litigating in the wake of a class action

Ross Orenstein & Baudry LLC

Litigating in the Wake of a Class Action

Harry Niska & Matthew VeenstraHennepin County Bar Association

December 15, 2015


“Every problem is an opportunity in disguise.” – John Adams


Problem or opportunity in disguise?

Problem: “Sorry, you’ve been damaged by wrongdoing that is the basis of a class action.”

Disguised Opportunity: “Congratulations, you have become an (involuntary) investor in the outcome of a class action!”


Your investment decision

How do you decide whether you should be an “activist” instead of a passive investor?

• Where do these disguised opportunities present themselves?

• What process should I go through to analyze my options?


Where do these disguised opportunities present themselves?Securities Class Actions

• Institutional investors with significant holdings in an affected security

• Business that made a deal in reliance on a counterparty’s representations of its finances

• Sale-leaseback landlord


Where do these disguised opportunities present themselves?Antitrust Class Actions

• Businesses are often antitrust plaintiffs

• Illinois Brick doctrine bars indirect purchaser claims under Sherman Act

• Market power tends to be more concentrated in commodities and components


Where do these disguised opportunities present themselves?Other Class Actions

• Consumer class actions for data breaches (e.g., Target 2013)• Payment card issuing banks

• Farmer class actions for GMO seed contamination (e.g., Syngenta)• Grain exporters • Food companies that recalled products

• Defective construction materials in commercial buildings• Recently filed class action in Florida over faulty sprinkler systems


How do I decide what to do?

Three step analysis

1) Cost-benefit analysis of taking action vs. doing nothing

2) Legal analysis of potential separate lawsuit

3) Choosing a litigation strategy & jurisdiction that maximizes outcomes and minimizes costs


Cost-Benefit Analysis: Is “Activism” Worth It?

The Benefit: Opt outs generally achieve higher recoveries than passive class members

• Autonomy

• Ability to optimize leverage with “right-sized” damage group

• Potential tactical and substantive advantages

Reference: John C. Coffee, Jr., Litigation Governance: Taking Accountability Seriously, 110 COLUM. L. REV. 228 (2010).


Benefits of “activism” Autonomy

• Avoid class action “agency problem” – Clients direct litigation and settlement strategy

• Separate—likely faster—settlement distribution process


Benefits of “activism” Optimized leverage• Working with a group of similarly situated parties, you can exercise

some control on the optimal size of your damages.

• Goldilocks approach

• If damages too high, face insolvency constraints that result in diminishing returns for your group members

• If damages too low, your group will never get a seat at the table


Benefits of “activism”: Tactical & substantive advantages• Ability to choose federal vs. state court

JUSTICE ALITO: Well, just out of curiosity, why is it so important for your client not to be inFederal district court?***[Plaintiffs’ attorney:] [I]t's not a surprise that a lot of securities plaintiffs want to be in Statecourt. In some instances they want to be there because the law is more robust.

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Manning, No. 14-1132 (argued December 1, 2015)

• Potential for additional claims• E.g., Section18 claims or state blue sky securities claims


Weighing the costs

Benefits• Autonomy• Optimized leverage• Tactical advantages• Substantive advantages

Costs• Attorneys’ fees and litigation

costs• Additional time commitment• Name exposure


Legal Analysis of Potential ClaimsTolling statutes of limitations• American Pipe, 414 U. S. 538 (1974)

• Federal court, federal claims

• Many states have similar doctrines (e.g., Minnesota)


Tolling Statutes of LimitationsWhose claims were tolled?

• Those belonging to members of the putative class

• Claims may not be tolled where the named plaintiffs lacked standing for all or some asserted claims

• E.g., Maine State, 2011 WL 4389689 (C.D. Ca. May 5, 2011)


Tolling Statutes of LimitationsWhich claims were tolled?

• Claims against the same defendants

• Claims that were timely filed

• Legal theories that were actually asserted in the class action• 5th, 7th & 9th Circuits

• 2d Cir. – other theories arising from the same wrongful acts. See Cullen, 811 F.2d 698 (2d Cir. 1987)


Tolling Statutes of LimitationsWhen is tolling available?

• After a decision on class certification• Whether granted or denied

• Before a decision on class certification• Yes – 2d, 9th and 10th Circuits. E.g., Boellstorff, 540 F.3d 1223 (10th Cir. 2008)

• No – 1st and 6th Circuits. E.g., Glater, 712 F.2d 735 (1st Cir. 1983)


Tolling Statutes of LimitationsWhich deadlines were tolled?

• Statute of limitations and repose• 10th Circuit Wiles, 223 F. 3d 1155 (10th Cir. 2000)

• Statute of limitations only• 2d Circuit IndyMac, 721 F. 3d 109 (2d Cir. 2013)

• Question is pending in the 9th Circuit


Tolling Statutes of LimitationsWere any state law claims tolled?• Cross-jurisdictional tolling

• Allowed in some states; rejected in others• Yes – OH, NJ, MO, MI• No – IL, TN, TX, PA

• No authority in many states (e.g., Minnesota)

• Most federal courts sitting in diversity will not toll unless explicitly permitted by applicable state law.

• 8th Circuit exception In re Gen. Am. Life Ins. Co. Sales Practices Litig., 391 F.3d 907 (8th Cir. 2004)


What is the optimal legal strategy?

• There is no single formula.

• Three main types of situations

• Class member, before settlement

• Class member, after settlement

• Not a class member


Class member with no settlement4 potential scenarios

• Same court, identical or overlapping claims

• Same court, different claims

• Other federal court

• State court


Same court; identical (or overlapping) claims• Loss of some autonomy: Common legal & fact questions will be

controlled by class outcome, as well as some procedural & scheduling issues

• Evaluating class counsel: are you comfortable with them speaking for you in many areas?

• Evaluating the judge: are you comfortable with how this judge will decide legal issues and exercise procedural discretion?


Same court, different claims

• Is there some other, stronger legal claim you can bring that the class cannot bring?

• Example: Sec. 18 securities claims – must prove individual reliance but no scienter requirement

• Still likely to have cede elements of control to class counsel


Other federal court

• Some other preferable federal forum?

• Convenience

• Speed

• Better law

• Can you avoid transfer under § 1404 or § 1407 (MDL statute)?


State court

• Is a state court a better forum?• Convenience, speed, and caselaw• Ability to bring state securities claims (SLUSA preclusion problem)

• Is there a basis for federal removal jurisdiction?• Diversity• Federal question

• SLUSA or CAFA removal

• Bankruptcy “related to” jurisdiction


Post-settlement: Object or opt-out?

• Do you even have a choice?• Derivative settlements• Rule 23(b)(1) or (2)• Trust instruction proceedings

• Objecting – sometimes this is a fruitful strategy (such as merger cases), often it is a fool’s errand.

• Opting out – same four main options: (1) same court/same claims; (2) same court/different claims; (3) other federal court; (4) state court


Not a class member

• Sometimes a fact issue in a class action gives rise to a separate legal claim to a non-class member.

• Two examples from our firm’s practice:• Sale-leaseback transaction with company engaged in securities fraud• Convertible security in a company purchased in a merger

• Many of the options are the same, but no option to be a purely passive class member.


More questions or need help?Ross Orenstein & Baudry LLC

www.rossbizlaw.com

Harry Niska [email protected]

(612) 436-9804

Matthew [email protected]

(612) 436-9810

http://www.rossbizlaw.com/

mailto:[email protected]

mailto:[email protected]

litigating in the wake of a class action

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