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CHARLOTTE CHICAGO GENEVA HONG KONG LONDON LOS ANGELES MOSCOW NEW YORK NEWARK PARIS SAN FRANCISCO WASHINGTON, D.C.
Trends in Class Action Litigation
Presented by: Neal R. Marder and Stephen R. Smerek ACCA –SoCal DoubleHeader®: Preparing For The Rebound November 17, 2009 Winston & Strawn LLP © 2009
Trends in Class Litigation
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Recent Trends in Pleading Standards
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No-injury Product Liability Class Actions
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"Greenwashing" Consumer Class Actions
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Securities Class Actions
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Settlement Scrutiny Post-CAFA
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The views expressed by the persons in this session are those of the independent individual person only and do not necessarily represent the views of any organization, company, corporation, business, firm or entity.
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Recent Trends in Pleading Standards & Class Actions
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Federal Court Pleading Standard
• Rule 8(a)(2) of the Federal Rules of Civil Procedure requires a complaint to contain a "short and plain statement of the claim showing that the pleader is entitled to relief." • Historically, the plaintiff merely had to allege that any possible set of facts supported a claim which would entitle him to relief. Conley v. Gibson, 355 U.S. 41 (1957).
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U.S. Supreme Court decisions in Twombly and Iqbal Alter the Pleading Landscape
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Recent Trends in Pleading Standards & Class Actions
(cont'd) •
Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007)
• Class action brought by subscribers of telephone and Internet services alleging that local internet and telephone carriers entered into antitrust conspiracy designed to discourage new competitors from entering their markets.
• The Supreme Court held: • Complaint cannot simply contain conclusory statements, but must contain specific facts that would entitle the plaintiff to relief. • The complaint must allege more than mere conclusions or a recitation of the elements of the claim.
The complaint must be plausible on its face.
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Recent Trends in Pleading Standards & Class Actions
(cont'd) •
Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009)
• Javid Iqbal, a Muslim originally from Pakistan, was arrested after the 9/11 attacks. Iqbal was designated as a “high interest” detainee, separated from the general prison population, and assigned to a special section of the prison. Iqbal filed suit, alleging he suffered numerous forms of abuse while in prison, and asserting discrimination and other Eighth Amendment claims against Attorney General Ashcroft and FBI Director Mueller. • The Supreme Court held: • • Heightened pleading standard in Twombly applied to all civil claims. Task of determining whether a complaint included a plausible claim for relief was context-dependant requiring individual courts to use their own judgment.
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Recent Trends in Pleading Standards & Class Actions
(cont'd) •
The “Plausibility” Pleading Standard
• Together, the Twombly and Iqbal decisions establish a pleading standard that requires sufficient facts to plausibly support the claim.
• To state a claim, a plaintiff must plead sufficient factual matter to show that the defendant is culpable for the unlawful conduct.
• Mere recitals of the elements of a cause of action, supported by conclusory statements, are not sufficient.
• A complaint must contain sufficient factual matter, accepted as true, to state a claim for relief that is plausible on its face. 7 Winston & Strawn LLP © 2009
Recent Trends in Pleading Standards & Class Actions
(cont'd) •
Application of the “Plausibility” Pleading Standard
• • What factual allegations make pleading plausible on its face?
Determining whether a complaint states a plausible claim is a context-specific task that requires the court to draw on its judicial experience and common sense.
• Where a complaint pleads facts that are merely consistent with a defendant’s liability, it stops short of the line between possibility and plausibility of entitlement to relief. • This pleading standard is not akin to a probability requirement, but asks for more than mere possibility that a defendant acted unlawfully. 8 Winston & Strawn LLP © 2009
Recent Trends in Pleading Standards & Class Actions
(cont'd) •
Complex v. Simple Cases Under the “Plausibility” Pleading Standard
• • The factual detail necessary to meet the standard under Twombly and Iqbal varies depending on the legal and factual context. Claims based on scenarios that do not suggest wrongdoing will require greater factual substantiation to pass the plausibility threshold. Benjamin Spector, Understanding Pleading Doctrine, 108 Mich. L. Rev. 1, 20-26 (2009).
“How many facts are enough will depend on the type of case. In a complex antitrust or RICO case a fuller set of factual allegations than found in the sample complaints in the civil rules’ Appendix of Forms may be necessary to show that the plaintiff’s claim is not largely groundless.” Id. (citing Limestone Dev. Corp. v. Village of Lemont, 520 F.3d 797, 803 (7th Cir. 2008)). 9 Winston & Strawn LLP © 2009
Recent Trends in Pleading Standards & Class Actions
(cont'd) •
Impact of the "Plausibility" Pleading Standard
• Conclusory complaints lacking specific factual allegations to support each of the elements of each claim will likely be dismissed.
• • In the months since Iqbal, federal judges have cited to Iqbal over 500 times. In many of these cases, the district courts have afforded plaintiffs the opportunity to file an amended complaint to cure the deficiencies in the complaint under Twombly and Iqbal.
Balancing of Interest – Twombly and Iqbal indicate that courts now play the role of gatekeepers for the purpose of protecting defendants from frivolous actions. Companies now have a greater ability to strike down meritless claims at the pleading stage by filing a motion for dismissal. 10 Winston & Strawn LLP © 2009
Recent Trends in Pleading Standards & Class Actions
(cont'd) •
Impact of the "Plausibility" Pleading Standard
• Will the plausibility pleading standard be rolled back? • In July, 2009, Senator Arlen Specter (D-Pa.) introduced legislation designed to return the civil pleading standard to its pre-Twombly state. In support of his legislation, Senator Specter stated that, “the effect of the Supreme Court’s actions will no doubt be to deny many plaintiffs with meritorious claims access to the federal court and, with it, any legal redress for their injuries.” 11 Winston & Strawn LLP © 2009
Recent Trends in Pleading Standards & Class Actions
(cont'd) •
In re Tobacco II, 46 Cal. 4 th 298 (2009)
• Plaintiffs brought a statewide class action lawsuit against a number of tobacco industry defendants alleging that the defendants had engaged in a decades-long public disinformation strategy concerning the health effects of cigarette smoking.
• Prior to the passage of Proposition 64, the trial court certified a class defined as “All people who at the time they were residents of California, smoked in California one or more cigarettes between June 10, 1993 and April 23, 2001, and who were exposed to Defendants’ marketing and advertising activities in California.” 12 Winston & Strawn LLP © 2009
Recent Trends in Pleading Standards & Class Actions
(cont'd) •
In re Tobacco II, 46 Cal. 4 th 298 (2009)
• Following the passage of Proposition 64, the defendants moved to decertify the class, arguing that each class member was now required to show an injury in fact, consisting of lost money or property, as a result of the alleged unfair competition.
• The trial court granted Defendants’ decertification motion, finding that individual issues would predominate because the language of Proposition 64 required, for standing purposes, a showing of causation as to each class member’s injury in fact. The California Court of Appeal affirmed.
• On review, the California Supreme Court reversed the trial court’s order decertifying the class. 13 Winston & Strawn LLP © 2009
Recent Trends in Pleading Standards & Class Actions
(cont'd) •
In re Tobacco II Decision
• Holding 1 – While carefully limiting its discussion to UCL actions based on a fraud theory involving false advertising and misrepresentations to consumers, the court concluded that
Prop 64 imposes an actual reliance requirement.
• Holding 2 – Only the class representatives in a private enforcement action under the UCL need to plead and prove that they suffered injury in fact and lost money or property "as a result of" the alleged wrongdoing.
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Recent Trends in Pleading Standards & Class Actions
(cont'd) •
In re Tobacco II – Injury in Fact
• A sufficient showing is made if the false advertising or misrepresentation has played a substantial part, and so has been a substantial factor, in influencing the plaintiff's decision.
• Where plaintiff has alleged exposure to a long-term, extensive advertising campaign, the plaintiff is not required to plead and prove individualized reliance on specific misrepresentations or false statements 15 Winston & Strawn LLP © 2009 1 5
Recent Trends in Pleading Standards & Class Actions
(cont'd) •
In re Tobacco II – Further Issues
• What amount of advertising constitutes an "extensive and long-term advertising campaign" sufficient to relieve plaintiff from burden to plead and prove individualized reliance? Morgan v. AT&T Wireless Services, Inc.
• Trial court certified a class of consumers who were exposed to defendant's marketing and advertising activities. What constitutes "exposure" to marketing and advertising activities?
• Does the In re Tobacco II decision which addressed an allegedly fraudulent misrepresentation also apply to fraud-based UCL claims premised on alleged omissions? Plascencia v. 1st Mortgage • In re Tobacco II addressed the "fraud" prong, will the decision also be applied to UCL's "unlawful" and "unfair" prongs?
• How will the federal court's address this issue given the Article III standing requirement and Rule 23 of the Federal Rules of Civil Procedure 16 Winston & Strawn LLP © 2009 1 6
No-Injury Product Liability Class Actions
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What is a “No-Injury Product Liability” class action?
• Class action lawsuit commenced by purchasers of a product who have not suffered personal injury or damage to property from use of the product, yet contend that they have been harmed because the product allegedly contains an unmanifested safety defect 17 Winston & Strawn LLP © 2009
No-Injury Product Liability Class Actions
(cont'd) •
Typical Contentions in No-Injury Class Actions
• Plaintiffs generally seek recovery of economic damages only. Plaintiffs contend that they, and a class of similarly situated consumers, have been deceived into paying more for the product than they otherwise would have paid had they known the truth about the product in question (i.e., had they known about the potential dangers of using the product).
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No-Injury Product Liability Class Actions
(cont'd) •
No-Injury Cases & Standing Issues
• Most federal and state courts that have considered no-injury product liability cases have found that allegations of economic injury alone, in the absence of physical injury or property damage, are not sufficient to establish a legally cognizable injury or standing to sue.
• O’Neil v. Simplicity, Inc., 574 F.3d 501 (8th Cir. 2009) • Rivera v. Wyeth-Ayerst Labs., 283 F.3d 315 (5th Cir. 2002) • Ziegelmann v. Daimler Chrysler Corp., 649 N.W.2d 556 (N.D. 2002) 19 Winston & Strawn LLP © 2009
No-Injury Product Liability Class Actions
(cont'd) •
Standing – The Other Side
• A handful of courts, however, have reached a different conclusion, holding that allegations of economic harm alone are sufficient to give plaintiff class standing to sue.
• Cole v. General Motors Corp., 484 F.3d 717 (5th Cir. 2007) • Gonzalez v. Pepsico, Inc., 489 F. Supp. 2d 1233 (D. Kan. 2007) • Sanchez v. Wal-Mart Stores
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No. 2:06-CV-2573, 2008 U.S. Dist. LEXIS 70468 (E.D. Cal. Aug. 6, 2008) 20 Winston & Strawn LLP © 2009
No-Injury Product Liability Class Actions
(cont'd) •
In re Bisphenol-A (BPA) Polycarbonate Plastic Bottle Liability Litig., MDL No. 1967, W.D. Mo. Master Case No. 08-01967-MD-W-ODS.
• • Coordination for pre-trial proceedings of several class action lawsuits filed in a number of jurisdictions against various defendants.
Plaintiffs allege that they purchased defendants’ baby bottles and other products. Plaintiffs contend that because defendants’ products allegedly contain trace amounts of BPA, the products are potentially unsafe.
• Plaintiffs do not allege that they or their children suffered any physical harm or property loss from their use of defendants’ products. Nonetheless, plaintiffs seek to recover the full amount of the price they paid for such products, contending that they would not have purchased the products had they been aware of the alleged existence of trace amounts of BPA in the products. 21 Winston & Strawn LLP © 2009
No-Injury Product Liability Class Actions
(cont'd) •
Summary
• While the bulk of authorities hold that no-injury product liability claims do not allege a cognizable injury sufficient to confer standing to sue, plaintiffs’ lawyers continue to bring consumer class action lawsuits premised on potentially harmful products that have not caused physical harm or property damage to plaintiffs or the putative class.
• To distinguish their case, plaintiffs likely will argue the defect in the product existed at the time of purchase and, as a result, plaintiffs suffered economic harm at the moment they purchased the product.
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"Greenwashing" Consumer Class Actions
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What is a "Greenwashing" consumer class action?
• Making a false or unverifiable claim that your product or service is environmentally friendly in an effort to foster a pro-environmental image and increase sales.
• Examples of common words that could result in a claim of Greenwashing include, among others: “environmentally friendly,” “sustainable,” “gone green,” “recyclable content”.
• Symbols are also used to convey that a product is environmentally friendly or green.
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"Greenwashing" Consumer Class Actions
(cont'd) •
Seven Sins of Greenwashing *
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Sin of the Hidden Trade-off
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Sin of No Proof
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Sin of Vagueness
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Sin of Irrelevance
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Sin of Lesser of Two Evils
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Sin of Fibbing
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Sin of Worshiping False Labels
* Identified by TerraChoice Environmental Marketing Inc.; reports and resources available at http://sinsofgreenwashing.org.
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"Greenwashing" Consumer Class Actions
(cont'd) •
Federal Trade Commission ("FTC")
• • The FTC has the power to bring law enforcement actions against false or misleading marketing claims, including environmental or “green” marketing claims.
In order to protect consumers from unfair or deceptive practices, the FTC explained its multi-tiered approach of (1) issuing rules and guides for businesses, (2) challenging fraudulent and deceptive ads through enforcement actions, and (3) publishing materials to help consumers make informed purchasing decisions.
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"Greenwashing" Consumer Class Actions
(cont'd) •
FTC "Green Guides"
• FTC's Environmental Guides, often referred to as the "Green Guides," outline general principles that apply to all environmental marketing claims and provide guidance on specific green claims, such as biodegradable, compostable, recyclable, recycled content, and ozone safe. See 16 C.F.R. Part 260. • The FTC issued the Green Guides in 1992, and updated them in 1996 and 1998. The FTC is currently reviewing the Green Guides to ensure that they are appropriately responsive to changes in the marketplace and in consumer perception of environmental claims.
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"Greenwashing" Consumer Class Actions
(cont'd) •
"Green" Class Actions
• As recognized by the FTC, there has been a proliferation of green claims in the marketplace. Such claims may give rise to consumer class action lawsuits alleging that consumers were misled by false or deceptive claims about the "green" attributes of a product or service • Petlack v. SC Johnson & Son, Inc., W.D. Wisc. Case No.
08-cv-00820 (filed September 29, 2008) • Koh v. SC Johnson & Son, Inc., N.D. Cal. Case No. 09-cv-00927 (filed March 2, 2009) • Hill v. Roll International Corp, et al.
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San Francisco Superior Court Case No. 09-cv-487547 (filed April 20, 2009) 27 Winston & Strawn LLP © 2009
"Greenwashing" Consumer Class Actions
(cont'd) •
Greenwashing & Section 17200
• Trends to Watch – Potential that increased governmental regulation to prevent "greenwashing" will give rise to Section 17200 claims based on allegedly "unlawful" business practices • Battleground – Litigation over standing requirements, injury in fact, and "long-term, extensive advertising" in light of In re Tobacco II 28 Winston & Strawn LLP © 2009
"Greenwashing" Consumer Class Actions
(cont'd) •
Summary
• Because consumers are growing increasingly concerned about the impact of their purchases on the environment, companies are likely to try to gain competitive advantage by marketing their products and services as environmentally friendly or “green”. • However, these types of claims, and other claims regarding corporate responsibility, run the risk of sparking consumer class action lawsuits alleging that the claims are deceptive or misleading.
• Policies and procedures should be put in place to minimize potential exposure from these types of claims.
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Securities Class Actions Trending Downward
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2009 Securities Class Actions Filings
• Filings in the first half of 2009 were down nearly 25% from the first half of 2008 • • Majority of actions filed against financial companies, who were defendants in two-thirds of the filings in the first half of 2009 (up from 50% in 2008) Emerging global market trend – the number of foreign companies targeted continues to rise with 1 in 5 actions so far this year naming a foreign entity.
• Decline in filings is being attributed to ongoing cases filed in 2007 and 2008 and cyclical nature of the stock market 30 Winston & Strawn LLP © 2009
Settlement Scrutiny Post-CAFA
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Approval of Federal Class Action Settlements
• Rule 23(e) requires a court approving a settlement agreement to find that it is “fair, reasonable, and adequate.” The factors that go into making such a determination are not delineated in the statute.
• While the number and wording of factors vary across circuits, each circuit’s factors generally comprise four primary concerns.
• The strength of the plaintiff’s case on the merits balanced against the amount offered in settlement • • The presence of collusion in reaching a settlement The reaction of members of the class to the settlement • The stage of the proceedings and the amount of discovery completed 31 Winston & Strawn LLP © 2009
Settlement Scrutiny Post-CAFA
(cont'd) • •
CAFA Heightens Judicial Scrutiny of Federal Class Action Settlements
• The perceived abuses of class action filings by parties and their attorneys led to the Class Action Fairness Action of 2005 (CAFA) where Congress shifted many class actions to federal court and assigned new responsibilities to federal judges.
Judges See Themselves as Class Fiduciary
• • “District judges must therefore exercise the highest degree of vigilance in scrutinizing proposed settlements of class actions to consider whether the settlement is fair, adequate, and reasonable, and not a product of collusion. Indeed, the district court judge functions as a fiduciary of the class, who is subject therefore to the high duty of care that the law requires of fiduciaries.” Mirfasihi v. Fleet Mortgage Corp., 450 F.3d 745, 748 (7th Cir. 2006).
“The judge who presides over the class action and must approve any settlement is charged with responsibility for preventing the class lawyers from selling out the class.” Thorogood v. Sears, Roebuck & Co., 547 F.3d 742, 745 (7th Cir. 2008).
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Settlement Scrutiny Post-CAFA
(cont'd) •
CAFA’s Impact on Coupon Settlements
• • CAFA includes several new requirements specifically addressing class action settlements providing for recovery of "coupons" to class members. 28 U.S.C. § 1712.
The new provisions governing coupon settlements provide that “the court may approve the proposed settlement only after a hearing to determine whether, and making a written finding that, the settlement is fair, reasonable and adequate for class members.” 28 U.S.C. § 1712(e).
• While the “fair, reasonable and adequate” language under CAFA is identical to that in place under Rule 23(e), CAFA has been construed to require “the application of a greater level of scrutiny to the existing criteria than existed pre CAFA.” Figueroa v. Sharper Image Corp., 517 F. Supp. 2d 1292, 1321 (S.D. Fla. 2007).
• The new provisions also place restrictions on attorney's fee awards to class counsel. 28 U.S.C. § 1712(a),(b) • Heightened judicial scrutiny and restrictions on fee awards under CAFA make coupon settlements a less attractive alternative to resolve weak cases.
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Settlement Scrutiny Post-CAFA
(cont'd) •
CAFA Notice Requirements – Noticing the Appropriate Federal and State Officials
• • Defendant must serve notice of proposed settlement on appropriate federal official and appropriate state official for each state in which a class member resides. se counsel is responsible for providing the requisite notice. 28 U.S.C. § 1715(b).
Notice must be served “[n]ot later than 10 days after a proposed settlement of a class action is filed in court. …” 28 U.S.C. § 1715(b).
• Notice must consist of the complaint; notice of any court hearing; notification to class members; if feasible,
class members residing in each State
U.S.C. § 1715(b).
the names of class members who reside in each state, or a reasonable estimate of the number of
; information regarding the proportionate share of claims attributable to class members from each state; and any written judicial opinion relating to the settlement. 28 34 Winston & Strawn LLP © 2009
Settlement Scrutiny Post-CAFA
(cont'd) •
CAFA Notice Requirements – Consequences of New Notice Requirements
• If defendant fails to give notice to appropriate federal and state officials, class members can choose not to be bound by the settlement. 28 U.S.C. § 1715(e)(1).
• Federal and state officials may chose to object or intervene in action.
• CAFA does not specify any rights that state officials and attorney generals might have to appear or object to a proposed settlement or to otherwise participate in the action. But under existing procedures, such officials can either object as an interested party or intervene.
• Federal and state officials have time to comment and object to proposed settlements because a judge’s order giving final approval may not be issued until ninety days after appropriate notification is given. 28 U.S.C. § 1715(d).
• Federal and state officials may act to upset settlement. Figueroa v. Sharper Image Corp., 517 F.Supp.2d 1292 (S.D. Fla. 2007) (In denying final approval to coupon settlement, the Court distinguished settlement based on vigorous objections from attorneys general of 35 dates and the District of Columbia).
• The National Association of Attorneys General now posts summaries of all class-action notices on an internal Website, enabling various state attorneys general’s offices to keep abreast of recent filings and to enable coordinated efforts where there is sufficient interest.
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Settlement Scrutiny Post-CAFA
(cont'd) •
Summary
• CAFA provides greater access for defendants to remove class actions to the to federal courts • But, the additional scrutiny governing coupon settlements and additional notice requirements can make settlement more challenging • As a result, the decision to remove class actions to federal court needs to be carefully considered in every case, taking into consideration all relevant circumstances, including: the alternate state court forum and experience with similar cases in that forum, the likely defenses to class certification, the strength of the case and the relevant legal and factual issues, and the overall strategy for resolution.
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