Duggan, an non-named member of a class certified under Fed. R. Civ. P. 23(b)(1), made an untimely objection to the fairness of the class settlement. While he was not a named party, he sought to appeal under the doctrine recognized by Devlin v. Scardelletti, 536 U.S. 1 (2002), which allowed non-named class members “who have objected in a timely manner to approval of the settlement at the fairness hearing have the power to bring an appeal without first intervening.” Unfortunately for Duggan, the Fifth Circuit found no reason to excuse his late objection, in particular rejecting the argument that his opponent was required to move to strike the objection in district court as a prerequisite to arguing waiver on appeal. Farber v. Crestwood Midstream Partners LP , No. 16-20742 (July 17, 2017).
In Slade v. Progressive Insurance, a putative class survived a challenge to its damages model based on Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013). The Fifth Circuit concluded that the class avoided Scylla “by essentially rerunning Defendant’s calculation of actual cash value [for a damaged car] but with a lawful base value, Plaintiffs’ damages theory only pays damages resulting from the allegedly unlawful base value.” But the class then encountered Charybdis when a new issue arose from that calculation: “[B]y accepting Defendant’s condition score calculation as is, [named] Plaintiffs may have impermissibly waived unnamed class members’ ability to assert a future claim contesting Defendants’s computation” of a figure called “the condition factor.” This potential waiver raised a question as to whether the class representatives could adequately represent the class memebrs who might wish to challenge that factor, and the Court remanded for further consideration of that aspect of class certification. The Court also reminded that “a fraud class action cannot be certified when individual reliance will be an issue”; a particularly relevant reminder after the recent approval of class certification in Torres v. SGE Management, 838 F.3d 629 (5th Cir. 2016) (en banc). No. 15-30010 (May 9, 2017).
In Torres v. S.G.E. Management LLC, the en banc Fifth Circuit reversed a panel opinion about a class action involving an alleged pyramid scheme. The case alleged RICO claims about the multi-level marketing program associated with Stream Energy; the panel rejected class certification, finding that individual causation issues would predominate at trial.
The en banc court disagreed, reasoning: “The Defendants’ challenge to predominance rests on their belief that th[e] causation element will require individualized proof. But that premise . . . is at odds with recent decisions from the Supreme Court and this court emphasizing that RICO claims predicated on mail and wire fraud do not require first-party reliance to establish that the injuries were proximately caused by the fraud.” Accordingly, “[b]ecause pyramid schemes are per se mail fraud, which include inherent concealment about the deceptive payment scheme, one who participates in a pyramid scheme can be harmed ‘by reason of’ the fraud regardless of whether he or she relied on a misrepresentation about the scheme.” Additionally, the Court concluded that “if the Plaintiffs prove that Ignite is a fraudulent pyramid scheme, they may use a common inference of reliance to prove proximate causation under RICO.”
This is a significant ruling from a court that is generally considered hostile to class actions, in an area of the economy – multi-level marketing programs – that involves millions of participants. No. 14-20129 (Sept. 30, 2016) (en banc).
A putative class of New Orleans landowners sought damages arising from the construction of a flood-control canal. The Fifth Circuit affirmed the denial of class certification, noting: “This lawsuit seeks to recover different damages caused by different acts committed by different defendants at different times over a five year period.” Even under Louisiana state law theories that arguably reduced the proof problems, the Court still found fatal problems as to “individual questions regarding causation” (and the exclusion of other potential causes), as well as damages: “Any . . . formula would at a minimum need to take account of the variances in age, size, type, construction, condition, soil composition, and location of the properties.” The Court distinguished other cases that affirmed class certifications as involving “single episodes of tortious conduct usually committed by a single defendant.” Crutchfield v. Sewerage & Water Board, No. 15-30709 (July 13, 2016).
In EEOC v. Bass Pro Outdoor World LLC, the Fifth Circuit addressed a “pattern or practice” suit by the EEOC, which is related to a traditional class action certified under Fed. R. Civ. P. 23, but has additional features by statute. The Court observed several features of the Federal Rules that can reduce the risk of unfair prejudice in such a large-scale case — EEOC or otherwise — including bifurcation, sequenced special interrogatories during the liability phase, and careful attention to the availability of injunctive remedies. No. 15-20078 (
The district court granted the plaintiff’s motion for conditional class certification under the Fair Labor Standards Act. The defendant sought mandamus review, and the Fifth Circuit held the petition in abatement for more information: ” Although there is generally no ‘inflexible rule requiring district courts to file a written order explaining their decisions,” in this case the district court’s ‘lack of explanation makes it impossible for us to determine’ whether mandamus relief would be appropriate here.” In re Schlumberger Tech. Corp., No. 16-20267 (May 13, 2016, unpublished).
The issue in Seacor Holdings v. Mason was whether a party had “informally” opted out of a class action related to the Deepwater Horizon disaster. Acknowledging that a party can opt out of a class without strictly complying with specified procedures, especially if the party is unsophisticated and unrepresented by legal counsel, the Fifth Circuit found no abuse of discretion in not finding an opt-out here. “The gargantuan size and extraordinary complexity of this litigation therefore supports the district court’s decision. . . . . When the district court approved the Agreement, it noted the class had potentially 200,000 members and that over 1,700 individuals sent opt-out requests to the claims administrator. Given the size and complexity of this MDL proceeding, the court and parties should not have to intuit an opt out from vague statements made in one of thousands of filings before the court. To hold otherwise would allow class members to make ambiguous statements and motions while waiting to see if the outcome of the class action is favorable.” No. 15-30597 (April 6, 2016).
- The named plaintiffs settled with Wal-Mart, and the district court entered final judgment on May 15, 2015;
- Appellants intervened on June 2; and then
- Appellants filed a notice of appeal (as to the dismissed class claims) on June 12.
While the notice of appeal divested the district court of jurisdiction over the pending motion to intervene, the Fifth Circuit may dismiss such an appeal and remand for purposes of considering the motion, which it did here with the agreement of the parties. Odle v. Wal-Mart Stores, Inc., No. 15-10571 (Dec. 16, 2015, unpublished).
In a case that has now gone en banc, the plaintiffs in Torres v. S.G.E. Management, 805 F.3d 145 (5th Cir. 2015), alleged that they were victims of an alleged pyramid scheme about a multi-level marketing program to sell electricity. The district court certified a class, acknowledging that the plaintiffs could not show a common misrepresentation, but concluding that they could show a common failure to disclose the illegality of such a scheme. In other words, “Because it can rationally be assumed (at least without any contravening evidence) that the legality of the Ignite program was a bedrock assumption of every class member, a showing that the program was actually a facially illegal pyramid scheme would provide the necessary proximate cause.”
The Fifth Circuit disagreed: “[A]n investor could reasonably choose to knowingly invest in a pyramid scheme in the hope that they would make money. As we have already explained, a pyramid scheme provides an opportunity for those at the top of the pyramid to profit from their investments. While many of the Plaintiffs might have decided to invest in the scheme in the belief that it was legal, it is equally possible that many of the Plaintiffs chose to invest in the scheme in the belief that, legal or illegal, it provided them with an opportunity to make money.” Accordingly, because Plaintiffs had to establish reliance with individualized proof, the Court decertified the class.
A detailed dissent warned: “By erecting this barrier to class certification based on nothing more than the theoretical possibility of prior knowledge of illegality, the panel majority creates an insurmountable barrier in this circuit to future class certification of cases that claim the presence of an illegal pyramid scheme. But, even worse, because individuals who are duped into joining such schemes uniformly invest relatively few dollars, none will possibly be able to afford to litigate their individual claims separately. Absent the availability of a class action, there simply will be no possibility of court challenges to such pyramid schemes.”
A dispute about the scope a “Chinese drywall” settlement illustrates the operation of complex class settlements. Defendants settled with a broadly-defined group of claimants about defective drywall, but limited to claims involving “Affected Property.” Defendants sought to enjoin a case by a class member who alleged that his condominium – which did not have Chinese drywall – had lost value because of its association with a neighboring property that did have defective Chinese drywall (also called or a “stigma” claim). The district court denied the request and the Fifth Circuit affirmed. Mangiarelli v. Sixty-Fifth and One, LLC, No. 14-31355 (Oct. 2, 2015, unpublished). The Court distinguished between the situation when “individuals [are] ‘class members’ under a settlement agreement, yet [are] barred from recovery under the terms of that agreement” from this situation, where the plaintiff “was never entitled to a benefit under the . . . agreements in exchange for releasing his stigma claims.”
Hooks sued Landmark Industries, the operator of an ATM, as the representative of a putative class alleging that Landmark failed to give proper notices under the Electronic Funds Transfer Act about withdrawal fees. Hooks v. Landmark Industries, Inc., No. 14-20496 (Aug. 12, 2015). Pursuant to Fed. R. Civ. P. 68, Landmark offered $1,000 (the maximum allowable statutory damages) and costs and fees “through the date of acceptance of the offer, as agreed by the parties, or to be determined by the court if agreement cannot be reached.” Hooks did not accept it, and the district court dismissed, finding the action mooted by the unaccepted Rule 68 offer.
Sidestepping the thorny question of whether this offer was “complete” under Rule 68, the Fifth Circuit reversed. It reasoned: “[i]t is hornbook law that the rejection of an offer nullifies the offer,” and expressed concern that “[a] contrary ruling would serve to allow defendants to unilaterally moot named-plaintiffs’ claims in the class action context — even though the plaintiff, having turned the offer down, would receiver no actual relief. This holding places the Fifth Circuit in the minority of a 6-3 circuit split on the issue of whether an unaccepted offer of judgment can moot a named plaintiff’s claim in a putative class action.
The latest appeal about BP’s class settlement of Deepwater Horizon claims — a long and winding path — involved the rights of claimants to appeal a benefit decision to the Fifth Circuit, after review in the district court. While the Court’s ultimate holdings turn on the specific parts of the settlement at issue, on the threshold issue of the claimants’ appeal right, the Court held: “We choose to follow these other circuits’ decisions in similar cases involving consent decrees to hold that, where a settlement agreement does not resolve claims itself but instead establishes a mechanism pursuant to which the district court will resolve claims, parties must expressly waive what is otherwise a right to appeal from claim determination decisions by a district court. Given that there has been no such express waiver in the instant case, the parties have preserved their right to appeal from the district court to this court.” Lake Eugenie Land & Development v. BP Exploration & Production, No. 13-30843 (May 8, 2015).
In Frey v. First National Bank Southwest, No. 13-10375 (Feb. 20, 2015), an appeal that was stayed in deference to the ruling in Mabary v. Home Town Bank, N.A., 771 F.3d 820 (5th Cir. 2014), the Fifth Circuit again affirmed the certification of a class related to notice requirements about ATM fees: “The primary questions with regard to First National’s liability are whether and when First National failed to provide the on-machine fee notice in violation of the EFTA’s requirements during the class period; if so, the appropriate amount of statutory damages; and whether the bank can avail itself of either of the two statutory defenses to liability. The answers to these questions will affect all class member’s claims.”
Plaintiffs, alleging that the defendant wrongfully printed the expiration dates of credit cards on its store receipts, sought to certify a class of “[a]ll persons who made in-store purchases from the Defendant using a debit or credit card, in a transaction occurring from May 8, 2010, through May 10, 2012, at one of the [specified] stores . . . .” Ticknor v. Rouse’s Enterprises, LLC, No. _____. Noting a split in authority about similar class actions, and applying Mims v. Stewart Title, 590 F.3d 298 (5th Cir. 2009), the Fifth Circuit found no abuse of discretion in denying certification: “The district court determined that the plaintiffs needed to prove that they: (1) were not using someone else’s card to make their purchases, (2) were consumers rather than business purchasers, and (3) took their receipts. Rouse’s argued that these factors differed among the putative class members. First, it noted one instance in which an individual had used his mother’s credit card to make a purchase, suggesting there would be many similar situations. Second, Rouse’s observed that it markets to professional chefs and other business customers who shop at its stores. These customers are not “consumers” protected under [the federal statute]. Finally, Rouse’s showed that numerous customers leave its stores without their receipts.”
Mabary withdrew money from an ATM machine. While she received an on-screen notice about a $2.00 fee, the machine did not have a posted external notice about the fee — a violation of the Electronic Funds Transfer Act at the time. After amendments to the EFTA that eliminated the Bank’s liability (if applicable), the district court dismissed Mabary’s claim and denied certification of a related class. Mabary v. Home Town Bank, N.A., No. 13-20211 (Nov. 5, 2014). The Fifth Circuit reversed, holding: (1) Mabary had Article III standing as a result of EFTA’s definition of injury, even though she did receive a form of notice; (2) a Rule 68 offer of proof to her – precertification – did not moot her claim; and (3) EFTA’s amendments did not fall within the exception to the general presumption against statutory retroactivity. A dissent took issue with the standing holding as “respectfuly, silly stuff,” reasoning: “Mabary cannot show that she suffered a cognizable injury in fact, so she can sue only if the existence of her statutory cause of action sufficed to satisfy Article III.”
The Fifth Circuit has now resolved the challenges to BP’s Deepwater Horizon settlement, as follows:
1. In October 2013, in three separate opinions, First Panel remanded for more fact findings as to accounting issues about the settlement.
2. In January 2014, in a 2-1 decision, Second Panel affirmed the settlement over challenges based on Rule 23 and related standing issues.
3. In March 2014, satisfied with the results of the remand, First Panel affirmed the mechanics of the settlement in a 2-1 decision.
4. On May 19, 2014:
A. First Panel denies panel rehearing, concluding in a 2-1 opinion: “In settling this lawsuit, the parties agreed on a substitute for direct proof of causation by a preponderance of the evidence. By settling this lawsuit and agreeing to the evidentiary framework for submitting claims, the claimants did not abandon their allegations of Article III causation.”
B. Second Panel also denies panel rehearing, also in a 2-1 opinion, noting its “complete agreement” with the denial of panel rehearing by First Panel.
Odle v. Wal-Mart Stores, Inc. presents an interesting, if unlikely to recur, issue about the tolling of limitations during appellate review of class certification. No. 13-10037 (April 1, 2014). The question was whether one of the plaintiffs in the original Wal-Mart v. Dukes class action was barred by limitations, when the Ninth Circuit’s en banc ruling had remanded the “former employee” claims (which included hers) for further consideration under a different part of Rule 23 that what the district court used. The Fifth Circuit concluded that, under the considerations detailed by American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974) and later Circuit cases applying it, the claim was not time-barred: “To rule otherwise would frustrate American Pipe‘s careful balancing of the competing goals of class action litigation on the one hand and statutes of limitation on the other, by requiring former class members to file duplicative, needless individual lawsuits before the court could resolve the class certification issue definitively.”
BP’s continuing efforts to reduce the scope of its Deepwater Horizon settlement program again produced three separate opinions from a panel in In re Deepwater Horizon (several cause numbers, March 3, 2014). Judge Southwick found that the plan’s requirement of a “certification on the document that the claimant was injured by the Deepwater Horizon disaster” resolved any lingering jurisdictional issues. Judge Dennis concurred in a shorter opinion. Judge Clement dissented, arguing: “This agreement, as implemented, is using the powers of the federal courts to enforce obligations unrelated to actual cases or controversies.”
After a recent panel remanded an appeal about the Deepwater Horizon settlement for further proceedings about its payment formula, another panel examined challenges to the settlement based on the guidelines of Rule 23, the Rules Enabling Act, and Article III. In re Deepwater Horizon — Appeals of the Economic and Property Damage Class Action Settlement, No. 13-30095 (Jan. 10, 2014). The panel found that, at the stage of certifying a settlement class, it did not violate those guidelines to have class members who may not be able to prove causation or damages on the merits: “It is sufficient for standing purposes that the plaintiffs seek recovery for an economic harm that they allege they have suffered, because we assume arguendo the merits of their claims at the Rule 23 stage.” In particular, the panel found that outcome consistent with Wal-Mart v. Dukes, 131 S. Ct. 2541 (2011), as it requires evidence “that a particular contention is common, but not that it is correct.” The panel also found no abuse of discretion in the district court’s handling of subclasses or damage calculations. A dissent contended: “Absent an actual causation requirement for all class members, Rule 23 is not being used to simply aggregate similar cases and controversies, but rather to impermissibly extend the judicial power of the United States into administering a private handout program.
In D.R. Horton Inc. v. NLRB, the Fifth Circuit reviewed an NLRB decision that invalidated an arbitration agreement as to collective or class claims related to employment. No. 12-60031 (Dec. 3, 2013). The court deftly sidestepped a difficult constitutional issue, presently before the Supreme Court, about President Obama’s “recess appointments” to the NLRB. On the merits, the Court reversed the NLRB. The Board relied upon Section 7 of the NLRA, which guarantees the right “to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” The Court found that this statute did not create a right to pursue collective or class claims in court that trumped the language and policy goals of the Federal Arbitration Act. A recent Texas Lawbook article discusses the significance of this opinion for employers.
The district court handling the Deepwater Horizon litigation rebuffed BP’s complaints that the agreed-upon claims processing formula was not working correctly. Lake Eugenie Land & Development v. BP Exploration & Production, No. 13-30315 (Oct. 2, 2013). A fractured opinion from the Fifth Circuit reversed in substantial part. It required remand for further development of the record on how the agreement was intended to handle several accounting issues about claimed losses. The Court then imposed a “tailored stay” on further payments to “allow the time necessary for deliberate reconsideration of these significant issues on remand.” Judge Clement wrote the plurality, which Judge Southwick joined on the foregoing grounds. Her opinion went on to note that, for standing reasons, a court lacked jurisdiction to administer a settlement “that included [class] members that had not sustained losses at all, or had sustained losses unrelated to the oil spill . . . .” Judge Dennis dissented as to the reasons for remand and disagreed with the standing analysis.
A district court vacated a previously-granted class certification in a securities case in 2004. The putative class refiled in Texas in 2009. The district court found the action time-barred, concluding that any tolling effect under American Pipe & Construction Co v. Utah, 414 U.S. 538 (1974) ended with the order of vacatur. Hall v. Variable Annuity Life, No. 12-20440 (August 15, 2013). The Fifth Circuit affirmed, finding no meaningful distinction in this context between a vacatur order and a decision not to certify in the first instance.
A putative plaintiff class alleged violations of federal securities law by alleged misstatements about asbestos liabilities, the quality of certain receivables and the claimed benefits of a merger. Erica P. John Fund Inc. v. Halliburton, Inc., No. 12-10544 (April 30, 2013). Reviewing recent Supreme Court cases about relevant evidence at the certification stage, including one that reversed the Fifth Circuit about proof of loss causation, the Court held: “price impact fraud-on-the-market rebuttal evidence should not be considered at class certification. Proof of price impact is based upon common evidence, and later proof of no price impact will not result in the possibility of individual claims continuing.” (citing Amgen, Inc. v. Connecticut Retirement Plans and Trust Funds, ___ U.S. ___ (Feb. 27, 2013)) The Court rejected a policy argument about the potential “in terrorem” effect of not considering such potentially dispositive evidence about the merits at the certification stage. The district court ruling about this evidence, and the resulting class certification, were affirmed.
Teta v. Chow involved a WARN Act claim asserted by a putative class in bankruptcy court. No. 12-40271 (March 29, 2013, revised April 19, 2013). The Fifth Circuit began its review by comparing the rules for adversary proceedings, which automatically adopt Fed. R. Civ. P. 23, with those for a class proof of claim, which would not automatically implicate that rule. Applying Rule 23, the Court agreed that factors unique to the bankruptcy process can be considered in certification of a class by a bankruptcy court, but remanded for additional explanation by the district court on the issues of numerosity and superiority. A dissent would simply reverse the denial of class certification.