Comcast Corp. (CMCSA:US) and Amgen Inc. are to ask the U.S. Supreme Court today to further limit class actions following a decision last year in the landmark Wal-Mart Stores Inc. (WMT:US) discrimination case that restricted such group litigation.
In 2011, the court rejected class certification for a lawsuit brought on behalf of more than 1.5 million female workers alleging discrimination in pay and promotions at Wal- Mart, the world’s largest retailer (WMT:US). The justices, dividing 5-4, said the women failed to point to a common corporate policy that led to discrimination, preventing them from suing as a group.
Plaintiffs often seek to sue as a class to pool resources against wealthy corporate defendants, gaining leverage to force a settlement or win at trial. The ruling in Wal-Mart v. Dukes, cited in a series of lower-court decisions -- most favoring companies -- will influence the Supreme Court’s view of the antitrust class action facing Comcast and the securities fraud class action involving Amgen, said Gerald Maatman Jr., of Seyfarth Shaw in Chicago.
“Dukes is the 800-pound gorilla in the courtroom,” Maatman, a lawyer who represents defendants in class actions, said in an interview. “Between June 2011 and Dec. 31, 2011, there were 260 rulings in state and federal court applying Wal- Mart.” Since then, at least 800 more cases have cited the case, he said. “There has been no hesitation by courts to apply Wal- Mart to other types of class actions.”
While some decisions citing Wal-Mart have allowed class actions to survive, the road for plaintiffs has become steeper, said Deborah Hensler, a law professor at Stanford Law School in California.
The Wal-Mart decision “is making it more and more difficult to certify class actions,” she said. “You need to prove a lot about the merits at the certification stage.”
This requirement may lead to a reversal of class certification in one of the two cases being argued today before the Supreme Court, she said.
“Comcast is the next step on the road after Wal-Mart,” she said.
Comcast, the nation’s largest cable company, is trying to stop an antitrust lawsuit that seeks $875 million on behalf of as many as 2 million Philadelphia-area customers.
The company contends a federal judge improperly certified the case as a class-action lawsuit without first resolving whether proof of damages could be determined for the plaintiffs as a group. A Philadelphia-based federal appeals court let the case go forward.
The Comcast case “could be very significant if the court decides that plaintiffs always need to prove common injury through admissible evidence” before a class can be certified, said Michael Waterstone, a law professor at Loyola Law School in Los Angeles.
“In antitrust, that’s going to make it very expensive” to pursue such claims, he said.
Courts are already requiring pre-certification evidentiary hearings, Hensler said.
In the past, courts indicated that judges, in determining whether a class should be certified, shouldn’t consider the underlying merits of a case, Hensler said.
In the Dukes decision, “the court said you absolutely have to consider the merits,” she said.
The second high court case before the Supreme Court today may result in new limits on securities-fraud class action lawsuits. Amgen Inc. (AMGN:US), the world’s largest biotechnology company and based in Thousand Oaks, California, is fighting claims that the company and its executives misled investors for more than three years about safety questions involving its Aranesp and Epogen anemia drugs.
Amgen said it didn’t mislead shareholders, and that information about drug-safety questions was widely available and reflected in the company’s stock price.
The question for the Supreme Court is whether investors seeking to press a class action case must first prove that allegedly misleading information affected the company’s stock price. A federal appeals court in San Francisco said investors could wait to make that showing at trial.
The Chamber of Commerce, a pro-company lobby, is supporting both Philadelphia-based Comcast and Amgen, arguing that limits on class actions are crucial to reducing legal expenses.
“Because of litigation costs and damages exposure, a defendant will only rarely choose to litigate a class action past the threshold stage, even if the underlying claims are meritless,” the Washington-based business trade group argued in the Comcast case. “Accordingly, billions of dollars are spent settling class actions every year.”
Supporters of the lawsuits said they are necessary tools to deter corporate wrongdoing.
Investor class action suits are “essential to deter improper conduct and to recoup losses caused by fraud,” the California Public Employees’ Retirement System and the California State Teachers’ Retirement System argued in court papers in the Amgen case.
The Wal-Mart case began affecting other state and federal class actions almost immediately, said Maatman, author of The Workplace Class Action Litigation Report.
In July 2011, a Michigan state court judge found that the Supreme Court’s decision in Dukes barred residents of Saginaw, Michigan, from pursuing environmental claims against Dow Chemical Co. (DOW:US) as a group. The property owners claimed Dow dumped toxins in the Tittabawassee River, lowering real estate values.
Saginaw County State Circuit Court Judge Leopold Borrello, who had initially granted class certification, said the plaintiffs couldn’t meet the commonality requirement set in Dukes.
Most of the class actions are being defeated because the courts found plaintiffs failed to provide enough proof to support claims of a common question, according to the decisions.
Wal-Mart established a higher burden of proof on commonality at an earlier stage of litigation than had been previously required, Hensler said.
“If you can’t prove the merits, you can’t show that common issues predominate,” she said.
The result may be that plaintiffs have to prove much of their case before even reaching trial.
The Louisiana Supreme Court in December 2011 reversed class certification for a group of 4,600 property owners who claimed environmental damage from a wood-treating facility. The court cited the Wal-Mart standard in finding that plaintiffs failed to provide sufficient evidence to prove a “common thread” holding all the claims together.
In January, a federal court in Washington cited standards in the Wal-Mart decision in rejecting class certification in an antitrust claim brought against Whole Foods Market Inc. (WFM:US) over its merger with Wild Oats Markets. The court found that “an essential element of plaintiff’s case -- that is, injury to individual members of the class -- cannot be proven through classwide evidence.”
In March, U.S. District Judge Stephen Wilson in Los Angeles dismissed an antitrust action against Clear Channel Inc. over claims the company was involved in anticompetitive conduct related to live concert promotions. The original order granting class certification “was based on a legal standard that is no longer effect,” Wilson said, citing Dukes.
“There have been some really bizarre cases,” said attorney Cyrus Mehri, who represents workers in employment lawsuits. Plaintiffs in a lawsuit against National City Bank claiming racial discrimination in the financing of residential home purchases “had a settlement, and the district court wouldn’t even certify a settlement class,” he said.
U.S. District Judge Eduardo Robreno in Philadelphia denied class certification and approval of a settlement reached between the plaintiffs and the bank prior to the Wal-Mart decision. The plaintiffs didn’t meet the “commonality and typicality requirements” set in that decision, Robreno said in an October 2011 order.
The decision in Wal-Mart “was a disaster for plaintiffs,” Mehri said. “Cases of merit are not being brought because of Wal-Mart.”
Not all cases citing Wal-Mart have rejected the rights of plaintiffs to sue as groups, Waterstone, the Loyola professor, said. He pointed to a decision in August certifying a class of consumers who alleged antitrust violations against defendants including E. I. du Pont de Nemours & Co.
U.S. District Judge Richard Bennett in Baltimore granted the plaintiffs’ motion for class certification, finding they had provided sufficient evidence to allege common injury, meeting a requirement the Supreme Court had set in Wal-Mart. The plaintiffs claimed the defendants were involved in a price- fixing conspiracy over an additive used in paints.
Class actions were also certified in a gender discrimination lawsuit against Costco Corp. and a racial bias claim brought against Merrill Lynch & Co. and its now-parent Bank of America Corp. (BAC:US)
These classes were far narrower than the one pursued in the nationwide case against Bentonville, Arkansas-based Wal-Mart, said Suzanne Bish, who represents the plaintiffs in the Merrill Lynch case. That lawsuit, brought on behalf of black financial advisers, alleged that Merrill Lynch and Charlotte, North Carolina-based Bank of America devised a discriminatory retention bonus plan when the acquisition of Merrill was made public in 2008.
The class was denied certification before the Wal-Mart decision, Bish said. The plaintiffs’ attorneys sought to revisit the rejection following the Dukes ruling, she said.
“We thought there was favorable language in the decision that supported class certification,” said Bish.
The Supreme Court justices provided “a road map to the types of case they would deem appropriate,” said Bish, of Stowell & Friedman Ltd. in Chicago.
The lawyers narrowed the focus on claims that “policies had an unlawful disparate impact on African-Americans,” she said. The class was certified by the trial court, and that decision was upheld by the U.S. Court of Appeals in Chicago in September.
The Costco case hasn’t had a smooth path, before and after the Wal-Mart ruling in June 2011. The federal appeals court in San Francisco erased a prior class certification order in the Costco gender discrimination in September 2011, citing Wal-Mart.
A year later, the trial court granted class action status to the women, who have claimed bias in Costco promotion policies. The plaintiffs’ lawyers limited the proposed class to employees at two management level positions, assistant general manager and general manager, according to the ruling by U.S. District Judge Edward Chen.
The lawyers who originally sued Wal-Mart in the nationwide case have since filed four separate regional cases, seeking smaller classes. None of the cases has reached class certification. Lawsuits in the Florida and Tennessee regions were filed last month.
Wal-Mart last month won dismissal of a class action filed on behalf of women who worked in stores in the Texas region.
The retailer lost a bid to dismiss a similar gender class action in California in September. U.S. District Judge Charles Breyer in San Francisco said a reduced class limited to California workers “could be certified.”
The women could pursue their claims as a group if they made a “showing consistent with the Supreme Court’s decision” that a nationwide class action isn’t appropriate, Breyer said.
“We have asked for an immediate appeal of that ruling,” said attorney Theodore Boutrous Jr., who represents Wal-Mart in employment litigation. “We think they can’t meet the Supreme Court standards.”
The high court’s decision in Dukes “left open the possibility that employees could proceed in narrower classes,” Hensler said. In employment and other claims, she said, “smart plaintiffs’ lawyers will try to frame their cases in ways that a district court can believe it can be certified.”
The Supreme Court cases are Comcast v. Behrend, 11-00864, and Amgen v. Connecticut Retirement Plans, 11-01085; The Wal- Mart Supreme Court case is Wal-Mart v. Dukes, 10-00277; U.S. Supreme Court (Washington).
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