Northwest Business Litigation

U.S. Supreme Court to choose test for a corporation's "principal place of business"

Among the grounds for subject matter jurisdiction in federal court is diversity jurisdiction, which is available when the plaintiff and defendant are citizens of different states.  A corporation's citizenship is defined as its "principal place of business," and if a corporate defendant's principal place of business is in the state where plaintiff is a citizen, federal court may be unavailable as a forum.  A case currently pending before the U.S. Supreme Court will resolve which of several tests is appropriate for determining a corporation's principal place of business.

On November 10, 2009 the Supreme Court heard oral argument in the case of Hertz Corp. v. Friend.   In that case, the Ninth Circuit had applied the "place of operations" test, rather than the "nerve center," "center of activity," or "totality of the circumstances" tests favored in other circuits.  The court's ruling will be of vital importance to corporations looking to avoid being sued in state courts, which can be more plaintiff-friendly than federal courts.

Ninth Circuit approves preemptive motion to deny class certification

In a case of first impression, the Ninth Circuit ruled earlier this month in Vinole v. Countrywide Home Loans, Inc., CV-07-00127-DMS, that a defendant may file a preemptive motion to deny class certification before plaintiffs file a motion to certify a class.  While it is standard practice for the putative class representative to bring the issue of class certification before the court, nothing in FRCP 23 requires the defendant to wait for such a motion before asking the court to deny certification. 

In Vinole, the plaintiffs filed a class action complaint alleging that defendant misclassified a group of employees as “exempt,” and, consequently, did not pay all overtime and related wages owed to them.  Before the pretrial motion deadline and discovery cutoff, and before plaintiffs filed a motion for class certification, defendant filed a motion to deny class certification on the ground that individual issues predominated over common issues.  See FRCP 23(b)(3).

Plaintiffs claimed that it was improper to file a preemptive motion to deny class certification at that stage in the litigation.  The district court rejected the contention and denied class certification. 

Plaintiffs then appealed to the Ninth Circuit, claiming the district court abused its discretion in considering the motion.  The appellate court examined Rule 23(c)(1)(A) concerning the timing of a class certification determination, and found that nothing there gives plaintiffs the privilege to move for class certification before the defendant moves to deny certification.  The court also distinguished cases in which a motion to deny class certification was found to be premature because plaintiffs lacked sufficient time to complete discovery.  Here the plaintiffs had conducted discovery for 10 months and advised the district court that no more discovery would occur before their filing of a motion for class certification. 

The Ninth Circuit ruled that a defendant’s preemptive motion to deny class certification may be filed before the discovery and pretrial motion deadlines absent a showing of procedural prejudice to the plaintiffs. 

The court also affirmed the district court’s denial of class certification on the grounds that individual issues concerning the time individual plaintiffs spend in or out of the office and how each plaintiff performed his or her job predominated over common issues.

Ninth Circuit orders rehearing of biggest-ever class action certification

The Ninth Circuit last week ordered en banc rehearing of the landmark class certification in Dukes v. Wal-Mart.  The order comes two years after a three-judge panel approved the largest class in history, consisting of 1.5 million current and former female employees of Wal-Mart.  The lead plaintiffs claim that Wal-Mart has discriminated against women in making promotions.  A 15-judge panel will now decide whether the district court properly certified the class.  See our earlier coverage of the case here.

Oregon Supreme Court denies smoker class action for "medical monitoring"

In a unanimous opinion with one concurrence, the Oregon Supreme Court yesterday upheld the dismissal of a large class action of smokers who sought injunctive relief for "medical monitoring, smoking cessation and education."  Plaintiffs are some 400,000 smokers who have no present symptoms, but sought to have a group of tobacco companies fund a program to cover the cost of CT scans and other diagnostic tests to identify future harm from smoking.  Even though they lack of any present injury, plaintiffs contended they could maintain an action for such relief based on the defendant tobacco companies' negligence.   The Court disagreed, holding that a common law negligence claim requires a present physical injury:  "The complaint does not allege that plaintiff has suffered any present physical harm as a result of defendants' conduct. The complaint alleges only that plaintiff has suffered a 'significantly increased risk of developing lung cancer' in the future."  The Court continued:

"Oregon law has long recognized that the fact that a defendant's negligence poses a threat of future physical harm is not sufficient, standing alone, to constitute an actionable injury. As this court has explained, 'the threat of future harm, by itself, is insufficient as an allegation of damage in the context of a negligence claim.' Zehr, 318 Or at 656; see also Bollam v. Fireman's Fund Ins. Co., 302 Or 343, 347, 730 P2d 542 (1986) (holding that "'[t]he threat of future harm, not yet realized, is not enough'") (quoting W. Page Keeton, Prosser & Keeton on Torts 165 (5th ed 1984)). As Prosser explains,

Since the action for negligence developed chiefly out of the old form of action on the case, it retained the rule of that action, that proof of damage was an essential part of the plaintiff's case. Nominal damages, to vindicate a technical right, cannot be recovered in a negligence action, where no actual loss has occurred. The threat of future harm, not yet realized, is not enough. Negligent conduct in itself is not such an interference with the interests of the world at large that there is any right to complain of it, or to be free from it, except in the case of some individual whose interests have suffered.

Keeton, Prosser & Keeton on Torts at 165 (footnotes omitted). Accordingly, a plaintiff's cause of action does not accrue, and the statute of limitations on that cause of action does not begin to run, until the plaintiff has suffered an "'actual loss.'" Bollam, 302 Or at 347 (quoting Prosser and Keeton on Torts at 165)."

You can find the full opinion here.

Class action by blind users of Target Corp's website is allowed to proceed

In a potential blow to companies doing business on the Internet, a federal judge in California certified a class action on behalf of blind users of the discount retailer Target Corp's website.  The lawsuit alleges that Target's site is inaccessible to the blind, in violation of anti-discrimination laws.  A copy of yesterday's Order can be found here.

Defective notice blocks securities class action settlement

The Ninth Circuit today tossed out a $35 million securities class action settlement involving Veritas Software Corporation over a defective notice to class members.  In Petrone v. Malone, the court addressed a novel issue under the Private Securities Litigation Reform Act:  how must the notice of settlement describe the damages each member of the class will receive? 
Under the PSLRA, the notice must state the amount of settlement funds to be distributed on a per-share basis.  The notice at issue in Petrone calculated the per-share recovery with the unstated assumption that only 43% of the class members would file a claim for damages.  By failing to calculate the recovery based on all of the shares held by the class, the notice overstated the potential per-share recovery and violated the PSLRA. 

See our other coverage of securities fraud and the PSLRA here and here.

Oregon Court of Appeals allows private cause of action for rest break violations

On Wednesday the Oregon Court of Appeals held that employees may sue employers who fail to provide a paid rest period as required by state law.  BOLI regulations mandate a ten-minute paid rest period for each four-hour segment worked.   The court agreed with the class action plaintiffs' argument that employees are entitled to four hours' pay for every three hours and fifty minutes of work, and that for each rest period missed, employers owe employees an additional ten minutes' pay.  See the court's opinion in Gafur v. Legacy Good Samaritan Hospital here.

This result is contrary to a 1999 ruling from Oregon's federal district court -- Talarico v. Hoffman Structures, Inc., 1999 U.S. Dist. LEXIS 20909 -- which held that, while a failure to provide paid breaks may result in administrative sanctions, it does not create a private right of action for lost wages.   

In addition to wages for each missed break, an employee will presumably be entitled to penalty wages for failure to pay all wages due pursuant to ORS 653.055 and, if the employee's employment has ended, an additional final pay penalty under ORS 652.150.  The Court of Appeals decision will undoubtedly result in a significant increase in class actions for missed break periods.

Supreme Court denies remedy to plaintiffs in Fair Credit Reporting Act case from Oregon

The third time was not the charm for local plaintiffs in the U.S. Supreme Court this term.  Today the court dismissed Fair Credit Reporting Act claims in a case that originated in U.S. District Court in Oregon.  This was the third case from Oregon that the court decided this term (the other two are described here), and the third in which the plaintiffs were denied the relief they sought.   

In Safeco v. Burr and GEICO v. Edo, the defendant auto insurers charged plaintiffs higher premiums due to their credit scores.  Plaintiffs claimed that, in violation of FCRA, the insurers failed to give them notice of this "adverse action."  Plaintiffs sought damages for a willful violation of FCRA.  The court held that, in the case of GEICO, plaintiff's premiums were not in fact affected by her credit score and there was no duty to give FCRA notice.  Safeco, in contrast, did increase premiums based on plaintiffs' credit scores.  But its failure to give notice of the adverse action was based on a reasonable interpretation of FCRA and therefore was not a "willful" violation of the law. 

See earlier coverage of this case in the Oregon Business Litigation Blog here.

Dissent highlights weaknesses in Wal-Mart class action

Last week the Ninth Circuit affirmed the creation of the largest class action in history:  1.5 million current and former female Wal-Mart employees claiming discrimination in promotions.  The ruling was hailed as a landmark, but it may be only a temporary one.  A strong dissent by Andrew Kleinfeld, one of the judges on the three-judge panel, raises questions about whether majority's ruling will survive later review, by either an en banc panel of the Ninth Circuit or the Supreme Court.  Judge Kleinfeld dissented on several grounds, including these:

1.  To proceed as a class action, a case must present issues of fact or law common to the class.  Judge Kleinfeld writes that the only issue shared by the huge class is whether Wal-Mart's promotion criteria are "excessively subjective."  He contends that this is too slim a reed on which to hang the case; the existence of subjective criteria is not the same as employment discrimination. 

2.  Plaintiffs claim that injunctive or declaratory relief is an appropriate remedy for the class as a whole, but in fact many class members no longer work for Wal-Mart and cannot benefit from an injunction requiring, for example, the adoption of objective criteria for promotions.

3.  The district court order requires that the jury, if it rules in favor of plaintiffs, may set a lump sum amount of punitive damages.  A special master would then devise a formula to distribute the funds to individual plaintiffs, without any adjudication as to whether each individual plaintiff was in fact injured by discrimination.  Judge Kleinfeld contends that this methodology violates Wal-Mart's due process rights.

Given the trend within the Ninth Circuit of deciding more cases en banc -- which means a rehearing by a 15-judge panel -- last week's decision may not be the final word from the Ninth Circuit.

See coverage of the Dukes v. Wal-Mart ruling here, here, here, and here.

Class action prohibition in arbitration agreements: Be careful what you ask for

For years now, courts have enforced mandatory arbitration provisions in consumer and employment agreements.  The usual mandatory arbitration provision in a consumer or employment contract provides that all disputes of any kind shall be decided not in court, but by an arbitrator.  Early on, it was assumed that mandatory arbitration could only resolve individual suits.  More recently, however, plaintiffs have pursued class actions in arbitration, and many arbitration services today provide for class action arbitrations.  As a result, some companies and employers have responded by including within the arbitration clause a prohibition on class actions. 

According to plaintiffs' lawyers, combining the mandatory arbitral forum for dispute resolution with a prohibition on class actions, effectively eliminates the class action mechanism for mass resolution of, often, small-value claims that individual claimants would not otherwise pursue.  Some courts are beginning to agree, finding that a prohibition on class actions is "unconscionable" and, therefore, not enforceable.  See Riensche v. Cingular Wireless in which a Washington federal district court determined that the prohibition against class actions was "unconscionable" and denied the defendant's motion to compel arbitration.  An Oregon Court of Appeals case decided today similarly held that a prohibition on class actions, in part, rendered the otherwise mandatory arbitration agreement unenforceable.  See Vasquez-Lopez v. Beneficial Oregon, Inc. 

In both of these cases, the courts threw out the entire arbitration agreement, and the plaintiffs were allowed to litigate in court, an outcome the defendant had sought to avoid with the arbitration agreement in the first instance.  In other cases, the courts have struck the specific prohibition on  class actions, but otherwise upheld the arbitration agreement.  This leaves the defendant in the untenable position of facing a class action with a single arbitrator without the many procedural protections afforded to defendants in civil court. 

While it may be tempting to push the limits of mandatory arbitration as a way to rein in costly and protracted litigation, one should proceed with caution and seek competent counsel in defining the parameters of such agreements.