class action

American Express Co. v. Italian Colors Restaurant

Italian Colors Restaurant, along with other merchants, sued American Express in a class action lawsuit for alleged antitrust violations for compelling merchants to accept American Express credit cards and pay exorbitant rates. In the agreements those merchants signed with American Express, they agreed to use bilateral arbitration rather than class actions in resolving any disputes. Italian Colors argues that this bilateral arbitration clause would create prohibitive costs for any pursuit of their legal rights. This effectively immunizes American Express from any liability under the Sherman Antitrust Act. Therefore, courts must not enforce the arbitration agreement in this context. American Express contends that courts should adhere to the terms of arbitration agreements unless the terms would violate substantive United States law. From a policy standpoint, Italian Colors claims that arbitration is a poor vehicle to vindicate antitrust claims because the length of time an arbitral proceeding would take would create problems for potential claimants, creating difficulty in pursuing a claim before the statute of limitation expires and removing a disincentive for corporate abuse. American Express notes the myriad benefits of arbitration over litigation, specifically arguing that arbitration is more beneficial to lower income plaintiffs and less subject to abuse by frivolous or vengeful lawsuits.

Questions as Framed for the Court by the Parties

Whether federal arbitration law recognizes an “effective vindication” exception to class-arbitration waivers that allows courts to ignore arbitration agreements and permit class-action lawsuits where individual plaintiffs’ claims are so small that no single plaintiff would rationally bring a bilateral, one-on-one arbitration to vindicate federal rights.

Issue

Can courts refuse to enforce class-arbitration waivers and permit class-action lawsuits where a plaintiff’s individual claim is worth much less than the cost of bringing that claim? 

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Amgen v. Connecticut Retirement Plans

Issues

1. To establish a class of investors in a lawsuit alleging securities fraud, must a plaintiff show that the defendant’s allegedly untrue statements materially affected the security’s price?

2. Additionally, to prevent a class from being established, may a defendant present evidence to refute that the alleged fraud materially affected the security’s price?

 

In 2004, biotechnology company Amgen Inc. was selling securities of two drugs that stimulate the production of red blood cells. After the Food and Drug Administration held an advisory committee meeting in May 2004 about the safety of those drugs, the market prices of their corresponding securities dropped. On behalf of the shareowners who suffered, Connecticut Retirement Plans and Trust Funds sought to certify the class of investors who held stock in Amgen at that time to sue Amgen for fraud regarding any misrepresentations of the drugs. Amgen argues that this kind of class action requires a plaintiff to show material reliance of the class of investors as part of the question as to whether a class exists. In contrast, Connecticut Retirement argues that during this class certification stage a plaintiff need not go beyond demonstrating that investors share a common question of reliance as a class rather than as individuals. If Amgen wins, then plaintiffs of securities fraud may face an unwieldy burden of proof at an early stage in litigation. If Connecticut Retirement wins, then defendants of securities fraud may face unfair pressures to settle cases.

Questions as Framed for the Court by the Parties

1. Whether, in a misrepresentation case under SEC Rule 10b-5, the district court must require proof of materiality before certifying a plaintiff class based on the fraud-on-the-market theory.

2. Whether, in such a case, the district court must allow the defendant to present evidence rebutting the applicability of the fraud-on-the-market theory before certifying a plaintiff class based on that theory.

Respondent Connecticut Retirement Plans and Trust Funds’ (“Connecticut Retirement”) purchased securities offered by petitioner Amgen, Inc. (“Amgen”), a biotechnology company that manufactures pharmaceutical drugs. See Connecticut Retirement Plans and Trust Funds v. Amgen, Inc., 660 F.3d 1170, 1172–73 (9th Cir.

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AT&T Mobility LLC v. Concepcion

Issues

Whether a California law that conditions the enforceability of arbitration agreements on the availability of class action dispute resolution is non-discriminatory under the Federal Arbitration Act and not subject to conflict preemption.

 

Vincent and Liza Concepcion ("the Concepcions") signed a two-year service contract with AT&T Mobility for wireless phone service and received free cell phones from AT&T as a part of their contract. AT&T charged the Concepcions a sales tax on their phones, and the Concepcions subsequently sued AT&T alleging that the company had fraudulently advertised the phones as free. The District Court for the Southern District of California consolidated the Concepcions' claim with a class action suit pending in the District Court on the same issue. The service contract that the Concepcions signed contained a clause requiring that they arbitrate disputes with AT&T directly, thus prohibiting the Concepcions from participating in class action suits. After AT&T moved to compel arbitration, the District Court denied AT&T's motion, and AT&T appealed to the Ninth Circuit Court of Appeals arguing that the Federal Arbitration Act ("FAA") expressly and impliedly preempted state law requiring the enforcement of the arbitration clause. The Ninth Circuit ruled against AT&T on the grounds that the arbitration provision represented an unconscionable exculpatory clause and could not be enforced. The United States Supreme Court will now determine whether the FAA preempts state law requiring the enforcement of the arbitration clause. This decision may affect consumers' ability to participate in class action suits and the extent to which they may arbitrate small claims.

Questions as Framed for the Court by the Parties

Whether the Federal Arbitration Act preempts States from conditioning the enforcement of an arbitration agreement on the availability of particular procedures -- here, class-wide arbitration -- when those procedures are not necessary to ensure that the parties to the arbitration agreement are able to vindicate their claims.

In 2002, Vincent and Liza Concepcion ("the Concepcions") signed a two-year service contract with AT&T Mobility for wireless phone service. See Laster v. AT&T Mobility LCC, 584 F.3d 849, 852 (9th Cir.

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Campbell-Ewald Co. v. Gomez

Issues

  1. Does a claim become moot when the plaintiff receives an offer of complete relief; and does the answer change if that plaintiff purports to represent an uncertified class?
  2. Does the doctrine of derivative sovereign immunity extend generally to government contractors acting within the scope of their contract, or is it limited to claims of property damage related to public works projects?

 

This case presents two issues. First, the Supreme Court will determine whether a case is  moot when a plaintiff receives an offer of complete relief for his claims, even if one of the plaintiff’s claims was made on behalf of an uncertified class of litigants. Petition for Writ of Certiorari, Campbell-Ewald Co. v. Gomez, No. 14-857, 13 (Feb. 19, 2015). If the case is not moot, the Court will consider whether the doctrine of derivative sovereign immunity for government contractors is restricted to claims arising out of property damage caused by public works projects or is applicable in other cases. See Brief for Petitioner, Campbell-Ewald Co. at 36–37, 42. Government contractor Campbell-Ewald argues that an offer of complete relief renders the plaintiff’s individual and class claims moot. See id. at 26–27. But the plaintiff, Jose Gomez, contends that an unaccepted offer does not moot a claim. See Brief for Respondent, Jose Gomez at 37. Additionally, Campbell-Ewald argues that it qualifies for derivative sovereign immunity. See Brief for Petitioner at 36–37, 42. However, Gomez argues that only contractors working on public works projects are entitled to such immunity. See Brief for Respondent at 44. This case may affect the viability of class action  lawsuits,  and may define the scope of derivative sovereign immunity. See Brief of Amicus Curiae Constitutional Accountability Center, in Support of Respondent at 19; Brief of Amicus Curiae KBR, Inc., in Support of Petitioner at 23.

Questions as Framed for the Court by the Parties

  1. Does a case become moot, and thus beyond the judicial power of Article III, when the plaintiff receives an offer of complete relief on his claim?
  2. Is the answer to the first question any different when the plaintiff has asserted a class claim under Federal Rule of Civil Procedure 23, but receives an offer of complete relief before any class is certified?
  3. Is the doctrine of derivative sovereign immunity recognized in Yearsley v. W.A. Ross Construction Co., 309 U.S. 18 (1940), for government contractors, restricted to claims arising out of property damage caused by public works projects?

In 2005, the U.S. Navy contracted Campbell-Ewald Co. to provide the Navy advertising services. See Campbell-Ewald v. Gomez, No. 13-55486, at 4 (9th Cir.

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Chadbourne and Parke LLP v. Troice; Willis of Colorado Inc. v. Troice; Proskauer Rose LLP v. Troice

Issues

The Supreme Court has consolidated for oral argument three Fifth Circuit cases that deal with the Securities Litigation Uniform Standards Act (SLUSA). These cases address a circuit split as to the standard for determining when an alleged misrepresentation is "material" enough to the purchase or sale of a covered security to satisfy the "in connection with" requirement and thus trigger SLUSA’s preclusive effect.

 

The Securities Litigation Uniform Standards Act (“SLUSA”) precludes certain state-law class actions when a “misrepresentation” is made “in connection with the purchase or sale of a covered security.” The Supreme Court will address a circuit split over the scope and meaning of this standard; in particular, at what point an alleged misrepresentation is sufficiently related to the sale or purchase of a covered security to satisfy the "in connection with" requirement. The Court has consolidated for oral argument three state law securities class actions from the Fifth Circuit Court of Appeals. The district court, adopting the Eleventh Circuit’s test, found that SLUSA precluded the plaintiffs' claims because misrepresentations were made in connection with the sale of SLUSA-covered securities. The Fifth Circuit, adopting the Ninth Circuit’s test, reversed and reinstated the plaintiffs' state law class-actions. The Court’s ruling will implicate the scope and application of SLUSA, SLUSA's impact on state-law class actions, and SLUSA's effect on U.S. securities markets.

Questions as Framed for the Court by the Parties

Chadbourne & Parke LLP V. Troice

The Securities Litigation Uniform Standards Act ("SLUSA") precludes most state-law class actions involving "a misrepresentation" made "in connection with the purchase or sale of a covered security." 15 U.S.C. § 78bb(f)(1)(A). The circuits, however, are divided over the standard for determining whether an alleged misrepresentation is sufficiently related to the purchase or sale of a covered security to satisfy the "in connection with" requirement. The Fifth Circuit in this case adopted the Ninth Circuit standard and held that the complaint here was not precluded by SLUSA, expressly rejecting conflicting Second, Sixth, and Eleventh Circuit standards for construing the "in connection with" requirement, all of which would result in SLUSA preclusion here. 

Additionally, and also in conflict with several other circuits, the Fifth Circuit held that SLUSA does not preclude actions alleging aiding and abetting of fraud in connection with SLUSA-covered security transactions when the aiders and abettors themselves did not make any representations concerning a SLUSA-covered security. 

The questions presented are: 

  1. Whether SLUSA precludes a state-law class action alleging a scheme of fraud that involves misrepresentations about transactions In SLUSA-covered securities. 
  2. Whether SLUSA precludes class actions asserting that defendants aided and abetted SLUSA-covered securities fraud when the defendants themselves did not make misrepresentations about the purchase or sale of SLUSA-covered securities. 

 

Willis of Colorado Inc. v. Troice

The Securities Litigation Uniform Standards Act of 1998 ("SLUSA") precludes state law class actions that allege a misrepresentation or omission "in connection with" the purchase or sale of a covered security. 15 U.S.C. § 78bb(f)(1). The complaints at issue in this case plainly included such alleged misrepresentations. The district court, applying Eleventh Circuit precedent, recognized as much and dismissed the complaints. However, the Fifth Circuit disagreed and, purporting to apply the Ninth Circuit's test, found the fact that the complaints included alleged misrepresentations in connection with a covered security insufficient to invoke SLUSA because the complaints also included other misrepresentations that were not made "in connection with" a covered securities transaction. In doing so, the Fifth Circuit acknowledged that it was departing from the holding of the Eleventh Circuit and several other circuits. 

The question presented is whether a covered state law class action complaint that unquestionably alleges "a" misrepresentation "in connection with" the purchase or sale of a SLUSA-covered security nonetheless can escape the application of SLUSA by including other allegations that are farther removed from a covered securities transaction.

 

Proskauer Rose LLP v. Troice

  1. Does the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"), 15 U.S.C. §§ 77p(b), 78bb(f)(1), prohibit private class actions based on state law only where the alleged purchase or sale of a covered security is "more than tangentially related" to the "heart, crux or gravamen" of the alleged fraud? 
  2. Does SLUSA preclude a class action in which the defendant is sued for aiding and abetting fraud, but a non-party, rather than the defendant, made the only alleged misrepresentation in connection with a covered securities transaction? 

In 1995, Congress enacted the Private Securities Litigation Reform Act (“PSLRA”) to curtail abusive class action litigation involving nationally traded securities. See Roland v.

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China Agritech, Inc. v. Resh

Issues

Does the rule announced in American Pipe, tolling the statute of limitations for individual actions filed after a failed class action, also apply to subsequent class actions?

In American Pipe, the Court held that the statute of limitations is tolled for an individual that files an action after a related class action fails. This case asks the Court to decide whether American Pipe tolling also applies to subsequent class actions. China Agritech, Inc. argues that American Pipe tolling should not apply to subsequent class actions, because such an extension would be inequitable and would conflict with the rationale surrounding current law on class action procedures. Michael Resh counters that American Pipe tolling should apply to subsequent class actions because such an extension would be both equitable and consistent with current law and precedent. The Supreme Court’s ruling could potentially relax the urgency and attentiveness required of class action members, or emphasize the importance of awareness and involvement individuals must display to share in the judgment won by the asserted members of their class. The decision could also implicate burdens on the courts, separation of powers issues, and practical considerations for class action plaintiffs and defendants.

Questions as Framed for the Court by the Parties

Whether the rule of American Pipe and Construction Co. v. Utah tolls statutes of limitations to permit a previously absent class member to bring a subsequent class action outside the applicable limitations period.

China Agritech, Inc. (“China Agritech”) is a Delaware-incorporated holding company with its principal place of business located in Beijing, China. Resh v. China Agritech, Inc., 857 F.3d 994, 996. China Agritech claims to sell organic fertilizers and related products to farmers throughout China. Id.

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Comcast Corp. v. Behrend

Respondent Caroline Behrend et al., cable television subscribers, brought an antitrust class action against Petitioner Comcast Corporation alleging anticompetitive activity. In order to be certified as a class, Respondents had to present evidence that they suffered damages on a class-wide basis. The evidence they submitted consisted of a damages model prepared by their expert witness. Comcast challenges the District Court’s reliance upon that evidence, claiming that it is inadmissible under standards set forth in Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U. S. 579 (1993). In this case, the Supreme Court will address whether evidence presented in support of class certification must be admissible under those standards. The decision will likely significantly impact the ability of plaintiffs to certify as a class under Federal Rule of Civil Procedure 23, and it may also affect underlying commercial conduct, such as the future use of territory-swapping and clustering agreements. 

Questions as Framed for the Court by the Parties

May a district court certify a class action under Federal Rule of Civil Procedure 23 without resolving whether the plaintiff class has introduced admissible evidence to show that they may be awarded damages on a class-wide basis?

Issue

May a district court certify a class action without resolving “merits arguments” that bear on Federal Rule of Civil Procedure 23’s prerequisites for certification, including whether purportedly common issues predominate over individual ones under Rule 23(b)(3)?

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Acknowledgments

The authors would like to thank former Supreme Court Reporter of Decisions Frank Wagner for his assistance in editing this preview.

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Cyan, Inc. et al. v. Beaver County Employees Retirement Fund

Issues

Can state courts adjudicate “covered class actions” that allege claims only under the Securities Act of 1933?

The Supreme Court will determine whether state courts can hear claims filed solely under the Securities Act of 1933 as “covered class actions.” The case arises out of a decrease in Cyan, Inc.’s stock prices, which led investors, including the Beaver County Employees Retirement Fund, to sue as a class in state court for alleged disclosure violations. Cyan argues that California state courts could not hear this case, because the Securities Act’s legislative history and existing regulatory structure suggests that Congress intended for all class actions filed under the Securities Act to be tried in federal courts. Beaver, on the other hand, claims that Congress intended to give state and federal courts concurrent jurisdiction—i.e., both state and federal courts can hear this case. The stakes of the case are also in dispute: organizations supporting Cyan claim that a Beaver victory would promote inconsistent Securities Act decisions in federal and state courts, encourage forum shopping, and harm the capital markets. Beaver’s supporters disagree, asserting that the effects of a decision in its favor would be minimal.

Questions as Framed for the Court by the Parties

Whether state courts lack subject-matter jurisdiction over “covered class actions,” 15 U.S.C. § 77v(a), that allege only claims under the Securities Act of 1933.

Congress enacted the Securities Act of 1933 (“Securities Act”) to regulate the securities industry after the 1929 stock market crash. Brief for Petitioners, Cyan, Inc., et al. at 2. The Securities Act allows securities acquirers to sue securities issuers if the issuers fail to comply with their obligations under the Securities Act. Id.

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Erica P. John Fund v. Halliburton

Issues

Whether the Fifth Circuit’s ruling contradicts Supreme Court precedent and violates Federal Rule of Civil Procedure 23 by requiring securities-fraud plaintiffs to show loss causation at the class certification stage rather than at trial.

 

Halliburton is accused of making misstatements about its financial position regarding asbestos litigation, a merger, and  costs-overruns  on fixed price contracts. As those misstatements came to light or were corrected, Halliburton’s stock price dropped. The Erica P. John Fund asserts that these misstatements defrauded Halliburton’s investors and seeks class certification to recover investors' losses from Halliburton. The Court of Appeals for the Fifth Circuit held that in order to be certified as a class, investors must not only demonstrate elements common to the  class,  but must also prove that the fraud actually caused the drop in stock value. Halliburton asserts that this is necessary  because,  unless the fraud actually caused the loss, no presumption of reliance on the misstatement can arise, and therefore the plaintiffs have failed to make the case for certification as a class. The Erica P. John Fund argues that the Fifth Circuit’s holding contradicts the Federal Rules of Civil Procedure and Supreme Court  precedent,  and that requiring proof of loss causation undermines the values and goals of the reliance presumption. The Supreme Court’s  decision in this case  will affect the ability of investors to pursue private securities actions against companies who misstate their financial positions.

Questions as Framed for the Court by the Parties

1. Whether the Fifth Circuit correctly held, in direct conflict with the Second Circuit and district courts in seven other circuits and in conflict with the principles of Basic v. Levinson, 485 U.S. 224 (1988), that plaintiffs in securities fraud actions must satisfy not only the requirements set forth in Basic to trigger a rebuttable presumption of fraud on the market, but must also establish loss causation at class certification by a preponderance of admissible evidence without merits discovery.

2. Whether the Fifth Circuit improperly considered the merits of the underlying litigation, in violation of both Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974), and Federal Rule of Civil Procedure 23, when it held that a plaintiff must establish loss causation to invoke the fraud-on-the-market presumption even though reliance and loss causation are separate and distinct elements of security fraud actions and even though proof of loss causation is common to all class members.

In an action for securities fraud under Securities and Exchange Commission Rule 10b-5, a plaintiff must show (1) that he or she relied upon a defendant’s material misstatement or omission in buying or selling the security and (2) that the misstatement was a direct cause of the investor’s loss. See David M. Brodsky & Jeff G. Hammel, 

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· Wex: Class Action

· Securities Docket: Second Circuit Reverses Class Certification in In re Salomon Credit Analyst Metromedia Litigation (Oct. 2, 2008)

· New York Law Journal, David M. Brodsky and Jeff G. Hammel: The Fraud on the Market Theory and Securities Fraud Claims (Oct. 24, 2003)

· New York Law Journal, Samuel H. Rudman: Oscar: Misinterpretation of Fraud-on-the-Market Theory (Jul. 17, 2009)

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Home Depot U.S.A. Inc. v. Jackson

Issues

Can a third-party defendant in a class action suit remove a counterclaim from state court to federal court?

This case asks the Supreme Court whether a third-party defendant in a state court class action may remove a counterclaim from state court to federal court. Petitioner Home Depot U.S.A. Inc. (“Home Depot”) argues that the Supreme Court’s case Shamrock Oil & Gas Co. v. Sheets, which holds that an original plaintiff may not remove a counterclaim to federal court, does not apply to third-party defendants. Moreover, Home Depot asserts that the text of the Class Action Fairness Act (“CAFA”) allows for the removal of class action counterclaims by any defendant, including third-party defendants. Conversely, Respondent George W. Jackson—a class action representative who counterclaimed against Home Depot—contends that Shamrock Oil actually bars third-party defendants from removing. Furthermore, Jackson maintains that CAFA’s discussion of removal does not explicitly expand the term “defendant” to third-party defendants, and thus should not be read to allow Home Depot to remove Jackson’s counterclaim. This case has large implications for consumer class action suits in state court, as it will affect class action litigation strategy and forum selection in potentially hostile state courts.

Questions as Framed for the Court by the Parties

(1) Whether, under the Class Action Fairness Act—which permits “any defendant” in a state-court class action to remove the action to federal court if it satisfies certain jurisdictional requirements­—an original defendant to a class-action claim that was originally asserted as a counterclaim against a co-defendant can remove the class action to federal court if it otherwise satisfies the jurisdictional requirements of the Class Action Fairness Act; and

(2) whether the Supreme Court's holding in Shamrock Oil & Gas Co. v. Sheets—that an original plaintiff may not remove a counterclaim against it—extends to third-party counterclaim defendants.

In June 2016, Citibank, N.A. (“Citibank”) sued George W. Jackson in North Carolina state court to collect on his credit card debt. Jackson v. Home Depot U.S.A., Inc. at 3.

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