2015 Year-End Update on Class Actions

February 1, 2016

For both courts and litigants alike, class actions continued to dominate the litigation landscape in 2015.  By most accounts, companies are facing greater-than-ever monetary and reputational exposure from these lawsuits.  A recent survey of several hundred corporations reported that 54% of all major companies are currently engaged in class litigation, that the number of "bet the company" matters–valued at tens of billions of dollars or more in exposure–more than tripled in the last four years, and that companies dedicated 10% of their entire litigation spend on defending class actions.[1]  It is likely not a coincidence that during this same four-year period between 2011 and 2015, the U.S. Supreme Court issued monumental decisions, such as Wal-Mart Stores, Inc. v. Dukes and Comcast Corp. v. Behrend, which left lower courts grappling with how to interpret and apply the new, more stringent rules governing the class action device. 

The Supreme Court’s trend of increased scrutiny of class actions continued this past year, with the Court agreeing to consider five significant issues that affect class litigation (and a sixth may be on the horizon for 2016).  This represents an important shift–from the birth of the modern version of the opt-out damages class action in 1966 until 2000, there were eight key Supreme Court decisions construing Rule 23.[2]  In just the last five years, there have been thirteen Supreme Court opinions on issues of significance to class action practitioners, with several more on the way in 2016.  Likewise, lower appellate courts continued to address important class action issues in the last year–including sharpening the requirements for class certification, clarifying federal jurisdiction under the Class Action Fairness Act ("CAFA"), and grappling with the enforceability of arbitration agreements.

This update provides an overview and summary of the key cases and trends we have observed in 2015.  Part I discusses the five class action cases that the Supreme Court has or will decide in the October 2015 Term:  Campbell-Ewald Co. v. Gomez (whether an unaccepted Rule 68 offer moots a plaintiff’s claim); Tyson Foods, Inc. v. Bouaphakeo (use of statistical sampling); Spokeo, Inc. v. Robins (whether a mere statutory violation can confer Article III standing); DIRECTV, Inc. v. Imburgia (preemption of state-law rules invalidating class arbitration waivers); and Microsoft Corp. v. Baker (appellate jurisdiction over orders denying class certification).  Part II addresses a few of the recent high-profile defense victories in class action jury trials, which should concern the plaintiffs’ bar.  Part III discusses the implied Rule 23 requirement of ascertainability, and the burgeoning circuit split that may lead to Supreme Court review in the next Term.  Part IV covers several noteworthy decisions from the Ninth Circuit last year on CAFA jurisdiction, including both removal-friendly rulings and decisions that strengthened the ability of plaintiffs to avoid federal jurisdiction. 

I.    The Supreme Court Continues Its Increased Focus on Class Actions

During the October 2015 Term, the Supreme Court will again address important class action issues, including Article III standing and mootness, the use of statistical sampling and extrapolation to adjudicate class claims, the enforceability of class waivers in arbitration agreements, and appellate jurisdiction over orders denying class certification. 

A.    Unaccepted Rule 68 Settlement Offers and Mootness (Campbell-Ewald Co. v. Gomez)

In Campbell-Ewald Co. v. Gomez, No. 14-857 (U.S. Jan. 20, 2016), the Supreme Court held in a 6-3 decision that an unaccepted settlement offer (including an offer pursuant to Federal Rule of Civil Procedure 68)–even an offer of complete relief–does not moot a plaintiff’s claim under Article III of the U.S. Constitution.  The Court did not completely close the door to this tactic, however, as it explained that an offer accompanied by proof that the defendant would pay the full amount could moot a plaintiff’s claim.

Plaintiff Gomez alleged he received unsolicited text messages from the United States Navy (through its vendor, Campbell-Ewald) in violation of the Telephone Consumer Protection Act ("TCPA").  Campbell-Ewald offered Gomez just over the maximum amount of the statutory penalty to which he claimed he was entitled, but Gomez declined.  The Ninth Circuit held that this rejected settlement offer did not moot a plaintiff’s claims.

In an opinion issued on January 20, 2016, the Supreme Court affirmed.  Writing for the majority, Justice Ginsburg adopted the position of Justice Kagan’s dissent in Genesis Healthcare Corp. v. Symczyk,133 S. Ct. 1523 (2013), that "[a]n unaccepted settlement offer–like any unaccepted contract offer–is a legal nullity, with no operative effect."  Campbell-Ewald, slip op. at 7 (quoting Genesis Healthcare, 133 S. Ct. at 1533).

Each of the opinions–the majority, a concurrence by Justice Thomas, and separate dissents (by Chief Justice Roberts and Justice Alito)–noted the possibility that another settlement offer could moot a plaintiff’s claim.  Justice Ginsberg explained that the Court did not need to decide whether a claim would be moot if "a defendant deposits the full amount of the plaintiff’s individual claim in an account payable to the plaintiff, and the court then enters judgment for the plaintiff in that amount."  Id. at 8.  In his concurring opinion, Justice Thomas suggested that "further steps" beyond an offer to pay, such as actually making payment, could moot a claim.  Id. at 12 (Thomas, J., concurring).  Chief Justice Roberts’s dissent also suggested that the majority might have reached a different result if "Campbell had deposited the offered funds with the District Court," id. at 18 (Roberts, C.J., dissenting), and Justice Alito’s separate dissent added that the majority opinion does not "prevent a defendant who actually pays complete relief–either directly to the plaintiff or to a trusted intermediary–from seeking dismissal on mootness grounds," id. at 20 (Alito, J., dissenting).

Like Genesis Healthcare, the Campbell-Ewald decision missed an opportunity to bring finality to the use of Rule 68 offers to moot class claims, and courts will now be left to explore this unsettled issue in 2016 and beyond.

B.    Using Statistical Sampling and Extrapolation to Adjudicate Class Actions (Tyson Foods, Inc. v. Bouaphakeo)

In Tyson Foods, Inc. v. Bouaphakeo, the Supreme Court will decide whether the proof of individualized issues in a class action or collective action under the Fair Labor Standards Act ("FLSA") can be replaced with extrapolation from the claims of a statistical sample of the class.  The Supreme Court previously (and unanimously) rejected the use of "Trial by Formula" in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011).  But in Tyson, plaintiffs argued that a statistical sampling approach in FLSA cases is permitted under Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680 (1946), which adopted a burden-shifting framework for proving damages under the FLSA if an employer has failed to keep proper and accurate records.  Tyson also presents an opportunity to resolve a long-simmering circuit split regarding whether the named plaintiffs or all absent class members must have Article III standing, which we discussed last year.[3]

During oral argument on October 10, 2015, plaintiffs’ counsel relied heavily on Mt. Clemens, while Tyson’s counsel argued that this decision did not authorize the extrapolation-based method, and that this approach to classwide adjudication masked individualized issues (including the lack of injury to many class members) and was impermissible under both Dukes and Rule 23 itself.

The outcome of Tyson could be significant for all defendants, at least insofar as the Court does not limit its decision to FLSA claims and Mt. Clemens.  A broad endorsement of procedural shortcuts would run counter to Dukes‘ prohibition of "Trial by Formula" and the "rigorous analysis" required at the class certification stage.  Moreover, the Court has an opportunity to resolve a circuit split regarding Article III standing of absent class members and to stem the tide of "no injury" class actions.  These cases have been on the rise again, and they expose companies to the threat of enormous damages or penalties even where a significant percentage of the class is indisputably unaffected by the challenged practice.  The most pervasive form of this lawsuit is discussed in the next section–"no injury" class actions based on the violation of federal statutes that authorize large statutory penalties.

C.    Injury-in-Law vs. Injury-in-Fact (Spokeo, Inc. v. Robins)

In Spokeo, Inc. v. Robins, the Supreme Court will decide whether the mere violation of a federal statute can create an injury-in-fact sufficient to create standing under Article III, even if the plaintiff has not suffered any concrete, real-world injury.  The Court previously granted certiorari on this same question in 2011, but dismissed the writ as improvidently granted without addressing the merits.  See First Am. Fin. Corp. v. Edwards, 132 S. Ct. 2536 (2012) (per curiam).

Plaintiff Robins alleged that Spokeo, a website operator that provides information about individuals, published false information about him in violation of the Fair Credit Reporting Act ("FCRA").  The district court dismissed the case for lack of standing, because the allegedly false information actually benefited Robins as a job applicant by overstating his qualifications and income.  The Ninth Circuit reversed, holding that alleged violations of a consumer’s statutory rights under the FCRA are sufficient to satisfy the Article III injury-in-fact requirement.  Robins v. Spokeo, Inc., 742 F.3d 409, 413–14 (9th Cir. 2014).  The Ninth Circuit expressly declined to consider whether Robins satisfied the injury-in-fact requirement based on his alleged diminished employment possibilities and resulting anxiety (which were counterintuitive in any event).  Id. at 414 fn.3.

The Court granted review to decide whether Congress may confer Article III standing upon a plaintiff who suffers no concrete harm, and who therefore could not otherwise invoke the jurisdiction of a federal court, by authorizing a private right of action based on a bare violation of a federal statute.

During oral argument on November 2, 2015, Plaintiff’s counsel argued that Robins suffered a real-world injury when Spokeo published false information about him, and that this alleged injury to his statutory rights was sufficient to confer Article III standing.  Spokeo argued that Supreme Court precedent and constitutional principles require a concrete, real-world–not merely legal–harm. 

The outcome of Spokeo will be significant for companies in many industries (including in the telecommunications, financial and consumer services, and technology sectors) that are under assault with "no injury" claims asserting violations of federal statutes that permit large statutory damages without requiring proof of actual injury–such as FCRA, the Truth in Lending Act, the Fair Debt Collection Practices Act, the Telephone Consumer Protection Act, and the federal Wiretap Act. 

D.    Reaffirming Concepcion‘s Rejection of State-Law Rules Disfavoring Arbitration (DIRECTV, Inc. v. Imburgia)

This year continued the recent trend of the Supreme Court’s nearly annual foray into the enforcement of arbitration agreements and class action waivers governed by the Federal Arbitration Act ("FAA") in putative class actions.  In 2010, the Supreme Court held in Stolt-Nielsen S.A v. AnimalFeeds International Corp., 559 U.S. 662 (2010), that "a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so."  Id. at 684.  The next year, the Supreme Court held in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), that the FAA preempts state laws, such as California’s Discover Bank rule, that stand as an impediment to enforcing commercial class arbitration waivers.  Id. at 356–51.  And in 2013, the Supreme Court held in American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), that a class action waiver is enforceable, even if the plaintiffs contend that class action procedures are necessary to effectively prosecute claims arising under other federal statutes.  Id. at 2309–11.

The Supreme Court this year again ordered enforcement of another arbitration agreement in DIRECTV, Inc. v. Imburgia, 136 S. Ct. 463 (2015).  In a 6–3 decision written by Justice Breyer, the Court explained that, although AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), was a "closely divided case"–indeed, one in which Justice Breyer had dissented–it nonetheless constitutes "authoritative" law and therefore "the judges of every State must follow it."  DIRECTV, 136 S. Ct. at 468. 

The arbitration clause at issue in DIRECTV was drafted before Concepcion, at a time when California courts were invalidating class arbitration waivers as a matter of California public policy.  The arbitration clause thus had a provision that invalidated the entire arbitration provision if the agreement’s class waiver was held to be "unenforceable" under the "law of your state."  The Ninth Circuit specifically held that DIRECTV’s "arbitration agreement is enforceable under Concepcion."  Murphy v. DIRECTV, Inc., 724 F.3d 1218, 1228 (9th Cir. 2013).  But in an identical case filed in state court, the California Court of Appeal voided the entire agreement after interpreting the phrase "law of your state" to include even California law that had been held invalid under federal law, such as the now-preempted rule against class waivers.  Imburgia v. DIRECTV, 225 Cal. App. 4th 338, 346 (2014) ("We find the analysis in Murphy unpersuasive.").  As the Supreme Court described it, the California appellate court reasoned that the parties’ arbitration agreement adopted "California law as it would have been without" regard to the Supreme Court’s recent FAA jurisprudence, such as ConcepcionImburgia, 136 S. Ct. at 467.

The Supreme Court reversed, and held that the California court’s ruling did not "’rest upon such grounds as exist . . . for the revocation of any contract’" as required to avoid preemption under the FAA.  Id. at 466 (quoting 9 U.S.C. § 2).  Instead, the state court had adopted unique interpretative rules–i.e., that "law of your state" includes invalid California law–that discriminated against arbitration agreements.  Id. at 470. 

E.    Appellate Jurisdiction to Review Class Certification Denials Following Voluntary Dismissal with Prejudice (Microsoft Corp. v. Baker)

In January 2016, the Supreme Court added another class action to its docket this Term, Microsoft Corp. v. Baker, which concerns attempts by plaintiffs to manipulate appellate jurisdiction after the trial court denies class certification. 

Following a denial of class certification in a related action, plaintiffs’ counsel refiled their claims with new putative class representatives in Baker.  Relying on its earlier denial, the district court struck the plaintiffs’ class allegations and the plaintiffs then petitioned for permission to appeal under Rule 23(f).  After the Ninth Circuit denied the request to appeal under Rule 23(f), plaintiffs voluntarily dismissed their claims with prejudice and noticed a post-judgment appeal of the order striking their class allegations.  The Ninth Circuit held that it had jurisdiction despite the voluntary dismissal, reached the merits of the appeal, and reversed the district court’s order denying class certification.  Baker v. Microsoft Corp., 797 F.3d 607, 612 (9th Cir. 2015). 

The Supreme Court granted Microsoft’s petition for certiorari to decide whether a federal court of appeals has jurisdiction under both Article III and 28 U.S.C. § 1291 to review an order denying class certification after the named plaintiffs voluntarily dismiss their individual claims with prejudice.  If upheld, the procedural maneuvering used in Baker could have wider application in complex litigation.  In addition to permitting plaintiffs (but not defendants) to take piecemeal appeals of adverse class certification orders, plaintiffs (and absent class members who intervene) could use the same logic to appeal Rule 12 dismissals without prejudice, or to manipulate Rule 41 voluntary dismissals.

Oral argument has not yet been scheduled in Baker, although a decision is expected this Term.

II.    Significant Defense Victories in Class Action Trials

Conventional wisdom holds that class actions rarely, if ever, go to trial.  Yet perhaps as an unintended consequence of the significant developments in class action jurisprudence over the past several years, there have been several high-profile cases in which defendants in certified class actions–unable to secure relief in the district or appellate courts–decided to vindicate their rights in a jury trial. 

Class actions (unlike most other cases) require court approval of any settlement, and as we highlighted in our 2013 and 2014 year-end updates, courts are continuing to apply heightened judicial scrutiny to class settlements.  That development, combined with the rise of so-called professional objectors, has made class actions more difficult to resolve through settlement.  In addition, the percentage of granted Rule 23(f) petitions has been declining in recent years, and absent interlocutory review, proceeding to trial is the only alternative to settlement.

All of this may help explain why several companies decided to present their defenses in certified class actions to juries.  There are some interesting lessons from these courageous decisions, and we discuss a few of the highlights below.  But more defense trial victories like these could also force the plaintiffs’ bar to rethink the value of their cases at the outset, which may ultimately deter the filing of meritless class actions.

Whirlpool Front-Loader Litigation

In a multidistrict products liability action, plaintiffs alleged that Whirlpool was liable to all Ohio purchasers of its front-load washing machines on a theory that the design of these machines is defective in that it allows formation of odorous mold within the machines.  See In re Whirlpool Corp. Front-Loading Washer Prods. Liab. Litig., No. 08-65000, 2010 WL 2756947, at *1 (N.D. Ohio, July 12, 2010).  Despite plaintiffs’ inability to show that all members of the proposed class experienced any mold or odor in their washers, the district court certified the class.  Id.  The Sixth Circuit affirmed the certification order, even though the class included individuals who never experienced a problem with their machines, on the basis that plaintiffs may be able to show that each class member "was injured at the point of sale upon paying a premium price" for a product prone to mold buildup.  In re Whirlpool Corp. Front-Loading Washer Prods. Liab. Litig., 722 F.3d 838, 857 (6th Cir. 2013).  

On remand, after unsuccessfully seeking summary judgment, Whirlpool decided to take the case to trial.  Although the court rejected Whirlpool’s request for a jury instruction that plaintiffs must show injury for all class members, the verdict form required the jury to find in favor "of the plaintiff class" as to each claim.  This language echoed Whirlpool’s strategy throughout the trial, which emphasized that the mold issue was very rare and not a classwide product defect.  Whirlpool’s strategy worked:  An Ohio federal jury returned a verdict in Whirlpool’s favor after a three-week trial. 

In a post-verdict statement, Whirlpool said that Ohio jurors had delivered a "complete rejection of the class-action lawyers’ attempt to enrich themselves on the backs of consumers who have never had a complaint about their front-load washing machines," and that the verdict "sends a strong message that this kind of abusive class litigation, targeting American manufacturing and comprised almost entirely of uninjured people, has no place in the landscape of American jurisprudence."

Nexium Antitrust Litigation

In another class trial, a Massachusetts federal jury decided in favor of defendants AstraZeneca and Ranbaxy Laboratories in the first "pay-for-delay" class action trial since the Supreme Court’s decision in FTC v. Actavis, Inc., 133 S. Ct. 2223 (2013), opened the door to antitrust suits based on patent settlements.  In this case, plaintiffs contended that AstraZeneca and three generic drug manufacturers, who had entered into settlement agreements in prior patent infringement litigation, violated antitrust laws by entering into reverse payment agreements to block competition for generic Nexium.  In re Nexium (Esomeprazole) Antitrust Litigation, 297 F.R.D. 168, 177–79 (D. Mass. 2013).  At trial, the jury determined that the agreements were not unreasonably anticompetitive and that AstraZeneca would never have allowed a generic Nexium to launch before its medicine patents expired.

Before trial, the defendants had appealed class certification, challenging the district court’s decision to certify a class that included members who may not have suffered any injury.  Of course, the issue became moot after the favorable jury verdict, but the First Circuit denied defendants’ bid to drop the appeal and issued an opinion upholding the class certification order.  See In re Nexium Antitrust Litigation, 777 F.3d 9, 14 (1st Cir. 2015).  In a split decision, the majority concluded that although a class might encompass some uninjured members, certification is proper as long as the class is definite, the court limits the total recovery to the size of the injury, and the court ensures that only injured class members recover.  Id.  Although AstraZeneca lost its bid to reverse class certification, by prevailing on the merits of the class claims at trial it obtained a preclusive judgment in its favor against the entire certified class.

In August 2015, the district court denied plaintiffs’ post-trial motions seeking a new trial and entry of a permanent injunction, explaining that the plaintiffs’ claim that new evidence would let them prove their case at trial was "at least a couple of bridges too far."  In re Nexium (Esomeprazole) Antitrust Litig., 309 F.R.D. 107, 133 (D. Mass. 2015).  The lengthy decision explained:  "Tested against the common sense of actual jurors, the plaintiffs’ evidence fell short.  Far short.  The message is clear–the plaintiffs’ bar will need far more detailed evidence of events in the ‘but-for’ world before a jury will find actual antitrust damages."  Id. at 145.

III.    The Growing Conflict Among the Courts of Appeal Regarding Ascertaining Class Membership

Last year, we observed that the implied Rule 23 ascertainability requirement had "gained momentum" in 2014.  A number of courts addressed ascertainability again in 2015, creating a circuit split over whether to apply the "rigorous approach" to ascertainability that the Third Circuit endorsed in Carrera v. Bayer Corp., 727 F.3d 300, 307 (3d Cir. 2013).  This may lead the Supreme Court to address the ascertainability requirement in the near future.

In Byrd v. Aaron’s Inc., 784 F.3d 154 (3d Cir. 2015), the Third Circuit reaffirmed Carrera‘s ascertainability formulation, which requires a plaintiff to show that "(1) the class is ‘defined with reference to objective criteria’; and (2) there is ‘a reliable and administratively feasible mechanism for determining whether putative class members fall within the class definition.’"  Id. at 163 (quoting Carrera, 727 F.3d at 355).  But Byrd cautioned that "[t]he ascertainability inquiry is narrow," and that "[i]f defendants intend to challenge ascertainability, they must be exacting in their analysis and not infuse the ascertainability inquiry with other class-certification requirements."  Id. at 165. 

In addition, in Shelton v. Bledsoe, 775 F.3d 554 (3d Cir. 2015), the Third Circuit limited the ascertainability requirement to class actions seeking monetary relief pursuant to Rule 23(b)(3), and not to Rule 23(b)(2) classes seeking declaratory or injunctive relief:  "Because the focus in a (b)(2) class is more heavily placed on the nature of the remedy sought, and because a remedy obtained by one member will naturally affect the others, the identities of individual class members are less critical in a (b)(2) action than in a (b)(3) action."  Id. at 561.  Of course, many courts have held that even if there is not a strict "ascertainability" requirement, plaintiffs still must allege a clear class definition and establish that the class is "cohesive."[4]  In practice, this often results in the same challenges to the proposed class.

The Sixth Circuit rejected the Carrera approach to ascertainability in Rikos v. Procter & Gamble Co., 799 F.3d 497 (6th Cir. 2015), and reaffirmed that Young v. Nationwide Mutual Insurance Co., 693 F.3d 532 (6th Cir. 2012), continues to guide the ascertainability inquiry in that Circuit.  In Young, the court noted that "'[f]or a class to be sufficiently defined,’" it must be possible to resolve, with "’reasonable accuracy,’" "’whether class members are included or excluded from the class by reference to objective criteria.’"  Rikos, 799 F.3d at 526 (quoting Young, 693 F.3d at 538–39).  Applying Young, the court in Rikos concluded that the proposed class was sufficiently ascertainable because all of the sub-classes could be "determined with reasonable–but not perfect–accuracy."  Id.  In the Sixth Circuit’s view, the fact that determining who was and was not a member of each sub-class "would require substantial review" did not preclude class certification.  Id

The Seventh Circuit joined the Sixth in rejecting the Third Circuit’s approach to ascertainability in Mullins v. Direct Digital, LLC, 795 F.3d 654 (7th Cir. 2015).  Specifically, the court declined to require plaintiffs to "prove at the certification stage that there is a ‘reliable and administratively feasible’ way to identify all who fall within the class definition."  Id. at 657.  The court considered, and rejected, several of the arguments–administrative convenience, unfairness to absent class members and bona fide class members, and due process interests of defendant–that led the Third Circuit to adopt a "strong" ascertainability requirement in CarreraId. at 663–72.

Petitions for certiorari are currently pending in both Rikos and Mullins.

There are several district court decisions addressing ascertainability issues that are now on appeal to the Ninth Circuit.[5]  Just a few weeks ago, the Ninth Circuit issued an unpublished decision in a TCPA case affirming the denial of class certification on ascertainability grounds.  See Gannon v. Network Tel. Servs., Inc., No. 13–56813, — F. App’x —, 2016 WL 145811, at *1 (9th Cir. Jan 12, 2016) ("[T]o determine liability, the district court would be required to determine whether under each of the[] different factual scenarios [for plaintiff groups]–and undoubtedly others–the caller agreed to receive text messages"). 

Given the conflict among the appellate courts, it is only a matter of time before the Supreme Court steps in and provides guidance regarding what a plaintiff must show to establish that the members of a proposed class can be ascertained. 

IV.    The Ninth Circuit Provides Important CAFA Removal Guidance

A decade ago, the Class Action Fairness Act ("CAFA") dramatically expanded federal jurisdiction over class actions.  Plaintiffs, however, continue to resist efforts to remove class actions under CAFA.  This year, the Ninth Circuit clarified several important and unsettled issues regarding CAFA removal, with some decisions favoring plaintiffs and others benefiting defendants.

A.    Proving Amount In Controversy–How and When?

In Dart Cherokee Basin Operating Co., LLC v. Owens, 135 S. Ct. 547 (2014), the Supreme Court held that a defendant need only include a "plausible allegation" in a notice of removal that the amount in controversy meets the $5 million threshold, and need not provide evidentiary proof.  Id. at 554.  The Ninth Circuit expanded on the framework created by Dart Cherokee in two decisions.

In Ibarra v. Manheim Investments, Inc., 775 F.3d 1193 (9th Cir. 2015), the court clarified that after Dart Cherokee, if a plaintiff does not plead a specific amount in controversy, a defendant may make its evidentiary showing in response to a motion to remand.  Id. at 1198­–99.  Ibarra thus settled any doubt that a removing defendant need not scramble to assemble this evidence with its removal petition.  Ibarra also clarified that, to meet its burden to show a "plausible allegation" of removal jurisdiction under Dart Cherokee, the removing party cannot rely on assumptions "pulled from thin air."  Id.  Instead, "CAFA’s requirements are to be tested by consideration of real evidence and the reality of what is at stake in the litigation, using reasonable assumptions underlying the defendant’s theory of damages exposure."  Id.  

In a companion decision issued the same day, the Ninth Circuit applied Ibarra and concluded that the defendant had met its burden of establishing federal jurisdiction.  LaCross v. Knight Transp., Inc., 775 F.3d 1200, 1201 (9th Cir. 2015).  In contrast to Ibarra, where the complaint alleged a "pattern and practice" but not "universal" violations, the LaCross complaint "clearly defined the class to include only the truck drivers, all of whom allegedly should have been classified as employees rather than as independent contractors."  Id. at 1202.  If the plaintiffs prevailed, the company would need to reimburse them for lease and fuel costs.  Id.  The defendant extrapolated fuel costs based on actual expenses for one quarter and the number of drivers who had signed independent contractor agreements.  Id. at 1202–03.  The court held that the defendant met its burden through this "reasonable" chain of logic and evidence.  Id. at 1203. 

B.    Subsequent Removals

One of CAFA’s more noteworthy changes was to eliminate the strict, one-year time limit for removals.  See 28 U.S.C. § 1453(b).  In 2015, the Ninth Circuit had an opportunity to address successive removal petitions outside of this one-year period, as well as a plaintiff’s creative attempt to defeat removal through amending its complaint.

1.    "If At First You Don’t Succeed," Defendant’s Edition–Successive Removal Petitions Are Ok

In Reyes v. Dollar Tree Stores, Inc., 781 F.3d 1185 (9th Cir. 2015), the defendant was unable to remove a proposed class action because the amount-in-controversy did not exceed $5 million based on the plaintiff’s class definition.  Id. at 1187.  Approximately two years later, the plaintiff moved to certify a broader class that increased the amount in controversy above the $5 million threshold.  Id. at 1187–88.  The district court held that the removal was untimely because it was based on the same complaint that was the subject of the first removal.  Id. at 1188.  The Ninth Circuit reversed, because the state court’s "certification order is functionally indistinguishable from an order permitting the amendment of pleadings to alter the class definition, creating CAFA jurisdiction for the first time."  Id.

2.    "If At First You Don’t Succeed," Plaintiff’s Edition–Amending the Complaint After Removal To Defeat CAFA Jurisdiction Is Ok 

A few months later, the Ninth Circuit upheld a plaintiff’s attempt to defeat CAFA removal by amending a complaint to invoke the "local controversy" exception.  Benko v. Quality Loan Serv. Corp., 789 F.3d 1111, 1117 (9th Cir. 2015).  In a split decision, the Ninth Circuit held that the district court abused its discretion in denying the plaintiffs leave to amend, because the proposed amendment related directly to the district court’s CAFA jurisdiction.  Id.  The panel majority acknowledged the general rule that jurisdiction is analyzed as of the pleadings filed at the time of removal, without reference to subsequent amendments, but the plaintiff may be allowed to revise "a complaint originally drafted for state court" that "may not address CAFA-specific issues, such as the local controversy exception" that the court must consider.  Id.  A dissenting opinion by Judge Wallace observed that every removed complaint is "originally drafted for state court," and every state court class action faces at least a possibility that a defendant will attempt to remove it under CAFA.  Id. at 1122–23.

   [1]   2015 Carlton Fields Jorden Burt Class Action Survey, available at http://classactionsurvey.com/pdf/2015-class-action-survey.pdf.

   [2]   See American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974) (tolling of statute of limitations); Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974) (notice to class members); Gulf Oil Co. v. Bernard, 452 U.S. 89 (1981) (communication with unnamed class members); Gen. Tel. Co. of the Sw. v. Falcon, 457 U.S. 147 (1982) (typicality) Cooper v. Fed. Reserve Bank of Richmond, 467 U.S. 867 (1984) (res judicata); Phillips Petrol. Co. v. Shutts, 472 U.S. 797 (1985) (choice of law); Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (1997) (settlement class actions); Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999) ("limited fund" class actions).

   [3]   Compare Denney v. Deutsche Bank AG, 443 F.3d 253, 264 (2d Cir. 2006) ("[N]o class may be certified that contains members lacking Article III standing"), with Kohen v. Pac. Inv. Mgmt. Co., 571 F.3d 672, 676 (7th Cir. 2009) ("[A]s long as one member of a certified class has a plausible claim to have suffered damages, the requirement of standing is satisfied").

   [4]   See, e.g., Barnes v. Am. Tobacco Co., 161 F.3d 127, 143 (3d Cir. 1998) ("While 23(b)(2) class actions have no predominance or superiority requirements, it is well established that the class claims must be cohesive."); Romberio v. Unumprovident Corp., 385 F. App’x 423, 433 (6th Cir. 2009) (reversing certification of a Rule 23(b)(2) class because "[plaintiffs] do not address the well-recognized rule that Rule 23(b)(2) classes must be cohesive"); Lemon v. Int’l Union of Operating Eng’rs, 216 F.3d 577, 580 (7th Cir. 2000) (stating that the cohesion requirement stems from "[Rule 23(b)(2)’s] requirement that the plaintiffs seek to redress a common injury properly addressed by a class-wide injunctive or declaratory remedy"); In re Yahoo Mail Litig., 308 F.R.D. 577, 597–98 (N.D. Cal. 2015) (noting that even if ascertainability is not required for Rule 23(b)(2) classes, plaintiffs still must "provide a clear class definition under Rule 23(c)(1)(B)").

   [5]   See, e.g., Jones v. ConAgra Foods, Inc., No. 12-01633 CRB, 2014 WL 2702726, at *11 (N.D. Cal. June 13, 2014) ("The variety of products and of labels, combined with the lack of receipts and the low cost of the purchases, means that consumers are unlikely to accurately self-identify.").

The following Gibson Dunn lawyers assisted in preparing this client update:  Andrew Tulumello, Christopher Chorba, Kahn Scolnick, Timothy Loose, Bradley Hamburger, Jeremy Smith, Jennafer Tryck, Jessica Culpepper and Gregory Bok.

Gibson Dunn are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work in the firm’s Class Actions or Appellate and Constitutional Law practice groups, or any of the following lawyers:

Theodore J. Boutrous, Jr.Co-Chair, Appellate and Constitutional Law Group and Transnational Litigation Group – Los Angeles (213-229-7000, [email protected]
Andrew S. Tulumello – Co-Chair, Class Actions Group – Washington, D.C. (2029558657, [email protected])
Christopher Chorba – Co-Chair, Class Actions Group – Los Angeles (213-229-7396, [email protected])
Kahn A. Scolnick – Los Angeles (213-229-7656, [email protected])
Timothy W. Loose – Los Angeles (213-229-7746, [email protected])
Bradley J. Hamburger – Los Angeles (213-229-7658, [email protected])      

© 2016 Gibson, Dunn & Crutcher LLP

Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.