action under Illinois Biometric Information Privacy Act (“BIPA”) and instead allow them to file a complaint with the Illinois Department of Labor (“IDOL”), and to be enforced by the DOL and the Illinois Attorney General.

If this proposed bill ultimately becomes signed legislation, it would be the death knell for private party BIPA class actions. As ten or more BIPA class actions are being filed in Illinois state and federal courts on a daily basis,  employers should closely follow developments involving this proposed legislation while concurrently pursuing BIPA compliance activities.

Continue Reading Newly Proposed Legislation to Restrict Biometric Privacy Class Actions in Illinois

Seyfarth Synopsis: In a 9-0 Supreme Court ruling last week, the Court spoke to issues concerning the Fair Debt Collection Practices Act (FDCPA) and non-judicial foreclosures.

The FDCPA is intended to “eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.” 15 U.S.C. § 1692, Congressional Findings and Declarations of Purpose.

In Obduskey v. McCarthy & Holthus LLP, No. 17-1307, 2019 WL 1264579 (U.S. Mar. 20, 2019), the Supreme Court held that a business, such as a law firm, that is principally engaged in the enforcement of a security interest, like non-judicial foreclosure proceedings, is not a “debt collector” under the primary definition of the FDCPA. Rather, the Court held that the law firm at issue came under the ambit of the limited-purpose definition. Entities that meet the primary definition of a debt collector under the FDCPA are subject to a myriad of limitations aimed at protecting consumers.

In reaching its decision, Justice Breyer engaged in a three step statutory analysis of the FDCPA. First, to avoid surplusage, the limited-purpose definition must be read to constrict the primary definition. Next, the Court reasoned that Congress may have chosen to “treat security-interest enforcement differently from ordinary debt collection in order to avoid conflicts with state non-judicial foreclosure schemes.” Finally, the Court held that upon review of the legislative history of the FDCPA, it appears that the limited-purpose definition was a compromise between full inclusion of security interest enforcement and exclusion of the same.

The Court concluded that “in our view, the last sentence does (with its § 1692f(6) exception) place those whose ‘principal purpose … is the enforcement of security interests’ outside the scope of the primary ‘debt collector’ definition, where the business is engaged in no more than the kind of security-interest enforcement at issue here—non-judicial foreclosure proceedings.” By excepting those who principally enforce security interests from the full scope of the FDCPA, the Court also “exclude[d] the legal means required to do so,” including sending pre-foreclosure notices.

If you have any questions regarding this or any related topic please contact the authors, your Seyfarth attorney, or any member of Seyfarth Shaw’s Commercial Class Action Defense or Consumer Financial Services Litigation Teams.

Seyfarth Synopsis:  On March 20, 2019, in Frank, et al. v. Gaos, No. 17-961, 2019 WL 1264582 (U.S. Mar. 20, 2019), the U.S. Supreme Court held that the Article III standing preconditions to federal court litigation, as described in Spokeo, Inc. v. Robins, 136 S.Ct. 1540 (2016), will not be undermined. The ruling is important for any corporate counsel involved in defending class actions and in negotiating the resolution of such litigation.

We previously blogged on the supplemental briefing development before the Supreme Court in  Frank v. Gaos, No. 17-961,  and now we can report on the Supreme Court’s decision.  Commentators had expressed the view that the case would provide the Supreme Court with an opportunity to determine whether cy pres provisions in settlement are appropriate. The Supreme Court’s ruling did not go that far.

The Supreme Court’s Decision

In Frank v. Gaos, the Supreme Court has affirmed Spokeo by remanding the case to the U.S. Court of Appeals for the Ninth Circuit without considering whether a class settlement that provides cy pres payments but no money to absent class members is “fair, reasonable, and adequate” under Rule 23(e)(2).  The Supreme Court made its remand ruling in an unusual per curiam decision.  The Supreme Court reiterated, again, that a federal statutory violation alone does not equate to Article III standing.  It remanded because of “a wide variety of legal and factual issues not addressed in the merits briefing before us or at oral argument.” Id. at *3.  The Supreme Court opined that Article III standing turns on “whether any named plaintiff has alleged [statutory] violations that are sufficiently concrete and particularized to support standing.”  Id.

The stakes on remand are high, of course — a lack of standing means no day at all in federal court.

The Implications of the Supreme Court’s Decision

There are a number of lessons to be learned from the Frank v. Gaos decision:

  • Litigants should expect federal district courts to conduct an exacting analysis of Article III standing where the allegations in a complaint do not obviously allege concrete monetary damages. Since the existence, or not, of concrete injury may raise “a wide variety of legal and factual issues,” litigants should expect federal district courts to conduct early evidentiary hearings where the complaint allegations appear to raise only technical statutory violations.
  • Litigants also should expect more lawsuits to be commenced in state court if federal court Article III standing appears weak. Many states do not have constitutions with the same Article III standing precondition to litigation that appears in the U.S. Constitution.  Where a claim arises under only federal law, such as breach of fiduciary duty litigation under 29 U.S.C. § 1132(a)(3), defendants should pay much more attention to Spokeo.
  • Federal agency officials may be under more pressure to vindicate federal statutory rights where Spokeo issues appear in the complaints.
  • Lastly, the Supreme Court’s ruling sends a signal to the lower federal courts that Spokeo provides a very real way for the courts to opt out of federal court litigation. Declining jurisdiction may be preferable to messy litigation that often, these days, present strong partisan political controversies with no easy resolution.

It thus makes eminent sense for litigants to consider, again, what Spokeo held — a plaintiff seeking to invoke federal jurisdiction must show:  (1) an injury in fact (2) caused by the defendant’s conduct that is (3) redressable by a favorable federal court decision.

The Federal Rules of Appellate Procedure are generally liberal and allow the appellate courts a great deal of discretion: for example, FRAP 2 allows a Court of Appeals to “suspend any provision of these rules in a particular case and order proceedings as it directs, except as otherwise provided in Rule 26(b).” As the Supreme Court emphasized on Tuesday in Nutraceutical Corp. v. Lambert, that final caveat is important.

Troy Lambert sued Nutraceutical, a dietary supplement company, for failing to properly label products. He sued on behalf of a class of similarly situated consumers, and the federal district court initially certified a class. However, Nutraceutical successfully moved to decertify after discovery. Ten days later, during a status conference, Lambert informed the court that he intended to move for reconsideration. The court ordered him to submit the motion by ten days after the conference, which he did. The court denied his motion, at which point Lambert petitioned the Ninth Circuit for permission to file an interlocutory appeal of both the decertification order and the denial of reconsideration.

Nutraceutical objected that Lambert’s petition was outside the permissible time to file a petition. At the time, FRCP 23(f) allowed the appellate court to “permit an appeal” of an order denying class cert “if a petition for permission to appeal is filed . . . within 14 days after the order is entered.” (The language has since changed slightly, but the substance of the rule is the same.) Lambert’s petition was not filed until several months after the decertification order was entered. Nonetheless, the Ninth Circuit held that it could grant Lambert’s petition because, first, the FRCP time limit was non-jurisdictional, and second, Lambert was entitled to equitable tolling of the time because he had been diligent in seeking relief, first from the district court and then from the appellate court.

Nutraceutical appealed the timeliness issue, and the Supreme Court reversed. Justice Sotomayor, writing for a unanimous court, agreed with the Ninth Circuit that the rule was not jurisdictional. But, the Court said, the time to file is mandatory and cannot be tolled. The distinction between mandatory and non-mandatory deadlines, the Court noted, depends on the “text of the rule.” Even a “deadline . . . phrased in an unqualified manner” may be susceptible to equitable tolling if the text does not clearly preclude tolling.

In this case, though, the Court found that “the Federal Rules of Appellate Procedure single out Civil Rule 23(f) for inflexible treatment.” Lambert pointed to FRAP 2 to argue for the appellate court’s equitable power to alter the rules. But the Court found that the carve-out at the end of the rule (“except as otherwise provided in Rule 26(b)”) trumped the general grant of discretion to the appellate courts. FRAP 26(b) explicitly states that “the court may not extend the time to file . . . a petition for permission to appeal.” The Court held that the rules expressed “a clear intent to compel rigorous enforcement of Rule 23(f)’s deadline, even where good cause for equitable tolling might otherwise exist.”

Does that spell the end of the road for Lambert or other litigants who pursue a timely motion for reconsideration but fail to timely appeal a Rule 23 order? No, it does not for two reasons.

First, if the party moves for reconsideration (at least within 14 days of the original order), that motion does not toll the time to petition for an appeal, but it can make “an otherwise final decision of a district court not final,” which “affects the antecedent issue of when the 14-day limit begins to run.” The Court also left open the possibility, to be considered by the circuit court on remand, that a timely motion for reconsideration could have the same effect even if not filed within the 14-day window.

Second, Lambert argued, and the Court remanded for the lower court to consider, that the denial of reconsideration was also “an order granting or denying class-action certification,” with its own 14-day window for a petition for permission to appeal.

Where does that leave litigants? On the one hand, the Court’s unanimous ruling draws a clear line in the sand: there is simply no equitable tolling available when it comes to seeking permission to appeal. Thus, in theory, litigants ought to proceed straight to seeking an appeal of an unfavorable ruling without waiting to see if a better result can be obtained on reconsideration (or, at the very least, ought to pursue them in tandem). On the other hand, the opinion creates some uncertainty as to whether a litigant like Lambert can use reconsideration to get around the deadline to seek appeal, lack of tolling notwithstanding.

On January 8, 2019, Judge Grasz, writing for an Eighth Circuit panel, reiterated the need for district courts to determine Article III standing before approving class settlements. The appeal stemmed from a putative class action wherein U.S. District Court Judge Nanette Laughrey decided to enforce the parties’ tentative settlement agreement without first deciding the standing issue.

Plaintiff filed the class action suit in Missouri state court in February 2016 alleging that SC Data Center (SC Data) had committed violations of the Fair Credit Reporting Act (FCRA). SC Data later removed the case to federal court. The parties reached a tentative settlement agreement in May 2016, just days prior to the Supreme Court’s decision in Spokeo v. Robins, which held that the Ninth Circuit failed to determine Article III standing prior to deciding a FCRA claim. In July 2016, SC Data unsuccessfully moved to dismiss the class action citing plaintiff’s lack of standing. Judge Laughrey held that the named plaintiff’s standing to bring the FCRA claim had no bearing on her standing to enforce the parties’ class-action settlement encompassing unnamed plaintiffs. Thereafter, the parties submitted their class-action settlement agreement, and Judge Laughrey later approved it.

On appeal, SC Data argued that Judge Laughrey erred by not evaluating the standing issue before enforcing the settlement. The Eighth Circuit agreed and noted that Article III standing is a prerequisite that must be determined not only from the outset but also throughout the life of the case. The Court held that a district court’s decision to approve or reject a settlement is a form of court judgment, and a court must possess subject matter jurisdiction to enter a judgment. Absent jurisdiction, “the court cannot act.”[1]

The Eighth Circuit rejected plaintiff’s argument that Judge Laughrey need not have assessed the standing issue because SC Data cannot avoid a settlement agreement based on a change in law that might have affected its settlement calculus. Instead, the Court reasoned that Spokeo was not a substantive change in law that affected the parties’ settlement strategy but was merely a reiteration of the law of standing. The Court vacated Judge Laughrey’s approval of the settlement agreement and remanded the case for determination of the standing issue.

This decision highlights the need for clients to examine whether standing exists before agreeing to a class action settlement. Furthermore, the Eighth Circuit opinion may make it more difficult for parties to reach class action settlements when there is a standing issue, particularly if a court determines that standing is required for each putative class member. Here, however, the Eighth Circuit did not address the issue of whether standing is required for each, individual putative class member.

Seyfarth Shaw continues to monitor the developments involving class actions and will keep its readers apprised of updates.

[1] Robertson v. Allied Sols., LLC, 902 F.3d 690, 698 (7th Cir. 2018).

In a matter of first impression, the Fifth Circuit upheld a dismissal by the Northern District of Texas holding that a lender cannot be held vicariously liable for a loan servicer’s purported violation of the Real Estate Settlement Procedures Act (“RESPA”). In upholding the decision, the Court held that the borrower failed to plead an agency relationship, and that, even if an agency relationship existed, the lender could not be held vicariously liable as a matter of law for the servicer’s alleged failure to comply with RESPA. In reaching its decision, the Fifth Circuit relied upon a plain reading of RESPA, which imposes duties only on loan servicers and restricts liability to those who fail “to comply with any provision” of RESPA.
There is presently a split of authority nationally at the district court level as to the viability of the vicarious liability theory under RESPA. As always, we will continue to monitor and report on key developments in this area.

Seyfarth Synopsis: On November 6, 2018, the United States Supreme Court signalled that the Article III standing preconditions to federal court litigation, as described in Spokeo, Inc. v. Robins, 136 S .Ct. 1540 (2016), are not likely to be diminished any time soon. The Court did so by requesting supplemental briefing on the application of Spokeo after oral argument had occurred.

In Frank v. Gaos, No. 17-961, awaiting decision by the Court, the plaintiffs alleged that Google violated the Stored Communications Act (SCA), 18 U.S.C. § 2710 et seq., by disclosing their search terms, thereby allowing third parties to “reidentify” them and connect them to particular searches. The plaintiffs reached a class action settlement with the defendant in which it agreed to pay $8.5 million into a settlement fund. After accounting for attorneys’ fees and named plaintiff awards, the parties agreed that the money would be distributed to charities (also known as cy pres payments). Two individuals objected that the settlement fund should be distributed to class members rather than to charities. The objections were overruled. The objectors then successfully petitioned for certiorari. The United States filed an amicus brief before oral argument.

Following oral argument, the Court asked the parties and the United States to file supplemental briefing addressing “whether any named plaintiff has standing such that the federal courts have Article III jurisdiction over this dispute.” On November 30, 2018, the United States filed its supplemental brief. The United States took the position that the plaintiffs lack Article III standing, and for that reason, have no federal forum in which to raise their claim.

Spokeo is the backdrop to the unusual request for supplemental briefing and the position of the United States. Spokeo held that a plaintiff seeking to invoke federal jurisdiction must show: (1) an injury in fact (2) caused by the defendant’s conduct that is (3) redressable by a favorable federal court decision. While an injury in fact may exist solely by virtue of statutes creating legal rights, Article III jurisdictional requirements still require a concrete injury.

The United States now argues that plaintiffs in Frank v. Gaos do not allege Article III standing because Congress has not conveyed any express judgment that their alleged injury should provide a basis to sue. The government says that the “search term injury” does not have a foundation in tort law, such as libel or slander law. The government also argues that the allegations about potential reidentification are too speculative to create standing.

There are important lessons to be gleaned from the Frank v. Gaos supplemental briefing and the position of the United States:

1. The Supreme Court remains very interested in whether a federal court plaintiff has a sufficiently concrete injury to earn a federal forum, even if she can show a technical statutory violation.

2. Second, while Congress may impose laws on tech companies using web site data, a consequent inquiry will be — Can a plaintiff show a concrete injury that would allow a lawsuit in federal court? Without a private right of action that allows suit, the data protection law may lack teeth.

3. Third, Frank v. Gaos says nothing about state court jurisdiction. Expect more technical statutory violation cases to be brought in state court, provided standing exists under the state constitution. See, for example, our discussion here. This in turn may make it harder to develop uniform law throughout the Unites States on important social issues.

4. Fourth, the Supreme Court’s focus on Article III standing may be part of a broader push by the Court to limit the role of the federal courts in resolving conflict in the hyper-partisan political times in which we now live. In other words, the Supreme Court may be saying that we live in an federal judicial era where less is more when it comes to federal judicial intervention.