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

Not long ago I posted about the Ninth Circuit joining the Fourth Circuit in holding that state attorney general representative lawsuits -- so-called "parens patriae" actions, with the AG acting as the "parent" of its people -- are not removable to federal court under the Class Action Fairness Act.  Well, now the Seventh Circuit has joined the party.  See LG Display Co., Ltd. v. Madigan, No. 11-8017, Slip op. (7th Cir. Nov. 18, 2011).  Judge John Tinder wrote the opinion.

In LG Display, the Illinois Attorney General sued 8 manufacturers of LCD products, alleging that their pricing was unlawfully inflated in violation of the Illinois Antitrust Act ("IAA").  The suit asserted damages on behalf of the State for sales to the State, civil penalties to enforce the IAA, an injunction to prevent further violations, and damages (actual and statutory) on behalf of Illinois residents who bought the products.  The State, of course, was the real party in interest for its own damages, and enforcement of the IAA.  But where it was suing for damages to Illinois residents who bought the defendants' products, the State was not the real party in interest.  Rather, the purchasers were.  The State was merely acting as their representative.

The parens patriae doctrine developed at common law.  It allows the State to act on behalf of the public generally.  Notably, the State does not have a right at common law to act on behalf of an identifiable group of residents.  The Seventh Circuit seemed to recognize this.  See Slip op. at 4.

Thus, the only authority for the AG to act on behalf of an identifiable group of citizens -- like those who allegedly paid too much for LCD products -- was derived from the IAA, not common law.  And the IAA makes it plain that an AG parens patriae suit on behalf of Illinois buyers is a form of class action.  It provides:

"[N]o person shall be authorized to maintain a class action in any court of this State for indirect purchasers asserting claims under this Act, with the sole exception of this State's Attorney General, who may maintain an action parens patriae as provided in this subsection."

740 Ill. Comp. Stat. Ann.  Yes, that's right:  "no person shall be authorized to maintain a class action . . .  with the sole exception of this State's Attorney General."

And yet, the Seventh Circuit held in LG Display that the AG's suit was not a "class action" or "mass action" that was removable under CAFA.  How could it reach that conclusion, you ask?  Formalism.  The complaint did not mention Rule 23 or its state court equivalent and did not use the words "class action."  Thus, it was not a class action.  "Procedurally, Rule 23 and the IAA are entirely different beasts," it said.  Slip op. at 5-6.

And in response to the argument that the State clearly was not the real party in interest on the claims of indirect purchasers, the court reasoned that so long as the State was the real party in interest in other causes of action, it would be improper to look at anything other than the complaint as a whole in determining whether the State is the real party in interest.  Slip op. at 8-10.  In doing so, it rejected the approach the Fifth Circuit employed in Louisiana ex rel. Caldwell v. Allstate Insurance Co., 536 F.3d 418 (5th Cir. 2008), which affirmed the denial of a motion to remand because -- on the restitution cause of action, at least -- the State was acting on behalf of policyholders, not in its own interest.  "The Fifth Circuit rationalized its claim-by-claim approach as consistent with Congress' intent to broaden federal jurisdiction over class actions through CAFA," the Seventh Circuit explained.  But "just because CAFA was meant to expand federal courts' jurisdiction over class actions, it does not follow that 'federal courts are required to deviate from the traditional "whole complaint" analysis when evaluating whether the State is a real party in interest in a parens patriae case.'"  Slip op. at 10 (citations omitted).

The excessively formalistic approach reflected in the opinions of the Fourth, Seventh and Ninth Circuits on these issues creates the opportunity for precisely the sort of gamesmanship that Congress was trying to prevent when it passed CAFA.  Despite the fact that these are representative actions that clearly assert the rights of identifiable groups of consumers, these opinions suggest that federal scrutiny can be avoided so long as these actions also include a cause of action or two that assert rights that are legitimately the State's interest.

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It has certainly taken me long enough to get around to posting about it, but the Ninth Circuit issued an opinion earlier this month that raises an important issue for those of us who defend consumer class actions:  what is a removable "class action" under the Class Action Fairness Act.

Now remember that CAFA was passed to end the procedural games that were being played by plaintiffs' counsel to keep cases in state court where they could "hometown" the defendants.  You know, things like fraudulently joining local defendants against whom they had no plausible cause of action, pleading myriad one-state classes, etc.  CAFA was supposed to fix the problem by making all of these actions removable to federal court, and it was to be liberally applied.

Well, now we have the issue of so-called parens patriae actions, which are brought by the state attorney general.  Such actions, the AGs assert, are "state" "enforcement" actions that are not removable to federal court. 

Well, frogs swim, and you can call a frog a fish, but that doesn't give him gills.  And calling these parens patriae actions "state actions" doesn't change their essential character.  They are brought on behalf of -- and assert the rights to recover of -- individual citizens, not the State.  They seek restitution, which is a compensatory remedy for the real party in interest -- which is not the State, but the absent group of individual consumers.  They require notice, opt-out rights, and court approval of any settlement.  These are class actions.  If it looks like a duck, walks like a duck and quacks like a duck, it's a duck.

The Ninth Circuit recently rejected this common-sense approach, holding that parens patriae actions brought by the AGs of California and Washington were not "class actions" under CAFA (and thus not removable) because they were not brought under the state equivalent of Rule 23 and provide fewer procedural protections for absent class members than Rule 23 does.  Washington v. Chimei Innolux Corp., 2011 WL 4543086 (9th Cir. Oct. 3, 2011).  In reaching this conclusion, the court followed the Fourth Circuit's recent similar holding in West Virginia ex rel. McGraw v. CVS Pharm., Inc., 646 F.3d 169 (4th Cir. 2011).

These hypertechnical readings of CAFA, if allowed to stand, have lighted the path for the enterprising class action lawyer to avoid federal court and subject out-of-state defendants to the same sort of hometown tactics that they could use before CAFA was passed.  Rather than going to the trouble of even having a representative plaintiff, simply get your friend the Attorney General to appoint your firm as special counsel for the State to prosecute a parens patriae suit that, although nominally is the State's, in reality belongs to the group of consumers and provides all of the coercive benefits of aggregation.

Let's hope that someday soon the Supreme Court accepts review of CVS, Chimei Innolux, or another similar suit in order to give CAFA the broad interpretation that Congress intended.

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Where a defendant defeats certification of a class in an MDL proceeding, should it have to re-litigate the issue of class certification again and again in state courts around the country?  Most reasonable people would agree that it should not.  The devil, however, is in the details of how you get to that result.

Today the SCOTUS held that the Anti-Injunction Act prevents a federal court that has denied class certification -- even an MDL transferee -- from enjoining absent class members from pursuing class certification in state courts where the issues may differ.  See Smith v. Bayer Corp., No. 09-1205 (U.S. June 16, 2011). Justice Kagan wrote the opinion, which was unanimous except for certain parts that Justice Thomas did not join.

In Smith, two Baycol consumer fraud class actions were filed in West Virginia state court prior to adoption of the federal Class Action Fairness Act.  One was removed to federal court and transferred to the MDL; the other had non-diverse defendants and thus was forced to remain in state court.  The federal MDL court reached the issue of class certification first, concluding that because each absent class member would have to prove an "actual injury" that was caused by the challenged behavior, Rule 23(b)(3)'s predominance requirement was not met.

Bayer then asked the MDL transferee for an injunction against the pending state court action, reasoning that the state court action sought to certify the same class on the same legal theories, and the plaintiffs in the state suit were absent members of the class that had been denied by the MDL transferee, and thus their interests were aligned with the federal plaintiffs who had lost class certification.  The district court granted injunctive relief, and the 8th Circuit had affirmed.

Justice Kagan's opinion rejects this approach, holding that the injunctive relief was prevented by the Anti-Injunction Act, which provides that "[a] court of the United States may not grant an injunction to stay proceedings in a State court except . . . to protect or effectuate its judgments."  28 U.S.C. sec. 2283.  This is known as the "relitigation exception" and has its roots in issue preclusion.  The AIA is to be interpreted broadly to protect state courts, and doubts are to be resolved against the application of an exception to the AIA.  Slip op. at 6.

For the relitigation exception to apply, the issue presented in the federal decision must be the same as the one presented in the state court action, and the parties in both actions must be the same or must fall into one of the "few discrete exceptions to the general rule against binding non-parties."  Id. at 7.

The SCOTUS held that neither prong of the two-part analysis was met.  The issues were not the same because West Virginia requires a balancing of issues to determine predominance, while the federal court had not balanced issues, but summarily concluded that the need for individual proof on the causation and injury predominated.  Id. at 8-12.  And the parties to the state action were not parties in the federal action, and thus could not be bound.

As many commentators had predicted, the Court harkened back to Taylor v. Sturgell, 553 U.S. 880 (2008), in which it had held that a non-party to a FOIA request could not be bound to the result of a prior party's FOIA request using the doctrine of "virtual representation."  Rather, due process required notice and opt-out rights on the order of what is written into Rule 23.  The Court in Smith reiterated its rejection of any sort of common law class action:  "We could hardly have been more clear that a 'properly conducted class action,' with binding effect on nonparties, can come about in federal courts in just one way--through the procedure set out in Rule 23."  Slip op. at 15.

Justice Kagan wrote that "Bayer's strongest argument comes not from established principles of preclusion, but instead from policy concerns relating to the use of the class action device." Id. at 16.  But she concluded that it "flies in the face of the rule against nonparty preclusion."  Id.  Moreover, she explained, Congress effectively solved many relitigation problems by including in the Class Action Fairness Act an ability to remove state court class actions with minimal diversity.  Id. at 17.

Notably, the Court included a footnote indicating that the Smith opinion does not foreclose statutory adjustment of preclusion principles if Congress determines "that CAFA does not sufficiently prevent relitigation of class certification motions," nor does the opinion "address the permissibility of a change in the Federal Rules of Civil Procedure pertaining to this question."  Id. at n.12.

Notably, Smith addresses relitigation of the class certification issue in state court.  It does not address what remedies might be available to a federal court to enjoin the relitigation of class certification in federal court.

Moreover, Smith is expressly premised on the fact that the enjoined litigants were unaware of the pendency of the federal class action.  See id. at 2, 4.  As such, Smith does not address a problem more frequently complained of:  class counsel who seek a second (or third or fourth) bite at the apple where they lost on the certification issue the first time.  The issue of serial class action filings recently was raised in a certiorari petition in Thorogood v. Sears, Roebuck & Co., No. 10-1087 (U.S. pet. for cert. filed Mar. 2, 2011).  The tortured history of that case has been the subject of substantial commentary, including here, here, and here.

Interestingly, the losing plaintiff in Thorogood filed an amicus brief in Smith in support of the petitioners there.  But because Thorogood involved a subsequently-filed federal court class action filed by the same lawyer, it remains to be seen whether Smith -- which is premised on the federalism concerns of the Anti-Injunction Act -- will control the outcome of Thorogood.  And certainly Smith did not address a federal court's authority to enjoin a lawyer appearing before it from using other federal courts to serially relitigate an issue to the point of harassing a defendant.

More remains to be written on the subject of enjoining serial class action filings.

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Well, the nattering nutrition nannies are at it again!  The Center for Science in the Public Interest has sued McDonald's in a putative class action alleging consumer fraud.  See Parham v. McDonald's Corp., Case No. ______, (Cal. Super. -- San Francisco Dec. 15, 2010) (Class Complaint).

What evil can such a corporate behemoth have perpetrated?  Did it make any false statements in advertising?  No, that's not alleged.  Did it fail to disclose some questionable food additive?  No, that's not alleged.  So what is this awful thing that McDonald's has done?

It puts free toys in Happy Meals.

Yes, ladies and gentlemen, that's the evil that CSPI has chosen to expend its resources on.  Toys in Happy Meals.

A Happy Meal, for those of us who don't have kids, consists of a hamburger, cheeseburger, or 4 chicken McNuggets with a side (small fries or apple slices that can be dipped in a caramel sauce) and a drink (soft drink, low-fat milk, or apple juice).

Happy Meals don't make CSPI happy.  It claims they have too many calories, saturated fat, sugars, and sodium, and not enough complex carbohydrates (because McDonald's uses white flour, rather than whole wheat flour, in its buns).

So what's so wrong about putting toys in Happy Meals, you ask?  Well, it makes kids want them.  And that, according to CSPI, is inherently deceptive.

Here's the basic argument from CSPI's complaint:

1.  Children 8 and under don't understand that advertising is trying to persuade them.

2.  The FTC says advertising to adults that does not disclose that it is advertising designed to persuade is inherently deceptive.

3.  Thus, advertising to children 8 and under is inherently deceptive.

4.  Such advertising -- particularly with toys -- interferes with parents' relationships with their kids because it causes the kids to nag the parents to got to McDonald's.  When parents don't give in, it creates animosity.  When they do, kids consume "unhealthy" meals.

Plaintiffs clearly have pled this complaint to avoid federal court.  They assert a class of California parents and a class of California children (age 8 and under) who have seen Happy Meal marketing in the last 4 years.  In an attempt to avoid CAFA removal, they seek only injunctive relief and disclaim any relief constituting restitution, penalties or damages.  Compl. para. 20.  (Given the rules against claim-splitting, that raises certain adequacy of representation concerns, doesn't it?)  The complaint pleads that "the amount in controversy is far below $75,000 [and] [n]o matter how evaluated, the amount in controversy falls far short of $5,000,000."  Id.

The complaint pleads two basic causes of action:  violation of California's Unfair Competition Law and its Consumer Legal Remedies Act.  Interestingly, the UCL claim appears to only rely on the "unlawful" prong, pleading a violation of the CLRA as a predicate violation for the UCL claim.

Here are the plaintiff-specific allegations for the plaintiff in this case:

94.  Maya, age six, continually clamors to be taken to McDonald's "for the toys."

95.  Maya and other members of the Children Class have been deceived by McDonald's marketing practices.

96.  Maya does not understand that McDonald's marketing efforts are intended to make her want to eat Happy Meals.  Maya interprets this marketing as good advice for proper eating.

97.  Often, Maya wants Happy Meals because toys based on trusted characters from television and movies (such as Shrek) endorse the Happy Meals in McDonald's advertising.

* * *

100.  McDonald's has unfairly influenced Maya.  It's Happy Meals advertising aimed at Maya has influenced her desire to eat the poor-nutrition Happy Meals, thereby harming Maya's health without her knowledge or comprehension.

* * *

103.  . . . Maya's friends are McDonald's viral marketers.

104.  Maya learns of Happy Meal toys from other children in her playgroup, despite [her Mother's] efforts to restrict Maya's exposure to McDonald's advertising and access to Happy Meal toys.  This is McDonald's advertising directive -- to subvert parental authority and mobilize pester power in order to sell unhealthful meals to kids using the lure of a toy.

* * *

107.  Although [her Mother] frequently denies Maya's repeated requests for Happy Meals, these denials have angered and disappointed Maya, thus causing needless and unwarranted dissension in their parent-child relationship.

Compl. paras. 94-107.

Based on these allegations, plaintiffs want the court to "[e]njoin McDonald's from continuing to advertise Happy Meals to California children featuring toys."

CSPI's complaint fundamentally challenges whether any product manufacturer can lawfully advertise products to children.  Under it's theory, no advertising to children would be lawful because children purportedly don't understand the concept of advertising.  (Notably, there are many social science articles that discuss how young people actually do understand that advertisers are trying to persuade them.) 

But the simple fact is that advertising to children -- which has been studied and considered by the Federal Trade Commission -- is lawful.  It's also commercial speech protected by the First Amendment.  And while activist groups like CSPI might like to turn off all media, home school our kids, and force them to eat like Euell Gibbons, no state's consumer fraud law allows them to impose such a viewpoint on the rest of us.  Parents decide where and what their children ages 8 and under will eat, and there is no "deception" or falsehood in the advertising that plaintiffs complain about that prevents parents from making those decisions responsibly.

Let's hope the court that ultimately decides this lawsuit -- whether it is a federal court or state court -- will recognize that CSPI's suit requests a dangerous extension of consumer fraud statutes that has no basis in California law.

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Last week a panel of the Eleventh Circuit issued an opinion with results so absurd that it just cries out for reversal.  See Cappuccitti v. DirecTV, No. 09-14107 (11th Cir. July 19, 2010).  In essence, the court misread the mass action requirement that at least one plaintiff's claim must involve the ordinary jurisdictional minimum for diversity ($75,000) for the complaint to be filed in federal court as applying to class actions.  CAFA, of course, clearly distinguishes between mass actions and class actions, and it very explicitly says that for class actions, the class's claims are to be aggregated to reach an aggregated jurisdictional threshold ($5 million). 

I won't take the time to dissect the opinion here.  My colleagues in the blogosphere -- Andrew Trask, at his truly excellent blog Class Action Countermeasures, and Cory Andrews at the Washington Legal Foundation's The Legal Pulse -- already have done the job for me.

But Cappuccitti is certainly a case to watch.  Let's see what the Vegas bookies say about whether it will take a rehearing en banc or an actual certiorari petition to the Supremes to have Cappuccitti reversed and the plain language of CAFA restored.

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Regular readers will recall a recent post in which I described two federal circuit court decisions holding that where a federal court with CAFA jurisdiction determines that a class action cannot be maintained, it is not required to remand the action to state court.  The theory behind those decisions was that the propriety of jurisdiction is to be measured at the time of removal to federal court.

This morning we have a decision presenting a slightly different issue.  In Morrison v. YTB International, Inc., 2010 WL 1931127 (S.D. Ill. May 13, 2010), the trial court previously had granted a motion to dismiss a putative nationwide class action brought against various Illinois travel companies alleging violations of Illinois' Consumer Fraud Act.  A month ago, the district court dismissed the claims of the non-resident plaintiffs because ICFA does not allow for claims by nonresidents.  That left a putative class action of Illinois residents versus Illinois defendants.

The district court ordered the parties to brief whether its rulings required it to abstain from exercising jurisdiction under CAFA:

[CAFA] mandates that a federal court abstain from entertaining in diversity jurisdiction a class action in which more than two-thirds of the members of a class or a proposed class are citizens of the state where the class action was filed and all of the primary defendants are citizens of the forum state.

Id. at *1. 

The defendants moved for a stay of discovery while the court considered the briefing on the question.  The court ultimately granted the motion for a stay, based on its near certainty that abstention would be required:

If, as seems likely, this case ultimately is dismissed, this Court's determinations about the scope of the proposed class in this case will be issue preclusive in any proceedings brought in state court on the same claims, and it follows that class counsel will be required to re-think the discovery plan they have employed in this case.  More specifically, they will need to tailor their discover to a new, more limited class consisting solely of Illinois residents.  Accordingly, the Court does not believe that a stay of discovery in this case, which has been conducted on behalf of a nationwide class that the Court has ruled cannot be maintained, will not result in a waste of judicial resources, because discovery in a state-court proceeding will necessarily be on behalf of an Illinois-only.

Id. at *2.

This case raises important considerations for defendants' strategies to address post-12(b)(6) case management.

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Previously, I had posted about how Dow Chemical was being sued by the same lawyers in waves of suits with roughly 99 plaintiffs so as to avoid the 100-person mass-action removal threshold under CAFA. 

On Friday, the Ninth Circuit Court of Appeals refused to assist Dow, allowing these alphabetically-grouped clumps of just-under-100-plaintiffs to maintain their suits in state court.  See Tanoh v. Dow Chemical Co., No. 09-55138 (9th Cir. Mar. 27, 2009).

The court rejected as inapposite two recent decisions that refused to allow plaintiffs to arbitrarily split their claims into separate timeframes to come in under CAFA's $5 million jurisdictional threshold.  See Freeman v. Blue Ridge Paper Prods., Inc., 551 F.3d 405 (6th Cir. 2008); Proffitt v. Abbott Labs., 2008 WL 4401367 (E.D. Tenn. Sept. 23, 2008).

The Tanoh decision can be the justification for lots of jurisdictional gamesmanship in the Ninth Circuit.  At least the court left open the possibility of removal if any of the cases are consolidated by the state court for trial.

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