Gibbons Law Alert

Gibbons Law Alert

Tagged: Appeal

Eleventh and Seventh Circuits Hold Class and Collective Arbitration Are Questions of Arbitrability

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Posted in Class Action Defense

On November 5, 2018

In two recent precedential decisions, JPay, Inc. v. Kobel and Herrington v. Waterstone Mortgage Corp., the Eleventh and Seventh Circuits, respectively, held that whether an arbitration may proceed on a class-wide basis (or as a collective action when a claimant is seeking relief under the Fair Labor Standard Act) is a “question of arbitrability” to be decided by the courts, unless the parties specifically delegate that responsibility to an arbitrator. The Supreme Court previously noted the lack of a majority decision on the subject in Stolt-Nielsen S.A. v. AnimalFeeds International Corp. and declined to address this question in Oxford Health Plans LLC v. Sutter, leaving the decision to the circuits. In JPay, the dispute arose when two plaintiffs, users of JPay’s fee-for-service amenities to send money to inmates, filed suit alleging the service dissuaded users from sending funds through free paper money orders, and that the fees charged by JPay were “exorbitant” and used to “fund kickbacks to corrections departments.” JPay’s Terms of Service included a provision that the American Arbitration Association (AAA) would arbitrate and govern any disputes, claims, or controversies that arose between the parties and “[t]he ability to arbitrate the dispute, claim or controversy shall likewise be determined in arbitration.” The plaintiffs filed a demand for arbitration on a class basis, and, in response,...

Third Circuit Relies on Spokeo to Shed Light on What is Needed For Article III Injury-in-Fact Standing

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Posted in General Litigation

On October 16, 2018

In Long v. SEPTA, the Third Circuit considered whether and when a violation of a statute is a standing-conferring injury-in-fact satisfying the Constitution’s “case or controversy” requirement. At issue in Long was whether the plaintiffs, who were denied employment by SEPTA when background checks disclosed disqualifying criminal histories, could sue SEPTA for failing to provide them with copies of their rights under the Fair Credit Reporting Act (FCRA) and copies of their background consumer reports before being denied employment, both of which are required by FCRA. The district court dismissed the complaint, stating that the plaintiffs did not allege a “concrete injury in fact,” because the alleged FCRA violations were “bare procedural violations.” On appeal, the Third Circuit affirmed the dismissal of the claim based on SEPTA’s failure to provide the plaintiffs notice of their FCRA rights. The Court held that, because the plaintiffs understood their rights well enough to bring the suit, they were not injured by SEPTA’s failure to give them notice of those rights and, therefore, lacked standing to pursue the claim. But the Third Circuit reversed the dismissal of the claim based on SEPTA’s failure to provide copies of the plaintiffs’ consumer reports. The Third Circuit applied the two tests “for whether an intangible injury can be . . . concrete”...

In Affirming Dismissal of Putative Securities Class Action, Third Circuit Provides Important Guidance for Evaluating Sufficiency of Scienter Allegations

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Posted in Securities

On October 4, 2018

A recent precedential decision from the Third Circuit may make it more difficult for putative securities class actions to withstand motions to dismiss and provides useful guidance for district courts in making the often difficult determination whether a complaint adequately pleads the strong inference of scienter necessary to sustain a federal securities fraud claim. In In re Hertz Global Holdings, Inc., certain pension funds brought a securities fraud class action alleging that Hertz Global Holdings, Inc. and certain of its current and former executives violated sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. Plaintiffs’ complaint relied heavily on a financial restatement Hertz issued with its fiscal year 2014 Form 10-K, which corrected errors to Hertz’s 2011, 2012, and 2013 financial statements. According to the restatement, Hertz had overstated its pre-tax income by a total of $215 million and its net income by a total of $132 million during the three-year period. The restatement explained that “an inconsistent and sometimes inappropriate tone at the top was present under then existing senior management” which “resulted in an environment which in some instances may have led to inappropriate accounting decisions and the failure to disclose information critical to . . . effective review.”  Plaintiffs alleged that the restatement constituted an admission that...

New Jersey Appellate Division Finds Individual Causation Issues Related to Ascertainable Loss Detrimental to Class Certification

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Posted in Class Action Defense

On September 21, 2018

In Polanco v. Star Career Academy, the New Jersey Appellate Division vacated a $10.7 million final verdict against Star Career Academy (“Star”), a New Jersey for-profit school. At issue in the New Jersey Consumer Fraud Act (“CFA”) class action trial below was whether Star concealed and failed to disclose necessary information to Surgical Technology (“ST”) program applicants and students. Specifically, it was alleged that the school did not have the required accreditation needed for students to gain employment upon graduation. Trial resulted in a verdict against Star in the amount of $9 million, with a $1.7 million fee award. On appeal, the appellate panel first found that students seeking an education from a school like Star have the right to know, before enrollment, whether the school has proper accreditation. This is to afford students the opportunity to attend an accredited institution instead. The panel found that because the record contained evidence that Star had made material misrepresentations to students regarding the lack of proper accreditation, Star’s pre-trial summary judgment motion had properly been denied. However, the appellate panel concluded that the trial court had improperly certified the class because the class-wide claims did not predominate over individual allegations by the class members for the following reasons: First, there was a “disparate series of alleged misrepresentations,”...

Third Circuit Affirms Remand of Class Action to State Court Under “Local Controversy” Exception

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Posted in Class Action Defense

On July 25, 2018

In a decision that may broaden application of the “local controversy” exception to removal under the Class Action Fairness Act (“CAFA”), 28 U.S.C. § 1332(d)(4), the Third Circuit recently affirmed the remand of a putative class action to New Jersey state court holding a corporate defendant with New Jersey citizenship could be considered a “local defendant” because it did not fully divest itself of liability after previously transferring its potential liabilities to a Delaware entity and, thus, remained a real party in interest. In Walsh v. Defenders, Inc., putative class members filed their complaint in New Jersey Superior Court alleging that the contracts they entered into with Defendants related to the class members’ purchase of home security equipment and monitoring services violated New Jersey’s Truth-in-Consumer Contract, Warranty, and Notice Act (“TCCWNA”) and the New Jersey Consumer Fraud Act (“NJCFA”). Defendants removed the matter to federal court asserting CAFA jurisdiction, and Plaintiff moved to remand under CAFA’s local controversy exception. After initially denying Plaintiff’s motion to remand, the District Court granted Plaintiff’s motion for reconsideration when additional discovery showed that the only defendant with New Jersey citizenship, ADT SSI-Tyco, had contracted with 35.3% of the putative class members. Defendants appealed and argued that ADT SSI-Tyco should have been ignored in the District Court’s diversity of citizenship...

Wrap-Up of United States Supreme Court’s 2017-2018 Term

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Posted in General Litigation

On July 11, 2018

With the close of the United States Supreme Court’s 2017-18 term, we offer this wrap-up, focusing on decisions of special interest from the business and commercial perspective (excluding patent cases): In a much talked-about decision in the antitrust field, the Court held in Ohio v. American Express Co. that American Express’s anti-steering provisions in its merchant contracts, which generally preclude merchants from encouraging customers to use credit cards other than American Express, are not anticompetitive and therefore do not violate Section 1 of the Sherman Act. In so holding, the Court found that credit card networks are two-sided transaction platforms, one side being the merchant and the other side being the merchant’s customer. Thus, when assessing whether the anti-steering agreements are anticompetitive, the effects on both sides of the platform must be considered. The plaintiffs’ proof that American Express had increased its merchant fees over a period of time was insufficient to show an anticompetitive effect because it neglected the customer side of the platform, where consumers have received the benefit of ever-increasing rewards from credit card companies and other improvements in services that those higher merchant fees enable. Bringing an end to a fight that New Jersey had been waging against the NCAA and professional sports leagues since 2012, the Court paved the way for...

Third Circuit Holds Anti-Assignment Clauses in ERISA Plans Are Enforceable

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Posted in General Litigation

On June 27, 2018

The Third Circuit, in a decision that may limit the remedies available to medical providers in the event of non-payment, recently clarified that “anti-assignment clauses in ERISA-governed health insurance plans as a general matter are enforceable.” In so holding, the Third Circuit joins all other circuit courts that have addressed the issue. On the basis of that clause, the Court held that the plaintiff out-of-network health care provider seeking reimbursement for a participant’s medical claims lacked standing to pursue the claim against the insurers on the participant’s behalf. In October 2015, the plaintiff provider performed shoulder surgery on a patient who was covered by an ERISA-governed health-insurance plan. In billing the individual for the procedure, the provider – because it was not part of the plan’s provider network – charged amounts that far exceeded the plan’s reimbursement limits for the surgery. The plan’s insurers applied its out-of-network limit in processing the claim and reimbursed only a fraction of the total amount charged. The provider appealed the claim on the patient’s behalf. At the same time, the provider had the patient sign an assignment-of-benefits form which assigned to the provider the patient’s right to pursue claims under his health-insurance plan for the surgery. The insurers denied the appeal, and the provider sued alleging ERISA violations. The insurers...

Access Denied: NJ Appellate Division Clarifies Shareholder’s Right to Inspection of Corporate Records

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Posted in General Litigation

On June 25, 2018

In R.A. Feuer v. Merck & Co., Inc., the New Jersey Appellate Division, in a to-be-published opinion, narrowly construed the scope of a shareholder’s right to inspect a corporation’s records under N.J.S.A. 14A:5-28 and the common law. A Merck & Co, Inc. shareholder appealed from the dismissal of his complaint seeking various corporate records, including twelve broad categories of documents. The shareholder sought evidence that Merck acted wrongfully in its acquisition of another pharmaceutical firm. After Merck appointed a working group to assess the shareholder’s concerns, the shareholder requested documents pertaining generally to the working group’s activities, communications, and formation; documents provided to the board regarding the target pharmaceutical firm and two of its drugs; and the board’s considerations of the shareholder’s demands and the working group’s recommendation. Merck disclosed pertinent minutes of the board and of the working group, but denied the remainder of the shareholder’s demand. The trial court determined that the shareholder’s demand exceeded the scope of the “books and records of account, minutes, and record of shareholders,” which the shareholder had a statutory right to inspect and that the common law did not expand that statutory right. The Appellate Division affirmed, narrowly construing the plain language of N.J.S.A. 14A:5-28(4). According to the court, “minutes” refers to “shareholder, board, and executive committee...

Third Circuit Affirms the Dismissal of a Putative Class Action against TD Bank for Failure to Meet Pleading Requirements

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Posted in Class Action Defense

On June 18, 2018

Last month, the Third Circuit upheld the dismissal of a putative class action against TD Bank, finding that plaintiffs’ conclusory allegations lacked sufficient evidence and failed to satisfy Rule 9(b)’s heightened pleading standard for claims that sound in fraud. In MZL Capital Holdings, Inc. et al. v. TD Bank, N.A. et al., two account holders with TD Bank filed a proposed class action accusing the Bank of obscuring its exchange rates and improperly charging an embedded fee for converting foreign currency, thereby defrauding its customers in violation of the New Jersey Consumer Fraud Act. Shortly thereafter, plaintiffs amended their complaint to add claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of numerous other state consumer-protection laws. TD Bank moved to dismiss plaintiffs’ claims for failure to state a claim, and the District Court granted TD Bank’s motion, dismissing all of plaintiffs’ claims. On appeal, the Third Circuit affirmed the district court’s decision, concluding that plaintiffs’ claims were inadequately pled. At the outset, the Court re-affirmed the basic principle that claims brought under the Consumer Fraud Act sound in fraud and therefore must comply with Rule 9(b)’s particularity requirement. The Third Circuit held that plaintiffs’ general allegations, which failed to identify any provision in their agreement...

Third Circuit Holds Agreement to Arbitrate in Illusory Forum Is Unenforceable

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Posted in Class Action Defense

On June 11, 2018

The Third Circuit Court of Appeals recently held, in a precedential decision, that when parties enter an agreement directing them to arbitrate in an illusory forum, the forum selection clause is not severable and the entire agreement to arbitrate is unenforceable. In MacDonald v. CashCall, Inc. et al., a plaintiff brought suit on behalf of himself and a putative class, alleging a loan agreement between the parties was unconscionable and usurious. The agreement at issue included “(1) a provision requiring that all disputes be resolved through arbitration conducted by a representative of the Cheyenne River Sioux Tribe (‘CRST’) and (2) a clause that delegates questions about the arbitration provision’s enforceability to the arbitrator.” The defendants moved to compel arbitration. The district court declined to compel arbitration because the agreement at issue expressly disavowed federal and state law, thus rendering the arbitration provisions invalid as an impermissible prospective waiver of federal and state statutory rights. The district court further held that the arbitration agreement was unenforceable because the forum was illusory, as the selected forum did not conduct arbitrations or have rules for conducting arbitrations. The Third Circuit affirmed the district court’s conclusion that the loan agreement’s arbitration provision cannot direct arbitration to an illusory forum—here, the CRST. Similar to its sister circuits, the Third Circuit...

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