Class Action Lawsuits Part I: History
History of Class Action Litigation
Class action litigation dates all the way back to medieval England. Thanks to treacherous roads and equine-powered vehicles, it was difficult for Kings, Queens, and henchmen to travel from village to village dispensing justice. As such, dealing with legal conflicts en masse became the norm.
But things improved in jolly old England. Roads became less death-trapy; horse-and-buggy technology blew up; travel became safer and smoother. The improvements affected politics, culture, and justice. At the time, individual litigation usurped group trials.
By 1850, Parliament had enacted several statutes that took a bite out of group litigation. But at around the same time, in the United States, group litigation lived on, albeit oddly, in large part due to Supreme Court Justice, Joseph Story.
Class Action Law in the United States
Equity Rule 48 is the legal seed of modern U.S. class action litigation. Back in the day, though, 48 was largely ineffective because it didn’t allow “suits to bind similarly situated absent parties.”
Over time, Equity Rule 48 effectively became Equity Rule 38.
In 1966, class action litigation underwent another major change in the United States. The opt-out process became standard and Equity Rule 38 became Rule 23 of the Federal Rules of Civil Procedure.
Today, Class action laws in the U.S. are defined in Rule 23 of the Federal Rules of Civil Procedure and Title 28, section 1332(d) of the annotated United States Code.
For several decades, the 1966 standard remained the status quo for class action litigation.
However, things changed in the 1990s when the SCOTUS ruled in favor of bilateral arbitration over class action litigation. Capitalizing on the high court’s sentiments, in 1999, a national arbitration advocacy association launched a campaign encouraging businesses to include “collective action waivers.”
Class Actions as an Alternative to Government Finance Regulation?
Back in 1941, two well-known free market proponents — Harry Kalven, Jr. and Maurice Rosenfeld — promoted the idea that class action litigation could replace “direct government regulation” in the market. It never worked out to the extent the pair hoped.
Class Action Lawsuits Part II: The Anatomy of A Class Action Claim
We’ve discussed the history of class action law, from its beginnings in Medieval England to its current form under U.S. statutes. Now let’s examine the administrative aspects and legal elements of a marketing class action lawsuit.
Jurisdiction and Class Action Lawsuits
Most state class action laws look a lot like the federal ones; but, inter-state differences do exist. For example: California has four different class action categories. Virginia doesn’t allow any class action suits. New York limits the types of cases that can be brought via the class action process.
Federal Class Action Eligibility
Class actions can be filed in federal court if the prevailing issue is a matter of federal law. Additionally, federal district courts may have jurisdiction is the potential damages exceed $75,000, or if a member of the class is from a different jurisdiction than the defendant.
State Class Action Eligibility
Class actions can also be brought under state law. Common wisdom says federal courts are more favorable to defendants, while plaintiffs tend to fare better in state courts.
The Class Action Fairness Act of 2005
In 2005, federal officials passed the Class Action Fairness Act (U.S.C. Sections 1332(d), 1453 and 1711-1715). A statute meant to modernize class action litigation, the law increased federal jurisdiction over class and mass action lawsuits. It also directed courts to better scrutinize the efficacy of settlements.
Like most federal statutes, The Class Action Fairness Act had its supporters and detractors. The “yay” vote appreciates the reduction of “forum shopping.” The “nay” group thinks the Class Action Fairness Act doesn’t bring balance, but instead makes it harder to bring class action lawsuits — and therefore benefits large corporations over average citizens.
Basic Timeline of a Class Action Lawsuit
You may be thinking: how does a marketing class action lawsuit actually play out? Here’s a rough timeline for a typical case:
- Finding and Filing a Case: Sometimes a plaintiff approaches a law firm about a potential class action lawsuit. Other times, a law firm approaches a potential client about being a named/lead plaintiff on a case.
- Certification: Once the case is filed, it needs to be certified as a class action lawsuit. Specifically, the parameters of the class need to be drawn, and a judge must determine if the case qualifies for group litigation. Discovery may be necessary during the class certification process.
- Let the Objections Begin: Once the class is certified, the defendants can voice their objections. Common arguments during this stage include:
- Objection to the validity and feasibility of a class action to resolve the particular legal conflict at hand;
- The appropriateness of the named plaintiff as a representative of the group;
- The preparedness of the law firm representing the plaintiffs; and
- The soundness of using class action litigation to rectify the legal questions at hand.
- Hear Ye, Hear Ye: Once objections have been made, dealt with, and the class is certified, it’s time for broadcasts. After all, you can’t very well have a class action lawsuit without a sizable class of potentially damaged victims. The first announcement announces the class and usually gives instructions on how potential members can opt out. Why would anybody want to opt out? In most cases, because an individual wants to pursue his or her own legal action against the defendant(s). If the named plaintiff, defendants and attorneys can hammer out a settlement before the case is heard by a judge or jury, a settlement notice must also be published to the public.
- Kumbaya Achieved: If a settlement is immediately proposed, accepted and approved, then the class action is essentially over and the parties execute their portion of the settlement agreement. In these instances, the class members can collect whatever reward at his point. If a settlement is not proposed, accepted and approved, the case may go to trial – which could take years. Eventually, a judge rules and the resulting orders carried out as prescribed by the ruling.
CAN’T Principle: The Four Pillars Of A Class Action Claim
When describing class action lawsuits, the acronym “CAN’T” is used to remember the aspects of a class action lawsuit.
Commonality: In order for an action to move forward, the members of a given class must have the same legal issue with the same set of defendants. Moreover, the common issue must usurp any singular issues any individual class member may have with the defendant(s).
Adequacy: A certified class largely depends on the preparedness of the plaintiffs’ law firm. The courts won’t let just any attorney handle a class action case, as group litigation requires significant resources and knowledge of class action proceedings. Same goes for the other side.
Numbers: Size matters in class action lawsuits. For a case to be green lit, the number of people in the class must be large enough that litigating each case separately would be unreasonable.
Typicality: Like any lawsuit, class action cases must use laws and arguments relevant to the issue(s) at hand.
Advantages of a Class Action Lawsuit
- Can increase efficiency of legal process;
- Can lower litigation costs;
- Eliminates redundant trials;
- The structure of a class action creates a worthwhile opportunity to hold a company accountable;
- Disallows early-filing plaintiffs from “raiding the fund” in “limited fund” cases;
- Can mitigate legal confusion, as there is less opportunity for incompatible standards.
Disadvantages of Class Action Lawsuits
- In certain circumstances, class actions have the potential to harm class members with legitimate claims;
- Class actions have the potential to adversely affect interstate commerce;
- Have the potential to undermine the public’s respect for the judicial system;
- The notification system is often confusing and inefficient;
- If the stars are aligned, participants in competing cases can orchestrate collusive settlement discussions.
Class Action Lawsuits Part III: Marketing Class Action Lawsuit Briefs
SunRun Class Action Lawsuit
In January 2013, California resident Shawn Reed filed a lawsuit against SunRun, a solar panel company. Reed alleged deceptive marketing, citing inaccurate information allegedly conveyed by both the company’s marketing materials and a sales representative. Specifically, Reed “understood from SunRun that increases in electricity prices would result in the cost advantage of the SunRun system.”
Reed was skeptical of the claims and researched the issue. His findings meshed with SunRun’s. Specifically, Reed concluded that while electricity rates were on the rise, they were increasing at the rate SunRun said.
But the discrepancy in electricity rates was the only problem Reed had with SunRun. He also took issue with the termination clause in the contract that said consumers could cancel without penalty if they move. Yet, further down the contract, it says customers must pay the remainder of the lease if the contract is terminated. The contradiction bothered Reed because, in his opinion, it was “unnecessarily confusing to the average consumer” and “likely to deceive” customers. Firm in his convictions, Reed launched a lawsuit.
In their defense, SunRun argued lack of intent, reasoning that the company wasn’t “intentionally deceptive” – a requirement for a successful false advertising action.
Reed won the first round and a judge certified his proposed class: anyone who entered into a contract with SunRun before February 2012.
The case is currently ongoing. Reed v. SunRun Inc., Case No. BC498002, California Superior, County of Los Angeles
Kodak Class Action
Printer companies seem especially vulnerable to marketing class actions. Take Kodak.
Consumers realized that printing black and white documents used up a significant amount of color ink, which ranslated into extra costs for the consumer. As a result, affected parties launched a class action; lead plaintiff: Daniela Apostol.
The process started in Sept 2011. The class alleged violations of the Consumers Legal Remedies Act and unfair competition laws, in addition to false advertising and unjust enrichment. The lawsuit states: “Kodak represents that its 10B black inkjet print cartridges will yield approximately 425 pages, but Kodak does not advertise that to print 425 pages of black text and graphics, a significant and a substantial amount of color will also be used…”
The proposed member class is anyone in the United States who owns a Kodak color inkjet printer and has printed black text or images using that printer between January 26, 2010 and September 23, 2011. At the time of this writing, the case is still pending.
HP and Epson are facing similar lawsuits.
Webloyalty Class Action Case
The Webloyalty class action lawsuit deals with unauthorized credit card charges. Plaintiffs in the case allege deceptive Internet marketing and selling strategies.
It all started in 2006. Webloyalty was running a fee-based travel membership club called “Reservation Rewards” that conferred discounts on participants. The problem (according to plaintiffs)? Webloyalty allegedly enrolled people without their knowledge, didn’t honor cancellation requests, and unlawfully obtained consumers’ billing information.
A judge certified the class membership and the class won. The order allowed affected parties to recover up to 100% of unauthorized charges for enrollment in any Webloyalty membership programs. In addition, Webloyalty had to make significant changes to its disclosures and post-enrollment notifications. The court’s order went into effect on august 14, 2009.
Target Class Action
The Target screen-reader lawsuit centers on website accessibility.
In 2006, Bruce Sexton, Jr. – a blind student at the University at California-Berkeley – in association with the National Federation of the Blind – filed a lawsuit against Target stores because the company’s corporate website used image maps and was, therefore, inaccessible to blind people, thus violating the American’s with Disabilities Act. In addition, the plaintiffs argued violations of California’s Unruh Civil Rights Act and the California Disabled Persons Act. The addition of the California-specific claims gave plaintiffs more wiggle room: if the case didn’t fly on the federal level, it had a shot on the state level.
A California court certified the class as “all blind internet users throughout the United States who have tried without success to access Target’s website.” The judge also certified a second class: blind Californians who have tried without success to access Target.com.
When the Target caught wind of the class action, it acted quickly to change its site. But, the case moved forward anyway. In the end, the plaintiffs won.
Payment Card Interchange Fee Merchant Discount Antitrust Litigation
A 2005 class action lawsuit examined price fixing and other anti-competitive practices in the credit card industry. A complex case, its been chugging on for over 7 years. And it’s no wonder this class action is moving at a snail’s pace; Visa, Mastercard and most of the large credit-card issuing banks like JPMorgan Chase, BOA, CitiBank, Wells Fargo, and Capital One are involved.
So what’s the central issue of this seemingly never-ending case? The plaintiffs contend the defendants (credit card companies and other financial institutions) conspired to fix swipe fees for credit and other types of money cards. The plaintiffs argue that doing such hindered their ability to promote alternative payment methods (cash, checks, lower-cost cards).
After considerable litigation, attorneys for the two sides struck a deal: the card companies would reduce the swipe fee charges by 0.1% for 8 months. The reduction would translate to a $7.25 billion settlement if all class members accepted. In addition, the settlement draft gave vendors permission to pass the cost to consumers by charging a fee to buyers as a way to recoup swipe fees. Many of the larger retailers, like Target and Walmart, however, didn’t implement the consumer surcharges, fearing a PR backlash.
After reviewing the settlement offer, the National Association of Convenience Stores and the National Retail Federation came out against the deal. One of the main complaints is that consumers, not the stores, pay the price under the proposed settlement.
Several larger retailers (Walgreens, Kroger, and Safeway) reached a separate agreement with the defendants regarding this matter.
Lane v. Facebook Class Action
Lane v. Facebook deals with Internet privacy and social media advertising.
It all began in December 2007. Facebook unleashed Beacon – an advertising plugin deployed on all user accounts. A disaster from day one, Beacon broadcasted purchases to users’ contact lists. Unfortunately for Lane, his engagement ring purchase blasted to his girlfriend. Needless to say, Beacon effectively ruined the surprise. Many other people were similarly betrayed by Beacon, and within ten days of launching, Moveon.org had gathered over 50,000 signatures from Facebook users.
Within days, Facebook terminated Beacon, but the damage was done. In short order, Lane fronted a class action lawsuit against the social networking company. The certified class: “All Facebook users that had been affected by this service and used it without their knowledge between November and December 2007.”
Specifically, the plaintiffs alleged violations of the Electronic Communications Privacy Act, Video Privacy protection Act, California Consumer Legal Remedies Act, California Computer Crime Law and Computer Fraud and Abuse Act.
In the end, the court sided with the class. The ruling, however, proved controversial because some people felt Facebook got off too easily. The court ordered the social media behemoth to put $9.5 million towards a privacy and security research project – a project from which Facebook arguably benefited — but the users got zilch.
Swift v. Zynga
In 2009, an important online advertising class action lawsuit formed. Zynga, a developer of online games like Farmville, Mafia wars, YoVille!, and ZyngaPoker, ran ads on Facebook. Since many of their games use virtual currency, some Zynga ads promoted a game currency offer.
But according to Rebecca Swift, an avid Zynga player, the gaming company was not playing fair when it came to their advertising. When Swift provided her cell phone number in response to an ad she saw on Facebook offering YoVille! cash, she was charged $9.99 without her knowledge or consent. In the same year, Swift also signed up for another Zynga-related offer for “risk-free Green Tea Purity Trial.” As Swift understood the deal, she would receive YoCash in exchange for participating in a risk-free trial. According to the ad, she could cancel in 15 days without penalty. So Swift gave her debit card information and agreed to a shipping and handling charge. After she received the Green Tea and pills, 10 days in, she sent an email asking to cancel her subscription.
But apparently her attempt to cancel the membership didn’t work. On July 4, Swift got a message that said she would be charged $79.95 for the package of teas and pills. The notification did not include contact information for someone she could talk to about her cancellation. On July 6th, Swift was billed $79.95, in addition to a foreign transaction fee. On July 20th, without warning, she was once again billed $79.95, for a total of 176.56.
In November 2009, a class sued Zynga, Zynga’s partner Adknowledge, and Facebook; Swift, the lead plaintiff. The suit alleged violations of the unfair competition law and consumer legal remedies act plus unjust enrichment. According to the claim, the defendants purposefully created and distributed “highly misleading ads.”
When word of the lawsuit broke, pundits assumed that Facebook and Zynga would probably enjoy immunity. Swift took notice of the criticisms and removed the two companies from the suit, but without prejudice.
While Swift and company were busy planning their strategies, Zynga and Adknowledge separately tried to get the case dismissed on Section 230 grounds, but the courts denied the requests, evoking the Roomates.com ruling. Ultimately the judges determined that Swift’s allegations could support the conclusion that Adknowledge was responsible for creating or developing the content and Zynga further contributed to their development by specifying the design, layout, and format of the offers.
In the end, despite pulling all its “offer” based advertising in 2009, Zynga promptly reinstated the practice in 2010.
At the time of this writing, litigation is still ongoing.
Fraley, et al. v. Facebook, Inc., et al class action
Another marketing class action lawsuit out of California, Fraley, et al. v. Facebook dealt with alleged “misappropriation” of Facebook users’ names and images in “sponsored story” advertisements. Plaintiffs first filed the case in March 2011. Judge Lucy H. Koh presided.
Judge Koh eventually granted Facebook’s motion, but only in part; the plaintiffs continued. Miraculously, however, in May 2012, right before the certification hearing and just after Facebook went public, the two parties reached a settlement: 10 non-profits would get $10 million to establish a “privacy in advertising” research project. Facebook also agreed gave users more control over their appearances in advertisements.
Interestingly, Koh recused herself from the case one day before the settlement was scheduled. Richard G. Seeborg assumed the case. He ultimately denied settlement, taking issue with the “propriety of a settlement that provides no monetary relief directly to class members.” He also didn’t understand how the parties arrived at the $10M figure. Moreover, the “clear sailing” proposal that would allow attorneys to collect $10M from the court, unopposed, didn’t sit well with Seeborg.
Upon the judge’s rejection, lawyers went back to the drawing board. As the judge strongly suggested, they removed the “clear sailing” provision. In addition, lawyers beefed up the language involving minors’ ability to control their likeness in advertisements. By December 2012, the preliminary settlement was amended, approved, and the class membership defined as:
All persons in the United States who have or have had a Facebook account at any time and had their names, nicknames, pseudonyms, profile pictures, photographs, likenesses, or identities displayed in a Sponsored Story at any time on or before the date of entry of the Preliminary Approval Order.
Additionally, a Minor Subclass defined as:
All persons in the Class who additionally have or have had a Facebook account at any time and had their names, nicknames, pseudonyms, profile pictures, photographs, likenesses, or identities displayed in a Sponsored Story, while under eighteen (18) years of age, or under any other applicable age of majority, at any time on or before the date of entry of the Preliminary Approval Order.
Recently, a proposed settlement called for a $20M fund. A fairness hearing was held in San Francisco on June 28, 2013. At the time of this writing, Seeborg is expected to approve the settlement.