Looking back and forward: Class actions and the Supreme Court

With several key rulings issued by the U.S. Supreme Court last term, 2019 has already been a big year for the class action bar. As the court takes the bench for its new term, here is a look at several significant rulings impacting class action litigation this year so far -- and some things we can expect from the court this term.

First, a quick look back at a few of the year's most significant cases:

In February, the court decided Nutraceutical Corp. v. Lambert, 139 S. Ct. 710 (2019) , holding that Rule 23(f) of the Federal Rules of Civil Procedure, which provides for a 14-day deadline to seek interlocutory review of decisions granting or denying class certification is a mandatory "claim-processing rule" that is not subject to equitable tolling or exception. The case clarifies and highlights the necessity of presenting a request for review of an order on class certification within the 14-day deadline -- even if the district court takes actions that appear inconsistent with that requirement, such as allowing a motion for reconsideration of the certification order outside of the 14 day timeframe.

In April, the court decided Lamps Plus, Inc. v. Varela, 139 S. Ct. 1407 (2019), holding that class wide arbitration cannot be compelled based on an arbitration agreement that is ambiguous as to whether the parties agreed to arbitrate on a class basis; instead, a contract must unambiguously allow class-wide arbitration. Many commentators view this decision as the death knell to class wide arbitration and as a further extension of prior rulings demonstrating a distinct preference by the court for individual arbitration.

In May, the court decided Home Depot U.S.A., Inc. v. Jackson, 2019 DJDAR 4505 (2019), holding that neither the general removal statute, 28 U.S.C. Section 1441(a), or Section 1453(b) of the Class Action Fairness Act, permit a third-party counterclaim defendant to remove a class action to federal court because those provisions are only available to defendants named in the original complaint. The case is significant not only for its holding, which fails to close a loophole that allows class claimants to avoid the removal of class actions to federal court by styling their class claims as counter-claims, but also due to the surprising make-up of the divided court. Justice Clarence Thomas wrote for the majority and was joined by Justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan. Justice Samuel Alito wrote for the dissent and was joined by Chief Justice John Roberts and Justices Neil Gorsuch and Brett Kavanaugh.

Lastly, in March and June, the court issued two long-awaited decisions, sidestepping the questions originally presented in both -- but nonetheless sending currents through the class action bar.

First, in Frank v. Gaos, 139 S. Ct. 1041 (2019) , also referred to as part of the In re Google Referrer Header Privacy Litigation, the court was asked to consider the propriety of cy près settlements that distribute money to nonprofit organizations instead of the impacted class. The case, arising from allegations that Google violated the Stored Communications Act by unlawfully disclosing users' search terms, provided an $8.5 million settlement fund that, other than attorney fees, administration costs, and incentive awards, was to be wholly distributed among six charities. The 9th U.S. Circuit Court of Appeals upheld the district court's approval of the cy près settlement, explaining that because there were so many class members a distribution of the settlement to every impacted person would be impracticable and provide for only "a paltry 4 cents in recovery" per person. In re Google Referrer Header Privacy Litig., 869 F.3d 737, 739 (9th Cir. 2017). Instead of ruling on the primary question presented, however, the Supreme Court remanded the case back to the lower court to consider whether the plaintiffs had standing to bring the case in light of the 2016 holding in Spokeo v. Robins, 136 S. Ct. 1540 (2016), wherein the court held that a plaintiff in federal court cannot establish Article III standing by asserting only a violation of a federal statute; the plaintiff must also identify a cognizable real-world harm. While the decision delays the long-awaited consideration and clarification of the legal standards governing cy près settlements, it reinforces the court's Spokeo view of Article III standing, which has been a central issue in consumer class action litigation over the last few years--with varying results. Opponents of cy près settlements also have the benefit of Justice Thomas' dissenting opinion, wherein he opines that cy près settlements do not comply with the requirements of Rule 23 of the Federal Rules of Civil Procedure because "[w]hatever role cy pres may permissibly play in disposing of unclaimed or undistributable class funds, [...] cy pres payments are not a form of relief to the absent class members and should not be treated as such (including when calculating attorney's fees)."

Second, in PDR Network, LLC v. Carlton & Harris Chiropractic Inc., 139 S. Ct. 2015 (2019), the court considered whether the Administrative Orders Review Act (the Hobbs Act), 28 U.S.C. Section- 2342(1), requires district courts to defer to the Federal Communication Commission's interpretation of the Telephone Consumer Protection Act -- a frequent basis of class actions nationwide. In a unanimous judgment, the court vacated the 4th Circuit's holding that district courts must defer to the agency's interpretation of the statute, but punted the question presented by remanding the case back to the circuit to consider two "preliminary issues." Justice Kavanaugh, joined by Justices Thomas, Alito and Gorsuch, was critical of the court's failure to decide the substantive issues and concurred in the judgment only, opining that the Hobbs Act does not preclude a district court's judicial review of an agency's statutory interpretation in a TCPA action: "The District Court is not bound by the FCC's interpretation of the TCPA. Rather, the District Court should interpret the TCPA under usual principles of statutory interpretation, affording appropriate respect to the agency's interpretation." 139 S. Ct. at 2058 (Kavanaugh, J., concurring in the judgment). With the propriety of the FCC's rulings under the TCPA coming under fire in other contexts, this interpretation of the Hobbs Act, which has already been endorsed by a three-judge panel of the 11th Circuit, promises to create further uncertainty around the scope and adjudication of TCPA class actions.

Looking forward, the cases on review this term promise to impact future class actions in less direct -- but potentially just as impactful -- ways, at least based on the questions presented. This is due to the court's consideration of various substantive laws that are often invoked on a class wide basis.

For instance, on Oct. 8, the court heard two hours of argument in three politically charged cases dealing with sex-based discrimination under Title VII of the Civil Rights Act of 1964, 42 U.S.C. Section 2000e-2(a)(1). In Bostock v. Clayton County, Georgia, 17-1618, and Altitude Express Inc. v. Zarda, 17-1623, the court is considering whether discrimination against employees based on sexual orientation constitutes prohibited employment discrimination under Title VII "because of ... sex." And, in R.G. & G.R. Harris Funeral Homes Inc. v. Equal Employment Opportunity Commission, 18-107, the court is considering whether Title VII prohibits discrimination against transgender people based on either (i) their status as "transgender" or (ii) "sex stereotyping" under Price Waterhouse v. Hopkins. While each of these cases involve different fact patterns and considerations, a holding from the Supreme Court recognizing Title VII's protection of LGBT rights will be an expansion of Title VII that will undoubtedly spark a slew of new class actions nationwide. Indeed, since Title VII was enacted in 1964, many of the most significant employment discrimination cases have been class actions. And gender-based discrimination cases have seen an uptick in recent years, with notable putative class actions alleging gender-based discrimination filed or working their way through the courts in 2019, including cases against Microsoft, Walmart, Oracle, Nike, Riot Games, Disney and "Big Law" firms Morrison & Foerster and Jones Day, just to name a few. Although plaintiffs will still face the high bar for class certification in employment discrimination cases, the majority of putative class actions are generally resolved without a merits or class certification determination by the courts -- meaning that the class certification standard will likely do little to deter the filing of new LGBT rights class actions under an expanded Title VII. These cases are also significant as a potential indicator of the ideological makeup of the newly configured court, if decided on the merits, since they are the first cases to consider LGBT rights since the retirement last year of Justice Anthony Kennedy, who authored the majority opinions in four of the court's most recent LGBT related decisions, including in the 5-to-4 ruling in Obergefell v. Hodges recognizing the right of same-sex couples to marry.

Grappling with further questions regarding discrimination, on Oct. 13, the court heard argument in the case of Comcast Corp. v. National Association of African American-Owned Media, 18-1171. At issue in this case is what level of causation is required under Section 1981 of the Civil Rights Act of 1866, 42 U.S.C. Section 1981, which prohibits discrimination on the basis of race in the making or enforcement of contracts. Unlike Title VII, Section 1981 applies to all private companies, regardless of size, as well as state and local governments. It also has several key differences from Title VII that can make it a more attractive grounds for litigation, including that employees are not required to first file a claim with the EEOC, they can go straight to court, it provides for a four year statute of limitations (i.e., potential class period), and there is no limit on the damages that can be awarded (Title VII caps damages at $50,000 to $300,000). The court's decision in this case could make it an even more attractive and likely basis for class treatment, since the court is considering whether race must be the "but-for" cause of the discrimination alleged, or whether plaintiffs need only demonstrate, as the 9th Circuit has held, that "discriminatory intent plays any role in a defendant's decision not to contract with a plaintiff, even if it is merely one factor and not the sole cause of the decision." So called "mixed-motive" liability is already provided for under Title VII.

Lastly, on Wednesday, the court heard argument in Rotkiske v. Klemm, 18-328, a case addressing whether the "discovery rule" applies to toll the one-year statute of limitations under the Fair Debt Collection Practices Act 15 U.S.C. Sections 1692, et seq. The FDCPA is a common basis for class action litigation nationwide and it is reported that there has been a marked increase in the number of FDCPA cases brought as class actions. This is likely due to the fact that not only does it provide significant protections to debtors, it explicitly allows claims to be brought on behalf of a class, provides for the potential for huge damage awards, and includes a fee shifting provision allowing prevailing plaintiffs to recover attorney fees and court costs. While issues of delayed-discovery are often relied on to defeat class-certification, a finding that the rule allows for broader potential classes of plaintiffs will undoubtedly impact the nature and scope of FDCPA cases -- as well as the amount and timing of settlements.

In conclusion, 2019 promises to be an important year for class action litigators -- both due to the cases decided by the Supreme Court so far, which squarely deal with class issues, and the cases on review this term, many of which seek to define the parameters governing important statutory claims that are often brought as putative class actions. 