Last month, the Eleventh Circuit rejected a plaintiff’s bid to keep her class action in state court even though CAFA’s local controversy exception would have required a remand. In Blevins v. Aksut, No. 16-11585, — F.3d —, (11th Cir. Mar. 1, 2017), the Court held that the “local controversy” exception to CAFA jurisdiction does not apply when the federal court has an independent basis for subject matter jurisdiction.

Elizabeth Blevins, on behalf of herself and a putative class, sued Seydi Aksut, M.D. and several affiliated persons and entities, alleging that they operated an unlawful scheme to defraud them. Dr. Aksut would allegedly falsely tell patients that they required heart surgery and would perform these unnecessary surgeries. The defendants would then bill patients for the procedures. After learning about the practice, Blevins filed suit in an Alabama state court, asserting that Dr. Aksut and his co-defendants violated the Racketeer Influenced and Corrupt Organizations Act. The defendants removed the case to federal court and moved to dismiss.

Blevins filed a motion to remand, contending that CAFA’s local-controversy provision prohibited the trial court from exercising jurisdiction. The local controversy exception directs federal courts to decline to exercise CAFA jurisdiction when certain criteria are met, including when two-thirds or more of the proposed class members are citizens of the state where the action was filed, the defendant is a citizen of the same state, and the principal injuries occurred in the same state.

The trial court denied Blevins’s motion to remand, and she appealed to the Eleventh Circuit, which affirmed. The Court explained that CAFA was one way to get class actions into federal court, not the exclusive way to do so. As such, the “local controversy” exception does not apply when a federal court has an independent basis for jurisdiction. In this case, the plaintiff asserted claims under a federal statute—RICO—which gave the district court federal question jurisdiction. The removal was proper on that basis. Interestingly, after affirming the denial of the motion to remand, the Eleventh Circuit reversed the district court’s dismissal of the lawsuit, holding that payments made to a medical provider are compensable injuries under RICO.

Blevins is a reminder that CAFA is not the only basis for removing a class action to federal court. Class actions could also be removed when they assert a claim under federal law, independently meet the requirements for diversity jurisdiction, the case relates to a bankruptcy proceeding, or there is some other independent basis for federal jurisdiction. Accordingly, when considering whether to remove, Defendants should remember to consider all possible bases for federal subject matter jurisdiction.

Since 2011, a Subcommittee of the Federal Rules Advisory Committee has been mulling changes to Rule 23 of the Federal Rules of Civil Procedure. On April 14, 2016, the Advisory Committee forwarded proposed changes to the Standing Committee on Rules of Practice and Procedure, recommending that they be published for public comment. On August 12, the Standing Committee published a draft. Any approved changes will be made effective December 1, 2018.

The most significant changes involve measures to deter “bad faith” objectors. Under the new Rule 23(e)(5)(B), the Court must approve any side payment to an objector or objector’s counsel associated with withdrawing an objection or abandoning an appeal from a judgment approving a settlement.

Continue Reading Federal Rules Advisory Committee Proposes Amendments to Rule Governing Class Actions in Federal Court

In a case sure to encourage more class action filings under Florida’s Unfair and Deceptive Trade Practice Act, the Eleventh Circuit upheld a Florida District Court’s certification of a class of consumers that purchased or leased 2014 Cadillac CTS Sedans in Florida.  Carriulo et. al v. General Motors Company, Doc. No. 15-14442 (11th Cir. May 17, 2016) Opinion.  The consumers alleged General Motors violated Florida’s Unfair and Deceptive Trade Practices Act by affixing window stickers to the CTS Sedans that claimed the vehicles received five-star safety ratings from the National Highway Traffic and Safety Administration (“NHTSA”).  Id. 3-6.  Specifically, the stickers represented each CTS Sedan received perfect five-star ratings in driver frontal crash tests, passenger frontal crash tests, and rollover crash tests. Id.  But, the NHTSA had not yet rated the CTS Sedan. Id. The NHTSA later rated the CTS Sedan as five-star rated in driver frontal crash and rollover, but only awarded a four-star rating in passenger frontal crash tests. Id.

The consumers argued they incurred damages due to the erroneous stickers.  GM argued that the predominance requirement for certifying a class was not met as “the liability question will be highly individualized because the buying and leasing experiences of each proposed class member was not uniform.”  Id. p. 11.  Specifically, some buyers may not have seen the sticker, may not have relied on it, may not have cared about safety, and each proposed class member’s price negotiation would have been different.  Id. The Eleventh Circuit (and the District Court) rejected this argument, noting:

“Because a plaintiff asserting a FDUTPA claim ‘need not show actual reliance on the representation or omission at issue,’ the mental state of each class member is irrelevant. In Davis, the First District Court of Appeal of Florida recognized that the absence of a reliance requirement means ‘the impediment to class litigation that exists for multiple intrinsic fraud claims does not exist’ in FDUTPA cases. Thus, General Motors is incorrect to suggest that the plaintiffs must prove that every class member saw the sticker and was subjectively deceived by it.”

Id. p. 11.

The Eleventh Circuit went on to address damages and causation, holding:

Moreover, because the injury is not determined by the plaintiffs’ subjective reliance on the alleged inaccuracy, causation and damages may also be amenable to class-wide resolution. FDUTPA damages are measured according to ‘the difference in the market value of the product or service in the condition in which it was delivered and its market value in the condition in which it should have been delivered according to the contract of the parties.’” Rollins, Inc. v. Heller, 454 So. 2d 580, 585 (Fla. Dist. Ct. App. 1984) (quotation omitted).

* * *

“The plaintiffs may show that a vehicle presented with three perfect safety ratings is more valuable than a vehicle presented with no safety ratings. General Motors received the same benefit of the bargain from the sale or lease to each class member — even if individual class members negotiated different prices — because a vehicle’s market value can be measured objectively.

As the district court recognized here, a manufacturer’s misrepresentation may allow it to command a price premium and to overcharge customers systematically. Even if an individual class member subjectively valued the vehicle equally with or without the accurate [] sticker, she could have suffered a loss in negotiating leverage if a vehicle with perfect safety ratings is worth more on the open market. As long as a reasonable customer will pay more for a vehicle with perfect safety ratings, the dealer can hold out for a higher price than he would otherwise accept for a vehicle with no safety ratings.”

Id. pp. 13-15.

GM also argued that since two of the three five-star ratings actually turned out to be true, consumers could not maintain claims as to those ratings.  The Eleventh Circuit rejected this argument also, declaring “[a] defendant may not escape FDUTPA liability under Florida law merely because a deceptive or misleading statement later turns out to be true. The injury occurs at the point of sale because the false statement allows the seller to command a premium on the sales price.”

Although this statement begs the question, “if the statement turns out to be true, isn’t a premium price warranted?” the Eleventh Circuit did not address that question– nor did it address the Supreme Court’s Spokeo injury-in-fact requirement.

This decision shows that financial services clients should take FDUPTA class allegations seriously and should brace for the filing of more such claims.

The Alabama legislature recently adopted legislation to prevent class actions in federal court under the Alabama Deceptive Trade Practice Act (“ADTPA”). As reported here last summer, the Eleventh Circuit held in Lisk v. Lumber One Wood Preserving LLC, 792 F.3d 1331 (11th Cir. 2015) that the ADTPA’s prohibition on class actions does not apply in federal court. Thus, a private plaintiff could bring a class action under the ADTPA by suing in federal court. Not surprisingly, several plaintiff counsel began bringing these previously unavailable class actions following the Lisk decision.

Continue Reading The Alabama Legislature Solves Problem Created by the Eleventh Circuit

Last week, the Consumer Financial Protection Bureau (“CFPB”) issued a proposed rule which would prohibit mandatory arbitration provisions in millions of banking contracts, including contracts with consumers for credit cards and bank accounts. While financial institutions would still be allowed to offer arbitration as an option to customers individually, they would no longer be able to require it be done individually for claims brought as class actions. The intended, and drastic, result of the rule is that consumers would be free to join together in class action suits against their financial institutions for grievances which they had previously only been able to negotiate individually.

Continue Reading New Proposed Rule from the CFPB Paves Way for Massive Increase in Class Actions Suits Against Financial Institutions

A class action filed last week in the Northern District of Georgia disputes the ability of a lender to charge post-payment interest for certain home mortgage loans when the lender has not provided a very specific disclosure form. In Felix v. SunTrust Mortgage, Inc., No. 16-66, Sarah Felix alleges the she took out an FHA-insured loan in in 2009. When she sold her home in 2015, she requested a payoff statement from the lender. According to Ms. Felix, the lender sent the payoff statement on April 6 and included interest for the entire month of April in the total payoff amount. Though Ms. Felix paid off the loan on April 8, she alleges that she was still charged interest for the entire month of April.

Continue Reading New class action complaint alleges that post-payment interest charges for certain home mortgages are invalid because of insufficient disclosures under 24 C.F.R. § 203.558

Banks already looking over one shoulder to maintain compliance with regulatory reforms coming at them from the Dodd-Frank Wall Street Reform and Consumer Protection Act may soon need to start looking over the other. Class action lawsuits by customers are likely coming, despite contracts to the contrary.

Many banks and other financial service providers include arbitration clauses in their consumer contracts; because arbitration is generally much less expensive (and quicker) than litigating in court, the cost of resolution is more in line with the minimal amounts often at issue. Class-action claims, however, can disrupt this balance—the cost to defend the most frivolous complaint is overshadowed by the potential exposure where these otherwise “minimal amounts” are aggregated.

In an effort to maintain the balance, lenders frequently require customers to waive any right to participate in a class-action lawsuit. In passing Dodd-Frank, Congress directed the Consumer Financial Protection Bureau (CFPB) to conduct a comprehensive study on the impact of mandatory arbitration clauses and class-action waivers in consumer financial products (including checking accounts, debit cards, auto loans, and payday loans). And going one step further, Congress authorized the CFPB to “prohibit or impose conditions or limitations on the use of” arbitration clauses if it finds that such actions are “in the public interest and for the protection of consumers” and are “consistent with the study.”

What did the CFPB find in its study? After spending over two years to review hundreds of consumer finance agreements and thousands of arbitration disputes, individual consumer lawsuits and class actions, the CFPB issued a 728-page report. Among the conclusions of the report:

  • Consumers rarely pursue claims—either in arbitration or court—for small disputes ($1,000 or less). In contrast, millions of consumers were eligible for monetary relief through class action settlements where such relief was permitted by the relevant contracts.
  • Lenders frequently waive the right to compel arbitration of individual lawsuits, but routinely invoke the arbitration clause to block class actions.
  • There was no statistically significant evidence of lower borrowing costs or increased access to credit for consumers by requiring arbitration and prohibiting class action lawsuits.
  • The vast majority of consumers do not know whether they agreed to arbitration, do not understand that they cannot file a lawsuit, and do not consider arbitration or dispute resolution when selecting financial service providers.

What can banks expect? Based on the CFPB’s report, banks should expect significant regulation—if not elimination—on their use of mandatory arbitration clauses and class action waivers. The CFPB clearly believes that these practices lead to an uneven playing field for consumers, and that the justifications are not supported by the evidence they gathered. Formal rulemaking is undoubtedly soon to commence.

What can banks do to prepare?

  • Be heard. In submitting public comment, trade groups and industry stakeholders will need to provide hard data evidencing a commitment to consumers.
  • Increase customer satisfaction efforts. Banks can expect fewer customer disputes—whether in arbitration, individual lawsuits, or class actions—if there are fewer unhappy customers. Increase employee training and internal resolution processes.
  • Monitor customer disputes. Although it is impossible to foresee and prevent every lawsuit, frequent and repetitious disputes of the same type can signal a larger problem that may require priority.
  • Stay informed. Many class-action lawsuits follow on the heels of smaller consumer victories that are under the radar. Work with counsel to stay abreast of developments, including whether your practices or contract terms should be modified to reduce exposure.
  • Do not overreact. Any regulation by the CFPB may be prospective as to future contracts and may provide for at least some field of operation for arbitration, depending on the rules of the arbitration forum (e.g., is the forum “consumer friendly”) and the contract formation (is the arbitration clause sufficiently prominent, and can the consumer “opt out”). If/when such regulations are finalized, banks should make a fully-informed decision on how to move forward.

Greg Cook and Conrad Anderson, partners in Balch & Bingham’s Birmingham office, represent banks and other institutions in financial services litigation. Mr. Cook is a former Co-Chair of the ABA Class Action & Derivative Suits Committee and has defended over 60 class actions. Both he and Mr. Anderson regularly handle matters involving lender liability, mortgage servicing, bank fraud, the Fair Credit Reporting Act, the Fair Debt Collection Practices Act, and RESPA, among others.

The Eleventh Circuit has reaffirmed the rule announced in Griffin v. Singletary, 17 F.3d 356 (11th Cir. 1994), that there can be no piggybacking of successive class actions for statute of limitations purposes regardless of the reason the first class action failed. The Eleventh Circuit’s opinion in Ewing Industries Corp. v. Bob Wines Nursery, Inc., No. 14-13842, acknowledges that the rule in Griffin has been distinguished by the Sixth, Seventh, and Ninth Circuits and expressly rejected by the Third and Eighth Circuits. Nonetheless, it adhered to Griffin under the prior panel precedent rule. Given the disagreement in the circuits, this issue is a candidate for Supreme Court review or en banc review by the Eleventh Circuit. In the meantime, plaintiffs in the Eleventh Circuit cannot use the pendency of a prior class action as a means to toll the statute of limitations for successive class actions. It should be noted that Ewing only applies to successive class actions. It does alter the rule that the pendency of a class action tolls the statute of limitations for individual class members.

In December 2006, Bob Wines Nursery sent several unsolicited fax advertisements to numerous businesses. In January 2010, Aero Financial, Inc. brought a putative class action in Florida state court against Bob Wines Nursery and its owner Robert L. Wines, Jr., alleging that these faxes violated the Telephone Consumer Protection Act (“TCPA”). The Florida court never reached the class certification issue in the Aero lawsuit. Instead, in June 2013, it determined that Aero lacked standing to pursue a TCPA claim and entered a summary judgment for the defendants.

On August 3, 2013, Plaintiff Ewing Industries Corporation, a member of the putative class in the Aero lawsuit, filed a second class action lawsuit against the same defendants in the federal district court for the Middle District of Florida. Ewing Industries alleged the same violations of the TCPA arising from the same December 2006 fax advertisements. Further, because the statute of limitations had expired in December 2010, Ewing Industries alleged that the statute had been tolled while the Aero lawsuit was pending.

The defendants moved to strike the class allegations and argued that, under Griffin, there can be no piggybacking of class actions for any reason. Ewing Industries countered that Griffin was distinguishable and noted that other federal circuit courts had held Griffin inapplicable when the first class action had failed, as was the case here, because of a deficiency in the class representative’s claim rather than the class itself. The district court rejected Ewing Industries argument and concluded that Griffin clearly prohibited tolling for successive class actions regardless of the reason the first class action had failed. Thus, it struck the class allegations.

On appeal, the Eleventh Circuit affirmed, concluding that Griffin had squarely rejected tolling for successive class actions regardless of “whether the first purported class action fails due to the inadequacy of the class representative or due to defects in the class itself.” The Eleventh Circuit noted that the Sixth, Seventh, and Ninth Circuits had distinguished Griffin from cases where the first class action fails because of a deficiency in the class representatives’ claim. It also noted that the Third and Eighth Circuits had expressly rejected Griffin as too rigid. Nonetheless, the Court concluded that, under the prior panel precedent rule, it had to apply Griffin.

Unless or until Ewing and Griffin are overruled by the Supreme Court or the Eleventh Circuit sitting en banc, they will continue to be the law in Florida, Georgia, and Alabama.

Balch & Bingham LLP has substantial experience defending class actions in both state and federal court. If you would like more information about our practice, please contact Greg Cook at gcook@balch.com or (205) 226-3426.

In a first-of-its-kind opinion that could open the class action flood gates, the Eleventh Circuit has held that state consumer fraud class actions may proceed in federal court even if the state consumer fraud statute expressly forbids class actions. If other courts follow suit, plaintiffs in at least eight other states that currently prohibit consumer fraud class actions (Georgia, Iowa, Louisiana, Mississippi, Montana, South Carolina, Tennessee, and Virginia) can circumvent these prohibitions simply by filing in federal court.

In Lisk v. Lumber One Wood Preserving LLC, No. 14-11714, — F.3d —, 2015 WL 4139740 (11th Cir. July 10, 2015), the plaintiff, Robert Lisk, installed a wooden fence at his home in Alabama. The wood for the fence originated with defendant Lumber One Wood Preserving LLC (“Lumber One”) and passed through several intermediaries before being purchased by Mr. Lisk. On its website and in its product literature and labeling, Lumber One warranted that the wood was treated to prevent rot, fungal decay, and termites for at least 15 years. According to Mr. Lisk, these representations were false and the wood had not been treated at all. As a result, his fence experienced significant rot after just three years. After he began to experience problems, Mr. Lisk learned that other customers had had similar experiences.

Mr. Lisk filed a putative nationwide class action against Lumber One in the District Court for the Northern District of Alabama. The basis for federal jurisdiction was the Class Action Fairness Act (“CAFA”). Lumber One moved to dismiss the class allegations under the ADTPA, arguing that the Alabama statute expressly forbids private class actions. Specifically, Lumber One pointed to Ala. Code § 8-19-10(f), which states “a consumer or other person bringing an action under [the ADTPA] may not bring an action on behalf of a class.” The district court agreed that the ADTPA bars class actions by private consumers and dismissed the class allegations. After dismissing other claims, the district court concluded that it lacked subject matter jurisdiction under CAFA for Mr. Lisk’s individual ADTPA claim and dismissed that claim as well.

The Eleventh Circuit reversed. It concluded that Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., 559 U.S. 393 (2010) was directly on point. In that case, the plaintiff brought a New York state-law claim for a statutory penalty in federal court. A New York statute, which applied generally to all class actions, prohibited any class action for a statutory penalty. Thus, if the case had been in New York state court, it would have been barred as a matter of law. A majority of the Supreme Court agreed that the New York statute conflicted with Rule 23, which, it said, established a categorical rule allowing claims that meet certain requirements to proceed as a class action. Five justices also concluded that applying Rule 23 in Shady Grove would not abridge, enlarge, or modify any rights created by New York’ substantive law, though the reasons for their conclusions differed. Thus, Rule 23 trumped New York’s class-action prohibition.

The Lisk court held there was no meaningful distinction between New York’s procedural rule and the ADTPA’s class action prohibition. This conclusion is questionable because the statute in Shady Grove applied generally to all class actions whereas the ADTPA’s class-action prohibition is incorporated into the same statutory provision allowing consumers to bring suit. See Ala. Code § 8-19-10(a) & (f). Indeed, the Lisk district court cited twelve district court opinions concluding that “if the [class action prohibition was] found within the text of a state statute that confers a substantive right and applies only to cases brought under the statute, it is so intertwined with a state’s substantive remedies that applying Rule 23 in its stead would abridge, enlarge, or modify a substantive state-created right.” 993 F. Supp. 2d 1376, 1383-84 (N.D. Ala. 2014). The Eleventh Circuit addressed this concern, saying “[s]urely the New York legislature could not change the Shady Grove holding simply by reenacting the same provision as part of the [statute creating the substantive claim].” The Court then concluded that the substantive rule of decision was whether Lumber One had violated the ADTPA. This substantive obligation, it said, would not be abridged, enlarged, or modified by allowing a class action to proceed under Rule 23.

If Lisk is allowed to stand, federal courts around the country can expect class action filings to increase as plaintiffs look to sidestep state-law class-action prohibitions. Ironically, these plaintiffs may find it easier to get into federal court under CAFA, a statute that Congress enacted to rein in class action litigation.

Balch & Bingham LLP has substantial experience defending class actions in both state and federal court. For more information, please contact Greg Cook at gcook@balch.com or (205) 226-3426.

In Walker v. Financial Recovery Services, Inc., No. 14-13769 (11th Cir. March 27, 2015), the court addressed the impact of an offer of judgment under Federal Rule of Civil Procedure 68 on both a putative class and its named representative’s complaint. In the district court below, Financial Recovery Services, Inc. (“FRS”)  successfully dismissed Walker’s complaint as moot by  making an offer of judgment which “provide[d] Walker with complete [statutory] relief.” Id. at 3.  In reversing the lower court, the court in Walker relied on and declined to “reconsider[] or modifv[]” Stein v. Buccaneers Ltd. P’ship, a recent Eleventh Circuit Court of Appeals case that Walker found controlling. Id.

In Stein, the plaintiffs filed a proposed class action alleging that the defendant violated the Telephone Consumer Protection Act when it sent unsolicited faxes advertising tickets to NFL games. See Stein v. Buccaneers Ltd. P’ship, 772 F.3d 698, 700–01 (11th Cir. 2014). Prior to the plaintiffs filing a class-certification motion, the defendant made offers of judgment under Rule 68 for full statutory damages plus reasonable attorneys’ fees to all named plaintiffs. See id. Two days later the defendant moved to dismiss the case for lack of subject matter jurisdiction arguing that the unaccepted Rule 68 offers rendered the case moot. See id. at 701. Unconvinced, the court held alternatively that (1) an unaccepted Rule 68 offer of judgment does not moot a named plaintiff’s complaint, and (2) even if it did, “a Rule 68 offer of full relief to the named plaintiff does not moot a class action, even if the offer precedes a class-certification motion, so long as the named plaintiff has not failed to diligently pursue class certification.” Id. at 707.  

In Walker, FRS attempted to distinguish Stein by arguing that, unlike Stein where the offers “were deemed revoked if not accepted and the defendant did not request that the district court enter judgment on the terms of its offers, FRS continued to stand behind its offer and requested that the district court provide Walker with complete relief by entering judgment.” Walker, No. 14-13769, at 2–3. However, the court was “not persuaded that these factual differences should alter [its] analysis.” Id. at 3. The court continued, stating, “[e]ven if there were a persuasive way to distinguish the facts of this case from Stein’s first alternative holding, Stein’s second alternative holding would still bind us.” Id.

Stein and Walker make clear that absent an en banc decision overruling Stein or Supreme Court intervention, in the Eleventh Circuit, an offer of judgment providing complete relief to a named plaintiff will not moot that plaintiff’s complaint, nor will it defeat a class action, “even if the offer preceded a class-certification motion, so long as the named plaintiff has not failed to diligently pursue class certification.” Stein, 772 F.3d at 707.