On The Case

37 state AGs accuse CenturyLink of ‘weaponizing’ class settlement to evade AG suit

(Reuters) - In these hyper-partisan times, any newly-filed brief that includes signatures from the Attorneys General of 36 states and the District of Columbia is worthy of attention – especially when the AGs have joined forces to argue that a defendant is attempting to evade a state enforcement action by settling a private class action on the cheap.

In a way, the brief marks the latest flareup in the episodic but occasionally intense conflict between state AGs and private class action lawyers. As you know, AGs frequently form mutually beneficial alliances with plaintiffs lawyers. The most obvious recent example is the opioids litigation, in which many (but not all) states have hired outside lawyers to help prosecute their states’ claims against pharma defendants. As in the tobacco litigation of the 1990s, states using private counsel in the opioids litigation have calculated that the best use of their resources is to allow private lawyers working on contingency to sue opioid defendants on the states’ behalf.

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From time to time, however, the symbiotic relationship between AGs and private lawyers is disrupted, typically by a defendant that has managed to turn what should be a big problem – dual claims in both AG enforcement actions and private class actions – into a solution. You may recall, for instance, prominent antitrust class action lawyers loudly protesting in 2011, when Bank of America abruptly reached a $67 million settlement with 28 state AGs to resolve claims of bid rigging in the marketing and sale of municipal bond derivatives. Private lawyers who’d been litigating a years-long multidistrict litigation involving the same allegations accused the AGs of settling the private case out from under them.

Similar accusations have run the other way, too. When onetime AIG CEO reached a $115 million settlement of shareholders’ securities class action claims in 2013, the New York State AG tried to block the deal, arguing that the private settlement was an attempt to undermine his parallel fraud suit against Greenberg. The settlement was nonetheless approved.

Those are just two examples – and there are many, many more provided by the 37 AGs who signed the brief I mentioned above. It’s an amicus filing in private multidistrict litigation against the telecom CenturyLink, which has reached a preliminary agreement to pay $15.5 million to resolve class action claims by 17 million consumers across the nation. The class action alleges that CenturyLink deceived customers about the rates it ultimately charged. CenturyLink, represented by Cooley, denied that it engaged in a scheme to defraud prospective customers (and moreover moved to compel arbitration of their claims) but said it was settling because it “would take considerable time and significant resources for CenturyLink to ultimately prevail.”

The state of Minnesota believes that’s not CenturyLink’s only motive for settling the private class action. Minnesota began investigating the telecom’s sales practices in 2015 and brought an enforcement action in state court in 2017. In the AG’s view, plaintiffs lawyers piggybacked on the state’s case when they subsequently began filing the suits that were eventually consolidated in the CenturyLink MDL in federal court in Minneapolis before U.S. District Judge Michael Davis. The Minnesota AG, meanwhile, has been in hot pursuit of his claims in Minnesota state court on behalf of 300,000 Minnesota residents. The judge in that case heard summary judgment arguments earlier this month in which the state AG has asked for $75 million in civil penalties.

CenturyLink has made no secret of its strategy to undercut the AG’s case with its class action settlement. Even before the company and class counsel from Zimmerman Reed finalized the details of the settlement, CenturyLink filed a motion for a preliminary injunction, asking Judge Davis to bar the Minnesota AG from pursuing restitution on behalf of Minnesota residents. According to the company, the injunction was necessary to protect the federal court’s jurisdiction over the MDL and to ensure the viability of the classwide settlement.

Minnesota filed its brief opposing the preliminary injunction motion last week. It argues that CenturyLink is improperly attempting to use a private settlement to interfere with the state’s sovereign interest in enforcing its laws. Specifically, the state contends that the Anti-Injunction Act prohibits Judge Davis from granting CenturyLink the injunction is wants. The only applicable exception to the AIA’s prohibition on federal court injunctions against state court litigation, Minnesota said, is for injunctions necessary to preserve the jurisdiction of the federal court. But Minnesota argued that its enforcement action presents no threat to Judge Davis’ jurisdiction because the state AG’s “claim for public restitution is wholly distinct from, and does not interfere with, the private class settlement for compensatory damages.”

The amicus brief by nearly 40 of the nation’s AGs underscores that point. Companies like CenturyLink, the AGs said, cannot be allowed to “weaponize” private class actions to squelch enforcement litigation by state sovereigns. If CenturyLink gets away with enjoining the Minnesota AG’s restitution claim, the AGs said, defendants will take away a message that they can “exploit ‘reverse auctions,’” entering into “collusive” private settlements to evade more rigorous enforcement by AGs.

“This would strip attorneys general of their ability to secure better recoveries—leading to windfalls for wrongdoers and ensuring that the victims of their misconduct are never made whole,” the AGs’ amicus brief said. “Outcomes of this kind run counter to equity and should not be incentivized.”

CenturyLink counsel Douglas Lobel of Cooley did not respond to an email requesting comment on the amicus filing. Nor did class counsel Brian Gudmundson of Zimmerman Reed.

Both sides cited precedent that seems to back their arguments on whether federal courts can enjoin AG actions to preserve their jurisdiction over sweeping settlements. CenturyLink relies on a 1985 ruling by the 2nd U.S. Circuit Court of Appeals in In re Baldwin-United Corp., in which the appeals court granted an injunction to bar 31 states from bringing actions that might affect the rights of class members in an MDL against brokers who sold securities in the bankrupt company; and on a 2014 decision from the 9th Circuit in California v. IntelliGender, which blocked the California AG from litigating consumer fraud claims against a company that had already settled a private class action asserting the same claims.

Minnesota and the other AGs said Baldwin has been undercut by subsequent 2nd Circuit rulings and IntelliGender is inapplicable because, among other things, it was based on a different exception to the Anti-Injunction Act. They pointed to the 3rd Circuit’s 2017 ruling in In re Flonase, which presented facts similar to those in the CenturyLink case. The 3rd Circuit affirmed a ruling that under the Eleventh Amendment, GlaxoSmithKline was not entitled to enjoin Louisiana from bringing state-law antitrust claims over the allergy medication even though the company had already settled a class action asserting the same theories. In fact, the AGs argued, Judge Davis hardly has to look beyond the U.S. Supreme Court’s bedrock precedent on federal abstention, 1971’s Younger v. Harris, to foreclose consideration of the injunction CenturyLink is seeking.

Judge Davis has scheduled a Dec. 11 hearing on CenturyLink’s injunction motion.