On The Case

Detecting ‘pattern of abuse,’ Judge Alsup rejects privacy class action by repeat plaintiff

(Reuters) - There’s a decent argument to be made that experienced class representatives will do a better job than novices when it comes to protecting the interests of all of the absent plaintiffs whose rights are at stake in the case. Lead plaintiffs who have developed an understanding of the law and can anticipate defense arguments can be a boon to the class.

But not, according to U.S. District Judge William Alsup of San Francisco, if those lead plaintiffs have a history of filing class actions - and then settling cases individually.

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Last week, Judge Alsup denied a motion to certify a class alleging that the pillow company My Pillow violated the California Invasion of Privacy Act by failing to inform callers to its sales and customer service numbers that their calls were being recorded. My Pillow did not deny in its brief opposing class certification that during a stretch of several weeks beginning in December 2017, callers were not immediately informed that their phone conversations with company reps were being recorded. But the company’s newly-unsealed brief argued that the would-be lead plaintiff, Richard Wuest, could not represent the class.

Wuest, the brief disclosed, has filed 10 class actions alleging violations of the California privacy law, eight of them within the last two years. None of the cases have produced a classwide settlement, not even for injunctive relief. Instead, My Pillow said, Wuest’s cases have almost all concluded with payments to him and his counsel – more than $80,000 to Wuest and more than $420,000 to his lawyers at Keller Grover. According to My Pillow’s lawyers at Beshada Farnese, Wuest made more money as a CIPA plaintiff than he did in his fulltime job in insurance claims.

Wuest and his lawyers said he never filed any of the CIPA class actions with the intention of settling just individual claims. The previous cases hit snags “for a variety of reasons outside the control of (Wuest) and counsel,” Keller Grover said in its class certification motion. Some of the reasons, according to Wuest’s declaration: arbitration clauses barring classwide claims, cash-strapped defendants that couldn’t afford a class settlement and CIPA violations too isolated to merit class treatment. “In all of these cases,” Wuest said, “my attorney explained why a class case could not go forward before I agree to settle on an individual basis.”

Keller Grover name partner Eric Grover said in his declaration that he has litigated and settled many other telephone privacy cases as class actions, reaching settlements totaling “tens of millions of dollars” on behalf of more than a million class members. “Individual settlements are not preferred,” he said in the declaration. “They are the exception, not the rule.”

In an email to me, Grover elaborated: “Anytime a case settles on less than a class-wide basis it is a disappointment,” the email said. “We are not in the business of filing and settling cases on an individual basis....However, counsel has an obligation not to pursue cases that are not suitable for class action status. Each case needs to be looked at on its individual merits. In Mr. Wuest’s prior cases, when it became clear that a case was not going to work as a class action, the parties reached a mutual acceptable resolution.”

Judge Alsup was not mollified by the explanations from Wuest and Grover. Alsup, as you probably recall, is quite a stickler when it comes to policing the interests of absent class members. His policy of barring lead plaintiffs from entering settlement negotiations with defendants before class certification is the subject of an ongoing mandamus proceeding at the 9th U.S. Circuit Court of Appeals, which is evaluating whether Judge Alsup’s concern for absent class members impinges on defendants’ free speech rights. And a few years ago, as My Pillow noted in its brief opposing class certification, Judge Alsup refused in Backus v. Conagra Foods to certify a false advertising class because the case would have been bogged down in attacks on the credibility of the lead plaintiff, who had previously filed several similar cases.

In the My Pillow case, Judge Alsup sensed an outright abuse of class action leverage. “Wuest used the threat of a class action to extract a premium deal far in excess of the value of his individual case,” the judge wrote. “The pattern is quite clear. The premium was something rightfully due to the ‘class’ but no absent putative class member ever got anything. Wuest and his counsel got it all.”

The judge said that Wuest could not be entrusted to protect the class because he was “liable to abuse the class action device again.”

Grover said in his email that he and Wuest were disappointed in Judge Alsup’s ruling. Their litigation of the My Pillow case through class certification, he said, showed Wuest was acting in the interests of the class.

If you pay attention to class actions, you know that frequent filers – often referred to derisively as professional plaintiffs – turn up in all sorts of cases. At one end of the spectrum are big institutional investors in securities class actions. They’re supposed to be restricted by statute from serving as lead plaintiff in more than a handful of cases at a time, but over the years, some fund officials have run into accusations of filing lead plaintiff motions to appease plaintiffs’ lawyers who are campaign contributors.

Repeat plaintiffs often appear in class actions alleging violations of the Americans with Disabilities Act, portraying themselves as civil rights “testers.” The Telephone Consumer Protection Act actually spawned a cottage industry of enterprising consumers who amassed cellphones for the purpose of fielding robocalls and filing TCPA cases. And, of course, you’re probably familiar with the phenomenon of small shareholders who routinely turn up as plaintiffs in M&A class actions.

Judge Alsup seems to me to have highlighted the key question judges should ask about repeat plaintiffs: Are they using class actions to obtain benefits for everyone in the class, or just for themselves? Plaintiffs who regularly file class actions and then drop the cases when they or their lawyers receive an individual payment are misusing the process – and judges should call out such abuse when they see it.

This story has been updated to include comments from Wuest counsel Eric Grover.