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Skip to content MenuCurrent Page:HomeAbout UsContact SearchClass Defense BlogCutting-Edge Issues in Class Action Law and PolicyJudicial review of pre-certification settlements: it’s time to put some district courts’ continued reliance on the Ninth Circuit’s Diaz rule to restBy Archis A. Parasharami & Colleen M. Campbell on January 11, 2022Posted in Class Action SettlementsMost potential class actions are resolved before class certification.  Often courts dismiss cases at the pleadings stage or grant early summary judgment.  Sometimes plaintiffs choose to dismiss their cases rather than continuing to pursue them.  And often class actions settle on an individual basis at an early stage.The benefits are obvious.  Early settlements offer individual plaintiffs relatively quick payments.  They allow defendants the opportunity to end cases early without the need to pay the high costs—including often burdensome discovery-related costs—to defend against class litigation.  And they benefit the court system by avoiding needless litigation that can clog court dockets.  When permitted by law, parties frequently choose to settle on a confidential basis, thereby avoiding the risk of adverse publicity—something that benefits both defendants and plaintiffs.The current federal rules facilitate this practice.  As written, they give parties autonomy to settle claims early and without judicial intervention.  First, Federal Rule of Civil Procedure 41(a)(1) allows a plaintiff to voluntarily dismiss the lawsuit prior to the filing of an answer or motion for summary judgment; alternatively, parties may stipulate to dismissal.  This process is efficient.  It allows parties to negotiate settlements quickly and without barriers.  There is one potential twist—Rule 41 is subject to Rule 23(e), which was amended in 2003 and again in 2018 to provide that “[t]he claims, issues, or defenses of a certified class—or a class proposed to be certified for purposes of settlement” may be settled or voluntarily dismissed “only with the court’s approval” (emphasis added).  But the text makes clear that prior to class or proposed settlement certification, court approval is not needed.  As the Wright & Miller treatise puts it, “settlements or voluntary dismissals that occur before class certification are outside the scope of subdivision (e).”  7B Charles Alan Wright & Arthur R. Miller, Federal Prac. & Proc., Settlement, Voluntary Dismissal, or Compromise of Class Actions-Purpose and Scope of Rule 23(e) § 1797 (3d ed. 2021).  In those instances, the settlement binds only the proposed class representative and the defendant—the claims of absent members of the potential class are not affected.  See 2 Joseph McLaughlin, McLaughlin on Class Actions § 6:1, Voluntary Dismissal (18th ed. 2021).Despite the plain language of Rule 41 and the 2003 amendment to Rule 23(e), some district courts, notably including those in the Northern District of California, continue to insist upon review of pre-certification class settlements.  Rather than litigate over whether such review is necessary, parties commonly continue to file motions for judicial approval of the settlement “as a cautionary step.” Houston v. Cintas Corp., 2009 WL 921627, at *1–2 (N.D. Cal. Apr. 3, 2009).  And a number of judges in the Northern District of California continue to review proposed settlements prior to class certification.  See e.g., Dunn v. Tchrs. Ins. & Annuity Ass’n of Am.,  2016 WL 153266, at *3 (N.D. Cal. Jan. 13, 2016) (explaining that “courts in this district continue to follow Diaz to evaluate the proposed settlement and dismissal of putative class claims”); Castro v. Zenith Acquisition Corp., 2007 WL 81905 (N.D. Cal. Jan. 9, 2007) (applying Diaz to review a pre-certification settlement); Singer v. Am. Airlines Fed. Credit Union, 2006 WL 3093759 (N.D. Cal. Oct. 30, 2006) (same).This outmoded treatment of pre-certification settlements stems from a three-decade-old decision, Diaz v. Trust Territory of the Pacific Islands, 876 F.2d 1401 (9th Cir. 1989).  The Ninth Circuit decided Diaz under an earlier version of Rule 23(e), prior to the 2003 amendment.  At that time, the federal rules did not specifically address whether a settlement reached prior to class certification required judicial approval.  In Diaz, the Ninth Circuit confronted that question after plaintiffs’ counsel bit off more than they could chew and reached an agreement that narrowed a proposed class.  Specifically, plaintiffs’ and defendant’s counsel reached an agreement to “eliminate certain categories of plaintiffs.”  Id. at 1403.  The district court granted the parties’ proposed order dismissing certain class claims from the suit without providing notice to the putative class members or determining whether they would be prejudiced.  Id.  Individuals dropped from the proposed class then sought to intervene and vacate that order.On appeal, the Ninth Circuit in Diaz joined the then-majority of jurisdictions holding that pre-certification settlements require judicial approval under Rule 23(e)—albeit through less stringent procedures than those that apply to post-certification settlements.  Diaz, 876 F.2d at 1408 (stating that “[t]he court’s duty to inquire into a settlement or dismissal differs before and after certification.”).  Despite its holding applying Rule 23(e) to pre-certification settlements, the Diaz court recognized some of the very reasons that Rule 23 was later amended to expressly clarify that court approval is not required for pre-certification settlements: that is, “[b]efore certification, the dismissal is not res judicata against the absent class members” such that “the court does not need to perform the kind of substantive oversight required when reviewing a settlement binding upon the class.”  Id.  Nonetheless, the Diaz court reviewed the settlement to determine whether Rule 23(e) required notice to absent class members, and concluded that notice was necessary to prevent the potential for prejudice.  Id. at 1409-11.  It accordingly vacated the district court’s order.Perhaps this holding made sense under the prior version of Rule 23(e).  As the advisory committee notes explain, by referring merely to “a class action,” the prior version of Rule 23(e) was ambiguous as to whether a pre-certification settlement required judicial approval.  But the amended Rule 23(e) is clear: court approval and notice is only required when parties settle the claims, issues, or defenses of “a certified class” or a proposed “settlement class.”  Fed. R. Civ. P. 23(e).  As one treatise has explained, the amended Rule 23(e) “overruled” Diaz and other cases.  2 Joseph McLaughlin, McLaughlin on Class Actions § 6:1, Voluntary Dismissal (18th ed. 2021).  Under the amended rules, where a class is not certified, Rule 41 allows for the parties to negotiate a speedy dismissal.  The approach taken by courts that continue to require judicial approval fails to recognize that Diaz is no longer the law in light of the 2003 amendment to Rule 23.To be sure, in practice courts generally don’t withhold approval of pre-certification individual settlements of class actions.  But the approval process itself erects unnecessary barriers to early settlement, and might in some cases reduce the value of a settlement or impede settlement altogether.  More important, requiring judicial approval of such settlements contradicts the right to voluntary or stipulated dismissals without court intervention provided under Rule 41.  Courts that continue to apply Diaz should reconsider their approach.Email this postTweet this postLike this postShare this post on LinkedInSupreme Court adopts robust view of Article III standing limitations in TransUnion, reaffirming and fortifying SpokeoBy Andrew J. Pincus, Archis A. Parasharami & Daniel Jones on June 28, 2021Posted in Typicality, U.S. Supreme CourtLast Friday, the Supreme Court reversed the class-wide judgment in TransUnion LLC v. Ramirez (pdf), concluding that the lower courts had not properly applied the Court’s holding in Spokeo Inc. v. Robins and that the vast majority of the class members failed to satisfy the injury-in-fact requirement for Article III standing.  (Our firm, including the three of us, represented the petitioner in Spokeo, and we filed an amicus brief (pdf) in support of TransUnion.)The Court’s holding has enormous practical significance for defendants facing class actions seeking statutory damages.  The Court reinforced Spokeo’s core holding that Congress’s creation of a cause of action with a statutory-damages remedy does not by itself satisfy Article III.  Instead, a plaintiff (and in a class action, each class member) must show a concrete harm resulting from the statutory violation in order to pursue a damages action in federal court.  The Court also provided important guidance for applying Article III’s concrete-injury requirement to damages actions based upon claimed risks of future harm that never materialized.BackgroundFederal law forbids U.S. companies from doing business with certain persons who are believed to threaten the security of the United States.  The Treasury Department’s Office of Foreign Assets Control (OFAC) maintains a list of these individuals, which includes suspected terrorists and narcotics traffickers.Plaintiff Sergio Ramirez sued TransUnion on behalf of a class of 8,185 individuals alleging violations of the Fair Credit Reporting Act (FCRA), which regulates consumer reporting agencies that compile and disseminate personal information about consumers.  Ramirez asserted two categories of FCRA violations.  First, he claimed that TransUnion had failed to use reasonable procedures to ensure the accuracy of class members’ credit files, which included statements that the member was a “potential match” to a name on the OFAC list.  Second, he claimed that the formatting of the mailings that TransUnion used to inform members about the potential match violated FCRA.Ramirez, the sole named plaintiff, found out about his potential match while attempting to purchase a car, causing him to suffer difficulty in obtaining an auto loan and embarrassment in front of his family, and leading him to cancel a planned vacation out of concern about the alert.  But none of the other class members submitted any evidence of harms of this kind, and the evidence showed that only 1,853 of the 8,185 had their credit reports referencing the “potential” OFAC match disseminated to potential creditors.The district court certified the class and ruled that each member of the class had Article III standing for both categories of FCRA claims.  After a trial, the jury returned a verdict in favor of the class and the district court entered a class-wide judgment.  The Ninth Circuit affirmed in relevant part, holding that all members of the class had Article III standing to recover damages for the alleged FCRA violations.  The Ninth Circuit also concluded that, despite Ramirez’s uniquely distressing situation, Ramirez’s claims were typical of the class’s claims for purposes of satisfying Federal Rule of Civil Procedure 23(a)(3).The Court’s OpinionIn an opinion by Justice Kavanaugh, the Supreme Court reversed the Ninth Circuit by a 5-4 vote.  (Justice Kavanaugh’s opinion was joined by Chief Justice Roberts and Justices Alito, Gorsuch, and Barrett.) The Court held that only plaintiffs and class members who are concretely harmed by a defendant’s statutory violation have Article III standing to seek damages.The Court began with principles of Article III standing.  Building on its prior opinion in Spokeo, the Court reaffirmed that in order to satisfy Article III’s requirement of injury in fact, a plaintiff must establish a concrete injury—in other words, an injury that (in Spokeo’s words) is “real, and not abstract.”  And the Court reaffirmed that the requirement to establish concrete injury is not relaxed in the context of statutory violations.  As the Court emphasized, “an injury in law is not an injury in fact.”  Instead, only “those plaintiffs who have been concretely harmed by a defendant’s statutory violation may sue that private defendant over that violation in federal court.”The Court also confirmed that “Congress’ creation of a statutory prohibition or obligation and a cause of action does not relieve courts of their responsibility to independently decide whether a plaintiff has suffered a concrete harm.”  Quoting from an opinion by Sixth Circuit Judge Sutton, the Court explained that “even though ‘Congress may elevate harms that exist in the real world before Congress recognized them to actionable legal status, it may not simply enact an injury into existence, using its lawmaking power to transform something that is not remotely harmful into something that is.’”  To determine whether the concrete-harm requirement is satisfied, the Court instructed (quoting Spokeo) that courts should “assess whether the alleged injury to the plaintiff has a ‘close relationship’ to a harm ‘traditionally’ recognized as providing a basis for a lawsuit in American courts.”Applying those principles, the Court first made clear that every class member—not just the named plaintiff—must satisfy Article III’s standing requirement in order to recover damages.  (As we noted in our report on the oral argument, this preliminary holding was not surprising, given that Ramirez conceded as much.)Next, in reserving the question whether putative class members must demonstrate standing at the class-certification stage, the Court pointed in a footnote to an Eleventh Circuit decision, Cordoba v. DIRECTV, LLC, that reversed certification of a damages class because individualized issues surrounding class’ members Article III standing “posed a powerful problem under Rule 23(b)(3)’s predominance factor.”  (Our firm represented DIRECTV in Cordoba; Andy Pincus argued the appeal.)  Accordingly, the Court’s opinion signals that the obligation for each class member to demonstrate concrete harm will make it much more difficult for plaintiffs to obtain class certification in statutory damages cases, because the “bare statutory violation” shortcut to satisfying Article III is no longer available.For the reasonable-procedures claim, the Court held that the 1,853 class members whose credit reports were disseminated to third parties did have standing, concluding that being labeled as a potential terrorist in a report disseminated to third parties sufficiently resembled the harm associated with the common-law tort of defamation.  But the Court held that the remaining 6,332 class members whose credit reports were not disseminated to third parties lacked standing, because in the absence of publication of their information they could not point to any concrete harm akin to defamation resulting from the OFAC alert in their credit files.The Court also rejected the argument that the 6,332 class members had standing based on a risk of future harm.  It began by explaining that “in a suit for damages, the mere risk of future harm, standing alone, cannot qualify as a concrete harm—at least unless the exposure to a risk of future harm itself causes a separate concrete harm.”  As an example, the Court, echoing a hypothetical posed by the Chief Justice at oral argument, imagined someone driving a quarter of a mile ahead of a reckless driver—where the risk posed by the reckless driver does not materialize and the first driver makes it home safely.  Under those circumstances, the Court explained, the first driver has not suffered a concrete harm under Article III: the failure of the risk to materialize “would ordinarily be cause for celebration, not a lawsuit.”Turning to the case before it, the Court noted the “fundamental problem” with the class’s future-risk-of-harm argument was that the risk never materialized; the 6,332 class members’ credit reports were not disseminated to third parties and did not result in the denial of credit.  Nor did the class members show independent harm posed by the threat of future harm (such as incurring expenses to prevent the realization of the threat).The Court also noted that the risk of future dissemination was too speculative to satisfy Article III in any event.  The 6,332 class members did not demonstrate a sufficient likelihood that their credit reports would be disclosed.  They also did not present any evidence that they even knew about the OFAC alerts in their credit files.  As the Court noted, “[i]t is difficult to see how a risk of future harm could supply the basis for a plaintiff’s standing when the plaintiff did not even know that there was a risk of future harm.”For the second category of claims, about the format of TransUnion’s mailings, the Court concluded that Ramirez alone, and no other class member, had standing.  The Court explained that the class members did “not demonstrate that they suffered any harm at all from the formatting violations,” much less a “harm with a close relationship to a harm traditionally recognized as providing a basis for a lawsuit.”  The Court also rejected the argument advanced by the government that an alleged deprivation of information, without more, could constitute an injury in fact.  Instead, “[a]n ‘asserted informational injury that causes no adverse effects cannot satisfy Article III.’”  The Court further noted that the class members here were not actually deprived of any information to which they were entitled; their complaint instead was “only that they received it in the wrong format.”In light of its holding on Article III standing, the Court declined to address the Rule 23 typicality issue.  It remanded the case to the Ninth Circuit, including to address whether class certification is appropriate in light of the Court’s standing holding.Takeaways from the OpinionTransUnion clarifies several key elements of Article III’s standing requirement.First, the Court’s decision confirms that Spokeo eliminated the “no injury” class action.  Although Spokeo’s holding was clear, some commentators and lower court judges had seized on Justice Thomas’s concurring opinion in Spokeo—and his subsequent separate opinion in Frank v. Gaos—to express skepticism that the Court would continue to adhere to that holding.The TransUnion Court’s analysis opens with a detailed explanation of the roots of the real-world injury requirement in Article III’s limitation of federal-court jurisdiction to “Cases” and “Controversies” and in Article II’s allocation of power to the Executive Branch.  The Court explained that “[a] regime where Congress could freely authorize unharmed plaintiffs to sue defendants who violate federal law . . . would infringe on the Executive Branch’s Article II authority.”  That is because, absent “‘an actual case,’” “the choice of how to prioritize and how aggressively to pursue legal actions against defendants who violate the law falls within the discretion of the Executive Branch, not within the purview of private plaintiffs (and their attorneys).  Private plaintiffs are not accountable to the people and are not charged with pursuing the public interest in enforcing a defendant’s general compliance with regulatory law.”The majority’s clear rejection of the contrary arguments set forth in the dissents leaves no doubt that Spokeo’s requirement of concrete, “real world” injury is here to stay—and alleging a statutory violation is not enough to satisfy Article III.  Plaintiffs will have to meet the “concrete harm” test laid out in Spokeo and reaffirmed in TransUnion.Second, the Court’s application of the concrete-harm standard provides guidance that should eliminate sharply divergent approaches in the lower courts.Some lower courts have been receptive to arguments that Spokeo did not meaningfully change the law of standing, and they have concluded that Congress’ creation of a “substantive” (as opposed to “procedural”) right and a cause of action to enforce that right makes any alleged violation of the statutory right a concrete harm.  But the TransUnion Court did not limit the applicability of the requirement that plaintiffs demonstrate that they suffered real-world harm—making clear that the obligation applies across the board to all claims.  Indeed, some lower courts had found the FCRA’s “reasonable procedures” requirement to be substantive, and concluded that it therefore was unnecessary to determine whether the plaintiffs had demonstrated real-world injury.  The Supreme Court’s analysis squarely rejects that approach, instead requiring an assessment of whether each class member demonstrated real-world injuries from the alleged violation.The Court’s application of its standard also demonstrates that injuries must both be “real” and resemble harms traditionally actionable in courts. Moreover, by rejecting the claims asserted by class members whose credit reports were not distributed to third parties and the mailing-format claims asserted by all class members, the Court made clear that the Article III standard has real teeth.Third, some lower courts have relied heavily on risk-of-harm theories in upholding plaintiffs’ standing. TransUnion’s analysis significantly limits plaintiffs’ ability to use this “work-around” to satisfy Article III in the context of damages claims.  If the risk never materialized and has ended by the time the lawsuit is filed, then plaintiffs must demonstrate that they suffered harm from the risk itself—in terms of expenditures to avoid the risk or other real-world injuries.  And TransUnion makes clear that, in addition, the risk must be a serious one in order to establish standing: the Court quoted Judge McKeown’s statement in her dissenting opinion in the court of appeals that “[b]ecause no evidence in the record establishes a serious likelihood of disclosure, we cannot simply presume a material risk of concrete harm.”Fourth, even when a named plaintiff is able to satisfy the TransUnion standard, putative class actions will face significant challenges in obtaining class certification—much less a class-wide damages award.  If proof of injury is individualized, which will be true in many cases, that reality frequently will make it impossible for the class to show that common issues predominate.  And, separately, when a defendant is able to show that most class members will be unable to satisfy Article III, courts may be reluctant to grant certification.All of that said, we do not expect plaintiffs’ lawyers to give up on class actions seeking statutory damages under federal statutes.  Some, including Justice Thomas in his dissent, speculate that such cases will be brought in state court instead.  But plaintiffs’ lawyers will face multiple obstacles in moving their cases to state court.To begin with, many state courts follow federal standing precedent.  In those state courts, TransUnion is likely to preclude actions barred in federal court.Next, the Court’s grounding of the real-world harm requirement in Article II gives defendants a new argument in opposing cases in state court.  To the extent a lawsuit would intrude upon Article II’s allocation of authority to the Executive Branch, separation-of-powers principles—combined with principles barring states from interfering with the Constitution’s allocation of authority—would preclude state courts from entertaining the claim.  There also will be serious questions whether Congress intended to authorize state courts to adjudicate claims that the Constitution bars from federal court, given that Congress legislates against settled background legal principles, including constitutional limits on federal court jurisdiction.Finally, the Supreme Court’s personal jurisdiction cases, such as Bristol-Myers Squibb Co. v. Superior Court of California, likely limit state courts’ power to entertain claims of absent class members who are nonresidents unless the court can exercise general jurisdiction over the defendant.  So any cases brought in state courts will be much more limited than those permissible in federal court.In sum, TransUnion provides defendants with significant new arguments for defeating the no-injury class actions that Spokeo prohibited.Email this postTweet this postLike this postShare this post on LinkedInSupreme Court unanimously holds that Congress took a narrow approach to the types of autodialing devices covered under the TCPABy Archis A. Parasharami & Daniel Jones on April 1, 2021Posted in Class Action Trends, U.S. Supreme Court, UncategorizedEver since the Supreme Court granted review in Facebook, Inc. v. Duguid, businesses facing the risk of TCPA class actions have been waiting to see whether the Court would accept or reject a sweepingly broad interpretation—adopted by three circuits and rejected by three others—of what constitutes an autodialer under the statute.   Today, the Supreme Court unanimously reversed (pdf), holding that equipment must be capable of random or sequential number generation in order to qualify as an “automatic telephone dialing system” under the TCPA.The Court’s holding has enormous practical significance for defendants facing TCPA class actions.  The use of random or sequential number generators is not common (certainly far less so today than in 1991 when the TCPA was enacted and those devices were in use), while a wide range of equipment stores lists of numbers to be called.  Companies should remain mindful, however, that the Court’s decision affects only alleged violations of the TCPA’s restrictions on the use of autodialers, and not the TCPA’s separate restrictions on the use of artificial or prerecorded voices or on violations of do-not-call regulations.BackgroundThe TCPA, among other things, restricts certain communications made with an “automatic telephone dialing system” (ATDS), colloquially referred to as an “autodialer.”  The statute defines an “automatic telephone dialing system” as “equipment which has the capacity—(A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.”  47 U.S.C. § 227(a)(1).The interpretive question before the Court was whether the phrase “using a random or sequential number generator” modifies both “store” and “produce,” or just “produce.”As we have previously reported, the courts of appeals were divided on this question.  Adhering to its broad interpretation of an autodialer in Marks v. Crunch San Diego, LLC, the Ninth Circuit held in Duguid that Facebook’s equipment, which sent text messages to a set list of numbers stored in its database rather than to random or sequentially generated numbers, nonetheless qualified as an ATDS.  The Second and Sixth Circuits subsequently agreed with the Ninth Circuit’s approach.  In contrast, the Third, Seventh, and Eleventh Circuits had all held that an autodialer must be able to generate random or sequential phone numbers. (Our firm, including Archis, represented the defendant in the Seventh Circuit case, Gadelhak v. AT&T Services, Inc.)The Court granted review to resolve this deep circuit split.The Court’s OpinionIn an opinion by Justice Sotomayor, a unanimous Supreme Court reversed the Ninth Circuit.  The Court held that “Congress’ definition of an autodialer requires that in all cases, whether storing or producing numbers to be called, the equipment in question must use a random or sequential number generator.”The Court began with the text, noting that “conventional rules of grammar” support reading the phrase “using a random or sequential number generator” to apply to both antecedent verbs, “store” and “produce.”  The Court first applied the “series-qualifier canon,” which says that a modifier at the end of a parallel list—here, “using a random or sequential number generator”—applies to all of the nouns and verbs in that list—here, both “store” and “produce.”  The Court also observed that the clause “store or produce telephone numbers to be called” is a single, cohesive clause, so “it would be odd” to apply the random or sequential number generation requirement to only a portion of that clause.The Court then noted that its interpretation of the statutory definition “heeds the commands of its punctuation” as well.  The fact that Congress used a comma to set off the phrase “using a random or sequential number generator” demonstrated its intent for that phrase “to apply equally to both preceding elements.”The Court did not rest on text alone but also relied on the “statutory context.”  The Court recounted that when Congress passed the TCPA in 1991, it was concerned with the “uniquely harmful” impact of then-emerging technology allowing companies to dial random or sequential blocks of telephone numbers.  For example, such technology could “seiz[e] the telephone lines of public emergency services,” or “simultaneously tie up all the lines of any business with sequentially numbered phone lines.”  And many of the TCPA’s restrictions on the use of autodialers enacted “[a]gainst this technological backdrop” reflect that Congress was “target[ing] a unique type of telemarketing equipment that risks dialing emergency lines randomly or tying up all the sequentially numbered lines at a single entity.”  For example, the TCPA “makes it unlawful to use an autodialer to call certain ‘emergency telephone line[s]’” (quoting 47 U.S.C. § 227(b)(1)(A)) or “‘in such a way that two or more telephone lines of a multi-line business are engaged simultaneously’” (quoting 47 U.S.C. § 227(b)(1)(D)).The Court recognized that the autodialer provision of the TCPA was tailored narrowly: “Expanding the definition of an autodialer to encompass any equipment that merely stores and dials telephone numbers would take a chainsaw to these nuanced problems when Congress meant to use a scalpel.”  Indeed, the Court warned, the alternative reading of an ATDS “would capture virtually all modern cell phones” and commonplace activities such as speed dialing or sending automatic text message replies—“an outcome that makes even less sense.”The Court concluded by rejecting the respondent’s counterarguments, noting that they could not overcome the “clear commands” of the statutory text and context.  The Court remarked that respondent’s resort to his view of the broad “sense” of the text “would have some appeal” only if traditional tools of interpretation led to an impossible or implausible outcome, which they did not.  The Court was unpersuaded by the respondent’s resort to broad statements of Congress’s purpose, noting that they “do not mean it adopted a broad autodialer definition.”  The Court observed, for instance, that the statute separately prohibits calls using artificial or prerecorded voices regardless of the technology used—prohibitions that are unaffected by Congress’ narrow definition of an autodialer.  And, more fundamentally, the respondent’s “quarrel is with Congress, which did not define an autodialer as malleably as he would have liked.”Finally, Justice Alito’s short concurrence reflects a thought-provoking dialogue between him and the majority about the proper method of statutory interpretation.  He expresses concerns about the majority’s “heavy reliance” on canons of interpretation, which he warns are not “inflexible rules” capable of mechanical application and depend heavily on context.  The debate is largely academic in the context of this case, given Justice Alito’s express agreement with the majority’s reading of the statute, but it will be interesting to see how that debate plays out in future cases.Email this postTweet this postLike this postShare this post on LinkedInSupreme Court hears oral argument on class-member standing and typicalityBy Archis A. Parasharami & Carmen N. Longoria-Green on March 31, 2021Posted in Class Certification, Typicality, U.S. Supreme CourtYesterday, the Supreme Court heard oral argument (pdf) (audio) in TransUnion, LLC v. Ramirez, a Fair Credit Reporting Act case in which a federal court entered a class-wide judgment awarding statutory damages for two practices that TransUnion ended years ago.The case boils down to two issues:Can “risk” of harm confer Article III standing on all members of a class when the challenged policy has ended and the risk never materialized for the overwhelming majority of the class?  And, if so, how much of a “risk” is needed?Can a class representative satisfy Rule 23(a)’s typicality requirement when he experienced a distinct and exceptionally severe injury as compared to other class members?The Justices asked difficult questions of both the parties and the Office of the Solicitor General, which participated in the argument as an amicus curiae supporting the plaintiff on the question of standing but suggesting that the case be remanded to the Ninth Circuit to reconsider the typicality question.  It is difficult to predict how the Court will rule.  Although some observers believed that the Court would focus its attention chiefly on typicality—which is the position the Solicitor General’s office urged—the argument suggested that the Justices are just as focused on the question of Article III standing.At a minimum, the Court seems poised to confirm that all members of a class—not just the named representative—must have Article III standing to obtain a judgment in their favor.  In fact, the respondent conceded as much.Members of the Court will likely also use this case as an opportunity to clarify its prior holding in Spokeo Inc. v. Robins, in which it ruled that a bare violation of a statute, without other accompanying harm, is not an injury in fact. (Our firm, including Archis, represented Spokeo; and the two of us, along with our colleagues, filed an amicus brief (pdf) in support of TransUnion.)BackgroundUnder federal law, U.S. companies are forbidden to do business with certain persons who are believed to threaten the security of the United States.  The Treasury Department’s Office of Foreign Assets Control (OFAC) maintains a list of these individuals, which includes suspected terrorists and narcotics traffickers.TransUnion offers, as part of its credit-reporting services, to identify individuals whose first and last names match those of someone on the OFAC list to assist companies in complying with the law. TransUnion does not guarantee that an OFAC alert on a credit report means that the person is actually on the OFAC list, just that the individual shares a name with someone who is.Respondent Sergio Ramirez has the same first and last name as an individual on the OFAC list.  When he attempted to purchase a car, the dealership pulled his credit report from TransUnion, saw the OFAC notation, and declined to sell him the car.  Ramirez was humiliated in front of his wife and father-in-law and cancelled an upcoming vacation because he feared being on a “terrorist” list would make traveling difficult.Procedural History Ramirez filed a class action against TransUnion, alleging two sets of FCRA violations.  First, he asserted that TransUnion violated FCRA’s disclosure requirements because, when individuals asked for their credit file, TransUnion notified them that they were a potential OFAC match in a separate letter.  In other words, while TransUnion sent all of the information that FCRA requires it to disclose, it did so in two envelopes instead of one, allegedly in violation of 15 U.S.C. § 1681g(a)(1) and § 1681g(c)(2).  Second, Ramirez asserted that TransUnion failed to maintain “reasonable procedures to assure maximum possible accuracy” of its credit reports, in violation of 15 U.S.C. § 1681e(b).The district court certified a class of all individuals who had received a letter from TransUnion informing them that they were potential OFAC matches.  It is undisputed that credit reports were not disseminated for 6,332 of the 8,185 class members. Therefore, the fact that TransUnion had marked them as an OFAC match was not provided to a third party.The case proceeded to a full jury trial, where Ramirez’s testimony about the embarrassment he experienced at the car dealership played a starring role.  The jury awarded each class member $984.22 in statutory damages and $6,353.09 in punitive damagesFacing a $60 million damages award, TransUnion appealed, challenging both Ramirez’s suitability as a class representative, given his exceptionally bad experience (one not shared by other class members), and the standing of the absent class members.The Ninth Circuit affirmed.  Although it reduced the punitive damages award, it otherwise upheld the class-wide judgment.  Ramirez, it said, was sufficiently typical of the class because his legal claim was the same as and arose out of the same circumstances as the other class members.  According to the court, the fact that his injury was far more severe than other class members played no part in Rule 23’s typicality analysis.  The court of appeals also held that the 6,332 class members whose credit reports were not provided to others had standing because, in the court’s view, they faced a material risk that their credit reports with the OFAC alert would be disseminated to others.The oral argument At yesterday’s oral argument, the Justices focused most of their questions on when and how a risk of harm—as opposed to actual harm—can amount to an injury in fact. As the Court had explained in Spokeo, a plaintiff cannot “allege a bare procedural violation, divorced from any concrete harm,” but statutory violations that result in a “risk of real harm” can be concrete.  The Spokeo Court, which also had been considering “FCRA’s procedural requirements,” explained that not all violations of those requirements “cause harm or present any material risk of harm.”In Transunion, two discrete aspects of what counts as a “material risk of harm” took center stage.  First, because this case is a class action, it presents a unique dilemma:  Some members of the class who were not actually harmed may not even have been aware of the potential for any risk of harm at the time because they did not realize that an OFAC alert was on their credit reports.  Second, because TransUnion has since changed its practices and because 6,332 of the class members never had their credit report disseminated, any risk of harm that might have previously existed had, by the time of final judgment, dissipated entirely.Justice Gorsuch tackled the first issue in an exchange with TransUnion’s counsel, remarking that “in order to have emotional distress” from a risk of harm, “you have to have knowledge of the thing that would cause the emotional distress.”  Counsel agreed and argued that risk unaccompanied by emotional distress could rarely serve as an injury in fact; the risk would have to be quite high, approaching near certainty, and the potential harm far more serious than an incorrect credit report.  Justice Alito, meanwhile, recalled the Court’s admonition in Spokeo that injuries in fact should have a common-law analogue, and wondered whether there was any common-law analogue where an unknown risk of harm was actionable.Justice Barrett addressed the second aspect, remarking that if an injury—here, the risk of harm—existed at one point, but later evaporates, the case likely cannot move forward, but courts would call that a mootness problem, as opposed to standing.  Chief Justice Roberts pushed Ramirez’s counsel on this point as well, asking him whether, rather than bringing a lawsuit, litigants shouldn’t feel grateful to have avoided harm when they learn they were exposed to a risk that never materialized.The Chief Justice also attempted to find an outer limit to Ramirez’s standing theory.  Suppose, he asked Ramirez’s counsel, “Congress creates a cause of action for statutory damages for anyone driving within a quarter mile of a drunk driver.”  Would Article III allow someone to bring a claim under this provision if, several days later and long after the risk had passed, she finds out a drunk driver had been nearby? Ramirez’s counsel replied that it would—essentially conceding that his client’s theory of standing would authorize lawsuits over statutory violations that could never result in actual harm nor a known risk of harm.  As counsel for TransUnion pointed out in rebuttal, if Ramirez’s theory were correct, “everybody [could] bring actions for traffic violations that didn’t actually [result in] any harm.”  That result would open Article III courts “to all sorts of trivial injuries,” when people should actually be “toasting their good luck, not suing the person who posed a risk to them, but didn’t actually injure them.”The question of typicality received far less attention. Justices Breyer and Sotomayor in particular expressed doubt that Ramirez was “atypical” within the meaning of Rule 23.  They expressed the belief that any unfairness caused by his testimony at trial should have been remedied by objecting to his testimony, countering it with testimony from absent class members—something that defendants will fasten on in future class action trials—or using a verdict form that would allow for different statutory-damages awards.  The other Justices paid comparatively less attention to the typicality issue.  Despite that, the lawyer arguing for the Solicitor General’s office made a powerful case for why Ramirez was an atypical class representative, explaining that whether a representative’s “claim” was typical of the class includes evaluating the representative’s injury.  Further, the lawyer argued that having Ramirez testify about his unusually severe injury told the jury a story that was not “indicative of what happened to other class members,” who “might benefit from that”—when the jury awarded statutory damages—“in a way that they really shouldn’t.”Final Thoughts It is hard to deny that Mr. Ramirez himself experienced a real harm—certainly enough to open the doors to federal court.  But the same cannot be said of the many thousands of class members who never had their credit reports disseminated and thus suffered nothing more than a bare procedural violation—which, under Spokeo, is insufficient to confer standing.  Indeed, Ramirez’s theory would open the floodgates to all sorts of claims, including ones where the plaintiff had neither been harmed by a statutory violation nor was even aware of any possible risk of harm to himself or herself.   That limitless theory of jurisdiction seems antithetical to Article III’s requirement that the federal courts can hear only cases involving injuries that are “concrete” and “real,” as the Spokeo Court put it.That said, how the Justices will rule on this issue, or on the typicality question, is difficult to predict.  Given the timing of this argument, it seems likely that this case will be one of the last decisions of the Term.  We will keep readers posted on the outcome.Email this postTweet this postLike this postShare this post on LinkedInNinth Circuit holds that California consumers who abandon damages claims can’t get restitutionBy Kevin Ranlett on August 18, 2020Posted in Class Action Trends, Motions Practice, PredominanceIt’s pretty common in consumer class actions in California for the plaintiffs to assert causes of action seeking damages as well other causes of action for various equitable remedies (such as restitution).  Sometimes, plaintiffs abandon the damages claims in order to get a bench trial on the equitable claims or in an effort to improve their chances of certifying a class.  In Sonner v. Premier Nutrition, the Ninth Circuit affirmed the dismissal of consumer-protection claims seeking solely equitable relief because legal damages were available in the same amount for the same alleged harm. Continue Reading Ninth Circuit holds that California consumers who abandon damages claims can’t get restitutionEmail this postTweet this postLike this postShare this post on LinkedInSupreme Court to decide what constitutes an autodialer under the TCPABy Archis A. Parasharami, Kevin Ranlett & Daniel Jones on July 9, 2020Posted in U.S. Supreme CourtIn a very big deal for TCPA class actions, the Supreme Court granted review today in Facebook, Inc. v. Duguid. The petition (pdf) raises the most significant issue in litigation under the Telephone Consumer Protection Act (TCPA): what kind of equipment constitutes an “automatic telephone dialing system” (ADTS) triggering the TCPA’s restrictions on calls and texts? (The other question presented by the petition—the constitutionality and severability of the exception for government debts—was decided by the Court earlier this week.)As we have reported, there is a deep circuit split over how to read the statutory language defining an ATDS: “equipment that has the capacity—(A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.”  47 U.S.C. § 227(a)(1).The issue presented in Duguid is “whether the definition of an ATDS in the TCPA encompasses any device that can ‘store’ and ‘automatically dial’ telephone numbers, even if the device does not ‘us[e] a random or sequential number generator.”  This issue is critically important, because if a device that merely can dial a number from a preselected list—such as an iPhone—qualifies as an ATDS, the TCPA’s restrictions will prohibit an immense amount of activity that is commonly thought to be lawful. The issue has been litigated across the country, and the resolution of whether a device used for dialing or texting counts as an ATDS is frequently the central merits issue (one that is sometimes outcome-determinative) in TCPA litigation.In Duguid, the Ninth Circuit adhered to its sweepingly broad definition of ATDS that it had adopted in Marks v. Crunch San Diego, LLC. (Here’s our report on Marks.)  The Second Circuit recently agreed with the Ninth Circuit in Duran v. LaBoom Disco; those decisions conflict with the views of the Eleventh Circuit in Glasser v. Hilton Grand Vacations Co. and the Seventh Circuit in Gadelhak v. AT&T Services, Inc., in which Archis and other firm lawyers represented AT&T.Briefing should begin over the summer and the case is likely to be argued in late 2020.Email this postTweet this postLike this postShare this post on LinkedInSupreme Court holds that the TCPA violates the First Amendment but only severs the government-debt exception as a remedyBy Archis A. Parasharami, Kevin Ranlett & Daniel Jones on July 8, 2020Posted in U.S. Supreme CourtEarlier this week, the Supreme Court issued its long-awaited decision in Barr v. American Association of Political Consultants, a First Amendment challenge to the Telephone Consumer Protection Act (TCPA). The bottom line:  The TCPA as we know it lives on (at least for now).The plaintiffs who challenged the statute contended that because the TCPA’s bar on unsolicited autodialed calls or texts contained an exception for communications aimed at collecting U.S. government debt, that differing treatment amounted to is an impermissible content-based restriction on speech.  The Court splintered on two issues: (1) whether this exception was a First Amendment violation, and (2) if so, what’s the remedy?  A group of six Justices concluded that the TCPA contravened the First Amendment, and a differently composed group of seven Justices agreed that the proper remedy was to sever the government-debt exception rather than invalidate the autodialing restriction across the board. Continue Reading Supreme Court holds that the TCPA violates the First Amendment but only severs the government-debt exception as a remedyEmail this postTweet this postLike this postShare this post on LinkedInCourts in Telephone Consumer Protection Act cases Are divided on plaintiffs’ ability to revoke their contractual consent to be calledBy Kevin Ranlett on May 19, 2020Posted in Class Action Trends, Motions PracticeOne of the key issues in any case under the Telephone Consumer Protection Act (TCPA) is whether the plaintiff consented to be called or texted.  If the recipient has provided “prior express consent,” the TCPA permits calls or texts to either (i) wireless numbers using autodialers or artificial or prerecorded voices; or (ii) residential telephones using artificial or prerecorded voices.  47 U.S.C. § 227(b)(1)(A)(iii) (cellular telephones); id. § 227(b)(1)(B) (residential telephones).  Courts currently are divided on the impact of contracts specifying that consumers agree in advance to receive such calls or texts. Continue Reading Courts in Telephone Consumer Protection Act cases Are divided on plaintiffs’ ability to revoke their contractual consent to be calledEmail this postTweet this postLike this postShare this post on LinkedInSeventh and Eleventh Circuits Reject, But Second Circuit Follows, Ninth Circuit’s Expansive Autodialer Definition in MarksBy Archis A. Parasharami, Daniel Jones & Kevin Ranlett on May 4, 2020Posted in Class Action Trends, Motions PracticeOne of the most hotly-contested issues in litigation under the Telephone Consumer Protection Act (TCPA) is what equipment counts as an “automatic telephone dialing system” (ATDS) triggering the TCPA’s restrictions.  In 2018, the D.C. Circuit threw out the FCC’s interpretation of the statutory definition of an ATDS—which was so broad as to encompass smartphones—as arbitrary and capricious.  (See our report on the D.C. Circuit’s ACA International v. FCC decision.)  In the wake of that decision—while parties await the FCC’s new rule—courts around the country have been weighing in how best to interpret the statutory text.The issue is now the subject of a deep circuit split.  In recent months, both the Seventh Circuit in Gadelhak v. AT&T Services, Inc. and the Eleventh Circuit in Glasser v. Hilton Grand Vacations Co. (pdf) have concluded that equipment that dials from a pre-selected list of phone numbers does not qualify as an ATDS.  (Disclosure: Mayer Brown represented AT&T in Gadelhak; Archis was on the briefs in the Seventh Circuit.) The Seventh and Eleventh Circuits thus rejected the Ninth Circuit’s more expansive interpretation of ATDS in Marks v. Crunch San Diego, LLC.  (See our report on Marks.)  The Second Circuit, in contrast, recently followed the Marks interpretation in Duran v. La Boom Disco.In light of this growing divide, lawyers on both sides of the “v.” are waiting for the Supreme Court to step in. Continue Reading Seventh and Eleventh Circuits Reject, But Second Circuit Follows, Ninth Circuit’s Expansive Autodialer Definition in MarksEmail this postTweet this postLike this postShare this post on LinkedInWhat Must Plaintiffs Show To Establish Specific Personal Jurisdiction Over Corporations in Class Actions?By Nicole Saharsky, Andrew J. Pincus, Archis A. Parasharami & Daniel Jones on March 11, 2019Posted in Class Action Trends, Motions PracticeThe Supreme Court has resolved many important questions about personal jurisdiction.  But somewhat surprisingly, it has not decided a fundamental question that arises in class actions – to establish specific personal jurisdiction (meaning case-linked personal jurisdiction) over a defendant, must the plaintiff establish that the defendant has sufficient connections to the forum with respect to all plaintiffs’ claims, or only the named plaintiffs’ claims?  Not only has the Supreme Court not decided this question, but no court of appeals has yet decided it.  The D.C. Circuit will likely be the first, in a case now pending – Molock v. Whole Foods Market.  We filed a brief (pdf) in Molock on behalf of the Chamber of Commerce and the Business Roundtable.As we explain in the brief, the Supreme Court has gone a long way toward resolving this question.  Two terms ago, the Supreme Court decided Bristol-Myers Squibb v. Superior Court (BMS) (pdf), which addressed how courts should assess personal jurisdiction in a mass tort action.  In that case, 86 California residents and 592 plaintiffs from other states sued BMS in California, alleging injuries from taking the drug Plavix.  The nonresident plaintiffs did not claim any connections to California:  They “were not prescribed Plavix in California, did not purchase Plavix in California, did not ingest Plavix in California, and were not injured by Plavix in California.”  The California Supreme Court nevertheless upheld the state court’s assertion of specific personal jurisdiction over the defendant for all of the plaintiffs’ claims.  The U.S. Supreme Court reversed, explaining that due process requires a plaintiff-by-plaintiff, claim-by-claim assessment, so a court in an action with multiple plaintiffs must find that the defendant has the necessary connection to the forum for each plaintiff’s claim.We think that the same principles apply to class actions.  The Molock case helps to illustrate the point.  In Molock, residents of the District of Columbia and residents of many other states sued Whole Foods in federal court in D.C. to challenge certain employment practices.  Like the nonresident plaintiffs in BMS, the nonresident plaintiffs in Molock did not live or work in the District of Columbia.  Their claims simply are not based on any conduct that occurred in the forum.  And they should not be able to bootstrap their claims against Whole Foods just because those claims are similar to the resident plaintiffs’ claims.    In our brief, we urge the D.C. Circuit to adopt the following rule:  A court may allow a class action to proceed only if the defendant is subject to specific personal jurisdiction in the forum with respect to every class member’s claim.  If some class members cannot show the necessary connection between their claims and the defendant’s activities in the forum, then they could not maintain their claims as individual actions in the forum – and so they should not be able to bring them in a class action, either.  This is the same rule that the Supreme Court applied in BMS; the only difference is that BMS was a mass action and Molock is a class action.  But the requirements of due process are the same.  A defendant should not be required to come to a jurisdiction to defend itself against claims when that jurisdiction has no real interest in those claims.  And the Rules Enabling Act reinforces this point, because it bars plaintiffs from using the class-action device to abridge defendants’ substantive rights, including the right to contest personal jurisdiction over any individual claim.Our brief also explains why a contrary rule would be troubling.  It would encourage abusive forum shopping, permitting plaintiffs’ lawyers to bring a nationwide class action suit anywhere that even a single individual whose claim has a requisite forum connection is willing to sign up as a named plaintiff.  That result would make the due process limitations on personal jurisdiction all but meaningless, and it would violate basic principles of federalism by permitting a court in a state that has no legitimate interest in the vast majority of the putative class’s claims to nonetheless adjudicate those claims.Briefing is still ongoing in Molock, and it is currently scheduled to wrap up in April.  The D.C. Circuit has not yet scheduled oral argument.  We will keep you posted on the latest developments in this case and other appeals presenting the same issue.Email this postTweet this postLike this postShare this post on LinkedInPost navigationOlder PostsStay ConnectedRSSTwitterLinkedInFacebookEditorsArchis A. ParasharamiPartnerKevin RanlettPartnerContributorsShow/HideCatherine BernardTim BishopDebra Bogo-ErnstChristopher ComstockHans GermannDale J. GialiCharles E. Harris IIDan HimmelfarbChristopher HouptAdam HudesDaniel JonesSteven M. KaplanStephen LilleyElaine LiuCarmen N. Longoria-GreenJohn NadolencoLucia NaleArchis A. ParasharamiAndrew J. PincusKevin RanlettNicole SaharskyEvan M. TagerEvan M. WootenJoshua YountCarmine ZarlengaTopicsAdequacyAntitrustAppealsArbitrationAscertainabilityCAFAClass Action SettlementsClass Action TrendsClass Certification CommonalityEmploymentMotions PracticeNumerosityPredominanceRule 23(b)(1)Rule 23(b)(2)SecuritiesSuperiorityTypicalityU.S. Supreme CourtUncategorizedArchives ArchivesSelect Month January 2022 June 2021 April 2021 March 2021 August 2020 July 2020 May 2020 March 2019 January 2019 December 2018 October 2018 July 2018 June 2018 May 2018 March 2018 February 2018 November 2017 October 2017 September 2017 June 2017 April 2017 March 2017 January 2017 October 2016 May 2016 April 2016 March 2016 January 2016 December 2015 November 2015 October 2015 September 2015 August 2015 July 2015 June 2015 May 2015 April 2015 March 2015 February 2015 January 2015 December 2014 November 2014 October 2014 September 2014 August 2014 July 2014 June 2014 May 2014 April 2014 March 2014 February 2014 January 2014 December 2013 November 2013 October 2013 September 2013 August 2013 July 2013 June 2013 May 2013 April 2013 March 2013 February 2013 January 2013 December 2012 November 2012 October 2012 September 2012 August 2012 July 2012 June 2012 Recent UpdatesJudicial review of pre-certification settlements: it’s time to put some district courts’ continued reliance on the Ninth Circuit’s Diaz rule to restSupreme Court adopts robust view of Article III standing limitations in TransUnion, reaffirming and fortifying SpokeoSupreme Court unanimously holds that Congress took a narrow approach to the types of autodialing devices covered under the TCPASupreme Court hears oral argument on class-member standing and typicalityNinth Circuit holds that California consumers who abandon damages claims can’t get restitutionClass Defense BlogRSS TwitterLinkedInFacebookLegal NoticesPrivacy PolicyCookie PreferencesCopyright © 2022, Mayer Brown. 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