Consumer Class Actions and Mass Torts : Class Action Lawyer & Attorney : J. Russell Jackson : Skadden Law Firm : Complex Class Actions : Consumer Class Actions & Mass Torts Law Blog

It's not often that you find a Supreme Court Justice commenting on mass tort class actions.  But on Tuesday, retired Justice David H. Souter sat by designation on the First Circuit and issued an opinion in Gintis v. Bouchard Transp. Co., 2010 WL 617395 (1st Cir. Feb. 23, 2010).  Of course, if you read this blog, you remember Gintis:  it was part of the competing class actions that arose out of an oil spill in Buzzards Bay that I posted about previously.  The District Court ultimately denied class certification of a public nuisance class because the individualized issues of "special injury" and damages predominated over the common issues.

On appeal, Justice Souter reversed the decision below because the trial court did not engage in a rigorous analysis of whether the class certification requirements were met.  As Justice Souter characterized the opinion below, it "listed the elements to be proven by evidence that ultimately must speak to individual claims, and cited one precedent example among cases going different ways."  Id. at *2.

Although Justice Souter did not dictate what the outcome should be on remand, it was clear that he believed a class should be certififed.  Noting the defendant's objection to the use of its records and its challenge to the plaintiffs' expert's appraisal methodology, he posited that the defendant's "arguments in this appeal appear to show that substantial and serious common issues would arise over and over in potential individual cases."  Id. at *3.  He opined that with likely recoveries being between $12,000 and $39,000, and the defense challenging injury, causation, and compensation, this may be one of those cases "that may well go to the very reason for Rule 23(b)(3), mentioned before (i.e., to make room for claims that plaintiffs could never afford to press one by one)."  Id.

You may remember that the District Court's decision had raised an interesting question:  what is the preclusive effect of the state court's refusal to certify a broad class of property owners all over Buzzard's Bay?  (Instead, it certified a much smaller class of property owners from one small town.)  Justice Souter relegated that question to a footnote:  "that judgment has no prelusive effect against these plaintiffs, who were neither parties to the state action nor in privity with those who were."  Id. at n.2.

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A recent decision of the Southern District of New York reminds us that even where the subject of the suit is a standardized contract, there can still be individual issues that preclude class certification.

In Spagnola v. Chubb Corp., 2010 WL 46017 (S.D.N.Y. Jan. 7, 2010), some insureds sued their insurer, Great Northern Insurance Company, along with two related insurers over policies that allegedly were supposed to increase coverage daily to reflect the current effect of inflation. Plaintiffs claimed that the insurers left them underinsured and sued under a variety of theories.  The district court previously had dismissed all of the causes of action, and the Second Circuit had affirmed dismissal of all but the breach of contract count -- to the extent that it was based on the increase in coverage and premiums in a way that did not reflect current property costs and values.  Id. at *2. The Second Circuit also had instructed that the voluntary payment doctrine -- which precludes a plaintiff from recovering for payments made with full knowledge of the facts -- was not ripe to support dismissal as pled here at the motion to dismiss stage.

On remand, Judge Harold Baer, Jr. considered two basic questions:  (1) could plaintiffs maintain suit against the "related" companies, and (2) should it grant the defendant's motion to deny class certification.  

Plaintiffs' policies were written by a subsidiary of the Chubb Corporation.  In addition to their insurer, Plaintiffs sued Chubb and its largest subsidiary, Federal Insurance Company, which allegedly manages the other Chubb subsidiaries.  Of course, plaintiffs were asserting a breach of contract theory only at this point, and they had a contract only with Great Northern; neither Chubb nor FIC were signatories to the policies.  Judge Baer thus considered whether plaintiffs had adequately alleged alter ego liability or an agency theory to keep the two non-signatory defendants in the case.  

Although plaintiffs pled a credit agreement that considered Chubb and its subsidiaries as a whole, as well as the overlap of senior management, officers and directors, and advertising that refers to the "Chubb Group," the court held that it was insufficient to pierce the corporate veil:

Although Plaintiffs have alleged facts to suggest some overlap between the operations between Chubb and its subsidiaries, this overlap is not unusual and Plaintiffs' allegations do not rise to the level that indicates the kind of complete domination and control that is required under the first prong of the alter-ego analysis.  Indeed, courts routinely refuse to pierce the corporate veil based on allegations limited to the existence of shared office space or overlapping management, allegations that one company is the wholly-owned subsidiary of another, or that companies are to be "considered as a whole."

Id. at *7 (citation omitted).

In considering the agency theory, the court held that plaintiffs had pled no facts establishing that Chubb or FIC had actual authority to act as Great Northern's agent.  However, the court held that plaintiffs had pled enough facts to keep Chubb in the case at the motion to dismiss stage on the issue of apparent authority: 

Specifically, Plaintiffs have alleged that the cover letter enclosing the policies bore the Chubb trademarked logo; that an integrated advertising and marketing campaign relating to the Policies referred only generally to "Chubb"; that insureds under the Policies were directed to make all inquiries to Chubb and to make payments "payable to Chubb."  The Court agrees with Plaintiffs that they have thus sufficiently alleged that insureds could have reasonably believed that they had contracted with Chubb and not Great Northern, notwithstanding the express terms of the policies.

Id. at *10.  The court, however, dismissed the complaint against FIC because no such evidence was pled against it.

In considering the defendant's motion to deny class certification, the court held that the plaintiffs had satisfied the elements of commonality and typicality, but they failed the elements of adequacy of representation, predominance and superiority.  For some of the policies, the insurer bore the risk of underinsurance, but for others, that risk was borne by the insured.  Plaintiffs, who held policies where the insurer bore the risk, could not be expected to adequately represent the interests of those with policies where they bear the risk of loss.  Moreover, one of the plaintiffs had purchased his policies outside the defined class period and was a close personal friend of class counsel.  Accordingly, the adequacy of representation element was not satisfied.

In analyzing predominance, the court concluded that the class members' claims were not capable of classwide proof, but would require an analysis of individual issues, including:

the unique characteristics of each class member's home, whether each policyholder's coverage was actually increased using CPI or some other guideline, the amount of the increase, whether the policy requested that the increase be waived or revalued, and actual replacement cost of each policyholder's home.  Compounded with these individual questions is the lingering concern relating to the potential unique defense of voluntary payment, among others.  Ultimately, the Court or the jury will be tasked with the determination, for each individual class member, whether they knew or should have known of the circumstances surrounding the increases in their respective coverages but continued to pay, or whether such payment was the result of a mistake of fact or law relating to their obligation to pay.

Id. at *19.  Accordingly, the predominance requirement of Rule 23(b)(3) was not met.  Similarly, the need for individual mini-trials to resolve class members' claims and the affirmative defense of the voluntary payment doctrine made the class action fail the superiority requirement as well.

The decision in Spagnola is a clear-eyed analysis of how claims relating to standardized contracts can nevertheless involve individual issues that make classwide adjudication impossible.

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I knew it was too good to be true.  A few months ago I posted about a decision from the Arkansas Supreme Court that affirmed dismissal of a deceptive trade practices claim because it fell within a safe harbor of regulatory approval.  At the time, I asked if there had been a sea-change in Arkansas class action jurisprudence.  Today, I'm sad to report that the answer is "no."

If there's one thing I learned growing up in Southwest Missouri, it's that everything is just a little bit different in Arkansas.  (Even my friends from Rogers, Arkansas concede as much.)  Apparently that principle goes double for class actions.

At a time when the Supreme Court, most federal Circuit Courts of Appeal, and many state supreme courts have held that due process requires a rigorous analysis of how a case is actually going to be tried before a class can be certified, Arkansas continues to instruct its trial courts to retreat from any sort of reality that touches upon the substantive elements of a claim.  See Rosenow v. Alltel Corp., 2010 WL 199247 (Ark.  Jan 21, 2010).  

In Rosenow, a customer sued his mobile phone service provider for damages allegedly resulting from the early termination fee in its standardized customer contract.  Plaintiff asserted on behalf of those who paid the early termination fee a putative statewide class action for violation of Arkansas' Deceptive Trade Practices Act and for common law unjust enrichment.

The trial court rejected class certification, holding that although a number of elements of Rule 23 had been met, the commonality, predominance and superiority requirements were not met.  In doing so, the trial court had relied upon the defense expert's testimony that determining whether the early termination fee (i.e. liquidated damages provision) was a reasonable approximation of the defendant's damages would be an individualized inquiry that would make the class unmanageable.

The Arkansas Supremes reversed, articulating a theory of class actions that is just a little bit different than anywhere else.  According to the Arkansas Supremes, so long as there are common issues, the class should be certified for trial of those issues even if it must later be bifurcated into a second phase of individual trials over things like damages, and in deciding whether the class action prerequisites are met, courts should not inquire into defenses to plaintiffs' claims, as that is an impermissible inquiry into the merits of the case:

In this case, Appellant alleges that the common wrong giving rise to this litigation is that the Appellees engaged in an unfair and deceptive business practice of imposing the early termination fee.  Appellant further asserts a laundry list of common questions of law and fact that stem from this alleged common wrong.  There must be a determination on these common issues.  The mere fact that individual issues and defenses may be raised regarding the recovery of individual members cannot defeat class certification where there are common questions concerning the defendant's alleged wrongdoing which must be resolved for all class members.  Moreover, an attempt to raise defenses at this stage is an attempt to delve into the merits of the case. . . .

* * *

This court has further said that if a case involves preliminary issues common to all class members, predominance is satisfied even if the court must subsequently decertify a class due to individualized damages.  However, if the preliminary issues are sufficiently individualized, then predominance is not satisfied and class certification is improper.  Indeed, a case that presents numerous individual issues regarding the defendants' conduct, causation, injury and damages will best be resolved on a case-by-case basis.  Stated another way, predominance does not fail simply because there are individual issues that may arise; the central question to be resolved by the circuit court is whether there are overarching issues that can be addressed before resolving individual issues. . . .

* * *

Here, by focusing on the merits of the case, the court noted that it might be necessary to conduct thousand[s] of mini-trials that would overwhelm its docket and thus concluded that the superiority requirement was not satisfied.  However, as we have explained, the circuit court's reasoning was based on an impermissible evaluation of the merits of this case.  Accordingly, the circuit court abused its discretion in finding that the requirement of superiority could not be satisfied.

Id. (citations omitted).  Because the defense expert's testimony addressed issues of how to prove damages and the reasonableness of the liquidated damages as compared to actual damages, the Arkansas Supremes concluded that it was concerned with the underlying merits of the case and the trial court had abused its discretion in refusing to strike such testimony.

Of course, Rule 23 is a procedural device that is not intended to change the substantive elements of underlying claims or defenses viz a viz any individual class member.  See, e.g., Compaq Computer Corp. v. LaPray, 135 S.W.3d 657 (Tex. 2004).  By wholly ignoring how the defendant will prove its defenses with respect to each class member in a classwide trial, the Arkansas approach effectively alters substantive elements of the defenses -- which is not what the drafters of Rule 23 intended.  Thankfully, Arkansas remains an outlier jurisdiction, and the trend toward rigorous analysis of how the case will actually be tried -- both the causes of action and the defenses -- remains the norm in class action jurisprudence.

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That Fred Burnside gets TWO gold stars today!  First, he informed me that the Ninth Circuit refused to hear the appeal of the decision denying class certification in the Xbox litigation.  Now he shares with us a well-written opinion from the Washington Supreme Court holding that a trial court in wireless telephone litigation correctly refused to certify a nationwide class action.

The decision in Schnall v. AT&T Wireless Servs., Inc., No. 80572-5 (Wash. Jan. 21, 2010) (en banc) is particularly timely because its reasoning on the Washington Consumer Protection Act stands in stark contrast to the decision I highlighted on Tuesday, which had effectively read the causation requirement out of Florida's Deceptive and Unfair Trade Practices Act.  But I've gotten ahead of myself.

In Schnall, plaintiffs had brought a putative nationwide class action against AT&T Wireless, claiming that its collection of a "universal connectivity charge" violated the customers' contracts and violated Washington's Consumer Protection Act.  The trial court had refused to certify the class, but the intermediate appellate court had reversed, reasoning that the challenge to a standardized contract was capable of class adjudication.

The Washington Supreme Court reversed the class certification, making four important points.  First, the court held that the trial court had not abused its discretion in holding that the need to apply the law of 50 states made the putative nationwide class fail the predominance requirement.  The Washington Supremes observed that the trial court was correct in honoring the choice of law provision in the contracts, which required the application of the law of the place where the customer signed the contract.  Further, it cited at length the federal precedents recognizing that the need to apply the law of 50 states generally makes class certification untenable, because the variations in state laws may swamp common issues and defeat predominance.  Slip op. at 11.  For example, in the context of the Schnall complaint, the court observed that, for those states that recognize it, "[t]he availability of the voluntary payment doctrine alone could abrogate AT&T's liability for all customers who voluntarily paid the [fee] after receiving the informational flyer."  Id. at 12.

Second, the Washington Supremes noted in their analysis of the superiority factor that:

Washington has no interest in seeing contracts executed by AT&T representatives in other states with citizens of those states examined and adjudicated in Washington courts.  Certified as a nationwide class action, this case would present an unwarranted and unnecessary burden on the state judicial system, all at a large cost to taxpayers.  There is no sound reason in this case for this court to force Washington trial courts to entertain the contract claims of citizens from around the nation.  Their state courts are equally as prepared, if not better situated to apply the contract laws of their states.  The trial court did not abuse its discretion by denying nationwide certification of the plaintiffs' contract claims.

Id. at 15 (citation omitted).

Third, the Washington Supremes recognized that the state's Consumer Protection Act ("CPA") does not apply extraterritorially to provide a cause of action to nonresidents whose claims arose in other states.  Id. at 16.  This geographic restriction is inherent in the language of the statute, but as the court recognized, it also emanates from the CPA's "history as a tool used by the State attorney general to protect the citizens of Washington."  Id.  The AG, the court noted, has no power beyond the state's borders and is charged with protecting only Washington residents.  Thus, regardless of whether it is the official Attorney General or a "private attorney general" suing to enforce the statute, the jurisdictional limitation applies and a "private claimant cannot state a CPA claim by proving the defendant's practices affect the public interest or the citizens of another state."  Id. at 17 (emphasis in original).

Fourth -- and this is where the decision stands in stark contrast to the one I discussed on Tuesday -- the Washington Supremes reiterated that even for Washington plaintiffs, proof of causation is an essential element of a CPA claim.  Id. at 18.  Indeed, "proximate cause in a class action cannot be established by 'mere payment' of an allegedly injurious charge."  Id.  Rather, "in the context of private CPA actions where plaintiffs seek damages, more than a mere capacity to deceive must be shown to establish 'some causal link between defendant's unfair act and [consumer's] injury," and, "[i]n the context of private misrepresentation cases, a plaintiff can satisfy the 'but for' causation requirement by showing she relied on the misrepresentation."  Id. at 20 (citation omitted).  In the context of the Schnall case, that meant that where the plaintiff actually knew that the charge was being levied, the alleged "misrepresentation" had been eliminated as the "but for" cause of the injury.  Id. at 21.  Accordingly, even for Washington residents to whom the CPA applied, the issue of causation could be an individual issue that would defeat predominance.  But because the trial court had not analyzed that question sufficiently, the Washington Supremes remanded the case with instruction to consider the question in the context of a statewide class.

The court's conclusion forcefully shuts Washington's doors to putative nationwide class actions:

In sum, we agree with the trial court that this action should not be certified as a nationwide class action.  Washington need not apply its Consumer Protection Act, or its contract laws, to the citizens of other states in order to protect the interests of the citizens of Washington.  A nationwide class would be unmanageable and unduly burdensome on the trial court and the state judicial system and serve no real benefit to plaintiffs who are free to bring statewide class actions in their home states. 

Id. at 22.

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California state courts are reluctant to apply their Unfair Competition Law to a nationwide class.  Perhaps it's because they recognize that theirs is one of the most liberal (and standardless) consumer fraud statutes in the nation.  Whatever the cause, this reluctance made it all the more notable when Judge Christina A. Snyder held -- with little conflicts-of-law analysis whatsoever -- that the UCL could be applied to a nationwide class of advertisers suing Citysearch.  See Menagerie Productions v. Citysearch, 2009 WL 3770668 (C.D. Cal. Nov. 9, 2009).

Plaintiffs sought to represent a nationwide class of advertisers who had elected to have their advertising priced by the number of clicks on their ads.  CitySearch recognized that "spiders," "robots," and other tools often try to click on advertisers' ads, and these do not represent potential sales.  Thus, CitySearch represented that it employed "industry leading traffic quality systems . . . to detect unusual and fraudulent click behavior.  Attempts to artificially drive up an advertiser's clicks, whether manually or via robots or other deceptive tools, will be detected by our systems and automatically thrown out."

Plaintiffs claim CitySearch failed to identify fraudulent clicks, and that they paid too much for their advertising as a result.  They asserted breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the Unfair Competition Law.

The court found that the requirements of Rule 23(a) were met, ignoring the defendant's arguments that plaintiffs had not seen the alleged misrepresentations and that CitySearch had had individual dealings with complaining advertisers, which made the plaintiffs' claims atypical.

The court then analyzed whether the proposed class met the requirements of Rule 23(b)(3).  It held that the breach of contract count met the predominance requirement because the language of the contract -- which was the same for all class members -- was unambiguous, and it specified that California law would govern.  Even if the language were not unambiguous, the court reasoned, the extrinsic evidence that the court would rely upon would be representations on CitySearch's website that were uniform for all class members.  It similarly held that the breach of the covenant of good faith and fair dealing count also met the predominance requirement.

On the UCL claim, the court found that the predominance requirement was met for the "fraudulent" prong of the UCL because, it reasoned, there was no need to adjudicate individual circumstances; rather, applying In re Tobacco II, 46 Cal. 4th 298, 320 (2009), the court concluded that the case would be adjudicated under a "reasonable consumer standard" that focuses on whether members of the public were likely to be deceived."  Thus, there would be no individualized proof of deception, reliance, and injury caused thereby.

The court reached a different conclusion for the "unfairness" prong of the UCL.  There, the court held that the test for "unfairness" requires a balancing of effects and motives that make the plaintiffs' individual expectations relevant in determining the extent of the harm.  As such, the court concluded that the predominance requirement was not met for claims under the "unfairness" prong of the UCL.

Incredibly, the court's entire analysis of whether the UCL could be applied to a nationwide class based on the California residence of defendant CitySearch is contained in this sentence:

Furthermore, the Court agrees that California's UCL can be applied to the nationwide class, as CitySearch has not shown that any "differences between California law and the law of other jurisdictions are material," nor that "other states have an interest in applying their laws to this case."

2009 WL 3770668 at *15 (citation omitted).  To begin with, the burden on choice of law is the plaintiffs' as proponents of the class, not CitySearch's.  As yesterday's post showed, without an extensive choice of law analysis, plaintiffs cannot even begin to meet that burden.  But beyond that, come on:  there is no evidence of the differences between the California UCL and other states' UCLs being material?  Really?!!  How about the fact that every other state requires some sort of proof of actual deception that causes injury -- for each class member?  Or the fact that some states, like South Carolina, do not even allow class actions under their consumer fraud statutes?

The CitySearch opinion has a number of points that would appear to present appealable error, including the court's conclusions on superiority in which the proposed trial plan utterly ignores the defendants' individual defenses.  But this conclusion -- applying California's UCL to a nationwide class -- is the most wrong and least supported in the opinion, which should make it rife for an appeal to the Ninth Circuit.

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Last month I posted about an advisory opinion issued by Judge Jack Weinstein in which he indicated that he likely would dismiss a putative class action over allegedly fraudulent sales practices involving pre-paid phone cards because the issue was better handled by the federal regulatory authorities than the courts.  I pointed out at that time Judge Weinstein's unusual tactic of summoning the federal government, in the presence of an assistant US Attorney, to explain the federal government's activities in combatting fraud in the pre-paid phone card industry.

Well, it's now official.  Last week Judge Weinstein denied class certification and granted summary judgment in the case, holding that the superior method for dealing with the allegations of fraud in the litigation would be to have the Federal Trade Commission and Federal Communications Commission uniformly regulate the industry.  See Ramirez v. Dollar Phone Corp., 2009 WL 3747215 (E.D.N,Y. Nov. 10, 2009).  Judge Weinstein explained:

In general it is inappropriate to deny those wronged civilly a fallback court-supervised remedy when the administrative law segment of our justice system has neglected to provide an available superior form of protection.  There are, however, instances where the litigation remedy is relatively so inferior as to warrant denying it altogether in the hope that administrative justice will prevail.  This is such an instance.

The superior and sensible way to deal with this controversy, involving as it does a multibillion-dollar national and international communications industry that serves millions of people in every state, many of them poor and uneducated, is for the Federal Trade Commission ("FTC") or another federal agency with authority in this area to issue appropriate regulations.  Certification is denied.

. . . [N]either the FTC nor any other governmental agency has comprehensively addressed the serious problems raised by the instant litigation.  Plaintiff's allegations present issues better addressed and resolved on a uniform, national basis, rather than by piecemeal state-law-based litigation.  While utilization of cy pres or the fluid recovery doctrine might provide a viable remedy with some benefit to the class and society, this is the unusual situation where the present action's limited patchwork repairs are not worth the costs or benefits of allowing the case to go forward.

Id. at *1 - *2.

Judge Weinstein observed that providing relief to the class would require using cy pres and fluid recovery remedies, and complained that these types of remedies have been rejected by appellate courts.  It also would require injunctive relief, which "would engage the court in inappropriate detailed continuing supervision of the industry."  Id. at *19.

Ramirez is an important precedent, but it is all the more important because its author historically has been such an advocate of using courts to solve social problems.  Ramirez is an articulate recognition of the principle that regulation by litigation can create chaos and inconsistencies in the law that do not help consumers or industry.  Where that is the case, the answer is not serial class actions, but rather uniform government action, and sometimes the wisest course of action is for a court to stay its hand.

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It's not often that one encounters a judge with the chutzpah to order the federal government to appear in his courtroom in a private civil case and then attempt to shame a federal agency -- or even Congress -- into action.  But anyone with more than a passing background in class actions, torts and consumer fraud already has figured out that I am writing about Judge Jack B. Weinstein, who possesses an abundance of creativity and is unafraid to use it in addressing legal problems.

Recently Judge Weinstein issued an advisory opinion -- which he called a "Preliminary and Provisional Draft Memorandum and Order" -- in a putative consumer fraud class action against telephone service providers who supply services to holders of pre-paid telephone cards.  See Ramirez v. Dollar Phone Corp., 2009 WL 3171738 (E.D.N.Y. Oct. 1, 2009).  From his advisory opinion, it is clear that Judge Weinstein sees an injustice that he believes needs correcting.  He noted that his class action was one of 22 pending since 2003 involving prepaid calling cards, which had been before 15 different judges in 6 different district courts.  Slip op. at *10. 

In such cases, it is typically alleged that the following information is not adequately disclosed to consumers:  (1) the price a consumer pays per billing increment, (2) the "per call" fee typically imposed, (3) the higher rate often charged for calls to mobile phones, and (4) that providers often charge a weekly fee and the circumstances in which that fee applies.  Id. at *6.  The consumers "are typically low-income consumers who cannot obtain traditional phone service, many of them recent non-English-speaking immigrants who use the cards to call home."  Id. at *2.  According to Judge Weinstein, the Federal Trade Commission has not issued any comprehensive national regulations governing phone cards, and although there is a bill pending in Congress on the subject, Congress to date has not passed a statute addressing the problems.  Moreover, a handful of states have enacted statutes imposing a patchwork of different obligations on those who sell pre-paid phone cards, making compliance difficult for those who market the cards.

In Ramirez, the plaintiff claimed to have lost $2 in fees and charges on his phone card, and he sought to represent a Rule 23(b)(2) and (b)(3) class of phone card consumers from 11 states with allegedly similar consumer fraud acts.  The defendant moved to dismiss, citing a failure to meet Rule 9(b)'s pleading standard, a lack of standing under most states' consumer fraud acts, and failure of subject matter jurisdiction for certain states' consumer fraud acts.  As only Judge Weinstein can do, he told the parties to treat the motion as one for summary judgment and "requested" the federal government to appear to answer questions.

An AUSA from the Eastern District of New York appeared at an August 31 hearing in this private civil class action:

He stated that the FTC has been active in bringing deceptive practices cases against prepaid calling card distributors. . . .  No information was available at the time of the hearing regarding applicable federal regulations or federal agency policies concerning the prepaid calling card industry. . . .  The government was requested to submit a report within 45 days of the hearing regarding any applicable federal regulations, federal enforcement activity, and the policies of the FTC, the Federal Communications Commission, and any other concerned federal agency.  Id. at 35-37 (requesting "a comprehensive discussion of what they have done and what they plan to do about this and what they -- by 'they,' I mean the Federal Government, Department of Justice and the administrative agencies -- suggest that this Court do about it.").

Slip op. at *8 (citations omitted).  The court set a hearing for October 16 "at which time the government, the parties, and any other interested person who wishes to be heard may appear orally or by written submission."  Id. at *19.

Judge Weinstein's advisory opinion is careful to say that is not actually a ruling on the motion to dismiss nee summary judgment motion, but indicated that the court is "disinclined to allow plaintiff's class action to go forward."  Id. at *8.  The court explained that the defendant service providers are not the proper parties to be sued because they do not make the calling cards or the packaging with the allegedly deceptive statements.  That is done by third party distributors.  Borrowing from the precedent of handgun litigation, Judge Weinstein reasoned that "it is doubtful whether [defendants] would be liable for inadequate disclosures if third-party distributors, rather than [defendants], determined the material printed on the cards."  Id. 

Ultimately, the Judge Weinstein advised that any class would fail the superiority requirement:

In the present case, the amount that would be recovered by any class members is small, to the point that it would probably not even warrant submitting a claim form were the class certified and successful in obtaining a recovery.  Moreover, many members of the class are undoubtedly illegal immigrants who would be afraid to participate in a legal proceeding that might reveal their presence.  The only real immediate monetary beneficiaries of handling the claims of class members through a class action would be the attorneys who hope to collect fees.  That does not seem a sufficient basis for certification.

A more appropriate way to protect the rights of the Rule 23(b)(3) class is through regulation and enforcement activity by a federal administrative agency.  The only effective remedy for the harms alleged would be a uniform system of regulation of the prepaid calling industry based on legislation or public administrative rulemaking, including public hearings, resulting in rules that would cover the entire country and take account of international implications.  The court system cannot efficiently carry the burden of protecting this class.  To use the truncated powers of a misshapen Rule 23(b)(3) class action to address the issues raised in plaintiffs' complaint would be unfaithful to the premise and reason for the class action -- considerations of equity and good judgment.

. . . It is industry-wide federal regulation, rather than any injunctive relief the court could provide in this limited civil action concerning only some of the many conflicting state laws, which is required effectively to address the conduct alleged in plaintiff's complaint.

Id. at *9-*10.

Describing the patchwork of state laws and limited federal enforcement actions, Judge Weinstein also advised:

This sprawling, hit-or-miss, repetitive, costly, and confusing series of civil litigations across many states is an absurd way to control a vital national and international form of communication.  It is intolerable for a multi-billion dollar industry affecting the lives of millions of consumers, many of them low-income or recent immigrants to whom telephone contact with loved ones abroad is vital to their own and their families' health and happiness. . . .  The present chaotic situation is also harmful to the service providers and distributors, who face widely varied state regulatory regimes, in the absence of clearly announced federal regulations.

Id. at *17; see also id. at *18 ("While the federal administrative system dithers, the courts and states struggle -- unsuccessfully -- to meet a serious set of national and international communication problems that require a uniform national approach.  Piecemeal civil litigation alone cannot address these issues.").

Unfortunately I am presenting on a panel at the time of Judge Weinstein's October 16 hearing.  But I would welcome a report from a reader who attends.  Two things are certain:  it won't be boring, and it will be unlike any motion to dismiss hearing you've ever seen in a civil class action case.

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Conventional wisdom says that the need for individual proof of damages does not preclude class certification.  But as Judge Dennis Cavanaugh recently recognized in Kings Choice Neckwear v. FedEx Corp., 2009 WL 689718 (D.N.J. Mar. 11, 2009), the need for individual proof of damages can destroy the predominance that makes the class manageable.

In Kings Choice, plaintiff was a frequent customer of FedEx who used a standard shipping agreement that allowed FedEx to recover "all reasonable costs incurred by FedEx" in collecting payment.  Plaintiff received a letter from FedEx's collection agency demanding payment of outstanding fees plus a 25% collection fee.  Plaintiff paid the collection fee under protest, and then brought a class action for breach of contract, violation of the New Jersey Consumer Fraud Act, and unjust enrichment, claiming that the 25% collection fee did not represent the "reasonable costs" allowed by the shipping agreement.

The court held that the requirements of Rule 23(a) were met, but that the proposed class failed the predominance and superiority requirements of Rule 23(b)(3).  As the court explained:

By its very nature, determining the reasonableness of the 25% collection fee is a highly fact-specific inquiry that depends upon a series of individualized variables within the collection process, including, inter alia, the frequency and manner of attempted contacts with the debtor, the necessity of retaining a collection agency or outside attorneys, and the extent to which legal remedies were pursued.  While Plaintiff suggests that a cost-averaging approach is appropriate because collection efforts are mostly uniform with only a negligible difference in cost, the Court finds differently and holds that determining "reasonableness" would require an untenable inquiry into the facts of each specific case.  Furthermore, assuming, arguendo, that liability could be established on an aggregate basis, it nonetheless appears that the Court would be required to conduct a series of "mini-trials" to determine damages.  The amount of damages owed to each individual class member will differ depending upon a series of individualized factors, including, inter alia, the cost of collection, whether payment was actually made, whether a reduced payment was negotiated, and whether any interest is owed.  Because it appears that FedEx sometimes waives collection fees and at other times negotiates reduced fees, the Court would be forced to inquire as to each individual class member to determine the amount paid, and, if reduced, whether the amount constituted a "reasonable" approximation of the collection costs. . . . [T]he Court finds that determining damages in this case on a class-wide basis would require significant individualized inquiry and would present manageability problems.

Id. at *4. 

In concluding that the class device was not superior to other methods of adjudication, the court also noted that the laws of 51 jurisdictions likely would have to be applied, further compounding the disparities among class members and presenting the court with insuperable obstacles.  Id. at *5.

Kings Choice is a good reminder to not let an old canard about damages keep you from making a compelling argument that the individualized inquiry required to determine damages can present such manageability problems that a class should not be certified.

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In January I reported on a decision in which the Sixth Circuit Court of Appeals affirmed the denial of class certification in a case involving a train derailment which resulted in the release of sulfuric acid in a small community.  Recently a federal district court reached a similar result in a case involving the post-Christmas 2004 release of anhydrous ammonia from a railroad tank car in Lake Charles, Louisiana.  See Williams. v Union Pac. R.R. Co., 2009 WL 612339 (W.D. La. Jan. 19, 2009) (Rept. & Recc.), aff'd in part, rev'd in part, 2009 WL 604126 (W.D. La. Mar. 9, 2009).

In Williams, plaintiff sought to recover on behalf of a class of some 3,500 people exposed to the ammonia as property owners, residents, or holiday guests for personal injury, mental distress, property damage, and business interruption. 

The Magistrate Judge held a class certification hearing and issued a report and recommendation.  Plaintiff had submitted 14 affidavits from individuals claiming ammonia exposure, meteorological data establishing plumes, the names of 937 people alleging exposure, and census data suggesting there were 965 households within a one-mile radius of the exposure site.  The defendants challenged numerosity, typicality, commonality and adequacy.  In particular, they faulted the named plaintiff's ability as a 73-year-old retiree who had not worked since 1955 to represent the class and establish economic damages.  According to the Magistrate Judge, the prerequisites of Rule 23(a) all were met. 

The District Court, however, disagreed, examining the issues de novo.  It held that "there was a lack of appropriate definitive evidence in the record to support" the elements of numerosity and adequacy of representation.  2009 WL 604126 at *2.

The Magistrate Judge also had concluded that the case did not meet the predominance requirement of Rule 23(b)(3) for a number of reasons.  First, the damages calculation was not formulaic, but instead would require individual determinations, and "'where individual damages cannot be determined by reference to a mathematical or formulaic calculation, the damages issue may predominate over any common issues shared by the class.'"  2009 WL 612339 at *7 (citations omitted).

Plaintiff proposed, as an alternative, a phased trial plan, with a class trial to establish liability and a separate trial to determine individual causation and damages.  The Magistrate Judge rejected this approach because it would degenerate into a series of individual trials:

"Rarely, however, will a mass trial lead to the prompt entry of judgment in favor of a large group of plaintiffs against one or more defendants because even if the first jury finds, for example, that the defendant's product could have caused the plaintiff's injury, individual trials will still be necessary to determine specific causation, whether any affirmative defenses are available to the defendant, and the extent of the plaintiff's damages."

Id. at 9 (citation omitted).

The Magistrate Judge held that individual issues predominated, and that the predominance of individual issues detracted from the superiority of the class action device as a means of resolving the claims before it.  The District Court agreed, holding that the "diversity in the types and degrees of damages allegedly suffered by the prospective plaintiffs . . . is both evident and sufficient to deny certification."  2009 WL 604126 at *2.

Notably, in between the class certification hearing and the District Court's decision, a minor defendant -- the Calcasieu Parish Polce Jury -- had reached a settlement with the named plaintiff in which neither she nor any class member would receive a dime of compensation.  Instead, the police jury would pay money that would be applied solely to the costs of the litigation.

The District Court refused to approve the settlement, noting that under AmChem Prods., Inc. v. Windsor, 521 U.S. 591 (1997), a settlement class must at the very least meet the elements of Rule 23(a).  Because the Court concluded that plaintiff had not satisfied the numerosity and adequacy standards, it refused to engage in a fairness hearing for the settlement.  2009 WL 604126 at *1-*2.

Williams is yet another instructive opinion that reminds us that just because damages may flow from the same incident, the class action tool may not be the superior way to adjudicate those damages where they are not subject to a simple mathematical formula.

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