Northwest Business Litigation

US Supreme Court: Class certification inquiry may involve a ruling on the merits

Courts considering motions to certify a class action can't shy away from considering the merits, if doing so is necessary to determine whether the class meets the requirements of FRCP 23(a).  That was the conclusion reached last week by the US Supreme Court in Comcast Corp. v. Behrend. 

In Comcast, the plaintiffs sought to certify a class of Comcast cable television customers in the Philadelphia area.  Plaintiffs claimed an antitrust violation arising out of Comcast's acquisition of competitor cable providers.  In order to certify a class action under FRCP 23(a), plaintiffs were required to show, among other things,that damages were measurable on a classwide basis through a common methodology.  In agreeing to certify the class, the Third Circuit Court of Appeals refused to entertain certain of defendant's arguments about the plaintiffs' damages model because those arguments had a bearing on the merits of plaintiffs' claim.

Justice Scalia, writing for the majority, stated that the inability of plaintiff's expert to tie the above-market prices to the alleged antitrust violations made the case improper for class certification.  The Third Circuit's refusal to address that issue because it touched on the merits was improper.

Ninth Circuit rejects nationwide class action for false advertising

The Ninth Circuit continues to grapple with the standards for certifying class actions following the U.S. Supreme Court decision in Wal-Mart v. Dukes, 131 S. Ct. 2541 (2011). Last week, a divided panel of the Ninth Circuit refused to certify a nationwide class action on behalf of individuals who bought or leased Acura RL automobiles equipped with a Collision Mitigation Braking System.

In Mazza v. American Honda Motor Company, Inc., plaintiffs claimed that Honda misrepresented and concealed material information about the braking system in the marketing and sale of Acura RL vehicles. Plaintiffs made claims under California’s unfair competition and false advertising laws. While the District Court found common issues of law and fact sufficient to certify a nationwide class, the Ninth Circuit reversed. Judge Ronald M. Gould, writing for the majority, focused on the admonition in Wal-Mart that commonality means that an issue central to each class member’s claim is subject to resolution “in one stroke.”

Material differences in the consumer protection laws of the states in which class members reside, and those states’ interests in having their own laws apply, caused the court to conclude that common issues of law do not predominate. Further, the small scale of the advertising campaign for the braking system did not support a presumption that all purchasers and lessors relied on the alleged false advertising. The proposed class, as defined, would almost certainly include members who were not exposed to the allegedly misleading advertising material, and as a result common issues of fact would not predominate.

Judge Dorothy W. Nelson issued a strong dissent. She stated first that, because the allegations of false advertising are based on omissions rather than affirmative statements, it is appropriate to impute reliance to the class. Second, the differences among the consumer protection statutes of the states in which class members reside are not material and should not block a class action. Finally, because American Honda and its advertising agency are headquartered in California, that state’s interest in deterring false advertising makes it appropriate to apply California law. Judge Nelson decried the seemingly insurmountable hurdles to a nationwide class action by consumers subjected to false advertising: “If the harm to individual consumers is small enough to create a disincentive to individual litigation, and if a nationwide class action is not a potential consequence, corporations can choose increased revenues over the consumer with impunity.”

Grocers' agreement to resist strike remains subject to antitrust scrutiny

Last week the Ninth Circuit, following a rehearing en banc, declined to exempt from antitrust scrutiny an agreement among grocers in Southern California that was designed to minimize the economic impact of a strike.  In State of California v. Safeway, California sued a group of grocery stores for entering into a profit-pooling and market-allocation agreement as an economic weapon to advance the grocers' position in a dispute with their unionized employees.

While the U.S. Supreme Court has recognized an exemption from the antitrust laws for certain agreements among competitors relating to labor negotiations, the Ninth Circuit en banc panel was unwilling to apply that blanket exemption to the grocers' agreement.  Yet although the agreement is subject to the antitrust laws, the panel declined to find antitrust liability on the record before it.  According to Judge Gould writing for majority, the limited duration of the agreement and the presence of many other competitors in the market make the agreement inappropriate for per se or "quick look" treatment by the court.  Instead, the district court must conduct a rule of reason analysis to determine whether the anticompetitive effects of the grocers' agreement outweigh its procompetitive effects.

See our earlier coverage of the case here and here.

Ninth Circuit to review en banc grocery antitrust case

The Ninth Circuit this week agreed to review en banc a case in which a Mutual Strike Assistance Agreement entered into by four supermarket chains was held to be a violation of antitrust law.  In an opinion issued last year, a three-judge panel of the court directed the entry of summary judgment against the supermarkets, which had agreed to redistribute and share profits during a strike by unionized employees.

See our earlier coverage of the case here. 

Grocers' plan to share profits during strike violates antitrust law, Ninth Circuit holds

When faced with a strike by their unionized employees in 2003, four supermarket chains in Southern California entered into a Mutual Strike Assistance Agreement.  The chains agreed that they would lock out all union employees in the event of a strike against one of them, and that they would redistribute and share profits during the course of the strike. 

While the lock-out agreement is a traditional tactic in labor disputes, the profit-sharing agreement drew the attention of the State of California, which sued the supermarkets alleging an unlawful agreement in restraint of trade, in violation of Section 1 of the Sherman Act.  In California v. Safeway, Inc., the Ninth Circuit Court of Appeals last week held that the agreement was unlawful, and directed that summary judgment be entered in favor of the state. 

The supermarkets argued that the profit-sharing arrangement was justified because it was designed to end once the labor dispute was resolved, and did not decrease the number of competitors in the market.  Further, they argued, it served the pro-competitive purpose of resisting an increase in labor costs by allowing the supermarkets to fend off union demands.  Finally, they contended that the agreement was subject to an exemption from the antitrust laws for the purpose of engaging in labor negotiations. 

The Ninth Circuit rejected all of those arguments, holding "to exempt defendants' anticompetitive agreement from the antitrust laws simply because it was entered into in order to help employers prevail in a labor dispute would be contrary to the fundamental priciples of both labor and antitrust law, as well as the actions of both Congress and the courts in their efforts to reconcile those two important bodies of national law."

American Needle opinion highlights joint venture risks

Last week's unanimous decision in American Needle, Inc. v. NFL has been hailed as the first win for an antitrust plaintiff in years in the US Supreme Court -- following victories for defendants in cases including most recently Leegin, Twombly, and Weyerhaeuser. It's also a reminder of the dangers present when competitors enter into a joint venture.

At issue in American Needle is National Football League Properties (NFLP), which the 32 NFL teams formed to develop, license and market the teams' names and logos.  A former licensee of NFLP claimed that the agreement among the teams to form NFLP was a violation of Sherman Act Section 1, which prohibits contracts and conspiracies in restraint of trade.  The NFL and its teams argued in response that they are, for purposes of antitrust law, a single entity that cannot conspire with itself.  

The Supreme Court disagreed with the NFL.  The relevant inquiry is whether the alleged joint action is among "separate economic actors pursuing separate economic interests such that the agreement deprives the marketplace of independent centers of decisionmaking, and therefore of diversity of entrepreneurial interests."  The court held that NFLP is the result of concerted action by independent actors and thus is not protected from Section 1 scrutiny.  "Directly relevant to this case, the teams compete in the market for intellectual property.  To a firm making hats, the Saints and the Colts are two potentially competing suppliers of valuable trademarks. . . . Decisions by NFL teams to license their separately owned trademarks collectively and to only one vendor are decisions that deprive the marketplace of independent centers of decisionmaking and therefore of actual or potential competition."

Joint ventures often enhance value to consumers by bringing novel products to market.  But to avoid antitrust problems, joint venturers that are also competitors must ensure that they are not pooling resources simply to avoid competition in the marketplace

U.S. Supreme Court: FAA does not mandate class arbitration

Today the U.S. Supreme Court held that the Federal Arbitration Act (FAA) does not require class arbitration unless the parties' arbitration agreement expressly provides for class arbitration. 

In Stolt-Nielsen, S.A. v. AnimalFeeds Int'l Inc., AnimalFeeds claimed that Stolt-Nielsen violated the antitrust laws by charging supracompetitive prices.  The parties' agreement provided for arbitration of all disputes arising from the contract.  AnimalFeeds initiated an arbitration claim on behalf of a class of purchasers, and Stolt-Nielsen disputed that class arbitration was available under the contract.  While the arbitration clause was silent on the issue of class arbitration, the arbitration panel determined that it was appropriate to proceed with a class arbitration, and the Second Circuit agreed.

The Supreme Court reversed, holding that, because the parties did not expressly agree to arbitration of claims by a class of claimants, class arbitration was not available.  According to Justice Alito, writing for the majority, despite the FAA's policy favoring arbitration of disputes, "a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the parties agreed to do so."

Attorneys not subject to sanctions under the Fair Debt Collection Practices Act

The Ninth Circuit Court of Appeals last week addressed the scope of sanctions for bad faith claims under the Fair Debt Collections Practices Act ("FDCPA").  A California plaintiff brought suit against two companies for violations of the FDCPA.  The plaintiff lost the suit, and the federal district court awarded attorney's fees and costs against the both plaintiff and his lawyers, finding that the lawsuit had been filed in bad faith and for the purpose of harassment as defined by the FDCPA.  The plaintiff's attorneys appealed.

On June 9, the Ninth Circuit issued its opinion in Hyde v. Midland Credit Management, Inc., holding that even if an FDCPA case is brought in bad faith and for the purpose of harassment, attorney's fees and costs cannot be awarded against the plaintiff's attorney under the FDCPA.

While the FDCPA does provide for an award of attorney's fees and costs against an unsuccessful abusive plaintiff, the Ninth Circuit looked at laws the FDCPA is modeled after and determined that Congress did not intend to allow fee awards against an attorney.  The Court reasoned that, had Congress intended to allow direct sanctions against an attorney, it would have explicitly said so.  The Court noted that there are other laws and rules by which courts can penalize attorneys directly.

Ninth Circuit puts Internet domain name registry in dispute

In an opinion issued earlier this month, Ninth Circuit Judge Mary M. Schroeder applied "antitrust statutes drafted in the late 19th century" to reinstate a lawsuit alleging wrongful acts in a very 21st century business:  the registry for ".com" and ".net" Internet domain names.

Plaintiff in Coalition for ICANN Transparency, Inc. v. VeriSign, Inc. alleges that VeriSign, the company that has the exclusive right to administer the registry of domain names, and ICANN, the non-profit oversight body that coordinates the Internet domain name system, prevented competition in the pricing of domain name registration.  While the trial court had dismissed the complaint for failure to state a claim, the Ninth Circuit held that, among other things, plaintiff adequately pleaded conspiracies to set artificially high prices for ".com" domain names and to prevent competitive bidding for the right to register domain names.

U.S. Supreme Court increases pleading burden for plaintiffs

Memo to plaintiffs in federal court:  You'll have to plead facts to support your claim in order to survive a motion to dismiss.  A complaint reciting the elements of a claim and amounting to a series of legal conclusions is no longer adequate.  Earlier this week, the U.S. Supreme Court held in Ashcroft v. Iqbal that Federal Rule of Civil Procedure 8, requiring a "short and plain statement of the claim," "does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions." Instead, legal conclusions must be supported by facts that are plausible - meaning facts that allow the court to draw the reasonable inference that defendant is liable.

While Iqbal garners media attention for addressing immunity from claims of unlawful detention of Muslims after the 9/11 attacks, its interpretation of federal pleading rules will have an impact on all civil litigants for years to come.

Iqbal follows the 2007 U.S. Supreme Court case of Bell Atlantic Corp. v. Twombly, which first stated the more stringent pleading rules.  Twombly was an antitrust case, and at the time it was unclear whether the heightened pleading requirements applied only to antitrust plaintiffs.  Justice Kennedy, writing for the majority in Iqbal, states that Twombly was not so limited, and applies to all civil complaints in federal court.