May 23, 2019 Articles

New Limits on Forum Shopping: Standing and Jurisdiction as Hurdles in Class and Mass Actions

Most recently, the Supreme Court has acted to rein in vertical forum-shopping with respect to federal statutory violations.

By Rishi Zutshi, Lina Bensman, Ariel M. Fox, Kate Massey, and Miranda Gonzalez

Two recent Supreme Court decisions—Bristol-Myers Squibb v. Superior Court of California and Frank v. Gaos—have changed the landscape for plaintiffs seeking to bring class and mass actions in a forum of their choosing.

Bristol-Myers Squibb, decided in 2017, is the latest in a line of recent Supreme Court decisions that restrict the exercise of personal jurisdiction over out-of-state defendants. 137 S. Ct. 1773 (2017). First, the Supreme Court held in 2011 in Goodyear Dunlop Tires Operations, S.A. v. Brown that a foreign subsidiary of Goodyear was not subject to the jurisdiction of the North Carolina state courts with respect to a claim arising from a bus accident in France. 564 U.S. 915 (2011). Later, in 2014, the Supreme Court held in Daimler AG v. Bauman that the jurisdiction of a California federal district court did not extend to claims against Daimler arising from actions taken in Argentina by the corporation’s Argentine subsidiary. 134 S. Ct. 746 (2014). Having thus set limits on the ability of foreign plaintiffs to litigate claims within U.S. federal and state courts that arise from activities outside the U.S., the Supreme Court with Bristol-Myers Squibb has now taken steps to limit the ability of U.S. plaintiffs to forum-shop within the U.S., at least with respect to mass tort actions.

Most recently, the Supreme Court has acted to rein in vertical forum-shopping (i.e., between federal and state courts) with respect to federal statutory violations. In 2016, the Supreme Court held in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), that federal courts cannot adjudicate claims based on federal statutory violations unless the plaintiff pleads the concrete harm required to establish Article III standing. In March 2019, the Supreme Court extended the logic of that decision in Frank v. Gaos, 139 S. Ct. 1041 (2019), holding that Article III standing is required even in class action settlement proceedings. In conjunction with Bristol-Myers Squibb, Gaos and Spokeo may restrict some forum-shopping by plaintiffs by pushing class action claims lacking concrete injury to state courts, where plaintiffs will also face close scrutiny of their personal jurisdiction assertions.

Bristol-Myers Squibb v. Superior Court of California

In Bristol-Myers Squibb, the Supreme Court held that a California state court overseeing a mass tort action could not exercise specific personal jurisdiction over the defendant drug company with respect to claims brought by out-of-state consumers. 137 S. Ct. at 1783. Specific jurisdiction has taken on greater significance since Daimler, which held that an out‑of‑state corporation is, in most circumstances, subject to general jurisdiction only in the forums in which it is incorporated and maintains its principal place of business. 134 S. Ct. at 761–62. California state courts had adopted a “sliding scale” approach to specific jurisdiction, finding that a more attenuated connection between the state and the specific claims at issue would be sufficient to confer specific jurisdiction over an out‑of‑state defendant if that defendant’s other, unrelated contacts with the state were sufficiently extensive. Bristol-Myers Squibb, 137 S. Ct. at 1781. The Supreme Court rejected this approach, reaffirming the requirement that specific jurisdiction be exercised only where there is an adequate link between the state and the claims being brought. Id. at 1783–84. As to Bristol-Myers Squibb, the Court found that the fact that the company had conducted research in California and had contracted with a California company to distribute the relevant products was insufficient to establish specific personal jurisdiction with respect to claims brought by nonresidents whose purchases (and any associated injury) occurred outside of California. Id. at 1781.

Frank v. Gaos

Frank v. Gaos involved objections to the settlement of a class action alleging that Google had harmed user privacy rights by disclosing their search terms to third parties and advertisers in violation of state law and the federal Stored Communications Act (SCA). 18 U.S.C. § 2701 et seq. Google had previously argued that plaintiffs lacked standing, but the district court disagreed, citing Edwards v. First American Corp., 610 F.3d 514 (9th Cir. 2010), a Ninth Circuit case that held an Article III injury exists whenever a statute provides individuals with a federal statutory cause of action. Gaos v. Google Inc., No. 5:10-cv-4809 EJD, 2012 WL 1094646, at *3 (N.D. Cal. Mar. 29, 2012). The parties settled for $8.5 million as part of a cy pres–only settlement—$5.3 million was allocated to six privacy nonprofit organizations, $2.2 million to attorney fees, and the remainder to administrative fees. (Cy pres remedies are typically used when it is infeasible to identify class members for payment of monetary damages or when there are leftover settlement funds too small to justify the expense of mailing additional checks.) After objectors appealed, the Ninth Circuit affirmed approval of the settlement in 2017, and the Supreme Court subsequently granted certiorari on the question of whether a cy pres–only settlement is “fair, reasonable, and adequate,” as required by Federal Rule of Civil Procedure 23(e)(2). See Gaos, 139 S. Ct. at 1043.

Despite having originally granted the certiorari petition on the cy pres issue, on March 20, 2019, the Supreme Court ultimately vacated the settlement on an entirely different ground, directing the lower courts to reassess standing in light of Spokeo. In Spokeo, the Supreme Court had held that a plaintiff must suffer an injury in fact that is concrete and particularized in order to satisfy Article III standing (abrogating Edwards). 136 S. Ct. at 1549. In vacating the settlement in Gaos, the Supreme Court noted that, unlike an individual settlement, a class action settlement can be approved only after the federal court has assured itself of Article III standing. 139 S. Ct. at 1046 (“In ordinary non-class litigation, parties are free to settle their disputes on their own terms, and plaintiffs may voluntarily dismiss their claims without a court order.”); id. (“By contrast, in a class action, the ‘claims, issues, or defenses of a certified class—or a class proposed to be certified for purposes of settlement—may be settled, voluntarily dismissed, or compromised only with the court’s approval.’”) (quoting Fed. R. Civ. P. 23(e)). Without Article III standing, class representatives cannot release claims because a federal court cannot “approve a proposed class settlement if it lacks jurisdiction over the dispute, and federal courts lack jurisdiction if no named plaintiff has standing.” Id.

Pressure from Every Direction

After Spokeo and Gaos, plaintiffs cannot bring claims in federal court based on federal statutory violations where the injury is neither concrete nor particularized, even if only to settle them. But state courts are not bound by the case or controversy requirement of Article III, and plaintiffs may elect to bring both federal and state claims in state court if they fear that they cannot meet the federal standing requirements. See Nike, Inc. v. Kasky, 539 U.S. 654, 661 (2003) (“[W]ere the federal rules of justiciability to apply in state courts, this suit would have been ‘dismissed at the outset.’”) (quoting ASARCO Inc. v. Kadish, 490 U.S. 605, 617 (1989) (“We have recognized often that the constraints of Article III do not apply to state courts, and accordingly the state courts are not bound by the limitations of a case or controversy or other federal rules of justiciability even when they address issues of federal law, as when they are called upon to interpret the Constitution or, in this case, a federal statute.”)). Although federal constitutional standing may influence a state court’s standing analysis, many states have their own standing doctrines that are broader, several of which allow for jurisdiction over cases that would not be permitted under federal justiciability principles. See Wyatt Sassman, “A Survey of Constitutional Standing in State Courts,” 8 Ky. J. Equine, Agric. & Nat. Res. L. 349, 352 (2016) (performing state survey of standing principles); see also Hon. Jack L. Landau, “State Constitutionalism and the Limits of Judicial Power,” 69 Rutgers U. L. Rev. 1309, 1315 (2017) (“A number of states have explicitly stated that they are not bound by federal justiciability doctrine. And quite a number of them have developed exceptions or qualifications that are foreign to the federal case law.”).

While plaintiffs can be expected to respond to Bristol-Myers Squibb, Spokeo, and Gaos by bringing more claims in state courts, there are important limitations on their ability to do so. For example, after Spokeo, there was a rise in New Jersey state class actions under the New Jersey Truth-in-Consumer Contract, Warranty and Notice Act (TCCWNA), which prohibits sellers from including terms in contracts or warranties in violation of a “clearly established legal right” or “responsibility” of a seller, and provides a right of action for any “aggrieved consumer.” N.J. Stat. Ann. §§ 56:12-14 et seq. This rise was attributable in part to a New Jersey state court decision that expanded the reach of the TCCWNA when it held that online terms and conditions constituted actionable consumer contracts under the TCCWNA. See Shelton v. Restaurant.com, Inc., 70 A.3d 544, 556 (N.J. 2013). Because of New Jersey’s “liberal” standing rules, see Jen Elec., Inc. v. County of Essex, 964 A.2d 790, 801 (N.J. 2009), some plaintiffs elected to bring class actions based on violations of the TCCWNA in state rather than federal court. At least 16 class actions were filed in New Jersey state court based on violations of the TCCWNA between the Spokeo decision in May 2016 and the end of 2016. See, e.g., Brahamsha v. Starbucks Corp., No. L-2676-16, 2016 WL 4372363 (N.J. Super. Ct. Law Div. July 28, 2016); Taufield v. Costco Wholesale Corp., No. L‑6705-16, 2016 WL 6567186 (N.J. Super. Ct. Law Div. Sept. 16, 2016). This wave of class actions was eventually halted by the New Jersey Supreme Court when it held that a person is not “aggrieved” if the person “suffers no monetary or other harm as a result of” noncompliance with the statute. Spade v. Select Comfort Corp., 181 A.3d 969, 972 (N.J. 2018). As another example, in at least one case, plaintiffs were able to bring claims in state court based on the violation of the federal statute at issue in Spokeo. See Duncan v. FedEx Office & Print Servs., Inc., 2019 IL App (1st) 180857, ¶¶ 21, 22 (Jan. 25, 2019) (finding standing based on violation of the Fair Credit Reporting Act because “standing in Illinois is not jurisdictional” and injury in fact “does not mean that a wrong must have been committed and an injury inflicted”) (internal quotation omitted).

But class action plaintiffs seeking to evade federal standing requirements may now find it more difficult to run to state courts. After Bristol-Myers Squibb, the nationwide classes that plaintiffs lack standing to represent in federal court will have to be brought in state court; yet, because of the Fourteenth Amendment limitations on the state courts’ general and specific personal jurisdiction, those classes are less likely to include out-of-state plaintiffs.

Another Turn of the Screw?

The Bristol-Myers Squibb Court explicitly declined to address whether its holding limiting the exercise of personal jurisdiction by state courts would extend to federal courts exercising federal powers. 137 S. Ct. at 1784. The decision left “open the question whether the Fifth Amendment imposes the same restrictions on the exercise of personal jurisdiction by a federal court [as due process concerns impose on the exercise of specific jurisdiction by a state].” Id.

A lower court has noted, however, that “both the Supreme Court and [the District of Columbia District Court] have applied Fourteenth Amendment personal-jurisdiction standards in Fifth Amendment cases.” Livnat v. Palestinian Auth., 851 F.3d 45, 54–55 (D.C. Cir. 2017). District courts applying Bristol‑Myers Squibb are divided on the question of whether its holding should apply to class actions and to federal courts exercising federal powers. Compare Horowitz v. AT&T Inc., No. 3:17-cv-4827, 2018 WL 1942525, at *15–16 (D.N.J. Apr. 25, 2018) (applying Bristol-Myers Squibb to class action asserting Age Discrimination in Employment Act violations), and Maclin v. Reliable Reports of Tex. Inc., 314 F. Supp. 3d 845, 850–51 (N.D. Ohio 2018) (applying Bristol-Myers Squibb to class action asserting Fair Labor Standards Act (FLSA) violations), with Sanchez v. Launch Tech. Workforce Sols. LLC, 297 F. Supp. 3d 1360, 1365 (N.D. Ga. 2018) (holding Bristol-Myers Squibb is inapplicable to class action asserting violations of the FCRA), and Swamy v. Title Source Inc., No. C 17-01175 WHA, 2017 WL 5196780, at *2 (N.D. Cal. Nov. 10, 2017) (holding that Bristol-Myers Squibb is inapplicable to the FLSA).

In her dissent in Bristol-Myers Squibb, Justice Sotomayor warned that the majority’s holding would have the effect of making it “profoundly difficult” for plaintiffs to consolidate claims resulting from a defendant’s nationwide course of conduct in a single action. 137 S. Ct. at 1789 (Sotomayor, J., dissenting). The majority opinion addressed this concern by noting that in the instant case, the consolidated actions could have been brought in the forums where the defendants were properly “at home” for purposes of personal jurisdiction (in this case, New York and Delaware) or, alternatively, that any plaintiff could bring an action in a state court that would have specific jurisdiction over the claim. Id. at 1783. In other words, plaintiffs were not being denied a forum—merely the ability to choose any forum without regard to constitutional limitations on state court powers. If the Supreme Court ultimately determines that the logic of Bristol-Myers Squibb does extend to class actions brought under state law, and to class and mass actions brought under federal law, the number of forums available to plaintiffs to bring such consolidated nationwide actions will be similarly limited to forums in which a court can exercise personal jurisdiction over the defendant.

A broader application of Bristol-Myers Squibb could be particularly significant for pending federal court cases involving claims brought under federal statutes that are commonly consolidated as class actions, including those under the Age Discrimination in Employment Act of 1967, the Telephone Consumer Privacy Act of 1991 (TCPA), the Fair Labor Standards Act of 1938, and the Fair Credit Reporting Act of 1970, potentially protecting defendants from forum shopping with respect to some of the largest and most consequential actions commonly brought against corporations in the U.S. See, e.g., Horowitz, 2018 WL 1942525, at *15–16; Maclin, 314 F. Supp. 3d at 850–51; Practice Mgmt. Support Servs. Inc. v. Cirque du Soleil Inc., 301 F. Supp. 3d 840, 862 (N.D. Ill. 2018), rev’d on other grounds, 2018 WL 3659349 (N.D. Ill. Aug. 2, 2018) (applying Bristol-Myers Squibb to class action asserting TCPA violations); Swamy, 2017 WL 5196780, at *2.

On the one hand, because plaintiffs are unlikely to reach class certification—let alone survive a motion to dismiss—for these types of federal statutory claims without concrete injury, defendants in federal courts may gain leverage in convincing plaintiffs to dismiss their claims altogether. On the other hand, the cumulative effect of these decisions, including the new hurdles to obtaining approval of class settlements, will also make it difficult for a defendant to achieve “global peace” through settlement in any forum, save perhaps the one in which the defendant is at home. And although federal courts may remand cases without Article III standing to state courts, Bristol-Myers Squibb may lead state courts to disaggregate nationwide classes into state classes or to dismiss these actions altogether for lack of personal jurisdiction.

Rishi N. Zutshi is a litigation partner in the New York office of Cleary Gottlieb Steen & Hamilton LLP. Lina Bensman is a senior associate and Ariel M. Fox, Kate Massey, and Miranda Gonzalez are associates in Cleary’s New York office.


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