Since court records contain vital financial information like judgments, tax liens, foreclosures and bankruptcies, inaccurate information and the association of court documents with the wrong person can devastate innocent consumers' credit reports for years, The Columbus Dispatch reports. Since privacy restrictions prevent credit-reporting agencies from using social security numbers and some states even restrict the use of birth dates to look for financial information, research based on names and addresses is partly blamed for the association of one person's credit history with another person's identity, the article said. For more, read the full story.

Stolen social security numbers are to blame for young children racking up hundreds of thousands of dollars in loan, credit and mortgage payments, The Columbus Dispatch reports. Privacy restrictions prevent credit bureaus from sharing information found in a child's file with the child's parents, which can result in years of undetected charges turning into debt that follows the child well into adulthood, the article said. Companies that fail to protect the identities of consumers are under increased scrutiny and could be subject to class action lawsuits. For more, read the full story.

Of the thousands of errors discovered on credit reports, accidentally blending the histories of multiple people can be the most damaging because it can prevent consumers from receiving loans or gaining employment and can sometimes require lawsuits to clear up, an investigation by The Columbus Dispatch has found. About six percent of Federal Trade Commission complaints during a 30-month period and nearly eight percent of complaints to the state attorney general in 2009 and 2010 regarded such a mix-up, which often occurs because creditors can request consumers' reports using only partial information, the article said. For more, read the full story. We will provide more information as this story develops.

The Supreme Court of Ohio has been asked by Ford Motor Credit Company to accept jurisdiction over an appeal of an order certifying a nationwide class action challenging its inspection policy for lease-end vehicles. This case presents the Ohio Supreme Court with the opportunity to decide whether it will affirmatively adopt and apply the United States Supreme Court’s decision in Wal-Mart v. Dukes as the analytical standard for determining whether a class may be certified under Ohio law.
 
To read the full article, click here.

The Eighth Circuit Court of Appeals recently upheld the dismissal of a sexual harassment class action asserted by the Equal Employment Opportunity Commission (EEOC).  The EEOC filed its suit in September 2007, alleging that CRST Van Expedited, Inc. — one of the country’s largest interstate trucking companies — had subjected a group of similarly situated female employees to sexual harassment through its New-Driver Training Program. 

Certainly, this decision represents a legal victory for employers defending class action suits filed by the EEOC.  This decision, however, is also a cautionary tale of the significant burden and expense — five years of litigation and approximately $4.5 million in legal fees — associated with such suits, regardless of their outcome.

To read the full article, click here.

With Pippins v. KPMG, the Southern District of New York maintains and extends its forward position among jurisdictions nationally in punishing large corporations with broad and expensive preservation requirements.  Here, the court has ordered KPMG to preserve over 2,500 hard drives of its current and former employees on the basis that their users are “potential” plaintiffs to a class action.  The court found that the members of this group were all “key players,” turning the concept on its head.  KPMG estimates the cost of preservation at $600 per laptop, or $1.5M — a steep price to pay for laptops that might contain relevant information of potential parties. 

A bright spot in the opinion is the court’s recognition that proportionality plays a role in fashioning a preservation strategy.  However, this concept got little application in this case.  The court chided KPMG for its “chutzpah” in arguing that the costs would swallow the claim while at the same time refusing to fork over even a single laptop.  In the court’s view, without having at least some of the laptops to inspect, the plaintiffs could not possibly establish the “benefit” of preservation, making it impossible for the court to balance benefit and burden under the proportionality analysis.
 
To read the full article, click here.

While the future of no-harm class actions is in the hands of the U.S. Supreme Court as it considers its decision in First American Financial Corp. v. Edwards, at least one federal district court in Illinois appears to be taking a hard line against what might be described as "trivial harm" class actions.  In a February 23, 2012 decision in Old Town Pizza of Lombard, Inc. v. Corfu-Tasty Gyro's, Inc., 1:11-cv-6959 (N.D. Illinois), the court invoked the de minimus doctrine to dismiss putative class claims where only insignificant damages had been alleged, and rejected the suggestion that an otherwise insignificant injury could be aggregated via class allegations in order to meet the harm threshold for a viable individual claim. 

Judge John W. Darrah rendered a decision dismissing two of the plaintiff's claims, for conversion and violation of an Illinois consumer protection statute — which were based on the defendant's alleged sending of a single unsolicited fax — because the plaintiff did not allege "substantial injury to itself."  The court dismissed the claims despite the plaintiff's citation to cases within the district that had previously held that putative class claims cannot be defeated by the de minimus doctrine, "so long as those [small individual] losses can plausibly be inferred to be substantial in the aggregate."  Centerline Equip. Corp. v. Banner Pers. Serv., Inc., 545 F.Supp.2d 768 (N.D. Ill. 2008).  According to Judge Darrah, "the loss of a piece of paper and toner…is trivial and insufficient to support a conversion claim," and "[p]ursuing a class action does not save an otherwise insufficient claim from dismissal…." 

To read the full article, click here.

Hall of Famer and career third basemen for the Royals, George Brett, is facing a class action suit brought by an unhappy fan over alleged false advertising.  And no, this one has nothing to do with any far-fetched claims that the Royals might someday find their way to the postseason again. 

Iowa resident Seth Thompson paid $30 for a Brett Bros. Sports International "iconic" necklace advertised for its healing and wellness powers, such as reducing sports fatigue and improving concentration and focus.  Surprise!  Seth says the necklace did not deliver and that he and all other purchasers of the necklaces are entitled to damages under Iowa's "Private Right of Action for Consumer Frauds Act."

Plaintiff's decision to bring this action under the Iowa state law is somewhat odd given that he alleges his class would comprise "thousands of consumers throughout the United States of America." 

Read the complaint here.

The Sixth Circuit in Gooch v. Life Investors Ins. Co. of Am., Cases Nos. 10-5003/5723 (6th Cir. Feb. 10, 2012), has vacated a Middle District of Tennessee decision granting class certification, remanding the case for further proceedings.  At issue was the District Court’s decision certifying a class action consisting of individuals covered by cancer-only insurance policies issued by Life Investors Insurance Company over a six-year period. 

The Sixth Circuit vacated the order certifying the class based upon preclusion due to a settlement approved in a similar Arkansas state court class action on the same day as the District Court certified the class in Gooch. See Hunter v. Runyan, ___ S.W.3d ___, 2011 WL 478594, at *12 (Ark.); see also Pipes v. Life Investors Ins. Co. of Am., No. 1:07-cv-00035-SWW (E.D. Ark. 2008).

Fully analyzing and giving full faith and credit to the Runyan settlement, the Sixth Circuit’s decision was based upon the fact that many of the putative plaintiffs in Gooch settled their claims by failing to opt out of the Runyan settlement. Therefore, while the Sixth Circuit surmised that Gooch might still be able to pursue claims on behalf of some class (for example, those such as himself who had opted out of the Runyan settlement), the class actually certified had been gutted by the settlement.

The Sixth Circuit conducted a thorough analysis not only of preclusion under the standard in Matsushita Elec. Indus. Co. v. Epstein, 516 U.S. 367, 374 (1996), but of the merits of class certification as it related to any claims not barred by the Runyan settlement.

One such issue was whether the decision in Wal-Mart Stores, Inc. v. Dukes, ___ U.S. ___, 131 S. Ct. 2541 (2011), precluded certification of a declaratory judgment class under Rule 23(b)(2) when Gooch also sought monetary relief. Parsing Wal-Mart, the Sixth Circuit found the answer is no: A declaratory judgment class can still be certified under Rule 23(b)(2) so long as a declaratory judgment remains a separable and distinct type of relief that will resolve an issue common to all class members. 

To read the full article, click here.  

Four class action lawsuits brought by former National Football League (NFL) players against the NFL and helmet manufacturers for alleged long-term effects from concussion-related football injuries have been centralized in the Eastern District of Pennsylvania.  On January 31, 2012, the Judicial Panel on Multidistrict Litigation transferred the four lawsuits, three of which had been pending in the Central District of California, to Judge Anita B. Brody.  The former players have asserted negligence claims against the NFL and product liability claims against helmet manufacturing defendants Riddell Sports Group, Inc. and related corporate entities.  The Riddell defendants opposed consolidation, and alternatively argued for a delay of transfer until the Central District of California ruled on their pending motions to dismiss.  But the panel ruled against Riddell, holding that the lawsuits share common factual issues concerning allegations against the NFL stemming from injuries sustained while playing professional football.  The panel has been notified of 16 additional potentially related actions.  To read the full order, click here.

Article III continues to grab headlines in class action litigation as one of the most potent barriers to class certification.  With increasing frequency, courts are asking whether class representatives — and the class members they seek to represent — have suffered injuries that are sufficient to satisfy the most fundamental test of Article III standing.  Class plaintiffs are being tossed out of court with ever increasing frequency because their damage claims are simply too tenuous to pass constitutional muster. 
 
Now, an Ohio court has weighed in on this issue.  In Andrews v. Nationwide Ins. Co., Case No. CV-11-756463 (McMonagle, J.), the Court of Common Pleas for Cuyahoga County dismissed class claims — on a Rule 12(B)(6) motion — brought by life insurance customers because it found the alleged injury was simply too speculative to satisfy the requirements of Article III. 
 
To read the full article, including guidance on the lessons emerging from the Andrews case, click here.

A federal district court in California has dismissed, for lack of standing, a class action lawsuit against Health Net of California, Inc. and IBM over the loss of nine Health Net server drives that had been used to store personal and medical information for more than 800,000 California residents. Whitaker v. Health Net of California, 2012 WL 174961 (E.D. Cal. 2012). Plaintiffs alleged violation of the Confidentiality of Medical Information Act (CMIA) by Health Net and IBM, and violation of the Customer Records Act (CRA) by Health Net. 

Both Health Net and IBM moved to dismiss the complaint for lack of standing on the grounds that the plaintiffs did not assert they suffered any injury. In response, the plaintiffs argued they did have standing because of the threat posed by the loss of their information. The court agreed with IBM, concluding that because “the threat plaintiffs allege is wholly conjectural and hypothetical; plaintiffs lack standing to bring these claims.”

In line with other “no-harm” class actions we have discussed in past articles, Whitaker emphasizes that even in the class action context, the named plaintiffs must actually allege that they suffered some injury. It is not enough that one of the unnamed class members was injured or that the named plaintiffs’ unnamed family member was injured. The named plaintiff must himself actually suffer an injury and that injury cannot be hypothetical.
 
You can find the full article and text of the court decision here.

A U.S. District Court judge has approved a $725 million securities class action settlement against American International Group, Inc. (AIG), which was accused of accounting fraud, collusion and stock price manipulation, according to a press release from Ohio Attorney General Mike DeWine's office. This clears the way for three Ohio public fund pensions (Ohio Public Employees Retirement System, State Teachers Retirement System of Ohio, and Ohio Police and Fire Pension Fund) as well as numerous Ohio shareholders to recover money, the release said. Combined with other settlements that are part of the total case involving AIG, the "total recovery for AIG shareholders is expected to exceed $1 billion, making it one of the largest securities class action settlements in U.S. history." For more read the full press release here.

Yesterday, a federal district court in New York preliminarily approved a proposed settlement of a wage and hour collective action against Novartis Pharmaceuticals Corp.  The proposed settlement amount: $99 million.

The proposed settlement agreement results from two lawsuits filed against Novartis in 2006 under the Fair Labor Standards Act (FLSA) and California and New York state laws.  The lawsuits were asserted on behalf of several nationwide classes of pharmaceutical representatives who claimed Novartis unlawfully denied them overtime pay.   If finally approved, the settlement would benefit approximately 7,000 current and former pharmaceutical representatives.

Novartis denies any unlawful activity and states that it properly classified the pharmaceutical representatives as exempt from overtime requirements under the FLSA’s outside sales employee exemption.  Notably, a separate case is currently pending before the U.S. Supreme Court (Christopher v. SmithKlineBeecham Corp.), which addresses the issue of whether or not that exemption applies to pharmaceutical representatives.

The next step in this proposed settlement is for the court to issue a notice to potential class members with an explanation of the settlement and who it covers.  The court will then hold a fairness hearing, which is scheduled for May 31, 2012. 

As this case exemplifies, FLSA collective actions are time-consuming, burdensome and expensive for businesses forced to defend the action.   For a discussion of the types of proactive steps that employers can take to reduce their risks and potential liabilities under the FLSA, click here.

On January 10, 2012, the U.S. Supreme Court released its decision in CompuCredit v. Greenwood, Supreme Court No. 10-048.   At issue in the case is whether the Credit Repair Organizations Act (CROA), 15 U. S. C. §1679 et seq., precludes enforcement of an arbitration agreement in a lawsuit alleging violations of that Act.  Reversing the Ninth Circuit, the Court held that had Congress meant in the CROA to prohibit these common arbitration provisions, it would have done so “with a clarity that far exceeds the claimed indications in the CROA.”  Id. at 9.

What does all of this mean for companies not subject to the CROA but concerned about enforcing arbitration provisions in their consumer contracts?  It means this: unless specifically prohibited by statute in no uncertain terms, the FAA requires that contractual arbitration provisions—including class action waivers—be enforced according to their terms.

CompuCredit also reaffirms that Congress—and not the Court—has the final say on what kinds of disputes may be subject to arbitration.  The case essentially gives Congress a blueprint on how to prohibit contractually agreed-upon arbitration where it sees fit.   For example, CompuCredit mentions specifically the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U. S. C. §5518(b)), which grants the recently created Consumer Financial Protection Bureau the authority to:

prohibit or impose conditions or limitations on the use of an agreement between [a person engaged in providing a consumer financial product or service] and a consumer for a consumer financial product or service providing for arbitration of any future dispute between the parties, if the Bureau finds that such a prohibition or imposition of conditions or limitations is in the public interest and for the protection of consumers.

(12 U. S. C. §5518(b.))

In other words, if the Bureau finds that prohibiting all mandatory arbitration in all consumer financial services contracts is in the public interest, the Bureau can make it happen—regardless of the Court’s recent decisions regarding the liberal federal policy toward enforcing arbitration agreements set forth in the FAA.

To read the full article, click here.

Countrywide recently won a major class certification victory against plaintiffs suing the retail lender for alleged discriminatory mortgage lending practices in violation of the Equal Credit Opportunity Act (“ECOA”) and the Fair Housing Act (“FHA”).  See, In re Countrywide Financial Mortgage Lending Practices Litigation, 2011 U.S. Dist. LEXIS 118695 (W.D. Ky. 2011).  But Countrywide also recently paid out $335 million in a settlement of nearly identical claims brought by the Attorney General of the United States.  While the decision out of Kentucky reinforces the lesson from Wal-Mart v. Dukes, 131 S. Ct. 2541 (2011), that statistical significance is not a substitute for demonstrating Rule 23 commonality, Countrywide’s massive payout also illustrates that Dukes is not a panacea for lending institutions concerned about the growing wave of discriminatory lending litigation.

To read the full article click here.   

Fail-safe class definitions are a hot topic.  Once treated as little more than a formality, there is increasing judicial awareness that a flawed class definition may reveal flaws in the class itself.  Given the enormous costs of class certification—to courts, plaintiffs, and defendants alike—there is good reason to scrutinize class definitions early in the process.  Like any good carpenter, when it comes to the class definition, a good judge will measure twice, and cut once.

The Sixth Circuit recently recognized these concerns.  In Randleman v. Fidelity Title Ins. Co., 646 F.3d 347 (6th Cir. 2011) (discussed in detail here) the court affirmed decertification of class alleging entitlement to a discount on a title insurance policy where a borrower refinanced the same property with the same lender within 10 years.  A class of those “entitled to relief” was deemed fail-safe because “[e]ither the class members win or, by virtue of losing, they are not in the class and, therefore, not bound by the judgment.”  Id. at 352.  The court stated that the fail-safe class definition was an “independent ground for denying class certification.”  Id.

Most recently, in Jones-Turner v. Yellow Enters. Systems, LLC, 2011 WL 4861882 (W.D. Ky. Oct. 13, 2011), a Kentucky District Court Judge decertified a conditionally certified class asserting state wage and hour claims.   This is the latest case within the Sixth Circuit to strike a fail-safe class definition, and the first to do so relying on Randleman.   The case is important because it reflects a judicial willingness to revisit crucial threshold issues even after a preliminary decision on class certification, and without the necessity of an appeal to the Sixth Circuit.  Perhaps more important, it suggests that the Randleman decision is empowering district judges to root out fail-safe class definitions.  

The lessons learned from Jones-Turner are of critical importance for those defending motions seeking class certification.  While the Jones-Turner decision turned primarily on the lack of commonality, i.e., too many individualized claims, the fail-safe definition was an independent basis for decertifying the class. 

In fact, fail-safe definitions often occupy the other side of the commonality coin.  Classes that assert highly individualized claims—especially those that seek individual money damages—frequently implicate fail-safe issues precisely because the heightened precision required to establish the common issues often answers the ultimate questions, too.  Judge Simpson’s recognition of this phenomenon suggests a multi-prong attack on Rule 23(b)(3) class definitions.

To read the full article and learn more about the Jones-Turner decision and the lessons learned from it for those defending against class certification motions, click here.  

Employers are continuing to see an increase in the number of wage and hour lawsuits filed by current or former employees under the federal Fair Labor Standards Act (“FLSA”).  In 2010, 6,081 FLSA lawsuits were filed in U.S. federal courts.  See Statistics Div., Admin. Office of the U.S. Courts, Federal Judicial Caseload Statistics.  In 2011, that number jumped to 7,008.   One source of such lawsuits is the FLSA “collective action,” which is appealing to plaintiffs’ attorneys, as it provides a means of overcoming the economic inefficiency of seeking to recover relatively small amounts on behalf of numerous allegedly similarly situated employees.

What is the FLSA?

By way of background, the FLSA requires covered employers to pay their non-exempt employees a certain minimum wage for all hours worked and overtime for hours worked over 40 in a work week.  A typical FLSA collective action involves one or more of the following alleged FLSA violations: (1) misclassifying non-exempt employees as exempt; (2) making improper deductions from exempt employees’ salaries; (3) failing to pay non-exempt employees for all hours worked (e.g. allowing employees to work “off the clock”); and/or (4) failure to pay or miscalculating overtime for non-exempt employees. 

How do FLSA “collective actions” and “class actions” differ?

As with a “class action” brought under Rule 23 of the Federal Rules of Civil Procedure, a named plaintiff (or plaintiffs) in an FLSA collective action files suit on behalf of himself and other similarly situated current or former employees.  There are some notable procedural differences, however, between a Rule 23 “class action” and an FLSA “collective action.”

First, a Rule 23 class action does not require consent of the putative class members.  Instead, once the district court certifies a class under Rule 23, all members are parties to the action (and bound by the judgment) unless they opt out by requesting exclusion and formally withdrawing from the lawsuit.  In contrast, the FLSA requires individual employees to affirmatively consent in writing to becoming a party to a collective action under the FLSA.  An individual, who does not consent to join the collective action, neither benefits from nor is bound by the judgment in the lawsuit.

Second, unlike Rule 23 class actions, courts use a two-phase inquiry to determine whether to certify a collective action under the FLSA.  During the first stage (often referred to as the conditional certification stage), the standard for certification requires only “a modest factual showing” that the plaintiff(s) is/are similarly situated to the other employees they seek to notify of the action.  This standard is relatively lenient and frequently results in conditional certification of the collective action (and, hence, notice to potential plaintiffs of the opportunity to “opt-in”).  Following more detailed discovery, the court employs a stricter standard to determine whether the filing plaintiff(s) and the other collective action members are sufficiently similar to certify the collective action.     

Third, under Rule 23, the statute of limitations may be tolled pending the court’s determination of whether the plaintiffs can maintain a proper class.  In contrast, under the FLSA, the statute of limitations as to an individual claimant continues to run until that claimant has filed a consent to opt-in.  As a result, the statute of limitations may have already run as to many putative members of the collective action before they receive notice that a lawsuit has been filed.    

What can employers do to minimize their risk of an FLSA collective action?

Despite their differences, collective actions and class actions are similar in one important respect: they are time-consuming, burdensome and expensive for businesses forced to defend the action.  There are various proactive steps, however, that employers can take to substantially reduce their risks and potential liabilities under the FLSA.  Among other things, employers, in consultation with knowledgeable employment law counsel, should:

• Conduct regular audits of job classifications to ensure that individuals have been properly classified as exempt, as independent contractors or as volunteers;

• Conduct regular payroll audits to ensure that improper deductions are not being made from exempt employees’ salaries and that all remuneration required to be considered for overtime calculation purposes (e.g., bonuses, shift differentials, etc.) is being taking into account;

• Conduct regular audits of timekeeping processes to ensure that non-exempt employees are properly recording and verifying all time worked;

• Maintain required postings and appropriate written policies that take advantage of the FLSA’s “safe harbor” provision;

• Train supervisors and employees on proper timekeeping practices; and

• Respond promptly to internal wage and hour complaints and correct any identified unlawful practice(s).

Stay tuned here and to On the Radar for further discussion and analysis of FLSA collective actions in Ohio, the Sixth Circuit and beyond, and for more ideas on how you can protect your business.

In the largest residential fair-lending penalty ever, Countrywide Financial Corporation has agreed to pay $335M to settle claims brought by the Justice Department relating to alleged discriminatory practices in residential lending.

On December 21, 2011, Countrywide Financial Corporation entered into a Consent Order with the Justice Department resolving claims that Countrywide engaged in a pattern and practice of violation of the Equal Credit Opportunity Act and the Fair Housing Act. The Complaint alleged discrimination by Countrywide on the basis of race, national origin and marital status in the extension of residential credit and in the making of residential real-estate transactions.

The Justice Department's claims stem from a fair lending review of Countrywide's mortgage pricing practices beginning in 2006. As a result of that review, the Federal Reserve Board determined that it had reason to believe Countrywide had engaged in a pattern or practice of discrimination, and the matter was referred to the Department of Justice. The Office of Thrift Supervision then conducted an examination of Countrywide's operations, also concluding that it had reason to believe that Countrywide had displayed a pattern or practice of discriminating against minority loan applicants in the pricing of home loans and against married couples concerning the term and condition of home loans.

The Consent Order specifically acknowledges that the claims relate only to loans originated by Countrywide and not to any mortgage lending practices of Countrywide's successor, Bank of America.

Many commentators (subscription required) believe that settlements such as this are just the tip of the iceberg for housing-related claims against banks.  For example, in a December 19, 2011 commentary, Jaret Seiberg of Guggenheim partners noted that banks have a host of housing-related battles ahead from private litigation by class plaintiffs to new attention from the Consumer Financial Protection Bureau.

Much has been already said about the Supreme Court’s landmark decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011).  From its clarification of commonality to its implicit recognition of a plaintiff’s burden of proof at the certification stage, counsel, commentators and courts all acknowledge that Wal-Mart significantly altered the class action landscape. 

The true legacy of Wal-Mart, however, is only now being written by the lower courts whose task it is to apply the decision and to determine how, if at all, prior precedent can be harmonized.  The challenge is significant because the case forces a re-evaluation of concepts that rarely received the type of critical analysis that is now required. 

A few of the significant take-aways from Wal-Mart are these: 

• The plaintiff’s burden of proof has been clarified;
  
• “Commonality” requires common facts that yield common answers; and
  
•  Affirmative defenses matter.

So, is Wal-Mart making a difference in the way the courts analyze class certification under Rule 23?  How many classes are being certified?  Are the courts applying the lessons of Wal-Mart or just paying lip service?

In the coming weeks, On The Radar will explore the cases decided in the Sixth Circuit to see how the courts are applying Wal-Mart.  While the numbers provide some insight, the substantive analyses of many of the recent decisions reflect greater attention to the specific factual showings required to evaluate the Rule 23 criteria.

In this article, we provide a discussion of the recent case of Ham v. Swift Transp. Co., Inc., 275 F.R.D. 475 (W.D. Tenn. 2011), which illustrates that the precepts of Wal-Mart do not impede certification of classes under the right circumstances.  The analysis set forth in Ham underscores the point that thoughtful application of the Wal-Mart principles does not foreclose class certification as some have predicted.  It also provides important insights for those defending class actions.

To read the full article discussing Wal-Mart and its application in Ham v. Swift, click here.

For better or worse, e-discovery is an incredibly important aspect of class litigation. As a result, we regularly monitor e-discovery rulemaking to stay on top of the law on this critical issue. Here is the latest:

The House Judiciary Subcommittee on the Constitution convened a hearing on December 13, 2011, on the topic of "The Costs and Burdens of Civil Discovery." Both sides of the cost vs. justice debate got some air time before Congress.  In the end, the Committee decided that the issue is already being addressed by the Federal Judicial Conference's Civil Rules Advisory Committee and Congress need not duplicate these efforts.  This is not surprising. Judicial rule-making has traditionally been delegated to the Judicial Branch through the Rules Enabling Act.  Direct legislation by Congress on this matter, while within Congress’s power, would be a major shift in policy-making.  Read more about the statements at the hearing as reported by Law.com in a recent article.

As for the status of the deliberations by the Federal Judicial Conference's Civil Rules Advisory Committee, the best that can be said is that things remain very much up in the air.  A recent Q&A with John Rabiej, The Sedona Conference’s Director for Judicial Outreach, provides some interesting insights into the rule-making process generally and the opposing coalitions involved in the present debate over preservation rules.  Read the full article posted by discovery vendor Clearwell.

Mortgage Electronic Registration System, Inc. (commonly referred to as MERS) has been the subject of several class action lawsuits throughout the country.   MERS operates an electronic registry designed to track and record mortgage assignments in the county recorder offices in Ohio’s 88 counties.

The most recent MERS litigation involves a class action complaint filed by Plaintiff Geauga County, on behalf of itself and all other Ohio counties, alleging that MERS violated Ohio law by failing to properly record mortgage assignments, thus failing to pay county recording fees to Ohio county recording offices.  The Plaintiff further alleges that MERS’ failure to properly record mortgage assignments in a timely fashion created “gaps” in the mortgage recordation process.  The Plaintiffs also named as defendants financial institutions that contract with MERS.

In response to the class action filing, MERS simply stated that its registration system is legal and properly administered.

We will be monitoring this lawsuit as it progresses.

The future of no-harm class actions is now in the hands of the U.S. Supreme Court following oral argument in First American Financial Corp. v. Edwards, U.S. Supreme Court Docket No. 10-708, October 2011.

The Court is considering whether violation of a statute providing specified statutory damages is sufficient to confer standing under Article III of the Constitution even absent any allegation of separate economic harm.  Specifically, the issue is whether Edwards and a putative class of plaintiffs have standing under the Real Estate Settlement Procedures Act (RESPA) to maintain claims for refunds of title insurance fees paid in transactions involving improper kickback agreements when they do not and cannot allege that they overpaid or that their coverage was adversely affected.

At oral argument, the questions from the bench to counsel for both sides were quick, continuous and varied. 

Questions to the Petitioner, First American, focused on whether the statute gives the enforceable right to a kickback-free deal.  In other words, is the violation of the statute the injury?  First American maintained that a violation (i.e., the injury) and damages are both required for standing and must remain separate elements of the Article III analysis.  Thus, Congress cannot unilaterally define an injury that confers standing without separate harm.  The bench appeared to be considering whether participation in a tainted transaction is itself a harm.  Such questions may indicate that the Court will preserve the requirement of separate harm, but is pausing on whether participation in a tainted transaction is enough.

In turn, the Respondent faced a number of questions from the bench on its real position, with Chief Justice Roberts pointing out that Respondent slid among three separate positions:  (1) there is injury-in-fact, (2) injury-in-fact is required but it is presumed by Congress for statutory violations, and (3) no injury-in-fact is required.   Respondent’s true position remained somewhat unclear. 

The Chief Justice pressed as to why violation of the statute was not “injury in law” rather than the required injury in fact.  Justice Ginsburg, on the other hand, focused on the presence of statutorily-defined damages (under RESPA, three times the fee paid) as adequate to meet the harm requirement, even if no other damages were alleged.
Time will tell, but the focus of inquiry at oral argument appeared to indicate separate harm will still be required, but the real question is whether either participation in a tainted deal or a statutory penalty can satisfy that requirement.

Stay tuned for more information as the Supreme Court decides this critical case.

A denial of class certification involving a case brought against Fifth Third Bank in the Southern District of Ohio is heading to the Sixth Circuit. In Arlington Video Productions, Inc. v. Fifth Third Bank, 2008 U.S. Dist. LEXIS 51196, the district court declined to certify a class whereby the class representative alleged that Fifth Third failed to properly identify the nature of fees deducted from the class members’ banking accounts.

These class claims were tethered to a breach of contract claim concerning the signature cards class members signed to open their banking accounts. Holding that the “delving” into the account information for each class member would not be practical, the district court held that Arlington Video failed to meet any of the class requirements.

Attempting to obtain recovery for alleged fees that the bank collected, Arlington Video attempted to certify a class of:

All individuals and entities who have or have had checking accounts with Fifth Third Bank in the United States, who were charged and paid a fee for a service that was not listed on a then current Fifth Third Fee Schedule, or was in an amount that was different from that stated on a then current Fifth Third Fee Schedule, prior to the assessment of the charge, during the applicable limitations period.

Notably, plaintiffs excluded Fifth Third employees, officers, directors, and other bank representatives from the proposed class. Further, Arlington Video acknowledged that the 12 states where Fifth Third has branch locations apply different statute of limitations to breach of contract claims. Thus, Arlington Video sought to certify subclasses of customers who banked at Fifth Third that were allegedly charged “undisclosed fees” by grouping them based on the limitations period applicable in those states.

With respect to numerosity, the district court carefully analyzed the requirements under the Truth in Savings Act and explained: 1) the Act only pertains to consumer and not business accounts; and 2) the Act did not require certain fee disclosures when Fifth Third decided to alter its fees. Importantly, the district court opined that determining which account holders qualified as class members would require “delving into the account information of each of those customers” to understand whether prior notices about fees were received by the account holders. In other words, because extensive factual inquiries would be required, the district court determined that class certification is improper.

As for commonality, the district court plainly stated that there is no uniform way to determine if valid notice of a new fee was provided to a customer in any particular case. This feasibility conclusion tied directly to the concerns the district court had with the numerosity element.

Next, the district court determined that Arlington Video’s failure to specifically allege that Fifth Third failed to notify customers concerning fee changes severely undermined the class claim. As courts have determined, typicality determines whether a sufficient relationship exists between the injury to the plaintiff and the conduct impacting the class. The district court determined that typicality is lacking where in individual inquiry to establish liability is necessary.

Finally, the district court agreed with Fifth Third and held that the class representative could not represent the interest of the class through qualified counsel. In addition to the concerns of typicality and commonality, the district court explained that there were 75 different types of banking accounts, with “infinite potential for variations” in those agreements based on the customers’ needs. The Sixth Circuit will certainly grabble with the individual inquiries highlighted by the district court that dominated the holding in Fifth Third’s favor.

In In re Apple & AT&TM Antitrust Litig., 2011 U.S. Dist. LEXIS 138539 (N.D. Cal. Dec. 1, 2011), a California federal District Court recently had the opportunity to directly apply the Supreme Court’s holding in AT&T Mobility v. Concepcion, 131 S. Ct. 1740, 179 L. Ed. 2d 742 (2011). In a case involving an AT&T arbitration agreement, the Court not only permitted AT&T to pursue arbitration, but also permitted AT&T’s co-Defendant—Apple—to join them in the arbitration. This holding demonstrates that under the right circumstances, the ripple effect of Concepcion could have affect even co-defendants who were not parties to the arbitration agreement at issue.

Here, the proposed class of plaintiffs included purchasers of Apple iPhones and subscribers to cellular service from AT&T Mobility. Plaintiffs alleged that Apple and AT&T entered into an undisclosed agreement under which the two companies agreed that for a period of time, all iPhones sold by Apple would be configured so that purchasers in the United States would be required to sign a cellular service agreement with AT&T. Plaintiffs allege that although they knew they would be under contract with AT&T for two years, they did not know that Apple and AT&T had agreed, without Plaintiffs' knowledge or consent, to make AT&T the exclusive provider of voice and data services for the iPhone for five years.

AT&T originally brought its motion to compel arbitration back in October of 2008, which was denied on the ground that AT&T's arbitration agreement was unconscionable under California state law.  Then, in July of 2010, the Court granted Plaintiffs’ motion to certify the class.

In December of 2010, the Court stayed the case pending the Supreme Court's then-pending decision in Concepcion. After Concepcion was decided in favor of AT&T, AT&T renewed its motion to compel arbitration based on the Supreme Court’s decision. The Court agreed and entered an order compelling arbitration as to AT&T.

Apple also asked that the Court to compel arbitration on the claims brought against it.  In response, Plaintiffs argued that arbitration should be denied because Apple did not sign the arbitration agreement.

The Court held in favor of Apple.  Although arbitration generally cannot be invoked by a non-signatory, "under principles of equitable estoppel a non-signatory may compel a signatory to an arbitrate." Id. at *20.  Specifically, in the Ninth Circuit, a non-signatory may compel a signatory to arbitrate based on equitable estoppel, so long as two requirements were met: (1) the subject matter of the dispute is "intertwined" with the contract, and (2) there is a sufficient "relationship" between the parties. Id. at *23.

The Court found that both requirements for equitable estoppel were met because: (1) Plaintiffs’ antitrust and related claims against Apple and AT&T arose from their respective AT&T service contracts, and (2) there was a "relationship" between AT&T and Apple based on the allegedly undisclosed agreement to lock in AT&T as the exclusive service provider for the iPhone. The Court held: "Having agreed to arbitrate any claim growing out of their respective contractual relationships with AT&T, and having made a claim arising from that contractual relationship against both AT&T and Apple in which they allege that both Defendants jointly subverted rights under the contract, Plaintiffs are now estopped from refusing to arbitrate against Defendants [AT&T] and Apple, jointly." Id. at *28.

Thus, the Court granted both Apple and AT&T's Motions to Compel Arbitration and accordingly decertified the class. The lessons to be learned are these: (1) Concepcion appears to remain strong in the district courts, and (2) even if one defendant does not sign the arbitration agreement at issue, it might still be able to enforce the terms of the agreement under estoppel principles.

Is the game worth the candle?  Not a new question for class litigation defendants and large organizations generally who are regularly targeted with complex litigation involving extensive discovery.  However, the price of candles has been going up, thanks in part to the massive increase in electronically stored information (ESI) retained and stored by parties.

Even highly sophisticated technical organizations are choking on the sheer volume of data having some arguable relevance to the litigation they face.  Take for example Microsoft.  Here is a company that knows a thing or two about technology and would appear to be at least as well positioned to deal with the challenge as the next guy.  While that may be true, Microsoft has joined a consortium of other similarly positioned companies to push for clearer and less burdensome discovery rules.

As Microsoft reported to the Federal Rules Advisory Committee this past summer, (letter available here), the company maintains a dedicated data center for the preservation of ESI for ongoing cases.  The data center currently holds the equivalent of 740,000 banker’s boxes worth of documents.  For the average case, the company preserves 48 million pages, of which it collects and processes 13 million pages, actually reviews 645 thousand pages, and produces 141 thousand pages.  After all of this effort, Microsoft estimates that only 142 documents are actually used in the case.

A recent study performed by the RAND Corporation (draft results available here) highlights the costs associated with the activities of preserving, collecting, reviewing, and producing such large quantities of data.  As the RAND paper also notes, while corporations are spending all of this time and money to preserve data that no one will ever use they continue to feel very insecure about the defensibility of their actions.  The result: even broader preservation, higher costs, and increased distraction of employees from their core business functions.  Indeed, business decisions such as whether to adopt certain information technology products must now factor in the impact of the latest E-Discovery legal decisions, rather than the straight forward business proposition of the technology investment.

So what’s wrong with amending the Federal Rules of Civil Procedure to clarify the obligations of parties and perhaps lessen the current burden?  Two primary concerns are the law of unintended consequences and a generalized concern for “justice.”  The debate is nicely summarized at a recent Forbes article (here).

Whatever happens with the effort to amend the Federal Rules, one thing is clear, nothing will happen anytime soon.  Those in the know estimate it will be a minimum of five years before any sort of change would go into effect.  In the meantime, companies like Microsoft will continue to put away data, armies of paralegals and technical consultants will continue to sift it, and employees will continue to be diverted from their core business functions. 
The critical difference between the companies who will drown in the process and those who will move past will not be the amount of data they store.  Realistically, the digital title wave is not something anyone can outrun.  They key is to recognize the special problem data creates for modern litigation and to deal with it head on. How?  (1) Build in defensible and workable procedures now, before the next case; (2) Educate, train, and remind staff on carrying out these procedures; (3) Develop trusted vendor and outside counsel relationships; and (4) Invest in cost appropriate technology.

Easy to say.  Not so easy to do.

Following the Supreme Court's decision in AT&T Mobility, Inc. v. Concepcion, 113 S. Ct. 1740 (2011), it seemed clear that states possessed little power to limit the enforcement of arbitration provisions and class action waivers in consumer contracts.  "Arbitration is a matter of contract, and the [Federal Arbitration Act ("FAA")] requires courts to honor parties' expectations."  However, the Supreme Court of Arkansas, in its recent decision in Southern Pioneer Life Ins. Co. v. Thomas, 2011 Ark. 490 (Ark., 2011) identified what could be a significant exception to Concepcion: the business of insurance. 

In Southern Pioneer, the Thomas's executed a credit application and a retail installment contract as part of the purchase of a new car.  The credit application contained a provision calling for arbitration of "[a]ny claim or dispute, whether in contract, tort or otherwise…, which arise [sic] out of or relate to this Application, an installment sale contract or lease agreement, or any resulting transaction or relationship…."  The related retail installment contract provided an option for the purchase of credit-life insurance coverage with Southern Pioneer, the entire premium for which was financed with the purchase price of the vehicle and wrapped into the life of the loan.  The Thomas's opted for the insurance, but subsequently paid off the loan six years ahead of the maturity date.  They then filed a putative class action, alleging breach of the insurance contract against Southern Pioneer and seeking the refund of unearned premiums from the date of payoff through the original maturity date.  Southern Pioneer sought to compel arbitration pursuant to the arbitration clause in the credit application.

The trial court denied Southern Pioneer's motion, and the Arkansas Supreme Court affirmed, because the Arkansas Uniform Arbitration Act (the "AUAA") in effect at the time, and which recognized the validity, enforceability and irrevocability of contractual arbitration provisions generally, expressly did not apply to "any insured or beneficiary under any insurance policy…."  Ark. Code. Ann. 16-108-201(b) (Repl. 2006).  While recognizing that the FAA "would ordinarily preempt conflicting state law," the Court held that the McCarran-Ferguson Act (the "MFA"), [15 U.S.C. 1011, et seq.], "operates to bar application of the FAA and leave the regulation of the insurance industry to the states…."  The MFA provides that "[n]o Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance…unless such Act specifically relates to the business of insurance…."  15 U.S.C. 1012(b).

The Arkansas Supreme Court's decision suggests that, while states may be barred by the FAA from either enacting or judicially enforcing laws or doctrines like the Discover Bank rule, as set forth in Concepcion (California's rule classifying most collective-arbitration waivers in consumer contracts as unconscionable, and therefore unenforceable), states are nonetheless free under the McCarron-Ferguson Act to place limitations or outright prohibitions on collective-arbitration waivers or arbitration agreements generally, if the limitation or prohibition is a law enacted by the state for the purpose of regulating the business of insurance.

However, the Ohio Revised Code does not specifically exempt the business of insurance from the enforceability of contractual arbitration provisions like the AUAA did in Southern Pioneer.  As a result, Concepcion, and by extension the FAA, appear likely to continue to govern the enforceability of arbitration agreements and collective-arbitration waiver provisions in Ohio jurisdictions for the foreseeable future, including those found in contracts of insurance.

MDL Case No. 1700 concerns more than 70 class action cases against FedEx Ground Package System, Inc. (FedEx) consolidated in the Northern District of Indiana, alleging that FedEx improperly classified its delivery drivers as independent contractors rather than employees.  In August 2010, Judge Robert J. Miller granted summary judgment for FedEx on all of the state-law claims in the Kansas case.  In re FedEx Ground Package System, Inc. Employment Practices Litig., 734 F. Supp. 2d 557 (N.D. Ind. 2010).  A few months later, Judge Miller granted summary judgment to FedEx on similar claims in most of the remaining cases, while at the same time granting summary judgment for plaintiffs on other claims in a few cases.  In re FedEx Ground Package System, Inc. Employment Practices Litig., 758 F. Supp. 2d 638 (N.D. Ind. 2010).
 
The result of these decisions was that all of the claims were resolved in 22 of the 34 still-pending MDL cases, while some claims remained pending in the other 12 MDL cases.  This presented the court with what it called "an interesting intersection between [Civil] Rule 54(b) and Section 1407."  Under one option, the district court could issue partial final judgments under Federal Rule of Civil Procedure 54(b), allowing the plaintiffs to appeal immediately to the Seventh Circuit Court of Appeals in the 22 concluded cases.  The advantage to this avenue is uniformity because the issues in the closely-rel ated appeals would be resolved by the same circuit court.  The downside to this option is that the remaining cases would be chopped into piecemeal appeals.  Under the second option, the cases would be transferred back to the original transferor courts for further proceedings, including possible appeal to the appropriate circuit court after a final judgment.  The advantage to this approach is that all issues in the same case would be appealed at the same time to the same court; the downside that similar issues in different cases would be decided by different circuit courts.
 
Judge Miller recommended to the JPML that the cases be remanded to the transferor courts.  The JPML, which has final authority over the question, agreed.  FedEx then sought a writ of mandamus from the Seventh Circuit to compel the JPML to require the cases to go forward in the Seventh Circuit.  The Seventh Circuit acknowledged that there were strong arguments for both courses of action, and thus there was no "clear and indisputable" right to a writ.  The court held that the choice should be left to the transferee court and JPML, who are in the best positions to make the judgment and need flexibility to exercise that judgment based on the circumstances in any particular case.
 
The FedEx court distinguished the contrary holding in In re Food Lion, Inc. Labor Standard Act "Efficient Scheduling" Litig., 73 F.3d 528 (4th Cir. 1996), where a divided panel of the Fourth Circuit issued a writ of mandamus to the JPML to undo its order transferring cases back to their transferor courts.  In contrast to the abundance of state-law claims in FedEx, Food Lion involved primarily federal claims, so that one uniform law would apply to claims in all cases. 
 
FedEx shows that the JPML has broad discretion to administer MDL, including to determine when MDL cases are remanded to their transferor courts and when and to what courts appeals from MDL cases proceed. 

The U.S. Supreme Court heard oral argument yesterday in First American Financial, et al. v. Edwards, U.S. Supreme Court Docket No. 10-708.   A full description of the case and its potential implications can be found here. 

A recent Cleveland Plain Dealer article highlights the Ohio connections in this case.  The original transaction at issue was Ms. Edwards' 2006 purchase of a bungalow in Cleveland's North Collinwood neighborhood.   Stay tuned here and to On the Radar for a detailed description of the oral argument in the case and its potential implications for no-harm class action cases going forward.

The Seventh Circuit Court of Appeals recently held a defendant may moot a plaintiff's class action complaint by "offer[ing] him his full request for relief."  

In Damasco v. Clearwire Corp., 2011 U.S. App. LEXIS 23093 (7th Cir. Nov. 18, 2011), plaintiff Damasco filed a class action complaint against defendant Clearwire for violation of the Telephone Consumer Protection Act (TCPA), alleging that Clearwire had sent unsolicited text messages to him and more than 1,000 others.  Damasco's complaint asked for $1,500 in damages as well as an injunction to enjoin Clearwire from sending unsolicited text messages. 

Prior to Damasco moving for class certification, Clearwire offered to pay Damasco $1,500 and to stop sending unsolicited text messages to its mobile subscribers.  Clearwire's offer indicated it believed its offer rendered the case moot.  Damasco never responded to the settlement offer.  So Clearwire moved to dismiss the case, arguing its settlement offer stripped Damasco of his personal stake in the case and mooted in his claim.  The district court agreed, granting Clearwire's motion and dismissing Damasco's case.
 
On appeal, Damasco contended that defendants should be prohibited from mooting a potential class action by "buying off" or "picking off" named plaintiffs through "involuntary" settlement offers.  The Seventh Circuit rejected this argument.  The court noted it is a widely regarded rule that once a defendant offers to satisfy the plaintiff's entire demand, there is no longer any dispute over which to litigate, and thus a plaintiff's claim becomes moot.  Relying on its prior precedent in Holstein v. City of Chicago, 29 F.3d 1145, 1147 (7th Cir. 1994), the court refused to create an exception to this general rule in class actions where a defendant offers a named plaintiff full relief before the plaintiff has filed a motion for certification. 
 
The Damasco court acknowledged that other circuit courts have held differently.  For instance, the Third, Fifth, Ninth, and Tenth Circuits have fashioned a rule that, absent undue delay by the plaintiff in seeking certification, a plaintiff may move to certify a class and avoid mootness even after being provided a Rule 68 offer of judgment for complete relief.  See Pitts v. Terrible Herbst, Inc., 653 F.3d 1081, 1091-92 (9th Cir. 2011); Lucero v. Bureau of Collection Recovery, Inc., 639 F.3d 1239, 1249-50 (10th Cir. 2011); Sandoz v. Cingular Wireless LLC, 553 F.3d 913, 920-21 (5th Cir. 2008); Weiss v. Regal Collection, 385 F.3d 337, 348 (3rd Cir. 2004).  While the Sixth Circuit has not yet ruled on this issue, a case currently pending in the Sixth Circuit will likely soon resolve this issue there as well.  See Hrivnak v. NCO Portfolio Mgmt., Inc., Sixth Circuit Case No. 11-3142. 
 
However the Sixth Circuit decides Hrivnak, these cases represent a circuit split that may be appropriate for Supreme Court resolution in the future.  At least until then, however, defense counsel in class actions may want to determine the advisability of offering a plaintiff full relief prior to the filing of a motion for class certification in order to moot the plaintiff's claim.

In Pilgrim v. Universal Health Card, LLC, 2011 U.S. App. LEXIS 22715 (6th Cir. Nov. 10, 2011), Plaintiffs Daniel Pilgrim and Patrick Kirlin sought to represent a nationwide class of individuals challenging the defendant companies for creating and marketing a health care discount program, which Plaintiffs claimed was deceptive and violated consumer-protection laws. 

Membership in the discount program gave consumers access to a network of providers who lowered their rates for members.  Plaintiffs disliked the program because they alleged some of the providers had never heard of the program and some of the advertisements were deceptive because they looked like news articles.  They also complained that the program was purportedly free when it included a registration fee and monthly fees after the first 30 days.

Plaintiffs filed their putative nationwide class action in the Northern District of Ohio, which took jurisdiction under the Class Action Fairness Act (CAFA).  The opt-out class included over 30,000 members. 

One of the defendants moved to strike the class allegations, which the district court granted on the basis that under Ohio's choice-of-law rules, it would have to analyze each class member’s claim under the law of his or her home State.  “‘Such a task,’ the district court concluded, ‘would make this case unmanageable as a class action’ and would dwarf any common issues of fact implicated by the lawsuit.”  Id. at 2011 U.S. App. LEXIS 22715, *4.  With the class allegations gone, the named Plaintiffs did not meet the $75,000 amount in controversy requirement, and the district court dismissed the case without prejudice for lack of subject matter jurisdiction.  Plaintiffs appealed the decision striking the class allegations.

The district court’s decision focused on Plaintiffs’ failure to meet the predominance requirement under Rule 23(b)(3), finding they could not demonstrate that common questions of law or fact predominated when the class members’ claims would be governed by the varying laws of the states in which the subject purchases occurred.

The Sixth Circuit affirmed, finding the judgment of the district court sound for three reasons.  First, it agreed that different laws would govern the class members’ claims.  Under Ohio’s choice-of-law principles, the consumer-protection laws of the potential class members’ home states would govern their claims.

Second, the Sixth Circuit found potential common issues of fact could not overcome the problem of varying applicable consumer-protection laws.  Even if the laws substantially overlapped, the discount program itself operated differently in different states, and the putative plaintiffs suffered different injuries as a result.  For example, a key part of the claim—that providers had not heard of the program—would require individualized showings in different parts of the country.  Further, although there were similarities in the allegedly deceptive advertising, the ads also varied across the country.

Finally, the Sixth Circuit found a decision upholding the order striking the class allegations consistent with its own and other courts’ precedents.  In particular, the Court focused on the impossibility of instructing the jury on up to fifty states’ laws if a nationwide class was certified when the applicable laws differed by state.

Notably, the Sixth Circuit also rejected Plaintiffs’ argument that they should have been given the opportunity for discovery before the class allegations were stricken.  Citing Rule 23(c)(1)(A), the Sixth Circuit agreed that the district court’s decision issued before Plaintiffs moved for class certification was within its discretion to address class certification issues at an “early practicable time” in the litigation.  Thus, the Sixth Circuit found the timing acceptable, especially because it also concluded discovery would not have cured the problems with the class allegations.

This case highlights the benefits of an early motion to strike class allegations as an effective cost-reduction tool in avoiding class certification even before class discovery has commenced or a motion to certify has been filed.

Determining whether a complaint properly identifies and defines a class is a critical step in determining whether class certification is appropriate.   If a class definition is overbroad, unambiguous, unidentifiable or failsafe, certification should generally be denied.  Federal case law is developed on this point.  Ohio cases, on the other hand, are not quite as clear.
 
But a recent case out of Ohio’s Eighth Appellate District sheds some light on this critical class definition issue.  Maestle v. Best Buy Co., 2011-Ohio-5833 (8th Dist. Nov. 10, 2011) concerns claims of breach of contract, fraud and violations of the Ohio Consumer Sales Practices Act in connection with several store credit card offers by Best Buy.  Plaintiff Shawn Maestle filed a putative class action in 2000 based upon a Best Buy credit card program that offered two plans, “no pay/deferred interest” and “same as cash.”  The “no pay/deferred interest” plan had a promotional period in which no payment was required.  The “same as cash” plan also had a promotional period, but minimum monthly payments were required during that time.
 
Maestle cited three complaints with the Best Buy card program.  According to him, it:

   (1) denied the benefit of “same as cash” promotions by having their credit card account payments allocated (when they had multiple promotional balances outstanding) to the balance with the latest expiring promotional period;

   (2) assessed “a minimum monthly finance charge” on promotional purchases in the amount of 50 cents, or any other amount, when the agreement made no provision for such charges; or

   (3) assessed, on a promotional credit card balance, interest accruing retroactively from the transaction date rather than from the first day following the expiration of the promotional period.

In June 2006, Maestle moved for class certification on behalf of a putative class of over 10,000, whom he claimed were subject to improper charges.  He defined the class as “[a]ll persons who at any time after September 12, 1985 were Best Buy customers, each with a Best Buy credit card, who were: assessed interest or finance charges; a minimum monthly finance charge of 50 cents (or any other amount); finance charges on any promotional purchases earlier than the first day after expiration of the promotional period; or assessed interest or finance charges upon payments demanded prior to the expiration of 90 days.”

In May 2007, the trial court indicated it would rule on class certification within 30 days, but actually issued its decision in December 2010.  The trial court denied class certification, stating Maestle failed to meet any other required element besides numerosity.

Specifically, the trial court found the class definition overbroad because it was not limited to cardholders actually subjected to the penalties or those whose accounts were serviced by Defendants.  Among other shortcomings, Maestle failed to meet the requirements under Rule 23(A)(1) to show an unambiguous, identifiable class.

The Eighth District affirmed and found the elements of Rule 23(A)(1) not met.  It rejected Maestle’s claim that the class was unambiguous and identifiable because Defendants had records that would allow identification of the class members.  The presence of the records alone did not make class members “readily identifiable.”  In other words, the court would need to conduct an individualized inquiry to determine whether people were injured, obviating the purpose of proceeding as a class action.

Judge Kilbane dissented from the majority, however, finding that determining the class was “administratively feasible” from Defendants’ records and that the circumstances merited class treatment due to the small individual amounts at issue.

Stay tuned as we continue to monitor the development of Ohio case law on this and other critical pre-certification issues.