Global Fitness Not in Shape to Pay Fees and Expenses, Held in Contempt for Failing to Comply with Final Approval Order

Last month, Global Fitness Holdings LLC and its four managers were held in civil contempt for failure to comply with a final order approving a class action settlement. Gascho v. Global Fitness Holdings, LLC, S.D. Ohio No. 2:11-cv-436 (Aug. 8, 2017). Global Fitness entered into a class action settlement resolving claims that it had engaged in deceptive billing practices. As part of the settlement, Global Fitness agreed to pay $2.39 million in attorneys’ fees and to cover the administrator’s expenses. Just two days prior to the payment deadline, however, Global Fitness informed the court that it could not make those payments because it no longer had sufficient funds. The plaintiffs then sought and obtained the civil contempt order.

At the heart of the court’s contempt decision is the principle that, when the terms of a settlement agreement are approved and incorporated into a court order, a breach of the agreement is also a violation of the court order. Most settlement agreements are not approved by or incorporated into a court order; thus a breach is typically limited to the parties to the settlement contract. But class action settlements are different; they must be approved by the court under Rule 23(e). And final approval of the settlement agreement had been entered in Gaucho. Continue Reading

Seventh Circuit Rejects Subway Footlong Class Settlement as a “Racket”

A recent Seventh Circuit decision pushed back on a proposed settlement of the Subway “footlong sub” class action, finding the proposed settlement a “racket” designed to benefit class counsel without any benefit to the class. The story begins in 2013 when a Facebook post showing a Subway footlong sandwich measuring just 11 inches went viral. Shortly thereafter, the plaintiffs’ attorneys filed nine class actions seeking damages and injunctive relief against Subway.

While the plaintiffs may have thought their class claims had merit, initial discovery demonstrated their case did not measure up. Subway showed that it used standard, equally weighted dough sticks for its footlong sandwiches, thus ensuring that each customer received the same quantity of food. Moreover, discovery confirmed that the “overwhelming majority” of sandwiches were indeed 12 inches long. Certification – and injury – under Rule 23(b)(3) therefore proved impossible: Only mini-trials could determine which customers received undersize sandwiches.

Nevertheless, the plaintiffs’ lawyers persisted, jettisoning their Rule 23(b)(3) damages classes and seeking to certify an injunction-only class under Rule 23(b)(2). Following mediation, Subway agreed to commit to a menu of quality control measures, and the plaintiffs’ attorneys received $520,000 in fees in the proposed class settlement.  Continue Reading

Ninth Circuit again finds Article III standing in Spokeo: The injury was particularized in round one, and it’s concrete in round two.

The Spokeo saga continues. As our sister blog, the Data Privacy Monitor, reported here, the United States Supreme Court’s May 2016 decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1550 (2016) (Spokeo II) vacated and remanded a Ninth Circuit decision (Spokeo I) for failure to consider the concreteness prong of the “concrete and particularized” test for constitutional Article III standing. Other courts have since grappled with Spokeo II’s impact on standing analysis, for example, as reported here. But on Aug. 15, 2017, on remand from the Supreme Court, the Ninth Circuit applied the Spokeo II framework to the case and ultimately came out the same way – finding again that the plaintiff has standing. Robins v. Spokeo, Inc., No. 11-56843, 2017 WL 3480695 (9th Cir. Aug. 15, 2017) (Spokeo III).

As those familiar will recall, Spokeo operates a website that searches various sources to compile profiles on individuals that contain details about the person’s life. The plaintiff sued Spokeo in a putative class action claiming that a consumer profile Spokeo created and published on him contained inaccurate information on his age, marital status, wealth, education level and profession. His suit was based on the Fair Credit Reporting Act (FCRA), which imposes certain procedural requirements on consumer reporting agencies and gives affected consumers a right to sue for statutory damages (otherwise viewed as statutory penalties).

On remand from the Supreme Court, the Ninth Circuit set out to analyze whether the plaintiff’s alleged statutory violation was a sufficiently concrete injury to confer standing. The court concluded that it was. Continue Reading

Sixth Circuit Requires Actual Economic Injury for Price Comparison Class Actions

Earlier this week, the Sixth Circuit flatly rejected a bid by a consumer to recover damages allegedly caused by’s advertised price comparisons (opinion available here). The online marketplace uses struck-through manufacturers’ suggested retail prices next to products’ purchase prices, which plaintiff Gerboc alleged are misleading and caused him injury when he purchased a pair of $27 speakers that appeared to have been marked down from $300.

Affirming in full the Northern District of Ohio’s dismissal, the Sixth Circuit emphasized that Gerboc suffered no injury (as required by each of his claims for unjust enrichment, breach of the Ohio Consumer Sales Practices Act (OCSPA), and fraud) because the product he purchased and received was exactly what he bargained for: a pair of speakers at a price of $27. He did not allege that the speakers were defective or of lower quality than advertised, or that he was in any way unhappy with the speakers themselves. And even if had never sold the speakers for $300 and the price comparison was determined to be misleading, Gerboc could litigate that issue only as an individual OCSPA claim where noneconomic damages are available; OCSPA class actions allow recovery only of economic damages, which the court determined the plaintiff could not establish. The court stated:

[Gerboc] got what he paid for: a $27 item that was offered as a $27 item and that works like a $27 item. A 90% discount from $27 was not part of the deal; no line struck through the speakers’ purchase price, and none of the various website images that Gerboc has attached to his filings mention such a discount. At most, he bargained for the right to have the speakers for 90% less than $300, not the right to have them for that much less than what (even he agrees) they were actually worth. Continue Reading

Carter v. The Dial Corporation: The First Circuit Washes Its Hands of Clarifying Ascertainability in Class Actions

We previously wrote about the split among the circuit courts of appeal over the ascertainability requirement for class certification and whether self-identifying consumer affidavits—e.g., an affidavit in which a consumer attests that he or she is a class member and suffered injury—can satisfy that requirement.

Recently, the First Circuit denied, over a strong dissent, a Rule 23(f) petition to appeal a district court’s order certifying a class on the grounds that the plaintiffs could demonstrate ascertainability through consumer affidavits. Carter v. The Dial Corporation, No. 17-8009, 2017 WL 3225164 (1st Cir. July 31, 2017). In Carter, the district court certified a class of consumers from eight states who purchased antibacterial soap from 2001 to the present. The defendants lacked any records to identify class members, and class members were unlikely to possess records demonstrating that they purchased the product. Nevertheless, the district court, relying on the First Circuit’s recent decision In re Nexium Antitrust Litig., 777 F.3d 9 (1st Cir. 2015), held that the plaintiffs satisfied ascertainability because class members could submit affidavits or declarations to establish that they purchased the product during the 16-year class period.

Judge Kayatta, who also dissented in Nexium, dissented from the denial of the Rule 23(f) petition. Kayatta stated that the Nexium majority held that plaintiffs could establish classwide injury through affidavits from each class member stating that he or she was not a brand loyalist, i.e., would not have purchased a cheaper generic version of the drug if available—an approach suggested by neither party. 2017 WL 3225164 at *1 (citing Nexium, 777 F.3d at 20). Kayatta observed there was no record in either Nexium or Carter to evaluate whether the defendant would have had a meaningful opportunity to refute the proposed affidavits. Kayatta noted that “[s]ooner or later, this court will have to wrestle with the issues raised by the district court’s approach” on a full record and briefing. 2017 WL 3225164, at *1.

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Game Over: Supreme Court Unanimously Rejects Xbox Plaintiffs’ Attempt to Create Appellate Review

In April, we reported on the oral argument in Microsoft Corp. v. Baker, a Supreme Court case addressing whether putative class members may obtain appellate review of orders denying class certification by voluntarily dismissing their individual claims with prejudice. Recently, the Supreme Court gave its unanimous answer: no. See Microsoft Corp. v. Baker, 137 S. Ct. 1702, 1707 (2017). The Court’s ruling ends a long-standing practice that class plaintiffs used as an end run around procedural restraints to create appellate review, and affirms the use of a Federal Rule of Civil Procedure 23 (Rule 23) petition as the sole vehicle to obtain interlocutory review of an order denying (or granting) class certification.

Under a 1978 Supreme Court decision, orders denying class certification are interlocutory and not appealable as of right. See Coopers & Lybrand v. Livesay, 437 U.S. 463, 477 (1978). Twenty years later, Rule 23 was amended with paragraph (f), which gives appellate courts discretion to review, upon petition, orders granting or denying class certification. But if their Rule 23(f) petition is denied, putative class members would sometimes voluntarily dismiss their claims with prejudice to artificially create a final order from which to appeal. This is what happened in Baker.

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Revisiting the Enforceability of Class Action Waivers in Consumer Financial Contracts

The Consumer Financial Protection Bureau (CFPB) has published the final Arbitration Agreements Rule, which impacts the way claims involving consumer financial products and services are handled in the future, including a prohibition against providers of such products and services from relying on a predispute arbitration agreement that includes an arbitration clause barring a consumer from filing or participating in a class action. BakerHostetler’s Financial Services Team just released an Executive Alert and blog post regarding this development.  The blog post can be found here.

2016-17 Securities Class Actions by the Numbers

2016 was an unprecedented year in securities class actions filings.

According to a report published by NERA Economic Consulting, a record 300 securities class action complaints were filed in 2016 in federal courts, a 32 percent increase from 2015. This number represents the highest pace of filings since the 2000 dot-com crash.

The median time to file – the time between the alleged class period and filing date – remained near record lows at 13 days, up only two days from the 2015 time frame. The median class period length increased from the 10-year low of under a year in 2015 to more than 1.26 years in 2016.  In other words, allegedly wrongful conduct is being challenged quickly and over a longer period. Continue Reading

The D.C. Circuit Denies Motion to Stay Issuance of Mandate in Yaakov v. FCC Opt-Out Notification Case, but Petition for Certiorari Looms

On March 31, 2017, the D.C. Circuit entered its ruling in the closely watched Yaakov v. FCC case, holding that the Federal Communications Commission (FCC) had exceeded the authority given to it by Congress when it promulgated a rule requiring that opt-out notices be included in fax advertisements sent with prior permission of the recipient. See Many have speculated that the D.C. Circuit’s ruling will be the final word on this issue, especially given a statement issued by the chairman of the FCC, Ajit Pai, on the same day as the Yaakov opinion, indicating that the decision “highlight[ed] the importance of the FCC adhering to the rule of law” and stating that “[g]oing forward, the Commission will strive to follow the law and exercise on the authority that [it] has been granted . . . by Congress.” However, a handful of intervenors and petitioners have continued to challenge the ruling. Continue Reading

Eighth Circuit Provides Important Guidance in Class Settlement Approvals

The Eight Circuit provided some useful guidance for district courts and practitioners in obtaining and reviewing final approval of class settlements in its July 5, 2017, decision in Keil v. Lopez. In that case, the court affirmed approval of a consumer class action settlement by Blue Buffalo Co. Ltd. involving ingredients of pet food. Here are the four key takeaways from this decision:

  • Explain why the settlement is fair, reasonable and adequate.

The Eight Circuit had adopted a four-part test, in Van Horn v. Trickey, 840 F.2d 604, 607 (1988), to determine whether a settlement is fair, reasonable and adequate. The court of appeals found fault with the district court’s lack of analysis of this test as “conclusions, not reasons.” However, because of the strength of the record, the court found sufficient facts to approve the settlement under the Van Horn test. The court of appeals distinguished review of a class settlement approval from a disputed class certification decision for contested class certification – the latter of which requires a statement of reasons for satisfying Rule 23 to meet the rigorous analysis standard – implying that an inadequate explanation alone may justify remand of a class certification decision. Continue Reading