Class Action Attorney

Class Action Settlements: Ninth Circuit nixes settlement in AOL privacy suit

Tue, 22 Nov 2011 15:10:31 +0000

The United States Court of Appeals overturned a class action settlement in Nachshin v. AOL, LLC, a class action lawsuit alleging that AOL's email ads violated the Electronic Communications Privacy Act and other laws.

The class action settlement did not provide any recovery to class members

First, the appellate court noted that the settlement would not provide any monetary distribution to class members:

The Settlement also addressed Plaintiffs' claims for monetary damages. All parties agreed monetary damages were small and difficult to ascertain. The maximum recovery at trial would have been the unjust enrichment AOL received as a result of its footer advertisement sales, or about $2 million. Divided among the more than 66 million AOL subscribers, each member of the class would receive only about 3 cents. The cost to distribute these payments would far exceed the maximum potential recovery.

The cy pres award did not relate to the class action claims

In lieu of a monetary distribution, the class settlement called for a cy pres award to certain charities, and a fee award to the class action lawyers. The appellate court took issue with the charities selected to receive the cy pres award:

In lieu of a cost-prohibitive distribution to the plaintiff class and at Judge Tevrizian's suggestion, the parties agreed that AOL would make a series of charitable donations. Because the 66,069,441 plaintiffs were geographically and demographically diverse, the parties claimed they could not identify any charitable organization that would benefit the class or be specifically germane to the issues in the case. At the parties' request, Judge Tevrizian suggested and the parties agreed that AOL would donate $25,000 to three charitable beneficiaries: (1) the Legal Aid Foundation of Los Angeles, (2) the Federal Judicial Center Foundation, and (3) the Boys and Girls Club of America (shared between the chapters in Los Angeles and Santa Monica).

In addition and at the suggestion of Judge Tevrizian, the parties agreed to compensate the named class representatives (for bringing the action) by awarding $35,000 to four charities of the class representatives' choice (rather than providing direct financial compensation). The Settlement provides that AOL will donate $8,750 to a charity designated by each named representative. These designated charities include the (1) New Roads School of Santa Monica, designated by Ms. Fairchild and Mr. Nachshin; (2) Oklahoma Indian Legal Services, designated by Mr. Geers; and (3) the Friars Foundation, designated by Mr. Gerard. Each entity is a non-profit organization with tax deductible status under 26 U.S.C. § 501(c)(3).

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The cy pres distribution in this case fails to meet any of the guiding standards in Six Mexican Workers. The proposed awards fail to (1) address the objectives of the underlying statutes, (2) target the plaintiff class, or (3) provide reasonable certainty that any member will be benefitted. Plaintiffs in this case brought claims against AOL for breach of electronic communications privacy, unjust enrichment, and breach of contract, among others, relating to AOL's provision of commercial e-mail services. Yet none of the cy pres donations—$25,000 each to the Legal Aid Foundation of Los Angeles, the Boys and Girls Clubs of Santa Monica and Los Angeles, and the Federal Judicial Center Foundation—have anything to do with the objectives of the underlying statutes on which Plaintiffs base their claims.

The cy pres distribution also fails to target the plaintiff class, because it does not account for the broad geographic distribution of the class. See In re Airline Ticket Comm'n Antitrust Litig., 307 F.3d 679, 683 (8th Cir. 2002) (reversing a district court's cy presdistribution because it "failed to consider the full geographic scope of the case"); Houck on Behalf of U.S. v. Folding Carton Admin. Comm., 881 F.2d 494, 502 (7th Cir. 1989) (remanding a proposed cy pres award in a nationwide class action so the district court could consider "a broader nationwide use of its cy pres discretion"). Although the class includes more than 66 million AOL subscribers throughout the United States, two-thirds of the donations will be made to local charities in Los Angeles, California. Even among the small percentage of plaintiffs located in Los Angeles, there is also no indication that any would benefit from donations to the Boys and Girls Clubs of Los Angeles and Santa Monica or Los Angeles Legal Aid. The proposed donation to the Federal Judicial Center Foundation at least conceivably benefits a national organization, but this organization has no apparent relation to the objectives of the underlying statutes, and it is not clear how this organization would benefit the plaintiff class. We therefore conclude that the district court applied the incorrect legal standard in approving the proposed cy pres distribution and, therefore, abused its discretion.

We are not persuaded by AOL's argument that courts must defer to the parties' freely-negotiated settlement, or AOL's reliance on the statement from Rodriguez that judicial review "must be limited to the extent necessary to reach a reasoned judgment that the agreement is not the product of fraud or overreaching by, or collusion between, the negotiating parties, and that the settlement, taken as a whole, is fair, reasonable and adequate to all concerned." Rodriguez, 563 F.3d at 965 (internal quotation marks and citation omitted). This argument conflates two separate inquiries relating to class settlements: (1) whether the class settlement, "taken as a whole, is fair, reasonable, and adequate to all concerned," id.; and (2) whether the distribution of the approved class settlement complies with our standards governing cy pres awards. McKinney does not argue that the Settlement fails to adequately compensate Plaintiffs' injuries; instead, he argues that the (presumptively adequate) Settlement fails to comport with our established standards for cy pres distribution in Six Mexican Workers. A proposed cy pres distribution must meet these standards regardless of whether the award was fashioned by the settling parties or the trial court.

We are also not persuaded by the parties' claims that the size and geographic diversity of the plaintiff class make it "impossible" to select an adequate charity. It is clear that all members of the class share two things in common: (1) they use the internet, and (2) their claims against AOL arise from a purportedly unlawful advertising campaign that exploited users' outgoing email messages. The parties should not have trouble selecting beneficiaries from any number of non-profit organizations that work to protect internet users from fraud, predation, and other forms of online malfeasance. If a suitable cy pres beneficiary cannot be located, the district court should consider escheating the funds to the United States Treasury. See Six Mexican Workers, 904 F.2d at 1309.

Class certification upheld in Amgen securities fraud class action

Thu, 10 Nov 2011 03:57:48 +0000

A panel of appellate judges on the 9th Circuit Court of Appeals unanimously upheld a class certification order holding that a securities fraud lawsuit against Amgen could be maintained as a class action.

To obtain class certification in a 10b-5 securities fraud
case, the plaintiff, as required by Federal Rule of Civil Procedure 23(b)(3), must convince the district court that the element of reliance is common to the class. t court that the element of reliance is common to the class. The Supreme Court
has held that this can be done in an appropriate case by invoking the “fraud-on-the-market” presumption — the principle that the market price of a security traded in an efficient market reflects all public information and therefore that a buyer
of the security is presumed to have relied on the truthfulness of that information in purchasing the security. Were it not for the fraud-on-the-market presumption, a plaintiff seeking class certification would be required to show the impossible — reliance by each individual prospective class member who bought the stock.
What must a plaintiff do to invoke the fraud-on-the-market presumption in aid of class certification?

Today we join the Third and Seventh Circuits in holding that the plaintiff must (1) show that the security in question was traded in an efficient market (a fact conceded here), and (2) show that the alleged misrepresentations were public (a fact not contested here). As for the element of materiality, the plaintiff must
plausibly allege — but need not prove at this juncture — that
the claimed misrepresentations were material. Proof of materiality, like all other elements of a 10b-5 claim, is a merits issue that abides the trial or motion for summary judgment. Likewise, rebuttal of the fraud-on-the-market presumption, at
least by showing that the alleged misrepresentations were not
material, is a matter for trial or summary judgment, not a matter to be taken up in a class certification motion.

In this case, the plaintiff plausibly alleged that several of
the defendants’ public statements about Amgen’s pharmaceutical products were false and material. Coupled with the concession that Amgen’s stock traded in an efficient market, this was sufficient to invoke the fraud-on-the-market presumption
of reliance. The district court did not abuse its discretion in certifying the class.

This decision brings the 9th Circuit position on certifying securities fraud class action in line with the dominant class action standards but in contrast with the 5th Circuit.

Judge Illston grants preliminary approval of BMW engine defect class action settlement

Wed, 09 Nov 2011 23:53:07 +0000

U.S. district court judge Susan Illston has preliminarily approved a settlement between BMW and a class of purchasers consisting of "All Persons in the United States who are now or have been at any time owners of record or lessees of any of the following types of vehicles: BMW Model Years 2007-2010 335i models; Model Years 2008-2010 135i, 535i and X6 xDrive35i Sports Activity Coupes; Model Years 2009 - 2010 Z4 Roadster sDrive35i vehicles."

According to the class action complaint, these vehicles had BMW’s N54 engines and contained defective components that created loud noise and impeded acceleration. after discovering the design flaw, BMW stopped replacing the defective components and instead secretly altered the vehicle’s software in a way that kept it from making noise but did so by leaking exhaust, hurting performance.

The class action settlement provides for replacement of the defective component, a high pressure fuel pump, and $44 per day rental car. Of course, that will only get the class action members rental of a subcompact, not a luxury sports sedan.

The St. Joe Companies (JOE) investors file derivative suit; is class action next?

Mon, 25 Jul 2011 14:06:09 +0000

A new front has been opened in the ongoing saga of St. Joe Companies (NYSE: JOE): a derivative suit filed by outside investors. St. Joe is currently in a tug of war between hedge funds. The bears accuse it of fraud, failing to mark down land as its value deteriorated. The bulls tout it as the greatest value stock around, pointing out its vast Florida real estate holdings.

The derivative suit is based on a report by David Einhorn of Greenlight Capital, as well as the Company's admission in SEC filings that:

the Company received notice from the SEC that it has issued a related order of private investigation. The order of private investigation covers a variety of matters for the period beginning January 1, 2007 including (a) the antifraud provisions of the Federal securities laws as applicable to the Company and its past and present officers, directors, employees, partners, subsidiaries, and/or affiliates, and/or other persons or entities, (b) compliance by past and present reporting persons or entities who were or are directly or indirectly the beneficial owner of more than 5% of the Company's common stock (which includes Fairholme Funds, Inc., Fairholme Capital Management L.L.C. and the Company's current Chairman Bruce R. Berkowitz) with their reporting obligations under Section 13(d) of the Exchange Act, (c) internal controls, (d) books and records, (e) communications with auditors and
(f) financial reports.

Fuwei Films securities fraud class action settlement approved; will it be a template for other China stock fraud cases?

Sat, 30 Apr 2011 18:40:00 +0000

There have been a spate of securities fraud class actions recently involving US-listed Chinese companies, including reverse takeovers (China RTOs). While Fuwei Films was not itself an RTO, it may give an idea of the range of settlement that class members can expect in other China stock cases. Here are the details:

As previously disclosed, in September 2010, pursuant to a settlement agreement and subject to the Court's approval, Plaintiffs agreed to accept US$2.15 million in full and final settlement of all claims they have or may have against the Company, certain of its present and former officers, directors, and shareholders, and the underwriters. Fuwei Films agreed to contribute US$1.0 million towards the settlement.

The Company's management believed that Plaintiffs' allegations were without merit. However, in recognition of the attendant risks and costs of continued litigation, and the benefits of resolving the same, the Board of Directors unanimously consented to settle this case.

"We are pleased that the court finally approved the settlement agreement, which we believe is in the best interests of the Company and its shareholders." said Mr. Xiaoan He, Chairman and CEO of Fuwei Films, "We look forward to closing this chapter and focusing on creating value for the shareholders."