Lack of Standing Undoes Class Settlement

To participate in a class action damages settlement, every plaintiff class member must have Article III standing sufficient to recover damages after a trial. An appellate court vacated certification and approval of a nationwide class settlement because certain of the class members would be unable to establish damages under the law in their respective circuits. ABA Litigation Section leaders say that this decision is in line with recent Supreme Court case law pertaining to class actions and suggest that it may require that attorneys perform additional due diligence in reaching class settlements.

Did You Get My Text?

In Drazen v. Pinto, the plaintiffs in several underlying cases sued GoDaddy in the Southern District of Alabama based upon unwanted telephone calls and text messages in violation of the Telephone Consumer Protection Act of 1991. After consolidation of the underlying cases, the plaintiffs sought class status. Following negotiations with GoDaddy, the parties submitted a proposed class settlement agreement to the district court. The proposed settlement class included “All persons within the United States who received a call or text message to his or her cellular telephone from Defendant from November 4, 2014 through December 31, 2016.”

The district court ordered the parties to submit briefing on Salcedo v. Hanna, a precedential case from the Court of Appeals for the Eleventh Circuit, which holds that a single unwanted text message is insufficient to give rise to Article III standing. Following briefing, the trial court ordered removal of one of the named plaintiffs, who had only received a single text, from the proposed class. The trial court further found that seven percent of the absent class members had received just a single text. Despite this, the trial court reasoned that—because it was a nationwide class—some of those absent class members would have a viable claim in their respective circuits because of a circuit split.

Based on this reasoning, the district granted preliminary approval of the settlement with a class that included those without standing under Eleventh Circuit law. Because those absent class members might have a viable claim within their own circuit, “GoDaddy is entitled to settle those claims in this class action although this Court would find them meritless had they been brought individually in the Eleventh Circuit.”

Participation in Settlement Requires Article III Standing

A class member objected to approval of the settlement based upon the amount of attorney fees for a “coupon settlement” under the Class Action Fairness Act. The district court overruled the objection and granted the settlement final approval. The objector appealed. The objector did not raise the issue of standing before the appellate court, but the Eleventh Circuit considered the issue sua sponte.

Relying on the U.S. Supreme Court decisions in Frank v. Gaos and TransUnion v. Ramirez, the Eleventh Circuit held that to approve the settlement, every class member within the class definition, including absent class members, must have Article III standing. “If every plaintiff within the class definition in the class action in TransUnion had to have Article III standing to recover damages after trial, logically so too must be the case with a court-approved class action settlement.”

In other words, if the underlying cases had been tried within the Eleventh Circuit rather than settled, the absent class members who had received only one text message would not be entitled to recover damages in those cases. The appellate court vacated the class certification and the approval of the settlement, and remanded the case to give the parties the opportunity to redefine the class. Nevertheless, recognizing that TransUnion had been decided after the approval of the class settlement, the appellate court panel noted that “we do not fault the District Court for failing to be clairvoyant.”

Class Action Litigation in a Post-TransUnion World

“The case reiterates TransUnion’s holding that every class member must have Article III standing to recover individual damages,” clarifies Adam Polk, San Francisco, CA, cochair of the Litigation Section’s Class Actions & Derivative Suits Committee. Polk believes the court was correct in vacating the settlement and remanding the case, but this decision may prove more an exception than a rule. “Practitioners are choosing and preparing their complaints in different ways in light of the ruling. I do not expect reversals to markedly increase,” notes Polk.

Section leaders anticipate more litigation on the settlement of questionable class member claims. “There will be another case,” predicts Donald W. Davis Jr., Akron, OH, cochair of the Section’s Trial Practice Committee. “This is not the end. There is going to be further litigation and interpretation of this [class settlement issue],” Davis advises, suggesting that most of the cases “will shake out by the end of the year.”

An Extra Level of Due Diligence

“Practitioners should not to rely on the class certification to propose a settlement,” Davis counsels. “There should be more due diligence on the class members up front, even though this extra due diligence requirement seems to weaken the fundamental reason for class actions,” laments Davis.

The holding here may prove to be more limited. “The question of standing is an inquiry which (in statutory violation cases) turns on the history and judgment of Congress. The implications therefore do not extend beyond Transunion’s,” Polk concludes.