Class-Action

Federal Court Dismisses Certain State Law Claims in Multidistrict Litigation Case Alleging ATM Overdraft Fee Fraud

July 26, 2013 | Peter S. Lubin and Patrick Austermuehle

A federal judge denied most of a motion to dismiss brought by multiple banks in a consolidated case alleging overdraft fee fraud. In re Checking Account Overdraft Litigation, 694 F.Supp.2d 1302 (S.D. Fla. 2010). The Judicial Panel on Multidistrict Litigation (JPML) consolidated multiple claims into a single matter in the Southern District of Florida in order to deal efficiently with common pretrial matters. The plaintiffs asserted causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing (“GFFD covenant”), and many individual causes asserted common law breach of contract claims and state law consumer protection claims. The defendants filed an omnibus motion to dismiss, which the trial court granted in part and denied in larger part. The court dismissed claims under certain state consumer statutes, as well as claims based on the laws of states in which no plaintiffs lived.

The central issue of the litigation was the ordering of ATM transactions from highest to lowest, regardless of the order in which the account holder performed the transaction. This allegedly reduced the account holder’s total account balance more quickly, garnering more overdraft fees for the defendants. At the time the court rendered its order on the omnibus motion to dismiss, the litigation consisted of fifteen separate complaints, each brought against an individual bank. All of the fifteen complaints pending at the time of the court’s order involved breach of GFFD covenant claims. Five complaints were filed in California as putative class actions on behalf of California customers. Eight complaints were filed outside California, putatively on behalf of nationwide classes excluding California. One complaint was filed by a California resident and sought to represent a nationwide class. The final complaint was filed by a Washington resident on behalf of a class of Washington customers. According to the JPML, the consolidated litigation has involved one hundred separate complaints since 2009, with forty-four still involved as of March 5, 2013.

U.S. Supreme Court Rules that Arbitration Agreement Bars Class Action and Class Arbitration Claims – AmEx v. Italian Colors Restaurant

July 25, 2013 | Peter S. Lubin and Patrick Austermuehle

The United States Supreme Court recently ruled that federal law does not permit a court, based on a finding that individual arbitration is cost-prohibitive for a plaintiff, to strike a class arbitration waiver clause in a contract. American Express Co., et al. v. Italians Colors Restaurant, et al (“AmEx”), 570 U.S. ___, No. 12-133, slip op. (Jun. 20, 2013). The decision builds on prior decisions that have generally affirmed the enforceability of mandatory arbitration clauses, class arbitration waivers, and class action waivers, even in contracts where the bargaining power between the parties is far from equal.

The plaintiffs in AmEx are businesses that accept payments using American Express credit cards. The contract between the plaintiffs and American Express includes clauses requiring submission of all disputes to arbitration and waiving class arbitration procedures. The plaintiffs brought a federal antitrust class action lawsuit against American Express, claiming that the company engages in various monopolistic practices. The defendant brought a motion to compel arbitration under the contract and the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq. In response, the plaintiffs offered an economist’s declaration stating that the cost of arbitration for an individual merchant asserting a federal antitrust claim would exceed any possible recovery.

Court Denies Motion to Dismiss Appeal of Class Decertification, Finding that Plaintiffs Who Already Settled Still Had Standing – Espenscheid v. DirectSat USA

July 12, 2013 | Peter S. Lubin and Patrick Austermuehle

In an appeal of the decertification of a class action lawsuit, a federal appeals court denied a motion to dismiss the appeal for lack of jurisdiction, finding that the plaintiffs/appellants, who settled with the defendants after decertification, still had a stake in the litigation. Espenscheid v. DirectSat USA, LLC, 688 F.3d 872 (7th Cir. 2012). The plaintiffs claimed that they were entitled to an “incentive award” or “enhancement fee” for serving as class representatives, but only if the case was certified as a class action. Id. at 874-75. This gave them an ongoing stake in the litigation, they argued, and therefore gave them standing to appeal decertification. The court agreed, finding that dismissing their appeal on standing grounds would not serve judicial economy, as another class member could simply step in and appeal.

Judge Richard Posner, writing for the court, does not say much about the underlying lawsuit, except that it consists of both class action and collective action claims. The three named plaintiffs brought collective action claims against the defendant for alleged violations of the federal Fair Labor Standards Act, and class action claims for supplemental state law claims. The difference between a class action and a collective action under federal law, the court notes, is not particularly relevant to the question at hand.

Illinois Court Dismisses Putative Shareholder Class Action, Finding Lack of Alleged Injuries – Noble v. AAR Corp.

July 10, 2013 | Peter S. Lubin and Patrick Austermuehle

An Illinois federal court granted a motion to dismiss in a putative shareholder derivative class action, having already denied the plaintiff’s application for a temporary restraining order (TRO). Noble v. AAR Corp., et al, No. 12 C 7973, memorandum and order (E.D. Ill., Apr. 3, 2013). The plaintiff asserted causes of action for various alleged breaches of fiduciary duty on behalf of the corporation, but the court found that the lawsuit was a direct action, primarily for the plaintiff’s benefit as a shareholder, rather than a derivative one.

The dispute related to a recommendation by the Board of Directors to the shareholders of AAR Corporation, a publicly-traded company, regarding an executive compensation plan. The Board made a unanimous proposal regarding the corporation’s “say on pay” plan, which allowed the shareholders to vote on executive pay as required by Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), 15 U.S.C. § 78n-1. In a seventy-page proxy statement, the Board asked the shareholders to approve an advisory resolution regarding executive compensation at the corporation’s annual shareholder meeting, which was scheduled for October 10, 2012.

The plaintiff filed suit against the corporation and individual Board members, alleging that the Proxy Statement failed to disclose various details about what the Board considered before making its proposal. Noble, memorandum at 5. He claimed that the individual defendants breached their fiduciary duties of good faith, care, and loyalty to the shareholders, and that the corporation aided and abetted these breaches. Id. at 5-6. The defendants removed the case to federal court on October 4, 2012. The following day, the plaintiff filed a motion for a TRO, asking the court to stop the shareholder vote. The court held a hearing on October 9 and denied the motion. On October 10, the shareholders approved the Board’s proposal, with seventy-seven percent of the shares voting in favor. Id. at 1-2.

Wisconsin Class Action Against Insurance Company Remanded to State Court Because of State Law Claims – LaPlant v. Northwestern Mut. Life Ins. Co.

July 5, 2013 | Peter S. Lubin and Patrick Austermuehle

Our Chicago class action attorneys note that a class action claim against an insurance company, which the defendant had removed to federal court, fell within an exception to the federal jurisdiction statute, according to a federal district judge in LaPlant v. The Northwestern Mutual Life Insurance Company, No. 11-CV-00910, slip op. (E.D. Wis., Aug. 20, 2012). The court remanded the case to Wisconsin state court under the corporate governance exception to the Class Action Fairness Act (CAFA), 28 U.S.C. § 1332(d). It held that the plaintiffs’ claims related exclusively to the defendant’s “internal affairs,” based on Wisconsin law.

The defendant issued an annuity insurance policy to the lead plaintiff. As a mutual insurance company, the defendant was “owned cooperatively by its policyholders,” LaPlant, slip op. at 1, and paid dividends to policyholders out of its profits. In 1985, it moved policyholders’ money into a separate fund and began paying dividends based on interest generated by the fund. Id. The amount of the payments received by the policyholders allegedly decreased as a result of this change. Wisconsin law gives policyholders the right to participate in annual profit distributions. Wis. Stat. § 632.62(2).

The lead plaintiff brought a class action lawsuit for breach of contract and breach of fiduciary duty on behalf of a class of policyholders in Wisconsin. The class prevailed at trial, and the lead plaintiff moved to expand the scope of the class to include policyholders in other states. The defendant removed the case to federal court under CAFA, which confers jurisdiction to federal courts over class actions with more than one hundred class members, more than $5 million in controversy, and diversity of citizenship between the defendant and at least one class member. The plaintiff moved to remand the case to Wisconsin state court based on the “corporate governance exception,” which applies when a class action’s claims solely relate (1) “to the internal affairs or governance of a corporation” (2) based on the laws of the state of incorporation. LaPlant, slip op. at 2, citing 28 U.S.C. §§ 1332(d)(9)(B), 1453(d)(2).

Court Retains Most of a Deceptive Business Practices Putative Class Action Against a Bank for Overdraft Fees – White v. Wachovia Bank

June 28, 2013 | Peter S. Lubin and Patrick Austermuehle

A federal court allowed most causes to proceed in a putative class action against a bank for allegedly fraudulent overdraft fees. White, et al v. Wachovia Bank, N.A., No. 1:08-cv-1007, order (N.D. Ga., Jul. 2, 2008). The plaintiffs, who alleged that the bank had recorded transactions out of chronological order to maximize overdraft fee liability, claimed violations of state deceptive trade practice laws and several claims related to breach of contract. The court denied the defendant bank’s motion to dismiss as to all but two of the plaintiffs’ claims.

The two lead plaintiffs opened a joint checking account with Wachovia Bank in 2007. They signed a Deposit Agreement that stated that the bank could pay checks and other items in any order it chose, even if it resulted in an overdraft. It also stated that the bank could impose overdraft charges if payment of any single item exceeded the balance in the account. The plaintiffs alleged in their lawsuit that Wachovia ordered its posting of transactions in a way that would cause their account to incur overdraft fees, even when they had sufficient funds to pay the items. They also alleged that the bank imposed overdraft fees when no overdraft had occurred.

The lawsuit, originally filed in a Georgia state court in February 2008, asserted violations of the Georgia Fair Business Practices Act (FBPA), O.C.G.A. §§ 10-1-390 et seq., and breach of the duty of good faith. The plaintiffs also claimed that the clause of the Agreement related to the ordering of transaction was unconscionable, that the bank had engaged in trover and conversion, and that it had been unjustly enriched. The defendant removed the case to federal court under the Class Action Fairness Act of 2005, 28 U.S.C. § 1332(d)(2), which allows defendants to remove certain class actions to federal court. It then moved to dismiss all claims under Federal Rule of Civil Procedure 12(b)(6), which allows a court to dismiss a lawsuit that “fail[s] to state a claim upon which relief can be granted.” To defeat such a motion, a plaintiff must show a plausible factual basis for their claims.

Court Reverses Class Certification in Case Alleging Wrongful Withholding of Bonus Compensation – InPhyNet Contracting Services v. Soria — Our Chicago Class Action Attorneys Defend Businesses in Class Cases

June 10, 2013 | Peter S. Lubin and Patrick Austermuehle

A Florida appellate court reversed an order certifying a class of doctors claiming breach of fiduciary duty and other causes of action against their employer. InPhyNet Contracting Services v Soria, 33 So.3d 766 (Fl. Ct. App. 2010). The case began as a suit alleging breach of a covenant not to compete against one physician, leading the physician to counterclaim on behalf of a putative class with regards to a bonus compensation plan. After separating the physician’s individual claims from the class claims, the trial court certified a class. The appellate court reversed, finding that the class claims did not meet the requirements of commonality or predominance over class members’ individual claims.

InPhyNet Contracting Services (ICS) places physicians in hospitals around the state of Florida on a contractual basis. It offers incentives to physicians to work in hospital emergency rooms through a Physician Incentive Plan (PIP), which pays doctors out of a “bonus pool” associated with a hospital based on performance and similar factors. Id. at 768. ICS placed Dr. David Soria in the emergency room of Wellington Regional Medical Center, where he worked as Medical Director. The dispute between Soria and ICS began when Wellington terminated its contract with ICS and contracted with a competitor, and Soria began working for the competitor.

Illinois Federal Court Finds Putative Class Action Precluded by Arbitration Agreement – Collier v. Real Time Staffing Services

June 7, 2013 | Peter S. Lubin and Patrick Austermuehle

A putative class action alleging violations of the Fair Credit Reporting Act, 15 U.S.C. §§ 1681 et seq. (FCRA), must be submitted to binding arbitration, according to the court in Collier v. Real Time Staffing Services, Inc., No. 11 C 6209, memorandum opinion and order (N.D. Ill., Apr. 11, 2012). The court found that a clause in the contract between the plaintiff and defendant required both parties to submit any disputes between them to arbitration. On the question of whether the class claims asserted by the plaintiff were subject to mandatory arbitration, the court left it for the arbitrators to decide.

The plaintiff, Darion Collier, submitted an electronic job application to the defendant, Real Time Staffing Services, which did business as SelectRemedy. According to the court’s order, the plaintiff signed an acknowledgment that said his employment with SelectRemedy would begin once he started an assignment for one of its clients, and that it would be on an “at-will” basis. The acknowledgment further said that SelectRemedy could at any time modify the terms and conditions of his employment. Order at 2. SelectRemedy did not hire the plaintiff after reviewing his application, allegedly based on information in his consumer credit report.

The plaintiff filed suit on September 7, 2011, alleging violations of the FCRA on behalf of himself and a proposed class. SelectRemedy filed a motion to dismiss under Rule 12(b)(1) of the Federal Rules of Civil Procedure, asserting that an arbitration agreement signed by the plaintiff with his application precluded the lawsuit. The agreement stated that the plaintiff agreed to submit any disputes to binding arbitration in accordance with the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (FAA). In opposing the motion to dismiss, the plaintiff argued that the arbitration agreement was unenforceable for lack of consideration, that SelectRemedy’s ability to change the terms of employment rendered the contract illusory, and that the arbitration agreement should not cover class claims.

Honeygate Leads to Civil Anti-Dumping Suit Relating Chinese Honey Being Dumped into the U.S. Market

April 29, 2013 | Peter S. Lubin and Patrick Austermuehle

The government sometimes imposes sanctions on certain imports for the sake of fair competition on behalf of domestic producers, among other reasons. When companies choose to ignore those sanctions, they could find themselves held accountable, not only by the government, but also by the domestic producers who were harmed by the illegal imports.

The “Honeygate” investigation, led by the U.S. Immigration and Customs Enforcement investigative arm of the U.S. Department of Homeland Security is one such case. The investigation resulted in a series of seizures of illegally imported honey, criminal charges, and massive fines. The United States District of Illinois filed criminal charges against two of the country’s largest industrial honey suppliers, Groeb Farms, Inc. and Honey Solutions. The two companies entered into Deferred Prosecution Agreements with the government and confessed to knowingly facilitating the importation, purchase, and sale of the mislabeled Chinese honey in order to avoid the U.S.-imposed antidumping duties.

The United States government had imposed antidumping duties on Chinese honey because they found that the honey was sold at such a low price as to interfere with the sale of domestically-produced honey.

To avoid the United States’s antidumping duties, the honey distributors engaged in a massive conspiracy involving transshipping Chinese honey through other countries, disguising the honey’s origin, and then illegally importing the Chinese honey into the United States in order to avoid paying the U.S. dumping duties.

Three domestic honey producers, Adee Honey Farms, Bill Rhodes Honey Company, LLC, and Hackenberg Apiaries, have now filed a class action complaint in the U.S. District Court for the Northern District of Illinois. In addition to the three named plaintiffs, the class action asserts claims on behalf of a nationwide class consisting of all individuals and entities “with commercial beekeeping operations (300 or more hives) that produced and sold honey in the United States during the period from 2001 to the present.”

The lawsuit is building on the Honeygate investigation in its attempt to obtain compensation for the financial losses suffered by the domestic honey producers as a result of Groeb’s and Honey Solutions’s conduct. The class-action alleges that, by intentionally participating in the purchase, packaging, distributing, and sale of the Chinese honey, the two companies deceived consumers and purchasers.

The lawsuit alleges that consumers were deceived because the Chinese honey has allegedly been found to be “heavily adulterated, containing inexpensive sweeteners and sometimes blended with high fructose corn syrup and other additives, despite the fact that importers, in league with [Groeb and Honey Solutions], represent that it is pure honey.”
James J. Pizzirusso one of the attorneys representing the domestic honey producers, states that the domestic honey industry, which is “critically important to agriculture, has suffered losses at the hands of these fraudulent suppliers.”

Adam J. Levitt, another attorney for the plaintiffs, said “It is important that American beekeepers and honey producers get to play on a level playing field”.

Motion to Dismiss Denied in Lawsuit Alleging Law Schools Deceive Applicants to Enroll

April 27, 2013 | Peter S. Lubin and Patrick Austermuehle

With the economy firmly stuck in a “jobless recovery”, many students feel more pressure than ever to further their education in the hopes that it will make them more employable. Colleges likewise release and advertise the employment rate of their graduates to entice new students to enroll.

However, many students are finding that they are unable to get the jobs that they felt the colleges promised them. There are currently more than a dozen law schools facing class action lawsuits from students who were unable to attain employment in their field after graduation. Recently, six of those lawsuits have been dismissed by the courts, six have had their motions to dismiss rejected, and three have motions to dismiss which are still under review.
Included among the cases which have been allowed to move forward, is Harnish v. Widener University School of Law. The lawsuit alleges that the school publicized misleading and incomplete graduate employment rates in violation of New Jersey and Delaware consumer fraud acts.

Judge William H. Walls of the U.S. District Court for the District of New Jersey pointed to the broad nature of the New Jersey statute when he denied the defendants’ motion to dismiss. The statute, he says, extends to purchases made for business purposes and does not require proof of reliance in order to be enforced.

Eight Widener University law school alumni who graduated between 2008 and 2011 comprise the plaintiffs in the class-action lawsuit. Initially, the court determined that the plaintiffs failed to assert any common law fraud causes of action. The plaintiffs then voluntarily dismissed their cause of action which alleged violation of Delaware’s Deceptive Trade Practices Act.

The two remaining causes of action allege that Widener violated the New Jersey and Delaware consumer fraud acts. According to the lawsuit, Widener violated these laws by allegedly:
1) stating that approximately 90-95% of their graduates secured employment within nine months of graduation;
2) manipulating the employment data to make it seem as though the overwhelming majority of recent graduates secure full-time, permanent employment for which a J.D. is required or preferred;
3) distributing false post-graduate employment data and salary information to various third parties (such as the ABA and U.S. News and World Report);
4) making deceptive and misleading statements and omissions about Widener’s reputation with potential employers, the value of a Widener degree, and the pace at which recent graduates can expect to obtain gainful employment in their field; and
5) making students pay inflated tuition based on these misleading statements and omissions.
The court agreed that, taking these allegations at face value, the plaintiffs have plausible claims under the consumer fraud acts.

The court concluded that the 90-95% employment rate posted on Widener’s website was indeed allegedly misleading. Although the statement may have been technically true, Walls agreed that it was plausible for a law student to believe that the figures referred to law-related employment. In making this decision, Walls pointed out that the figures were posted in a class profile which was sandwiched between “judicial clerkships” and “full time legal employers”.
Walls further stated that Widener’s website aims to persuade students to obtain a law degree through their program and that the figures were sent to third-party evaluators to establish Widener’s standing.

Without much further discussion, the court agreed that the plaintiffs had also pleaded enough information to withstand the motion to dismiss their cause of action under the Delaware consumer Fraud Act.