With the Department of Justice and state attorneys general vowing to crack down on profiteering during the COVID-19 pandemic, plaintiffs’ attorneys have already begun stepping into the fray on behalf of consumers. Despite widespread court closures, evolving procedural rules and a growing backlog of cases, COVID-19 has spawned class action filings across a wide array of industries. These cases are likely to multiply in the coming months as businesses grapple with economic and regulatory challenges, while at the same time being forced to contend with the demands of increasingly frustrated consumers.
Cancelled Concerts and Sporting Events
On March 11, the NBA abruptly suspended its season after two players tested positive for coronavirus. The NCAA and other professional sports leagues quickly followed suit, as did the organizers of many concerts and music festivals. While some consumers purchase tickets directly from a team or venue, others purchase in the secondary marketplace via ticket brokers and, increasingly, third-party websites. In many cases, the identity of the seller will dictate the composition of the class, the relevant causes of action and the forum in which they may be asserted. Additionally, most event tickets are, in fact, revocable licenses. Thus, the contractual language and available remedies are certain to vary depending on the defendant.
Following the cancellation or indefinite postponement of events, consumers have filed suit seeking refunds for processing and handling fees in addition to the cost of the tickets. Some have sought recovery for ancillary expenses, like travel and lodging costs associated with the event. And it seems only a matter of time before disappointed season ticket holders initiate claims over payments for personal seat licenses (PSLs) and donations to college athletic departments, which often determine the number and location of tickets available for purchase, though such claims would appear less amenable to class treatment. Most professional sports leagues have been treating games impacted by COVID-19 as postponed rather than cancelled. However, on April 28, Major League Baseball announced its decision to allow individual clubs to set their own policies concerning refunds, potentially mooting some class actions.
Health Clubs/Theme Parks/Ski Resorts
Another area likely to see an uptick in consumer litigation is the monthly membership and subscription space. This is particularly true given the increased scrutiny of automatic renewal memberships at both the state and federal level. In July 2018, California passed a law requiring that merchants providing such services present terms in a “clear and conspicuous manner” and obtain explicit authorization for recurring charges. In addition, consumers who obtain a continuous service offer online must be able to cancel the service online. Then, in September 2018, the Federal Trade Commission invited public comment on its regulations for automatic renewal offers, also known as “negative option marketing.” Specifically, the FTC sought “suggestions or alternative methods for improving current requirements, in an effort to more effectively protect consumers from negative option violations.”
Litigation in this area has intensified over the last year-and-a-half, with plaintiffs bringing class actions against publishers, meal subscription services and even online dating websites. This trend is only likely to expand in the coming months, with merchants of prepaid memberships being forced to shutter physical locations as part of social distancing measures. Already, health clubs, theme parks and ski resorts have been tagged with class claims, as governors across a host of states continue to order mandatory closure of all non-essential businesses. Expect these cases to mushroom as the plaintiff’s bar continues to identify potential targets and refine theories of liability. Whether or not these businesses continue to charge monthly fees, consumers are sure to demand refunds for partial months, proration of initiation fees and waiver of early termination penalties. Unsuccessful attempts to freeze or cancel subscriptions could also lead to breach of contract and deceptive trade practice claims in addition to equitable claims of conversion and unjust enrichment.
Getting to a Class Action
It’s one thing to allege a class action, it’s another thing to get a class certified. In most jurisdictions, class certification decisions are reserved until after discovery is completed, that is, at the end of the case. Rule 23 of the Federal Rules of Civil Procedure governs class actions. The basic requirement of any class action, set forth under Rule 23(a), is that the plaintiff must satisfy the elements of numerosity, commonality, typicality, and adequacy of the proposed class.
Numerosity means there are too many individual plaintiffs/potential class members to be practicably joined in one action. While there is no “magic number” of potential class members making joinder impracticable, courts generally find that more than 40 or so possible class members satisfies the numerosity requirement. Commonality requires a showing that there are common questions of fact and law across the class. Typicality means that the representative plaintiff’s factual circumstances and legal claims are similar to those of the proposed class, and that he or she is not subject to individual defenses. Finally, adequacy requires that both the representative plaintiff and the lawyers representing her will adequately represent the class. This usually means that the plaintiff has participated in the prosecution of the action and that the lawyers have the skills and resources to pursue the case.
Most class actions involve requests either for injunctive relief under Rule 23(b)(2) or money damages under Rule 23(b)(3). In Rule 23(b)(2) injunctive relief class actions, the representative plaintiff must show that the defendant acted or refused to act in a uniform manner to the class such that injunctive or declaratory relief would be appropriate for the class as a whole. To obtain money damages under Rule 23(b)(3), the court must find that common questions of fact and law predominate over individual questions (“predominance”) and that a class action is superior to individual lawsuits (“superiority”). Rule 23(b)(3) claims for money damages are the primary driver of consumer class actions, since many consumer-protection statues provide for a fee shifter to a prevailing plaintiff.
Defending against a consumer class action raises to essential questions: how to defeat the substantive claim (i.e., violation of a consumer-protection statute) and how to prevent the class from getting certified. Rule 23(a)’s requirements are relatively easy to establish. Class-action complaints generally offer little more than a rote recitation of facts supporting numerosity, raising supposedly common questions, noting the plaintiff’s typicality (“Plaintiff’s claims are typical of the class and she possess no individualized defenses…”) and her adequacy (“Plaintiff will adequately represent the class…”) as well as that of her attorneys (“Plaintiff’s counsel are highly skilled class-action litigators and have the experience and resources to pursue this matter…”). More often than not, such barebones pleading is enough to survive a motion to dismiss.
Fulfilling Rule 23(b)(2)’s more exacting requirements is a much taller task, however. In particular, establishing predominance means more than simply regurgitating a list of supposedly common questions. To the contrary, as the U.S. Supreme Court has held, “What matters to class certification ... is not the raising of common ‘questions’– even in droves – but, rather[,] the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation. Dissimilarities within the proposed class are what have the potential to impede the generation of common answers.” Indeed, should the case proceed to trial, the representative plaintiff will need to prove that her experience was the same as everyone else in the class. And this is where class actions can fall apart.
For example, in a number of the recently filed refund cases, the plaintiffs have actually alleged that the defendant behaved differently with different plaintiffs or made oral representations about the company’s refund policy, either when entering into the contract or when the plaintiff sought a refund. Likewise, differing contracts with differing provisions, or varying sales/advertising representations that induced members of a proposed class to enter into those contracts “have the potential to impede the generation of common answers.” These sorts of individualized questions are antithetical to the class-action device, since each class member’s claim will necessarily devolve into its own mini-trial. Consequently, these are precisely the kinds of “dissimilarities within the proposed class” that defendants will want to develop.
Another factor to consider is that so many of these cases have been filed before defendants have really even been able to get their arms around the situation and figure out how to respond. Several of the refund cases were filed just days after localities entered orders closing gyms, recreational facilities, and other “non-essential” businesses. Some entities may be in a position to offer refunds or credits, to extend membership end dates or propose some mix of remedies. In those cases, is a class action really necessary—that is, if a defendant offers the relief the class seeks, is a class action appropriate? The Seventh Circuit had held that it is not, reasoning “relief that duplicates a remedy that most buyers already have received, and that remains available to all members of the putative class” fails to protect class members’ interests.
Likewise, a class action is not superior where a recall or refund program exists. As the Seventh Circuit explained a plaintiff’s decision to forego a recall “is questionable, particularly in light of the number of cases that have denied class certification in consumer class actions because a voluntary recall and/or refund program provided a superior method of compensating the putative class members. This is because ‘[w]here available refunds afford class members a comparable or even better remedy than they could hope to achieve in court, a class action would merely divert a substantial percentage of the refunds’ aggregate value to the class lawyers.’”
Whether viewed through the lens of Rule 23(a)’s adequacy requirement or Rule 23(b)(3)’s superiority requirement, a refund or similar program could potentially moot a putative class action. Counsel would be wise to keep these requirements in mind as consumer class claims continue to proliferate in the wake of disruptions caused by COVID-19.
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