California Court Rejects Firm's Attempt to Collect Undisclosed Attorneys' Fees in Class Action Settlement

The apparent misconduct of counsel representing some class members recently led California's First Appellate District to uphold a temporary restraining order barring a law firm from collecting nearly $5 million in attorneys' fees. In Lofton v. Wells Fargo Home Mortgage, the court stated that the firm had tried to distribute the fees to itself without the approval, or even the knowledge, of the court. Moreover, the firm's clients, whose individual suits the firm settled along with a concurrently pending class action represented by other attorneys, also were not apprised of the relevant details regarding the settlement or the attorneys' fees. Ultimately, in upholding the temporary restraining order sought by an intervenor who was their former client, the First District suggested that the firm may not be entitled to any fees at all. The Lofton opinion provides an inside look at a class action settlement gone very wrong.

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California Appellate Court Decertifies Class and Endorses High Standard for Class Certification of Unauthorized Call Monitoring Claims

 California's Fourth Appellate District recently upheld the decertification of a class of consumers who asserted that their lender monitored phone conversations without their consent. The decision in Kight v. CashCall, Inc. (Oct. 9, 2014) will make it more difficult for plaintiffs to certify classes under Penal Code section 632, which prohibits the unauthorized monitoring or recording of confidential conversations. Penal Code section 637.2 authorizes a minimum fine of $5,000 for violation of section 632. The court ultimately concluded, in accordance with Hataishi v. First American Home Buyers Protection Corp. (Feb. 21, 2014), that the confidentiality determination under section 632 required an individualized inquiry into each class member's background and experiences that precluded maintenance of a class action for the determination of liability. In light of these two decisions, unauthorized call recording class actions may well become a thing of the past.

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9th Circuit Confirms Citizenship Test for CAFA Removal

In Doyle v. OneWest Bank, FSB, the Ninth Circuit held that citizenship for purposes of removal under the Class Action Fairness Act (CAFA) must be determined based on the complaint at the time the case became removable.

In Doyle, two plaintiffs sued several defendants in a putative class action in California state court.  Defendants removed the case to federal court based on CAFA jurisdiction.  The parties stipulated that claims of one of the plaintiffs would be severed and transferred to another district court.  The remaining plaintiff amended her complaint to reflect the severance, but also revised her changed her allegations related to citizenship.  Plaintiff then moved to remand the case to state court, asserting that plaintiff's citizenship, as alleged in her amended complaint, put her within an exception to CAFA removal jurisdiction under 28 U.S.C. 1332(d)(4).  The district court granted plaintiff's motion to remand.  Defendants appealed.

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9th Circuit Remands Attorney General Suit, Finding No Complete Preemption and No CAFA Jurisdiction

In Hawaii v. HSBC Bank Nevada, NA, the 9th Circuit reversed the district court's denial of motions to remand in several suits brought against credit card issuers by the Hawaii Attorney General, holding that there was no federal court subject matter jurisdiction under the doctrine of complete preemption and no jurisdiction under the Class Action Fairness Act (CAFA).

The Attorney General of Hawaii sued six credit card issuers in separate complaints in Hawaii state court, alleging unfair and deceptive practices under state law and unjust enrichment related to marketing and enrolling customers in debt protection products such as payment protection plans, extended warranties, identity theft protection plans, and similar products.  Defendants removed the cases to the district court.  The Attorney General moved to remand each case.  The district court denied the motions to remand, holding that although there was no CAFA jurisdiction, there was federal court jurisdiction based on the doctrine of complete preemption.  The Attorney General sought leave to file an interlocutory appeal, and the district court certified questions to the 9th Circuit, which granted permission to appeal. 

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9th Circuit: Plaintiff has Standing to Bring FDCPA Action for Communications He Did Not Receive

In Tourgeman v. Collins Financial Services, Inc., et al., the Ninth Circuit Court of Appeals reversed the district court’s summary judgment in favor of defendants in a Fair Debt Collection Practices Act class action.  Specifically, the panel held that the plaintiff had Article III standing and a statutory cause of action under the FDCPA based on debt collection letters he did not receive.  The Court also held that dunning letters and a state court collection action were materially misleading by misstating the name of plaintiff’s original creditor.

Plaintiff Tourgeman financed a computer from Dell Financial Services, with a loan originated by CIT Online Bank.  Although he lived in Mexico, he had the computer shipped to his parents’ home in California.  After plaintiff allegedly defaulted on the loan, a collection agency and law firm sent dunning letters to plaintiff at the California address, incorrectly identifying the original creditor as American Investment Bank, N.A.  Plaintiff never received the dunning letters, but discovered them when defending a collection action filed in state court. 

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Ninth Circuit Details Pre-Certification Class Settlement Approval

In Laguna v. Coverall North America, Inc., the Ninth Circuit affirmed the district court's approval of a pre-certification class settlement, and further detailed factors for settlement approval under Federal Rule of Civil Procedure 23(e)

In Coverall, plaintiffs asserted a putative class against defendant, a janitorial franchising company, alleging mis-classification of franchisees as independent contractors, as well as breach of the franchise agreement, fraud, and unfair business practices for removing and reassigning customer accounts among franchisees without cause.  The parties agreed to a settlement before class certification, after two years of significant litigation.  The district court approved the settlement in a fairness hearing in November 2011.  A sole objector appealed. 

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One to Watch: U.S. Supreme Court to Review Evidence Required for CAFA Removal

The U.S. Supreme Court has granted certiorari in Dart Cherokee Basin v. Owens to determine "[w]hether a defendant seeking removal to federal court is required to include evidence supporting federal jurisdiction in the notice of removal, or is alleging the required 'short and plain statement of the grounds for removal' enough."

In Dart Cherokee, defendants removed a putative class action from state court to the District of Kansas based on the Class Action Fairness Act ("CAFA").  The district court granted plaintiff's remand motion, holding that defendants had failed to prove by a preponderance of the evidence that the amount in controversy exceeded $5 million, because they had failed "to incorporate any evidence supporting this calculation in the Notice of Removal, such as an economic analysis of the amount in controversy or settlement estimates."  Although defendants submitted such evidence in opposition to plaintiff's remand motion, the district court held that this was insufficient, because defendants were "obligated to allege all necessary jurisdictional facts in the notice of removal."

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Ninth Circuit Holds Order Compelling Arbitration is Not Appealable

Multiple plaintiffs filed purported class action lawsuits against defendant Consumerinfo.com, Inc., alleging violations of California's consumer protection laws.  Each plaintiff had purchased a credit report monitoring program from the defendant.  The terms and conditions of the purchase included an arbitration clause.  The district court stayed the actions, ordered individual arbitration of each plaintiff's claims, and denied 28 U.S.C. § 1292(b) certification for interlocutory appeal.  The plaintiffs timely appealed.

In Johnson v. Consumerinfo.com, The Ninth Circuit dismissed the appeals, finding that the Judicial Improvements and Access to Justice Act, codified as 9 U.S.C. § 16, bars appeals of all orders compelling arbitration, including collateral ones.  Plaintiffs "creative[ly]" argued that because section 16(b) expressly bars appeals of "interlocutory" orders compelling arbitration, orders compelling arbitration that might be considered "final" under the collateral order doctrine are appealable.  But, after examining the statutory language of the Act, as well as its overall design, objectives, and legislative history, the court disagreed.

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Court of Appeal Affirms Denial of Fraud and Unfair Competition Claims for Failure to Plead with Specificity

In Cansino, et al. v. Bank of America, et al., the Sixth District Court of Appeals affirmed the trial court's order sustaining the demurrer to plaintiffs' second amended complaint with prejudice for failure to plead causes of action for fraud and unfair competition with requisite specificity.  The Court of Appeal held that predictions regarding the future of the real estate market constitute mere opinions, which are not actionable in fraud.  Moreover, the Court of Appeal identified that both causes of action were time-barred by the respective statutes of limitation.

Plaintiffs Carlos and Resurrection Cansino filed a complaint in Santa Clara Superior Court after a foreclosure.  Between 2000 and 2005, Plaintiffs obtained an original mortgage loan which they refinanced multiple times during that period.  In 2010, plaintiffs discovered that their property value had dropped to 35-40% less than the amount of their refinance in 2005.  At that point, they sought loan modification and stopped making payments on the 2005 loan.

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Second District Upholds Arbitration Agreement That Gives Employer Unilateral Power to Modify

The Second Appellate District has held that an arbitration agreement is not illusory simply because only the drafting party may modify or terminate the agreement. In Casas v. CarMax Auto Superstores California LLC, the appellate court reversed the lower court's order denying CarMax's motion to compel arbitration of a former employee's claims stemming from the termination of his employment.

The lower court found that the arbitration agreement was illusory because only CarMax could unilaterally modify or terminate the agreement, and it could notify employees of any such changes indirectly, simply by posting notification at all CarMax locations. In reversing the lower court's order, the appellate court first distinguished the primary case that order relied upon, Sparks v. Vista Del Mar Child & Family Services. The appellate court distinguished Sparks on the grounds that it involved an agreement that permitted the employer to change the arbitration agreement with no notice at all to employees, and that the brief agreement was hidden in a handbook that the employee simply acknowledged receiving.

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