litigating in the wake of a class action
TRANSCRIPT
Ross Orenstein & Baudry LLC
Litigating in the Wake of a Class Action
Harry Niska & Matthew VeenstraHennepin County Bar Association
December 15, 2015
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Problem or opportunity in disguise?
Problem: “Sorry, you’ve been damaged by wrongdoing that is the basis of a class action.”
Disguised Opportunity: “Congratulations, you have become an (involuntary) investor in the outcome of a class action!”
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Your investment decision
How do you decide whether you should be an “activist” instead of a passive investor?
• Where do these disguised opportunities present themselves?
• What process should I go through to analyze my options?
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Where do these disguised opportunities present themselves?Securities Class Actions
• Institutional investors with significant holdings in an affected security
• Business that made a deal in reliance on a counterparty’s representations of its finances
• Sale-leaseback landlord
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Where do these disguised opportunities present themselves?Antitrust Class Actions
• Businesses are often antitrust plaintiffs
• Illinois Brick doctrine bars indirect purchaser claims under Sherman Act
• Market power tends to be more concentrated in commodities and components
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Where do these disguised opportunities present themselves?Other Class Actions
• Consumer class actions for data breaches (e.g., Target 2013)• Payment card issuing banks
• Farmer class actions for GMO seed contamination (e.g., Syngenta)• Grain exporters • Food companies that recalled products
• Defective construction materials in commercial buildings• Recently filed class action in Florida over faulty sprinkler systems
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How do I decide what to do?
Three step analysis
1) Cost-benefit analysis of taking action vs. doing nothing
2) Legal analysis of potential separate lawsuit
3) Choosing a litigation strategy & jurisdiction that maximizes outcomes and minimizes costs
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Cost-Benefit Analysis: Is “Activism” Worth It?
The Benefit: Opt outs generally achieve higher recoveries than passive class members
• Autonomy
• Ability to optimize leverage with “right-sized” damage group
• Potential tactical and substantive advantages
Reference: John C. Coffee, Jr., Litigation Governance: Taking Accountability Seriously, 110 COLUM. L. REV. 228 (2010).
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Benefits of “activism” Autonomy
• Avoid class action “agency problem” – Clients direct litigation and settlement strategy
• Separate—likely faster—settlement distribution process
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Benefits of “activism” Optimized leverage• Working with a group of similarly situated parties, you can exercise
some control on the optimal size of your damages.
• Goldilocks approach
• If damages too high, face insolvency constraints that result in diminishing returns for your group members
• If damages too low, your group will never get a seat at the table
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Benefits of “activism”: Tactical & substantive advantages• Ability to choose federal vs. state court
JUSTICE ALITO: Well, just out of curiosity, why is it so important for your client not to be inFederal district court?***[Plaintiffs’ attorney:] [I]t's not a surprise that a lot of securities plaintiffs want to be in Statecourt. In some instances they want to be there because the law is more robust.
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Manning, No. 14-1132 (argued December 1, 2015)
• Potential for additional claims• E.g., Section18 claims or state blue sky securities claims
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Weighing the costs
Benefits• Autonomy• Optimized leverage• Tactical advantages• Substantive advantages
Costs• Attorneys’ fees and litigation
costs• Additional time commitment• Name exposure
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Legal Analysis of Potential ClaimsTolling statutes of limitations• American Pipe, 414 U. S. 538 (1974)
• Federal court, federal claims
• Many states have similar doctrines (e.g., Minnesota)
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Tolling Statutes of LimitationsWhose claims were tolled?
• Those belonging to members of the putative class
• Claims may not be tolled where the named plaintiffs lacked standing for all or some asserted claims
• E.g., Maine State, 2011 WL 4389689 (C.D. Ca. May 5, 2011)
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Tolling Statutes of LimitationsWhich claims were tolled?
• Claims against the same defendants
• Claims that were timely filed
• Legal theories that were actually asserted in the class action• 5th, 7th & 9th Circuits
• 2d Cir. – other theories arising from the same wrongful acts. See Cullen, 811 F.2d 698 (2d Cir. 1987)
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Tolling Statutes of LimitationsWhen is tolling available?
• After a decision on class certification• Whether granted or denied
• Before a decision on class certification• Yes – 2d, 9th and 10th Circuits. E.g., Boellstorff, 540 F.3d 1223 (10th Cir. 2008)
• No – 1st and 6th Circuits. E.g., Glater, 712 F.2d 735 (1st Cir. 1983)
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Tolling Statutes of LimitationsWhich deadlines were tolled?
• Statute of limitations and repose• 10th Circuit Wiles, 223 F. 3d 1155 (10th Cir. 2000)
• Statute of limitations only• 2d Circuit IndyMac, 721 F. 3d 109 (2d Cir. 2013)
• Question is pending in the 9th Circuit
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Tolling Statutes of LimitationsWere any state law claims tolled?• Cross-jurisdictional tolling
• Allowed in some states; rejected in others• Yes – OH, NJ, MO, MI• No – IL, TN, TX, PA
• No authority in many states (e.g., Minnesota)
• Most federal courts sitting in diversity will not toll unless explicitly permitted by applicable state law.
• 8th Circuit exception In re Gen. Am. Life Ins. Co. Sales Practices Litig., 391 F.3d 907 (8th Cir. 2004)
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What is the optimal legal strategy?
• There is no single formula.
• Three main types of situations
• Class member, before settlement
• Class member, after settlement
• Not a class member
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Class member with no settlement4 potential scenarios
• Same court, identical or overlapping claims
• Same court, different claims
• Other federal court
• State court
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Same court; identical (or overlapping) claims• Loss of some autonomy: Common legal & fact questions will be
controlled by class outcome, as well as some procedural & scheduling issues
• Evaluating class counsel: are you comfortable with them speaking for you in many areas?
• Evaluating the judge: are you comfortable with how this judge will decide legal issues and exercise procedural discretion?
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Same court, different claims
• Is there some other, stronger legal claim you can bring that the class cannot bring?
• Example: Sec. 18 securities claims – must prove individual reliance but no scienter requirement
• Still likely to have cede elements of control to class counsel
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Other federal court
• Some other preferable federal forum?
• Convenience
• Speed
• Better law
• Can you avoid transfer under § 1404 or § 1407 (MDL statute)?
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State court
• Is a state court a better forum?• Convenience, speed, and caselaw• Ability to bring state securities claims (SLUSA preclusion problem)
• Is there a basis for federal removal jurisdiction?• Diversity• Federal question
• SLUSA or CAFA removal
• Bankruptcy “related to” jurisdiction
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Post-settlement: Object or opt-out?
• Do you even have a choice?• Derivative settlements• Rule 23(b)(1) or (2)• Trust instruction proceedings
• Objecting – sometimes this is a fruitful strategy (such as merger cases), often it is a fool’s errand.
• Opting out – same four main options: (1) same court/same claims; (2) same court/different claims; (3) other federal court; (4) state court
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Not a class member
• Sometimes a fact issue in a class action gives rise to a separate legal claim to a non-class member.
• Two examples from our firm’s practice:• Sale-leaseback transaction with company engaged in securities fraud• Convertible security in a company purchased in a merger
• Many of the options are the same, but no option to be a purely passive class member.
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More questions or need help?Ross Orenstein & Baudry LLC
www.rossbizlaw.com
Harry Niska [email protected]
(612) 436-9804
Matthew [email protected]
(612) 436-9810