In a precedential opinion, the Third Circuit in Vodenichar v. Halcón Energy Properties, Inc., clarified the “home state” and “local controversy” exceptions to federal subject matter jurisdiction under the Class Action Fairness Act (“CAFA”). The decision provides guidance on two undefined terms within CAFA, adopting broader interpretations for what makes a defendant a “primary defendant” for purposes of the home state exception and what constitutes an “other class action” for purposes of the local controversy exception.
Plaintiffs, Pennsylvania landowners, filed a putative class action in federal court based upon diversity jurisdiction against Halcón Energy Properties (“Halcón”), a Delaware corporation headquartered in Texas, for breach of certain lease agreements negotiated by Plaintiffs’ agents (the “Agents”) for the oil and gas rights on Plaintiffs’ land. After Halcón informed the District Court that it intended to join the Agents as necessary parties, which would have destroyed diversity, Plaintiffs voluntarily dismissed the action and re-filed in Pennsylvania state court. Defendants removed the second action pursuant to CAFA, but Plaintiffs sought remand under CAFA’s home state and local controversy exceptions. The District Court granted the motion to remand, concluding that remand was required under the home state exception, while also finding that the local controversy exception was inapplicable. The Third Circuit affirmed the remand order, but found that the District Court’s reasoning was flawed, holding that the local controversy exception, not the home state exception, required that the case be remanded.
The Third Circuit first examined the home state exception, which requires remand where all of the primary defendants and at least two thirds of the putative class are citizens of the state where the action was originally filed. The Third Circuit instructed that in determining whether a defendant is a “primary defendant,” courts should assume liability and focus on whether “the defendant is the ‘real target’ of the plaintiffs’ accusations,” as opposed to being vicariously or secondarily liable, as well as whether the defendant has “potential exposure to a significant portion of the class and would sustain a substantial loss as compared to other defendants.” Under this test, the Circuit Court concluded that Halcón was a primary defendant because the alleged breaches by Halcón affected each member of the putative class and were just as, if not more, significant than the allegations against the Agents. Based on its finding that Halcón was a primary defendant and because Halcón was not a citizen of Pennsylvania, the Third Circuit held that remand based on the home state exemption was not warranted.
In an opinion beneficial to class action defendants, the Seventh Circuit has taken some of the guesswork out of removal by holding that the 30-day period for removing a case to federal court only begins once the defendant has received a pleading or other litigation paper that includes a specific, unequivocal statement that the damages sought meet the jurisdictional amount.
In Walker v. Trailer Transit, Inc., plaintiff’s class action complaint invoked a measure of damages that, according to defendant’s calculations, could not exceed the Class Action Fairness Act’s (“CAFA”) $5 million amount-in-controversy threshold. But, in its opposition to defendant’s summary judgment motion and in a follow-up e-mail, plaintiff intimated that damages could be measured either under plaintiff’s original theory or under a new theory. It was not until defendant served requests for admission that plaintiff admitted it was pursuing the new theory, under which its damages, according to defendant’s calculations, would exceed the CAFA threshold.
Within 30 days of receiving plaintiff’s response to the requests for admission, defendant filed a notice of removal. Plaintiff argued that the notice was untimely because it identified its new damages theory in both its summary judgment response and in response to defendant’s e-mail query, but both the District Court and the Seventh Circuit disagreed.
Following the rule announced in Standard Fire Ins. Co. v. Knowles, the Ninth Circuit has reversed course on the burden borne by defendants seeking to remove under the Class Action Fairness Act (“CAFA”). Now, defendants need only establish the amount in controversy by a preponderance of the evidence.
In Rodriguez v. AT&T Mobility Services, the Ninth Circuit was faced with a putative class representative’s waiver of all damages above $5 million. The waiver was designed to avoid removal under the Class Action Fairness Act (“CAFA”), but earlier this year, the Supreme Court held in Standard Fire that such waivers are ineffective. Therefore, the Ninth Circuit vacated the District Court’s order remanding the case to state court and remanded to the District Court for further proceedings.
Beyond the effectiveness of the waiver, however, the Ninth Circuit had to grapple with a broader question: What is the impact of Standard Fire’s reasoning on the Ninth Circuit’s rule — enunciated in Lowdermilk v. U.S. Bank — that a defendant must establish to a “legal certainty” that the amount in controversy exceeds the $5 million threshold? According to the Ninth Circuit, Standard Fire effectively overruled Lowdermilk, and the proper standard is the “preponderance of the evidence” standard.
Lowdermilk’s holding, the Ninth Circuit stated, was based on the proposition that the plaintiff is the “master of the complaint” and can forgo a portion of the putative class’s recovery by waiving damages above $5 million. Lowdermilk declared that the jurisdictional question is determined only by looking at the four corners of the complaint. The legal certainty standard it announced was a means of protecting a plaintiff’s right to waive damages above the jurisdictional amount.
Gibbons is proud to announce that Thomas J. Cafferty, a Director in the Gibbons Business & Commercial Litigation Department, Michael R. Griffinger, a Director in the Gibbons Business & Commercial Litigation Department, and John T. Wolak, Insurance Practice Team Leader, received “Lawyer of the Year” designations in the 2014 edition of Best Lawyers®.
Since 2009, Best Lawyers® has been designating “Lawyers of the Year” in the U.S. in high-profile legal practice areas. Only a single lawyer in each practice area and designated metropolitan area is honored as the “Lawyer of the Year.”
Thomas J. Cafferty is the only New Jersey lawyer to be named a “Lawyer of the Year” in the Litigation – First Amendment Law category in the 2014 edition of Best Lawyers®. Mr. Cafferty was recognized in the Newark, NJ region. He has extensive experience in litigating and counseling First Amendment and media issues. With a strong focus on media law, he has served as General Counsel for the New Jersey Press Association for over 30 years and has worked with some of the largest news organizations and newspapers throughout the state.
The litigations involving allegedly defective Whirlpool washing machines are back in the legal headlines with the most recent installment hailing from the Sixth Circuit’s decision in Glazer v. Whirlpool Corp., a decision which—following remand from the Supreme Court of the United States—reaffirmed a prior order certifying a class action lawsuit. The Sixth Circuit’s certification order may, however, face scrutiny from the Supreme Court once again.
On May 3, 2012, the Sixth Circuit issued its first opinion in Glazer v. Whirlpool Corp., where the Court of Appeals determined that “Plaintiffs’ proof[s] established” the prerequisites of Rule 23(a) and (b)(3), and, therefore, upheld the District Court’s decision to allow the litigation to proceed united as a class. Shortly thereafter, Whirlpool petitioned the Supreme Court for a writ of certiorari. On April 1, 2013, the Supreme Court granted Whirlpool’s petition, vacated the Sixth Circuit’s prior judgment, and remanded the case back to the Court of Appeals so that it may “reconsider the appeal” in light of the Supreme Court’s recent decision in Comcast Corp. v. Behrend.
Adhering to that directive, the Sixth Circuit reconsidered Whirlpool’s appeal and, in doing so, reaffirmed its prior class certification decision. It concluded that a contrary result need not be reached because the Supreme Court’s “decision in Comcast . . . ha[d] limited application,” primarily because the cases were “different.” Specifically, “[h]ere the district court certified only a liability class and reserved all issues concerning damages for individual determination,” whereas the District Court in Comcast “certified a class to determine both liability and damages.” For that reason, the Sixth Circuit held that Comcast “does not change the outcome of our Rule 23 analysis.”
In American Express Company v. Italian Colors Restaurant, the Supreme Court recently furthered its holding in AT&T Mobility LLC v. Concepcion by making it clear that the Federal Arbitration Act (“FAA”) does not permit courts to invalidate contractual waivers of class arbitration on the ground that the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery. Italian Colors reflects the “overarching principle that arbitration is a matter of contract,” and that “courts must rigorously enforce arbitration agreements according to their terms,” including terms that specify “with whom the parties will arbitrate,” as well as “the rules under which arbitration will be conducted.”
Plaintiff had filed a class action lawsuit alleging that “American Express used its monopoly power to force merchants to accept credit cards at rates approximately 30% higher than the fees for competing cards.” American Express, in response, moved to compel individual arbitration based upon two clauses in the parties’ agreement. One clause required “all disputes between the parties to be resolved by arbitration.” The other provided “that there shall be no right or authority for any Claims to be arbitrated on a class action basis.” The plaintiff opposed the motion, arguing that the waiver was unenforceable because it would be too costly for an individual plaintiff to retain an expert to prove the antitrust claims. The District Court granted the motion to compel arbitration.
On appeal, the Second Circuit reversed and remanded, agreeing with Italian Colors that the waiver was unenforceable because of the prohibitive costs of expert analysis. The Supreme Court granted certiorari to determine whether the FAA permits courts to invalidate arbitration agreements that prohibit class arbitration of a federal-law claim. Italian Colors argued that the arbitration agreement should be invalidated for two reasons: (1) requiring it to litigate its claims individually “would contravene the policies of antitrust laws”; and (2) enforcing the class arbitration waiver would effectively vindicate its federal statutory rights because it “would have no incentive to pursue its antitrust claims individually in arbitration.”
There have been a flurry of federal appellate court decisions this year and last scrutinizing and overturning class settlements (see In re HP Inkjet Printer Litig. and Radcliffe v. Experian, merely by way of example). That trend continued on August 2, 2013, with In re Dry Max Pampers Litigation, a case involving Pampers marketed with “Dry Max technology,” where the Sixth Circuit upset a settlement awarding class counsel $2.73 million in attorneys’ fees and the named plaintiffs $1,000 “per ‘affected child.’” The Court found it offered the class representatives and class counsel “preferential treatment” at the expense of unnamed class members, who received nothing save what the Sixth Circuit characterized as “worthless injunctive relief.” Though the latest decisions out of the Third and Seventh Circuits addressing the bona fides of attorneys’ fee awards in class settlements — see Kirsch v. Delta Dental and Silverman v. Motorola — held that the deals there passed muster, both sides of the bar would be well served by taking note of what went wrong in In re Dry Max.
The In re Dry Max settlement was negotiated shortly after investigations of the product in the U.S. and Canada, which originally spawned the consolidated litigation, exculpated the product. Class members were afforded the following relief, which the Sixth Circuit ultimately deemed “illusory”:
- (1) P&G reinstated a previously-offered refund program, for an additional year, entitling each household to a refund for one box of diapers upon presenting a receipt and UPC code for the product; and
- (2) P&G agreed, for two years, to add a sentence to its diaper packaging suggesting consumers call it or consult its website for more information concerning diapering, and further to add more information on diapering to its website.
Class member Daniel Greenberg (represented by the Center for Class Action Fairness) objected, arguing that the settlement was unfair because of the size of the fee award relative to the “utility of the injunctive relief.” While recognizing that “[m]ost class counsel are honorable,” the Sixth Circuit agreed and found that, here, it was “not particularly subtle” that class counsel enjoyed “preferential treatment” as compared to absent class members. The Court noted that class counsel took no depositions or written discovery and did not respond to P&G’s motion to dismiss (the case settled before it was fully briefed). Absent class members, meanwhile, received access to a pre-existing refund program that was “dubious on its face” and of “negligible” value. As for the labeling and website changes, the objector argued, and the Sixth Circuit again agreed, that it was “little more than an advertisement for Pampers.” Nor did the Court ascribe any significant value to the website disclosures since “typing ‘diaper rash’ into the Google search engine produces exponentially more links and information[.]” Accordingly, the Court held that the settlement was “not fair” under Rule 23.
In Hayes v. Wal-Mart Stores, Inc., the Third Circuit determined that the plaintiff consumer failed to satisfy Rule 23’s ascertainability and numerosity requirements for class actions as articulated in Marcus v. BMW of North America, LLC and remanded the matter to the District Cout so that the plaintiff could address the clarified requirements expressed in Marcus, which was not yet decided at the time of the District Court proceedings in Hayes. By doing so, the Third Circuit demonstrated that it intends to continue vigilantly enforcing Rule 23’s threshold requirements for plaintiffs.
In Hayes, the plaintiff sought class certification for claims brought against Wal-Mart for the sale of extended warranty plans sold through Sam’s Club stores. Granting Wal-Mart’s interlocutory appeal under Rule 23(f), the Third Circuit considered, in addition to two other related issues, whether the plaintiff satisfied the ascertainability and numerosity prerequisites for the class action to proceed against Wal-Mart.
The Third Circuit first addressed whether the plaintiff met his burden of establishing the second element of ascertainability as articulated in Marcus — “there must be a reliable and administratively feasible mechanism for determining whether putative class members fall within the class definition.” Noting again that the District Court did not have the benefit of the guidance in Marcus, the Third Circuit determined that the defendant’s lack of certain records that may have been useful for ascertaining the class did not eliminate the need for the plaintiff to establish ascertainability because “the nature or thoroughness of a defendant’s recordkeeping does not alter the plaintiff’s burden to fulfill Rule 23’s requirements.” On this issue, the panel ultimately held that “class certification will founder if the only proof of class membership is the say-so of putative class members or if ascertaining the class requires extensive and individualized fact-finding” or “mini-trials.”
Purchasers of units in planned real estate developments, such as condominium complexes, often enter into purchase agreements with the developer that contain arbitration provisions requiring the purchasers to arbitrate any claims they may have arising out of the construction and sale of the unit. In Hudson Tea Buildings Condo Assoc. v Block 268 LLC, the New Jersey Appellate Division recently considered questions over the enforceability of such provisions in a lawsuit involving some claims that were subject to the arbitration provision and some that were not.
More than two hundred individual unit owners, as well as the condominium association suing on behalf of the unit owners, filed a lawsuit against the developer of a condominium complex relating to alleged construction defects. The developer moved to compel arbitration and dismiss the claims of the individual unit owners because their purchase agreements contained an arbitration provision. The Trial Court denied the motion to compel and the developer defendants appealed.
The Appellate Division noted that the arbitration agreement applied to the claims of the unit owners, but, because individual unit owners are precluded from pursing claims relating to the common elements of the condominium complex by the New Jersey Supreme Court’s decision in Siller v. Hartz Mountain Assocs., the claims of the condominium association were not subject to arbitration. The unit owners argued that their claims should not be arbitrated because of concerns over inconsistent results between their claims in the arbitration process and those of the condominium association in the litigation. The Appellate Division, however, rejected this argument and, relying on the United States Supreme Court decision in Dean Witter Reynolds, Inc. v. Byrd, stated that the risk of inconsistent decisions is unavoidable and not a basis to deny enforcement of an arbitration provision. In addition, the Court stated that the Trial Court could stay the claims of the condominium association pending resolution of the unit owner claims in arbitration.
The Pennsylvania Home Improvement Consumer Protection Act, 73 P.S. § 517.1, et. seq. (“HICPA”), became effective on July 1, 2009. The HICPA is designed to protect purchasers of home improvement services from contractors engaging in fraudulent business practices. It requires contractors who perform more than $5,000 of work per year, and whose company is worth less than $50,000,000, to register with the Pennsylvania Office of the Attorney General (“OAG”), and comply with HICPA’s substantive requirements. The HICPA requires contractors to enter into written contracts for performance of improvements, specifies provisions which must be included in the written contract (§ 517.7(a)), and identifies other provisions the inclusion of which makes the contract voidable by the owner (§ 517.7(e)). Finally, certain acts on the part of contractors, including failure to register with the OAG (id. § 517.9) are prohibited by the HICPA, which sets forth criminal penalties for fraud (§ 517.8). Significantly, a violation of the Act is also deemed to be a violation of the Unfair Trade Practices and Consumer Protection Law, 73 P.S. § 201-1 et. seq.
In Shafer Electric & Construction v. Mantia, the Superior Court of Pennsylvania addressed the statute’s impact on quantum meruit claims (a quasi-contractual common law claim that allows a party to recover the reasonable value of the services performed in the absence of a valid contract in Pennsylvania). The issue was whether a contractor in violation of the HICPA could nonetheless recover amounts due based on a quantum meruit claim, even if the contract itself was unenforceable because the contractor failed to register under the Act. The defendant homeowners had hired the contractor to build an addition. The contractor was licensed in its resident State of West Virginia, but was not licensed in Pennsylvania, and had not registered as required by the HICPA. After completing the work, the homeowners failed to pay. The contractor filed a mechanics’ lien, followed by a complaint to recover the amount due for breach of contract or, in the alternative, quantum meruit.
The homeowners sought to dismiss the complaint and strike the mechanics’ lien, arguing that that since the contractor was not registered with the OAG as required by HICPA, the contract was invalid and thus unenforceable in Pennsylvania. The Trial Court dismissed the complaint, but that decision was reversed by the Superior Court on appeal. Citing its prior opinion in Durst v. Milroy General Contracting, Inc. construing the HICPA, the Court held that § 517.7(g) of HICPA permitted recovery for quantum meruit. Although there was some ambiguity in the statute, the Court determined that the intent of the statute was to allow contractors, even if they violated the HICPA, to recover the reasonable value of services which were requested by the owner if it would be inequitable to deny such recovery.