July 22, 2019

Tenth Circuit: On Interlocutory Review, Class Certifications Were Not Abuse of Discretion by District Court

The Tenth Circuit Court of Appeals issued its opinion in Menocal, et al. v. The GEO Group, Inc. on February 9, 2018.

The appeal addresses whether or not immigration detainees housed in a private contract detention facility in Aurora, Colorado may bring claims as a class under 18 U.S.C. § 1589, a provision of the Trafficking Victims Protection Act (TVPA) that prohibits forced labor, and Colorado unjust enrichment law.

The GEO Group, Inc. (GEO) owns and operates the Aurora Facility under government contract. While there, the plaintiff detainees (Appellees) rendered mandatory and voluntary services to GEO. Under GEO’s mandatory policies, they cleaned their housing units’ common areas. They also performed various jobs through a voluntary work program, which paid them $1 a day.

The district court certified two separate classes: (1) all detainees housed at the Aurora Facility in the past ten years (TVPA class), and (2) all detainees who participated in the Aurora Facility’s voluntary work program in the past three years (unjust enrichment class). On interlocutory appeal, GEO argues that the district court abused its discretion in certifying each class under Rule 23(b)(3) of the Federal Rules of Civil Procedure. It primarily contended that the Appellees’ TVPA and Colorado unjust enrichment claims both require predominantly individualized determinations, making class treatment inappropriate.

At all times relevant to this appeal, GEO owned and operated the Aurora Facility under contract with the U.S. Immigration and Customs Enforcement (ICE). In operating this facility, GEO implemented two programs that form the basis for this case: (1) the Housing Unit Sanitation Policy, which required all detainees to clean their common living areas; and (2) the Voluntary Work Program, which compensated detainees $1 a day for performing various jobs.

The Aurora Facility’s Sanitation Policy had two components: (1) a mandatory housing unit sanitation program, and (2) a general disciplinary system for detainees who engaged in “prohibited acts,” including refusal to participate in the housing unit sanitation program. Under the mandatory housing unit sanitation program, GEO staff generated daily lists of detainees from each housing unit who were assigned to clean common areas after meal service. Upon arriving at the Aurora Facility, each detainee received a handbook notifying them of their obligation to participate in the program.

Under the disciplinary system, detainees who refused to perform their cleaning assignments faced a range of possible sanctions, including the initiation of criminal proceedings, disciplinary segregation—solitary confinement—for up to 72 hours, loss of commissary, loss of job, restriction to housing unit, reprimand, or warning. The Aurora Facility handbook included an explanation of the disciplinary system and the possible sanctions for refusing to clean. The Appellees alleged that the TVPA class members were all “forced to clean the housing units for no pay and under threat of solitary confinement as punishment for any refusal to work.”

Under the Aurora Facility’s Voluntary Work Program (VWP), participating detainees received $1 a day in compensation for voluntarily performing jobs such as painting, food services, laundry services, barbershop, and sanitation. Detainees who wished to participate in the VWP had to sign the “Detainee Voluntary Work Program Agreement,” which specified that “compensation shall be $1 per day.” Detainees had the additional option of working without pay if no paid positions were available. The complaint alleged that the VWP class members were all “paid one dollar $1 per day for their VWP labor.”

The Appellees filed a class action complaint against GEO in the U.S. District Court for the District of Colorado on behalf of current and former ICE detainees housed at the Aurora Facility. The complaint alleged a TVPA forced labor claim based on the Sanitation Policy, and an unjust enrichment claim under Colorado law based on the VWP. GEO moved to dismiss the complaint under Fed. R. Civ. P. 12(b)(6) for failure to state a claim. Regarding the TVPA claim, GEO argued that the Thirteenth Amendment’s civic duty exception to the prohibition on involuntary servitude should also apply to the TVPA’s ban on forced labor. Regarding the unjust enrichment claim, GEO asserted sovereign immunity as a government contractor because ICE “specifically directed it to establish a voluntary detainee work program and pay the detainees who volunteer for that program $1 per day.” The district court rejected these arguments and denied GEO’s motion to dismiss the TVPA and unjust enrichment claims. GEO moved for reconsideration of the court’s rulings. The court denied the motion, finding that GEO “d[id] not identify any intervening change in controlling law or new evidence previously unavailable” to warrant reconsideration. After prevailing on the motion to dismiss, Appellees moved for certification of a separate class for each claim under Fed. R. Civ. P. 23(a) and (b)(3). GEO petitioned the Tenth Circuit for interlocutory review of the class certifications. Accordingly, only the district court’s order granting class certification—and not its rulings on whether the complaint stated TVPA and unjust enrichment claims—is before us.

The Tenth Circuit reviewed the district court’s decision to certify a class for an abuse of discretion. The Tenth Circuit affirmed the district court’s certification of the TVPA class. GEO contended that the district court abused its discretion in determining that the TVPA class satisfied commonality, typicality, predominance, and superiority. The court did not abuse its discretion as to any of these requirements in certifying the TVPA class.

The Tenth Circuit also affirmed the district court’s certification of unjust enrichment class. GEO argued the district court abused its discretion in determining that the unjust enrichment class satisfies commonality, typicality, predominance, and superiority. The district court reasonably determined that the class members shared the circumstances relevant to the unjustness question and that individual damage assessments would not predominate over the class’s common issues. Its findings on commonality, typicality, and superiority were likewise reasonable and fell within its discretion.

The Tenth Circuit Court of Appeals affirmed the district court’s certification of both classes.

Tenth Circuit: Case Properly Remanded to State Court Under the Class Action Fairness Act

The Tenth Circuit Court of Appeals issued its opinion in Speed v. JMA Energy Company, LLC on Monday, October 2, 2017.

Plaintiff Speed filed a petition in the District Court of Hughes County, Oklahoma, asserting a class action against JMA Energy Company, alleging that JMA had willfully violated an Oklahoma statute that requires interest payments of revenue from oil and gas production. Speed further asserted that JMA fraudulently concealed from mineral-interest owners that JMA owed interest to the owners, intending to pay only those who requested the interest.

JMA removed the case to the United States District Court for the Eastern District of Oklahoma, asserting that the district court had jurisdiction under the Class Action Fairness Act (CAFA). Speed then filed an amended motion to remand the case to state court. The district court granted this motion, relying on an exception to CAFA that permits a district court to decline to exercise jurisdiction over a class action meeting certain prerequisites based on consideration of certain factors.

JMA appealed, challenging the district court’s remand order. The Tenth Circuit Court of Appeals found the district court properly considered the statutory factors and did not abuse its discretion by remanding to state court.

CAFA permits a class action to be brought in or removed to federal court if: (1) the proposed class includes at least 100 persons with claims; (2) the aggregate amount in controversy on all claims exceeds $5 million; (3) at least one proposed plaintiff and one defendant have diverse citizenship; and (4) the primary defendants are not governmental entities or officials against whom a federal court cannot order relief.

CAFA also recognizes three statutory exceptions. The exception at issue in this case is the discretionary exception. This exception allows a federal court to decline to exercise jurisdiction over a class action that is otherwise covered by CAFA based on six enumerated factors. The Tenth Circuit considered each factor in turn to determine if there was a legal error or other abuse of discretion by the district court.

The first factor is whether the claims asserted involve a matter of national or interstate interest. The Tenth Circuit found that JMA failed to explain how there could be a significant national interest in the mere allocation of interest between producers and royalty owners. The only thing national or interstate about this case is that some of the owners of Oklahoma property, who are basing their claims on alleged violations of an Oklahoma statute, happen to live in other states and receive their royalty checks there. The Tenth Circuit determined that was not enough to reverse the district court’s finding.

The second factor was whether the claims asserted would be governed by Oklahoma law or the laws of other states. The district court found JMA’s argument that a fraud claim against Oklahoma may be governed by the law of a different state unpersuasive and concluded that this factor weighed in favor of Speed’s motion to remand. The Tenth Circuit concluded that Oklahoma law controlled.

The third factor was whether the class action had been pleaded in order to avoid federal jurisdiction. JMA asserted that Speed attempted to avoid federal jurisdiction by excluding from the class any publicly traded companies and affiliated entities that produced, gathered, processed, or marketed oil and gas. The district court found this argument unpersuasive, reasoning that Speed had proposed a class that encompassed all the people and claims that one would expect to include in a class action. The Tenth Circuit agreed.

The fourth factor was whether the action was brought in a forum with a distinct nexus with the class members, the alleged harm, or the defendants. The Tenth Circuit found no abuse of discretion by the district court, as the factors of this case demonstrated the required nexus between Oklahoma and the class members, the alleged harms, and the defendant, including that the action was related to real-property interests in Oklahoma, the class members owned royalty interests in Oklahoma property, JMA is a citizen of Oklahoma, and the underlying alleged actions that gave rise to this suit took place in Oklahoma.

The fifth factor was whether the number of citizens of the state in which the action was originally filed is substantially larger than the number of citizens from any other state for plaintiffs in the class, and whether the citizenship of the other members of the proposed class was dispersed among a substantial number of states. The Tenth Circuit found the district court correctly determined that this factor weighed in favor of remand, as the number of Oklahoma citizens was about 2.5 times the number of citizens from any other state.

The sixth, and last, factor was whether, during the three-year period preceding the filing of the class action, one or more other class actions asserting the same or similar claims on behalf of the same or other persons had been filed. No other actions have been filed; therefore, this factor favors remand.

The Tenth Circuit determined that the district court did not abuse its discretion in ruling that each factor supported remand.

The Tenth Circuit Court of Appeals AFFIRMED the decision remanding the case to state court.

Colorado Court of Appeals: Class Did Not Cease to Exist When Settlement Entered

The Colorado Court of Appeals issued its opinion in EnCana Oil & Gas (USA), Inc. v. Miller on Thursday, August 10, 2017.

Class Action Settlement—Arbitration Provision—C.R.C.P. 23—Survival of the Class.

A certified class of Colorado oil and gas royalty owners (the Class) and EnCana Oil & Gas (USA), Inc. (EnCana) litigated, beginning in 2005, EnCana’s alleged underpayment of royalties on natural gas it produced. In 2008, EnCana and the Class entered into a settlement agreement that detailed payment of funds to settle past claims, established the methodology EnCana would use for future royalty payments, and included an arbitration clause. The district court’s final judgment approved and incorporated the settlement agreement, dismissed the 2005 case with prejudice, and reserved jurisdiction to enforce the agreement. In 2016, oil and gas royalty owners (Owners), purporting to act on behalf of the Class, filed a demand for arbitration alleging EnCana had underpaid royalties owed to Class members in violation of the settlement agreement. EnCana filed a new case in district court asserting that (1) the class ceased to exist when the 2005 case was dismissed with prejudice in 2008, and (2) the 2008 settlement agreement did not authorize arbitration on a class-wide basis. The district court found that the class had not ceased to exist and the claims should be resolved in class-wide arbitration, and entered summary judgment against EnCana.

On appeal, EnCana contended that the district court erred in finding that the Class continued after the case was dismissed. The court of appeals determined that the Class survived the 2008 dismissal because (1) compliance with the settlement agreement became part of the dismissal order, so the district court retains jurisdiction to give effect to the agreement; and (2) the agreement continues for the lives of the leases or royalty agreements covered by the settlement agreement and expressly burdens and benefits successors and assigns of the parties.

EnCana also claimed that the district court failed to satisfy C.R.C.P. 23. The district court did not err in declining to engage in further Rule 23 analysis after the 2008 dismissal and judgment approving the settlement agreement.

The court next rejected EnCana’s contention that Class counsel failed to provide sufficient notice of the arbitration demand.

EnCana then argued it was error to determine that the settlement agreement contained a contractual basis to conclude that EnCana and the Class agreed to class arbitration. EnCana asserted that because the arbitration clause is silent on class arbitration, the district court should have presumed that the parties agreed to bilateral arbitration only. The settlement agreement explicitly names all members of a certified class as a party to the agreement, frames the disputes in class- or subclass-wide terms, and provides relief on a class- or subclass-wide basis. The arbitration clause’s context thus demonstrates an agreement to class rather than bilateral arbitration. Further, to conclude that the settlement agreement evidenced that the parties contemplated engaging in approximately 5,850 individual arbitrations to resolve future disputes rather than a single class arbitration would be absurd.

The judgment was affirmed.

Summary provided courtesy of Colorado Lawyer.

Tenth Circuit: Class Certification Improper Where Parties Fail to Demonstrate Commonality

The Tenth Circuit Court of Appeals issued its opinion in Soseeah v. Sentry Insurance on Friday, December 18, 2015.

Mr. Soseeah, after being injured in a motor vehicle accident, made a claim for uninsured and underinsured motorist (“UM/UIM”) benefits under two policies of automobile insurance issued by Sentry Insurance. Additionally, Mr. Soseeah demanded that Sentry reform his two policies to provide UM/UIM coverage in accord with two recent New Mexico Supreme Court cases. According to the complaint, Mrs. Soseeah never executed a valid waiver of UM/UIM coverage under the two policies, or, alternatively, her waiver was legally insufficient under the New Mexico Supreme Court precedent. However, Sentry refused to reform the policies and rejected Mr. Soseeah’s claim for UM/UIM benefits.

Plaintiffs Delbert Soseeah, Maxine Soseeah and John Borrego then filed a class action against defendants Sentry Insurance, and a number of its related entities, claiming, in part, that Sentry failed to timely and properly notify them and other Sentry automobile insurance policyholders of the impact of two New Mexico Supreme Court decisions regarding the availability of UM/UIM coverage under their respective policies. In the first case, Progressive Northwestern Insurance Co. v. Weed Warrior Services, the New Mexico Supreme Court held that “the insurer may not exclude the maximum possible level of UM/UIM coverage in an auto liability policy unless it has offered it to the insured and the insured has exercised the right to reject the coverage through some positive act.” In the second case, Jordan v. Allstate Insurance Co., the New Mexico Supreme Court imposed upon insurers retroactive technical requirements for valid offers and rejections of UM/UIM coverage.

The proposed plaintiff class filed a number of amended complaints that contained various claims against Sentry, three of which were eventually addresses by the Tenth Circuit Court of Appeals. The complaint alleges Sentry’s failure to notify its New Mexico policyholders that UM/UIM coverage limits were reformed by Weed Warrior and Jordan, coupled with Sentry’s refusal to reform Mr. Soseeah’s policies and rejection of his claim for UM/UIM benefits, amounted to (1) a violation of New Mexico’s Unfair Practices Act (UPA), (2) a contractual breach of the insurance policies, and (3) a breach of the implied covenant of good faith and fair dealing. Further, the complain alleges three form letters sent by Sentry to its policyholders in an attempt to comply with the notice requirements of Weed Warrior and Jordan were in fact “misleading an inaccurate” in light of the two decisions. Lastly, the complaint defined a proposed class of Sentry policyholders, alleging all such insureds were entitled to policy reformation and proper notice.

The district court granted plaintiffs’ motion for class certification, thereby establishing a class of all insureds under policies issued in New Mexico by Sentry from May 20, 2004 to April 1, 2011 in which UM/UIM coverage was purportedly rejected, including as subclasses (1) insureds who received the first and second form letter, and (2) insureds who received the third form letter. Sentry subsequently sought and was granted permission to appeal the district court’s class certification ruling to the Tenth Circuit Court of Appeals.

First, the Tenth Circuit held the district court abused its discretion in concluding that the general class it certified satisfied Rule 23(a)(2)’s commonality requirement, which requires plaintiff to demonstrate that the class members have suffered the same injury that is capable of class wide resolution. In rejecting the claim of the plaintiff class under the UPA, the court found the UPA did not impose any duty on Sentry with respect to notifying existing policyholders of the impact of Weed Warrior and Jordan. Plaintiffs’ breach of contract claim cannot give rise to the common injury required for class certification, the court held, because plaintiffs have not identified a single contractual provision in any of the policies at issue, let alone one that is contained in all of the policies at issue, that would have imposed a duty on Sentry to inform the certified class of the impact of Weed Warrior and Jordan. Lastly, considering plaintiff’s bad faith claim, the court again concluded the class was unable to satisfy the common injury requirement necessary for class certification. Even assuming Sentry acted in bad faith with respect to the class by failing to inform them of the impact of Weed Warrior and Jordan, the Tenth Circuit failed to see how the purported lack of notice and information could have injured a policyholder in the absence of a viable claim against Sentry for UM/UIM benefits, considering a large percentage of the certified class members did not have any such claim at all. Therefore, the Tenth Circuit concluded the district court abused its discretion in certifying the general class.

Second, the Tenth Circuit remanded to the district court for further consideration of the certification of the two subclasses, as the Tenth Circuit did not have enough information to determine whether the district court abused its discretion is certifying said subclasses.

Max Montag is a 2016 J.D. Candidate at the University of Denver Sturm College of Law.

Tenth Circuit: Declaratory Judgment Action Moot where Business Interests Sold During Litigation

The Tenth Circuit Court of Appeals issued its opinion in Schell v. OXY USA, Inc. on Monday, December 14, 2015, and modified the opinion on February 9, 2016.

The plaintiff class (appellees and cross-appellants in the Tenth Circuit) consists of approximately 2200 surface owners of Kansas land burdened by oil and gas leases held or operated by OXY, the appellant and cross-appellee. The leases contained a “free gas” clause that, in substance, purported to grant the lessor access to free gas for domestic use. In August 2007, OXY sent letters warning free gas users that their gas may become unsafe to use, either because of high hydrogen sulfide content or low pressure at the wellhead, as a result of the well reaching the end of their productive life.

On August 31, 2007, leaseholders David Schell, Donna Schell, Howard Pickens, and Ron Oliver filed this action on behalf of themselves and others similarly situated, seeking a permanent injunction and a declaratory judgment based on alleged breaches of mineral leases entered into with OXY for failure to supply free usable gas. The district court certified a class of all surface owners of Kansas land burdened by oil and gas leases held or operated by OXY which contain a free gas clause. Plaintiffs and OXY then filed cross-motions for summary judgment. The district court denied OXY’s motion for summary judgment and granted the plaintiffs’ motion for summary judgment. The district court granted the plaintiffs declaratory relief requiring OXY to provide free useable gas under the contract; however, the district court denied the plaintiffs’ motion for a permanent injunction.

Because the district court found that the free gas clauses were ambiguous and interpreted them according to principles of Kansas law, OXY moved to vacate the judgment to permit it to discover extrinsic evidence of the clauses’ meaning. The district court agreed and vacated its judgment. The district court subsequently granted plaintiffs’ resubmitted motion for summary judgment. It also denied plaintiffs’ motion for attorneys’ fees, expenses, and incentive awards. OXY then filed this appeal, and the plaintiffs cross-appealed. After the appeal and cross-appeal were filed, OXY sold all of its interests in the Kansas leases to Merit Hugoton, L.P. (“Merit”). The plaintiff class filed a motion to dismiss the appeal as moot based on this sale. The Tenth Circuit Court of Appeals permitted the appeal to proceed to briefing and oral argument. One week after oral argument, Merit filed a motion to intervene as an appellant and cross-appellee, which was denied by the Tenth Circuit.

The Tenth Circuit concluded the appeal is moot, thereby granting the motion of the plaintiff class to dismiss the appeal, reasoning OXY’s sale of the leases to Merit leads to the conclusion that its conduct cannot be affected by a declaratory judgment concerning the same leases. The Tenth Circuit dismissed OXY’s argument that the leaseholders could sue OXY over its prior conduct during the time when it was operating the wells, considering the fact that allowing OXY to continue the present litigation in order to protect itself from hypothetical unfiled future litigation would render the instant declaratory judgment action a prohibited advisory opinion. Further, the court stated Merit’s request to intervene does not change the conclusion that the declaratory judgment action is moot, in that the record is devoid of any evidence suggesting that a judgment against OXY would bind Merit with respect to the plaintiff class.

Next, the Tenth Circuit determined it was appropriate to dismiss the appeal without vacating the district court’s granting of the plaintiff class’s declaratory judgment action. Although the general rule is to vacate the judgment below when the case becomes moot on appeal, the court found OXY’s intentional conduct (i.e., selling of the leases to Merit) caused the issue over the free gas clauses of the leases to be moot, and that no other entity was more responsible for mooting the controversy, thereby justifying the equitable resolution of leaving in place the district court’s judgment granting the plaintiffs declaratory relief. To act otherwise, the court noted, would permit OXY to benefit from its voluntary act by wiping away a loss.

Lastly, with respect to plaintiffs’ cross-appeal challenging the district court’s denial of their motion for attorneys’ fees, expenses, and an incentive award, the Tenth Circuit determined it had jurisdiction over the matter, as the issue of attorneys’ fees (and related issues) was not moot, despite the mootness of the merits of the appeal. The Tenth Circuit then affirmed the district court’s holding that the plaintiff class has not shown a legally sound basis for an award of attorneys’ fees and other related relief. In so holding, the court found that neither the common-benefit exception to the American Rule nor 28 U.S.C. § 2202 was applicable. Because OXY sold all of the leases to Merit, the common benefit exception does not apply, as an award of attorneys’ fees under the exception would be an impermissible penalty on OXY. The Tenth Circuit affirmed the district court’s statement that there is no independent statutory or contractual basis for attorneys’ fees under § 2202.

Max Montag is a 2016 J.D. Candidate at the University of Denver Sturm College of Law.

Tenth Circuit: Settling Defendant Has No Interest in Attorney Fee Award from Class Coffers

The Tenth Circuit Court of Appeals issued its opinion in Tennille v. Western Union Co. on Tuesday, November 17, 2015.

A class of plaintiffs challenged Western Union’s business practice of retaining funds from failed wire transfers and collecting interest on the failed transfer moneys without informing the parties to the transfer of its failure. After years of litigation, the class reached a settlement wherein Western Union would deposit the unredeemed customer money into a class settlement fund (CSF), less administrative fees, from which class members could receive a refund. Counsel for the plaintiff class then sought attorney fees, requesting 30% of the $135 million in the CSF. Western Union objected, and the district court referred the matter to a magistrate judge.

The magistrate judge determined that Western Union had no right to object to the attorney fee award but addressed many of the issues raised by Western Union in considering the reasonableness of the attorney fee award. The magistrate judge agreed with Western Union’s central contention that the money in the CSF did not represent the benefit counsel obtained for the class because that money belonged to class members. The magistrate judge calculated the actual benefit to the class as $65 million and recommended that the attorney be awarded 35% of that common fund. Both parties objected to the magistrate judge’s recommendation.

The district court also expressed doubts about Western Union’s standing to challenge the attorney fee award, but it allowed Western Union to participate in the objection hearing. The district court ultimately determined that the CSF was the value to the plaintiffs and awarded 30% of the CSF to class counsel as attorney fees. Western Union appealed.

The Tenth Circuit first addressed class counsel’s argument that Western Union lacked standing to bring the appeal. The Tenth Circuit noted that generally, settling defendants in class actions lack standing to challenge fee awards when those fees are to be paid from the class recovery. Western Union argued it would be injured in this case because of its “reversionary interest” in the CSF. The terms of the settlement provided that if there were moneys left in the CSF after all class members who came forward had been paid, they would escheat to the states in a cy pres fund, and then if any states challenged their share of the moneys, that state’s pro rata share would be deposited in a third fund from which Western Union would be entitled to claim actual costs and fees associated with defending the states’ claims. Western Union claimed that, because of the potential for it to receive reimbursement through the third fund, it had an interest in the attorney fee award from the CSF. The Tenth Circuit disagreed. The Tenth Circuit noted that Western Union has never argued that the moneys in the CSF belonged to anyone but the class members, and thus it has no interest that would be invaded by diminution in the CSF. The Tenth Circuit found that Western Union’s interest in the third reversionary was too attenuated to confer a legally protectable interest.

The Tenth Circuit affirmed the district court’s attorney fee award.

Tenth Circuit: Concealment of Arbitration Agreements Until Late Stage of Litigation Constituted Waiver of Right to Arbitrate

The Tenth Circuit Court of Appeals issued its opinion in In re Cox Enterprises, Inc.: Healy v. Cox Communications, Inc. on Wednesday, June 24, 2015.

Cox is a cable provider involved in class-action litigation brought by subscribers to its cable service. In 2009, subscribers in several jurisdictions filed suits against Cox, alleging the company illegally tied provision of its cable service to rental of a set-top box. The actions were consolidated in a multi-district litigation and transferred to the U.S. District Court for the Western District of Oklahoma. Cox moved to dismiss, and during the pendency of its motion began inserting mandatory arbitration clauses into contracts with many of its customers, including class members. Cox does not appear to have notified the District Court about its insertion of the clauses. Plaintiffs’ efforts to certify a nationwide class failed, and instead they sought to certify several classes for geographic regions. These actions were again consolidated and transferred to the Western District of Oklahoma.

The instant case was originally brought in April 2012, and Cox unsuccessfully moved to dismiss in September 2012. The parties then engaged in substantial discovery, and named plaintiff Healy moved to certify a class in September 2013. Cox at no time mentioned the arbitration clauses. The court granted class certification in January 2014 as the parties continued to engage in discovery. Cox appealed to the Tenth Circuit in March 2014, again failing to mention the arbitration clauses, but its petition was denied. In April 2014, Cox moved for summary judgment, and that same day it moved to compel arbitration against both the absent class and named plaintiff Healy, citing the arbitration clauses for the first time. It later clarified that it was not compelling arbitration against Healy. The district court denied the motion to compel on the basis that Cox’s prior conduct in the litigation constituted waiver. Cox appealed.

The Tenth Circuit used its six-factor Peterson test to evaluate whether the right to arbitration had been waived. The six factors are (1) whether the party’s actions are inconsistent with the right to arbitrate, (2) whether the parties were well into the preparation of a lawsuit before a party notified the opposing party of an intent to arbitrate, (3) whether a party requested arbitration enforcement close to a trial date or delayed for a long period before seeking a stay, (4) whether a defendant seeking arbitration filed a counterclaim without requesting a stay, (5) whether important intervening steps like discovery had taken place, and (6) whether the delay affected, misled, or prejudiced the opposing party.

The district court determined Cox’s failure to inform it of the presence of arbitration agreements until after class certification was inconsistent with an intent to arbitrate and suggested an attempt to manipulate the process, as it would affect the numerosity of the class. The Tenth Circuit agreed, also finding that because Cox did not request for its motion for summary judgment to be stayed pending arbitration implied an attempt to “play heads I win, tails you lose” by manipulating the litigation machinery. The district court found, and the Tenth Circuit agreed, that the second, third, and fifth Peterson factors also cut strongly against Cox. Cox did not invoke the arbitration agreements until two years after the lawsuit was commenced, and substantial discovery had occurred before the invocation. Further, Cox failed to mention a factor that would have significantly affected the district court’s Rule 23 analysis, and Healy would be significantly prejudiced if arbitration were allowed. The Tenth Circuit opined that perhaps the greatest prejudice would be to the integrity of the judicial process, since both the district court and Tenth Circuit had invested significant time and energy in analyzing literally thousands of pages of documents.

Cox argued the Peterson factors were inapplicable because a party does not invariably waive its right to impose arbitration by filing its motion to compel after class certification. The district court rejected this argument as an improper attempt to artificially narrow the scope of the waiver, and the Tenth Circuit agreed. Cox could have asserted its right to arbitration at many earlier litigation stages but chose to conceal the arbitration provisions. Further, the district court’s denial of the motion to compel was based not on Cox’s failure to compel arbitration earlier but rather its specific conduct evincing an attempt to “take multiple bites of the apple.”

The Tenth Circuit affirmed the district court.

Tenth Circuit: Settlement Fair Because it Incentivized Western Union to Change its Business Practices

The Tenth Circuit Court of Appeals issued its opinion in Tennille v. Western Union Co. on Friday, May 1, 2015.

Western Union was the subject of a class action lawsuit challenging its practice of holding and earning interest on customers’ money after failed wire transfers without notifying customers of the failure. While an interlocutory appeal from Western Union was pending, Western Union and the class representatives reached a settlement, agreeing that Western Union would change its business practices to notify customers when wire transfers failed, would help customers whose unclaimed money had escheated to the state to reclaim their money, and would pay interest for the time Western Union held the funds before the escheat. The settlement will be funded using approximately $135 million in customers’ unclaimed funds still held by Western Union, and the funds will be distributed as follows: (1) a $7,500 incentive award to each of the four named plaintiffs; (2) interest to the customers who have already claimed their money from Western Union for the time period from the transfer’s failure to the customer’s claim, minus Western Union’s administrative fees; (3) the unclaimed money plus interest to the customers whose money Western Union still holds, minus Western Union’s administrative fees; (4) the costs of administering the settlement; and (5) 30 percent of the settlement award to class counsel as attorney fees.

Because the settlement was reached during the pendency of the interlocutory appeal, the Tenth Circuit remanded to the district court to consider whether to certify the class and approve the settlement. The district court preliminarily certified the class and approved the settlement, directing that notice be sent to the approximately 1.3 million putative class members. A dozen class members objected to the settlement, including Sikora Nelson (represented by counsel) and Paul Dorsey (pro se). The district court held a “fairness hearing” and eventually overruled all the objections, entered a final class certification, approved the settlement, and entered judgment. Objectors posted bond after it was reduced by the Tenth Circuit and appealed.

The named plaintiffs argued the objectors lacked standing to pursue the appeal, but the Tenth Circuit disagreed, finding Article III standing as to all class members. Plaintiffs also argued the objectors were raising arguments that were not properly preserved below, but the Tenth Circuit again disagreed, noting it has wide discretion to consider all arguments on appeal and the arguments were raised in some form in the lower court proceedings.

Objectors first contended the district court erred in certifying the class because the named plaintiffs could not fairly and adequately protect the interests of the class as a whole, and the district court should have created subclasses to adequately address the needs of all class members. Objector Nelson first argued that because the named plaintiffs had arbitration clauses in their agreements with Western Union and not all class members had arbitration provisions, including Nelson, the plaintiffs could not adequately protect the other class members’ interests. The Tenth Circuit noted that at the time the class was certified the district court had already ruled the arbitration provisions were unenforceable. Nelson argued she, and other similarly situated class members, could have negotiated a much better settlement than the named plaintiffs, but the Tenth Circuit disagreed, finding Nelson had agreed not to initiate any class actions in her contract.

Next, Nelson argued that because she was a Michigan resident and a Michigan statute allowed treble damages for such failed wire transactions, the named plaintiffs could not adequately represent her interest or the interest of other Michigan residents. However, because the district court had already ruled that Colorado law governed the claims, the Tenth Circuit found this argument unavailing. Nelson also argued that because the plaintiffs had already reclaimed their money from Western Union while she and other class members had not, plaintiffs were not similarly situated. The Tenth Circuit noted that Western Union’s challenged conduct was the same as to all class members, and the difference was not enough to preclude plaintiffs from representing the class.

Nelson also challenged the district court’s approval of the settlement, contending it was unfair because absent class members will finance most of the settlement for the entire class. Although the Tenth Circuit was “not unsympathetic to Nelson’s argument,” it determined them to be ultimately unpersuasive, since Nelson and others who had not already claimed their money would not have known about it absent the settlement agreement, and because the settlement agreement incentivized Western Union to change its business practices. Although there is a possibility that the settlement funds will run out before all class members have received their share, that possibility is unlikely to be realized based on historical data indicating that only 15 percent of Western Union’s customers ever seek a refund of their money.

The Tenth Circuit next addressed Nelson’s procedural challenge to the Rule 23 notice, finding the given notice satisfied due process by identifying several ways they could obtain additional information about the claims they would be releasing if they joined the settlement. Objector Dorsey also challenged how the notice was given to class members, arguing Western Union should have cross-checked all its databases instead of mailing to the last known address of class members. The named plaintiffs assert that Western Union did cross-check its databases, and also the class administrator used the post office’s change of address database to update the addresses. The Tenth Circuit found the mailed notice sufficient. Dorsey also speculated that those plaintiffs whose transactions were “zeroed out” by administrative fees may not have received notice, but the Tenth Circuit found that in fact all class members were notified. The Tenth Circuit similarly found a typo in the notice insignificant, given the corrective measures taken on the class action website. Dorsey finally argued that because he did not receive the email notice, despite having a current email address on file with Western Union, there must have been something wrong with the email notice. The Tenth Circuit disagreed.

Finally, Dorsey and Nelson argued the district court failed to exercise its independent judgment by adopting verbatim the orders drafted by plaintiffs and Western Union in certifying the class and approving the settlement. The Tenth Circuit was satisfied that the court exercised independent judgment. Objectors also claim the district court did not address their objections, but the Tenth Circuit found that it did, albeit briefly.

The Tenth Circuit affirmed the district court’s order certifying the class and approving the settlement.

Colorado Court of Appeals: Lessee of Oil and Gas Interest Must Incur Post-Production Costs Where Lease is Silent

The Colorado Court of Appeals issued its opinion in Patterson v. BP America Production Co. on Thursday, March 12, 2015.

Class Action—Moratory Interest Request—CRS § 5-12-102(1)(a) and (b)—Fraudulent Concealment and Equitable Tolling—Jury Instructions.

In the early 1970s, named plaintiffs and approximately 4,000 royalty owners (collectively, Royalty Owners) entered into lease agreements with BP America Production Company (BP) to be paid royalties in exchange for natural gas extracted from their wells. The lease agreements provided that BP would pay Royalty Owners “1/8 of the proceeds of the market value of such gas at the mouth of the well; if said gas is sold by [BP], then as royalty 1/8 of the proceeds of the sale thereof at the mouth of the well.” Post-production costs were not expressly authorized as being deductible from royalty payments.

In the 1980s, BP changed how it calculated royalties and started employing a netback methodology whereby BP deducted a proportionate share of the post-production costs. The royalty statements did not disclose these deductions.

In 2003, Royalty Owners sued BP for breach of contract, alleging underpayment of royalties between January 1, 1986 and December 1, 1997. A jury found that BP breached the lease agreements by underpaying royalties and that BP fraudulently concealed the underpayments, thereby tolling the applicable statute of limitations. The jury awarded Royalty Owners $7,941,809.23 in damages. The district court amended the judgment to add $32,273,817 in statutory prejudgment interest, pursuant to CRS § 5-12-102(1)(b).

Royalty Owners appealed the district court’s pretrial grant of BP’s CRCP 56(h) motion and its denial of moratory interest. CRS § 5-12-102(1)(a) codifies the common law concept of moratory interest. Moratory interest is intended to be compensatory, not punitive. To obtain moratory interest, a plaintiff must demonstrate the defendant’s gain or benefit realized on the withheld money by a preponderance of the evidence. The Court of Appeals found no evidence or discernible means to calculate any such gain or benefit by BP on the underpaid royalty money. Therefore, the district court’s grant of the motion denying moratoryinterest was affirmed.

On cross-appeal, BP contended that the district court erred by denying its motions for a directed verdict and judgment notwithstanding the verdict because (1) Royalty Owners could not prove their fraudulent concealment and equitable tolling claims for all class members; and (2) the evidence demonstrated that Royalty Owners’ gas was undisputedly marketable at the well and thus the post-production deductions from royalties were proper. In reviewing the record and the evidence in the light most favorable to Royalty Owners, the Court concluded the evidence was sufficient to send the issue of fraudulent concealment to the jury and that reasonable jurors could find that Royalty Owners were ignorant of BP’s concealed royalty deductions, relied on the concealment, and were unable, using reasonable diligence, to discover the concealment.

Colorado law provides that where, as here, royalty agreements are silent on the allocation of post-production costs, the “implied covenant to market must be considered in determining the rights and obligations of the parties.” This covenant obligates BP, not Royalty Owners, to make the gas marketable, and BP must incur those costs. If, however, the gas is marketable at the wellhead, and post-production costs merely enhance the value of the gas, those costs may be shared. Marketability at the wellhead is a question of fact. The Court concluded that a reasonable person could determine that the wellhead was not the first market for gas extracted from the wells during the time period at issue.

BP also argued that it was error to decline to instruct the jury that “[i]f a person signs a contract without reading it, that person is barred from claiming he or she is not bound by what it says.” The Court disagreed, holding that this instruction would have only confused jurors, incorrectly informed them on the issues in the case, and improperly directed them as to the proper weight to give the contracts.

BP further argued it was error to deny its request to decertify the class. The Court found that the district court rigorously analyzed the evidence and did not abuse its discretion in concluding that the questions of law or fact common to the members of the class predominated over any questions affecting only individual members. The judgment was affirmed.

Summary and full case available here, courtesy of The Colorado Lawyer.

Tenth Circuit: Class Certification Appropriate Where Common Issues Predominate Over Individualized Claims

The Tenth Circuit Court of Appeals issued its opinion in CGC Holding Co. LLC v. Broad & Cassel on Monday, December 8, 2014.

In this RICO class action interlocutory appeal, defendants contest the district court’s class certification. Plaintiff class representatives CGC Holding Co., LLC, Harlem Algonquin, LLC, and James Medick, on behalf of the proposed class, assert that a group of lenders led by Sandy Hutchens conspired to create a scheme to defraud borrowers by requiring up-front fees for loan commitments the lenders never intended to fulfill. Plaintiffs also allege the lenders fraudulently concealed Hutchens’ criminal past through the use of pseudonyms, and had they known about his financial history they would not have taken part in the financial transactions that caused them to lose their up-front fees.

In 2004, Hutchens pleaded guilty in Canada to financial fraud charges similar to those at issue here. Following his conviction, he changed his name and assumed various aliases. Plaintiffs claim Hutchens operated a scheme in which a potential borrower, typically a distressed “do-or-die” borrower, would submit a loan application to one of several issuing entities through a loan broker. The lending entity would issue a loan commitment requiring non-refundable up-front fees, also requiring the borrower to meet certain eligibility requirements. If the borrower failed to meet an eligibility requirement, the lending entity would terminate the loan application. Plaintiffs contend this was a subterfuge intended to scam the borrowers out of the non-refundable up-front fees, without any intention or ability to fund the loan. Hutchens contends the loans were legitimately terminated for failure to meet the eligibility requirements. However, his accountant testified that by the end of 2009 Hutchens and his entities had received over $8 million in up-front fees and had lent less than $500,000.

Plaintiffs also contend that Hutchens and his cohorts concealed Hutchens’ criminal past through the use of aliases and false addresses, and but for these omissions and misrepresentations, no borrower would have participated in the loan scheme. Plaintiffs named several persons and entities as co-conspirators with Hutchens, including his wife and daughter, five issuing entities, Hutchens’ attorney Alvin Meisels, and Broad and Cassel, a Florida law firm that represented several of the defendants during the relevant time period.

Plaintiffs conceded they lacked standing to pursue their claims against Broad and Cassel, and the Tenth Circuit reversed and remanded on this issue. However, the Tenth Circuit affirmed the district court’s grant of F.R.C.P. 23 class certification. Defendants contend the district court erred in finding that common issues predominated over individual ones in the class certification. The Tenth Circuit reviewed for abuse of discretion and found none. The Tenth Circuit found no reasonable dispute that plaintiffs met the threshold requirements of Rule 23(a), and evaluated solely for whether common issues predominated under the class type listed in Rule 23(b)(3).

After evaluating the prerequisites of a civil RICO claim, the Tenth Circuit discussed plaintiffs’ requirement to prove that a link existed between defendants’ actions and the class injury. Plaintiffs must prove a causal connection between defendants’ misrepresentation and and plaintiffs’ reliance on that misrepresentation. In the context of a class action, the plaintiffs must show that the reliance is susceptible to generalized proof. In the instant case, the evidence of class members’ payments for loan commitments is sufficient to show reliance on defendants’ promise to provide loan funds. The fact of payment of the up-front fee is common to the entire class. The Tenth Circuit also found that superiority was proven as to the class action’s preference over individualized actions.

Defendant Meisel also raised the question of whether the district court had subject matter jurisdiction over the Canadian defendant entities. The Tenth Circuit declined to consider the question, finding it exceeded the scope of Rule 23(f) review and instead was a merits issue. The Tenth Circuit similarly declined to consider several other issues raised by defendants, finding their review limited to the scope of Rule 23(f) and disfavoring interlocutory review of other issues.

The district court’s class certification was reversed and remanded as to Broad and Cassel, and was affirmed as to all other defendants.

Tenth Circuit: Standing as Insurance Company’s Local Agent Not Enough to Prove Significant Defendant Requirement Under CAFA Removal Provision

The Tenth Circuit Court of Appeals issued its opinion in Woods v. Standard Insurance Co. on Monday, November 10, 2014.

Plaintiffs Brett Woods and Kathleen Valdes filed suit in New Mexico state court on behalf of themselves and a class of all others similarly situated, regarding premiums paid for insurance coverage for state employees who were not insured under the subject policies. Plaintiffs named three defendants: Standard Insurance Company, an Oregon company that agreed to provide the subject insurance coverage; the Risk Management Division of the New Mexico General Services Department (Division), the state agency that contracted with Standard and was responsible for administering benefits under the policies; and Martha Quintana, Standard’s customer service representative responsible for managing the Division’s account with Standard and providing customer service and account management to the Division and New Mexico state employees. Defendants moved to remove the action to federal district court pursuant to the provisions of the Class Action Fairness Act (CAFA), which allow removal of state class actions to federal court as long as minimal diversity is established and the amount in controversy exceeds $5 million. Plaintiffs objected to removal before a federal magistrate, claiming CAFA’s state action and local controversy provisions precluded removal. The magistrate remanded the case to state court, finding remand proper under the local controversy exception because Ms. Quintana was a local defendant from whom plaintiffs sought “significant relief.” The magistrate did not examine the amount in controversy to see if it met CAFA’s requirements. Defendants appealed the magistrate’s order of remand.

The Tenth Circuit first explained that Congress enacted CAFA to allow removal to federal court of certain class actions in which the class has more than 100 members, is minimally diverse, and the amount in controversy exceeds $5 million, in order to correct certain perceived abusive practices in state court by class plaintiffs. Exceptions to CAFA’s broad reach include cases in which primary defendants are states against which the district court may be foreclosed from ordering relief under the Eleventh Amendment, and also local controversies in which states have a strong interest in adjudicating disputes. Plaintiffs argued that because the Division is a primary defendant, CAFA’s exception applies. However, the Tenth Circuit disagreed, finding that the exclusion only applies where all primary defendants are states or state agencies. Because Standard is a primary defendant in this dispute, the CAFA exclusion does not apply. Plaintiffs also argue that Ms. Quintana is a significant local defendant. The Tenth Circuit examined whether Ms. Quintana’s conduct formed a significant basis for Plaintiffs’ claims, and whether Plaintiffs seek significant relief from her.

The Tenth Circuit noted that Ms. Quintana is only mentioned briefly in Plaintiffs’ 91-paragraph complaint, and found that Ms. Quintana’s standing as Standard’s only local agent was not enough to meet the significant defendant requirement. Plaintiffs do not allege it is part of Ms. Quintana’s job to collect of insurability, make coverage determinations, record who had purchased insurance coverage, or verify that employees were in fact receiving coverage, and their complaint does not suggest she ever collected or retained premiums, solicited employees to purchase insurance, enrolled state employees, or had any actual contact with Plaintiffs or other state employees. The sole basis of Plaintiffs’ complaint against Ms. Quintana is that she failed to discover the Division’s and Standard’s allegedly illegal conduct. Therefore, the Tenth Circuit concluded she was not a significant defendant and reversed the magistrate judge’s decision on this issue.

The Tenth Circuit found there was an actual dispute as to whether the amount in controversy met or exceeded the $5 million minimum for removal under CAFA. Therefore, it remanded to the magistrate for determination of whether the amount in controversy exceeds $5 million. If it does, Defendants have established federal jurisdiction under CAFA, and if it does not, the action must be remanded to state court.

Tenth Circuit: Jury Verdict and Attorney Fee Award Upheld in Employee Class Action

The Tenth Circuit Court of Appeals issued its opinion in Garcia v. Tyson Foods, Inc. on Tuesday, August 19, 2014.

Tyson employees were required to don and doff certain protective clothing before and after performing job duties. Tyson originally compensated only certain employees for 4 to 7 minutes of this “K-code” time, eventually changing its policy to compensate all employees for 20 to 22 minutes of K-code time. However, based Tyson’s own study, employees were uncompensated for approximately 29 minutes per shift based on the times they punched in and punched out versus actual compensation.

A group of Tyson employees brought class and collective actions against Tyson, seeking unpaid wages for pre- and post-shift activities. After a jury returned an award for the employees and an attorney fee award, Tyson unsuccessfully moved for judgment as a matter of law. Tyson appealed the district court’s judgment and denial of its motion for judgment as a matter of law. Tyson also argued the attorney fee award was excessive.

The Tenth Circuit addressed Tyson’s first argument – whether the evidence was sufficient to support the verdict – and found it was. The question for the jury was whether the K-code system had resulted in underpayment, and the Tenth Circuit found ample reason in the evidence to support the jury’s decision that it had, including Tyson’s own study. Tyson also challenged the proof of underpayment as to each class member. The Tenth Circuit rejected that challenge, because the proof was unnecessary, the jury could rely on representative evidence, and Tyson’s supporting cases are inapplicable.

The jury awarded less to plaintiffs than they requested. Tyson interpreted this to mean that the jury found some class members were appropriately compensated. The Tenth Circuit disagreed, finding the evidence supported a finding of undercompensation for all class members, and noting that Tyson’s argument was speculative.

Finally, the Tenth Circuit addressed the attorney fee award. The Fair Labor Standards Act provides a right to attorney fees to prevailing plaintiffs. The district court awarded over $3 million in attorney fees, despite the much lower awards to the plaintiffs. Because of ongoing class litigation in another county, the district court adopted a procedure whereby it reviewed the attorneys’ time records in camera, allowed disclosure of the hourly rate and number of hours worked, and allowed each side the chance to depose someone on the other side familiar with the billing process. Tyson objected to this process, instead requesting full discovery of billing records. The Tenth Circuit upheld the process and the award, finding good cause for the district court’s procedure and award.

The judgment was affirmed.