Gibson Dunn Offers Second-Quarter Update on Class Actions

This update provides an overview of key class action developments during the second quarter of 2017 (April through June):

  • Part I explores a significant decision from the Supreme Court concerning defeating novel attempts by plaintiffs to obtain appellate review of denials of class certification.
  • Part II addresses rulings from the Supreme Court and Ninth Circuit regarding the breadth of the American Pipe tolling doctrine for statutes of limitations in class actions.
  • Part III analyzes recent decisions interpreting and applying the Supreme Court’s Article III standing decision in Spokeo, Inc. v. Robins.
  • Part IV discusses noteworthy rulings interpreting the Class Action Fairness Act of 2005 (CAFA).
  • Finally, Part V reviews decisions from the Supreme Court, the Sixth Circuit, and the California Supreme Court concerning the enforceability of arbitration agreements.

I. The Supreme Court Rejects Attempt to Manufacture Appellate Jurisdiction Through a Plaintiff’s “Voluntarily Dismissal” After the Denial of Class Certification

In Microsoft Corp. v. Baker, 137 S. Ct. 1702 (2017), the Supreme Court held that the federal courts of appeals lack jurisdiction under 28 U.S.C. § 1291 to review orders denying class certification (and orders striking class action allegations) after the named plaintiffs have voluntarily dismissed their claims with prejudice.  This is an important victory for class-action defendants, and the Supreme Court’s guidance in Baker will have a continuing impact on petitions for permission to appeal class certification decisions under Rule 23(f).

The plaintiffs in Baker alleged that Microsoft’s Xbox 360 videogame console was “defective” because it caused scratches to game discs.  The district court struck the plaintiffs’ class allegations from the complaint, and the Ninth Circuit denied their petition for permission to appeal that ruling under Rule 23(f).  Then, rather than pursue their individual claims to final judgment, the plaintiffs stipulated to a voluntary dismissal with prejudice in an attempt to create a “final decision” that they could appeal.  But at the same time, the plaintiffs purported to reserve the right to revive their claims should the Ninth Circuit reinstate their class allegations.  The plaintiffs then appealed, challenging only the interlocutory order striking their class allegations.  Although the Ninth Circuit had denied the Rule 23(f) petition, the court held that it had jurisdiction to entertain the appeal under Section 1291, and it reversed the district court’s class-certification ruling based on a prior Ninth Circuit ruling involving a different defendant but similar Rule 23 predominance issues.

After accepting the petition for a writ of certiorari, the Supreme Court reversed.  Writing for the majority, Justice Ginsburg explained that, under Section 1291, federal courts of appeals are empowered to review only “final decisions of the district courts.”  The Court offered three primary reasons why Plaintiffs’ voluntary dismissal was not a “final decision” for purposes of Section 1291:

First, “finality is to be given a practical rather than a technical construction,” and treating plaintiffs’ voluntary dismissal as a final decision would “invite[] protracted litigation and piecemeal appeals.”  137 S. Ct. at 1713 (quotation marks omitted).  The plaintiffs’ tactic would permit them to take an appeal each and every time a district court denied a class certification motion on a new ground or decertified the class, “stopping and starting the district court proceedings with repeated interlocutory appeals.”  Id.  Such a scenario would undermine the “proper balance between trial and appellate courts,” lead to “harassment and delay,” and frustrate “the efficient administration of justice.”  Id. at 1712.

Second, the voluntary-dismissal “tactic undercuts Rule 23(f)’s discretionary regime.”  Id. at 1714.  The Court explained that “[t]his consideration is of prime significance to the jurisdictional issue in this case” because Congress has established rulemaking as the means for determining when a decision is final for purposes of Section 1291, as well as for providing for appellate review of interlocutory orders.  Id. (quotation marks omitted).  The Court emphasized the “unfettered discretion” that the courts of appeals already wield in considering Rule 23(f) petitions for review, which permits review to be granted or denied “on the basis of any consideration.”  Id. at 1709–10.

Third, the Court noted the one-sidedness of the voluntary-dismissal tactic—it permitted only plaintiffs, never defendants, to force an immediate appeal.  Yet the “class issue” may be just as important to defendants because “[a]n order granting certification . . . may force a defendant to settle rather than . . . run the risk of potentially ruinous liability.”  Id. at 1715 (quotation marks omitted).

Justice Thomas, joined by Chief Justice Roberts and Justice Alito (Justice Gorsuch took no part in the decision), concurred in the judgment but not the Court’s reasoning.  Unlike the majority, the concurring Justices believed that the plaintiffs’ voluntary dismissal was a “final decision” under Section 1291 because it “‘end[ed] the litigation on the merits and le[ft] nothing for the court to do but execute the judgment.'”  Id. at 1716 (Thomas, J., concurring).  Nevertheless, the concurring Justices would have found no appellate jurisdiction under Article III.  Justice Thomas explained that Article III “limits the jurisdiction of the federal courts to issues presented in an adversary context,” and “in which the parties maintain an actual and concrete interest.”  Id. at 1717 (internal quotation marks omitted).  The plaintiffs “did not satisfy this jurisdictional requirement,” according to the concurrence, because “they consented to the judgment against them and disavowed any right to relief from Microsoft.”  Id.  “The parties thus were no longer adverse to each other on any claims,” and therefore the Ninth Circuit lacked Article III jurisdiction to hear the appeal.  Id.

Baker eliminates this one-way avenue that would have allowed plaintiffs (but not defendants) to appeal adverse class certification rulings.

II. The Supreme Court and the Ninth Circuit Issue Important Decisions Concerning the Breadth of American Pipe Tolling

The second quarter of 2017 saw two important decisions regarding the application of the statute of limitations to putative class actions under American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974).

In CalPERS v. ANZ Securities, Inc., 137 S. Ct. 2042 (2017), the Supreme Court resolved a longstanding circuit split and held that the filing of a putative class action does not toll the statute of repose in the Securities Act of 1933.  Section 11 of the 1933 Act provides a private right of action for misstatements and omissions in registration statements and certain other filings.  Section 13 of the Act includes a two-part provision governing the deadline for bringing such suits: they must be filed “within one year after the discovery of the untrue statement or omission,” but “[i]n no event . . . more than three years after the security was bona fide offered to the public.”

In CalPERS, a putative class action was filed within both the one-year and three-year limits, but the individual plaintiff opted out and filed suit more than three years after the securities were issued.  The plaintiff argued that its claim was timely under American Pipe, which held that the filing of a putative class action generally tolls the statute of limitations applicable to the claims of would-be class members until class certification is decided.  The district court, however, dismissed the complaint as untimely and the Second Circuit affirmed, holding that because Section 13’s outside limit is a statute of repose—and not a statute of limitations—it is not subject to equitable tolling under American Pipe.

The Supreme Court affirmed, confirming that the three-year deadline in Section 13 of the Securities Act is a statute of repose and not subject to equitable tolling.  137 S. Ct. at 2052.  Writing for a 5-4 majority, Justice Kennedy explained the difference between statutes of limitations and statutes of repose:  The former run from accrual, or “when the plaintiff can file suit and obtain relief,” while the latter run from “the date of the last culpable act or omission.”  Id. at 2049 (quotations omitted).  Notably, “statutes of repose are not subject to equitable tolling” because they implement an “unqualified” legislative decision to set a “specific time beyond which a defendant should no longer be subjected to protracted liability.”  Id. at 2051 (quotation omitted).  Statutes of limitation, in contrast, can be equitably tolled.

After examining the history and structure of the Securities Act’s timely filing provision, the Court determined that the one-year limit is a statute of limitations, while the three-year limit is a statute of repose.  Id. at 2049–50.  Congress commonly employs both approaches in a statute, “giv[ing] leeway to a plaintiff who has not yet learned of a violation,” while “protect[ing] the defendant from an interminable threat of liability.”  Id.  The three-year limit in the Securities Act, the Court explained, is the outer bound of private liability.

The Court then explained that American Pipe tolling is “rooted in” courts’ “equitable powers,” and therefore cannot override a Congressional determination to impose an absolute outer limit on liability.  Id. at 2052.  To the contrary, “the object of a statute of repose, to grant complete peace to defendants, supersedes the application of a tolling rule based in equity.”  Id.

Justice Ginsburg’s dissent expressed concern that the Court’s ruling will “gum up the works of class litigation” and give defendants “an incentive to slow walk discovery and other precertification proceedings so the clock will run on potential opt outs.”  Id. at 2058 (Ginsburg, J., dissenting).  Further, unnamed class members “will have strong cause to file a protective claim, in a separate complaint or in a motion to intervene, before the three-year period expires,” thereby “increasing the costs and complexity of the litigation,” and burdening the courts.  Id.  The majority, however, dismissed such concerns as “overstated” because of the lack of “evidence of any recent influx of protective filings in the Second Circuit, where the rule affirmed here has been the law since 2013.”  Id. at 2054.

By clarifying the nature of American Pipe tolling and declining to expand that doctrine beyond its existing boundaries, CalPERS should bring helpful stability, predictability, and finality to securities litigation.  (For additional discussion of CalPERS, please see our prior client alert on the Supreme Court’s decision.)

The Ninth Circuit also weighed in on American Pipe tolling during the second quarter, and held that the doctrine permits the filing of successive putative class actions, not just individual actions.  In Resh v. China Agritech, Inc., 857 F.3d 994 (9th Cir. 2017), the court held that American Pipe tolling applies not only to the filing of subsequent individual lawsuits but also to subsequent class action lawsuits.  The plaintiff was a putative absent class member in two prior lawsuits that were dismissed with prejudice after unsuccessful motions for class certification.  The plaintiff then filed a new class action that would have been untimely absent tolling.  The district court held that, although American Pipe would apply to an individual lawsuit filed by the plaintiff, the tolling doctrine did not apply to his putative class action.  Id. at 999.

The Ninth Circuit reversed and held that American Pipe applies to both individual and class actions.  Id. at 1002–03.  The court brushed aside the concern that its ruling may lead “to abusive filing of repetitive class actions,” believing “the current legal system is adequate to respond to such a concern.”  Id. at 1004–05.  According to the court, doctrines such as issue preclusion, comity, and stare decisis would check any abusive practices, and in any event, “if it is clear that a proposed class is not viable under Rule 23, as evidenced by an earlier federal court decision, potential future plaintiffs (or, more precisely, their attorneys) will have little to gain from repeatedly filing new suits.”  Id.

The decision appears to conflict with (at least) the decisions of the Third, Eleventh, and Fifth Circuits.  See Yang v. Odom, 392 F.3d 97 (3d Cir. 2004) (pendency of earlier class action tolls limitations period for class claims where denial of certification in the first case was based on lead plaintiffs’ deficiencies; but no tolling where the denial of certification was based on Rule 23(b)(3) defect in the class itself); Ewing Industries Corp. v. Bob Wines Nursey, Inc., 795 F.3d 1324 (11th Cir. 2015) (pendency of prior putative class action does not toll statute of limitations for subsequent class action); Salazar-Calderon v. Presidio Valley Farmers Ass’n, 765 F.2d 1334, 1351 (5th Cir. 1985) (plaintiffs may not “piggyback one class action onto another and thus toll the statute of limitations indefinitely”).  Given this conflict, this issue may need to be resolved by the Supreme Court.

III.  The Courts of Appeal Continue to Adopt Conflicting Views of Spokeo

In Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), the Supreme Court held that a plaintiff seeking to redress a statutory violation must demonstrate that he suffered a sufficiently concrete injury in order to have standing under Article III.  As we noted in our First Quarter 2017 Update on Class Actions and our 2016 Year-End Update on Class Actions, the federal courts of appeals continue to apply Spokeo in a variety of contexts, often reaching conflicting interpretations of the Supreme Court’s decision.

This quarter, the Fourth Circuit clarified that mere “nebulous frustration resulting from a statutory violation” is not an “informational injury” giving rise to Article III standing.  Dreher v. Experian Info. Sols., Inc., 856 F.3d 337, 346 (4th Cir. 2017).  The plaintiff in that case received a number of credit reports listing delinquent accounts under a defunct bank.  Unbeknownst to him, however, a new company was servicing his accounts.  Id. at 341.  The plaintiff brought a putative class action, which the district court ultimately certified, alleging that the credit reporting company had willfully violated the Federal Credit Reporting Act by failing to include in the credit reports the correct name of the company servicing his accounts.  Id. at 341-42.  The district court held that the plaintiff had Article III standing because the defendant had allegedly violated his “statutory right to receive the ‘sources of information’ for one’s credit report.”  Id. at 342.  Following Spokeo, the Fourth Circuit reversed, holding that the plaintiff had not demonstrated a concrete injury.  The court reasoned that “receiving a creditor’s name rather than a servicer’s name—without hindering the accuracy of the report or efficiency of the credit report resolution process—worked no real world harm on” the plaintiff, who was still able to resolve the issues on his credit report.  Id. at 346.

The Sixth Circuit, in Lyshe v. Levy, 854 F.3d 855 (11th Cir. 2017), likewise held that a plaintiff suing under the Fair Debt Collection Practices Act (FDCPA) lacked Article III standing to redress bare violations of the Ohio Rules of Civil Procedure committed in a collection action.  The court held that the FDCPA was not enacted to prevent these types of procedural violations, and thus the bare violations did not amount to a concrete harm contemplated by SpokeoId. at 858-59.

In contrast to Dreher and Lyshe, the Eleventh Circuit in Perry v. Cable News Network, Inc., 854 F.3d 1336 (11th Cir. 2017), held that a plaintiff suing under the Video Privacy Protection Act (VPPA) had Article III standing to pursue his claim against a media company for sharing records of his viewing activity with a third party without his consent.  Perry suggests that courts may be more likely to hold that a statutory violation gives rise to standing if the alleged harm suffered by the plaintiff “has a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit”—here, invasion of privacy.  Id. at 1340 (quoting Spokeo, 136 S. Ct. at 1549).  After holding that the plaintiff had standing, the court went on to hold that the plaintiff failed to state a claim under the VPPA.  Id. at 1341-44.

Spokeo itself, on remand from the Supreme Court, was argued in the Ninth Circuit on December 13, 2016, and remains pending.

IV. The Courts of Appeals Provide Additional Clarity Regarding Removal of Class Actions Under CAFA

The federal courts of appeals resolved a number of important questions regarding removal under the CAFA statute this past quarter, as courts continue to struggle with undefined terms in that statute.

Most notably, the Ninth Circuit in Broadway Grill, Inc. v. Visa Inc., 856 F.3d 1274, 1275 (9th Cir. 2017), held that a plaintiff may not amend a complaint after the case has been removed to change the class definition in order to divest the federal court of jurisdiction by eliminating minimal diversity.  The plaintiff, a California restaurant, brought a putative class action against Visa, alleging it violated the antitrust laws by preventing merchants from applying a surcharge for the use of credit cards.  Id. at 1275-76.  The complaint defined the class to include many merchants who were not citizens of California, satisfying CAFA’s minimum diversity requirement.  Following removal, however, the plaintiff sought leave to amend the complaint to change the class definition to include only “California citizens,” in order to eliminate minimal diversity.  The district court granted leave to amend and ordered the case remanded, relying on Benko v. Quality Loan Service Corp., 789 F.3d 1111, 1117 (9th Cir. 2015), where the Ninth Circuit had held that, in some circumstances, “plaintiffs should be permitted to amend a complaint to clarify issues pertaining to federal jurisdiction under CAFA.”

The Ninth Circuit reversed.  Recognizing that “Benko has created some uncertainty in the district courts,” the court clarified that “the range of amendments permitted under [Benko] is very narrow.”  Broadway Grill, 856 F.3d at 1275.  “Benko did not,” the court emphasized, “strike a new path to permit plaintiffs to amend their class definition, add or remove defendants, or add or remove claims in such a way that would alter the essential jurisdictional analysis.”  Id. at 1279.  And because “citizenship of the class for purposes of minimal diversity must be determined as of the operative complaint at the date of removal,” and the original class definition included non-California citizens, the court held that the amended complaint did not divest the district court of jurisdiction.  IdBroadway Grill is a positive development for defendants, as it makes it much more difficult for plaintiffs to avoid removal through post-removal amendments.

Although less significant than Broadway Grill, decisions from the Sixth Circuit and Eleventh Circuit this quarter underscore that many basic issues regarding the meaning of CAFA remain unresolved more than a decade after the statute was enacted.

For example, in Davenport v. Lockwood, Andrews & Newnam, Inc., 854 F.3d 905 (6th Cir. 2017), the Sixth Circuit clarified the scope of CAFA’s “local controversy” exception, confirming that it does not apply where similar class actions have been filed in the previous three years—regardless of how “local” a controversy may be.  The plaintiffs in Davenport sued various companies hired by Flint, Michigan for claims arising out of the water crisis in that city.  One of the defendants timely removed to federal court, arguing that CAFA’s local controversy exception did not apply because other class actions concerning the crisis had been filed in the previous three years.  The district court granted the plaintiffs’ motion to remand under the exception.  It acknowledged the other similar class actions, but found that the case was “truly local” because, among other reasons, all of the state class actions were in Michigan.

The Sixth Circuit reversed, holding that the district court’s reliance on the “‘local’ nature of the controversy” “contradict[ed] CAFA’s plain language.”  Id. at 909-10.  While the controversy was “local” in a “colloquial sense,” it was not “local in the way Congress contemplated in CAFA.”  Id.  “The language of CAFA defines by its own terms what qualifies as a local controversy, and those requirements [we]re not met in this case.”  Id. at 910.  Because multiple class actions had already been filed, the local controversy exception simply did not apply.

In Hunter v. City of Montgomery, 859 F.3d 1329 (11th Cir. 2017), the Eleventh Circuit construed the term “primary defendants” as used in CAFA’s “home state” exception.  The exception bars federal courts from exercising jurisdiction over a removed class action if “two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed.”  28 U.S.C. § 1332(d)(4)(B).  The plaintiff in Hunter filed a putative class action against the City of Montgomery, Alabama and Traffic Solutions, a company that managed the city’s red-light camera program.  The defendants removed the case to federal court under CAFA.  The district court remanded sua sponte after deciding that the local controversy and home state exceptions applied.  Hunter, 859 F.3d at 1331-32.

The Eleventh Circuit affirmed.  After concluding that Section 1447(d) did not bar appellate review of the sua sponte remand order, see id. at 1333-34, the court found that the home state exception to CAFA applied.  The dispositive question was whether Traffic Solutions, which was not a citizen of Alabama, was a “primary defendant” within the meaning of Section 1332(d)(4)(B); if Traffic Solutions was not a “primary defendant,” the home state exception would apply, as the City, the only other defendant, was a citizen of the state where the action was filed.  See Hunter, 859 F.3d at 1335.

In construing the “ambiguous” term “primary defendant,” the Eleventh Circuit endorsed the Third Circuit’s gloss in Vodenichar v. Halcon Energy Properties, Inc., 733 F.3d 497 (3d Cir. 2013).  Id. at 1336.  There, the Third Circuit held that the primary defendants include those “who are directly liable to the proposed class, as opposed to being vicariously or secondarily liable based on theories of contribution or indemnification,” and those who have “potential exposure to a significant portion of the class and would sustain a substantial loss as compared to other defendant if found liable.”  Id. (quoting Vodenichar, 733 F.3d at 504-05).  Traffic Solutions was not a primary defendant, the court held, because the plaintiffs did not seek monetary relief against it, and thus the home state exception applied and required remand.

V. Courts Continue to Apply Concepcion and Grapple with the Enforceability of Arbitration Agreements Prohibiting Class Actions

Federal and state courts continued to apply and interpret the U.S. Supreme Court’s holding in AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), that facially neutral laws violate the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., if they interfere with the fundamental attributes of arbitration.  This past quarter, the U.S. Supreme Court invalidated a Kentucky rule requiring that a power of attorney contain a clear statement authorizing the agent to enter into an arbitration agreement on the principal’s behalf, while the California Supreme Court and the Sixth Circuit each upheld statutes limiting the scope of arbitration agreements on the ground that those statutes fell within the scope of the FAA’s savings clause, notwithstanding Concepcion.

A. The Supreme Court Again Reaffirms That the FAA Preempts State Laws Discriminating Against Arbitration

In Kindred Nursing Centers Limited Partnership v. Clark, 137 S. Ct. 1421 (2017), the Supreme Court overwhelmingly reaffirmed once again the principle that state law rules that disfavor arbitration violate the FAA.  The plaintiffs in Kindred entered into an arbitration agreement with the defendant nursing home on behalf of decedents, pursuant to powers of attorney granted by the decedents.  The plaintiffs subsequently sued, alleging that the defendant’s substandard care caused the decedents’ death.  The Kentucky Supreme Court held that the arbitration agreements were unenforceable “because a power of attorney could not entitle a representative to enter into an arbitration agreement without specifically saying so.”  Id. at 1426.

The U.S. Supreme Court reversed with all but Justice Thomas Joining the Court’s opinion.  Justice Kagan’s majority opinion explained that “[t]he Kentucky Supreme Court’s clear-statement rule . . . serves to safeguard a person’s ‘right to access the courts and to trial by jury,'” and by doing so, it “did exactly what Concepcion barred:  adopt a legal rule hinging on the primary characteristic of an arbitration agreement—namely, a waiver of the right to go to court and receive a jury trial.”  Id. at 1426–27.  The Court rejected the Kentucky Supreme Court’s attempt to cast its rule as applying to any fundamental constitutional right:  “No Kentucky court, so far as we know, has ever before demanded that a power of attorney explicitly confer authority to enter into contracts implicating constitutional guarantees,” and the “slim set of both patently objectionable and utterly fanciful contracts that would be subject to its rule”—contracts waiving a principal’s right to worship freely, committing a principal to an arranged marriage, or binding a principle to personal servitude—”only makes clear the arbitration-specific character of the rule, much as if it were made applicable to arbitration agreements and black swans.”  Id. at 1427–28.

Justice Thomas dissented, reiterating his view that the FAA does not apply to state court actions.

B. State and Federal Appellate Courts Continue to Carve Out Exceptions to Concepcion and the FAA

Although the U.S. Supreme Court continues to reaffirm the FAA’s preemptive power, other courts continue to carve out exceptions to arbitration clauses.

In McGill v. Citibank, N.A., 2 Cal. 5th 945 (2017), the California Supreme Court held that an arbitration agreement waiving the right to seek public injunctive relief violates California public policy and is therefore unenforceable.  The plaintiff in McGill opened a credit card with Citibank, in the process accepting an individual arbitration agreement providing that “‘[a]n award in arbitration shall determine the rights and obligations between the named parties only, . . . and shall not have any bearing on the rights and obligations of any other person,'” and that “‘[t]he arbitrator will not award relief for or against anyone who is not a party.'”  Id. at 956.  The plaintiff subsequently sued under California’s Consumers Legal Remedies Act (CLRA), Unfair Competition Law (UCL), and False Advertising Law (FAL), seeking, among other things, “an injunction prohibiting Citibank from continuing to engage in its allegedly illegal and deceptive practices.”  Id. at 953.

The California Supreme Court explained that California law recognizes a distinction between public injunctive relief, which “has ‘the primary purpose and effect of’ prohibiting unlawful acts that threaten future injury to the general public” and “benefits the plaintiff, ‘if at all,’ only ‘incidental[ly],'” and private injunctive relief, which “has the primary purpose or effect of redressing or preventing injury to an individual plaintiff.”  Id. at 955.  Because “‘a law established for a public reason cannot be contravened by a private agreement,'” and because “the public injunctive relief available under the UCL, the CLRA, and the [FAL] . . . is primarily ‘for the benefit of the general public,'” the arbitration agreement at issue was “invalid and unenforceable under California law.”  Id. at 961.  This rule did not violate the FAA as interpreted in Concepcion, the Court reasoned, because “a provision in any contract—even a contract that has no arbitration provision—that purports to waive, in all fora, the statutory right to seek public injunctive relief under the UCL, the CLRA, or the [FAL] is invalid and unenforceable under California law.”  Id. at 962.

McGill is perhaps most notable not for its FAA holding, but rather for its determination under state law that a private plaintiff pursuing only individual claims can even seek public injunctive relief under California’s UCL and FAL even after the passage of Proposition 64.  That initiative, passed in 2004, “identified the ‘[f]il[ing] [of] lawsuits’ by private attorneys ‘on behalf of the general public’ as a misuse of the unfair competition laws, and stated the voters’ ‘intent . . . that only the California Attorney General and local public officials be authorized to file and prosecute actions on behalf of the general public.'”  2 Cal. 5th at 959.  To remedy that abuse, Proposition 64 required plaintiffs pursuing claims under the UCL and FAL to seek class certification in order to litigate on a representative basis.  See Cal. Bus. & Prof. Code § 17203 (requiring persons seeking to “pursue representative claims or relief on behalf of others” to obtain class certification).  McGill nevertheless “conclude[d] that these provisions do not preclude a private individual who has ‘suffered injury in fact and has lost money or property as a result of’ a violation of the UCL or [FAL]—and who therefore has standing to file a private action—from requesting public injunctive relief in connection with that action” because “[a] person who meets these requirements is ‘fil[ing]’ the ‘lawsuit[ ]’ or ‘action[]’ on his or her own behalf, not ‘on behalf of the general public.'”  McGill, 2 Cal. 5th at 959.  The court ruled that “[t]his remains true even if the person seeks, as one of the requested remedies, injunctive relief ‘the primary purpose and effect of’ which is ‘to prohibit and enjoin conduct that is injurious to the general public.'”  Id.  McGill thus allows plaintiffs to subvert the explicit class certification requirements created by Proposition 64, at least with respect to requests for public injunctive relief.

Finally, the Sixth Circuit deepened a circuit split regarding the enforceability of class waivers in employment contracts in NLRB v. Alternative Entertainment, Inc., 858 F.3d 393 (6th Cir. 2017), by holding that “[m]andatory arbitration provisions that permit only individual arbitration of employment-related claims are illegal pursuant to the [National Labor Relations Act (NLRA)] and unenforceable pursuant to the FAA’s saving clause.”  Id. at 405.  The majority opinion closely tracks the reasoning adopted by the two courts of appeals it joined—Lewis v. Epic Sys. Corp., 823 F.3d 1147 (7th Cir. 2016); Morris v. Ernst & Young, LLP, 834 F.3d 975 (9th Cir. 2016)—which were discussed in our Third Quarter 2016 Update on Class Actions.  In his dissent, Judge Sutton explained that “[a] bevy of Supreme Court decisions confirms that [the FAA] applies in this setting,” and “[t]he NLRA does not make a general exception to the FAA for arbitration agreements or class-action waivers.”  Id. at 412.

The Sixth Circuit’s decision in Alternative Entertainment will not be the last word on this important issue, as the Supreme Court will hear argument on October 2, 2017 (the first argument of the Term), in three consolidated cases that all raise the issue of whether the NLRA prohibits mandatory arbitration agreements with class action waivers.  Significantly, the Department of Justice has broken with the National Labor Relations Board and filed an amicus brief in support of the position that the NLRA does not preclude class waivers.  See Brief for the United States as Amicus Curiae, Nos. 16-285, 16-300, 16-307 (U.S. filed June 16, 2017).

This post comes to us from Gibson, Dunn & Crutcher LLP. It is based on the firm’s memorandum, “Second Quarter 2017 Update On Class Actions,” dated August 1, 2017, and available here.

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