Deveny v. Entropin — California Class Action Defense Cases

California Holds In Class Actions Case That Inquiry Notice Triggers California Securities Law Claims Limitation Period And Website Posting Is Insufficient To Establish Inquiry Notice

On May 10, 2006, a California court published its opinion in a class action case that addressed two issues of first impression in California: (1) whether inquiry notice or actual notice commences the statute of limitations period for alleged violations of California’s securities laws, and (2) whether referring investors to the company website establishes inquiry notice as to all information contained on the website. Deveny v. Entropin, Inc., 139 Cal.App.4th 408 (Cal.App. 2006).

Briefly, from August 1998 through June 2002, Entropin released very reports and press releases touting the progress of its development of “a topical solution intended to treat impaired range of motion associated with shoulder and back injuries.” Id., at 810-11. The press releases issued between February and June 2002 stated that the drug “‘provided statistically significant improvement for soft tissue afflictions for both the shoulders and the lower back.'” Id., at 811-12 (citation omitted). But in September 2002, the company revealed that the clinical trials had been a failure, that the drug was “ineffective,” and that the company was “abandoning the drug.” Needless to say, “the market price of Entropin securities collapsed.” Id., at 812.

In January 2003, a putative class action alleging securities fraud was filed in California state court. The complaint alleged violations of California’s securities laws, as well as a federal law claim for violating Section 11 of the Securities Act of 1933. Id., at 812. The company filed a motion for summary judgment, relying in part of the “undisputed fact” that certain information was available on the company’s website. Id., at 813. The trial court granted summary judgment and plaintiffs appealed. Id., at 814.

The California Court of Appeal for the Fourth District, Division 2, first examined whether “inquiry notice rather than actual notice applied to plaintiffs’ claims.” Id., at 815. After observing that the California securities laws at issue were governed by the statute of limitations period contained in California Corporations Code section 25506, Deveny noted that “no published California case has yet addressed whether Corporations Code section 25506 requires actual notice or inquiry notice to trigger the running of the one-year statute of limitations, and our own research has not revealed any such case.” Id. Federal courts that had addressed the issue, however, had held that inquiry notice was sufficient, id. (citations omitted). Deveny ultimately concluded that inquiry notice commenced the running of the limitations period under California Corporations Code section 25506. Id., at 815-17. (By its express terms, inquiry notice triggers the one-year limitations period under federal law, 15 U.S.C. § 77m.)

Class Action Court Decisions Uncategorized

Recent Developments In California Class Action Defense

A New Twist On Fair Debt Collection Practices Act Class Actions California courts have been inundated with class actions alleging violations of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq., and its California equivalent, the Rosenthal Fair Debt Collection Practices Act, California Civil Code § 1788 et seq. While California class action firms originally named the debt collection companies, the lawsuits were soon expanded to include California and out-of-state lawyers and law firms that assisted such debt collection companies in their efforts.

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General Rules for Appealability of Remand Orders: Class Action Defense Issues

Class action defendants often remove their case to federal court whenever possible. Plaintiffs almost invariably seek to remand the action to state court. Whether a federal district court order remanding an action to state court may be reviewed on appeal thus is important to any defendant. Because the focus of this article is on appellate review of district orders granting motions to remand a lawsuit to state court, removal and remand are not discussed here; discussions of each may be found in separate articles. Also, special rules apply to cases removed to federal court under CAFA (Class Action Fairness Act of 2005), and those are discussed in a separate article.

If an action is remanded to state court, the plaintiff commonly will assert that appellate review is barred by 28 U.S.C. § 1447(d). However, 28 U.S.C. § 1447(d) precludes review of remand orders only when the case is remanded for reasons stated in § 1447(c). Thermtron Products, Inc. v. Hermansdorfer, 423 U.S. 336, 350 (1976). A remand order that is not based on statutory grounds is reviewable because there “is no indication whatsoever that Congress intended to extend the prohibition against review to reach remand orders entered on grounds not provided by the statute.” Id. If, for example, the district court remands the action to state court based on the mistaken belief that state courts have concurrent jurisdiction over the subject matter of the dispute, then the matter is reviewable on appeal because that basis for remand is not among the statutory grounds of 28 U.S.C. § 1447(c).

A plaintiff may seek to insulate the remand order from review by referencing 28 U.S.C. § 1447(c) in the order. While that move may strengthen the plaintiff’s case, it does not serve as a talisman to bar appellate review. In the Ninth Circuit, for example, the appealability of a remand order is subject to de novo review. The Circuit Court is not bound by the lower court’s characterization of its bases for remanding a case to state court. Ferrari, Alvarez, Olsen & Ottoboni, v. Home Ins. Co., 940 F.2d 550, 553 (9th Cir. 1991) (“We determine the basis of authority for remand by examining the substance of the remand order.”).

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Class Action Law Firm Milberg Weiss California Criminal Case Loses Fifth Federal Judge

California Federal Judges Recuse Themselves From Hearing Los Angeles Case Prior articles have discussed the California criminal case involving the federal indictment leveled against class action law firm Milberg Weiss Bershad & Schulman. Molly Selvin of the Los Angeles Times recently reported that yet another federal judge, U.S. District Court Judge R. Gary Klausner, has recused himself from hearing the case, bringing to five the number of judges who have bowed out.

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Stock Option Awards Scandals: Class Action Defense Issues

California Semiconductor Company In The News By now, the accounting scandals that have torn apart Wall Street are well known. The litigation fallout has pitted company against accounting firm against law firm, in a never-ending circle of passing the blame. California companies have not been immune; on the contrary, several California companies have been in the throes of such litigation. Eric Dash of the New York Times reported today on the continuing fight between Micrel Inc.

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Class Action Defense Cases: Kircher v. Putnam Funds Trust : Remand Of SLUSA Class Action To State Court Not Appealable Supreme Court Holds

Remand to State Court of Case Removed Under SLUSA (Securities Litigation Uniform Standards Act of 1998) Not Appealable U.S. Supreme Court Holds

CAFA (Class Action Fairness Act of 2005) and SLUSA (Securities Litigation Uniform Standards Act of 1998) are discussed in various separate articles. Removal and remand issues also are discussed in various articles, which set forth the general rule recently reiterated by the United States Supreme Court: “28 U.S.C. § 1447(d) limits appellate review of a district court order remanding a case from federal to state court.” Kircher v. Putnam Funds Trust, 547 U.S. ___, 126 S.Ct. 2145, 2150 (2006). The Supreme Court addressed the scope of appellate review of remand orders in Kircher. As the Supreme Court summarized, “The question here is whether an order remanding a case removed under [SLUSA] is appealable, notwithstanding § 1447(d). We hold it is not.” Kircher, at 2150 (italics added).

Kircher involves eight separate putative class actions by investors against mutual funds, investment advisers and an insurance company that alleged state law claims for damages (such as damages for negligence and breach of fiduciary duty) arising out of the practice of “market timing.” Kircher, at 2150 and n.4. The actions were removed to federal court on the grounds that they were “removable under and precluded by [SLUSA].” Id., at 2151. The investors moved to remand the lawsuits claiming the district court lacked subject matter jurisdiction; the district court agreed, and remanded the actions on the grounds that it lacked subject matter jurisdiction and that SLUSA did not preclude the claims asserted therein. Id.

The Seventh Circuit reversed, but only after concluding that it had appellate jurisdiction to hear the appeal. Kircher v. Putnam Funds Trust, 373 F.3de 847, 849-50 (7th Cir. 2004). In part, the Court concluded that the district court’s orders were not actually founded on lack of jurisdiction but on the substantive issue of whether the state law claims were precluded by SLUSA: accordingly, the Seventh Circuit concluded that appellate review was not barred by § 1447(d). Id., at 849-51. Having concluded that it had appellate jurisdiction, the Seventh Circuit then held further that SLUSA precluded the investors’ claims.

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Marrone v. Philip Morris — Defense of Class Action Cases

Ohio Supreme Court Rejection of Class Action Against Tobacco Company of Limited Value to Class Action Defendants On June 14, 2006, the Ohio Supreme Court issued an opinion reversing certification of a class action against a tobacco company for the allegedly “unfair, deceptive, and unconscionable practice[]” of labeling certain cigarettes as “light.” Marrone v. Philip Morris USA, Inc., ___ N.E.2d ___, 2006 WL 1584163 (Ohio 2006). While this victory has been widely reported in the press, it is of limited value to class action defendants.

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Class Action Cases and Multidistrict Litigation (MDL)

Multidistrict litigation (MDL) arises when multiple actions, class action or otherwise, involving the same facts are pending in different federal district courts. Under such circumstances, 28 U.S.C. § 1407 sets forth the procedure for the transfer of the actions to a single federal court for coordination or consolidation. This is known as “multi-district litigation” (MDL). The Judicial Panel on Multidistrict Litigation affects the transfer of cases under Section 1407(a).

A request to coordinate or consolidate is made by motion by any party in any of the various federal court actions. “A copy of such motion shall be filed in the district court in which the moving party’s action is pending. The panel shall give notice to the parties in all actions in which transfers for coordinated or consolidated pretrial proceedings are contemplated, and such notice shall specify the time and place of any hearing to determine whether such transfer shall be made.” 28 U.S.C. § 1407(c)(ii). The Judicial Panel may also initiate the transfer of the cases on its own motion. 28 U.S.C. §1407(c)(i).

The Judicial Panel on Multidistrict Litigation reviews the request under the guidelines of Section 1407 to determine whether the cases are appropriately coordinated or consolidated for pretrial purposes. See e.g., In re Agent Orange Product Liability Litigation, 818 F.2d 216 (2d Cir. 1987) (use of MDL procedure in connection with Agent Orange class action cases). The Judicial Panel may consider any evidence introduced by any party to any of the various federal court actions in determining whether to coordinate or consolidate the cases. 28 U.S.C. § 1407(c)(ii).

Class actions may be consolidated under the MDL procedure. The Judicial Panel applies the same guidelines in class action cases as in requests made in single plaintiff cases. MDL treatment does not alter the applicability of Rule 23 to class actions, and class certification may follow consolidation under MDL. See e.g., Hilao v. Estate of Marcos, 393 F.3d 987 (9th Cir. 2004).

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Class Action Defense Issues: Settlement Procedure and Class Certification for Settlement – Rule 23(e)

Class action lawsuits are often filed for the purpose of bringing sufficient leverage to bear both through the sheer cost of defending against the lawsuit and the risk, however remote, of substantial liability so as to force the defendant to settle. Thus, plaintiffs’ counsel often use class actions as weapons of extortion, seeking to compel a settlement from defendants. If a defendant elects to but its peace, it does not want to settle only with the named plaintiffs because then there is no guarantee that another lawsuit will soon follow. On the contrary, it is likely that rewarding plaintiffs’ counsel with a settlement will invite another lawsuit. The defendant, therefore, demands the broadest release possible, and plaintiffs’ counsel are generally willing to oblige provided that they have been compensated adequately. In such a situation, the Rule 23 elements of class certification are not meaningfully contested; indeed, the parties often stipulate (as part of the proposed settlement) that the class may be certified.

Rule 23(e) addresses the settlement of class actions. It provides, “A class action shall not be dismissed or compromised without the approval of the court, and notice of the proposed dismissal or compromise shall be given to all members of the class in such manner as the court directs.”

A class action settlement will not bind members of the class unless and until the class is certified. The prerequisites to class certification are set forth in Rule 23 of the Federal Rules of Civil Procedure (discussed in a separate article). It is incumbent on the District Court to analyze the Rule 23 factors carefully. General Telephone Co. of Southwest v. Falcon, 457 U.S. 152, 102 S.Ct. 2364 (1982) (reversing class certification for failure to analyze Rule 23 requirements). The question arises, however, whether the same rules apply when plaintiff(s) and defendant(s) seek class certification solely for purposes of settlement.

Prior to 1997, federal circuit courts of appeal were divided on whether Rule 23 applied strictly where the purpose of the motion for class certification was to effectuate the purposes of a proposed class settlement. The Fifth Circuit, for example, held that the requirements for class certification under Rule 23 need not be examined strictly if the ultimate purpose of the motion is to settle the dispute. See, In re Asbestos Litigation, 90 F.3d 963, 975-976, and n.8 (5th Cir. 1996). The Third Circuit, by contrast, held that while it was appropriate to certify a class solely for the purpose of class-wide settlement, Rule 23’s requirements still must be satisfied to the same extent as if the case were to be litigated. See, In re General Motors Corp. Pick-Up Truck Fuel Tank Products Liability Litigation, 55 F.3d 768, 799-800, cert. denied, 516 U.S. 824, 116 S.Ct. 88 (1995).

Certification of Class Actions Uncategorized

Class Action Defense Issues: Certification of Class Action Cases Under Rule 23 Part I – A General Overview

Defending Class Actions: Certification Under Rule 23 Part I

General Overview

In defending a class action, the single most important motion facing a defendant is the plaintiff’s motion to certify a class. Federal law requires that the plaintiff demonstrate numerosity, commonality and typicality, and that the class members will be adequately represented. The plaintiff must also show the risk of inconsistent or prejudicial adjudications if separate actions are tried, and that a class action is the superior method for resolving the dispute. This article identifies the statutory requirements for class certification.

In federal court, class actions are governed by Rule 23 of the Federal Rules of Civil Procedure. A prospective class representative must satisfy the prerequisites of Rule 23(a), which provides:

One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.

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