Class-Action

Facebook Sued in Class Action Over Private Messages

February 28, 2014 | Peter S. Lubin and Patrick Austermuehle

By now, many people are aware that the things they post online are public. However, most of us still expect the private messages that we send back and forth over the internet to maintain a certain level of privacy. Facebook allegedly violated this right by intercepting private messages which were exchanged via the social media site. According to the complaint, Facebook allegedly scanned private messages which contained URLs “for purposes including but not limited to data mining and user profiling.” The lawsuit was filed by two Facebook users who sent messages via the social networking site which contained URLs. The plaintiffs allege that Facebook’s practice of scanning private messages and sharing the information it finds violates the Electronic Consumer Protection Act, California’s Invasion of Privacy Act, and the California Unfair Competition Law.

The complaint points to the fact that “Facebook touts the privacy of its messaging function as ‘unprecedented’ in terms of user control and the prevention of unwanted contact.” Contrary to this representation, the lawsuit alleges that “When a user composes a Facebook message and includes a link to a third party website (a “URL”), the Company scans the content of the Facebook message, follows the enclosed link, and searches for information to profile the message-sender’s web activity. The lawsuit further asserts that Facebook does not do this for the purpose of facilitating the transmission of the messages, but uses the information for its own profit by sharing it with third parties, such as advertisers, marketers, and other collectors of data.

The lawsuit alleges that Facebook’s practice of representing its messages as private, while violating that privacy, is especially harmful because users who are led to believe that their communications are private are likely to share information that they would not otherwise provide. This gives Facebook an advantage over their competitors in acquiring information about its users.

To demonstrate how profitable this profiling and data sharing is for Facebook, the complaint noted that, in 2011, the social media company earned $2.7 billion through targeted advertising sales.

The complaint goes on to state that a recent study, conducted at the University of Cambridge, found that “highly sensitive personal attributes,” such as sexual orientation, ethnicity, religious views, personality traits, intelligence, use of addictive substances, parental separation, age and gender were predictable with high degrees of success just from what people liked online. Thus racial discrimination could be applied to prevent some candidates from seeing loans that might be advantageous to them, and housing renters and sellers could potentially use big data to discriminate based on gender, all while circumventing the fair housing laws.”

The suit was filed in the Northern District of California on behalf of all U.S. users who have sent or received private messages that included a URL in the message. The lawsuit is seeking class certification, an injunction against Facebook to cease their practice of scanning private messages for URLs, and statutory damages, including $100 for each day that Facebook violated the Electronic Communications Act, for each class member. Although the plaintiffs do not yet know how many people are eligible to participate in the class, they do believe that, once all of the damages for the class members are totaled, they will exceed $5,000,000.

Class Actions Blocked By Arbitration Agreements

February 22, 2014 | Peter S. Lubin and Patrick Austermuehle

Two recent class action lawsuits in California have provided a reminder that it is always a good idea to read the fine print before signing a contract. The lawsuits were both trying to bring claims under the Telephone Consumer Protection Act (TCPA) in California district courts, rather than in arbitration as laid out by the contracts the consumers had signed. The TCPA puts limits on the types of calls that companies can make to consumers’ cell phones.

In the first case, the plaintiff, Miguel Mendoza, had obtained a payday loan from Speedy Cash. When he failed to repay the debt, Mendoza began receiving calls from Ad Astra on his cell phone. Mendoza alleged that, when he did not answer these calls, Ad Astra left “voicemail messages using a pre-recorded or artificial voice.” Mendoza alleged that this violated the TCPA and so he filed a class action lawsuit in the Central District of California against Ad Astra, despite having signed a contract in which he waived his right to pursue a class action and agreed to settle any claims in arbitration.

The arbitration clause that Mendoza signed covered a wide variety of claims, including “any claim, dispute or controversy between you and us (or related parties) that arises from or relates in any way to this Agreement.”

Mendoza did not dispute the fact that he signed this arbitration agreement, but he did come up with three arguments for why the court should hold the arbitration clause unconscionable. The first is that Ad Astra allegedly lacked the standing to enforce an agreement that Mendoza had signed with Speedy Cash. Ad Astra was an agent of Speedy Cash though, thereby making it a “related party” under to the agreement.

Second, Mendoza argued that his claim was not covered by the arbitration agreement, since he was not alleging monetary damage as a result of Ad Astra’s alleged violation of the TCPA. However, the arbitration agreement defined “Claim” under “the broadest possible meaning and includes … claims based on any … statute[.]” The agreement also specifically included claims arising out of debt collection activities.

Mendoza’s third argument stated that the arbitration clause was unconscionable. The court failed to agree though, pointing out that the contract, “gave plaintiff the unilateral right to reject arbitration at any time within 30 days of signing the contract.” Because Mendoza was given this chance to opt out of the arbitration agreement without affection the services he received from Speedy Cash, the court found that the arbitration agreement was enforceable under California law.
A similar class action lawsuit was filed in the Southern District of California wherein the plaintiff, David Sherman, had bought a used car from Rancho Chrysler Jeep Dodge in 2010. In 2013, Chrysler allegedly violated the TCPA by leaving a prerecorded message on Sherman’s voicemail, stating that it was the anniversary of his auto purchase and time for “another status review of your ownership experience.”

When he bought the car, Sherman signed a “Retail Installment Sales Contract” which included an arbitration clause. Like Speedy Cash’s arbitration agreement, Chrysler’s contract was very broad, covering “Any claim or dispute, whether in contract, tort, statute, or otherwise … shall at your or our election, be resolved by neutral, binding arbitration and not by a court action.”
Like Mendoza, Sherman also presented three arguments as to why his lawsuit should not be forced into arbitration. Sherman’s arguments included: 1) that there was no evidence that Sherman had read the arbitration clause, despite the fact that he had signed the contract, which specifically stated “YOU ACKNOWLEDGE THAT YOU HAVE READ BOTH SIDES OF THIS CONTRACT, INCLUDING THE ARBITRATION CLAUSE ON THE REVERSE SIDE, BEFORE SIGNING BELOW”; 2) that the arbitration clause is unconscionable; and 3) that the clause does not cover the dispute at issue.

Given the very broad terms covered under the arbitration agreement and the fact that Sherman signed the contract, the court rejected these arguments.

Marketing Company Cannot Escape Class Action Through Arbitration 9th Circuit Rules

February 10, 2014 | Peter S. Lubin and Patrick Austermuehle

While the law has struggled to catch up with the swift progression of technology in recent years, particularly the increase in internet use, many companies have taken advantage of the ease of acquiring consumers’ information. It is easier than ever for companies to gain access to an individual’s credit card information. Many companies make deals with each other to share this information, despite the fact that such agreements are illegal.

Many laws, though, remain relevant regardless of whether the transaction took place online or in person. This was demonstrated in one recent class action lawsuit against an online marketing company. The named plaintiffs filed their class action lawsuit against a company which performs background checks. The plaintiffs noticed that regular monthly charges appeared on their credit card for a report which they allege they did not intend to buy. The company performing the background checks said that the consumers were misled into purchasing the subscription of the online marketing company. As a result, the marketing company was added as a third defendant.

The background check company provided space on its website for the marketing company and used a “data pass” method of sharing credit card information which is now allegedly illegal. The marketing company used that shared information to enroll customers in free trial subscription offers which were then converted into a monthly billed subscription.

The marketing company moved to force the lawsuit into arbitration.

The district court ruled that the consumers had entered into a contract with the marketing company, but the court denied the motion to force arbitration.

The plaintiffs appealed and the case went to the Ninth Circuit Court of Appeals. The appellate court noted that, under Washington law, a contract requires mutual assent to its essential terms in order to be considered legally binding. Those essential terms include the names of the parties involved in the contract. The appellate court found that the web page which the consumers used to buy the subscription service did not sufficiently identify the marketing company as the party making the contract with the consumers. The appellate court also remained skeptical as to whether providing an email address and clicking a “yes” button is sufficient to agree to a contract. Such clicks are still new enough that many courts don’t quite know how to handle them.

The appellate court also denied the marketing company’s motion to force the case into arbitration. The court decided that, since the arbitration provision was on another hyperlink which the consumers did not click on, no valid arbitration agreement took place.

Arbitration agreements have grown increasingly popular with companies in recent years. Consumers and employees alike are both being asked to sign more and more contracts containing arbitration agreements. These agreements tend to favor the company over the individual as they make class actions impossible and the arbitrator is often chosen and paid for by the company. The higher courts have upheld many arbitration agreements in recent years, but not all of the appellate courts have been as favorable to the agreements. Many have been found to be unenforceable and the likelihood of such a finding can only increase if the consumer never even saw the arbitration agreement.

2014 Outlook For Class Actions in the Supreme Court

February 6, 2014 | Peter S. Lubin and Patrick Austermuehle

When the Supreme Court agrees to hear a case, the decision that the Court reaches in that case can have long-standing consequences for future rulings in similar cases made by courts all over the country. In recent years, class action lawsuits have been particularly contentious in the courts. In order to attain class certification, a class of plaintiffs is generally required to fulfill four requirements:

1. The class must be large enough to justify combining all of the claims into one lawsuit, generally, this means at least 100 class members;
2. The class must have questions of law or fact in common;
3. The claims of the representative parties must be sufficiently similar to the claims of the rest of the class; and
4. The representative parties must fairly and adequately protect the interests of the class.

Despite these clear requirements, various courts have ruled to certify classes of plaintiffs while other courts have denied certification based on a lack of ability to fulfill the above requirements.
Securities class actions in particular have faced an increasing number of challenges in recent years, leaving shareholders who have been the victims of fraud with little or not outlet for redress.

Halliburton Co. v. Erica P. John Fund

In this case, investors filed a lawsuit against the publicly traded energy company by claiming that it misled them about key information, including its liability in a recent asbestos investigation. The investors allege that such misinformation affected the company’s stock prices and ultimately harmed the company’s shareholders.

Halliburton is challenging the Supreme Court’s decision in 1988 in Basic v. Levinson, in which the Court determined the fraud-on-the-market theory, which has been the basis for most securities class actions ever since. The theory states that, when a public company makes a misrepresentation in an efficient market, that misinformation is carried through the market and affects the company’s stock price. An investor purchasing a security is thus presumed to have relied on that misinformation. However, the concept of an efficient market, while largely uncontested in the 1980s, has since come under scrutiny and has recently been questioned by some of the current justices of the Supreme Court. If the Court overturns its decision in Basic v. Levinson, each class member will have to prove that they relied on the misinformation when purchasing or selling company stock.

Plaintiffs’ attorneys fear that such a requirement will render class certification for such cases nearly impossible. Some of them have claimed that it could have consequences beyond just securities class actions. Consumer class actions, for example, might also be affected.

The “Washing Machine” Cases

Two separate consumer class actions alleging defective washing machines have made their way through the court system and are currently being petitioned to be heard by the Supreme Court. The defendants in the lawsuit, Whirlpool Corp, and Sears Roebuck & Co., are asking the Supreme Court to overrule the decisions made by lower courts to certify classes of consumers. The plaintiffs against Whirlpool allege that 21 different models of the company’s high-efficiency, front-loading Duet clothes washers sold since 2001 have a design defect that results in mold.
Both Whirlpool and Sears argue that the classes fail to meet the predominancy requirements of class certification and that most of the class members were not harmed.
If the Supreme Court agrees to hear the case and rules in favor of the defendants, the decision could have serious consequences on all issue-based class actions. It has the potential to severely limit consumers’ ability to bring their grievances against a company.

Securities Litigation Uniform Standards Act (SLUSA)

While rulings made by the Supreme Court can sometimes mean drastic changes in the law, it also frequently means simply clarifying older laws. For example, the SLUSA was enacted in 1998 as a way to prevent shareholders from evading the pleading standards of federal litigation by filing suit in state court, whose pleading standards are usually less rigorous. Specifically, SLUSA prohibits state-based suites alleging fraud “in connection with the purchase or sale” of covered securities.

The current lawsuit arose when investors bought securities which were not covered under SLUSA directly, but were certificates of deposits which were backed by SLUSA-covered securities.

When Robert Allen Standford’s $7 billion Ponzi scheme was revealed to the public, the shareholders filed a class action lawsuit alleging fraud. The law firms Proskaur Rose LLP and Chadbourne & Parke LLP were included as defendants in the lawsuit for allegedly aiding the Ponzi scheme.

A Texas federal judge ruled that the investors’ claims were precluded by SLUSA. The decision was appealed and went to the Fifth Circuit Court, which found that the claims were only “tangentially related” to SLUSA-covered securities trades. The attorneys representing the law firms are appealing the decision, arguing that the Fifth Circuit Court’s decision allows plaintiffs to avoid SLUSA.

If the Supreme Court decides to rule in favor of the defendants, the result could have far-reaching implications on shareholders’ ability to file claims.

Mississippi ex rel. Hood v. AU Optronics Corp.

Consumers who have suffered as a result of fraud are not the only ones capable of bringing a lawsuit against a company for violating consumer rights. State attorneys general also have the option of bringing a lawsuit to recover damages on behalf of consumers. These are known as parens patriae cases. At issue in this lawsuit is whether a parens patriae case in which the attorney general is seeking to represent 100 or more consumers should be treated as a class action.

Mississippi’s attorney general, Jim Hood, filed a lawsuit against a group of electronics companies for allegedly fixing the price of liquid crystal display panels.
If the Supreme Court rules that parens patriae lawsuits count as class actions, it could give defendants the option of moving such cases to federal court. If the Court rules that these lawsuits cannot be treated as class actions, then the state attorneys’ general can keep them in their home courts, which are often more disposed to be favorable to the attorney general.

Carrera v. Bayer Corp. et al.

This lawsuit was filed against Bayer by a consumer who alleges that the pharmaceutical company engaged in deceptive practices by claiming that its One-A-Day WeightSmart could enhance metabolism. Since Bayer does not sell its products directly to consumers, the company has no records of who purchased the vitamin. The defendants therefore claim that the class cannot be certified because the plaintiffs have no way of finding every single class member, despite such a limitation never having been a requirement for class action certification.
The district court certified the class, but the Third Circuit Court of Appeals reversed that decision, saying that the difficulty in determining consumers who belong to the class rendered it ineligible for certification.

If the Supreme Court agrees to hear the case and makes a ruling in line with that of the Third Circuit Court, the decision could affect consumers’ ability to file claims. The plaintiffs in the case also argue that such a decision could encourage companies like Bayer not to keep a record of customer purchases.

Lumber Liquidators Sued on Class Action Over Alleged Contaminated Chinese Flooring

January 16, 2014 | Peter S. Lubin and Patrick Austermuehle

When a company is publicly owned, it needs to be aware that it has a responsibility, not only to its customers, but also to its shareholders. The recent class action lawsuits against Lumber Liquidators are good examples of this fact.

Shareholders filed a lawsuit against Lumber Liquidators when it came to light that the company had allegedly imported wood from the habitat of an endangered species and sold wood with elevated levels of formaldehyde. This lawsuit demonstrates the fact that selling unsafe materials has the potential to cause harm, not only to the customers who purchase the material, but also the people who have invested money in the company.

Shortly after the shareholders filed their lawsuit against Lumber Liquidators, customers who had purchased wood from the company filed a similar lawsuit.

Lumber Liquidators has been under investigation recently for importing wood from China which was allegedly harvested in Russia from the habitat of the endangered Siberian tiger. Taking lumber from the habitat of an endangered species is in direct violation of the Lacey Act, a conservation law which has been in existence in the United States since 1900. The Act was put in place to protect plants and wild animals from the hazards of industrialization. Among other things, the Act prohibits trading in wildlife, fish, and plants which have been illegally harvested, transported, or sold. In 2008, the Act was amended to include anti-illegal-logging provisions which makes it illegal to take wood from the habitat of an endangered species.
In addition to violating the Lacey Act, the lawsuits allege that Lumber Liquidators sold wood which contained unsafe levels of formaldehyde. According to the Environmental Protection Agency, formaldehyde is an important component in the production of processed wood products and other home goods. However, it has also “been shown to cause cancer in animals and may cause cancer in humans”. The gas also has the potential to cause other health problems, including eye, nose, and throat irritation, wheezing and coughing, fatigue, and severe allergic reactions. Because of these health concerns, the federal government has imposed limits on the amount of formaldehyde that it deems safe to use in wood products.

Needless to say, when consumers discovered that the wood they had purchased might not be safe, they expressed serious concerns regarding the matter. The consumers’ lawsuit was filed by three consumers who are petitioning the court to be named plaintiffs in the class action lawsuit against Lumber Liquidators. Each of these consumers purchased wood from Lumber Liquidators and had it installed in their homes. They all allege that, at the time that they bought the wood, it was represented as being in compliance with both the Lacey Act and formaldehyde standards. The three plaintiffs allege that they were entirely dependent upon Lumber Liquidators’s representation of the wood and that they would not have purchased it if they had known that the wood might contain unsafe levels of formaldehyde.

The consumers’ lawsuit has been filed on behalf of everyone in the United States “who purchased and installed wood flooring from Lumber Liquidators Holdings, Inc., either directly or through an agent, that was sourced, processed, or manufactured in China”.

Regus Sued in Class Action for Alleged Hidden Charges

January 12, 2014 | Peter S. Lubin and Patrick Austermuehle

Although renters usually expect to pay through the owner of the property for utilities, they usually only expect to do so if it is specifically included in the lease. According to a recent class action lawsuit against Regus PLC and its subsidiaries, the company allegedly charged fees to its renters for kitchen amenities, use of the telephones, telecom handsets, and internet activation and access.

According to the complaint, each plaintiff was provided with an “Office Agreement” which listed the location of the office, the duration of the client’s entitlement to the office, the amount of the “Initial Payment”, the amount of the security deposit, and the monthly payment from that point forward. The agreement allegedly did not “disclose any goods, services, penalties, and/or taxes for which Regus assesses charges and the amounts or methods of calculation of Regus’ charges associated with such goods, services, penalties, and/or taxes.”

However, once the plaintiffs received their bills, they found charges for things which were never mentioned in the lease. These charges included “amounts for one or more of the following …: i) ‘Kitchen Amenities Fee;’ ii) ‘Telephone Lines;’ iii) ‘Telecom Handset;’ iv) ‘Local Telephone;’ v) Internet activation and access charges; vi) taxes; and vii) penalties”. The lawsuit refers to these charges collectively as the “Unauthorized Charges”. Because of these Unauthorized Charges, the monthly payments made by clients was regularly in excess of what the Office Agreement had provided. However, if clients failed to pay these extra charges, they were allegedly subjected to penalties by Regus.

The lawsuit further alleges that Regus had clients make payment via an automated system in which the charges were automatically applied to the clients’ debit card or credit card. This meant that customers frequently got charged by Regus before even seeing a bill or having a chance to dispute the charges.

According to the complaint that was filed, Regus is also guilty of false advertising. Contrary to the experiences of the plaintiffs, the advertisements that Regus put on its website included the following:

“With Regus, you only pay for what you need when you need it”; “No up front capital expenditure required”; and “Flexible terms and one-page agreements.”
The complaint alleges that the additional fees the plaintiffs were charged directly contradict, not only the leases which were signed by the plaintiffs, but also the advertisements provided by Regus. For example, regarding the kitchen amenities, the lawsuit alleges that “Regus assessed a $30 per person monthly charge to Plaintiff … in excess of the monthly office payment amount indicated in the Office Agreement. Neither Regus’s practice of assessing this charge nor the amount of the charge is disclosed in the Office Agreement or the Fine Print. The charge was assessed regardless of whether any kitchen amenities were used.”

As far as the use of the telecom handset for which some plaintiffs were charged, the complaint alleges that

“the retail value of the two handsets provided by Regus does not exceed $99.00, yet Regus charged … a total of $222.75 (including purported taxes) per month for the use of the handsets during the term of the Office Agreement.”

The lawsuit seeks to bring a class action which would include everyone who had an Office Agreement or similar agreement for one of Regus’s locations in California and who paid one or more of the Unauthorized Charges between May 8, 2008 and the time that the complaint was filed. The lawsuit is also petitioning for a second New York class which would consist of similarly situated renters in the state of New York. The plaintiffs are currently unaware of just how many people qualify to participate in the classes, but they believe that each class could consist of more than 100 members.

You can view the complaint in the lawsuit here
.

Bucs Pick Off Class Plaintiff in TCPA / Junk Fax Case

January 8, 2014 | Peter S. Lubin and Patrick Austermuehle

One of the requirements for filing a class action lawsuit is that the representatives of the class must have a complaint or complaints against the defendant which adequately represent the complaints of the rest of the class members. If a class representative (or representatives) is offered a settlement from the defendant which covers all of the damages to which they are legally entitled, then the plaintiff can no longer represent a class, as their complaint against the defendant would be invalidated.

This was the argument made by Buccaneers Limited Partnership when they filed a motion to dismiss a lawsuit against them. The lawsuit was filed by three dentists, a pest control service, and two others, all of whom allegedly received “unsolicited facsimiles” which were sent “for the purposes of offering for sale game tickets to the Tampa Bay Buccaneers’ home football games.” Because fax recipients have to pay for the faxes that they receive, including the paper and toner used to print the faxes, solicitations such as these are illegal under the federal Telephone Consumer Protection Act.

The Buccaneers offered to pay the plaintiffs the maximum amount of damages which they would be able to collect under the Telephone Consumer Protection Act. The plaintiffs refused the money and continued with the lawsuit. The Buccaneers then filed a motion to dismiss. Regardless of whether or not the plaintiffs accepted the offer made by the defendants, the mere existence of the offer negates any complaint that the plaintiffs have against the defendant.

The fact that a defendant can invalidate a plaintiff’s claim by offering to settle runs the risk of defendants making an offer to plaintiffs to settle the case before the plaintiffs have a chance to make their case for class certification. In order to avoid this, courts have provided plaintiffs with the option of filing for class certification at the same time that they file the complaint. They can then ask the court to wait to make a decision until they have had time to provide evidence that the case should be tried as a class action.

Because the plaintiffs in this case did not file for class certification until after the Buccaneers had already filed their motion to dismiss (and after the Buccaneers had made their offer to settle), the court determined that the plaintiffs no longer had a valid complaint against the defendants. As a result, the plaintiffs were ineligible to represent a class of recipients of facsimiles from the Buccaneers.

Under the relevant statute, the TCPA or Telephone Communications Protection Act, each class member would be entitled to $500 in damages. If all potential 100,000 class members are included, this raises the potential penalty for the defendant to $50 million. If the plaintiffs are able to prove to the court that the defendant violated the TCPA “willfully or knowingly”, then the penalty triples to $150 million. As a result, the attorneys’ fees would likewise be inflated. The awards to the named plaintiffs in the lawsuit would also rise accordingly. The court therefore determined that the plaintiffs had an ulterior motive in filing the lawsuit and granted the defendant’s motion to dismiss.

The same lawyers later filed a class action on behalf of another plaintiff and moved for class certification thus barring another pick off attempt and the class action is now proceeding. This demonstrates that the pick off tactic can sometimes do nothing but delay a class case.

You can view the full court opinion here.

New Class Action Cases on the Supreme Court’s Horizon

January 5, 2014 | Peter S. Lubin and Patrick Austermuehle

When the Supreme Court agrees to hear a case, the decision that the Court reaches in that case can have long-standing consequences for future rulings in similar cases made by courts all over the country. In recent years, class action lawsuits have been particularly contentious in the courts. In order to attain class certification, a class of plaintiffs is generally required to fulfill four requirements:

1. The class must be large enough to justify combining all of the claims into one lawsuit, generally, this means at least 100 class members;
2. The class must have questions of law or fact in common;
3. The claims of the representative parties must be sufficiently similar to the claims of the rest of the class; and
4. The representative parties must fairly and adequately protect the interests of the class.
Despite these clear requirements, various courts have ruled to certify classes of plaintiffs while other courts have denied certification based on a lack of ability to fulfill the above requirements.
Securities class actions in particular have faced an increasing number of challenges in recent years, leaving shareholders who have been the victims of fraud with little or not outlet for redress.

Halliburton Co. v. Erica P. John Fund

In this case, investors filed a lawsuit against the publicly traded energy company by claiming that it misled them about key information, including its liability in a recent asbestos investigation. The investors allege that such misinformation affected the company’s stock prices and ultimately harmed the company’s shareholders.

Halliburton is challenging the Supreme Court’s decision in 1988 in Basic v. Levinson, in which the Court determined the fraud-on-the-market theory, which has been the basis for most securities class actions ever since. The theory states that, when a public company makes a misrepresentation in an efficient market, that misinformation is carried through the market and affects the company’s stock price. An investor purchasing a security is thus presumed to have relied on that misinformation. However, the concept of an efficient market, while largely uncontested in the 1980s, has since come under scrutiny and has recently been questioned by some of the current justices of the Supreme Court. If the Court overturns its decision in Basic v. Levinson, each class member will have to prove that they relied on the misinformation when purchasing or selling company stock.

Plaintiffs’ attorneys fear that such a requirement will render class certification for such cases nearly impossible. Some of them have claimed that it could have consequences beyond just securities class actions. Consumer class actions, for example, might also be affected.

The “Washing Machine” Cases

Two separate consumer class actions alleging defective washing machines have made their way through the court system and are currently being petitioned to be heard by the Supreme Court. The defendants in the lawsuit, Whirlpool Corp, and Sears Roebuck & Co., are asking the Supreme Court to overrule the decisions made by lower courts to certify classes of consumers. The plaintiffs against Whirlpool allege that 21 different models of the company’s high-efficiency, front-loading Duet clothes washers sold since 2001 have a design defect that results in mold.
Both Whirlpool and Sears argue that the classes fail to meet the predominancy requirements of class certification and that most of the class members were not harmed.

If the Supreme Court agrees to hear the case and rules in favor of the defendants, the decision could have serious consequences on all issue-based class actions. It has the potential to severely limit consumers’ ability to bring their grievances against a company.

Securities Litigation Uniform Standards Act (SLUSA)

While rulings made by the Supreme Court can sometimes mean drastic changes in the law, it also frequently means simply clarifying older laws. For example, the SLUSA was enacted in 1998 as a way to prevent shareholders from evading the pleading standards of federal litigation by filing suit in state court, whose pleading standards are usually less rigorous. Specifically, SLUSA prohibits state-based suites alleging fraud “in connection with the purchase or sale” of covered securities.

The current lawsuit arose when investors bought securities which were not covered under SLUSA directly, but were certificates of deposits which were backed by SLUSA-covered securities.

When Robert Allen Standford’s $7 billion Ponzi scheme was revealed to the public, the shareholders filed a class action lawsuit alleging fraud. The law firms Proskaur Rose LLP and Chadbourne & Parke LLP were included as defendants in the lawsuit for allegedly aiding the Ponzi scheme.

A Texas federal judge ruled that the investors’ claims were precluded by SLUSA. The decision was appealed and went to the Fifth Circuit Court, which found that the claims were only “tangentially related” to SLUSA-covered securities trades. The attorneys representing the law firms are appealing the decision, arguing that the Fifth Circuit Court’s decision allows plaintiffs to avoid SLUSA.

If the Supreme Court decides to rule in favor of the defendants, the result could have far-reaching implications on shareholders’ ability to file claims.

Mississippi ex rel. Hood v. AU Optronics Corp.

Consumers who have suffered as a result of fraud are not the only ones capable of bringing a lawsuit against a company for violating consumer rights. State attorneys general also have the option of bringing a lawsuit to recover damages on behalf of consumers. These are known as parens patriae cases. At issue in this lawsuit is whether a parens patriae case in which the attorney general is seeking to represent 100 or more consumers should be treated as a class action.

Mississippi’s attorney general, Jim Hood, filed a lawsuit against a group of electronics companies for allegedly fixing the price of liquid crystal display panels.
If the Supreme Court rules that parens patriae lawsuits count as class actions, it could give defendants the option of moving such cases to federal court. If the Court rules that these lawsuits cannot be treated as class actions, then the state attorneys’ general can keep them in their home courts, which are often more disposed to be favorable to the attorney general.

Carrera v. Bayer Corp. et al.

This lawsuit was filed against Bayer by a consumer who alleges that the pharmaceutical company engaged in deceptive practices by claiming that its One-A-Day WeightSmart could enhance metabolism. Since Bayer does not sell its products directly to consumers, the company has no records of who purchased the vitamin. The defendants therefore claim that the class cannot be certified because the plaintiffs have no way of finding every single class member, despite such a limitation never having been a requirement for class action certification.
The district court certified the class, but the Third Circuit Court of Appeals reversed that decision, saying that the difficulty in determining consumers who belong to the class rendered it ineligible for certification.

If the Supreme Court agrees to hear the case and makes a ruling in line with that of the Third Circuit Court, the decision could affect consumers’ ability to file claims. The plaintiffs in the case also argue that such a decision could encourage companies like Bayer not to keep a record of customer purchases.

7th Circuit Overturns and Remands Denial of Class Certification in Fair Debt Collection Practices Act Case

January 2, 2014 | Peter S. Lubin and Patrick Austermuehle

When class actions are filed, courts need to consider all aspects of the class before determining whether or not it can be certified. This includes whether class members from other states have claims similar enough to the class members of one state, particularly in cases where the lawsuit is filed under a state law. The Seventh Circuit Court of Appeals recently handled a case in which the status of the class was disputed for this reason.

Gwendolyn Phillips was sued by Asset Acceptance, LLC for some outstanding debt that she still had with the company. However, Phillips argued that the lawsuit was invalid because the statute of limitations on the debt had already passed.

Few debtors are aware that a statute of limitations on their debt exists. Even those who do know frequently find that it is cheaper and easier to simply settle the debt rather than try to fight it in court. To try and mitigate these effects, Phillips moved to certify a class action of plaintiffs consisting of debtors who have been sued by Asset Acceptance for debts resulting from the sale of natural gas who have been sued after the statute of limitations has expired. According to the records currently available, the class that Phillips is proposing can consist of as many as 793 members if they all choose to participate. 343 of which are eligible to file claims in the state of Illinois.

Which Illinois statute of limitations applies to this was case disputed between the parties. One statute gives four years as the limitation while the other statute gives five. Phillips claims that the applicable statute is the one that lasts for four years while Asset insists that the five-year statute is the proper one. Regardless, Asset sued Phillips more than five years after her debt had accrued.

The district court ruled that, because Phillips had been sued by Asset after five years, she was an inadequate representative for members of the class who had been sued after only four years. The court therefore shrunk the eligible class members down to less than thirty members, which the judge ruled was too small to justify the numerosity requirement of a class action. The judge therefore dismissed Phillips’s motion for class certification.

Phillips appealed the decision and the case went to the Seventh Circuit Court of Appeals. The appellate court rejected the lower court’s reasoning that the difference of one year was sufficient to disqualify Phillips as an adequate representative. Rather, the appellate court found that Phillips had no ulterior motive for insisting that the relevant statute lasted for only four years, as she had been sued after five. Therefore, the court found no reason that she should not be an adequate representative for the class.

Further, even if the court had found a significant difference between class members who had been sued after four years as opposed to members who had been sued after five, the court found that certifying a subclass with a second representative made more sense than decertifying the entire class.

In examining the case, the appellate court found that the relevant statute was for only four years, and as a result, Phillips is eligible to represent the entire class of 343 Illinois plaintiffs. Whether or not plaintiffs in other states can be included in the class or subclasses will need further evidence to determine. In the mean time, the appellate court remanded the case back to the district court.

You can view the entire decision here.

TCPA Texting Class Action Alleges Insurance Carriers Violate Privacy Rights Through Illegal Text Message Campaign

December 15, 2013 | Peter S. Lubin and Patrick Austermuehle

In 1991, Congress enacted the Telephone Consumer Protection Act (TCPA) which specifically prohibits the use of auto-dialers in making calls to a wireless number without the prior express consent of the person being called. The only exception to this rule is in the case of an emergency. One of the main reasons for this Act is the fact that owners of wireless phones are often charged for their incoming calls as well as the calls that they make. This means that, aside from being annoying and potentially time consuming, the telemarketing calls are also costing their targets money out of pocket.

Despite the institution of this Act, companies appear to be unwilling to cooperate, as evidenced by the fact that companies which use auto-dialers to contact potential customers are still thriving. One of these companies is Variable Marketing, LLC and it has recently been hit with a class action lawsuit alleging violations of the TCPA.

Filed in the District Court for the Northern District of Illinois, the lawsuit names American Automobile Association, Inc.; Farmers Group, Inc.; Government Employees Insurance Company; Nationwide Mutual Insurance Company; State Farm Mutual Automobile Insurance Company; and Variable Marketing, LLC as defendants. All of these defendants allegedly used a lead-generator marketing company (Variable Marketing), to market their services in violation of the TCPA.

The plaintiffs are five consumers who received calls from Variable on their cell phones. When they answered or returned the calls, a pre-recorded message played before they were able to reach a live operator. According to the lawsuit, only one of the five plaintiffs had ever had any business dealings with any of these insurance companies prior to receiving the call and none of them had expressed their consent to receive these calls. The plaintiffs are seeking statutory damages and injunctive relief under the TCPA.

The proposed class is defined as “All persons within the United States who received a non-emergency telephone call from Variable, placed while Variable was acting on behalf of the Insurance Company Defendants, to a cellular telephone through the use of an automatic telephone dialing system or an artificial or prerecorded voice.”
This proposed class could end up consisting of tens of thousands of members. Under the law, each of those members is entitled to up to $1,500 for each call that they received from Variable. This brings the total award sought by the plaintiffs to over $5,000,000, not including interest and attorneys’ fees.

Despite the fact that Variable is the company which actually placed the calls using an auto-dialer, all of the companies for which Variable did this are responsible for having violated the TCPA. The Federal Communications Commission (FCC), the agency which Congress put in charge of regulating and implementing the TCPA, determined that “a company on whose behalf a telephone solicitation is made bears the responsibility of any violations.” According to the FCC, the seller and the telemarketer do not need a contract in order for the seller to be liable. All that the FCC requires is that the telemarketer have “the apparent (if not actual) authority” to make the calls.

A representative of Variable told one of the plaintiffs that he was calling on behalf of “lots of the big [insurance companies], including Geico and AAA.” This suggests that Variable was given authority to use the Insurance Company Defendants’ trade name, trademark and service marks. This fulfills the requirement of “apparent (if not actual) authority” for holding the insurance companies accountable for the damages incurred as a result of their violation of the TCPA.