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.

Oregon Court of Appeals affirms 200-1 ratio of puntive damages to compensatory damages

The Oregon Court of Appeals last week affirmed a jury award of $100,000 in punitive damages in a case where compensatory damages were $500.  The Court applied the standards set forth by the Oregon Supreme Court last year in Hamlin v. Hampton Lumber Mills, Inc., finding that the defendant engaged in sufficiently reprehensible behavior to justify punitive damages 200 times compensatory damages.

In Lithia Medford LM, Inc. v. Yovan, defendant purchased an automobile from plaintiff, and soon thereafter found a discrepancy between the mileage on the odometer and the actual mileage.  Following an extended dispute over how to resolve the issue, plaintiff sued to rescind the sale due to mutual mistake.  Defendant counterclaimed for violation of the Oregon Unlawful Debt Collections Practices Act.  The trial court reduced the jury's award of $100,000 in punitive damages to $2,000, to bring it in line with the modest amount of compensatory damages. 

Hearing the case en banc, the Court of Appeals split on whether the trial court properly reduced the punitives award to a single-digit multiple of the compensatory damages. Judge Nakamoto, writing for the majority, stated that the consumer had proven that the car dealer "repeatedly used deceptive and abusive tactics against a financially vulnerable consumer to enhance its financial interests."  The court also pointed to the dealer's "arrogant presentation to the jury of its position that it had done nothing wrong" to justify retaining the jury's punitive damages award.  These facts supported the 200-1 ratio of punitive to compensatory damages.

Judge Wollheim, writing for the minority, advocated for reducing the punitives to $25,000, which is comparable to the statutory penalties available under the Unlawful Debt Collections Practices Act.

See our discussion of Hamlin, and its analysis of punitive damages in cases in which compensatory damages are small, here.

Ninth Circuit enforces sham affidavit rule, rejecting explanation for recovered memory

Even famed test pilot Chuck Yeager can't avoid the sham affidavit rule.  Last month the Ninth Circuit affirmed a district court judge's decision to disregard a declaration that Yeager submitted in opposition to a summary judgment motion, on the ground that it contradicted his earlier deposition testimony.

In Yeager v. Bowlin, Yeager filed suit in the Eastern District of California against sellers of aviation-related memorabilia, claiming, among other things, violations of the Lanham Act and California's common law right to privacy.  Yeager -- who gained fame when he was featured in the book and movie The Right Stuff -- was deposed in connection with the lawsuit and reportedly remembered "almost nothing" about events central to the case.  He was unable to recall answers to approximately 185 questions.  Yet in response to defendants' summary judgment motion, he submitted a declaration in which he recalled the same events "with perfect clarity." 

The sham affidavit rule provides that a party cannot create an issue of fact and avoid summary judgment by offering an affidavit contradicting his prior deposition testimony.  Yeager argued that the declaration was not a sham because it did not contradict his deposition testimony, but merely showed that he had later "refreshed his recollection" by reviewing documents. 

The Ninth Circuit held that a declaration may be rejected as sham when it contains facts that the declarant previously testifed he could not remember.  While courts should not make credibility determinations when granting or denying summary judgment, in this case the disparity between the declaration and the deposition was "so extreme" that no juror would believe the explanation provided for the later recovery of memory.

Ninth Circuit overrules longstanding precedent, allows appeal of dismissed claims not realleged in an amended complaint

Buried in a lengthy Ninth Circuit opinion about a controversial Arizona sheriff is a procedural nugget of interest to federal court litigants:  Failure to reallege a dismissed claim in an amended complaint no longer constitutes a waiver of the right to appeal the dismissal of that claim. 

In Lacey v. Maricopa County, journalists asserted civil rights claims against Sheriff Joe Arpaio and others, claiming retaliation in violation of the First Amendment, false arrest, and selective prosecution.  An en banc panel of the Ninth Circuit last month denied defendants' motions to dismiss and determined that the claims can proceed against Arpaio and two county prosecutors.

While none of the parties briefed the issue, the court sua sponte addressed whether plaintiffs had waived their right to appeal the dismissal of claims against one of the prosecutors by failing to name him as a defendant in an amended complaint.  The court's longstanding rule, which it called the Forsyth rule, is that a plaintiff waives all claims alleged in a dismissed complaint which are not realleged in an amended complaint.  Criticized as harsh and overly formalistic, the rule has been rejected by other circuits. 

The court disclaimed the Forsyth rule and held that "for claims dismissed with prejudice and without leave to amend, we will not require that they be repled in a subsequent amended complaint to preserve them for appeal."  As to claims dismissed voluntarily, the court will continue to consider them waived if not repled.

"Nerve center" test for subject matter jurisdiction doesn't impose a heightened pleading standard

When a plaintiff invokes the federal courts' diversity jurisdiction, it must plead both the state of incorporation and the principal place of business of corporate parties.  In 2010, the U.S. Supreme Court in Hertz Corp. v. Friend adopted the "nerve center" test for determining a corporation's principal place of business.  Earlier this month, the Ninth Circuit held in Harris v. Rand that, while Hertz provided a uniform test for determining subject matter jurisdiction, it did not adopt a heightened pleading standard for the allegations supporting diversity jurisdiction.  So it's sufficient for a complaint asserting diversity jurisdiction to state the location of a party's principal place of business; plaintiffs are not required to plead facts showing why that location is the "nerve center."  But the Ninth Circuit warned that, if the allegations of a principal place of business are "implausible," then the District Court has the authority to require more specific pleading.

See our earlier coverage of Hertz here, and our coverage of Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal, the Supreme Court's key opinions regarding federal court pleading standards, here and here.

Failure to allege right to fees in a pleading or motion sinks attorney fee award

The Oregon Court of Appeals last week drew a hard line in enforcing the procedures for recovering attorney fees.  In Anderson v. Dry Cleaning To-Your-Door, Inc., the Court reversed a trial court award of more than $100,000 in attorney fees to plaintiffs who successfully defeated contempt sanctions, on the ground that plaintiffs failed to allege the right to fees in a pleading or motion as required by ORCP 68C(2). 

In Anderson, plaintiffs in a breach of contract case obtained a judgment against defendant which included a non-competition provision.  Defendant later claimed that plaintiffs violated the non-competition portion of the judgment, and initiated contempt proceedings against plaintiffs under ORS 33.055.  The trial court found plaintiffs were not in contempt, and requested that the parties prepare a proposed judgment.  

The trial court entered plaintiffs' proposed form of judgment, in which plaintiffs asserted for the first time an entitlement to recover their fees in the contempt proceeding.  Defendant objected that plaintiffs did not allege a right to attorney fees in a pleading or motion as required by ORCP 68C(2), but the trial court nonetheless awarded the requested fees in the amount of $115,980. 

On appeal, the Court of Appeals held that plaintiffs could not avoid the obligation to state in a pleading or motion the facts, statute or rule that entitled them to recover fees.  That obligation exists even though plaintiffs did not initiate the contempt proceedings.  Because plaintiffs did not comply with ORCP 68C(2), the Court reversed the award of fees.

Oregon Court of Appeals clarifies statute of limitations for final paycheck penalty claims

Earlier this month the Oregon Court of Appeals ruled that a three-year statute of limitations for final paycheck penalty claims begins to run at the end of the 30-day penalty period.

ORS 652.140 specifies the time in which the employer must pay an employee's final wages. ORS 652.150 imposes a daily penalty for late payment of the final wages.  The daily penalty is calculated by multiplying the employee's hourly rate by eight hours.  The daily penalty runs for up to a maximum of 30 days, but stops accruing if either (1) the employer pays the wages or (2) the employee sues for the wages.

The statute of limitations for final paycheck claims has been disputed.  Employers have argued for the application of the one-year statute of limitations established by ORS 12.130.  Plaintiffs have argued for the application of the three-year limitation specified in ORS 12.100(2) with some success at the trial court level.  In Russell v. U.S. Bank, the Oregon Court of Appeals applied the three-year limitations period.  Further, the court held that the three-year period does not begin to run until the total amount of penalty wages owed to the employee has accrued.  In other words, if the final paycheck is not paid for 30 or more days, the claim does not accrue until the 30th day.  The court emphasized that "the key point is that the employee's cause of action . . . is for the penalty wages themselves, not for the earned wages that the employer should have paid the employee on his or her last day of work." 

The employee has a single penalty claim which increases by one day of wages for each day the final wages remain unpaid, up to a maximum of 30 days.  In this case, the employee sued three years and eight days after her termination.  Because her final wages remained owing after 30 days following her termination, the court ruled that her claim was timely filed.

U.S. Supreme Court issues its first major ruling on personal jurisdiction in 20 years

On Monday, a divided U. S. Supreme Court wrestled with the scope of personal jurisdiction in a products liability case.  A concurring opinion signaled that the Court may in the future be open to re-assessing standards for personal jurisdiction in light of, for example, the use of the Internet in commerce. 

J. McIntyre Machinery Ltd. V. Nicastro involved a plaintiff, Nicastro, who was injured  while using a metal-shearing machine manufactured by the defendant, J. McIntyre Machinery, in England.  Nicastro sued J. McIntyre in New Jersey state court.  The New Jersey Supreme Court held that jurisdiction over defendant was appropriate under the “stream-of-commerce” doctrine, because the manufacturer knew or reasonably should have known “that its products are distributed through a nationwide distribution system that might lead to those products being sold in any of the fifty states.”

Justice Kennedy, writing for a plurality of four, reversed the New Jersey Supreme Court, holding that the “stream-of-commerce” doctrine was insufficient to establish jurisdiction.  Justice Kennedy revisited the competing opinions set out in Asahi Metal Industry Co. v. Superior Court of California, 480 U.S. 102 (1987), noting that “[t]he rules and standards for determining when a State does or does not have jurisdiction over an absent party have been unclear because of decades-old questions left open in Asahi Metal.”  Justice Kennedy criticized Justice Brennan’s Asahi Metal concurrence, stating that “a [jurisdictional] rule based on general notions of fairness and foreseeability is inconsistent with the premises of lawful judicial power.”  Instead, “it is the defendant’s actions, not his expectations, that empower a State’s courts to subject him to judgment.”

Justice Kennedy noted that the claim of jurisdiction over J. McIntyre centered on three facts: (1) an independent company agreed to sell machines manufactured by J. McIntyre to buyers in the U.S., (2) J. McIntyre’s employees attended annual conventions in the U.S., but not in New Jersey, to advertise the machines, and (3) no more than four machines ended up in New Jersey.  Justice Kennedy held that these facts were insufficient to establish jurisdiction, because while “[t]hese facts may reveal an intent to serve the U.S. market, . . . they do not show that J. McIntyre purposefully availed itself of the New Jersey market.”

Justice Breyer, joined by Justice Alito, concurred in the judgment.  Justice Breyer found that it was unnecessary to critique the tests of foreseeability and fairness, as Justice Kennedy did, because the case came within existing precedent.  He stated that the Court had never held that “a single isolated sale, even if accompanied by the kind of sales effort indicated here, is sufficient” to establish jurisdiction. Justice Breyer then criticized the “strict rules” set out in the plurality opinion, which “limit[ed] jurisdiction where a defendant does not intend to submit to the power of a sovereign and cannot be said to have targeted the forum.”  Justice Breyer also signaled that he was open to revisiting the issue of personal jurisdiction in the future, noting that “there have been many recent changes in commerce and communication, many of which are not anticipated by our precedents.”  He noted, however, that “this case does not present any of those issues,” and that it was “unwise to announce a rule of broad applicability without full consideration of the modern day consequences.”

As in Asahi Metal, no opinion won the support of a majority of the Justices.  Therefore, the Court’s holding is the narrowest holding that did have the assent of a majority of the Justices, which is likely Justice Breyer’s concurrence.  Justice Ginsberg dissented, joined by Justices Sotomayor and Kagan.

Refusal to testify at debtor exam shouldn't be punished as contempt, Oregon Court of Appeals holds

A witness at a debtor examination was improperly held in contempt for invoking her privilege against self-incrimination, according to a case decided today by the Oregon Court of Appeals.  In Redwine v. Starboard, LLC, plaintiff obtained a judgment against Starboard LLC.  Tamara Sawyer was then ordered to appear for a judgment debtor examination and to produce documents relating to Starboard and its financial affairs.  Starboard and Sawyer were both the target of an ongoing federal criminal investigation.  Sawyer appeared at the exam but refused to answer questions about her connections with Starboard or to produce documents, citing her privilege against self-incrimination.  The trial court determined that she was subject to the sanction of summary contempt.

The Court of Appeals reversed the judgment, holding that, given the criminal investigation, Sawyer was entitled to refuse to answer regarding her connections with Starboard.  This was the case even though the government might have readily obtained information about those connections from other sources. 

Designating agent for service of process doesn't support personal jurisdiction, Ninth Circuit holds

The Ninth Circuit Court of Appeals held last week that designating an in-state agent for service of process does not, by itself, subject a company to general personal jurisdiction in the state.  In King v. American Family Mutual Insurance, defendant was an out-of-state insurance company that contemplated doing business in Montana.  As the first step in obtaining authorization to sell insurance in the state, and as required by state law, the company appointed the Commissioner of Insurance as its agent for service of process.  Before defendant obtained authorization to sell insurance in Montana, and before it did any business or had any other contacts there, it was sued in Montana by policyholders who lived in another state. 

The Ninth Circuit affirmed dismissal of the action, agreeing with the district court that the appointment of an agent for service of process in Montana was not enough to subject defendant to general personal jurisdiction there.  The court reached that conclusion notwithstanding a 1917 U.S. Supreme Court opinion -- Pennsylvania Fire Insurance Co. v. Gold Issue Mining & Milling Co. -- holding that, where state law requires an insurer to appoint an agent for service in the state, that appointment by itself is sufficient for personal jurisdiction of the insurer.