a California-centric collection of comments and resources about complex litigation and class action practice
Episode 4 is in the can and available for streaming or access through iTunes or the Xbox Music store. However, some internet connectivity issues are interfering with my efforts to edit the podcast information on the hosting service,.
Still playing catch-up. Today's edition of blog from the past concerns the Automobile Club of Southern California, an organization that inspires mixed feelings in me. On the one hand, they do provide what I consider to be excellent insurance services. But I can't help but feel that there is a dark underbelly at AAA of SoCal. Some of that underbelly was challenged but escaped unscathed in Thompson
v. Automobile Club of Southern California (pub. Ord. June 27, 2013), in which the Court of Appeal (Fourth Appellate District, Division Three) affirmed the trial court's denial of class certification in a case alleging claims based on the backdating of the membership renewals when the renewal is late.
The plaintiff specifically challenged the practice of “backdating” late renewals to the member’s original expiration date if the renewal occurs within 95 days. The plaintiff contended that this practice resulted in late-renewing members receiving less than a full year of services. The Auto Club argued that the 95-day period is a “grace period” and that members are generally permitted to continue receiving services, particularly during the first 31 days, and saves members the $20 fee to start a new membership. The plaintiff moved for class certification. The trial court denied the motion, finding that the class members could not be ascertained and that individual questions predominated.
With respect to the factual issues surrounding class certification, we afford the trial court “ ‘great discretion in granting or denying certification.’ ” (In re Tobacco II Cases (2009) 46 Cal.4th 298, 311.) The trial court’s ruling will be reversed only if a “ ‘manifest abuse of discretion’ ” is present. (Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1022.) “ ‘A certification order generally will not be disturbed unless (1) it is unsupported by substantial evidence, (2) it rests on improper criteria, or (3) it rests on erroneous legal assumptions. [Citations.]’ [Citations.]” (Ibid.)
Slip op., at 6. The Court said, “ ‘We may not reverse, however, simply because some of the court’s reasoning was faulty, so long as any of the stated reasons are sufficient to justify the order. [Citation.]’ (Kaldenbach v. Mutual of Omaha Life Ins. Co. (2009) 178 Cal.App.4th 830, 843-844.)” Slip op., at 6-7.
The Court then examined the bases of the trial court’s decision. Looking first at the trial court’s ascertainability finding, the Court concluded that the class definition was significantly overbroad, and thus not ascertainable from the available records:
If putative class members either received benefits during the delinquency period, were not damaged as a result of the renewal policy, or renewed after the Auto Club’s membership policy was disclosed, their ability to recover is called into serious question. If class members received benefits during the delinquency period or they were told about the Auto Club’s renewal practices, they cannot maintain a cause of action under the UCL. If they were not economically damaged, they cannot recover on a breach of contract, under the CLRA, or through an unjust enrichment claim. (See Civ. Code., § 1780, subd. (a); Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1388; Lectrodryer v. SeoulBank (2000) 77 Cal.App.4th 723, 726.)
Slip op., at 11. As it so happens, I disagree that the ability to identify the class from available records is the touchstone of ascertainability. Certainly that is one very useful way, but the purpose of a class definition is to allow a potential class member to determine when reading the definition whether they are a member of the class. Consider consumer class actions involving retail transactions. Often, there is no way to know the identity of purchasers of a product; but the purchasers know. The notion that the class can only be ascertained if they are identified in available records is simply an invitation to maintain shoddy records and a strangely narrow view of what it means to have an ascertainable class. This portion of the opinion is horse hockey.
Anyhow, the Court of Appeal then agreed that the same issues impacting the ability to identify the class (under the Court's narrow view of ascertainability) presented individualized issues that predominated over common questions:
The trial court found that individual issues predominate: “(A) Individual issues predominate regarding whether a putative class member is entitled to recover on any of Plaintiff’s causes of action. This is because, as stated above, there were members who suffered no injury because they (i) received services during their delinquency, (ii) had the Auto Club’s renewal policy explicitly disclosed to them, and/or (iii) were economically better off under the Auto Club’s system of renewal than they would have been if they had begun new memberships on the date of payment and paid the $20 new enrollment fee. Determining whether a member falls into any of these categories and would therefore not be entitled to recover from the Auto Club on any of Plaintiff's theories of liability, can only be done on a case-by-case basis.” The court went on to explain that essentially the same reasons applied to each cause of action.
Slip op., at 13-14. The Court concluded by finding that the arguments concerning typicality and superiority were not significant because of the substantial problems with ascertainability and commonality. The decision presents an example of the potential for a serious entanglement of merits questions with certification issues when the Court considered the viability of the plaintiff’s theory.
Don't do what I did. Don't accidentally copy curly quotes when pasting some html code into a code injection area (a little under-the-hood work for authorship signals). Even basic html hyperlinks don't behave so well when you use curly quotes. Just sayin'.
This one made me too sad to write about it quickly. I had to grieve first. Another day, another chance for the United States Supreme Court to pork litigants with an arbitration ruling. In today's chapter, American Express Co., et al. v. Italian Colors Restaurant, et al. (June 20, 2013), we have the last saga in a long-running case addressing effective vindication of statutory rights. Merchants who accept American Express cards brought a class action against Amex for violations of the federal antitrust laws. According to the merchants, American Express used its monopoly power in the market for charge cards to force merchants to accept credit cards at rates approximately 30% higher than the fees for competing credit cards. This tying arrangement, they said, violated §1 of the Sherman Act. They sought treble damages for the class under §4 of the Clayton Act. The agreement with Amex contains a clause that requires all disputes between the parties to be resolved by arbitration. The agreement also provides that“[t]here shall be no right or authority for any Claims to be arbitrated on a class action basis.” In re American Express Merchants’ Litigation, 667 F. 3d 204, 209 (CA2 2012). The Court of Appeal reversed an order compelling arbitration, agreeing with the merchants that the expense required to prove antitrust claims was so high that no individual merchant would be able to vindicate their statutory rights without the ability to aggregate claimants in a class action.
The 5 Justice majority opinion, authored by Justice Scalia, focused its analysis on the meaning of the “effective vindication” exception to the requirements of the FAA, concluding that it did not apply to a prohibitively expensive process for resolving claims on an individual basis only:
But the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy. See 681 F. 3d, at 147 (Jacobs, C. J., dissenting from denial of rehearing en banc). The class-action waiver merely limits arbitration to the two contracting parties. It no more eliminates those parties’ right to pursue their statutory remedy than did federal law before its adoption of the class action for legal relief in 1938, see Fed. Rule Civ. Proc. 23, 28 U. S. C., p. 864 (1938 ed., Supp V); 7A C. Wright, A. Miller, & M. Kane, Federal Practice and Procedure §1752, p. 18 (3d ed. 2005). Or, to put it differently, the individual suit that was considered adequate to a
ssure “effective vindication” of a federal right before adoption of class-action procedures did not suddenly become “ineffective vindication” upon their adoption.
Slip op., at 7. The majority, in referring in later discussion to Concepcion, made it very clear that, while you may have a “right” conferred by statute, you have no right to insist on an effective method to enforce that “right.”
The dissent, authored by Justice Kagan, offers a passionate but ultimately unavailing criticism of the majority’s holding:
Here is the nutshell version of this case, unfortunately obscured in the Court’s decision. The owner of a small restaurant (Italian Colors) thinks that American Express (Amex) has used its monopoly power to force merchants to accept a form contract violating the antitrust laws. The restaurateur wants to challenge the allegedly unlawful provision (imposing a tying arrangement), but the same contract’s arbitration clause prevents him from doing so. That term imposes a variety of procedural bars that would make pursuit of the antitrust claim a fool’s errand. So if the arbitration clause is enforceable, Amex has insulated itself from antitrust liability—even if it has in fact violated the law. The monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse.
Slip diss. op., at 1. The dissent began by positing an uncontroversial proposition: “We would refuse to enforce an exculpatory clause insulating a company from antitrust liability—say, ‘Merchants may bring no Sherman Act claims’—even if that clause were contained in an arbitration agreement.” Slip diss. op., at 2. But the dissent then observed, “If the rule were limited to baldly exculpatory provisions, however, a monopolist could devise numerous ways around it.” Slip diss. op., at 3.
Applied as our precedents direct, the effective- vindication rule furthers the purposes not just of laws like the Sherman Act, but of the FAA itself. That statute reflects a federal policy favoring actual arbitration—that is, arbitration as a streamlined “method of resolving dis- putes,” not as a foolproof way of killing off valid claims. Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U. S. 477, 481 (1989). Put otherwise: What the FAA prefers to litigation is arbitration, not de facto immunity. The effective-vindication rule furthers the statute’s goals by ensuring that arbitration remains a real, not faux, method of dispute resolution. With the rule, companies have good reason to adopt arbitral procedures that facili- tate efficient and accurate handling of complaints. With- out it, companies have every incentive to draft their agreements to extract backdoor waivers of statutory rights, making arbitration unavailable or pointless. So down one road: More arbitration, better enforcement of federal statutes. And down the other: Less arbitration, poorer enforcement of federal statutes. Which would you prefer? Or still more aptly: Which do you think Congress would?
Slip diss. op., at 5-6. The balance of the dissent is an effective and scathing dismantling of the majority reasoning. In conclusion, Justice Kagain writes: “To a hammer, everything looks like a nail. And to a Court bent on diminishing the usefulness of Rule 23, everything looks like a class action, ready to be dismantled.” Slip diss. op., at 14. But it is for naught at this point. The majority opinion is the one that will rule day, and it is the one that should cause great concern if not checked legislatively.
The Complex Litigator reports on developments in related areas of class action and complex litigation. It is a resource for legal professionals to use as a tool for examining different viewpoints related to changing legal precedent. H. Scott Leviant is the editor-in-chief and primary author of The Complex Litigator.
