Class Action Litigation Newsletter | Fall 2021: Fourth, Fifth, Sixth Circuits

GT Class Action Litigation Newsletter | Fall 2021

This GT Newsletter summarizes recent class-action decisions from across the United States.

Highlights from this issue include:

• First Circuit affirms ruling that individualized issues of consent prevent certification of TCPA “junk fax” class.

• Southern District of New York denies certification of FDCA class, finding improper “fail-safe” class.

• Third Circuit addresses standard for certification of issue classes under Rule 23(c)(4).

• Fourth Circuit vacates certification of class of 35 purchasers and remands for numerosity analysis.

• Fifth Circuit reverses remand to state court holding corporate defendant was a “primary defendant.”

• Sixth Circuit addresses retroactivity of Supreme Court TCPA decision, reversing dismissal of claim.

• Seventh Circuit applies comity abstention doctrine to remand claims removed under CAFA.

• Eighth Circuit reverses class certification finding common issues do not predominate over individual questions of causation.

• Ninth Circuit affirms order compelling arbitration, holding Uber drivers are not exempt from mandatory arbitration under Section 1 of the FAA because they are not a “class of workers engaged in foreign or interstate commerce.”

• Ninth Circuit directs more probing inquiry for approval of class action settlement where attorneys’ fees dwarf anticipated monetary payout to the class.

• D.C. Circuit holds that objectors’ appeal challenging settlement approval was premature.

Fourth Circuit

In re: Zetia (Ezetimibe) Antitrust Litigation, 7 F.4th 227 (4th Cir. 2021)

Fourth Circuit provides additional guidance on numerosity element.

Plaintiffs are a group of pharmaceutical buyers who brought a class action against two drug manufacturers for an alleged anticompetitive settlement of a patent dispute. The district court certified a class of 35 purchasers, but the Fourth Circuit reversed, finding that the numerosity analysis was based on “faulty logic.”

The panel first considered the district court’s reasoning that “multiple individual trials” would result if the case proceeded without class status. The panel found that reasoning “ran afoul” of Rule 23(a)(1)’s dictate that the class be “’so numerous that joinder of all members is impracticable,’ not whether the class is so numerous that failing to certify presents the risk of many separate lawsuits.” On remand, the panel directed the district court to “consider whether judicial economy favors either a class action or joinder.” Without considering the efficiencies gained by joinder, the panel observed, “the judicial-economy factor would always favor class certification, which is simpler to manage than individual lawsuits. In fact, even compared to joinder, class certification will often be preferable from a judicial economy perspective.”

Further, the district court improperly considered the economics of individual suits in analyzing numerosity. The district court ignored whether it would be uneconomical for smaller claimants to be joined as parties in a traditional lawsuit, as opposed to pursuing individual suits. The panel ruled that on remand, “[p]laintiffs must bring to bear some evidence to this effect—and the district court may not consider the economics of individual suits in analyzing this factor.”

Cain v. Midland Funding, LLC, 2021 WL 3400552 (Md. 2021)

Maryland Court of Appeals addresses when a prior class action tolls the statute of limitations.

Plaintiffs filed two putative class actions challenging debt collection practices of defendant. Both lawsuits were dismissed on statute of limitations grounds. Among other things, the trial court found that the statute of limitations was not tolled based upon plaintiffs’ status as putative class members in a prior federal court and Maryland state court cases.

The Maryland Court of Appeals affirmed, except as to the individual claims of one of the plaintiffs. The court noted that Maryland had accepted American Pipe tolling but had only applied it to an individual action filed after class certification had been denied in Maryland state court. Here, the court was called upon to decide whether American Pipe tolling would apply to a successive putative class action filed after class certification was denied in another jurisdiction.

As to the first issue, the court found that tolling did not apply to a successive putative class action, reasoning that a contrary result was antithetical to the policies behind the statute of limitations – to encourage prompt resolution of claims – and “could result in a ‘rolling tolling’ approach to class action suits, whereby a putative class member could toll his or her statute of limitations after the denial of one class action certification in one circuit court by filing a successive class action in one of the other 23 state circuit courts.”

As to the second issue – “cross-jurisdictional tolling” – the court noted that other states are split on the issue, but it nevertheless recognized tolling for individual actions filed by “absent members of putative class actions filed in other state and federal courts.” To benefit from the principle, the plaintiff must prove that (1) the prior class action notified the defendant of the substantive claims and the “number and generic identities of the potential plaintiffs,” and (2) the individual suit concerns “the same evidence, memories, and witnesses as the subject matter of the original class suit.” Such “tolling ends when there is a clear dismissal of a putative class action, including a dismissal for forum non conveniens, or a denial of class action for any reason.”

Fifth Circuit

Madison v. ADT, LLC, 2021 U.S. App. LEXIS 25457 (5th Cir. Aug. 24, 2021)

Fifth Circuit clarifies what constitutes a “primary defendant” under CAFA and holds that remand was improper under CAFA’s “home state” exception.

Plaintiffs filed a lawsuit in Texas state court against a former employee of ADT, LLC who had used his access credentials to spy on customers through their home-security surveillance systems. ADT intervened as a defendant and removed under the Class Action Fairness Act of 2005 (CAFA). The plaintiffs moved to remand, arguing that although the employee was a “primary defendant” under CAFA, ADT was not. Thus, the plaintiffs argued, the case belonged in state court under CAFA’s “home state” exception, which requires a federal court to abstain if two-thirds of the plaintiffs and the “primary defendants” are citizens of the state where the action was filed. The district court agreed and granted plaintiffs’ motion to remand.

ADT sought permission to appeal from the Fifth Circuit, which granted the request and reversed. Recognizing that “there is scant discussion across our sister circuits,” the Fifth Circuit looked to reasoning from Vodenichar v. Halcon Energy Props., Inc., 733 F.3d 497 (3rd Cir. 2013), a 2013 Third Circuit decision that evaluated when a corporate “defendant is the ‘real target’ of the plaintiffs’ accusations.” This included whether (1) the plaintiffs are seeking to hold the defendant liable for its own actions and (2) given the claims asserted, the defendant “has potential exposure to a significant portion of the class and would sustain a substantial loss as compared to other defendants if found liable.” The Fifth Circuit also looked to its own decision in Hollinger v. Home State Mut. Ins. Co., 654 F.3d 564 (5th Cir. 2011). There, the court considered the lawsuit’s “primary thrust,” which would indicate the “primary defendant.” Taking these together—the Third Circuit’s “real target” test and the Fifth Circuit’s “primary thrust” standard—the Fifth Circuit concluded that ADT was a primary defendant. Although the plaintiffs had yet to assert a claim against ADT, the court explained that “the thrust of this suit is to gain access to ADT’s deep pockets, and ADT, having properly intervened, must be considered a primary defendant under CAFA.”

This decision may give defendant corporations whose employees are sued in state court an avenue to remove under CAFA, even if the plaintiffs have crafted their suit to avoid federal jurisdiction.

Ortiz v. Am. Airlines, Inc., 2021 U.S. App. LEXIS 21336 (5th Cir. July 19, 2021)

Fifth Circuit concludes that putative class lacked standing to pursue an ERISA suit for alleged breaches of fiduciary duties.

Two former American Airlines (AA) employees filed a putative class action suit against AA, its Pension Asset Administration Committee, and its federal credit union (FCU) on behalf of former AA employees and beneficiaries who had invested in AA’s ERISA plan. Asserting claims for breach of fiduciary duty, plaintiffs complained that the ERISA plan offered its FCU as an ERISA-qualifying “safe” investment option, but that better, comparable funds—like stable value funds—were available and would have offered a greater return. AA did not offer the stable value funds until late 2015—a few months before plaintiffs sued. The plaintiffs also alleged that the FCU fund should have received higher interest rates on the airline’s 401k plan assets.

The defendants prevailed on summary judgment in the district court, but for different reasons. The district court ruled that the plaintiffs lacked standing to sue AA and the committee because “their alleged injuries are at best speculative, not concrete,” since the plaintiffs chose whether to invest, how much, and which options to choose. Since the plaintiffs could not show that they would have chosen the stable value funds had they been available, they had no justiciable injury. The court, however, determined that plaintiffs had standing to sue the FCU, although their claim failed for lack of fiduciary liability.

On appeal, the Fifth Circuit determined that the plaintiffs lacked standing, explaining that although “lost investment income is a concrete and redressable injury for the purposes of standing,” the plaintiffs had failed to place their money into the stable value fund when they had the opportunity. Thus, causation was lacking, and so was Article III standing. As for the claims against the FCU, the court explained that plaintiffs failed to prove that they could have received higher interest rates from the 401k plan’s assets. The Fifth Circuit thus remanded the case with instructions for the district court to dismiss plaintiff’s claim against FCU for lack of jurisdiction.

City of New Boston, Texas v. Netflix, Inc., No. 5:20-cv-00135-RWS, (E.D. Tex. Sept. 30, 2021)

Federal district court dismisses municipality’s class action seeking franchise fees from Netflix and Hulu under Texas state law.

The city of New Boston, Texas filed a class action on behalf of Texas municipalities against Netflix, Inc. and Hulu, LLC for failing to pay statutory franchise fees typically required of cable companies. New Boston alleged that state law established a regime for municipalities to collect franchise fees from cable and video services, and thus municipalities are authorized to charge Netflix and Hulu 5% of their gross revenue to use the public’s broadband wireline facilities. Netflix and Hulu moved to dismiss, arguing the statute only applies to holders of state-issued certificates of franchise authority, which they were not.

The district court agreed and granted the motion to dismiss, concluding that “[t]he Texas Legislature’s language is clear: to incur a franchise fee, the provider must be ‘the holder of a state-issued certificate of franchise authority.’” The court reasoned that the statute does not grant courts authority to decide which entities must obtain certificates of franchise authority; that power lies solely with the Public Utility Commission. The statute “did not reserve to municipalities any authority to declare a provider a holder of a state-issued certificate of franchise authority.” Nor does the statute allow the court to “bypass the state’s authority to declare who holds a state-issued certificate of franchise authority for municipalities.” In other words, the court explained that the municipalities’ grievance should be raised with the Public Utilities Commission, not the court. The court, however, did not foreclose New Boston’s right to refile the case if or when Netflix and Hulu become holders of state-issued certificates of franchise authority.

Sixth Circuit

Lindenbaum v. Realgy, LLC, No. 20-4252, 2021 U.S. App. LEXIS 27159 (6th Cir. Sep. 9, 2021)

Sixth Circuit interprets Supreme Court severance of unconstitutional government-debt exception in TCPA as applying retroactively, leaving businesses potentially liable for robocalls.

In 2019, Roberta Lindenbaum sued Realgy, LLC in a putative class action after she received two pre-recorded robocalls to her cell phone and landline, alleging that the calls violated the TCPA’s robocall restriction. After the case was filed, the U.S. Supreme Court issued a plurality opinion in Barr v. Am. Ass’n of Pol. Consultants, Inc. (AAPC), 140 S. Ct. 2335 (2020), which held that a 2015 amendment to the TCPA that permitted robocalls made “solely to collect a debt owed to or guaranteed by the United States” unconstitutionally discriminated based on content. The court’s plurality then severed the government-debt exception from the statute.

After the Supreme Court’s decision in AAPC, Realgy moved to dismiss, arguing that the calls were not actionable under the TCPA because they occurred during the five-year period before the public-debt exception was deemed unconstitutional under AAPC. Thus, Realgy argued, the statute was facially invalid and could not be enforced. The Northern District of Ohio granted the motion, reasoning that severability is only a prospective remedy, so the offending TCPA exception was “void” while it was “on the books.” As such, the district court concluded that there was no federal-question jurisdiction over the claim. Lindenbaum appealed the ruling, and the United States intervened.

The Sixth Circuit reversed the dismissal. On the issue of severability, the court decided that the Supreme Court’s decision did, in fact, apply retroactively. Considering the “fundamental rule of ‘retrospective operation,’” the Sixth Circuit concluded that the severance in AAPC was not a remedy because “the Court severed the exception in a way that gave AAPC none of the relief it sought.” So, “[b]ecause severance is not a remedy,” the Sixth Circuit reasoned, “it would have to be a legislative act in order to operate prospectively only.” Since the Supreme Court merely interpreted the TCPA, the High Court’s “legal determination applies retroactively.” As a result, the TCPA’s robocall ban was enforceable during the 2015 to 2020 timeframe.

Ass’n of Am. Physicians & Surgs. v. United States FDA, 2021 U.S. App. LEXIS 27157 (6th Cir. Sep. 9, 2021)

Sixth Circuit affirms dismissal of association’s claims for lack of Article III standing because the association failed to adequately plead that any member had suffered an injury in fact.

An association of physicians sued the Food and Drug Administration for broader access to the drug hydroxychloroquine. Although the FDA approved hydroxychloroquine for distribution in 1955 for treating malaria, lupus, and arthritis, the FDA has not approved it for treating COVID-19. And while the FDA had authorized hydroxychloroquine for emergency use in the early stages of the COVID-19 pandemic, the federal government allowed only limited access to its stockpile.

The Association of American Physicians and Surgeons asserted three claims: violation of equal protection under the Fifth Amendment, violation of the right to association under the First Amendment, and violation of the Administrative Procedures Act. In support of its claims, the association claimed three injuries: to itself, because it was considering cancelling a conference; associational standing on behalf of its members who could not prescribe hydroxychloroquine; and third-party standing on behalf of patients who could not get the drug for COVID-19 treatment.

The district court dismissed the association’s complaint for lack of subject matter jurisdiction, concluding that there was no Article III standing. The Sixth Circuit affirmed.

The Sixth Circuit began by recognizing that a challenge to the actions of a governmental agency is insufficient to convey standing. Under Supreme Court precedent, the association had to allege an actual injury. On appeal, the association abandoned its claim of direct injury, leaving only its claims of associational injury. After wrestling with what it perceived as “tension” between the Supreme Court’s decisions on associational injury, the Sixth Circuit recognized that “an organization must do more than identify a likelihood that the defendant’s conduct will harm an unknown member in light of the organization’s extensive size or membership base” and “must instead identify a member who has suffered (or is about to suffer) a concrete and particularized injury from the defendant’s conduct.” Moreover, “the organization must show that its requested relief will redress this injury.” Further, the court determined that “Twombly’s plausibility test” applies to a motion to dismiss on standing grounds. Thus, because the association had not plausibly alleged an actual, redressable injury by any of its members, it lacked standing to sue on their behalf. Finally, because the association failed to plead that any of its members had suffered an injury, it could not rely on third-party standing.

Johnson v. FCA US LLC, 2021 U.S. Dist. LEXIS 154132 (E.D. Mich. Aug. 17, 2021)

District court rules that whether a plaintiff can assert claims on behalf of a putative nationwide class is a question of predominance, not an issue of Article III standing.

Automotive consumers from seven states brought a putative class action against FCA US LLC for defective interior trim panels in certain Dodge and Chrysler cars. Seeking to represent a nationwide class, as well as state classes, plaintiffs sued under the Magnuson-Moss Warranty Act, 15 U.S.C. 2301, et seq., as well as various state consumer protection statutes and common law causes of action. FCA moved to dismiss under Rule 12(b)(6) on several bases, including whether the named plaintiffs had Article III standing to assert claims arising under the laws of different states.

The district court began by considering the landscape of federal decisions on this point. While the Sixth Circuit had not expressly answered the question, district courts are split as to whether this is “an Article III problem that must be resolved at the pleading stage,” or whether it is “a matter going to the propriety of class certification under [Rule 23] that is properly resolved in connection with class certification proceedings.” Looking to decisions from the Second and Seventh Circuits, as well as analogous reasoning from the Sixth Circuit, the district court took the latter approach. In prior decisions dealing with choice-of-law issues, the Sixth Circuit had recognized that substantial differences in the laws of different states affected manageability and were considered under Rule 23, not as an Article III standing issue.

David G. Thomas, Ashley A. LeBlanc, Gregory A. Nylen, Aaron Van Nostrand, Kara E. Angeletti, Andrea N. Chidyllo, Gregory Franklin, and Brian D. Straw also contributed to this content.