Sixth Circuit Leaves Class Certification Order Intact In Securities Fraud Case And Denies Rule 23(f) Petition To Appeal

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Kathryn Brown

Duane Morris Takeaways: On September 10 2024, in In Re Tivity Health Inc., et al., No. 23-0504 (6th Cir. Sept. 10, 2024), the U.S. Court of Appeals for the Sixth Circuit denied the defendants’ petition to appeal the U.S. District Court for the Middle District of Tennessee’s order granting class certification to plaintiffs in a securities fraud case. The ruling closes the door to an immediate appeal of the class certification ruling, leaving proceedings to continue in the district court. The decision is a must read for class action defendants seeking to overturn a district court’s Rule 23 class action certification ruling and exercising appellate options.

Case Background

In the underlying lawsuit, the plaintiff filed a lawsuit on behalf of a putative class of investors against Tivity Health and three individual defendants. The lawsuit asserted claims of violations of Sections 10(b) and 20(a) of the Securities and Exchange Act arising from disclosures the company made to investors about its acquisition of Nutrisystem, a prominent diet and nutrition company.

On June 7, 2022, the district court granted the motion of the lead plaintiff, Sheet Metal Workers Local No. 33, Cleveland District, Pension Fund, for Rule 23(a) class certification. The court certified a class of persons who purchased or otherwise acquired the common stock of Tivity Health between March 8, 2019 and February 19, 2020. The defendants filed a Rule 23(f) petition seeking permission to appeal the ruling. The Sixth Circuit granted the petition on November 21, 2022, concluding the district court had not undertaken a “rigorous” analysis of the Rule 23(a) factors. See In Re Tivity Health Inc., et al., No. 22-0502 (6th Cir. Nov. 21, 2022). The Sixth Circuit remanded the case to the district court.

Following remand, the district court again granted class certification pursuant to Rule 23(a). Thereafter, on June 22, 2023, the defendants filed a second Rule 23(f) petition, requesting permission to appeal the second class certification decision. The defendants primarily argued that the district court erroneously decided an open question of law about the scope of “scheme liability” under Section 10(b) of the Securities and Exchange Act.

On July 10, 2023, lead plaintiff Sheet Metal Workers Local No. 33 responded in opposition to the request. In the opposition, the plaintiff contended that the U.S. Supreme Court had ruled definitely on the “open” question in Lorenzo v. Sec. & Exch. Comm’n, 587 U.S. 71 (2019). In Lorenzo, the Supreme Court ruled that Section 10(b) of the Securities and Exchange Act encompassed a wide range of conduct, rejecting the argument that “scheme liability” was limited to deceptive acts. Consequently, the plaintiff argued there was no open question of law warranting interlocutory appeal of the district court’s (second) grant of class certification.

The Sixth Circuit’s Ruling

First, the Sixth Circuit articulated the Rule 23(f) standard for review of a petition to appeal immediately from an order granting or denying class certification. It explained the analysis under Rule 23(f) considers several factors, including: (1) the petitioner’s likelihood of success on the merits; (2) whether the certification decision turns on a novel or unsettled question of law; (3) whether the costs of continuing litigation may present such a barrier that later review is hampered; and (4) the posture of the case as it is pending before the district court.

In applying the Rule 23(f) standard, the Sixth Circuit addressed only the second factor. It roundly rejected the defendants’ argument that the district court’s ruling turned on a novel or unsettled question of law. The Sixth Circuit reasoned that the plaintiffs’ claim appeared to involve a “straightforward application” of the Supreme Court’s ruling on “scheme liability” in Lorenzo. The Sixth Circuit declined to address any of the other factors in the Rule 23(f) analysis.

Accordingly, finding no basis for interlocutory appeal, the Sixth Circuit entered a judgment denying the defendants’ petition for permission to challenge the grant of class certification at this stage of the litigation.

Implications For Class Action Defendants

As any corporation in a class action knows, a district court’s grant of class certification is among the most significant inflection points in the litigation. Rule 23(f) is a tool for litigants to challenge a class certification ruling at the earliest possible stage, before the parties spend years engaging in costly and needless litigation. Similar to the Supreme Court’s decision whether to grant a petition for certiorari, an appellate court has full discretion to grant or deny a Rule 23(f) petition. The Sixth Circuit’s ruling in In Re Tivity Health, Inc. illustrates the exceptionally high hurdle defendants face in overturning a district court’s grant of class certification.

Illinois Governor J.B. Pritzker Signs New Artificial Intelligence Law Focused On Employment Practices

By Tiffany E. Alberty, Alex W. Karasik, Gerald L. Maatman, Jr., and Brandon Spurlock

Duane Morris Takeaways: On August 9, 2024, Illinois Governor J.B. Pritzker signed House Bill 3773, which amends the Illinois Human Rights Act to address an employer’s use of artificial intelligence in employment-related decisions such as recruitment, hiring, promotion, retention, and discipline if it subjects an employee to discrimination.  The new law gives the Illinois Department of Human Rights (IDHR) the power to adopt any rules necessary for the implementation and enforcement of the statute, including determining rules on whether notice will be required and the timing and methods of such notice. The amendment will take effect January 1, 2026.

For employers with operations in Illinois who embrace the use of this cutting-edge technology, this new law is the latest compliance piece on a constantly evolving employment law checklist.

Background Of Amendment

The Illinois House introduced H.B. 3773 in February 2023 by legislative members looking to implement safeguards where artificial intelligence systems are used in employment-related decisions.  The bill received nearly unanimous support, passing the House 106-0, and the Senate 57-0.  The bill reached the governor’s desk in June 2024 and was signed before summer’s end.  The bill comes on the heels of Colorado’s sweeping AI legislation enacted in May 2024 covering not only employment related decisions, but also education, financial lending, government services, healthcare services, housing and insurance.  Illinois is now one of the 34 states that has either enacted or proposed legislation related to artificial intelligence.  Illinois lawmakers assert that the new law is a proactive step toward preventing the unintended consequences of using AI-technology in hiring.

Legislative Revisions

In essence, the new law prohibits an employer from using artificial intelligence if it has a discriminatory effect on employees based on a protected class or uses zip codes as a proxy for a protected class, and requires employers to give notice if the employer is using artificial intelligence for the following employment related purposes:

    • Recruitment
    • Hiring
    • Promotion
    • Renewal of employment
    • Selection for training or apprenticeship
    • Discharge
    • Discipline
    • Tenure (or the terms, privileges, or conditions of employment)

See 775 ILCS 5/2-102(L)(1).

In enacting the new law, Illinois legislatures braved the murky waters of attempting to define artificial intelligence, which has proven difficult for other state legislatures that tackled this challenge, resulting in a patchwork of definitions. (See, e.g., Connecticut S.B. 1103, Louisiana S.C.R. 49, Rhode Island H 6423, Texas H.B. 2060.)

Here, the amendment defines Artificial Intelligence as:

a machine-based system that, for explicit or implicit objectives, infers, from the input it receives, how to generate outputs such as predictions, content, recommendations, or decisions that can influence physical or virtual environments. . . [and] includes generative artificial intelligence.

See 775 ILCS 5/2-101(M).

It remains to be seen whether the Illinois definition will prove adequate or cause uncertainty and confusion.  Importantly, the new law empowers the IDHR to “adopt any rules necessary for the implementation and enforcement of this subdivision, including, but not limited to, rules on the circumstances and conditions that require notice, the time period for providing notice, and the means for providing notice.”  When the law goes into effect at the start of 2026, it will be important to monitor what rules and guidance the IDHR offers regarding implementation and enforcement.

Impact Of H.B. 3733 And Other Current And Proposed AI-Laws

As more employers incorporate artificial intelligence into their employment-related activities, it will be important to balance the benefits of using AI with the risk of running afoul of the ever evolving legal landscape, because not only is H.B. 3773 sweeping in scope, in that it impacts recruitment, hiring, promotion, retention, discipline, termination, benefits, etc., but it is also nebulous because it is not clear what it means to “ha[ve] the effect of subjecting employees to discrimination.”

Like other states across the country, Illinois lawmakers are leaning into implementing proactive measures to regulate artificial intelligence related to employment decisions despite the fact that the technology is still so new and adoption is in its early stages.  The challenge for Illinois employers will be staying abreast of how these new laws and how they are interpreted and enforced.

H.B. 3773 is not the first artificial intelligence law applicable to Illinois employers. In January 2020, the Illinois Artificial Intelligence Video Interview Act went into effect, which applies to all employers that use an AI tool to analyze video interviews of applicants for positions based in Illinois. The law requires employers to notify applicants before the interview that AI may be used to analyze their video interview and obtain the applicant’s consent.

In addition to these two relatively recent AI-based laws, in February 2024, the Illinois House sent H.B. 5116 to the State Senate, which is a proposed law that would require any “deployer” of an automated decision tool to perform an impact assessment and provide that assessment to the IDHR. The deployer also will have to notify a person who is subject to a “consequential decision” that an automated decision tool is being used to make, which could be in the context of employment, education, housing, healthcare, financial services, among other decision making categories.

Implication For Employers

As AI adoption continues to expand within workplace operations, although H.B. 3773 does not take effect until January 2026, Illinois businesses would be wise to begin assessing whether their AI-systems are at risk of running afoul of the statute.  Illinois employers currently using AI technology that may fall under the statute will want to work with counsel and experienced vendors to assess their systems for evidence of bias and/or discrimination.  As mentioned, it also will be important for Illinois employers to monitor any directives issued by the IDHR regarding the new law, in particular with respect to any rules around notice and/or consent.

New Jersey Supreme Court Finds Standalone Class Action Waivers In Consumer Contracts Are Not Per Se Unlawful 

By Gerald L. Maatman, Jr., Gregory S. Slotnick, and James Hearon

Duane Morris Takeaways: On July 10, 2024, in William Pace v. Hamilton Cove, A-4-23 (July 10, 2024 N.J.), the New Jersey Supreme Court held that consumer contract provisions waiving class actions are lawful under New Jersey law, even if they are not directly connected to an arbitration agreement.  The Supreme Court also found that while class action waivers in consumer contracts are not per se contrary to public policy, they may be unenforceable if they are found to be unconscionable or otherwise violate state contract law.  In a unanimous opinion, the Supreme Court analyzed claims by plaintiff-tenants seeking class certification in an action brought against their landlord, Hamilton Cove, for allegedly advertising that its apartments had “elevated, 24/7 security,” when in reality security cameras in the three-tower apartment complex did not function and there was no around-the-clock security.  The Supreme Court reversed the New Jersey Appellate Division, finding that in the case before it, the plaintiff-tenants clearly and unambiguously waived their right to maintain a class action knowingly and voluntarily by signing a lease agreement including a standalone class action waiver, despite the fact that the class action waiver was not part of an arbitration agreement or arbitration provision. 

The Supreme Court held that class action waivers standing alone and apart from a mandatory arbitration provision are not per se unenforceable.  It then analyzed the lease language at issue and held that the lease was written in a simple, clear, understandable, and easily readable way as required by the New Jersey Consumer Fraud Act (CFA), putting plaintiff-tenants on notice that they could only proceed with a lawsuit against the landlord defendants on an individual basis.  Under the lease and facts of the case, the Supreme Court held that the landlord defendants’ standalone class action waiver provision was lawful, relying on factors including the parties’ relative bargaining power, no indicia of economic compulsion, and the class action waiver not impermissibly prohibiting plaintiff-tenants from individually vindicating their statutory rights under the CFA.  As such, the class action waiver was not unconscionable, and the lease was therefore enforceable. 

The opinion will likely have a far-reaching impact for businesses using arbitration programs in New Jersey and beyond. 

Case Background

The landlord defendants operate Hamilton Cove, a three-building apartment complex located in Weehawken, New Jersey housing hundreds of apartments along the Hudson River waterfront.  Id. at 4-5.  The plaintiff-tenants claimed that in April 2020, Hamilton Cove advertised on its website and on social media that its apartments had “elevated, 24/7 security,” and that during an apartment tour before moving in, Hamilton Cove’s leasing officer told them that security personnel would be stationed 24 hours a day, 7 days a week.  Id. at 5.  The plaintiff-tenants entered into lease agreements in 2020, which allowed prospective tenants three days to consult with an attorney, after which the releases would become final.  Id.  The leases included multiple addenda – one of which was a “Class Action Waiver” addendum – which were all incorporate into the lease.  Id. at 5-6.  The Class Action Waiver included language in bold and the plaintiff-tenants agreed to waive their ability to participate either as a class representative or members of any class action claims against the landlord-defendants.  Id. at 6.

After moving into their apartments, the plaintiff-tenants found that the Hamilton Cove security cameras did not work, and there was no 24/7 security.  They claimed that the advertised “24/7 security” drew them to lease their apartments and pay the leasehold price, especially due to their allegation that Weehawken has a property crime rate approximately one-third higher than New Jersey’s state average.  Id. at 7.

On March 31, 2022, the plaintiff-tenants filed the Complaint, claiming common law fraud and violation of the CFA.  Id.  They specifically alleged that the landlord-defendants engaged in an “unconscionable commercial practice” of knowingly making false representations regarding 24/7 security on their premises, and they sought to certify a class comprised of similarly-situated tenants.  Id. at 7-8.

After landlord-defendants moved to dismiss the Complaint for failure to state a claim or, alternatively, to strike plaintiffs’ class allegations – arguing that plaintiff-tenants waived their ability to proceed as a class when they signed the class action waivers – the trial court denied the motions.  Id. at 8.  After landlord-defendants appealed the decision, the Appellate Division affirmed the trial court’s denial, holding that “a class action waiver in a contract that does not contain a mandatory arbitration provision” is unenforceable as a matter of law and public policy.  Id. at 8-9.  The New Jersey Appellate Division found that unless rendered unenforceable by the presence of an arbitration agreement, class action waivers are clearly contrary to the public policy of New Jersey, regardless of whether they are unconscionable or part of an adhesion contract.  Id. at 10.

The New Jersey Supreme Court’s Decision

The New Jersey Supreme Court began by analyzing class actions as a procedural device and the legal requirements necessary to certify a class action.  Id. at 16-17.  While acknowledging that class action requirements should be “liberally construed” (id. at 18), the Supreme Court disagreed with the Appellate Division’s establishment of a bright-line rule that a waiver of the right to maintain a class action in unenforceable absent a mandatory arbitration agreement.  Id. at 19.  The Supreme Court held that an arbitration provision is not necessary and is separate to a class waiver’s enforceability, and that New Jersey law supports the contractual waiver of many rights that advance important goals, such as the right to a jury trial, provided that the requisite procedural safeguards surrounding the waiver are met.  Id. at 19-20.  The Supreme Court reiterated New Jersey’s strong public policy favoring the freedom to contract, and noted that legislatures can override this freedom in specific settings – which has not occurred in the context of class action waivers.  It stated that in New Jersey, there is neither a controlling statutory provision expressly permitting class actions, nor a clear statement of public policy disfavoring class action waivers – as such, class action waivers must be evaluated through the lens of unconscionability and traditional tenants of contract formation.  Id. at 23-24.  As a result, the Supreme Court held that class action waivers standing alone and apart from a mandatory arbitration provision are not per se unenforceable, but that particular waivers may be unenforceable if unconscionable or invalid under general contract principles.  Id. at 24.  It then considered the specific waiver in the case before it.  Id.

The Supreme Court confirmed that in order to analyze whether the class action waiver in the Hamilton Cove lease signed by plaintiff-tenants was unconscionable, a fact-sensitive analysis was required.  Id. at 25.  Factors considered by the Supreme Court to determine whether the class waiver was an unenforceable contract of adhesion, known as the Rudbart factors, included: (1) the subject matter of the contract; (2) the parties’ relative bargaining power; (3) the degree of economic compulsion motivating the adhering party; and (4) the public interests affected by the contract.  Id. at 25-26.  The Supreme Court found that plaintiff-tenants knowingly and voluntarily waived their right to maintain a class action because the waiver language was written in a simple, clear, understandable and easily readable way as required by the CFA, and it clearly and unambiguously put plaintiff-tenants on notice that they could only proceed with a lawsuit against landlord-defendants on an individual basis.  Id. at 30.

The Supreme Court found that even if the lease could be considered a contract of adhesion, the Rudbart factors favored enforceability, since the parties’ relative bargaining power did not favor either party and plaintiff-tenants had time to consult with an attorney and were free to seek alternative housing if they did not agree with the lease’s terms.  Id. at 30-31.  It held that plaintiff-tenants were not under economic compulsion, and likely had the ability to choose from a vast selection of apartments available for a monthly rent comparable to the $3,700 rent at issue here.  Id. at 31-32.  Finally, the Supreme Court found that plaintiff-tenants were still able to pursue their CFA claims on an individual basis against the landlord-defendants, and that the class waiver did not prohibit plaintiffs, or similarly-situated Hamilton Cove tenants, from individually vindicating their statutory rights under the CFA.  Id. at 33.  Thus, the Supreme Court held that the class waiver was not unconscionable and was enforceable, reversing the Appellate Division’s judgment.  Id. at 34.

Implications For New Jersey Businesses And Employers

The New Jersey Supreme Court’s opinion seemingly exceeds the landlord-tenant relationship, and may be characterized as a victory for New Jersey employers.  As a result of the ruling, New Jersey businesses may seek to enforce a valid class action waiver separate and apart from an arbitration agreement or arbitration provision.  While the class action waiver itself must be presented in a clear and direct manner, these waivers are not per se unenforceable on their face.  As a best practice in light of the decision, New Jersey employers and businesses alike should ensure that any class action waivers provide for a reasonable period of time for review, and should strongly consider adding language providing time for a prospective signee to have the language reviewed by an attorney prior to signing.  However, New Jersey businesses that do not wish to include mandatory arbitration provisions in contracts now have a clear path to still including class action waivers in such contracts, which are not per se unlawful, but which must still be presented in a manner that is not unconscionable based on individual circumstances.

Federal Panel Approves Procedural Rule Governing Initial Case Management In MDL Cases

By Gerald J. Maatman, Jr., Jennifer A. Riley, and Derek S. Franklin

Duane Morris Takeaways:  On June 4, 2024, the U.S. Judicial Conference Committee on Rules of Practice and Procedure (“Committee”) approved additions to Rule 16.1 of the Federal Rules of Civil Procedure to address case management in multidistrict litigation proceedings (“MDLs”).  The additions to Rule 16.1 provide a framework for initial management of MDLs by instructing judges to: (1) schedule an initial case management conference; (2) order the parties to submit a pre-conference report; and (3) enter an initial case management order after the conference.  Pending judicial and congressional approval, Rule 16.1 will mark the first formal guidance specifically addressing MDL procedures and will allow for more efficient and merits-driven MDL case management.

The Committee’s procedural rules are required reading for corporations embroiled in MDL proceedings.

Background

According to 2023 federal court data, more than 70% of federal civil cases are part of a multidistrict litigation. Many of those proceedings are consolidated class actions. Yet, as of now, there are no procedural rules specifying how judges should manage MDL cases.

To address that issue, the Committee on Civil Rules formed an MDL Subcommittee in 2017 to explore possible additions to the Federal Rules of Civil Procedure concerning MDLs.

Proposal Of Rule 16.1 For Public Comment

In August 2023, the MDL Subcommittee published a proposed draft of Rule 16.1 for public comment.  While the Rule aimed to address concerns from plaintiffs’ and defense attorneys, it drew considerable feedback from both sides.

For example, defense attorneys called for the proposed Rule to be more stringent in weeding out frivolous claims by mandating — rather than merely permitting — initial exchanges of information by the parties.  On the other hand, some plaintiffs’ attorneys’ submitted comments arguing there was no need for the Rule altogether, and that it would hinder judges’ ability to take an individualized approach to their cases.

Commenters on both sides also voiced concerns about language in the proposed Rule designating a “coordinating counsel” to work with MDL litigants in the early stages of cases.

Approval Of Rule 16.1

In April 2024, the MDL Subcommittee approved a revised version of Rule 16.1 reflecting a compromise among those participated in the public commenting process.  The revised Rule directs MDL judges to: (i) schedule an initial management conference; (ii) order the parties to submit a pre-conference case management report; and (iii) enter an initial case management order after the conference.

On June 4, 2024, the Committee voted in favor of submitting the Rule for final approval by the U.S. Supreme Court and for transmittal to Congress.

Heeding the feedback of defense counsel who criticized the lack of mandatory language in the proposed Rule, the approved revisions make it a requirement for the parties to prepare a pre-conference report “unless the court orders otherwise.”

The updated Rule also removes the hotly-contested proposed language that would have enlisted a “coordinating counsel” to assist MDL litigants with the initial case management conference and pre-conference report.  Instead, Rule 16.1 will allow transferee judges to deal with leadership appointments based on the particular needs of each case.

The date of May 1, 2025 is the target deadline for adoption of Rule 16.1 by U.S. Supreme Court and transmittal to Congress.  If those requisite steps occur, the Rule will take effect on December 1, 2025.

Takeaways For Companies

Rule 16.1 is set to become the first federal procedural rule directly addressing MDL procedures.

While it may not confer radical changes that some public commenters sought, the Rule is a concrete and unprecedented step, nonetheless, toward establishing a consistent initial roadmap in MDL cases.  It will also act as an added safeguard against meritless MDL claims by requiring more transparency early in the litigation process.

Corporate counsel should take note of the pending adoption of Rule 16.1 to be more equipped to effectively handle MDLs, while continuing to monitor the Rule’s status as it heads to Congress and the U.S. Supreme Court to receive the final “green light.”

Alabama Federal Court Rules That Attorneys’ Misleading Communication Undermined The Integrity Of Class Action Plumbing Settlement

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Zachary J. McCormack

Duane Morris Takeaways: On May 23, 2024, in Braswell, et al. v. Bow Plumbing Group, Inc., No. 21-CV-00025, 2024 U.S. Dist. LEXIS 92478 (M.D. Ala. May 23, 2024), Judge Emily C. Marks of the U.S. District Court for the Middle District of Alabama granted Plaintiffs’ Emergency Motion for Curative Action to the extent that: (1) the Court struck 319 requests for exclusion (or “opt-outs”) submitted by individuals seeking to opt-out of a class-wide settlement; (2) the Court re-opened the opt-out and objection period for these 319 class members; and (3) the Court authorized issuance of a second curative notice and request for exclusion form to the 319 class members. Judge Marks tossed out the 319 “opt-outs” and partially reopened the objection period in an attempt to protect the due process rights of the affected class members. The Court took this action because it found that outside attorneys repeatedly misled the class members regarding the pending $8.025 million settlement, which lead to the numerous exclusion requests.

The Court found that two attorneys, who represent the same plaintiffs in separate but related class actions against the same defendant, Bow Plumbing Group, Inc., repeatedly contacted eligible class members to urge them to opt out of the settlement. The Court’s order not only provides guidance regarding the due process rights of class members, but also demonstrates the importance of effective and accurate attorney-client communications in the context of Rule 23.

Case Background

Bow Plumbing Group, Inc. produces drainage and pressure plumbing products in all the major plastic materials, including PEX tubing. On January 13, 2021, plaintiffs filed a class action alleging defects in Bow’s PEX tubing, which was installed in the homes of plaintiffs and the class members. Id. at *3. The parties eventually settled the case on a class-wide basis, and on February 28, 2024, the Court preliminarily approved the parties’ proposed $8.025 million settlement, provisionally certified the settlement class, and directed notice to the settlement class. Id. Shortly after, in March 2024, Attorneys Jay Aughtman and Kenneth Mendelsohn sent emails to a “blind-copied” list of their clients, which contained misleading or inaccurate statements regarding the proposed class action settlement and associated proceedings in this case. Id. Specifically, the emails contained misleading deadlines, misinformation regarding the terms of the settlement, an inaccurate statement that a California-based administrator, who was paid for from the settlement, would determine class members’ individual eligibility to receive any funds, and an incorrect suggestion that it could be unethical for plaintiffs’ counsel to communicate with presumptive class members. Id. at *4.

In response, on April 4, 2024, the Court determined that these emails “materially interfere[ed] with the Court’s order to effectuate a notice plan which fairly, accurately, and reasonably informs the settlement class members of the proposed settlement terms and associated procedures to resolve their claims.” Id. The Court further pointed out that this misinformation put final resolution of the case in jeopardy and risked class members to opt out without the benefit of accurate and complete information. Id.

On April 9, 2024 — within days of the Court’s order — the same attorneys sent another email to their clients stating: “Bow’s defense counsel and the class action attorneys are making rigorous efforts to delay your individual claims that we continue to pursue for you.” Id. The Court found the April 9, 2024 email falsely portrayed its efforts to rectify Attorneys Aughtman and Mendelsohn’s misleading communications as unnecessarily delaying their clients’ individual claims. Id. Finally, on May 7, 2024, the attorneys sent another email suggesting that class members should not speak with class counsel, despite the Court’s April 4 O\order expressly observing that such communications are permissible. Id. at *5. Presumably as a result of the attorneys’ misleading communication, the parties received, through the Court-appointed settlement administrator, a total of 319 requests for exclusion. Id.

The Court’s Decision

The Court held that the attorneys undermined the integrity of the class settlement process by providing incomplete, misleading, and coercive information to potential class members. Id. at *7. Based on these communications, as well as the fact that many of the requests for exclusion were signed before the Court’s curative notice or before the Court-approved notice of the settlement was even issued, the Court was concerned that a significant percentage of these requests for exclusion were caused, in whole or in part, by the inaccurate or incomplete information disseminated by the attorneys. Id. Therefore, to safeguard the integrity of Rule 23, the class members’ due process rights, and the administration of justice, the Court ordered corrective measures to ascertain whether the 319 “opt-outs” are aware of the terms of the settlement, have been adequately informed, and have been provided a sufficient, uncoerced opportunity to decide whether they wish to remain in the class. Id. at *8.

Rule 23 “requires that class members be given information reasonably necessary for them to make a decision.” Id. at *9. The Court reasoned that, under Rule 23(c)(2)(B) it has a responsibility to give class members “the best notice that is practicable under the circumstances.” Id. The Court reasoned that, since it was over two months since the affected class members first learned about the settlement, a shortened opt-out period is both practical and reasonable. Id. Accordingly, the settlement administrator was given seven days to send out the curative letter and renewed request for exclusion forms to the 319 presumptive class members, and they were given 29 days to respond, with a new deadline of June 21. Id. at *10.

Implications Of The Decision

This order serves as a cautionary reminder of the potential repercussions for providing incomplete or inaccurate information to clients. Further, it depicts the consequences of subverting a class action settlement deal.

Rule 23 provides courts with a responsibility to ensure class members have information necessary to decide whether to opt-out of litigation. Corporate counsel should take note of the Court’s interpretation of Rule 23 to be more equipped to effectively handle class action litigation, and continue to monitor this space for future developments.

Ninth Circuit Strikes Down Defendant’s Attempt At “Super Snap Removals”   

 

By: Gerald L. Maatman, Jr., Sarah Gilbert, and Nick Baltaxe

Duane Morris Takeaways: In a consolidated appeal – entitled Casola v. Dexcom, Inc., Bottiglier v. Dexcom, Inc., and Pfeifer v. Dexcom, Inc., Nos. 23-55403, 23-55435 & 23-55437 (9th Cir. Apr. 10, 2024) – the Ninth Circuit held that it lacked jurisdiction to review the District Court’s remand orders in three cases, Defendant-Appellant Dexcom, Inc (“Dexcom”) challenged the District Court’s decision to remand each of the cases under the forum defendant rule, which prohibits removal based on diversity jurisdiction if any of the parties in interest “properly joined and served as defendants is a citizen of the state in which such action is bought.”  28 U.S.C. § 1441(b)(2). Dexcom argued that the forum defendant rule did not apply as it had filed the removal notice before it had been “joined and served,” a gambit known as a “snap removal.”  The Ninth Circuit held that Dexcom’s attempt to avoid the forum defendant rule by removing before it had been served was ineffectual and it dismissed the appeals for lack of jurisdiction.  

Case Background

Plaintiffs Casola, Bottiglier, and Pfeifer brought similar product liability suits against Defendant Dexcom in late 2022 in the Superior Court of California, County of San Diego.  Id. at 6.  Plaintiff Casola submitted her complaint electronically on November 23, 2022, and Dexcom received notice of that submission via the Courthouse News Service, an organization that publishes daily reports about civil litigation.  Id. at 7.  On Monday, November 28, 2022, before the Court had officially “filed” the Complaint or issued a summons, Dexcom filed a Notice of Removal, invoking diversity jurisdiction.  Id.  Dexcom followed a similar strategy for the complaints filed by Plaintiffs Bottiglier and Pfeife by filing “snap removals” before the case was officially filed.  Id. at n. 4.

On December 29, 2022, 31 days after the original Notice of Removals were filed, Plaintiffs filed motions for remand, framing the remand on the basis of “subject matter jurisdiction” in an attempt to avoid the 30-day deadline for remand.  Id. at 9.  Plaintiffs argued that the District Court lacked subject-matter jurisdiction because Dexcom’s notices were “legally void” since they were filed before the complaint had been processed, while also asserting that remand was proper due to the forum defendant rule.  Id.  In March of 2023, after additional briefing from both parties, the District Court granted the remand motions, holding that the remand was proper due to the forum defendant rule.  Id.  Importantly, the District Court rejected Dexcom’s argument that Plaintiffs had waived their forum-defendant objections by filing their remand motions 31 days after the removal was filed because the notices of removal were “defective,” which did not start the 30-day window.  Id. 

Dexcom appealed these remand orders.  Id. 

The Ninth Circuit’s Decision

The Ninth Circuit addressed whether the District Court had the power to remand each of the cases on the basis of a non-jurisdictional defect, i.e., the forum-defendant rule, that was asserted more than 30 days after the notice of removal was filed.  To do so, the Ninth Circuit addressed three subsidiary issues.

First, the Ninth Circuit agreed that Dexcom’s Notice of Removals were premature.  Id. at 14.  Specifically, the Ninth Circuit held that, for purposes of removability, the complaint was filed in California state court when it was processed and acknowledged as officially filed by the clerk.  Id. at 15.  The Ninth Circuit noted that the Complaint is not filed when it is electronically submitted because the clerk must then review the submission for compliance with local court rules, ensure that filing fees are paid, and can even reject the submission if defective.  Id. at 19.  On that basis, the Ninth Circuit disagreed with Dexcom’s position that the complaints were deemed filed upon electronic submission.  Id. at 24.

The Ninth Circuit also addressed Dexcom’s policy argument that the it should avoid adopting different rules for the timing of filing of a complaint for removal purposes on the one hand, and statute of limitations and similar timeliness purposes on the other.  Specifically, Dexcom argued that rejection of its position that the Complaint is filed on delivery will lead to situations where a complaint could be treated as filed for the purposes of the statute of limitations but not filed for purposes of removal.  Id. at 28.  The Ninth Circuit found this argument unpersuasive.  The Ninth Circuit noted that the stakes here are minimal, as the 30-day deadline for removal only starts upon service of the Complaint.  Id.  Additionally, the Ninth Circuit opined that “snap removals” are still viable in some district courts in California, so adopting Dexcom’s position would give in-forum defendants with access to services like Courthouse News Services a safe harbor in which to remove while not concerning themselves with service of the Complaint.  Id. at 30.

Finally, the Ninth Circuit addressed whether or not the premature notices of removal nonetheless started the 30-day clock for non-jurisdictional objections to removal.  The Ninth Circuit determined that, if the notices of removal were defective for merely procedural or technical reasons, they may have held that the defectiveness did not block the 30-day window from starting.  Id. at 32.  However, the Ninth Circuit instead held that these notices of removal had a foundational defect, which rendered them legally null and void.  Id. at 33.  The Ninth Circuit maintained that because there was no pending civil action to be removed, the notices of removal did not confer jurisdiction on the District Court.  Id.  While that defect was cured by Dexcom’s subsequent filing of supplemental notices of removal, the Ninth Circuit found that the 30-day clock would have started on the date of supplemental filing, not the original date of filing.  Id. 

In sum, the Ninth Circuit made it clear that it did not decide whether or not Dexcom violated the forum-defendant rule.  Id. at 34.  Additionally, the Ninth Circuit refused to address whether or not pre-service “snap removals” are proper, even though the District Court had impliedly held that pre-service “snap removals” are improper.  Id. 

Implications For Companies

While the Ninth Circuit did not address the applicability of pre-service “snap removals,” it has effectively closed the door on pre-filing “snap removals.”

While companies may prefer to have cases heard in the federal courts, this decision makes it clear that the removal must be lodged after the Complaint is filed and acknowledged by the clerk.  A failure to follow this guideline will lead to remand of the claims.

Florida Federal Court Issues Extraordinary Order To MDL Claimants Warning Of Scammers In Wake Of Reddit Post 

By Gerald L. Maatman, Jr., Nicolette J. Zulli, and Zachary J. McCormack

Duane Morris Takeaways: In the massive proceeding known as In Re 3M Combat Arms Earplug Products Liability Litigation, No. 3:19-MD-0288 (N.D. Fla. Oct. 14, 2023), Judge M. Casey Rodgers of the U.S. District Court for the Northern District of Florida recently issued a novel order warning claimants and attorneys to beware of scammer phone calls asking for sensitive personal information. The Court advised that imposters pretending to be employees of Settlement Administrator Archer Systems LLC (“Archer Systems”) had called numerous claimants involved in the 3M Company (“3M”) Combat Arms Earplug (“CAE”) multi-district litigation (“MDL”) asking for social security numbers and date of births to confirm participation in the $6 billion settlement deal reached in August 2023. This fraudulent activity to retrieve personal information comes as the result of a Reddit post leaking the telephone number Archer Systems previously used to contact claimants. In response to this post, scammers spoofed outgoing calls to claimants using this number, thereby prompting the Court’s intervention. Judge Rodgers explained the Federal Bureau of Investigation (“FBI”) has been notified of the scam and advised claimants to be vigilant in shielding personal sensitive information from possible scammers. Judge Rodgers issued his order to encourage all claimants involved in the MDL to immediately contact their lawyer if contacted by someone claiming to be an Archer Systems employee. This swindle in the administrative process of a massive settlement presents as the latest iteration in the onslaught of cyber-attacks, data, and security breaches affecting consumers in recent times.

Case Background

3M, the Minnesota-based conglomerate operating in the fields of industry, worker safety, healthcare, and consumer goods, produces thousands of products under several brands. Between 2003 and 2015, 3M and subsidiary, Aearo Technologies Inc., manufactured and supplied United States military service members with CAE to protect them from loud military training and combat noises. The earplug’s short design did not provide enough coverage to certain users’ ear canals, failing to form a proper seal, and exposing military service members to harmfully loud noises. This resulted in numerous users reporting hearing loss and other ear issues. In 2016, Moldex-Metric, Inc., a California-based competitor, filed a whistleblower lawsuit against 3M, claiming that these defective earplugs did not meet the standards for protection required by the government. In 2018, 3M paid over $9 million to the Department of Justice, and shortly following this settlement with the government, numerous individualized lawsuits poured in from military service members. In 2019 these lawsuits were centralized in the Northern District of Florida, and in August 2023, after a court-ordered mediation, 3M reached a settlement with the 260,000 claimants who formed the largest MDL in the history of the United States.

In the wake of the August settlement, an unknown Reddit user leaked the telephone number Archer Systems used to contact claimants in the CAE settlement. Scammers quickly took action, disguising calls with the number and contacting claimants, to ask for social security numbers as well as birthdates, in an attempt to commit identity theft. Upon learning about the scheme, Judge Rodgers issued his cautionary order on October 14, 2023.

The Court’s Order

The order warns claimants “THIS IS A SCAM,” and that the FBI had been notified. The order further advises claimants on how to protect their sensitive personal information from potential scammers. It goes on to educate claimants on the fraudsters’ approach: that Archer Systems is not directly contacting claimants unsolicited, nor is it utilizing auto dialer or auto caller bots. Rather, that Archer Systems will only ask claimants for the last four digits of their social security number, not the entire number, and that claimants should not respond to any emails from anyone representing themselves as Archer Systems. The Court’s order discourages claimants from sharing information regarding this settlement on social media, since it appears the anonymous Reddit user obtained the Archer Systems telephone number through a claimant’s social media post. Finally, the order directs counsel to send a copy of the order to represented claimants, as well as advising the court clerk to forward the order to pro se claimants.

Legal Implications

Overall, the Court’s order comes in response to yet another fraudulent scheme to trick one of the most visible segments of the population – America’s veterans – into providing sensitive information that could result in identity theft, and ultimately, substantial financial and other damage. Scammers have utilized similar identity theft schemes in recent class action litigation, but are now exploiting posts on social news websites and forums – in this case, Reddit – to spur novel and inventive fraud schemes. Crafty scammers continue to profit off litigation covered by the media, tricking service members into surrendering sensitive information. In today’s world of social media and artificial intelligence, the online environment is riper than ever for unforeseen methods of fraudulent abuse. As illustrated by this case, modern scammers utilize a large “bag of tricks” to obtain sensitive information and employers should be prepared to review and adapt company policies and procedures incessantly to ensure effective protection of employee and company data.

Seventh Circuit Explains How “Unusual” Circumstances May Require Defendants To Pay Class Action Notification Costs

By Gerald L. Maatman, Jr., Jennifer A. Riley, and Jeffrey R. Zohn

Duane Morris Takeaways: While the general rule is that a plaintiff in a class action bears the financial burden of notifying the class, that rule is not absolute.  In some unusual circumstances, the district court may shift the burden of paying for class notice to defendants, according to the U.S. Court of Appeals for the Seventh Circuit. That unusual circumstance recently occurred in Bakov, et al. v. Consolidated World Travel, Inc., Case No. 21-2653, 2023 WL 3558175 (7th Cir. May 19, 2023).  The Seventh Circuit explained that when a district court revisits class certifications decisions after it has determined liability, it may shift the financial burden of notifying the class to the defendant.  In Bakov, the Seventh Circuit determined that the district court properly revisited class certification in light of a new law that effectively expanded the scope of the class and did not abuse its discretion when it required the Defendant to pay for class notification.

TCPA Background

Passed in 1991, the Telephone Consumer Protection Act (“TCPA”) was Congress’ response to “voluminous consumer complaints about abuses of telephone technology.”  Mims v. Arrow Fin. Servs., LLC, 565 U.S. 368, 370-71 (2012).  Specifically, the TCPA aimed to eliminate the onset of automated devices that played pre-recorded sales pitches at a rate well beyond what even the most efficient telemarketers could accomplish.  In light of the rapidly evolving technology and clever attempts at bypassing TCPA restrictions, the federal government has amended the TCPA numerous time.  For instance, in 2012, TCPA rules changed to require telemarketers to obtain consent before robocalling, to no longer allow telemarketers to use an established business relationship to avoid getting consent from consumers, and to require telemarketers to provide an automated opt-out mechanism during each robocall.

In the over 30 years since Congress enacted the TCPA, consumers continue to regularly file TCPA complaints with the Federal Communications Commission and class actions before federal courts across the country.

Case Background

In Bakov, Plaintiffs asserted that Defendant violated the TCPA by calling class members using pre-recorded voice messages, a practice the law expressly prohibits.  Defendants employed a company based in India to call millions of people across the United States to offer them free cruises.  The India-based agents would communicate by using a sound board with 47 pre-recorded prompts.  Defendant paid that company a commission for each call that it successfully transferred to Defendant.

Judge Harry Leinenweber of the U.S. District Court for the Northern District of Illinois initially certified a class of people who resided in Illinois while denying a nationwide class. He held that the district court did not have personal jurisdiction over non-Illinois resident class members, pursuant to the Supreme Court’s opinion in Bristol-Myers Squibb Co. v. Superior Court of California, 582 U.S. 255 (2017).  Shortly after this ruling, however, the Seventh Circuit issued a contrary ruling in Mussat v. IQVIA, Inc., 953 F.3d 441, 443 (7th Cir. 2020).  In Mussat, the Seventh Circuit held that “the principles announced in Bristol-Myers do not apply to the case of a nationwide class action filed in federal court under a federal statute.”  Bakov, at *1.  This undercut the reasoning behind the district court’s decision to limit the class to Illinois residents.  As a result, the district court re-opened that question and ultimately certified a nationwide class.

As is the case with any class action, under Rule 23(c)(3)(B), the new class members were entitled to notice and an opportunity to opt out.  The district court held that Defendant was required to bear the costs of providing notice to the nationwide class because Defendant’s liability already had been established.

Defendant subsequently filed an interlocutory appeal on this issue to the Seventh Circuit.

Seventh Circuit Ruling

The Seventh Circuit succinctly summarized the issue before it — what authority do district courts have to impose the cost of class notice on a defendant that already has been found liable to the class?  In most circumstances, it explained, none.  However, under the “unusual” circumstances of this case, the Seventh Circuit held that the district court did not abuse its discretion when it assigned class notice costs to Defendant.

The difference between this unusual case and the more typical class action is that, here, after certifying the class and proceeding to the merits, the law changed in a way that expanded the class.  The district court revisited the issue and enlarged the size of the class consistent with the new law.  As a result of the atypical order of ruling on the class and the merits, the Seventh Circuit opined that the district court did not abuse its discretion in holding that the Defendant must bear the cost of notice to the class.

Ordinarily, the rule is that a plaintiff must initially bear the cost of notice to the class because “it is he who seeks to maintain the suit as a class action and to represent other members of his class.”  Id. at *2.  However, this ordinary rule leaves room for district courts to tailor the allocation of costs to the specifics of a case.  Each case must be assessed on its own.

The Seventh Circuit reasoned that the facts presented to the court in this case are the precise reasons why the ordinary rule is not an absolute rule.  Here, the district court had made its liability determination after it had a certified a class of Illinois residents, but before class certification and the necessary notice had been given to the non-Illinois class members.  While rare, a district court may revisit class certification decisions after it has determined liability.  In these situations, a district court has the discretion to shift notice costs to defendants, as it did here.

Implications For Corporate Defendants

The Bakov decision is an important reminder that the law is not static.  While very few cases will ever have to deal with this precise issue, it is likely that the law will change in a material way during the pendency of an ongoing matter.  For that reason, it continues to be important for all companies facing class action litigation.

The Class Action Weekly Wire Podcast – Episode Four

Duane Morris Takeaway: This week on the Weekly Wire podcast, we are pleased to present Duane Morris partners Jennifer Riley and Michael DeMarino and associate Tyler Zmick in our fourth podcast in our series on class action litigation developments. This week’s edition focuses on appeals in class action litigation. We hope you enjoy it!

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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