In 2011, the California Supreme Court held in Pineda v. Williams-Sonoma Stores that a zip code constitutes “personal identification information” under California’s Song-Beverly Credit Card Act, thus potentially exposing retailers to civil penalties of up to $1,000 per violation if they request and record the zip codes of customers paying by credit card. (My colleagues John Nadolenco and Archis Parasharami did a teleconference about Pineda that you can listen to here.) Sensing blood in the water, the plaintiffs’ bar filed a wave of class actions against brick-and-mortar and online retailers.

Earlier this year, the California Supreme Court narrowed the scope of its ruling to exclude online retailers selling downloadable products. See Apple, Inc. v. Super. Ct., No. S199384 (Cal. 2013). Because the court left undecided whether other online or non-face-to-face transactions are actionable, numerous California class actions against online retailers and catalog merchants remain pending. (In my view, these cases also should be dismissed; these vendors have no opportunity to inspect customers’ credit cards or identification physically, and need the customer’s address to ship the goods.)

Similar cases are being filed in other states. In March, the Massachusetts Supreme Judicial Court held that zip codes are “personal identification information” for purposes of Massachusetts’ equivalent to the Song-Beverly Credit Card Act, G.L. c. 93, § 105(a). See Tyler v. Michaels Stores Inc., No. SJC-11145 (Mass. Mar. 11, 2013). As in California, a number of new class actions under the Massachusetts law have been filed in the wake of Tyler.

But where will these lawsuits show up next? Nine other jurisdictions have privacy laws similar to California’s Song-Beverly Credit Card Act and the Massachusetts law: Delaware (Del. Code tit. 11, § 914), the District of Columbia (D.C. Code § 47-3153), Kansas (Kan. Stat. § 50-669a), Maryland (Md. Code Com. Law § 13-317), Minnesota (Minn. Stat. § 325F.982), New Jersey (N.J. Stat. § 56:11-17), New York (N.Y. Gen. Bus. Law § 520-A(3)), Rhode Island (R.I. Gen. Laws § 6-13-16), and Wisconsin (Wis. Stat. § 423.401).

Hopefully, courts in those jurisdictions will reject the broad interpretation of “personal identification information” that the California and Massachusetts high courts adopted; retailers have strong arguments that legislatures did not intend to subject businesses to liability for obtaining ZIP code information—especially because such information often is publicly available and does not raise the same kinds of privacy concerns as, say, social security numbers might.

That said, retailers should watch these jurisdictions carefully, review what data they collect from credit-card customers, and assess what is being done with that data. The wave of zip-code class actions may still be building..

One of the latest decisions on this standing issue is Lanovaz v. Twinings North America, Inc., 2013 WL 2285221 (N.D. Cal. May 23, 2013). The plaintiff in that case was suing over the phrase “a natural source of antioxidants” on the label of 53 tea products sold by Twinings. But the plaintiff herself had bought only six of those products. Because she obviously wasn’t deceived by the labels on the other 47 products she never bought, Twinings moved to dismiss the claims with respect to those products for lack of standing.

Judge Whyte denied the motion (in large part), which he said raised a close question that has “divided” courts and for which “the Ninth Circuit has not provided guidance.” In Judge Whyte’s view, “courts should not be too rigid in applying standing requirements to proposed classes.” For that reason, he noted, the “deciding factor is whether the products are sufficiently similar.” If the products are “nearly identical” and involve identical challenged advertising, the named plaintiff will have the requisite “sufficient ‘personal stake’ in the litigation.”

Judge Whyte then held that because 51 varieties of the tea in question were made from the same plant as the varieties plaintiff purchased, the named plaintiff had standing to assert class claims as to them all. But the remaining two types of tea came from a different plant (i.e., a different source of the “natural antioxidants” touted on the label). Judge Whyte concluded that the plaintiff could not bring class claims with respect to these products because they were “significantly different” from the ones the plaintiff had purchased.

We think Judge Whyte chose the wrong side of this split in authority. Just as class actions can’t be used to transform the substantive law, the Supreme Court has similarly made clear that plaintiffs cannot clothe themselves with standing they would otherwise not possess merely by suing in the name of a putative class. E.g., Lewis v. Casey, 518 U.S. 343, 357 (1996).

As we’ve covered on the blog, the Supreme Court recently denied review of a related standing issue in the context of a securities fraud claim in which the plaintiff had purchased only some of the securities as to which he sought to bring class claims. Hopefully the Court will step in soon to resolve the disagreement by lower courts over so-called “class standing”—a divide that Lanovaz demonstrates is deepening.

Preemption under the FDCA served as a bulwark against the first wave of false advertising consumer class actions against the food and beverage industry. Most of those complaints essentially attempted to impose state-law labeling requirements that differed from the federal requirements, and courts therefore dismissed the claims as expressly preempted. See, e.g., Turek, supra; Carrea v. Dreyer’s Grand Ice Cream, Inc. (pdf), 475 Fed. App’x 113 (9th Cir. 2012).

In response, the plaintiffs’ bar adapted by refocusing class action litigation on labeling statements that they asserted were not covered by a federal requirement. The hundreds of cases challenging “natural” labeling statements are an example. In most respects, FDA has declined to regulate the use of the term “natural” on food and beverage labels, claiming that, “[f]rom a food science perspective, it is difficult to define a food product that is ‘natural’ because the food has probably been processed and is no longer a product of the earth.”  No federal requirement, no preemption of the state-law consumer claims, plaintiffs say.

Moreover, in the last 16 months, the plaintiffs’ bar has debuted a new theory that it hopes will allow them to evade preemption. They rely on California’s wholesale incorporation of the FDCA’s labeling law into the law of California. Cal. Health & Safety Code § 110100. Alleged violations of the FDCA are thus transformed into violations of California’s Sherman Food Drug and Cosmetic Law. And violations of the Sherman law, in turn, may be alleged as predicate acts in support of claims for violation of California’s consumer protection laws, including the Unfair Competition Law (a/k/a Section 17200). Plaintiffs argue that because state law imposes identical requirements to the federal requirements (indeed, the same FDCA requirements), liability under state law is not preempted.

But is indirect enforcement of the FDCA via a “state-law delivery device” compatible with Congress’s refusal to create a private right of action for violation of the FDCA? (California’s Sherman Law also does not allow for private enforcement.) Plaintiffs tried and failed to use a similar strategy in the context of medical devices, which are also governed by the FDCA. Specifically, the Supreme Court has held that Section 337 of the FDCA (the exclusive-enforcement provision) impliedly bars suits by private litigants “for noncompliance with” federal law, and that the express-preemption provision of the Medical Device Amendments preempts any state-law claim if the result of the litigation might be to require (or forbid) any conduct not already required (or forbidden) by federal law. Buckman Co. v. Plaintiffs’ Legal Comm., 531 U.S. 341, 349 n.4 (2001); Riegel v. Medtronic, Inc., 552 U.S. 312, 330 (2008). Taken together, the exclusive-enforcement and express-preemption provisions

create a narrow gap through which a plaintiff’s state-law claim must fit if it is to escape express or implied preemption. The plaintiff must be suing for conduct that violates the FDCA (or else his claim is expressly preempted . . .), but the plaintiff must not be suing because the conduct violates the FDCA (such a claim would be impliedly preempted . . .).

Bryant v. Medtronic, Inc. (pdf), 623 F.3d 1200, 1204 (8th Cir. 2010) (emphasis in original).

On our view, Buckman and its progeny bar any state-law claim for which the existence of the federal regulatory scheme is a “critical element.” This implied preemption issue, as applied to food labeling false advertising claims, is currently joined in several pending motions in the Northern District of California. See, e.g., Kane v. Chobani, No. 12-cv-2425 (N.D. Cal), Dkt. No. 97; Trazo v. Nestlé USA, Inc., No. 12-cv-2272 (N.D. Cal.), Dkt. No. 64; Samet v. Procter & Gamble Co., No. 12-cv-1891 (N.D. Cal.), Dkt. Nos. 85, 87; Bruton v. Gerber Prods. Co., No. 12-cv-2412 (N.D. Cal.), Dkt. No. 47.

We expect decisions on these motions in the near future and will blog on the results when decisions are issued.

This decision revisits the question whether an arbitrator may construe an arbitration agreement to permit class arbitration when the parties have not expressly agreed to that procedure. The Supreme Court previously addressed the issue in Stolt-Nielsen v. AnimalFeeds International Corp. (pdf), 130 S. Ct. 1758, 1775 (2010), holding that “a party may not be compelled under the [FAA] to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.” And in Oxford Health Plans, the Court reaffirmed its prior holding that “[c]lass arbitration is a matter of consent,” and that an “arbitrator may employ class procedures only if the parties have authorized them.” But just as the the Court had previously declined in Stolt-Nielsen “to decide what contractual basis may support a finding that the parties agreed to authorize class-action arbitration,” it again declined to reach that issue in Oxford Health Plans. Instead, even though the arbitration provision at issue was silent about whether class arbitration was permitted, the Court concluded that because the parties had submitted the interpretation of the agreement to the arbitrator, any error by the arbitrator in construing the agreement to permit class arbitration was not subject to correction on judicial review because the FAA authorizes only limited judicial review of arbitral awards.

In a footnote, the Court reserved a crucial question that limits the practical consequences of the decision. The Court commented that it “would face a different issue” had Oxford Health Plans preserved the argument that the availability of class arbitration is a “question of arbitratibility,” which is a “gateway” issue for courts, rather than arbitrators, to decide. According to Justice Kagan, “Stolt-Nielsen made clear that this Court has not yet decided whether the availability of class arbitration is a question of arbitrability.” Because Oxford Health Plans had agreed that the arbitrator should decide whether the agreement authorized class arbitration, the Court concluded that the case did not provide a vehicle to decide whether the available of class procedures falls within the category of “questions of arbitrability.”  The footnote therefore invites parties in future cases to argue that the availability of class arbitration is a threshold issue that should be decided by the courts, not by the arbitrator.

Although joining the majority opinion, Justice Alito also filed a concurrence (joined by Justice Thomas) that provides useful guidance to parties and arbitrators presented with this issue. As Justice Alito explained, when an arbitration agreement is silent with respect to class-wide arbitration, the agreement should generally not be construed to permit class arbitration because of the incompatibility of class procedures with traditional characteristics of arbitration. Justice Alito added that because absent class members have not consented to the arbitrator’s authority, they (as well as the defendant) would be able to advance substantial due process challenges to any arbitral award entered on a class-wide basis. Consequently, Justice Alito explained, absent class members would need to opt-in to the class arbitration proceeding in order to be bound by the arbitrator’s decision.

Because Oxford’s concession was central to the Court’s holding, and because the Court left the door open to obtaining judicial review of the class-arbitration question by framing the question as one of arbitrability, the Court’s ruling is narrow. Equally significant, the problem at issue in Oxford Health Plans is one that is receding: Companies increasingly have included in their arbitration agreements express preclusions of class arbitration. Today’s decision is a reminder that businesses should consider revising any arbitration agreements that remain “silent” on the issue of class arbitration.

Thus, in the long run, the most significant aspect of the Court’s decision may be Justice Alito’s concurrence, which spotlights the due process challenges to class arbitrations that proceed under contracts that do not clearly authorize the procedure.

Before the EEOC may file a lawsuit, an employee must have made a timely charge of discrimination of which the EEOC timely notified the employer and the EEOC must have investigated the charge, determined that there was reasonable cause to sue, and attempted conciliation with the employer. 42 U.S.C. § 2000e-5(b), (e).

Courts generally have rejected attempts by employers to call into question the sufficiency of the EEOC’s pre-suit investigation. See, e.g., EEOC v. Keco Indus., Inc., 748 F.2d 1097 (6th Cir. 1984). But a district court recently authorized a Rule 30(b)(6) deposition of the EEOC to determine whether the EEOC actually investigated the charge of discrimination at all before filing a class action. See EEOC v. Grane Healthcare Co., No. 3:10-cv-250 (W.D. Pa. Mar. 15, 2013). If the EEOC has failed to satisfy its pre-suit obligations, courts have the discretion to dismiss the case—in fact, the Eleventh Circuit has upheld an award of attorneys’ fees and costs to the defendant in one such case. See EEOC v. Asplundh Tree Expert Co., 340 F.3d 1256 (11th Cir. 2003).

The next time you’re facing a dubious EEOC class action, remember that you can ask the EEOC whether it did its homework before filing suit. And if it didn’t, you may be able to get the lawsuit bounced before having to spend the money on a full-blown summary-judgment motion

As we mentioned, the Solicitor General already filed a petition for certiorari in Noel Canning. The National Chamber Litigation Center has just filed a brief in response—the first time that Chamber lawyers have ever directly represented a member company before the Supreme Court.

The Chamber’s brief (pdf) agrees that the D.C. Circuit’s decision is worthy of Supreme Court review, and explains why the D.C. Circuit’s decision should be upheld.

Under the current schedule, the Supreme Court will consider the petition during the June 20, 2013 conference and possibly act on it in the orders list on June 24. If the Solicitor General waives the right to file a reply brief, however, the petition could be resolved a week earlier, on June 17.

In related news, in another case, the Third Circuit agreed with the D.C. Circuit’s conclusion that the Constitution permits recess appointments only during “intersession breaks”—that is, during periods between sessions of the Senate. As with the 2012 recess appointments at issue in Noel Canning, the 2010 recess appointment at issue in the Third Circuit case, NLRB v. New Vista Nursing & Rehabilitation (pdf), was made during a break in the middle of a session. Judge Smith wrote the decision, which Judge Van Antwerpen joined. Judge Greenaway dissented. Presumably, the Solicitor General will file a petition for certiorari in New Vista asking that the case be held pending the outcome of Noel Canning.

The Fifth Circuit acknowledged that when the Supreme Court adopted the fraud-on-the-market presumption of reliance in Basic, it made the presumption rebuttable. The Fifth Circuit likewise recognized that establishing that a misrepresentation had no price impact would rebut the presumption of reliance by severing the link between the alleged misrepresentation and the price paid by the plaintiffs. The Fifth Circuit further noted that, even though Halliburton offered its price-impact evidence only for rebuttal purposes, such evidence also could be probative on the market-efficiency, public-statement, and materiality elements of the fraud-on-the-market presumption.

Despite this settled law, the Fifth Circuit understood Amgen to make questions about price impact off limits at the class-certification stage. The Supreme Court held in Amgen that immateriality is not a proper ground for refusing to presume reliance at the class-certification stage because it turns on objective evidence common to the class and is an element of securities fraud. As a result, the Court reasoned, a lack of materiality would lead to judgment for the defendant rather than individual inquiries that would defeat class certification.

The Fifth Circuit concluded that price impact should be treated like materiality. Proof of price impact is common class-wide evidence, in the court’s view. And, even though price impact itself is not an element of a securities-fraud claim, the court ruled that proof that there was no price impact would mean that a plaintiff could not establish loss causation—which is an element of securities fraud. Thus, a victory for Halliburton on price impact, the court explained, “will not result in the possibility of individual claims continuing.” As the Fifth Circuit understood Amgen, those conclusions meant that “Halliburton’s price impact evidence does not bear on the question of common issue predominance, and is thus appropriately considered only on the merits after the class has been certified.”

The Fifth Circuit’s ruling represents an unfortunate misreading of the Supreme Court’s troubling Amgen decision. Under these decisions, the limited fraud-on-the-market inquiry at the class-certification stage is a slender reed on which to presume reliance for class certification purposes and thereby allow sprawling and coercive securities-fraud class actions. From my perspective, this is all the more reason to reconsider whether the economic and other premises of the fraud-on-the-market presumption of reliance are faulty, as four Justices suggested in Amgen.

The case arises from a lawsuit that the Mississippi attorney general filed in state court against manufacturers of liquid crystal display panels, alleging a price-fixing conspiracy. Among other relief, the complaint sought restitution on behalf of Mississippi consumers who had purchased LCD panels during the period when prices were allegedly fixed. After the defendant manufacturers removed the case to federal court as a “mass action” under CAFA, Mississippi moved to remand, contending that it did not fall within the scope of CAFA jurisdiction.

The district court granted Mississippi’s motion to remand, but the Fifth Circuit reversed.  Mississippi ex rel. Hood v. AU Optronics Corp., 701 F.3d 796 (5th Cir. 2012). The Fifth Circuit concluded that Mississippi’s suit constituted a mass action because the individual consumers are “[t]he real parties in interest.” Id. at 800. The court reasoned that, insofar as Mississippi brought claims to enforce the rights of consumers, the state was “not asserting its sovereign interest[s]” but was instead acting “as a class representative” and “pursu[ing] the interests of … private part[ies].” Id. at 801. The case therefore remained in federal court.

Many other state attorneys general have filed similar lawsuits against the LCD manufacturers. In a number of those lawsuits, however, the Fourth, Seventh, and Ninth Circuits have held that removal is not permitted under CAFA. The Supreme Court granted review to resolve the circuit split.

The Supreme Court’s decision in this case will be significant for businesses, as state attorneys general have been filing enforcement actions in increasing numbers. Indeed, we have blogged about how some members of the plaintiffs’ bar have been lobbying states to deputize them as acting attorneys general so that they may file lawsuits as parens patriae actions in order to avoid federal jurisdiction. Moreover, as we have discussed in the past, the Court’s decision may be relevant to litigation over the scope of the Securities Litigation Uniform Standards Act of 1998, 15 U.S.C. § 78bb(f), which prohibits “private part[ies]”—but not states—from filing certain securities-fraud class actions in state court.