Procedural history

In August 2016, the US Judicial Conference’s Committee on Rules of Practice and Procedure (“Committee”) published proposed amendments to Federal Rule of Civil Procedure 23 governing class actions. The proposed amendments were available for public comment from August 12, 2016 through February 15, 2017. The Committee held several public hearings to discuss the proposed amendment in late 2016 and early 2017. The proposed changes were submitted to the Supreme Court on October 4, 2017. If the Supreme Court accepts the Committee’s proposal, the changes will become effective on December 1, 2018.

Proposed changes and practical implications

The proposed amendments are intended to modernize the notice process, to allow for notice to class members via electronic communications; impose affirmative obligations on a court to consider specific factors relevant to the fairness, reasonableness, and adequacy of a proposed settlement; to curb abuses from “bad faith” objectors; and clarify that certain orders granting “preliminary approval” of class certification may not be appealed.. Each is summarized briefly below.

UNITED STATES – Companies that operate in Illinois should take notice of the flurry of litigation that has arisen under the Illinois Biometric Information Privacy Act (“BIPA”), 740 ILCS 14/1, et seq.  The State of Illinois promulgated the BIPA in 2008 amid the public’s growing concerns relating to companies’ collection of biometric data for business and security purposes.  The General Assembly cited “finger-scan technologies at grocery stores, gas stations, and school cafeterias” as an example of the biometric data that it intended to regulate.  740 ILCS 14/5(b).  Under the BIPA, among other requirements, a company must inform the person whose biometric data is being collected that it is collecting their data and specific details relating to its data collection and preservation.  740 ILCS 14/15(b).  Companies must also receive a “written release” from the person before collecting any biometric data.  Id.

Significantly, the BIPA provides a private right of action for any person aggrieved by a BIPA violation, and allows a claimant to recover liquidated damages of $1,000 for each negligent violation, and $5,000 for each intentional or reckless violation (or actual damages, whichever is greater).  740 ILCS 14/20.  The BIPA also expressly provides that the prevailing party in a BIPA action may recover its reasonable attorneys’ fees and costs.  Id.

UNITED STATES – On October 24, 2017, the Senate voted 51-50 to nullify a Consumer Financial Protection Bureau (CFPB) regulation that restricted banks and credit card companies from requiring customers to submit to mandatory arbitration in the event of a dispute. Vice President Mike Pence provided the tiebreaking vote. The Senate’s resolution now goes to President Trump, who is expected to sign the resolution into law.

The rule, which was introduced by the CFPB in July but had not yet taken effect, would have restricted financial institutions from including mandatory arbitration clauses in the fine print of its consumer contracts. This restriction on arbitration agreements would have enabled aggrieved consumers to bring class-action lawsuits against financial institutions with increased ease. Mandatory arbitration clauses are commonly utilized in many types of consumer contracts across the financial industry, including credit card agreements and private student loans. As a result of the Senate’s vote, financial institutions will face fewer class-action suits from its consumers.

UNITED STATES – On August 25, 2017, the Seventh Circuit Court of Appeals offered a stern reminder of its distaste for “hollow class-action settlements” that benefit the plaintiffs’ lawyers but not the plaintiffs themselves. See In re Subway Footlong Sandwich Mktg. & Sales Practices Litig., No. 16-1652, 2017 U.S. App. LEXIS 16260 (7th Cir. 2017).  In In re Subway, the Seventh Circuit evaluated a class action settlement that arose from claims (not ultimately supported in the lawsuit) that Subway’s “foot long sub” sandwiches (“footlong subs”) did not always live up to their twelve-inch billing.  In reversing the district court’s approval of the settlement, the Seventh Circuit reinforced the significance of Rule 23(a) of the Federal Rules of Civil Procedure — requiring that class action representatives “fairly and adequately protect the interests of the class” — and Rule 23(e)(2) — requiring that class action settlements be “fair, reasonable and adequate.”  The Seventh Circuit also reinforced the uniqueness of the class action context, in which settlement agreements not only can be, but must be, scrutinized by the district court judge with “the high duty of care that the law requires of fiduciaries.”  In so ruling, the Seventh Circuit made clear that district courts facing proposed class action settlements, and the lawyers who prepared them, each have an obligation to ensure that the real people who brought the case are the ones who receive Rule 23’s protection.

The federal Consumer Financial Protection Bureau (CFPB) issued what is being labeled a “brazen” rule[1] on Monday, July 10, 2017, prohibiting financial firms from using class action waivers to manage consumer complaints and disputes.[2] As we have reported in previous client alerts and blog posts[3], the Supreme Court of the United States has previously upheld consumer arbitration clauses and class action waivers, resulting in a significant increase in the adoption of such clauses by consumer-facing…

On May 9, 2017, the Fifth Circuit, in Slade v. Progressive Security Insurance Company, affirmed a lower court’s decision finding that a class-wide damages model did not preclude class certification.  However, the Fifth Circuit warned that the plaintiffs’ waiver of the class members’ ability to contest a factor utilized in the damages model could ultimately preclude certification.

In Slade, plaintiffs alleged that their insurance company paid inadequate amounts on their claims for automobile damages.  In particular, plaintiffs contended that, in determining how much to pay on an automobile claim, the company improperly relied on a WorkCenter Total Loss tool to calculate the base value for total loss vehicles.  The company would then adjust that value using its own internal system based upon the car’s condition.  Plaintiffs alleged that the company should have used base amounts provided in more commonly-used sources, such as the National Automobile Dealers Associate Guidebook or the Kelly Blue Book.  Notably, at the appellate level, plaintiffs agreed that they would not challenge defendants’ condition adjustments.

The California Supreme Court has narrowed the protection of arbitration agreements with class action waivers with its holding in McGill v. Citibank that arbitration agreements may not preclude public injunctive relief .

In McGill, Citibank was sued by a credit card holder who claimed that its credit insurance program violated the California UCL, CLRA, false advertising law, and insurance code. Among other things, the consumer sought an injunction prohibiting Citibank from continuing the challenged practices. The trial court granted in part the bank’s motion to compel arbitration based on the arbitration clause in the credit card agreement. It denied the motion as it related to the request for injunctive relief by applying the pre-Concepción California Broughton-Cruz rule which holds unenforceable agreements to arbitrate claims for public injunctive relief under the CLRA, UCL, or false advertising law.

Consumer-facing corporations had been hopeful over the past two years that a ruling from the United States Supreme Court, in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), would deter and diminish the prevalence of consumer class actions in the U.S. But, when the Supreme Court issued its decision in May 2016, attorneys representing both plaintiffs and defendants claimed victory, foreshadowing the competing interpretations that lower courts would subsequently have for the decision.

The Supreme Court opined in Spokeo that a consumer did not have the right (or “standing”) to bring a class action by alleging only a bare procedural violation of a statute divorced from any concrete harm. The defendants’ class action bar believed the Spokeo decision would curtail all class actions premised on bare claims of technical violations of consumer protection statutes causing no harm. However, instead of curbing such cases, the decision resulted in a split among the federal courts as to the meaning of “concrete harm.” Thus, the decision spawned an increase in litigation by affording both sides the ability to frame the decision in their favor, with the outcome dependent upon a court’s unpredictable interpretation.

In order to avoid civil and criminal penalties, any commercial company producing consumer goods or related products, like automotive vehicles, knows it will need to fashion its business around meeting certain product safety standards. For example, for consumer products, companies must ensure that their products comply with several related statutes and regulations, including the Consumer Product Safety Act, 15 U.S.C. § 2051 et seq., the Consumer Product Safety Improvement Act, Pub. L. No. 110-314, 122 Stat. 3016, and the Federal Hazardous Substances Act, 15 U.S.C. § 1261 et seq., as implemented by the U.S. Consumer Product Safety Commission. Likewise, for automotive vehicles, companies must comply with the Motor Vehicle Safety Act (“MVSA”), 49 U.S.C. § 30101 et seq. and the regulations set forth by the National Highway Traffic Safety Administration. Importantly, both sets of laws include a mechanism by which products can and should be recalled if found to be defective and unsafe subsequent to being sold to consumers. Moreover, such recall efforts typically take the form of a multimedia campaign, including but not limited to mass publications, individual mailings, and targeted telephone calls, in part because such efforts allow companies to provide notice of safety issues to the greatest subset of customers in the most efficient, quick, and cost-effective way possible.