MLB Litigation Brief: Class Action Questions Open After Scalia’s Death, Arbitration Fees and American Rule & More

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Class Actions and Arbitration

    • 2015 Witnesses Record Securities Class Actions: The National Economic Research Associates, Inc. (NERA) recently released its report, Recent Trends in Securities Class Action Litigation: 2015 Full-Year Review, detailing the highest level of securities class action filings since 2008. According to NERA, 234 securities class action complaints were filed in 2015, with the majority involving electronic technology and technology services (22%) followed by healthcare technology and services (19%). Class action plaintiffs moved more quickly in 2015 as well. NERA reports a 40% reduction in the time plaintiffs waited between the end of an alleged class period and filing a complaint. The report also addresses settlement trends, attorneys’ fees and expenses, and trials, among other issues.
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    • No Attorneys’ Fees – Seeking Court Review of Arbitration Award Under FAA Does Not Breach Agreement to be Bound by Arbitration: The Second Circuit Court of Appeals recently decided in Zurich Am. Ins. Co. v. Team Tankers A.S that the American Rule prevails in the fight for attorneys’ fees under the Federal Arbitration Act. The defendant prevailed in arbitration and the plaintiff sought to overturn the arbitration decision while defendant sought to confirm the award in District Court. The District Court upheld the arbitration decision and awarded the defendant its attorneys’ fees and costs incurred during the District Court proceeding based upon the arbitration agreement provision that damages for breach of contract included all provable damages, and attorneys’ fees and costs “incurred in any action hereunder.” The Second Circuit reversed the attorneys’ fee award because there was no allegation that the plaintiff had breached the underlying contract at issue, and the plaintiff’s action seeking District Court review of the arbitration award did not breach the agreement’s terms, which explicitly incorporated the FAA and consented to confirmation of the arbitral award in any court of competent jurisdiction. Further, the Circuit Court held that “[p]arties seeking to enforce arbitration awards through federal‐court confirmation judgments may not divest the courts of their statutory and common‐law authority to review both the substance of the awards and the arbitral process for compliance with § 10(a) and the manifest disregard standard.” Therefore, plaintiff’s resisting confirmation of the arbitration decision could not constitute a breach of the agreement.

U.S. Supreme Court

    • Class Action Questions Open After Scalia’s Death: The Supreme Court heard arguments in three class action cases last year that we covered in our What’s Hot In Class Actions seriesCampbell-Ewald Co. v. Gomez (No. 14-857),Spokeo, Inc. v. Robins (No. 13-1339), and Tyson Foods, Inc. v. Bouaphakeo (No. 14-1146). Two of these cases, Spokeo and Tyson Foods, remain open pending a decision by the now eight-Justice panel of the High Court. Just weeks before Scalia’s passing, the Court issued its decision in Campbell-Ewald, which was celebrated by class action plaintiffs. The Court held in a 5-4 split that an unaccepted settlement offer or offer of complete relief does not moot a class action plaintiff’s complaint. The Court reasoned that the plaintiff’s settlement bid and Rule 68 offer of judgment, once rejected, had no continuing effect and the parties remained adverse with the same interests in the litigation they had at the beginning. “We hold today, in accord with Rule 68 of the Federal Rules of Civil Procedure, that an unaccepted settlement offer has no force. Like other unaccepted contract offers, it creates no lasting right or obligation. With the offer off the table, and the defendant’s continuing denial of liability, adversity between the parties persists.” Justice Scalia joined Chief Justice Roberts and Justice Alito in the dissent, supporting the approach argued by businesses seeking to limit their class action liability. With Justice Scalia absent from the bench, it remains to be seen whether the Court’s class action jurisprudence will continue in the same direction that largely has benefitted efforts to limit class action exposure over the past six years. Justice Scalia’s absence certainly will increase the risk that defendants will find themselves on the losing end of pending, and possibly future, class action cases.

On Capitol Hill

    • House Passes Act to Protect Local Businesses and Defendants Seeking Federal Forum: On February 25, the full U.S. House of Representatives passed H.R. 3624 – the Fraudulent Joinder Prevention Act of 2016. Federal law permits defendants to remove cases filed in state court to a federal court if the plaintiffs are diverse in citizenship from the defendants. Plaintiffs have joined in-state defendants who are not sufficiently liable or connected to a case solely to defeat diversity and prevent removal, giving rise to the fraudulent joinder doctrine. Identifying a gap in jurisprudence defining the boundaries of the fraudulent joinder doctrine, H.R. 3624 was introduced by Representative Ken Buck in 2015 to create a single standard for determining whether a defendant has been joined fraudulently in an effort to defeat federal jurisdiction. The Judiciary Committee anticipates that the Act “will give out-of-state defendants a better opportunity to secure the neutral Federal forum that they would be entitled to if sued alone. And it will help to protect individuals and small businesses from being dragged into court when their involvement in the controversy is peripheral at best.” The Act was sent by Committee to the full House for consideration earlier this month and was passed, with amendment, by a 229-189 vote.

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