Casket Buyers Can Seek Fees, Costs from Non-Settling Defendants in Antitrust Suit

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Eleven consumers can proceed with an antitrust action against the largest U.S.casket manufacturer, Batesville Casket Company, and funeral home chain Service Corporation International, but they can not represent a class of casket purchasers, the U.S. Court of Appeals in New Orleans has ruled.
The consumers who had purchased Batesville caskets alleged that the casket maker and the nation’s largest funeral home chains conspired to prevent independent casket discounters from selling Batesville caskets directly to consumers at discounted prices.

Dismissal of the consumers’ claims seeking attorney fees and costs for lack of subject matter jurisdiction was reversed; however, the appellate court affirmed the lower court’s dismissal of claims for injunctive relief and denial of class certification.

The complaining consumers who had settled with one of the original defendants—funeral home chain Stewart Enterprises, Inc.—for an amount greater than the maximum amount of compensatory damages being sought still had standing to seek costs and reasonable attorney fees from the remaining defendants, the appellate court held. The consumers were not seeking compensatory damages beyond those agreed to in the settlement and did not recover the attorney fees and costs available to them under Sec. 4 of the Clayton Act. The Clayton Act provides a successful plaintiff a mandatory award of costs and attorney fees.

The plaintiffs had a right to sue for the statutorily mandated costs and reasonable attorney fees even if the settlement with one defendant meant that no additional compensatory damages actually would be recovered. Actual recovery of compensatory damages was not required. A ruling to the contrary would discourage plaintiffs from making early settlements with some but not all defendants because a settlement could later
operate to preclude full recovery of fees and costs pursuant to the Clayton Act, according to the court.

The consumers lacked standing to seek injunctive relief, the court also ruled. Any harm would have been reparable by a monetary award, and the chance of one of the consumers purchasing another one of the defending manufacturer’s caskets or his or her family purchasing one of the caskets upon the consumer’s death did not create a real or immediate potential future injury. The fact that death is inevitable is not sufficient to establish a real and immediate threat of future harm.

The court also concluded that the Funeral Consumers Alliance, Inc.—a nonprofit consumer rights organization that claims 400,000 individuals as members—lacked Article III standing to pursue injunctive relief. The organization did not allege that there was a real and immediate threat that any of its members would purchase an allegedly overpriced Batesville casket from one of the funeral homes that was alleged to be part of the conspiracy.

Class Certification

The district court did not err by denying certification of a nationwide class of consumers, according to the appellate court. The plaintiffs failed to meet Federal Rule of Civil Procedure 23(b)(3) predominance and superiority requirements. Rule 23(b)(3) requires a party seeking class certification to demonstrate both (1) that questions common to the class members predominate over questions affecting only individual members, and (2) that class resolution is superior to alternative methods for adjudication of the controversy.

The lower court was acting within its discretion when it adopted a magistrate judge’s recommendation, concluding that individualized issues affecting each of the roughly one million purported class members nationwide would predominate over common ones, given the lack of a national market or a nationwide conspiracy. The appellate court rejected the consumers’ argument that the district court “ignored” the evidence of national market and nationwide conspiracy presented by their expert.

Partial Dissent

A dissenting opinion agreed with the denial of class certification and dismissal of injunctive relief claims; however, it contended that subject matter jurisdiction was lacking over the consumers’ claims for costs and attorney fees. The case was moot because the consumers no longer had a “personal stake in the outcome.” The dissenting judge would not have allowed the consumers’ attorneys to seek “a trial merely for their own self-interested ‘byproducts’ of litigation.”

The September 13, 2012, decision in Funeral Consumers Alliance, Inc. v. Service Corporation International will appear at 2012-2 Trade Cases ¶ 78,048.

Attempt to Enforce California Post-Term Covenants Not to Compete Can Be Malicious Prosecution

This posting was written by Bruce S. Schaeffer of Franchise Valuations, Ltd., co-author of CCH Franchise Regulation and Damages.

In an unusual action for malicious prosecution, the Court of Appeal of California, First District, in a not-for-publication opinion, has held that U-Haul’s actions in bringing a lawsuit in California to enforce a covenant not to compete violated California Business and Professions Code §16600. This holding basically makes such covenants unenforceable in California.

The fact that U-Haul had brought such actions in the past, which had been dismissed, was sufficient to establish probable cause and malice, allowing the terminated franchisee’s case to go forward for malicious prosecution and as a class action. The mere presence of such unenforceable language in the franchise agreement was considered grounds for pursuing the class action.

The decision is Robinson v. U-Haul Co. of California, CCH Business Franchise Guide ¶14,481.

Franchisor’s “Physical Presence” Not Needed for Income Taxation in Iowa

The essence of the much-discussed recent decision in KFC Corporation v. Iowa Department of Revenue, CCH Business Franchise Guide ¶14,518, is the court’s holding that “a physical presence is not required under the dormant Commerce Clause of the United States Constitution in order for the Iowa legislature to impose an income tax on revenue earned by an out-of-state corporation arising from the use of its intangibles by franchisees located within the State of Iowa.”

The court reasoned, “[B]y licensing franchises within Iowa, KFC has received the benefit of an orderly society within the state and, as a result is subject to the payment of income taxes.”

Colorado Barred from Enforcing Requirement That Mail-Order Sellers Provide Information About Buyers

In a strange procedural case that specifically ignored the issue of standing, the Direct Marketing Association has obtained an injunction from a federal district court in Colorado, barring the state’s taxing authority from enforcing a requirement that mail order sellers provide buyers and the state’s tax authorities with information returns about Colorado purchases subject to the use tax. (The Direct Marketing Association v. Huber, (D. Colo. January 28, 2011), CCH Colorado State Tax Reporter ¶201-018)

“Successful” Beer Law Litigants Awarded $0 in Attorney Fees

Beer distributors who were “successful” in their suit against a brewer and a successor brewer under the New Jersey Malt Alcoholic Beverages Act were nonetheless awarded zero dollars in legal fees by the federal district court in New Jersey. (Warren Distributing Co. v. Inbev USA, LLC, (D. N.J., February 28, 2011), CCH Business Franchise Guide ¶14,564)

The three beer wholesalers were deemed “successful” litigants under the meaning of the Act because a jury determined that the defending brewers did not pay them the fair market value of their distribution rights. However, even a cursory assessment of the litigation indicated that the wholesalers’ success was, at best, “pyrrhic” and, therefore, unworthy of an award of any attorney fees, according to the court.

The court went on to note that, in truth, the wholesalers were not the prevailing party in the litigation because the brewers recovered a significantly larger damages award on their unjust enrichment counterclaim than the wholesalers recovered on their beer law claims.

That fact alone merited a significant reduction in an award of attorney fees to the wholesalers, the court determined. Further, the jury award of $390,007 to the wholesalers was nugatory when compared to the $41 million the wholesalers had requested.

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Additional information on the issues discussed above is available in CCH Franchise Regulation and Damages by Byron E. Fox and Bruce S. Schaeffer.

Mortgage Relief Scheme Violated New Jersey Consumer Fraud Act

This posting was written by Jody Coultas, Editor of CCH State Unfair Trade Practices Law.

A real estate lawyer and his client engaged in a fraudulent mortgage relief scheme that violated the New Jersey Consumer Fraud Act (CFA) by misleading mortgage holders, according to the U.S. Bankruptcy Court in Trenton, New Jersey.

The mortgage holders filed for Chapter 13 bankruptcy in an attempt to save their home from foreclosure. They then entered into an agreement with the real estate lawyer’s client, Frederick Cleveland, to sell the house for $555,000. Cleveland was to pay off $510,000 on the two existing mortgages on the house and another $46,000 to the mortgage holders to pay for the Chapter 13 plan.

Instead, Cleveland borrowed $646,400 and took $100,000 for himself. The mortgage holders were unaware that the monthly payments they made to Cleveland were not being used to service the financing and did not understand that if Cleveland failed to pay the new lender, they could lose their home.

Misrepresentations

In preparing the closing documents, the real estate lawyer misrepresented the sale price and falsely told the mortgage holders that Cleveland was investing his own cash.

Although the mortgage holders were not going to receive any money, the real estate lawyer told them they would receive payments from a trust account. Cleveland eventually defaulted on the new loan and the lender initiated foreclosure proceedings.

The real estate lawyer and Cleveland violated the CFA by making false and misleading statements regarding a mortgage relief plan, according to the court. The CFA prohibits the use of any unconscionable commercial practice, deception, or fraud.

Sophisticated Consumer Exception

Although Cleveland argued that the mortgage holders could not avail themselves of the CFA because they were sophisticated parties and could not be misled, the court found that there was no statutory exception for sophisticated consumers.

Even if a business practice was not fraudulent or deceptive, that practice could nevertheless violate the CFA if it was unconscionable. Here, Cleveland found the mortgage holders in a very vulnerable position and took advantage of them for personal gain.

Damages, Attorney’s Fees

An award of actual damages, attorneys’ fees, and other appropriate equitable relief was available to the mortgage holders. The mortgage holders suffered an ascertainable loss because the new mortgage was $646,400, even though they had owed only $529,608. Thus, the damage award was over $350,000, treble the difference between the loss and what the mortgage holders actually received.

The court noted that the mortgage holders could submit proof of their attorneys’ fees and costs, as well as seek other equitable remedies. The real estate lawyer was held jointly liable for the damages, costs, and fees because he conspired with his client to violate the CFA.

The mortgage holders' lawyer stated that this was the first reported case in New Jersey concerning mortgage foreclosure rescue schemes.

The decision is In re O'Brien, CCH State Unfair Trade Practices Law ¶32,012.

Principal and Sales Rep Could Be Liable for Attorney’s Fees on Separate Claims

This posting was written by John R.F. Baer of Sonnenschein Nath & Rosenthal, author of CCH Sales Representative Law Guide.

When a sales representative presented two claims against its principal, one for pre-termination commissions and one for post-termination commissions, the claims were to be treated separately for determining whether to award attorney’s fees and costs under the New Jersey Sales Representatives’ Rights Law, a New Jersey appellate court has ruled.

In addition, the court reversed the trial court’s award of over $218,000 in attorney’s fees to the principal under the New Jersey rule governing inadvisable rejection of an offer of judgment

Successful Claim

The sales representative successfully contended that he was entitled to an award of fees under the statute on his claim for pre-termination commissions. However, this did not preclude his liability for fees in pursuing his unsuccessful claim for post-termination commissions.

There was no dispute that the principal was obligated and failed to pay $12,774 in pre-termination commissions. The true dispute was over the claim for post-termination commissions, which had questionable legal underpinnings and was hotly contested, according to the court.

Possibly Frivolous Claim

The statute provided for an award of attorney’s fees to a principal when “an action" brought by a sales representative against a principal is frivolous. The court interpreted the word "action" as referring to a single claim, not the entire collection of claims.

On remand, the trial court was directed to determine (1) what attorney’s fees and costs were due to the sales representative for the principal’s unlawful withholding of the stipulated pre-termination commissions, (2) whether the sales representative frivolously pursued the claim for post-termination commissions, and(3) if so, what amount of fees were incurred in defending that claim.

A dissenting opinion expressed the view that a principal should be permitted to recover attorney’s fees and costs under the Sales Representatives’ Rights Law only when the entire action under the statute lacks merit.

Offer of Judgment, Rejection

The trial court’s $218,000 fee allowance to the principal under the rule governing inadvisable rejection of an offer of judgment could not stand because it conflicted with the fee-shifting provision of the Sales Representatives’ Rights Law, the court held.

After rejecting the principal’s offer of judgment, the sales representative prevailed on the pre-termination commissions claims but did not prevail on the hotly contested claim for post-termination commissions.

The sales representative would have been liable under the rule for the principal’s attorney’s fees if the version of the rule in effect when the principal’s offer was made and rejected had been applied. Because the offer of judgment rule was procedural in nature, a later version of the rule—incorporating the limitation on fee allowances in conflict with fee-shifting statutes such as the Sales Representatives’ Rights Law—applied retrospectively to bar the fee allowance.

The principal’s mistake was in submitting an offer of judgment that did not distinguish between the sales representative’s separate claims for pre-termination and post-termination commissions, the court observed.

Had the principal complied with its statutory obligation to timely pay the sales representative’s earned pre-termination commissions, any further pursuit of damages for post-termination commissions would not have had the protection of the Sales Representatives’ Rights Law and could have rendered the representative vulnerable for an inadvisable rejection of the offer of judgment.

The opinion in Kas Oriental Rugs, Inc. v. Ellman will be reported at CCH Sales Representative Law Guide ¶10,316.

Settlements, Fees Upheld in Antitrust Class Action Against Insurers

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

In a class action alleging a bid rigging and market allocation conspiracy between insurance brokers and insurance carriers, the U.S. Court of Appeals in Philadelphia has upheld final approval of a $121 million settlement with insurer Zurich Financial Services and a $28 million settlement with insurance broker Arthur J. Gallagher & Co.

An award of $29.95 million for attorney fees and expenses in conjunction with the Zurich settlement was also affirmed.

Class certification requirements of Federal Rule of Civil Procedure 23(a) and (b) were satisfied with respect to both settlement classes, and both settlements were fair under Rule 23(e). Thus, objections to the settlement agreements and attorney fees award from dissatisfied class members were properly rejected.

Private Civil Actions, State Investigations

The settlements at issue followed the consolidation of a number of private civil actions. At about the same time, insurance industry investigations were being conducted by various state attorneys general and state departments of insurance.

Under the Zurich settlement, the insurer agreed to establish a $100 million settlement fund. In addition, Zurich entered into settlements with the states, requiring monetary payments. As a result, Zurich agreed to pay $121.8 million to settlement class members.

The Gallagher settlement provided for the payment of $28 million to settlement class members and included an agreement to implement various business reforms. Gallagher agreed to pay up to $8.885 million for class counsel’s attorney fees, litigation expenses, and incentive awards, but no party objected.

Certification of Settlement Class

Objecting class members challenged certification of the settlement class, arguing that there was a predominance of individual issues as opposed to common ones. However, common questions of law and fact existed with respect to each of the elements of the Sherman Act claim, the appellate court held.

For purposes of the Zurich settlement, common questions included whether Zurich conspired with any defending insurance brokers. There were also common questions with respect to the resulting anticompetitive effects of the alleged conspiracy. Moreover, whether class members were proximately injured by Zurich’s conduct was capable of proof on a class-wide basis, even if the amount of damage that each plaintiff suffered could not be established by common proof, the appellate court noted.

Refusal to Certify Subclasses

The district court did not abuse its discretion in refusing to certify separate subclasses, despite the variety of policyholders. Objectors argued that the court should have utilized subclasses or required separate representation for complaining insurance policyholders who purchased a primary insurance policy from or through one of the defendants and policyholders who purchased additional insurance policies in excess of their primary insurance coverage from or through one of the defendants.

The decision did not render the plan of allocation unfair, according to the appellate court. Divergent interests did not exist between the allocation groups to necessitate subclasses. All of the class members shared a unified interest in establishing Zurich’s liability for engaging in anticompetitive conduct, which increased the cost of premiums for all policyholders.

Moreover, the allocation plan was carefully devised to ensure a fair distribution of the settlement fund to the various types of claimants. Policyholders who likely incurred the most damage were entitled to a larger proportion of the recovery than those whose injuries were less severe.

An objector’s “nearly identical challenges” to the Gallagher settlement were also rejected. The essential elements of the antitrust claims involved common questions of law and fact that predominated over individual issues.

Attorney Fees

An award of $29.95 million for attorney fees, expense reimbursements, and incentive awards in the Zurich settlement was upheld by the appellate court. The district court properly concluded that class counsel’s efforts produced at least $100 million for the settlement class, plus $29.95 million separately designated for their fees.

The reasonableness of the fee award was properly evaluated under a percentage of recovery method, even though the settlement was not a typical common fund. Thus, the fee award was 23% of the minimum recovery attributable to class counsel’s efforts or, alternatively, 19.9% of the minimum recovery if expenses and incentive awards were subtracted from the total award. A lodestar cross-check also supported the award, according to the appellate court.

The September 8 decision is In re Insurance Brokerage Antitrust Litigation, 2009-2 Trade Cases ¶76,733. Text of the decision appears here.

New Jersey Dealership Was Constructively Terminated Without Good Cause

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide.

A forklift manufacturer’s actions—geared towards forcing a dealer out of its role as an authorized dealer of the manufacturer’s forklifts—amounted to constructive termination without good cause, in violation of the New Jersey Franchise Practices Act (NJFPA), according to a New Jersey appellate court.

A trial court’s ruling and award of compensatory damages for lost profits in the amount of $679,414 were affirmed. An award of $3,533,642 in attorneys’ fees was also upheld, but an award of $477,611 in expert witness fees was reversed.

Effective Termination

The manufacturer argued that the NJFPA prohibited only actual terminations and, because the dealer was never terminated, there was no violation. However, the manufacturer’s conduct was geared to terminating the dealer as a franchisee, the court determined. That conduct included breaching the parties’ agreement by the appointment of a competing dealer in the dealer’s exclusive territory.

Indeed, a letter from one of the manufacturer’s officers to the dealer included the statements: (1) "it's my intent to ask our people to begin a search for another dealer to represent [the manufacturer’s] products in Northern New Jersey;" and (2) "I'm prepared to continue selling [the manufacturer’s] parts to [the dealer] for a year after any new [authorized] dealer is appointed," the court noted. Effectively, it was a termination letter, the court determined.

The record established that the manufacturer’s officers were well aware that the NJFPA prohibited them from terminating the dealer unless they could establish "good cause." The manufacturer's efforts to create the appearance of substantially deficient performance by the dealer, and its assertion that the dealer breached a best efforts provision in the parties' agreement failed, the court ruled. The manufacturer’s effort to force out the dealer was thwarted only by virtue of the dealer’s filing of the instant action.

Requirement of Good Cause

The NJFPA was remedial legislation designed to protect franchisees from the superior bargaining power of franchisors, the court reasoned. In the absence of a substantial failure of franchisee compliance, the statutory requirement of good cause prohibited a franchisor from terminating for other reasons, even if they reflected a sound and nondiscriminatory business strategy.

The legislature’s decision not to recognize a valid business reason as constituting "good cause" for termination in the NJFPA distinguished the Act from the less-protective franchise statutes in other states, the court remarked. Further, the manufacturer provided no persuasive authority to support its argument against liability for constructive termination.

The manufacturer’s assertion that the letter from its officer was merely a suggestion to the dealer to end its relationship with the manufacturer was an obvious revision of history and its claim that it did not constructively terminate the dealer was disingenuous, according to the court.

In addition to the letter, the manufacturer’s decision to stop providing annual business plans to the dealer was further evidence that it expected to abandon the dealer in favor of another dealer. The court rejected the manufacturer’s position that if the dealer wanted to claim damages under the NJFPA for termination, it was required to withdraw from the agreement and thus allow itself to be terminated. Such a requirement would fly in the face of the Act's purposes of leveling the playing field between the typically more powerful franchisor and less powerful franchisee, the court held.

Loss of Exclusivity

The dealer's loss of the exclusivity of its territory, in and of itself, could qualify as such a change in the agreement's terms that constituted constructive termination, the court held. In the instant case, the "change" that the manufacturer proposed for the dealer upon appointing a competing dealer to the dealer’s territory would have gone even further than a mere loss of exclusivity; instead of simply establishing the competing dealer as a second dealer in the franchise territory, the manufacturer would have eliminated the dealer as an authorized dealer by ending its ability to purchase new forklifts and parts.

The manufacturer’s conduct proved its intent for the cessation of exclusivity to undermine the dealer’s franchise, according to the court. It appointed the competing dealer and blanketed the dealer's territory with the message that the competing dealer was its favored dealer in the territory in all regards, without informing the complaining dealer. It also provided discounts, rebates, and other subsidies to the competing dealer that let it undercut the complaining dealer’s prices.

Attorney Fees, Expert Witness Fees

The trial court's awarding of $3,533,642 in attorney fees to the dealer under the NJFPA's attorney fee provision was not an abuse of discretion, the court held. The trial court found that the work, expenses, and fee requests were reasonably required to establish the dealer’s NJFPA claim and to refute the counterclaim that the manufacturer asserted.

The Act’s authorization of an award of “costs of the action" did not encompass the award of expert witness fees, the court decided. Thus, the trial court’s award of costs to the dealer was reduced from $724,817 to $247,206 to reflect the deletion of $477,611 that the trial court had awarded for expert witness fees.

The decision is Maintainco, Inc. v. Mitsubishi Caterpillar Forklift, CCH Business Franchise Guide ¶14,195.

Vehicle Retailer Held Liable Under Consumer Fraud Act for False Internet Ad

This posting was written by Jody Coultas, Editor of CCH State Unfair Trade Practices Law.

An out-of-state consumer was entitled to damages in a New Jersey Consumer Fraud Act (CFA) claim against an in-state seller of used vehicles that advertised over the Internet, according to the New Jersey Supreme Court. A lower court’s judgment and award of more than $25,000 in damages—plus attorneys’ fees and costs—was reinstated.

The consumer, living in Missouri, placed a bid for a used vehicle in an online auction run by the retailer, which was doing business in New Jersey. The online advertisement for the vehicle stated that the frame and convertible top were in good condition. The retailer spoke with the consumer on the telephone and stated that the car was in good enough condition to drive from New Jersey to Missouri.

After the consumer won the auction, the retailer informed the consumer that the car was probably not safe enough to drive across the country. The automatic headlights and windshield wipers did not work and the car lacked a spare tire. Nevertheless, the consumer paid for the car and had the retailer ship it to Missouri.

Once it arrived, the consumer had it inspected by a repair shop, which found that the frame was nearly rusted in half—thereby disqualifying it from registration in Missouri—and the top was in poor condition. The consumer filed a CFA claim in New Jersey against the retailer for losses sustained as a result of the allegedly false advertising.

"Dealer"

At trial, the retailer asserted that he did not misrepresent the condition of the car and that, in any event, he was not a “dealer” subject to the reach of the CFA. The trial court found that, contrary to the advertisement, the car did not have a solid frame, the engine did not “run strong,” the headlights and windshield wipers did not function, the car had been owned by more than one person, and the radio was not original equipment.

It further found that the retailer qualified as a “dealer” under the CFA and that the retailer had violated the CFA by clear and convincing evidence. The trial court awarded $25,953 in trebled damages, $29,950 in attorneys’ fees, and $6,544 in costs.

The state appellate court dismissed the CFA claim on the ground that the trial court should have entered judgment for the retailer at the close of the consumer’s case instead of deferring consideration and hearing the retailer’s evidence. It did, however, award the compensatory damages of $8,651 under a common law fraud claim.

"Textbook" Claim

On review, the New Jersey Supreme Court found that the seller pled and proved a “textbook” CFA claim. The CFA prohibits any person from committing any unconscionable commercial practice, deception, fraud, or misrepresentation of a material fact in connection with the sale or advertisement of any merchandise.

The definition of “person” was “sufficiently expansive to ensnare [the retailer].” He could not claim that he was exempt from coverage as a member of a regulated industry or learned profession.

An assertion that the retailer was not a “dealer” subject to the CFA was unavailing. It was “simply irrelevant” whether the retailer qualified as a “dealer” within the state lemon law, which expressly stated that it did not limit rights or remedies under any other law. Accordingly, the Supreme Court reinstated the trial court judgment in all respects.

The April 8 decision is Real v. Radir Wheels, Inc., CCH State Unfair Trade Practices ¶31,802.