Roughly five years into the Class Action Fairness Act, which significantly expanded federal jurisdiction over class action lawsuits, the U.S. Supreme Court has taken an increasing interest in both federal and state cases with an eye on the act's effectiveness. In a case that will arguably impact practice in California for years to come, the Court ruled in favor of federal preemption of state law in AT&T Mobility LLC v. Concepcion,
(131 S.Ct. 1740 (2011)), narrowly concluding that business contracts can include an arbitration clause requiring consumers to waive their rights to pursue a class action. The decision nullified the state Supreme Court's ruling in Discover Bank v. Superior Court,
(36 Cal.4th 148 (2005)), which held that such a clause was unconscionable.
Our panel of experts from Northern and Southern California discusses these issues as well as grounds for certification, forum selection, and approaches to case management. They are Philip Leider of Chapman, Popik & White; Max H. Stern of Duane Morris; Eric Gibbs of Girard Gibbs; Jeff Scott of Greenberg Traurig; Brad Seiling of Manatt, Phelps & Phillips; and Layne Melzer of Rutan & Tucker. The roundtable was moderated by California Lawyer
and reported by Krishanna DeRita of Barkley Court Reporters.
Moderator: What impact will the AT&T Mobility v. Concepcion U.S. Supreme Court decision have on future class action cases?
It's obviously a very significant decision, particularly for California, because the Court was looking at the California Supreme Court's Discover Bank v. Superior Court,
(36 Cal. 4th 148 (2005)) ruling. Companies that don't have arbitration clauses with class waivers will start putting those in their standard contracts.
But these decisions and legislation that we think are game changing don't eliminate these types of cases. We'll likely see some legislative attempts to "fix things" from a consumer perspective. You might end up having different states take different approaches to remedy what some consider an anti-consumer ruling. In five or ten years there may be an interesting hodgepodge of state laws that treat consumer cases very differently.
The Supreme Court opinion suggests that if you were silent on whether or not a class action can be managed in an arbitration context, then the arbitrator may not manage the arbitration as a class action. Silence should have a similar effect as a class action waiver.
As Brad [Seiling] indicated, a number of companies are now filing motions to compel arbitration years into the cases even after classes have been certified. That body of law hasn't developed yet; but for a case that you have litigated for years, it will be interesting to see how courts address the fact that the Supreme Court is now basically saying that California got it wrong in Discover Bank.
Senator Franken, the Saturday Night Live
guy, introduced the Arbitration Fairness Act in Congress. It's precisely what Brad predicted, an attempt to address this issue legislatively.
In the typical retailer/manufacturer-directed consumer class action, the AT&T
case probably will have very little immediate impact. There is typically no written contract in advance of the sale that provides an occasion for inserting an arbitration clause with a class action waiver. Securities class actions, for similar reasons, will be largely unaffected by the AT&T
decision. The greatest impact immediately will be in the employment wage and hour cases and certain consumer transactions instigated through written contracts, such as signing up for a credit card, auto loan, bank deposit account, and obviously, cell phones.
Manufacturers and retailers will probably start thinking creatively about cloaking themselves in the protections of the AT&T
decision by seeking arbitration agreements to form the basis of the sale transaction. I could see manufacturers pursuing a "shrink-wrap" contract theory where the warranty agreement within the product packaging includes an arbitration clause. I can see retailers perhaps amending club card or discount card agreements in which they require arbitration or pursuing other "point of sale" strategies to try and get pre-sale consent to arbitration. Whatever the retail or manufacturing community's reaction, the decision is invariably going to spawn its own body of litigation.
We've seen an impact on a handful of pending class cases that have applied Concepcion
where presumably there are similar arbitration agreements.
The next shoe to drop will be cases where courts address arbitration agreements that differ from AT&T Mobility's, or where there is not a developed underlying factual record. The question is going to be whether Concepcion
can ultimately trump the type of evidentiary showing that wasn't before the Supreme Court.
If there's an underlying arbitration agreement, plaintiffs now will have to assess every case with Concepcion
in mind. The AT&T Mobility agreement itself was fairly unique, and AT&T did a very nice job positioning that case to go before the Supreme Court, as it addressed the Discover Bank
rule, lacked a developed evidentiary record, and at least on the face of it appeared to present a fairly consumer friendly arbitration clause.
The consumer friendliness of that arbitration clause will likely be a high watermark as corporations attempt to tighten what they are providing in those clauses. I also suspect there will be an effort by plaintiffs in specific types of cases to arbitrate the individual claims.
There likely will be an effort to change the law at the state level to other anti-arbitration approaches that are less strict than the Discover Bank
rule. But I don't expect those to be very successful, given that the U.S. Supreme Court has made this an issue of contractual freedom. To the extent that a contract providing for arbitration is burdened in any way that a contract wouldn't be similarly burdened without the arbitration clause, the courts should side with the business, because the Supreme Court has spoken pretty clearly on that issue.
When we talk about businesses going to point-of-sale agreements, or shrink-wrap contracts, with arbitration clauses, courts will have to look at whether those types of contracts are enforceable under state law. In California, we do have precedent for some of those point-of-sale agreements or waivers being effective, and we are certainly going to see people tailor those for their arbitration protection.
Whenever you have one of these big, significant cases, it has tremendous unintended consequences. And if the plaintiffs bar is literally going to say, "Fine, we are going to file 5,000 individual arbitrations dealing with the same issue," that creates interesting issues for how the defendants approach and manage that litigation.
Cruz v. PacifiCare Health Systems, Inc.
(30 Cal. 4th 303 (2003)), and Broughton v. Cigna Healthplans of California
(21 Cal. 4th 1066 (1999)) hold that a UCL claim for injunctive relief is not an arbitrable claim. Those would be preempted under Concepcion,
and Judge Alsup has ruled that those decisions are preempted.
I have already seen plaintiffs counsel suing on behalf of a plaintiff who isn't on the agreement, and there will be questions of whether you can enforce an agreement against someone who isn't literally the "subscriber" or purchaser but might use the product.
This is an extraordinary case with Justice Scalia writing for a majority reaching out to scrutinize a state law rule of unconscionability. You can feel the U.S. Supreme Court getting very interested not only in federal law, but also in state law, class actions. Another good example is Philip Morris USA, Inc. v. Scott
(131 S.Ct. 1 (2010) (Scalia, J., in chambers)), where Justice Scalia has stayed a Louisiana state court judgment applying Louisiana law.
This is all partly in reaction to how the Class Action Fairness Act (CAFA) is playing out. The Court granted certiorari in a number of class action cases this year, and I expect them to be very active in these cases in the next few years.
The decision will likely reinvigorate challenges to provisions in those agreements that have arbitration clauses. The attack on the contract will be unrelated ostensibly to the arbitration clause, and instead plaintiffs will challenge other wholly unrelated aspects of the contract, arguing the agreement is unconscionable.
I agree the AT&T form of arbitration agreement was a very fair provision although it contained a class action waiver. But even arbitration clauses that are silent on class action waivers are going to arguably be pulled in under the net of AT&T
. The decision may result in an increase in public enforcement actions if for instance the attorney general concludes that certain pernicious business activities are being shielded from penalty or heavy exposure because of arbitration clauses.
The majority opinion in Concepcion
didn't offer full guidelines on the issue. If, for example, you don't copy the AT&T arbitration clause--which I suspect many companies will now do almost verbatim--and you decide not to front the cost of the arbitration and don't do all of these plaintiff-friendly things, where do you sense the vulnerability? Where do you draw the line between something really being an attack on the concept of arbitration versus a fundamental problem with the contract formation? We didn't get clear guidance.
Part of the problem here was the Discover Bank
rule itself and the way it was applied. It laid out a fairly rigorous test for procedural and substantive unconscionability, and then virtually all adhesion contracts with arbitration clauses and class action waivers were voided. It was almost a given among the defense bar that when you had an arbitration clause and class action waiver, you wouldn't try to enforce it because Discover Bank
was going to make that position untenable. Plaintiffs were even arguing that unconscionable clauses in contracts were actionable and you could get damages against a defendant for including them in their contracts. Now we know that's not the case, at least for arbitration clauses, and it will be interesting to see how courts apply unconscionability rules going forward more generally.
Unless the state courts are able to find the roots to their rulings in their traditional unconscionability law, to the extent they are employing any kind of heightened standard for arbitration clauses, businesses are going to seek appellate protection of their contract rights. We don't see any indication in the Concepcion
opinion that the business had to have been as generous in its arbitration clause as was AT&T Mobility.
Moderator: What are the potential implications of the imminent U.S. Supreme Court decisions in the Dukes v. Wal-Mart Stores, Inc. (No. 10-277, decision below, 603 F. 3d 571 (9th Cir 2010)) and in Smith v. Bayer Corp. (2011 WL 2369357). [Editor's note: This discussion took place June 6.]
Members of the defense bar are obviously very concerned about how the Court rules in the Dukes
case. Of particular concern in my view is the Ninth Circuit's class certification analysis under Rule 23(b)(2). If the underlying claims in Dukes
are properly certified under 23(b)(2), then perhaps any case is certifiable on that basis regardless of the nature of the monetary claim being made. The real problem from a defense view is that under 23(b)(2) a defendant is largely precluded from arguing that certification should be denied on the basis that individual issues predominate. Where injunctive relief is the primary remedy sought and monetary claims are only incidental this limitation is appropriate. But where monetary claims range in the billions and injunctive relief would be of no use to many, if not most of the class members, certification under 23(b)(2) would seem inappropriate. I would hope the Court reverses and requires a 23(b)(3) certification analysis instead.
If what comes out of Smith v. Bayer
is a sweeping issue preclusion rule, that's going to undermine the efficiencies CAFA is supposed to promote because as the plaintiff going into a consumer case, for example, it will generate state-only class cases being filed. Those cases will end up transferred to one district court via the multi-district litigation process and the plaintiff's side will push to use the MDL court for the underlying discovery and insist that the court then send the cases back from where they came for individual class certification rulings.
If I'm representing plaintiffs in a consumer case under California law or any individual state's laws, and there's a sweeping issue preclusion risk presented, I'm going to want the court to apply Rule 23 to my specific state law claims without being burdened or hampered by whatever issues that other state law claims may create.
Leider: Smith v. Bayer
is another example of the federal courts getting very active and issuing injunctions against independent state court actions. You have the Seventh Circuit and other Circuits telling state court what they can and cannot do. They are not letting the issue go to the state court and giving it a chance to apply the preclusion rules that would ordinarily apply. They are enjoining the cases.
If the Dukes
case is affirmed, you can basically certify anything under Rule 23(b)(2) that you used to have to certify under (b)(3). This case was filed in 2000, and Judge Jenkins, now Justice Jenkins, certified the class in 2004. This is a completely different time period, and it feels very strange to see somebody pursuing a nationwide sex discrimination case under Title VII in federal court.
Wal-Mart is an extremely large company, and I'm not sure how many cases like this we will see again. The Supreme Court might be very interested in the (b)(2) versus (b)(3) issue and send it back, and Judge Jenkins won't even be on the district court bench when it returns on remand. I don't think anybody seriously believes that the court is going to affirm the Ninth Circuit's fractured en banc decision in Dukes
and let it survive intact.
decision will impact overall class action practice going forward in California. It was a shock to many when the Ninth Circuit came out with the original decision. Whichever way it goes, that case probably poses more of the issues that we see regularly in cases. We can expect that Rule 23(b)(2)–(b)(3) gets some clarity, which will impact current practice. To the extent the Court goes further and talks about issues of commonality that also could provide meaningful guidance for future cases.
Even if the Court makes it harder to pursue class actions in federal court, I wouldn't assume that state court class actions are dead. I'm seeing cases where people disclaim the jurisdictional minimum under CAFA in their complaint, so they avoid removal and they remain in state court and those cases don't get MDL'ed. A lot of plaintiffs would like to stay in state court. They will take a little less monetary recovery and less in attorneys fees and file parallel class actions in separate states. It's not the standard way of doing business right now, but it's still possible and people are doing it.
People will do anything to stay out of CAFA. We are going to see plaintiffs disavowing claims, limiting claims, not bringing damages claims, and small mass actions.
Plaintiffs need to be somewhat careful in pleading around CAFA. If class counsel decides to limit the rights of the class merely to avoid federal court, it may come back to bite them at the certification stage. I've seen courts find counsel and named plaintiffs "inadequate" representatives based on such tactical decisions that ultimately disadvantaged the class.
I'll be very interested to see how the U.S. Supreme Court's opinions shape out in terms of their breadth. Will they be very broad sweeping decisions about what should and shouldn't be a class action or will they be more narrow decisions focusing on the particulars of those cases?
case seemed relatively straightforward in terms of predicting the future. But the notion of a federal court decision applying state law and rejecting class certification based on contemplation as to how the state law elements would have to be proved, thereby precluding someone litigating the same issue in state court, doesn't seem to be terribly novel. But the strategies are interesting so a logical result is that people might just file state court cases applying narrow state law to try to avoid CAFA federal court jurisdiction if the plaintiffs bar mobilizes and organizes it that way.
Moderator: How do the U.S. Supreme Court and state Supreme Court decisions, respectively, in Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Company (130 S. Ct. 1431 (2010)) and the In re: Tobacco II Cases (46 Cal.4th 298 (2009)) influence forum selection?
Melzer: Shady Grove
essentially holds that Rule 23 governs certifications in federal court notwithstanding state law that would otherwise prevent certification of an identical case in state court. Based on Shady Grove,
particularly in view of Tobacco II,
the opposite also has to be true. If state law has certification standards for particular types of claims that are broader than Rule 23, then federal courts should be free to disregard such state law procedural rules in favor of more rigorous standards.
There may be disagreement on Tobacco II,
particularly as it relates to class certification, but one reading is that as a matter of California state law, Tobacco II
seemingly endorses gatekeeper standing for purposes of class certification--so long as the named representative plaintiff has suffered an actual injury and lost money or property as a result of the challenged conduct, then it doesn't really matter that unnamed class members may have been uninjured. A class can still be certified.
But in federal court, Article III requires standing to the named class representatives and unnamed class members (subject perhaps to a de minimis exception).
Under Shady Grove,
defendants can argue that despite Tobacco II,
gatekeeper standing does not work in federal court even in a UCL case. This is yet another reason for defendants to use CAFA to pull UCL cases into federal court and argue that Rule 23 dictates a different result than might otherwise be obtained in state court under Tobacco II
Certain plaintiffs lawyers have preferences and some are perfectly happy to file California-only classes against California companies relying on the local state exceptions in CAFA. I would ask Eric [Gibbs], did these cases influence where you are going to file a case?
A few federal courts have distinguished Shady Grove
based on the fact that the New York statute at issue was broad in scope, while the district courts were addressing specific class action rules tied to a specific state statute. For instance, the Tennessee Supreme Court has held that class actions don't apply to the Tennessee Consumer Protection Act. A federal district court has found that Shady Grove
doesn't trump that. But in particular, has Shady Grove
or the Tobacco II Cases
influenced my decisions in terms of where to file cases? The short answer is no.
I imagine that statistical analysis would reveal a flood of class action litigation alleging UCL claims given all the attention paid to that decision. It cemented California's reputation as being a challenging environment for businesses.
I certainly haven't seen any increase in UCL claims or UCL filings. Wershba v. Apple Computer
(91 Cal.App.4th 224 (2001)), recognized a decade ago that California had the most favorable consumer protection laws in the country, and I can't think of a good consumer protection case that didn't assert a UCL claim, whether pre- or post-Tobacco II
I should be clearer. After Prop. 64 people thought that California would conform with many other states in terms of standing. But the general perception that California had finally fallen in line with the rest of the country after Prop. 64 actually disappeared after Tobacco II,
even though that is only a "standing" case.
There was a vigorous debate over Prop. 64, but you have the CLRA overlay, which Prop. 64 didn't directly address. Many of the standing and reliance issues for class certification under the CLRA weren't that different once Prop. 64 was enacted. I've not really seen Tobacco II
influence forum selection.
The argument could be made that federal court is antagonistic to the relaxed standing requirements articulated in Tobacco II
. So a UCL case may be more readily certified as a class action in California than in federal court. This might encourage plaintiffs to avoid federal court. Likewise, a defendant facing a recently filed state court UCL class action would probably try and pull that case into federal court and later argue, based on Shady Grove,
that the more rigorous Article III standing requirements apply when evaluating certification.
I agree. At some point, we are going to see a Ninth Circuit appeal addressing the overlap in federal Article III standing versus UCL standing under Tobacco II,
and which is more restrictive as to what type of case.
I'm seeing this in practice quite a bit, especially where the plaintiff chooses to file in federal court in the first instance. Kwikset Corp. v. Superior Court,
(51 Cal. 4th 310 (2011)), said that standing under the UCL is more restrictive than Article III standing because you also need monetary harm. I've had federal judges dismiss UCL class actions because the plaintiffs don't have standing.
The Vess v. Ciba-Geigy Corp. USA
(317 F.3d 1097 (9th Cir. 2003)) line of authority from the Ninth Circuit says that in fraud cases, including UCL fraud cases, you've got to satisfy Rule 9(b) and plead the who, what, when, where of the fraud with particularity. That pleading rule doesn't apply in state court. Plaintiffs can get by with a lot less. I've seen cases dismissed under Rule 12(b)(6) in federal court that would survive a demurrer in state court.
Moderator: What has CAFA meant to the development of state law, attorneys fees, and management of multi-state class certification questions?
Federal Rule of Civil Procedure 23(g)(3) is a case management device that provides for an early appointment of interim counsel. It's an unutilized tool from my perspective.
Since the enactment of CAFA, we have become much more aggressive in seeking defendant's agreement to an early appointment of counsel. If the court is willing to place control of a case very early in a single firm or a small group of firms, what typically results is a reduction in later filed cases, thus avoiding unnecessary litigation costs, which benefits both sides. The argument I've typically heard against early appointment is that the defendant doesn't want the appearance that the case is ultimately worthy of class certification. Where I've seen a defendant successfully make this argument, it ultimately didn't prove to the defendant's benefit. I'm curious whether the defense side has addressed Rule 23(g)(3) applications.
I haven't had competing cases with competing lawyers who might be jockeying for that position. Ultimately, I view it as an issue between the plaintiffs counsel and the court. But I might have a very different view if there were competing groups of lawyers. Of course I would agree with your application, Eric [Gibbs], and there are others with whom I would not be so magnanimous.
It becomes a logistical nightmare from the defense side if you are trying to negotiate the same thing with eight firms. It's nice to have a spokesperson deal with the eight to twelve other sets of lawyers. I have not yet opposed one of these. I've privately rooted for one team rather than another, and I've also agreed to stipulate to interim counsel class counsel.
If I've got a case with multiple lawyers on the pleadings and they make that application, I consider that a positive sign because it shows they are working together. It can be very difficult dealing with groups of lawyers on the plaintiff's side who don't look at the case the same way.
It's just as important for the defendant to insist that either the plaintiffs put their house in order or, if they can't, move the court to appoint interim counsel to manage the case. Particularly in consumer cases you can end up with a lot of unnecessary cost and effort focused on things other than the ultimate merits of the case. In situations where a single case is filed, the earlier district court cases considered and denied Rule 23(g)(3) applications. The thought behind those denials is changing and it seems like that's a step in the right direction.