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Nationwide Class Actions Could Be Restricted in Appeals Cases

Sept. 17, 2019, 10:41 AM

Workers could see a rollback of their power to use nationwide class actions to accuse corporations of widespread workplace law violations in cases pending before federal appeals courts.

Whole Foods Market Group Inc. this month will ask the U.S. Court of Appeals for the District of Columbia to impose a strict jurisdictional rule to stop unnamed class members with no connection to the place where the lawsuit was filed from pursuing class claims for unpaid wages. Employees who don’t live or work in Washington, where the lawsuit was filed, should be blocked from the class, Whole Foods argues in court filings.

Two days after the D.C. Circuit’s Sept. 25 oral argument in the Whole Foods wage class action, the Seventh Circuit will hear argument over that same jurisdictional issue in a federal consumer class action filed against health-care technology company IQVIA Inc.

And the Fifth Circuit in April heard oral argument over the issue in a class action against fees that Jackson National Life Insurance Co. charged on a type of investment account.

Corporations could only face nationwide or multistate class actions in the state where they’re headquartered or incorporated under the rule the companies want. Those home forums are where federal courts have the authority, known as general jurisdiction, to consider claims against the companies. In cases brought only in those states, establishing a court’s “personal jurisdiction” over the employers with respect to out-of-state plaintiffs’ claims isn’t necessary.

Imposing such a jurisdictional rule would be a major setback for workers, consumers, and other class action plaintiffs, legal scholars told Bloomberg Law. Foreign companies that aren’t incorporated in the U.S. would become very resistant to nationwide or multistate class actions, since they typically don’t have a home forum, scholars said. Plaintiffs could lose the ability to choose courts with favorable case law for class actions larger than a single state, they said.

“It’s very likely to reduce the deterrent effect of consumer laws and employment laws,” added Zachary Clopton, a law professor at Northwestern University who’s written about class actions and jurisdictional issues. “If you have to chop up one case into separate suits in every state, maybe plaintiffs and their attorneys just say it’s not worth the effort to file those cases. That means the substantive laws would have that much less of a deterrent effect.”

Class action claims brought under state and federal laws could be covered by a ruling that imposes a strict personal jurisdiction requirement, legal scholars said. But claims brought under federal statutes allowing courts to assert personal jurisdiction in any district, such as antitrust and securities laws, wouldn’t be affected, scholars said. The Fair Labor Standards Act, which uses its own collective action mechanism, probably wouldn’t be impacted either, they said.

The U.S. Supreme Court—which has handed down several rulings weakening class actions and reining in personal jurisdiction—would likely take up the issue if circuit courts split, legal scholars said.

Building From Supreme Court Precedent

The companies pushing for the jurisdictional restriction on unnamed class members are trying to build from the U.S. Supreme Court’s 2017 ruling in Bristol-Myers Squibb v. Superior Ct. of Cal. That 8-1 decision said each plaintiff who’s part of a state-court lawsuit with aggregated individual claims—but isn’t a class action—must establish that the court has personal jurisdiction over the defendant with respect to their claims. Otherwise, a defendant’s Fourteenth Amendment due process rights would be violated, the court said.

That meant Bristol-Myers, which was sued in California over alleged harm caused by one of its prescription drugs, didn’t have to face tort claims from the plaintiffs who didn’t assert they were injured by that drug in California or had any other connection to the state.

“The day after Bristol-Myers was decided, it was obvious to everyone that the next question was whether it applies to class actions,” said Howard Erichson, a law professor at Fordham University who specializes in civil procedure.

Federal courts around the country are divided on the question.

In the Whole Foods case, Judge Amit Mehta of the U.S. District Court for the District of Columbia said Bristol-Myers doesn’t cover the unnamed class members in the lawsuit alleging the high-end grocery chain underpaid its employees as part of a bonus program.

There are key distinctions between class actions and mass aggregations of individual claims, Mehta said. Unlike the many named plaintiffs joined together to press a group of individual claims, the few named plaintiffs in a class action must meet the standards under Rule 23 of the Federal Rules of Civil Procedure to represent similarly situated unnamed plaintiffs, he said.

“These additional elements of a class action supply due process safeguards not applicable in the mass tort context,” Mehta said.

But in the IQVIA case, Judge Virginia Kendall of the U.S. District Court for the Northern District of Illinois said the core reasoning of Bristol-Myers—due process as an “instrument of interstate federalism”—requires the forum and the claims at issue to have a connection. Defendants should have the same due process rights regardless if they face an individual, mass, or class action, Kendall said.

Kendall imposed a geographic restriction on the putative class in the lawsuit alleging that IQVIA violated the Telephone Consumer Protection Act by sending members unsolicited advertisements via fax. The class cannot contain non-Illinois residents who didn’t receive the alleged faxes in Illinois, she said.

Class v. Mass Action

Whether courts will extend the jurisdictional limits from Bristol-Myers to class actions in federal court is likely to come down to judges’ views on how class actions differ from mass aggregations of lawsuits, legal scholars said.

The key question is if a class is like a collection of individual parties—essentially a mass joinder—or “some sort of undifferentiated entity unto itself,” said Theodore Rave, a law professor at the University of Houston.

“The law hasn’t really picked one or the other,” said Rave, who’s written on jurisdictional issues and class actions.

Sometimes courts treat classes like discrete entities, such as when they ignore where class members reside when determining whether they have jurisdiction over a case based on the diversity of plaintiffs, Rave said. Other times they treat classes like sets of aggregated parties, such as when they allow individual class members to appeal if their objections to settlements are denied, he said.

Whole Foods argued in court filings that there’s a “significant and intuitive” distinction about when courts consider class members as parties and when they don’t.

“When a rule can be applied uniformly to all unnamed class members because the rule is not dependent on an individual being a member of the class, the rule can and should be applied at the pleading stage,” the company said. The Bristol-Meyers jurisdictional rule is just that type of standard, it said.

But the workers countered in its brief that the Supreme Court’s 2002 ruling in Devlin v. Scardelletti provides a guide for when unnamed members should be treated like parties. That ruling enshrined individual class members’ right to appeal if their objections to settlements are denied.

Courts are supposed to take account of settled practice, then inquire whether there’s a compelling justification for treating members as parties and if the goals of class action litigation would be best served by doing so, the workers said.

“Under Devlin’s pragmatic approach, this is not a close case,” they said. “Whole Foods makes almost no attempt to show that any of the factors favor its preferred outcome.”

Attorneys for Whole Foods and the workers declined to comment.

The cases are Molock v. Whole Foods, D.C. Cir., No. 18-07162, oral argument 9/25/19, Mussat v. IQVIA, 7th Cir., No. 19-01204, oral argument 9/27/19, and Tredinnick v. Jackson National Life Insurance, 5th Cir., No. 18-40605, oral argument 4/30/19.

To contact the reporter on this story: Robert Iafolla in Washington at riafolla@bloomberglaw.com

To contact the editors responsible for this story: Jay-Anne B. Casuga at jcasuga@bloomberglaw.com; Karl Hardy at khardy@bloomberglaw.com

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