California Consumer Finance Litigation

Ninth Circuit Reverses Approval of Class Settlement: Incentive Awards to Representatives Cannot Be Conditioned on Supporting Settlement

Jessica E. Hawk — Mon, 13 May 2013 19:29:15 -0800

The U.S. Court of Appeals for the Ninth Circuit recently reversed a district court's approval of a class action settlement in a case involving claims under the Fair Credit Reporting Act and its California counterpart. In Radcliffe v. Experian Info. Solutions, Inc., the court held that the class representatives and class counsel had not adequately represented the interests of the absent class members and thus had deprived them of due process.

The settlement agreement conditioned incentive awards to the named plaintiffs on their support of the settlement, and the court concluded that this created a conflict of interest that essentially decimated the adequacy of the representation of the class. "We once again reiterate that district courts must be vigilant in scrutinizing all incentive awards to determine whether they destroy the adequacy of the class representatives."

The plaintiffs in Radcliffe are consumers with debts discharged in bankruptcy. They alleged that after their bankruptcies were concluded, their consumer credit reports contained information indicating they had been delinquent in making payments on the discharged debts. Some additionally alleged the credit reporting agencies failed to investigate these errors adequately.

After reaching a settlement for injunctive relief, the named plaintiffs and the defendants reached a settlement for monetary relief. Of a $45 million common fund, the settlement agreement stated that some was to pay for "actual damages" that were to be awarded in predetermined amounts to class members with proof of certain forms of damage to their credit reputation, some was for "convenience" payments to general class members, and some was to pay attorney fees as well as incentive awards to the class representatives. In actuality, the district court approved $16.7 million in attorney's fees, meaning that approximately $28 million was left to pay class claims, incentive awards and the costs of settlement administration. Some former named plaintiffs, as well as other objectors, opposed the settlement in the district court and on appeal.

The Ninth Circuit's decision to reverse approval of the settlement turned on a provision of the settlement agreement that the court found was intended to encourage the class representatives to support the settlement. The court found that the provision created an apparently irreparable conflict of interest that rendered the class representatives and class counsel inadequate to represent the absent class members. It further found that the significant disparity between the amount of the awards and the amounts to which absent class members might be entitled further exacerbated the conflict:

"Instead of being solely concerned about the adequacy of the settlement for the absent class members, the class representatives now had a $5,000 incentive to support the settlement regardless of its fairness and a promise of no reward if they opposed the settlement. The conditional incentive awards removed a critical check on the fairness of the class-action settlement, which rests on the unbiased judgment of class representatives similarly situated to absent class members." (Emphasis added.)

The court further found that class counsel had inadequately represented the class. By denying even the existence of a conflict of interest created by the conditional incentive awards, much less attempting to address the conflict, class counsel was inadequate to represent the class. The opinion noted that counsel nonetheless should be entitled to fees for any benefit provided to the class, though they should not be awarded fees for the time spent on the illegitimate settlement. One judge on the panel, a sitting district court judge, concurred in the opinion of the three-judge panel but concluded that class counsel "should be disqualified from participation in any fee award ultimately approved by the district court."

Court of Appeal Reverses Denial of Class Certification Based on Rees-Levering

Daniel O'Rielly — Wed, 01 May 2013 14:06:10 -0800

In Ramirez v. Balboa Thrift and Loan, the 4th District Court of Appeal reversed the trial court's denial of plaintiff's class certification motion, holding the trial court based its ruling on an inaccurate interpretation of Rees-Levering.

In Ramirez, plaintiff purchased a car with financing assigned to defendant Balboa, defaulted on payments and surrendered the car. Balboa sent plaintiff a "Notice of Intention to Dispose of Motor Vehicle" (NOI). Plaintiff did not seek to reinstate the loan, but later sent a $25 payment. Balboa wrote off the loan and reported the account as charged off on plaintiff's credit report. Plaintiff filed a putative class action alleging a 17200 cause of action based on alleged violations of Rees-Levering. Specifically, plaintiff alleged that Balboa's NOI violated section 2983.2(a)(2) of Rees-Levering because it did not contain the specific "conditions precedent" to reinstatement of the loan.

Balboa moved for summary judgment and/or summary adjudication based on the argument that plaintiff could not prevail on the 17200 claim because Balboa had an independent basis to deny reinstatement under section 2983.3(b)(1), because of plaintiff's alleged misrepresentations on the original credit application. The Court denied the motion, finding there were triable issues of fact related to whether plaintiff lied on the application.

Plaintiff moved for class certification. The trial court denied the motion, finding that individual issues of fact predominate over common issues because it was "unclear whether there were grounds to deny reinstatement as to each individual class member pursuant to Civil Code section 2983.3(b)(1)." Plaintiff appealed.

The Court of Appeal reversed, holding that the trial court's ruling was based on the improper legal conclusion that Balboa would be entitled to assert a statutory exception as a valid affirmative defense to the UCL claim alleged by class members who were given a reinstatement right in the NOI. The Court stated: "The statutes cannot be reasonably interpreted to allow a creditor who failed to give timely notice of a statutory exception to the mandatory reinstatement right to later alter its position and retroactively deny reinstatement, regardless whether the retroactive denial is for affirmative or defensive purposes. Any other conclusion would require that we ignore the plain language of sections 2983.2(a)(2) and 2983.3(b)."

The Court remanded for the trial court to reconsider plaintiff's class certification motion.

Ninth Circuit En Banc Panel Upholds Arbitration Provision, Declines to Consider Whether Concepcion Preempts Broughton-Cruz.

Kathleen L. Ford — Mon, 22 Apr 2013 17:23:53 -0800

Last year, in Kilgore v. Keybank, a three judge panel held that the Federal Arbitration Act (FAA) preempted California's Broughton-Cruz rule, which exempts a public injunction claim from arbitration. (See Broughton v. Cigna and Cruz v. Pacificare). In Kilgore, former students of Silver State, a now-defunct private helicopter school, filed a putative class action case against Key Bank and other defendants for violations of California's Unfair Competition Law after the school closed its doors and filed for bankruptcy, leaving plaintiffs without a diploma, certificate, or other accreditation. Plaintiffs each borrowed between $50,000 and $60,000 from KeyBank to finance their vocational education and signed loan contracts containing an arbitration clause which stated that plaintiffs waived their rights to litigate any claim in court or proceed with any claim on a class basis unless the plaintiffs opted out of the arbitration clause by a date certain. The three judge panel held that the Broughton-Cruz rule did not survive the Supreme Court's landmark decision in AT&T Mobility LLC v. Concepcion because the Rule "prohibits outright the arbitration of a particular type of claim" and reversed the district court's denial of the plaintiffs' motion to compel arbitration.

The en banc panel, however, declined to rule on the issue of whether Concepcion preempts Broughton-Cruz. Instead, the Court found that it did not need to reach the broad issue of whether or not Broughton-Cruz remains viable because the plaintiffs' claims in this instance did not fall within Broughton-Cruz' purview. (See Kilgore v. Keybank.) Specifically, the Court held that plaintiffs' claims did not fall within the "narrow exception to the rule that the FAA requires state courts to honor arbitration agreements" because the requested prohibitions against reporting defaults or seeking enforcement of the subject notes would only benefit approximately 120 putative class members. The Court noted that the central premise of Broughton-Cruz is that "the judicial forum has significant institutional advantages over arbitration in administering a public injunctive remedy, which as a consequence will likely lead to the diminution or frustration of the public benefit if the remedy is entrusted to arbitrators." The Court found that the concern for the public at large was inapplicable here because, by plaintiffs' own admission, the class affected by the alleged practices is small, the alleged statutory violations have ceased, and there is no real prospective benefit to the public at large from the relief sought by plaintiffs.

The Court also held that the requested injunction against disbursing loans to sellers who do not include Holder Rule language in their contracts fell outside of the Broughton-Cruz rule because it only related to past harms. As alleged in the plaintiffs' complaint, KeyBank has since completely withdrawn from the private school loan business and is not engaging in other comparable transactions.

Consequently, the en banc panel reversed the denial of defendants' motion to compel arbitration and remanded with instructions to compel arbitration.

Judge Pregerson strongly dissented on the grounds that the arbitration provision was unenforceable because it was both procedurally and substantively unconscionable. In his dissent, he stated that Key Bank "participated in the fraud that Silver State perpetrated on unwitting students" and that the "students deserve," and the "law requires," that their claims be heard and adjudicated by a court.

HAMP Requires Mortgage Servicers to Offer Permanent Loan Modification to TPP-compliant Borrowers

Anne M. Hunter — Mon, 22 Apr 2013 09:45:39 -0800

In West v. JPMorgan Chase, a California Court of Appeal held that when a defaulting mortgage borrower enters into a temporary loan payment reduction plan with the mortgage servicer under the Home Affordable Mortgage Program ("HAMP"), and when the borrower complies with the terms of the plan, HAMP requires the loan servicer to offer the borrower a permanent loan modification.

In 2008, Congress responded to the rapidly deteriorating financial market conditions by enacting the Emergency Economic Stabilization Act, the centerpiece of which was the Troubled Asset Relief Program ("TARP"). TARP required the Secretary of the Treasury to "implement a plan that seeks to maximize assistance for homeowners and . . . encourage the servicers of the underlying mortgages . . . to take advantage of . . . available programs to minimize foreclosures." 12 U.S.C. 5219(a). Pursuant to that authority, the Treasury Secretary implemented HAMP, which induced lenders, with financial incentives, to refinance mortgages with more favorable interest rates and allow homeowners to avoid foreclosure.

In West, the plaintiff, a homeowner who had defaulted on her mortgage payments, agreed to a Trial Plan Agreement ("TPA") under HAMP with her mortgage lender, Washington Mutual Bank. Pursuant to the TPA, Washington Mutual was to consider a permanent workout solution for her loan at the end of the trial period if West had complied with the TPA's terms. West complied with the terms of the TPA, including making all of her reduced loan payments on time. But at the end of the trial period, JPMorgan Chase Bank, NA. ("Chase"), which had acquired the loan from Washington Mutual, declined to offer West a permanent modification of her loan. West continued to make on-time mortgage payments and followed Chase's instructions to appeal the denial, but Chase sold West's house at a trustee sale despite having allegedly told West, two days beforehand, that no foreclosure was planned.

West sued Chase for fraud, breach of contract, negligent misrepresentation, unfair competition, promissory estoppel, conversion, to set aside or vacate the trustee sale, slander of title, and to quiet title. The trial court sustained Chase's demurrer without leave to amend. Chase argued that the TPA did not require Chase to offer West a permanent modification of her loan.

On appeal, the Court of Appeal reversed with respect to the causes of action for fraud, breach of contract, negligent misrepresentation, unfair competition, and promissory estoppel. In relevant part, the court agreed with the reasoning of the Seventh Circuit Court of Appeals in the Wigod v. Wells Fargo case: HAMP requires mortgage lenders and servicers to offer a permanent loan reduction to all borrowers who have complied with the terms of a temporary loan payment reduction plan. Accordingly, the appellate court concluded that despite the language in the TPA, Chase was obligated to offer West a permanent modification of her loan and that West had adequately stated claims for fraud, breach of contract, negligent misrepresentation, and promissory estoppel.

First Appellate District Upholds Arbitration Provision in Adhesive Consumer Contract

Jessica E. Hawk — Fri, 05 Apr 2013 05:00:00 -0800

After an extensive analysis of procedural and substantive unconscionability, the First District California Court of Appeal upheld an arbitration provision contained in an adhesive, form automobile finance contract. In Vasquez v. Greene Motors, Inc., the First District reversed the trial court's order finding procedural and substantive unconscionability and denying arbitration on those grounds. Citing AT&T Mobility LLC v. Concepcion, the appellate court also rejected the plaintiff's argument that the arbitration provision was unconscionable because it contained a class action arbitration waiver and prohibited the arbitration of "public" claims. The First District ordered the trial court to enter an order directing arbitration under the terms of the sales contract.

Plaintiff Vasquez sued a car dealer and the assignee of his loan for damages in connection with the terms of his auto financing. The trial court denied the defendants' petition to compel arbitration on the ground that the provision was unconscionable. The First District reversed and remanded.

The First District found that the contract was "only minimally" procedurally unconscionable. While it was undoubtedly a contract of adhesion, there was no evidence of oppression, or of "surprise or other sharp practices." The court found no significance in the fact that the plaintiff had failed to read the arbitration provision, which was located on the back side of the single-sheet, double-sided agreement, and noted that "[a] consumer can be expected to turn the contract over."

The standard for substantive unconscionability, the court first noted, recently was clarified by the California Supreme Court in Pinnacle Museum Tower Assn. v. Pinnacle Market Development (US) LLC. The Supreme Court in Pinnacle pronounced that substantive unconscionability requires that a contract term be "so one-sided as to shock the conscience." The court found that none of the agreement's terms satisfied this standard.

The court first rejected the plaintiff's claim that it was substantively unconscionable to require him to pay his own costs of arbitration. The court also found no unconscionability in the arbitration agreement's exemption of self-help remedies and small claims actions, despite the fact that the exemption of self-help remedies clearly was intended to preserve the seller's ability to repossess the car in the event of nonpayment. The court noted that exempting possession rights preserves the intent of the statutes governing repossession, which intend it to operate as an alternative to the judicial process.

The "only suggestion of substantive unconscionability" the court found was in the provision that permitted appeal only of awards for injunctive relief, awards of $0, and awards of more than $100,000. The court noted, however, that the lack of provision for appeal from the denial of injunctive relief was mitigated by the consumer's right to appeal a $0 award, and thus found that the appeal provision did not rise to the level of substantive unconscionability.

The First District noted that the California Supreme Court has granted review in two cases involving the same arbitration provision in the same preprinted form auto sales agreement, Sanchez v. Valencia Holding Co., LLC and Goodridge v. KDF Automotive Group, Inc. The court also noted that two very recently decided appellate court decisions, Flores v. West Covina Auto Group, LLC from the Second District and Natalini v. Import Motors, Inc. from the First District, involve this same contract and raise essentially identical arguments to those raised in Vasquez. Both of those decisions are the subject of of unresolved petitions for review.

U.S. Supreme Court Reverses 3rd Circuit On Class Certification

Kathleen L. Ford — Wed, 03 Apr 2013 08:05:16 -0800

In Comcast v. Behrend, a class-action antitrust case, the U.S. Supreme Court held that the class was improperly certified under Rule 23(b)(3) because the plaintiffs' damages model was not limited to only those damages attributable to plaintiffs' theory of recovery.

In Comcast, subscribers to Comcast's cable-television services alleged that Comcast obtained an illegal monopoly of the cable television market and engaged in conduct designed to exclude and prevent competition. Specifically, the plaintiffs alleged that Comcast and its subsidiaries allegedly "clustered" their cable television operations within the Philadelphia market by swapping their systems outside the region for competitor systems inside the region, thereby eliminating competition and holding prices for cable services above competitive levels. The plaintiffs proposed four theories of antitrust impact which allegedly increased cable subscription rates throughout the Philadelphia area.

The district court certified the class and limited the plaintiffs' four theories of antitrust impact to just one theory that Comcast engaged in anti-competitive clustering conduct that deterred the entry of "overbuilders," (i.e., companies that build competing networks in areas where an incumbent cable company already operates), into the Philadelphia area. The district court found that the damages from Comcast's deterrent efforts could be calculated on a class-wide basis, even though the plaintiffs' expert acknowledged that his regression model did not isolate damages resulting from any one of plaintiffs' theories. Comcast appealed.

On appeal, Comcast contended that the class was improperly certified because plaintiffs' damages model failed to quantify damages from overbuilder deterrence, the only theory of injury remaining in the case. A divided panel of the Third Circuit Court of Appeals affirmed the district court's class certification, finding that Comcast's attacks on the merits of the methodology had no place in the class certification inquiry. The court further held that Comcast's contentions did not refute the district court's holding that plaintiffs would be able to measure class-wide damages through a common methodology.

The U.S. Supreme Court granted certiorari and concluded that the class action had been improperly certified under Rule 23(b)(3). The Court held that by refusing to entertain arguments against plaintiffs' damages model simply because those arguments would also be pertinent to a determination of the merits, the Third Circuit "ran afoul" of its precedents requiring that precise inquiry. The Court held that the Third Circuit's decision "flatly contradict[ed]" cases such as Wal-Mart v. Dukes, which require a determination that Rule 23 is satisfied even when that requires inquiry into the merits of the claim. The Court explained that it may be necessary for a court to "probe behind the pleadings" before deciding certification and that certification is only proper if, after a rigorous analysis, the prerequisites of Rule 23(a) have been satisfied.

The Court further rejected the plaintiffs' damages model, holding that it fell far short of establishing that damages could be measured on a class-wide basis. Specifically, the Court held that "[a] model that does not attempt to measure only those damages attributable to [plaintiffs'] theory cannot establish that damages are susceptible of measurement across the entire class for Rule 23(b)(3) purposes." The Court held that, according to the Third Circuit's logic, any method of measurement at the class-certification stage would be acceptable so long as it could be applied classwide, regardless of how arbitrary the measurements may be. The Third Circuit's decision was reversed accordingly.

Ninth Circuit: Removal Clock In CAFA Case Not Triggered When Complaint Silent On Amount In Controversy

Kathleen L. Ford — Wed, 27 Mar 2013 13:01:44 -0800

The Supreme Court in Kuxhausen v. BMW Financial Services held that the removal clock under Section 1446(b) is not triggered when a plaintiff's complaint fails to state all the facts necessary for diversity jurisdiction under the Class Action Fairness Act (CAFA).

In Kuxhausen, the plaintiff filed a putative class action complaint against a car dealership and BMW Financial Services (BMW) for numerous violations arising out of a retail installment contract that allegedly included unconscionable arbitration clauses and falsely indicated that registration and/or titling fees were not applicable to a vehicle purchase. The plaintiff subsequently filed a first amended complaint which added a new group of California consumers.

BMW then removed the case to federal court based on CAFA. The plaintiff moved to remand on the grounds that BMW's removal was untimely. The district granted plaintiff's motion to remand, and BMW sought leave to appeal, which the 9th Circuit granted.

On appeal, BMW argued that its removal was timely because plaintiff's original complaint did not contain all of the facts necessary for diversity jurisdiction. Specifically, BMW argued that the thirty-day period for removing plaintiff's original complaint was not triggered because it did not reveal that the amount in controversy exceeded CAFA's five million dollar threshold.

The Court held that BMW had timely removed under Section 1446(b). The Court reasoned that the plaintiff did not allege the value, even as an approximation, of the other class members' vehicle financing contracts in the original complaint. The Court rejected plaintiff's argument that BMW should have consulted its business records to identify a representative valuation, holding that BMW was not obligated to supply information which plaintiff had omitted from her original complaint. Citing Carvalho v. Equifax, the Court held that "because nothing in [plaintiff's] complaint indicated that the amount demanded by each putative class member exceed[ed] $25,000, it fell short of triggering the removal clock under 1446(b)."

The Court reversed and remanded the case to the district court.

CFPB Releases 2013 FDCPA Report

Daniel O'Rielly — Wed, 27 Mar 2013 08:02:09 -0800

The Consumer Financial Protection Bureau last week released its 2013 Annual Report on the Fair Debt Collection Practices Act.

The annual report (1) provides background on the FDCPA and the debt collection market;
(2) summarizes the CFPB's Consumer Response function and the number and types of
consumer complaints regarding debt collection received by the FTC in 2012; (3) describes the
CFPB’s supervision program as it relates to debt collection; (4) presents recent developments
in the CFPB and FTC’s law enforcement and advocacy programs; (5) discusses recent
education and outreach initiatives; (6) discusses recent research and policy initiatives; and (7)
discusses coordination and cooperation between the CFPB and the FTC in the administration
of the FDCPA.

US Supreme Court: Stipulation Can't Defeat CAFA Jurisdiction

Daniel O'Rielly — Fri, 22 Mar 2013 10:04:43 -0800

The Supreme Court in Standard Fire Ins. Co. v. Knowles held that a named plaintiff's stipulation purporting to limit damages to less than $5 million cannot defeat federal court jurisdiction under the Class Action Fairness Act (CAFA).

In Standard Fire, the plaintiff in a putative class action complaint signed a sworn stipulation affirming that neither Plaintiff nor the class would seek damages in excess of $5 million, including costs and attorneys' fees. After defendant removed the case to federal court based on CAFA, plaintiff moved to remand, arguing his stipulation defeated CAFA's $5 million in controversy requirement. The district court remanded. Defendant appealed, but the 8th Circuit declined to hear the appeal. The Supreme Court granted certiorari to resolve a split between the circuits over whether such a damages stipulation can defeat CAFA jurisdiction.

The Supreme Court, in a unanimous decision, held that named plaintiff's stipulation does not defeat CAFA jurisdiction, because it would not bind the absent class members before class certification, and therefore the amount in controversy was "in effect contingent." The Court reversed and remanded to the district court.

Holder Rule Not Limited to Transactions Rendered Worthless

Anne M. Hunter — Mon, 11 Mar 2013 04:00:00 -0800

In Lafferty v. Wells Fargo Bank, a California Court of Appeal recently held that the Holder Rule, which allows a buyer to assert against the holder of a consumer credit contract all claims that he or she could assert against the seller, applies regardless of whether the seller's breach rendered the transaction worthless to the buyer.

The Holder Rule, originally adopted by the FTC in 1975, was designed to protect a consumer from being without a remedy after purchasing a product on credit terms, learning the product is defective, and being refused promised maintenance by the seller, who has assigned the debt to a third party. Absent a rule allowing the buyer to assert claims against the third-party holder of the credit contract, a buyer is "robbed of the only realistic leverage he possessed that might have forced the seller to provide satisfaction - his power to withhold payment." Lafferty at *6 (citing 41 Fed. Reg. 20022 (1976)).

In Lafferty, the plaintiffs had purchased a motor home and financed that purchase with an installment contract. When the motor home turned out to be defective, neither the seller nor the manufacturer repaired it. The buyers brought suit against, inter alia, Wells Fargo, the assignee of the installment contract. The trial court sustained Wells Fargo's demurrer, finding that the Holder Rule did not apply because the seller's breach of contract did not render the motor home worthless. The appellate court reversed.

The court of appeal acknowledged that the Federal Trade Commission's original adoption of the Holder Rule was accompanied by statements indicating that application of the rule was intended to be limited to instances in which the consumer received little or nothing in value for the transaction (e.g., where the purchased item was never delivered). However, the court declined to depart from the plain language of the statute. "Where the language of a statute is unambiguous, [courts] may only look to its plain meaning unless this would frustrate its apparent purpose or lead to an absurd result." Lafferty at *7 (citations omitted).

Here, the court held, the "language of the statute is plain, a plain reading does not frustrate the apparent purpose of the statute, and no absurdity results." Id. Accordingly, the Lafferty court rejected Wells Fargo's contention that the Holder Rule is "limited to the rare situation when the seller's breach of contract renders the transaction practically worthless to the consumer." Id. Instead, the court held, the Holder Rule applies to all claims that a buyer might have against a seller. The court of appeal went on to hold, however, that pursuant to the plain language of the statute, a buyer's recovery on claims brought against a creditor by operation of the Holder Rule are limited to the amount paid by the buyer under the installment contract.

First Appellate District Finds Arbitration Provision Unconscionable

Kathleen L. Ford — Wed, 06 Mar 2013 07:46:06 -0800

In Natalini v. Import Motors, Inc., the First District California Court of Appeal adopted a narrow reading of the U.S. Supreme Court's landmark decision in AT&T Mobility LLC v. Concepcion as it pertained to arbitration provisions and specifically declined to follow the Second District's decision in Flores v. West Covina Auto Group, a factually similar case.

In Natalini, the plaintiff filed a class action complaint against a car dealer, claiming that the car dealer sold the car and tires as new when, in fact, they were used. The car dealer filed a petition to compel arbitration pursuant to a provision in the sales contract which provided that either party may elect to have a dispute decided by arbitration. The trial court denied the car dealer's motion to compel arbitration on the grounds that the arbitration provision was unconscionable.

On appeal, the car dealer claimed that the Supreme Court's holding in Concepcion prevents the application of the unconscionability doctrine to arbitration provisions. In Concepcion, the Supreme Court held that the Discover Bank Rule, which classified most collective-arbitration waivers in consumer contracts as unconscionable, was preempted by the Federal Arbitration Act (FAA). The First District rejected the car dealer's argument, quoting the Ninth Circuit in Kilgore v. KeyBank, which held that "Concepcion did not overthrow the common law contract defense of unconscionability whenever an arbitration clause is involved. Rather, the [c]ourt reaffirmed that the [FAA's] savings clause preserves generally applicable contract defenses such as unconscionability, so long as those doctrines are not 'applied in a fashion that disfavors arbitration.'" The court specifically rejected the car dealer's argument that the court's focus on a lack of mutuality or bilaterality in an arbitration provision constitutes the application of a contract defense "in a fashion that disfavors arbitration" in violation of Concepcion.

In holding that the arbitration clause at issue was unconscionable, the First District found that the clause was problematic both procedurally and substantively. First, the court found that the arbitration provision was procedurally unconscionable because the defendant was not permitted to negotiate the terms of the sales contract, was not permitted to read the back of the contract, was not aware of any arbitration clause or waiver of rights at or before the purchase, and that the plaintiff's employees did not discuss the arbitration agreement prior to plaintiff signing it. Second, the court found that the provision was substantively unconscionable because it was designed in several ways to systematically favor the car dealer. For example, it authorized a party to appeal only if an award was $0 or in excess of $100,000, (which the court found there was no justification for other than to relieve the car dealer of liability it deems excessive), and authorized an appeal if the award included injunctive relief. This benefited the car dealer because the buyer, not the car dealer, would most likely seek injunctive relief in order to enforce California's Consumer Remedies Act (CLRA.). The court also found that the arbitration clause was unconscionable because it expressly exempted self-help remedies, such as repossession, which again benefitted the car dealer, while subjecting an important consumer remedy-injunctive relief- to arbitration.

The court was careful to note that it found the arbitration provision substantively unconscionable not because certain provisions of the clause were of greater benefit to the plaintiff, but because the provision was systematically structured to maximize the benefits of arbitration in resolving the buyer's claims alone, while allowing the car dealer to shield its primary remedy-repossession-from arbitration and appeal a large award or injunctive relief.

In affirming the trial court's denial of the plaintiff's petition to compel arbitration, the court declined to sever the unconscionable clauses from the contract, finding that the arbitration provision was 'permeated with unconscionability."

Following the entry of the First District's order affirming the trial court's decision, the court entered a modified order which recognized the fact that the Second District held that a very similar provision was not substantively unconscionable in Flores v. West Covina Auto Group. Nonetheless, the First District specifically stated that it was adhering to its analysis and conclusion and would not change the judgment in any way. The court also noted that the impact of Concepcion is currently pending before the California Supreme Court in another car purchase agreement arbitration provision case, Sanchez v. Valencia Holding Company.

US Supreme Court Holds Defendant Costs Recoverable under FDCPA

Daniel O'Rielly — Fri, 01 Mar 2013 04:00:00 -0800

In Marx v. General Revenue Corp., the U.S. Supreme Court held that a prevailing defendant may recover costs in an FDCPA case, even without a finding that the plaintiff brought the case in bad faith and for the purpose of harassment.

In Marx, plaintiff defaulted on a student loan whose owner hired defendant to collect. Plaintiff filed a complaint alleging FDCPA violations in connection with the collection efforts. After a one-day trial, the district court plaintiff had not proven any FDCPA violations. Defendant submitted a memorandum of costs as the prevailing party. The district court granted defendant costs pursuant to FRCP 54(d)(1). Plaintiff moved to vacate the cost award, arguing that the district court lacked authority to award costs to defendant because the 15 U.S.C. 1692k(a)(3) sets forth the exclusive basis for a cost award under the FDCPA.

The Supreme Court granted certiorari to resolve a split between this result in the 10th Circuit and Rouse v. Law Offices of Rory Clark from the 9th Circuit which held that that “prevailing defendant cannot be awarded costs under the FDCPA unless the plaintiff brought the action in bad faith and for the purpose of harassment.”

Defendant asserted that the cost provision of 1692k(a)(3) does not address whether costs can be awarded in this circumstance, namely where there is no finding of bad faith or purpose of harassment by plaintiff, and that the statute therefore does not set forth a cost award standard that is contrary to FRCP 54. Plaintiff asserted that, although 1692k(a)(3) did not expressly limit a court's discretion to award costs under Rule 54, it does so by negative implication: by outlining that costs may be awarded on a finding of bad faith or harassment, the statute necessarily prohibits a cost award without such a finding.

The Court agreed with defendant's reasoning. After a detailed analysis of the statute, the Court held that 1692k(a)(3) is best read as codifying a court's existing authority to award both attorney's fees and costs. The statute therefore did not "provide otherwise" than Rule 54, under which the Court had discretion to award costs to defendant.

In light of this result, the Court found it was not necessary to reach the issue of whether defendant's pre-trial Rule 68 Offer of Judgment would have provided an independent basis for an award of costs.

FAA Mandates Enforcement of Class Arbitration Waivers

Jessica E. Hawk — Mon, 25 Feb 2013 12:45:29 -0800

Relying on the U.S. Supreme Court’s landmark 2011 decision in AT&T Mobility LLC v. Concepcion, the Second District California Court of Appeal recently held in Flores v. West Covina Auto Group that the Federal Arbitration Act (FAA) preempts a California statute that mandates the availability of class actions to consumers bringing claims under its ambit. The court affirmed the trial court’s order compelling arbitration and concluded that the class arbitration waiver contained in the form auto sales contract was enforceable.

California’s Consumer Legal Remedies Act (CLRA) provides that any consumer entitled to bring an action under the CLRA may also bring his or her claims as a class action suit. The CLRA further provides, in a separate section, that “[a]ny waiver by a consumer of the provisions of [the CLRA] is contrary to public policy and shall be unenforceable and void.” Among other holdings in the case, the Second District concluded that, under Concepcion, the FAA preempts this antiwaiver provision of the CLRA. Enforcing the CLRA’s antiwaiver provision “would essentially allow consumers to demand classwide arbitration ex post, when the parties never agreed to that. … Just as the Discover Bank rule was inconsistent with the FAA because it manufactured class arbitration rather than making it consensual, so is the CLRA’s antiwaiver provision. Applying Concepcion, we hold that the CLRA’s prohibition against class waiver is preempted by the FAA because it stands as an obstacle to the accomplishment and execution of the full purposes and objectives of the FAA.”

The court specifically rejected the plaintiff’s argument that the public policy concern underlying the antiwaiver provision was a ground “at law or in equity for the revocation of any contract,” such that the provision was enforceable under the FAA’s saving clause. The court noted that the antiwaiver provision was in effect no different than the Discover Bank rule, which was the California judicial rule found preempted in Concepcion, and that the U.S. Supreme Court in Concepcion had considered and rejected the same argument.

The court also analyzed whether the arbitration clause as a whole was unconscionable, as argued by the plaintiffs. The court rejected the defendant’s argument that Concepcion precludes any unconscionability defense to the enforcement of an arbitration agreement. However, the court found that, while the agreement to arbitrate contained a “low degree of procedural unconscionability,” it “was not substantively unconscionable.” The court rejected all of the plaintiff’s arguments to the effect that the agreement was unconscionably one-sided, including: (1) the agreement allowed for appeals from the arbitrator’s judgment only where an award was for $0, for more than $100,000, or included injunctive relief; (2) the dealer was required to pay only the first $2500 of the plaintiff’s costs, and those could possibly be reimbursed by the arbitrator; (3) the agreement offered plaintiffs inadequate choices between arbitral fora; and (4) the agreement did not require arbitration of self-help remedies such as repossession and small claims court.

With Flores, the Second District has further clarified the expanse of Concepcion’s holding. Flores indicates that the codification of public policy concerns does not insulate anti-arbitration measures from Concepcion’s reach. Earlier this year, the Second District held in Iskanian v. CLS Transportation Los Angeles, LLC that Concepcion invalidates the class waiver test of Gentry v. Superior Court.

U.S. Supreme Court Considering Damages Standard for Class Certification

Kathleen L. Ford — Thu, 07 Feb 2013 19:25:04 -0800

The Supreme Court is currently considering an important issue regarding class certification under Federal Rule of Civil Procedure 23. In Comcast v. Behrend et al., S.Ct. 24 (2012), the Supreme Court granted certiorari to consider whether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class-wide basis.

In Comcast, consumers filed an antitrust class action in the U.S. District Court for the Eastern District of Pennsylvania in 2003 alleging that Comcast obtained an illegal monopoly of the cable television market and engaged in conduct designed to exclude and prevent competition. Specifically, Plaintiffs claim that Comcast eliminated competition by: 1) acquiring competitors in the Philadelphia market and 2) swapping cable systems and subscribers with its competitors within the Philadelphia market. (Plaintiffs also claim that Comcast engaged in anti-competitive conduct in the Chicago area as well, although those allegations are not relevant for purposes of the appeal.) As a result of Comcast's actions, Plaintiffs claim that Comcast subscribers paid more for their non-basic video programming cable service than they would have had Comcast not stymied a competitive services market.

The district court certified the proposed class in 2007, finding that the Plaintiffs had met the requirements of numerosity, commonality, typicality, adequacy, predominance, and superiority necessary for class certification under Rule 23. The Supreme Court denied Comcast's 23(f) petition for interlocutory review. Following the Third Circuit's decision in Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305 (3rd Cir. 2008), in which the court outlined the standards a district court should apply in deciding whether to certify a class, the district court granted in part Comcast's motion to reconsider its Philadelphia certification decision. The district court then vacated only the portion of the certification decision that addressed Rule 23(b)'s predominance requirement and held an evidentiary hearing on the issue of predominance as it related to antitrust impact and the methodology of damages.

At the hearing, the district court heard live testimony from fact and expert witnesses, considered 32 expert witness reports and examined numerous deposition excerpts and other documents. Following the hearing, the court issued a series of questions related to antitrust impact and damages methodology and heard further argument in response to its specific questions.

Thereafter, the district court re-certified the Philadelphia class and issued an amended class certification order in January of 2010, which reaffirmed and incorporated the majority of its 2007 certification order. As to the disputed issue of predominance, the court held that the Plaintiffs had demonstrated by a preponderance of the evidence that they would be able to establish a relevant geographic market capable of proof common to the class and that they had shown the ability to measure and quantify damages on a class-wide basis at trial.

The Third Circuit granted Comcast's permission to appeal in June of 2010. On appeal, Comcast argued, inter alia, that the district court exceeded its discretion in accepting Plaintiffs' proposed methodology for damages calculation.

The Third Circuit affirmed the district court's class certification order in all respects. As to the issue of Plaintiffs' proposed methodology of calculating damages, on which the Supreme Court granted certiorari, the Third Circuit held that the district court did not err in finding that damages are capable of common proof on a class-wide basis at trial. The Third Circuit explained that the inquiry for a district court at the class certification stage is simply whether the plaintiffs have demonstrated by a preponderance of the evidence that they will be able to measure damages on a class-wide basis using common proof; it is not, at this juncture, whether the proposed methodology is reasonable or speculative. The court found that Comcast's attacks on the merits of the methodology have no place in the class certification inquiry, and that Comcast's contentions did not refute the district court's holding that Plaintiffs will be able to measure class-wide damages through a common methodology. In sum, the Third Circuit held that the district court had acted within its discretion and that its acceptance of Plaintiffs' damages methodology was not clearly erroneous.

The U.S. Supreme Court granted certiorari as to the limited issue noted above in June of 2012. In this appeal, Comcast argued that the district court erred in relying on the Plaintiffs' damages model because it is inadmissible under Federal Rules of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), asserting that Daubert applies at the class certification stage. However, Comcast did not specifically raise the Daubert issue with the district court or the Third Circuit, and Plaintiffs contend that Comcast failed to preserve this issue for appeal.

The Supreme Court heard oral argument on November 5, 2012. The Court's ruling will likely have a significant impact on Rule 23 class certification and the admissibility of evidence at the class certification stage.

Song-Beverly Information Collection Ban Does Not Apply to Online Transactions

Daniel O'Rielly — Thu, 07 Feb 2013 06:00:00 -0800

In Apple, Inc. v. Superior Court (Krescent), the California Supreme Court held that the Song-Beverly Credit Card Act of 1971, Civil Code section 1747.08, does not prohibit an online retailer from collecting personal identification information from a consumer as a condition to accepting a credit card payment for an electronically downloadable product.

In Krescent, plaintiff sued defendant Apple on behalf of himself and a putative class alleging that Apple violated section 1747.08 because it required him to disclose his telephone number and address to purchase media on iTunes with a credit card. Defendant filed a demurrer, arguing that the cited section of Song-Beverly does not apply to online transactions. The trial court overruled the demurrer. Defendant filed a Petition for Writ of Mandate, which was summarily rejected by the Court of Appeal. The California Supreme Court granted review, and reversed.

The Court's analysis began with the statutory text of section 1747.08. The Court found, however, that the plain meaning of the text of the statute alone was not decisive, and moved to an analysis of the legislative intent.

The Court noted that it had previously analyzed the relevant legislative intent in Pineda v. Williams-Sonoma Stores, Inc., a 2011 case in which it held that requesting and recording a credit cardholder's ZIP Code violates Song-Beverly. The Court distinguished Pineda, however, because that case involved an in-person credit card transaction, not an online transaction. The Court noted that the legislative intent that led to its result in Pineda- namely protecting consumer privacy while permitting some collection of information to prevent fraud- led to a different result in the context of an online transaction. Specifically, the Court noted that the legislature intended to protect consumer privacy, but not at the expense of fraud protection, as evidenced by the fact that the statute permits certain limited fraud prevention collection methods.

Because the fraud safeguards outlined in the statute are not available to an online retailer selling an electronically downloadable product, the Court held that "the statutory scheme and legislative history make clear the Legislature‘s concern that there be some mechanism by which retailers can verify that a person using a credit card is authorized to do so." Because the statutory scheme that plaintiff urged would provide no means for online retailers selling electronically downloadable products to protect against credit card fraud, the Court concluded that the Legislature could not have intended section 1747.08 to apply to this type of transaction.

Class Certification Denied in Bank Setoff Case

Anne M. Hunter — Mon, 04 Feb 2013 21:39:57 -0800

In Miller v. Bank of America, a California appellate court recently affirmed the trial court’s denial of the plaintiffs’ motion for class certification of a particular class of bank customers. The plaintiff sought to certify a class of Bank of America customers with an account, into which public benefits that are statutorily exempt from execution and attachment (“Exempt Funds”) are electronically deposited, that was debited by the Bank as a setoff to cover balances owed on another account maintained by the same customer. The trial court held, and the appellate court agreed, that the plaintiffs’ proposed class definition was overbroad because it encompassed lawful as well as unlawful setoffs.

The Miller case was originally brought fifteen years ago on behalf of a class of customers challenging Bank of America’s allegedly unlawful practice of setting off funds from an account into which Exempt Funds were electronically deposited to cover overdrafts and other bank fees on that same account. The case was tried and resulted in a jury verdict for the plaintiffs. The verdict was reversed on appeal and the California Supreme Court affirmed. According to the California Supreme Court, the verdict was based on an erroneous application of the holding in Kruger v. Wells Fargo Bank (1974) 11 Cal. 3d 352. See Miller et al. v. Bank of America, NT & SA (2009) 46 Cal. 4th 630. Kruger stands for the proposition that a bank’s practice of debiting Exempt Funds to collect balances owed on a separate credit card account is prohibited, but Kruger does not speak to intra-account setoffs; thus, Kruger, the Supreme Court held, did not govern Miller’s claim.

On remand, Miller sought to redefine a “two-account” class, as described above, to more closely match the debiting practice barred by Kruger. But the trial court rejected as fatally overbroad the plaintiffs’ proposed class definition. The trial court held that the plaintiffs’ proposed definition encompassed lawful transactions as well as unlawful ones. Financial Code section 864 (now section 1411), which was enacted by the California legislature in the wake of Kruger, is expressly limited to consumer debt that is an interest-bearing obligation or an obligation payable in installments, arising from an extension of credit, and primarily for personal, family, or household purposes. The plaintiffs’ proposed class definition encompassed these unlawful setoffs, but also encompassed “whole categories of legal setoffs.” Thus, the trial court denied the motion for class certification. The appellate court affirmed.

9th Circuit Sets Scope of Preemption in Overdraft Litigation

Anne M. Hunter — Mon, 28 Jan 2013 06:00:00 -0800

In Gutierrez, et al. v. Wells Fargo Bank, NA, the Ninth Circuit Court of Appeals recently held that the National Bank Act preempts California’s Unfair Competition Law (“UCL”) insofar as the UCL’s unfair business practices prong bars a national bank’s practice of posting debit card transactions in a particular (i.e., high-to-low) order. The Court held, however, that federal law does not preempt California’s consumer protection laws with respect to claims that a bank’s representations concerning the posting order were fraudulent or misleading.

The Gutierrez plaintiffs filed suit against Wells Fargo upon learning that the bank posts debit card transactions (from the previous day) to its customers’ accounts in high-to-low order, regardless of the order in which the transactions actually occurred. This practice has the potential to turn a single overdraft fee into many overdrafts. The plaintiffs contended that the bank’s posting practice violates the UCL as an unfair business practice and that Wells Fargo also violated the fraudulent prong of the UCL by representing to customers that debit card purchases were deducted “immediately,” reinforcing their natural expectation that transactions would be processed chronologically.

After a two-week bench trial, the district court concluded that the bank’s high-to-low posting practice was imposed in bad faith and thus violated the UCL, as did the bank’s misleading statements that led customers to expect that the posting order of their debit-card purchases would mirror the order in which they were transacted. The district court imposed a permanent injunction against Wells Fargo, requiring the bank to cease its posting practice, and ordered the bank to pay restitution. Wells Fargo appealed.

The Ninth Circuit reversed the district court’s imposition of a permanent injunction against Wells Fargo, finding that a national bank’s decision to post transactions in a particular order is a federally authorized pricing decision. The National Bank Act vests broad powers in national banks including the power to receive deposits as well as “all such incidental powers as shall be necessary to carry on the business of banking.” According to the Ninth Circuit, these powers necessarily include the power to tally deposits and withdrawals by posting transactions. The Court held that a bank’s ability to choose a posting method, which is a “necessary[] component of a posting process that is integrally related to the receipt of deposits,” falls within the type of overarching federal banking regulatory power that preempts state law. In addition, the Office of the Comptroller of the Currency (the “OCC”), which promulgates regulations directed at the activities of national banks, specifically delegates to banks the method of calculating fees. Accordingly, the Ninth Circuit held, to the extent that the UCL prohibits a national bank’s high-to-low posting practice, the UCL is preempted by federal law.

With respect to the plaintiffs' claims that Wells Fargo's misleading marketing statements violated the UCL under the “fraudulent” prong, the Ninth Circuit held that the UCL is not preempted. The Court held that while the requirement to make particular disclosures falls within the purview of federal law, the UCL’s prohibition on misleading statements is not preempted by the National Bank Act. In sum, the Court held that “although the [district] court cannot issue an injunction requiring the bank to use a particular system of posting or requiring the bank to make specific disclosures, it can enjoin the bank from making fraudulent or misleading representations about its system of posting . . . .”

In addition, on a wholly separate matter, the Court rejected Wells Fargo’s attempt, made for the first time on appeal, to invoke the permissive arbitration provision contained in the parties’ agreement. Wells Fargo asked the Ninth Circuit to vacate the district court’s judgment and remand so that the case could be dismissed or stayed pending arbitration. Wells Fargo argued that until the U.S. Supreme Court rendered its decision in Concepcion, any attempt on Wells Fargo’s part to invoke the arbitration clause would have been futile. The Ninth Circuit disagreed, finding that the terms of the permissive arbitration agreement (which, among other things, permitted class arbitration on consent and required any party seeking to invoke the arbitration provision to do so at a reasonable time), and the parties’ conduct throughout the litigation (including, most notably, that the litigation had advanced past trial and Wells Fargo had never mentioned arbitration), undermined Wells Fargo’s position. Moreover, the Ninth Circuit held, to send the case to arbitration post-appeal would be wholly duplicative, severely prejudice the plaintiffs, waste judicial resources, and offend “traditional benchmarks regarding waiver of arbitration and the purpose of the Federal Arbitration Act ('FAA').”

Ninth Circuit Amends Meyer Opinion to Clarify Definition of "Prior Express Consent"

Heather C. Parker — Fri, 25 Jan 2013 19:41:28 -0800

On December 28, 2012, the Ninth Circuit issued an amended opinion in Meyer v. Portfolio Recovery Associates, LLC to clarify the TCPA definition of "prior express consent" to receive telephone calls placed using auto dialing technology.

The original opinion defined “prior express consent” as granted “only if the wireless telephone number was provided by the consumer to the creditor, and only if it was provided at the time of the transaction that resulted in the debt at issue.” The December opinion amended the definition as "consent to call a particular telephone number in connection with a particular debt that is given before the call in question is placed.” Under this amended definition, creditors may call a debtor using auto-dialing technology if given express consent at any time prior to the call, but (as with the original ruling) consent received during the call in question will not suffice.

Second Appellate District Clarifies Rees-Levering Disclosure Requirements

Heather C. Parker — Tue, 22 Jan 2013 19:36:51 -0800

Earlier this month, the Second Appellate District overturned a Los Angeles Superior Court order sustaining a demurrer to a Rees-Levering claim. In Rojas v. Platinum Auto Group, et al., plaintiff alleged that his automobile finance agreement was unenforceable because the defendant auto dealer mischaracterized his down payment in violation of the Rees-Levering Motor Vehicle Sales & Finance Act (“Rees-Levering”).

Plaintiff purchased a motor vehicle and made a deferred down payment in multiple payments over three months. Plaintiff alleged that the auto dealer identified the down payment as a “Remaining Cash Down Payment” instead of a “Deferred Down Payment,” as required by Rees-Levering. The trial court sustained defendants’ demurrer without leave to amend, reasoning that the dealer substantially complied with Rees-Levering disclosure requirements and that any trivial technicality did not result in any harm to the plaintiff.

The Appellate Court held that the trial court erred in relying on authority based on an earlier, less demanding statute, and that the legislature explicitly stated that any violation of Rees-Levering made a contract unenforceable regardless of the nature of the violation or any harm to the consumer.

Finally, the Court concluded that the trial court was correct in sustaining defendants’ demurrers to causes of action for violation of the Consumer Legal Remedies Act and Unfair Competition Law for failure to allege any actual harm, but that the court should have granted plaintiff leave to amend.

One to Watch: U.S. Supreme Court to Decide Whether Plaintiff's Damages Stipulation Can Defeat Removal Under CAFA

Kathleen L. Ford — Sun, 13 Jan 2013 20:07:52 -0800

The Supreme Court will decide an important issue involving the Class Action Fairness Act (CAFA) and removal in Standard Fire v. Knowles, 2011 WL 6013024 (W.D. Ark. Dec. 2, 2011), cert granted Aug. 31, 2011. In Standard Fire, the plaintiff filed a putative class action complaint in the Circuit Court of Miller County, Arkansas against Standard Fire Insurance Company (Standard Fire) for breach of contract arising out of the Standard Fire's alleged underpayment of claims. Specifically, Plaintiff alleges that Standard Fire failed to pay for charges reasonably associated with retaining a general contractor after Plaintiff's home was damaged by hail. According to Plaintiff's complaint, the potential class involves hundreds, if not thousands, of individuals located across Arkansas.

Standard Fire removed the case to federal court pursuant to CAFA, which confers federal district courts with original jurisdiction over class action cases when: 1) there is diversity of citizenship; and 2) the matter in controversy exceeds the sum or value of $5 million. 28 U.S.C. Section 1332(d)(2). In its removal papers, Standard Fire presented evidence that the class as defined in Plaintiff's complaint has an actual amount in controversy of slightly over $5 million so as to satisfy its burden on removal of showing by a preponderance of the evidence that the amount in controversy exceeds CAFA's $5 minimum.

Plaintiff moved to remand the case back to state court on the grounds that CAFA's $5 million amount in controversy requirement could not be met because he signed a sworn stipulation affirming that neither Plaintiff nor the class would seek damages in excess of $5 million, including costs and attorneys' fees. In support of his Motion to Remand, the Plaintiff asserted that, as the master of his complaint, he has the right to limit his claims in order to bring the case in the forum of his choosing.

In opposing Plaintiff's Motion to Remand, Standard Fire argued that Plaintiff's sworn stipulation is invalid because it does not specifically state that Plaintiff will refuse to "accept" damages in excess of $5 million, only that Plaintiff will not "seek" damages in excess of $5 million, and that this evidences Plaintiff's counsel intent to circumvent CAFA and ultimately receive an award in excess of the $5 million threshold. Standard Fire also argued that Plaintiff exhibited bad faith in seeking to limit the as-yet-unknown class members to damages over a two year period instead of the full five years of damages potentially recoverable under the statute of limitations.

The court granted the Plaintiff's Motion to Remand and remanded the case back to the Circuit Court of Miller County, Arkansas. The Court reasoned that although Standard Fire had met its burden on removal of showing by a preponderance of the evidence that the amount in controversy exceeded $5 million, that Plaintiff had proven to a "legal certainty" that his claim fell under the $5 million threshold for remand through his binding stipulation which limited the total award to less than $5 million. The court was not persuaded by Standard Fire's concern over Plaintiff's promise not to "seek" (as opposed to "accept) in excess of $5 million in damages, stating that if Plaintiff were to amend his complaint after remand and disclaim his sworn stipulation and seek an amount in excess of the jurisdictional maximum, that Standard Fire would then have the right to remove the case again at that time. The Court further rejected Standard Fire's argument that Plaintiff had acted in bad faith by seeking damages for less than the period of time provided by the statute of limitations, citing to the 8th Circuit's decision in Bell v. Hershey Co., 557 F.3d 953, 956 (8th Cir. 2009) ("If [a plaintiff' does not desire to try his case in the federal court, he may resort to the expedient of suing for less than the jurisdictional amount, and though he would be justly entitled to more, the defendant cannot remove."). The court further reasoned that putative class members can simply opt out of the class and pursue their own remedies if they find the limitations placed on the class by Plaintiff to be too restrictive.

The 8th Circuit denied Standard Fire's petition to appeal, and Standard Fire petitioned for rehearing. The 8th Circuit denied Standard Fire's petition for rehearing, and the Supreme Court granted certiorari on August 31, 2012. The central issue on appeal is whether a named plaintiff in a class action case can defeat a defendant's attempt to remove the action to federal court by stipulating that the absent class members will not seek damages in excess of $5 million. Oral argument was heard on January 7, 2013.