Recent Blog Posts

A Concepcion Work-Around?

Mason LLP — Wed, 21 Sep 2011 12:11:00 GMT

In Kolev v. Euromotors West, No. 09-55963 (9 ^th Cir., Sept. 20, 2011), the Ninth Circuit Court of Appeals has seemingly found an important exception to Concepcion. Kolev arises from a claim an owner of a Porsche brought against her dealer and others after it developed serious mechanical problems during the warranty period and the dealer refused to honor the warranty. The plaintiff, Kolev, alleged breach of implied and express warranties under the Magnuson-Moss Warranty Act ("MMWA").

The district court granted the dealer's petition to compel mandatory arbitration provision pursuant to the mandatory arbitration provision in the sales contract. On appeal, Kolev argued that the MMWA bars the provision mandating arbitration. Plaintiff pointed out that the FTC had construed the MMWA as barring pre-dispute mandatory binding arbitration provisions covering written warranty agreements and issued a rule prohibiting judicial enforcement of such provisions with respect to consumer claims brought under the MMWA. See 16 C.F.R Sec. 703.5; 40 Fed. Reg. 60167, 60210 (Dec. 31, 1975).

The Ninth Circuit held that the FTC's interpretation of the MMWA demanded due deference. More significantly, it rejected the argument that the FTC's construction is unreasonable in light of the Supreme Court's strict enforcement of the Federal Arbitration ("FAA"). Disagreeing with the conclusions reached by the Fifth and Eleventh Circuit, the Ninth Circuit found that the FAA's pro-arbitration presumption does not render unreasonable the FTC's interpretation of the MMWA as barring pre-dispute mandatory arbitration.

In light of Kolev, practitioners prosecuting claims under warranties with mandatory arbitration provisions should also add a count for violation of the MMWA.

Use Caution: Cy Pres Settlements

Mason LLP — Thu, 08 Sep 2011 12:45:00 GMT

While we generally believe that in appropriate circumstances a settlement which provides only cy pres relief can be approved as fair, reasonable and adequate, there is no doubt that this mechanism is subject to abuse and can be used as tool to settle a case to the advantage of no one but the plaintiffs' attorneys. Thus, the Ninth Circuit's opinion in In re Bluetooth Products Liability Litigation, No, 09-56683 (9 ^th Cir. Aug. 19, 2011) comes as no surprise.

In Bluetooth, the Court rejected a settlement which provided the class $100,000 in cy pres awards, zero dollars for economic injury, and $800,000 for class counsel. The immediate signal of a problem, of course, is the disparity between the cy pres award and the attorneys' fees, or, in the words of the Court, the "gross disproportion." Faced with this marker of possible unfairness, it was the duty of the trial court to conduct a "searching inquiry" into the fairness of the allocation of the total amount paid out by the defendant. The Court of Appeals found that the analysis performed by the lower court was inadequate and vacated the final approval order.

The Court of Appeals expressed its concern that the fee award was 83.2% of the total amount the defendants spent to settle the case. In the absence of any explanation from the lower court as to why the disproportion was reasonable, the Court of Appeals held that it had no choice but to remand to the trial court to permit it to provide the necessary explanation.

For similar reasons, the Court of Appeals vacated both the opinion awarding fees and the opinion approving the settlement. The Court of Appeals again found that the trial court did not adequately examine the fee provision in the context of the settlement as a whole.

While the opinion in Bluetooth is directed at the failings of the trial court, it is the plaintiffs' lawyers who are responsible for the settlement and its coming apart. Any settlement which provides more relief to the attorneys than the class as a whole is sure to raise both eyebrows and objections. If Class Counsel enter into such a settlement it must be for very good reasons, reasons which make sense not only from the perspective of the attorneys but from the perspective of the class they purport to represent as well. Most importantly, Class Counsel must clearly express those reasons to the trial court and make sure that the Court understands its obligation to enter a detailed written opinion along with the Final Order.

Managing the "Unmanifested Defect" Class Action

Gary E. Mason — Sun, 14 Aug 2011 12:53:00 GMT

Product liability class actions involving "uninjured" plaintiffs are hardly a judicial novelty. District courts are well-able to manage and dismiss cases where the "uninjured" named plaintiff truly cannot state a claim upon which relief can be granted.

Yet from time to time, courts have found that the named plaintiffs have stated cognizable claims and certified class actions which include both persons whose products have failed or those whose products have yet to, despite the defendants' attempts to label the later class members as "uninjured." As a general proposition, courts have found that a consumer products liability classes are suitable for certification even if it they include "uninjured" class members if the underlying claims can be proven by class-wide evidence of a common defect.

Thus, in Daffin v. Ford Motor Company, 458 F.3d 549 (9 ^th Cir. 2006), the Sixth Circuit Court of Appeals, affirmed the district court order certifying the class and its rejection of Ford's argument that the class representative was not typical of the rest of the class since she experienced accelerator sticking while many owners had not. The court concluded that the common issue of whether a common defect exists predominated over individual issues, 458 F.3d at 550, and that the district court properly found that the question of whether other owners had a warranty claim was a merits issue and not a factor relevant to class certification. 458 F.3d at 554.

The Ninth Circuit in Wolin v. Jaguar Land Rover North America, 617 F.3d 1168 (9 ^th Cir. 2010), actually found that the district court abused its discretion by not certifying a class and committed error when it concluded that certification was inappropriate because the defect did not manifest in a majority of the class's vehicles. The Court of Appeals noted that the named plaintiffs had stated claims for violation of consumer protection laws and that proof of the existence of a defect was a common issue suitable for class treatment. 617 F.3d at 1173. Proof of defect may well be necessary to prevail on the merits, but "manifestation of a defect is not a prerequisite to class certification." Id. (citing Blackie v. Barrack, 524 F.2d 891, 901 (9 ^th Cir. 1975)).

The Seventh Circuit also recently affirmed a district court's decision certifying a products liability class action in Pella Corp. v. Satlzman, 606 F.3d 391 (7 ^th Cir. 2010). There, the lower court certified a Rule 23(b)(2) class of persons who own structures with Pella ProLine aluminum -clad casement windows whose windows have not manifested the alleged defect. Consistent with both Daffin and Wolin¸ the court in Pella found that the issue of the existence of a product defect ("inherent design flaw") was a common issue suitable for class certification. 606 F.3d at 395.

The Sixth Circuit's opinion in Zurn is merely a continuation of this line of cases, and not the harbinger of a overwhelming flood of products liability class actions that PLAC claims it is. The theory "endorsed' by the Panel, that owners of structures with Zurn Pex plumbing systems may recover for breach of warranty , even if they have never experienced any problems, if they succeeded in proving their claims of a common defect, is hardly novel, as Daffin, Wolin and Pella make clear . More to the point, since the existence of a common defect requires common evidence, the issue is suitable for class certification. As these class certifications uniformly make clear, the question of whether proof of a common defect will be enough to prevail on the merits, is, naturally, a merits question, and not relevant to the determination of class certification. See Daffin, 458 F.3d at 554 ("whether Ford's express warranty promises to cover the alleged defect in the throttle body assembly even if no sticking occurs during the warranty period ...is an issue that can be decided on the merits... [W]hether the class members can win on the merits of the issue common to the class is not a factor..."); Wolin, 617 F.3d at 1173 (Land Rover's argument that class member's vehicles do not suffer from a common defect is a merits argument which "does not overlap with the predominance test.").

Products liability class actions present challenges, but there are circumstances, such as those presented in Daffin, Wallin, Pella and now Zurn, where certification is appropriate since the common issue of whether a "universal" defect exists predominates. Product liability classes which include product owners who allege a common defect that has not yet caused product failure have been certified and affirmed on appeal (and not certified and reversed on appeal). There is scant evidence that the federal courts have been overwhelmed by this type of class action.

House Committee Considers Revising the FLSA

Sonya Passi — Fri, 22 Jul 2011 13:33:00 GMT

On July 14, 2011, the House of Representatives Subcommittee on Workforce Protections held a hearing on the Fair Labor Standards Act (FLSA), to consider whether the Act is meeting the needs of the 21st Century workplace. The Fair Labor Standards Act, enacted in 1938, established a national minimum wage, guaranteed "time-and-a-half" overtime payment for certain jobs, and prohibited the employment of minors in "oppressive child labor."

Rep. Tim Walberg (R-MI), the Chairman of the Subcommittee, explained that the hearing was a manifestation of Republican concerns that the FLSA is outdated and ill-suited to meet the needs of today's economy. Three witnesses were invited to testify in favor of reforming the FLSA: J. Randall MacDonald, Senior Vice President of Human Resources at IBM, Richard Alfred, Chair of Seyfarth Shaw LLP's national Wage and Hour Litigation Practice Group, and Nobumichi Hara, Senior Vice President of Human Capital at Goodwill Industries.

All three witnesses testified that the FLSA hinders both job flexibility and new job opportunities. They argued that since several terms in the Act are left undefined, employers are forced to be cautious, to the detriment of their employees. They also spoke of an explosion of litigation in recent years as a result of such ambiguities in the Act. However, only Mr. MacDonald provided any suggestions for reform, which included modernizing the computer employee exception to include a broader range of 21st century computer-related duties, clarifying the "de minimis" exception to paid time, and expanding the exemption for well-compensated, commissioned inside salespeople.

Judy Conti, Federal Advocacy Coordinator for the National Employment Law Project, testified in favor of preserving the FLSA. She explained that although the nature of work has changed since the FLSA was enacted, people's fundamental right to a fair day's pay for a fair day's work remains unchanged. She insisted that the FLSA allows employers to accommodate flexible work schedules should they wish to, and that employers, and not the Act, are the root of the problem. Finally, she pushed for more vigorous enforcement of the Act.

Subcommittee Member Rep. Hirono (D-HI) was unconvinced that reforming the FLSA would improve economic growth and increase employment rates, predicting that instead, reforms would simply exempt more employees from protection under the Act, and thus allow employers to avoid paying for overtime work. In addition, she expressed her disappointment that a plaintiffs' lawyer was not invited to testify, in order to balance the opinions of defense lawyer, Richard Alfred.

This is likely the first of several discussions by the Subcommittee regarding this issue.

Are "Trainees" Employees?

Sonya Passi — Fri, 22 Jul 2011 13:30:00 GMT

We are paying close attention to employers who skirt the FLSA by failing to pay so-called "trainees" overtime. The Fair Labor Standards Act (FLSA) defines an "employee" as "any individual employed by an employer." To "employ" is defined as including "to suffer or permit to work." These definitions are intentionally broad in order to provide expansive protection under the FLSA.
In keeping with the FLSA's far-reaching intentions, the Department of Labor's Wage and Hour Division has promulgated a six-part test to determine whether trainees are in fact employees under the Act. Unless all six factors apply, a trainee is an employee under the FLSA. The six enumerated factors to be considered are:

"the training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school;
the training is for the benefit of the trainees;
the trainees do not displace regular employees, but work under close observation;
the employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion his operations may actually be impeded;
the trainees are not necessarily entitled to a job at the completion of the training period; and
the employer and the trainees understand that the trainees are not entitled to wages for the time spent in training."

See Employment Relationship Under the Fair Labor Standards Act, WH Pub. 1297 (Rev. May 1980), available at http://www.osha.gov/pls/epub/wageindex.download?p_file-=F11973/WH1297.pdf.

The Supreme Court has said that rulings, interpretations, and opinions of the Wage and Hour Division "constitute a body of experience and informed judgment." Similarly, the Ninth Circuit has said that the Wage and Hour Division's "interpretations . . . are entitled to great deference."

Nevertheless, while some circuit courts that have addressed the issue of when a trainee is an employee under the FLSA have applied the Wage and Hour Division's all-or-nothing test (5^th and 8 ^th Circuit) others have applied a balancing test to determine who primarily benefits from the training ( 4th, 6th, and 10th Circuits).

Seven circuits are yet to decide which test to apply, but to move too far away from the Wage and Hour Division's all-or-nothing test would be to turn our backs on the legislature's intent that the FLSA provide far-reaching protection to workers.

Eighth Circuit Favors Consumers in Zurn Opinion

Gary E. Mason — Fri, 08 Jul 2011 18:41:00 GMT

In an huge win for consumers, the United States Court of Appeals for the Eighth recently affirmed the district court's order granting class certification in In re Zurn Pex Plumbing Liability Litigation, No. 10-2267 (8 ^th Cir.). Writing for the majority, Circuit Judges Wollman and Murphy ruled on three critical aspects of the lower court's opinion.

The first issue involved the lower court's decision not to conduct a full Daubert analysis, i.e., one which would closely examine the ultimate merits of the experts' opinions. The Court held that the district court did not err by "conducting a focused Daubert analysis which scrutinized the reliability of the expert testimony in light of the criteria for class certification and the current state of the evidence." Importantly, the Court that a more conclusive Daubert analysis was not possible since discovery had ben bifurcated - at the defendant's request.

The second issue involved the standing of class members who had not yet suffered a leaky fitting to bring warranty claims. The Court held that the warranty class had standing to bring its claims since the class claim was that all of the plaintiffs' brass fittings exhibited a defect (stress corrosion cracking), the claims of even those persons who had yet to suffer a leak were cognizable, and they could seek damages if they prove a universal inherent defect.

Finally, the Court found that the lower court did not abuse its discretion in finding that class issues predominated over individual issues, holding "the evidence of a universal defect raises a critical question common to all members of the classes certified by the district court."

Unfortunately, this well-reasoned opinion comes over the strong dissent of Judge Gruender. Judge Gruender first disagrees with the majority's position on standing. As Gruender would have it, the plaintiffs without leaks lack standing since they have not suffered actual injury. "[S]imply owning a product with an alleged defect does not give rise to a warranty claim until that defect causes the product to perform unsatisfactorily."

Further, with respect to negligence, Gruender argues that individual issues predominate since each plaintiff will need to prove that his property damage was caused by an inherent defect, and not corrosive water conditions, improper installation or other factors.

Lastly, Judge Gruender expressed his belief that district court must conduct a full Daubert analysis before certifying a class.

Giving the importance of the issues at stake, and the thorough dissent, Zurn is certain to petition for review en banc as well as appeal to the U.S. Supreme Court. Fortunately, the odds of success for either of these strategies are extremely low.

One Stroke To Commonality

Gary E. Mason — Tue, 21 Jun 2011 20:41:00 GMT

In Wal-Mart Stores, Inc. v Dukes et al, 564 U.S. ___ (2011) (Scalia, J.), the Supreme Court offered this definition of commonality - a common contention "must be of such a nature that is capable of classwide resolution - which means that determination of its truth or falsity will resolve an issues that is central to the validity of each one of the claims in one stroke." The Court went on to provide this quote from an article authored by Professor Nagareda:

"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 answers apt to drive the resolution of the litigation."

Nagareda, Class Certification in the Age of Aggregate Proof, 84 N.Y.U. L. Rev. 97, 32 (2009).

There is nothing novel about this definition, as two recent opinions illustrate. Both Fitzpatrick, et al v. General Mills, 635 F.3d 1279 (11 ^tt Cir. 2011) and Johnson, et al v. General Mills, 2011 U.S. Dist. LEXIS 45120 (C.D. Cal., Apr. 20, 2011), allege that the digestive health benefits of YoPlus. Class certification was granted in both cases upon findings that the truth or falsity of the claim for health benefits was a common issue. "[A]n answer to the paramount question of whether YoPlus works as advertised will directly and substantially impact every class member's liability case and entitlement to relief under [the Florida Deceptive and Unfair trade Practices Act]." Fitzpatrick, 635 F.3d at 1282. Likewise, the court in Johnson held that the central issue of the suit was the allegedly "material misrepresentation that Obelus promotes digestive health in a way ordinary yogurt does not." As the court further observed General Mills "could defeat the claims of the entire class by proving that YoPlus promoted digestive health in a manner that General Mills allegedly represented, " that is the issue could be resolved precisely as Justice Scalia said, "in one stroke."

The "one stroke" test is likely to become the new shorthand for the commonality requirement. We will certainly look hard at our potential cases to be certain the test can be met.

No Consideration, No Settlement?

Gary E. Mason — Sun, 12 Jun 2011 09:55:00 GMT

Numerous courts have wrestled with the propriety of "unmanifested defect" class actions, generally finding that no cause of action exists for a plaintiff who has not yet been injured. But what about settlements for allegedly injured plaintiffs that provides them with no direct benefit? Will they stand up to judicial scrutiny?

In related cases brought against Unilever, Red v Unilever, No. 5:10-cv-00387 (N.D. Cal.) and Rosen v. Unilver, No. 5:09-cv-02563 (N.D. Cal.) , Chief Judge James Ware initially declined to preliminary approve the proposed settlement. Here, the plaintiffs claimed that they paid more than they should have for margarine advertised as good for cardiovascular health which actually contained dangerously high levels of trans fats. Pursuant to the settlement, Unilever agreed to eliminate trans fat from its margarine spreads. However, the settlement did not provide any compensation to the members of the class.

The parties to the settlement initially sought certification for settlement purposes under Rule 23(b)(2). This rule allows for certification of classes seeking primarily injunctive relief and normally does not provide the opportunity to opt out of the class. At the first preliminary approval hearing, Judge Ware expressed concern that the class members were asked to waive damage claims, were denied the opportunity to opt out, and received no monetary relief.

After further negotiations, which improved the settlement by setting a firm date by which tans fats would be eliminated in margarine sticks, and allowed for class members to opt-out of the settlement, the parties again moved for preliminary approval. This time, Judge Ware granted the motion.

The plaintiffs' motion for final approval is now pending. Only four class members opted-out of the settlement and there are no objections. We hope to soon report on Judge Ware's final approval in this case.

Certification by Subclass

Gary E. Mason — Thu, 02 Jun 2011 08:49:00 GMT

A long running debate under Rule 23 surrounds the use of Rule 23(c)(4). The Fifth Circuit, starting with Castano, years ago found that issues could not be certified unless the causes of actions to which they relate as a whole met the requirements for Rule 23(b)(3) certification. Critics argued that the Fifth Circuit's approach made Rule 23(c)(4) superfluous and was not the interpretation meant by Congress.

Years later, issue certification continues to play an uncertain role in the Rule 23 practitioners' tool chest. On the one hand, some courts remain willing to certify narrow issues. In Kingsbery v. U.S. Greenfiber, LLC (S.D. Cal., May 23, 2011), for example, the Court certified a narrow class of original purchasers of homes from defendant Pulte with respect to non-disclosure claims only. No other claims set forth in the complaint were certified.

At the same time, in another recent opinion, the Sixth Circuit acknowledged that it has not come to terms with issue certification:

"Additionally, Fidelity argues that subclassing and bifurcation cannot be used to overcome a lack of predominance. Some other circuits have adopted this view and held that creative subclassing and bifurcation procedures cannot be used to remedy a lack of predominance. See, e.g., Sacred Heart Health Sys., Inc. v. Humana Military Healthcare Servs., Inc., 601 F.3d 1159, 1176 (11th Cir. 2010); Castano v. Am. Tobacco Co., 84 F.3d 734, 745 & n.20 (5th Cir. 1996); see also Gunnells v. Healthplan Servs., Inc., 348 F.3d 417, 446-47 (4th Cir. 2003) (Niemeyer, J., concurring in part and dissenting in part). However, other circuits see no such barrier and allow subclassing as long as common issues predominate over the subclasses. See, e.g., In re Nassau Cnty. Strip Search Cases, 461 F.3d 219, 226 (2d Cir. 2006); Gunnells, 348 F.3d at 439 ; Valentino v. Carter-Wallace, Inc., 97 F.3d 1227, 1234 (9th Cir. 1996). The Sixth Circuit has not yet weighed in on this issue and we do not at this time . . ."

Randleman et al. v. Fidelity Nat'l Title Ins. Co, et al., Nos. 09-4533 (6 ^th Cir., May 24, 2011).

We think the better view, and the one which best gives meaning to the Rule, is that Rule 23(c)(4) allows core issues in a case to be certified, even where ancillary individual issues will remain once the core issue is resolved.

No Injury, No Settlement?

Gary E. Mason — Fri, 27 May 2011 13:12:00 GMT

Courts rarely deny motions for preliminary approval of a settlement. Yet Judge Koh of the Northern District of California recently did so in Standiford v. Palm, Inc., No. 09-CV-05719-LHK, a case arising from allegations that Palm was liable for the loss of data on its customers phones. Here's what happened.

Less than a year after filing the complaint, and before any discovery had taken place, the parties in Standiford reached a settlement providing coupons for either $30 or $20 to persons who permanently or temporarily lost data and an official assurance that the problem had been resolved for everyone else. Several million people stored data on palm's serves but only 5-10,000 persons (or 5% of the settlement class) allegedly lost date.

Judge Koh was evidently uncomfortable with the fact that the great majority of the class would be giving up all their claims against Sprint for virtually no consideration. Moreover, this subclass of persons who had not been injured, she held, were not adequately represented by a person who actually suffered injury and had entirely different claims than those who had not suffered any injury.

Judge Koh's analysis is not without precedent. Several years ago, in as oft-cited, Judge Posner reversed an order approving a settlement where a sub-class of the Settlement Class received no compensation based on the assumption that those class members did not suffer any damages. Mirfasihi v. Fleet Mort. Corp, 356 F.3d 781 (7th Cir. 2004). Judge Posner found that the district court failed to estimate the value of claims of the sub-class. Further, Posner highlighted that the fact that the no-damage sub-class did not have separate counsel was further reason to subject the settlement to heightened scrutiny.

The lesson from Standiford, like Mirfasihi before it, may well be that a Class Representative with damages should not leverage his own claims, and that of the persons similarly situated, by throwing the claims of others whose claims are weaker (or non-existent) under the bus. Judge Koh indicated that she would approve a settlement of a much more limited class , one limited to individuals who actually lost access to data stored on their Palm phone, that is, the persons most like Mr. Standiford and represented by counsel.

The Pollution Exclusion: Is the Crack in Drywall Widening?

Gary E. Mason — Sun, 22 May 2011 21:58:00 GMT

Last week's opinion in Auto Owner's relied in part on an unpublished opinion from late last year - Scottsdale Ins. Co. v American Safety Indem. Co., No. 1:10-cv-00445-WS-N (S.D. Ala.., Nov. 10, 2010). Scottsdale, like Auto-Owners, held that the Pollution Exclusion did not apply because the pollution release did not occur while the contractors were performing operations. The main difference between the two cases appears to be that Scottsdale arose from a coverage dispute between a builder and its a carrier while Auto-Owners involved a coverage dispute between a builder and the carrier for its subcontractor, for which policy the builder was listed as an additional insured. This important case, which together with Auto-Owners, may well signal the eventual demise of the pollution exclusion in the CDW litigation, can no longer be overlooked.

Both Auto-Owners and Scottsdale implicate identical provisions which the courts find did not work to exclude coverage for the same reason - the release of pollutants did not occur (in whole or in part) during the time in which the insured was "performing operations." As the Court stated in Scottsdale:

A reasonable interpretation of the plain words found in subsection f.(1)(d)(i) is that the release of pollutants and the insured's performance of operations must occur contemporaneously for the Pollution Exclusion to apply. After all, the Pollution Exclusion is not worded to bar coverage for losses from pollutant releases at locations where the insured or its contractors "are performing or have previously performed operations," but instead only excludes losses from pollutant releases at locations where the insured or its contractors "are performing operations." That distinction may be critically important here. The Underlying Actions appear to relate, at least in part, to pollutant discharge from Chinese drywall occurring long after Mitchell's operations at the construction site subsided.

Could this be a harbinger of the day when insurance carrier's will start indemnifying builders and suppliers of CDW for the claims of homeowners? We think so.

The Pollution Exclusion: A Crack Appears in the Chinese Drywall Litigation

Gary E. Mason — Thu, 19 May 2011 23:48:00 GMT

In a case which may set a important precedent for the entire Chinese Dry Wall product  liability litigation, a federal judge in Florida this week held that the insurance carrier for the supplier of CDW to a homebuilder had both a duty to defend and to indemnify the supplier for claims made by the builder.

The case, Auto-Owners Insurance Company v. American Building Materials, Inc., KB Home Tampa, LLC and KB Home, Inc., No, 8:10-cv-313-T-24-AEP (M.D. Fl.), arose from a dispute between Auto-Owners, the insurance carrier, American Building Materials, a supplier of CDW, and KB Home, the builder which purchased CDW from ABM. Auto-Owners brought suit seeking a declaration that it owes no duty to defend or indemnify ABM in a related lawsuit brought by a homeowner whose home was built by KB Home with CDW supplied by ABM.

The court found that there is coverage under ABM's insurance policy for the claims asserted in the underlying lawsuit and none of the exclusions to coverage asserted by Auto-Owners applied.

The court first found that the policy's pollution exclusion did not bar coverage. "For the exclusion to apply, the alleged “pollutants” at issue in the underlying lawsuit must be “[a]t or from any site or location on which you or any contractors or subcontractors working directly or indirectly on any insured’s behalf are performing operations . . . .” the court found that the property damage arose from completed installation of drywall and did not arise while ABM was performing operations.

Next the court found that the exclusion for clean up and removal efforts did not apply because the underlying lawsuit did not demand for this kind of relief.

The court also rejected the argument that the exclusion for recall costs was applicable, since CDW has not actually been recalled from the market.

Finally, the court held that the "your products" exclusion did not bar coverage. The ABM drywall was no longer a good or product once it was installed. At that point, it became "real property" and was not within the policy's definition of 'your product."

Critically, because KB Home was listed as an additional insured in the Auto-Owners's policy, Auto-Owners duty to defend and indemnify extend to KB Home. To the extent other builders were equally insistent with their subcontractors and are also identified as additional insured in their policies, this might mean the availability of a significant source of funding to resolve CDW case brought by homeowners against builder.

Insurance company participation is critical for the ultimate resolution of the CDW crises. Auto-Owners brings home that the time is coming when the insurance carriers for the thousands of defendants in this litigation will finally start to provide relief to homeowners.

Anti-Piracy or Anti-Consumer?

Gary E. Mason — Wed, 18 May 2011 14:00:00 GMT

The door to the courthouse for consumers may have been closed by the Supreme Court's opinion in Concepcion, but the key is still under the mat for corporations looking to sue consumers en mass.

In a burst of creativity that rivals anything the plaintiffs' bar has ever seen, the DC law firm of Dunlap Grubb & Weaver has come up with a strategy to sue thousands of consumers at once and force them to cough up thousands of dollars to shake themselves lose of the case and the threats of judgments in the tens of thousand of dollars.

The scheme works something like this. First, the lawyers at DGW file a copyright on their clients' previously unprotected films. Next, a complaint is filed naming thousands of unidentified John Doe defendants who unwittingly watched the films after the copyright date. Now comes the clever part. A "mass subpoena" is served on various ISPs, requiring them to produce the names of the persons who downloaded their client's movies, otherwise identifiable only by an IP address. Finally, actual names and addresses in hands, DGW sends out letters demanding payment of thousands of dollars to settle the case, or face significant financial consequences.

And did we mention that DGW's clients seem largely to be pornographers and the films such titles as Cougar Creampies?

Sadly, despite the best efforts of The Electronic Frontier Foundation, Public Citizen, the ACLU and the the American Civil Liberties Union to quash these mass subpoenas, Judge Rosemary Collyer of the D.C. District Court allowed these cases to proceed.

Do these actions abuse the legal process? Should the consumer-defendants fight back en mass with a class action? We think so and applaud the lawyers of Booth Sweet LLP who have already brought the first class action against DWG.

The New York Times Criticizes Concepcion

Gary E. Mason — Mon, 16 May 2011 00:13:00 GMT

In an editorial published on May 13, 2011, the New York Times took aim at AT&T Mobility v Concepcion and recognized it for what it is: "a devastating blow to consumer rights" and "a major setback [ ] for individuals who may not have the resource to challenge the big companies in court or through arbitration."

As the editors correctly point out, Concepcion provides corporations with a model of how they too can use arbitration agreements to avoid class actions.

The editors shine a ray of hope on the Arbitration Fairness Act, recently introduced by Senators Al Franken and Richard Blumenthal and Representative Hank Johnson. Still, such measures are not likely to get much traction in today's political environment.

In Praise of Class Actions

Gary E. Mason — Sun, 15 May 2011 23:39:00 GMT

Pittsburgh personal injury attorney Rob Peirce spoke out in favor of class actions in an editorial appearing in the Pittsburgh Post-Gazette.* As Pierce points out, the effort by big business to restrict class actions, or end them altogether, would mean that consumers would be unable to join together to fight unfair business practices, such as unadvertised resort fees added to your bill, false promises about the availability of concert tickets, or even deceptive claims about the side effects of new medications, to take but three examples.

A successful class action could, to use the resort fee case as an example, result in a few dollars or a coupon for money of the next stay. More significantly, it could force the end of the deceptive practice and even discourage other hotels from imposing similarly deceptive fees.

"Well-run businesses have nothing to fear from class action lawsuits," says Pierce. "Its about punishing the bad apples." Class action lawsuits, he says are one of the most effective means for punishing the bad apples, ensuring they do not further harm consumers, and prevent the bad actors from tarnishing the reputation of rest of their industry.

For the complete editorial, please click here.

*Rob Pierce, "Class action lawsuits necessary but under fire," Pittsburgh Post Gazette, May 14, 2011.