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Monday, June 30, 2008, 8:44 PM

Fourth Circuit Clarifies CAFA Removal Standards

Today in Strawn v. AT&T Mobility LLC the Fourth Circuit clarified the Class Action Fairness Act's (CAFA) removal standards.

Today's case involved a class action filed in West Virginia state court against a cellular phone carrier (AT&T) alleging the carrier has a "pattern or practice" of automatically enrolling new cellular phone customers in a free trial of its optional Roadside Assistance service and then charging them $2.99 per month if they don't opt out. The complaint defined the class as: "all customers who: (1) purchased [an AT&T Mobility cellular] account in the state of West Virginia; and (2) were charged a $2.99 monthly charge for Roadside Assistance without ever requesting or enrolling for said service." The claim was brought under West Virginia law, under a statute regulating deceptive trade practices.

AT&T removed to federal court under CAFA, attaching to its notice of removal an affidavit attesting that, based on the number of customers who remained enrolled in Roadside Assistance beyond their free trial period and the minimum statutory damages available ($200 per person), the amount in controversy exceeds $5 million. Plaintiffs responded that the class definition should be narrowed to exclude those customers who willingly remained enrolled in the Roadside Assistance program. Because AT&T could not calculate that number (it couldn't ascertain the number of customers charged who didn't want the service), the district court concluded that AT&T couldn't establish that the case met the $5 million CAFA threshold, and thus the district court remanded the case to state court. AT&T appealed.

The first question the Fourth Circuit clarified is who bears the burden of proof in the context of CAFA removal. Relying on legislative history, AT&T argued that the plaintiff should bear the burden of demonstrating that removal was improper. The Fourth Circuit disagreed, joining six other circuits in this holding: "in removing a class action based on diversity jurisdiction under 28 U.S.C. §§ 1453 and 1332(d), the party seeking to invoke federal jurisdiction must allege it in his notice of removal and, when challenged, demonstrate the basis for federal jurisdiction."

The Fourth Circuit then confronted plaintiffs' narrowing of the class definition in response to AT&T's removal notice. The Court held that plaintiffs' tactic "amounts to a post hoc characterization of the pattern and practice that they are challenging complaint as illegal" because their "complaint makes clear that what the plaintiffs are challenging as unlawful under West Virginia law is AT&T’s allegedly deceptive practice of 'bundling' the Roadside Assistance service with new cellular telephone service, such that all customers were automatically enrolled in a free trial period and then charged $2.99 per month end of that period if they did not opt out." (Emphasis in original) The complaint didn't define the class as those unwilling retain the program, but rather as who "were not given an option." Thus, this case will now proceed in federal court pursuant to CAFA.

The upshot: plaintiffs wishing to avoid CAFA removal had better be careful in pleading their class definition and their theory of the case. In this case the complaint didn't limit the class to customers who didn't want the service, because plaintiffs were pushing a broad theory that challenged the act of automatically enrolling customers. Of course, in most court systems (I can't speak for West Virginia), limiting the class to those who unwillingly receive a service that they don't want would present a different problem: individualized issues that would likely predominate over common issues, thereby defeating class certification.

Tuesday, June 17, 2008, 5:53 PM

COA Vacates Industrial Comm'n Award Because Commissioner Wasn't Qualified

Today the Court of Appeals (COA), in an opinion by Judge Bryant, held that the Industrial Commission's 2-1 decision against an employer had to be vacated because one of the commissioners in the majority was not qualified to serve, since the Governor had named his successor three days before the decision was filed. The case is Baxter v. Danny Nicholson, Inc.

Commissioner Bolch's term had ended in June 2004, and he began serving in a hold-over capacity for years thereafter. He signed the Opinion and Award and award in this case on Feb. 2 2007, concurring in the majority of a 2-1 split decision. The same day, however, the Governor issued a letter informing Commissioner Bolch that his successor had been appointed, effective immediately. The Opinion and Award was filed three days later, on Feb. 5, 2007. Thus, on that day of filing--which is the key date--he no longer was a commissioner, since his successor had been appointed. Therefore, the Opinion and Award had to be vacated, since the elimination of his vote left a 1-1 split, with no majority.

COA says no jurisdiction over out-of-state defendant who allegedly defamed NC resident on website available to everyone

Today, the Court of Appeals held that an out-of-state defendant's posting of allegedly defamatory remarks about a North Carolina citizen, posted on a website accessible to everyone, including people in North Carolina, but not "directed" at North Carolina, did not subject the defendant to personal jurisdiction. The case is Dailey v. Pompa.

The defendant posted, from his home state of Georgia, allegedly defamatory remarks about the plaintiff, a North Carolina resident. He posted the remarks on an internet bulletin board/website. The plaintiff sued, the court granted the defendant's motion to dismiss for lack of jurisdiction, and the Court of Appeals affirmed. First, the Court noted, the only issue was whether federal due process allowed the exercise of jurisdiction, because neither party disputed that North Carolina's long-arm statute applied. Second, the Court also noted that the only issue was whether specific jurisdiction existed, because neither party claimed that the defendant had sufficient contacts for general jurisdiction. Turning to the narrow issue at hand, the Court quoted the Fourth Circuit's well-cited holding on internet jurisdiction in ALS Scan v. Digital Services Consultants, Inc.: "a State may, consistent with due process, exercise judicial power of a person outisde of the State when that person (1) directs electronic activity into the State, (2) with the manifested intent of engaging in business or other interactions within the State, and (3) that activity creates, in a person within the State, a potential cause of action cognizable in the State's courts." Applying this standard, and citing several cases almost directly on-point, the Court concluded that there was no jurisdiction here because the bulletin board posting was not "directed," "targeted," or "focused" at North Carolina or North Carolina readers in particular. The Court also recognized that the United States Supreme Court's decision in Calder v. Jones, which discussed whether a defamation injury necessarily felt in the forum state was sufficient to confer jurisdiction, was a pre-internet case less relevant than ALS Scan and other internet cases, which make clear that defamatory material posted to the internet "in general" but injuring a person in a particular state does not subject the poster to jurisdictionin in that particular state.

Importantly, this case, like the cases it cited, dealt with alleged defamation arising from information posted to bulletin boards/websites, not injuries stemming from sales to a plaintiff through a commercial website. In the latter type of case, jurisdiction would seem appropriate even if the commercial website was not "targeted" at a particular state, but at internet users in general. This would seem to be true under both pre-internet "stream of commerce" cases and ALS Scan and its progeny.

COA rejects choice of law and forum selection clauses in contracts relating to NC real estate

Today, in Price and Price v. Miken Corporation, the Court of Appeals confirmed that choice of law and forum selection clauses in contracts concering real property located in North Carolina are invalid.

The plaintiff was a subcontractor working on a commercial development in Asheville; the defendant was a developer based in Florida. The contract at issue contained choice of law and forum selection clauses pointing to Florida. After the plaintiff filed suit in superior court, the district court dismissed for improper venue.

The Court of Appeals reversed. First, it noted that N.C. Gen. Stat. 22B-2 renders invalid any "provision in any contract...for the improvement of real property in this State, or the providing of materials thereof....if it makes the contract...subject to the laws of another state, or provides that the exclusive forum for any litigation, arbitration, or other dispute resolution process is located in another state." This statute, the Court held, controlled the case. The Court rejected the defendant's argument that N.C. Gen. Stat. 22B-3, which renders invalid forum selection clauses in contracts "entered into" in North Carolina "[e]xcept as otherwise provided in this section," was relevant and did not render unenforceable the forum selection clause at issue because the contract was "entered into" in Florida. The more specific real estate statute was directly on point, the Court held, and it prevailed over the more general and narrower provision cited by the defendants.

COA Decisions Today

Today the Court of Appeals released 19 published decisions, of which 13 are civil and 6 are criminal. There are a half dozen dissents. More on these cases later.

Friday, June 13, 2008, 8:44 AM

NC Supreme Court upholds ruling that teacher cannot get workers' compensation for "generalized anxiety disorder"

Yesterday, the North Carolina Supreme Court held that "generalized anxiety disorder" is not an occupational disease under the Workers' Compensation Act, at least under the facts as presented by the plaintiff, a middle school teacher. The case is Hassell v. Onslow Board of Education.

Hassell was a middle school teacher in Onslow County. She had grave difficulty controlling the classroom, dreaded going to work, and generally received poor performance reviews. After she resigned following her refusal to sign a letter warning her about poor performance, a doctor diagnosed her with "generalized anxiety disorder," stating that Hassell's "job was driving her crazy" and was a major stressor in her life. Hassell sought workers' compensation, arguing to the Industrial Commission that a hostile and abusive classroom caused her disease and that her disease, pursuant to the statute, was "characteristic of and peculiar to her employment" - i.e., that it increased her risk for the disease and was a partial cause of it. The Commission disagreed, finding among other things that Hassell's anxiety "centered around her principal" and that the harsh work/classroom environment was caused by Hassell's poor performance. Hassell appealed, arguing that the record did not support some of the Commission's findings, including the two just noted. The Court of Appeals affirmed. Judge Wynn dissented, urging that the Commission was "apportioning blame," in contravention of the statute, and that the two findings noted above were unsupported.

The Supreme Court affirmed. First, acknowledging that the workers' compensation scheme renders fault irrelevant except in a few circumstances not at issue in the case, the Court disavowed any indication in the prior opinions that Hassell's "fault" in creating a debilitating classroom environment was relevant. Second, acknowledging that the Commission cannot wholly disregard any witness and that Hassell's doctor was the only expert witness, the Court held that the Commission simply gave the doctor's testimony little or no weight. The Court then affirmed the conclusion that Hassell had failed her burden to prove that the classroom environment increased her risk for the disease or caused her problems, affirming the finding that her anxiety was caused by her relationship with the principal, not by the classroom. Justice Timmons-Goodson dissented, asserting that the majority's attempt to disavow any reliance on "fault" failed because the lower opinions were infected by improper analysis of "fault" or "contributory negligence," an infection the majority neglected to consider.

Thursday, June 12, 2008, 4:43 PM

NC SCT Action Today

Today the NC Supreme Court issued orders and 13 decisions. Of the 13 decisions, seven are per curiams (including one with an evenly divided Court), and six are written opinions. Six of the 13 decisions are criminal cases.

We'll have more on some of the opinions later.

As for the orders, the Court granted discretionary review in about a half dozen cases. They include a zoning case where the Court of Appeals held that plaintiffs lacked standing to challenge the approval of a new adult/topless club in Raleigh; the case deals with whether a nearby property owner must show loss in property value to establish standing. Another case is one that has gone up and down once before; it deals with whether changes in zoning regulations can apply to one who has already obtained a permit for a previously-authorized use (the petitioner seeks to operate a quarry). Another case deals with easements and incorporeal hereditaments.

Sunday, June 08, 2008, 4:57 PM

NC Supreme Court Decisions Due This Week

The Supreme Court is scheduled to issue decisions this Thursday, June 12.

Wednesday, June 04, 2008, 6:10 AM

COA Clarifies 12(b)(6) Dismissal Motion Requirements

In the unpublished Austin Hatcher Realty, Inc. v. Hazel Gaither et al., the COA yesterday clarified what's required when making a 12(b)(6) motion, though perhaps upped what's needed to allege an unjust enrichment claim.

In Austin Hatcher, a real estate listing agreement was entered into, and the property was ultimately sold. The plaintiff sought a commission, and the defendants refused to pay. Plaintiff sued for breach of contract and unjust enrichment, and the defendants moved for 12(b)(6) dismissal of both claims. The trial court granted the motion, and plaintiff appealed.

The first issue on appeal was whether the defendant's 12(b)(6) motion stated with sufficient particularity the grounds on which the motion was based. As practitioners know, Civil Procedure Rule 7 requires that motions state with particularity the grounds on which they're based, not least so that the defending party and court are on notice as to what's at issue and aren't sand-bagged at the hearing on the motion. Apparently, the motion filed in this case stated that the complaint "fail[ed] to state a claim upon which relief can be granted." The COA held that this is the essence of a 12(b)(6) motion, that to defend the motion, the plaintiff need only state that the complaint alleges facts to support the legal claims, and that nothing else was therefore required. While the COA indicates that an affirmative defense, for example, must be specifically identified in a 12(b)(6) motion, there are surely many non-obvious legal arguments to defeat claims that are not affirmative defenses but that per Austin may not need to be revealed until the movant serves its hearing brief 2 days before the 12(b)(6) hearing -- or at the hearing itself.

The COA also held that the complaint stated facts to support the elements of a breach of contract claim such that the court erred in tossing that claim. However, the COA upheld the trial court's dismissal of the plaintiff's unjust enrichment claim. The COA noted that an unjust enrichment claim must set forth a benefit conferred on the defendant non-gratuitously and accepted by the defendant. Here, the COA held, among other things, that the only benefit alleged was the provision of services that were accepted but for which payment was refused. Those services included assistance in preparing for a sale hearing. The COA held that this was not a benefit, including because there was no allegation that the property would not have been sold without those services. An analysis that may give us services providers pause. Tell your decorator, for example, that their help in making your house look good is not a benefit because the house would have looked good anyway, even with that velvet Elvis on the wall...

COA Allows Suit Against County To Go Forward On One Insurance Policy, Not On Another

In Cowell v. Gaston County et al., the COA allowed the plaintiffs, home owners who attributed their uninhabitable home to negligent inspection by county building inspectors, to go to trial against the county on Tuesday.

The county had bought 2 insurance policies but claimed that neither covered plaintiffs' claims and therefore the county was immune. The COA agreed that one policy did not cover the claims. That policy plainly excluded from coverage claims for "damage to or destruction of any property, including diminution of value or use" and claims for "performance of failure to perform ... inspection or engineering services..."

However, the COA noted that where, unlike above, the language of an insurance policy is ambiguous, it is construed against the drafter, i.e., the insurer, and in favor of coverage. The county's second insurance policy excluded engineers, architects, and surveyors from professional liability. That section also used an ambiguous "you" in that exclusion section of the policy, and the county argued that the "you" was the county and covered, among others, its building inspectors. The COA noted that that interpretation left too much ambiguity as to what's covered and what's not, was "slippery," and therefore didn't exclude the plaintiffs' building inspector claims.

COA Allows UDTPA Claim In Employment Context

In Gress v. The Rowboat Company, Inc., the COA allowed the defendants to roll forward with their unfair and deceptive practice claim in the context of an ostensible employment relationship. The COA noted that, generally, there is a presumption against unfair and deceptive practice claims in the employment context because such disputes are not sufficiently in or affecting commerce, a requisite element of a UDTPA claim. Here, however, the employment relationship was a sham. The plaintiff allegedly got his employment gig while conducting due diligence related to his purportedly intended purchase of the defendants' assets and upon the promise to reimburse defendants upon the purchase of the defendants' assets -- a deal plaintiff allegedly never intended to consumate.

Tuesday, June 03, 2008, 9:24 AM

COA limits Wage and Hour Act to N.C. residents/employees

Today, in Sawyer v. Market America, the Court of Appeals limited the reach of the North Carolina Wage and Hour Act by holding that it does not apply to someone who neither lives nor works in the state. (Womble Carlyle represented the defendant, Market America.)

Steve Sawyer was an Oregon resident who worked from Oregon for a Greensboro-based company. After the employment relationship soured, Sawyer sued under the Wage and Hour Act for allegedly unpaid salary and bonuses. The trial court held that the Act did not apply to someone who "resides and primarily works outside of the State of North Carolina."

The Court of Appeals affirmed. As a preliminary matter, the Court held that even though the employment contract's choice of law provision selecting North Carolina law was valid, that North Carolina law applied did not necessarily mean that Sawyer would be covered by the Act. Rather, it meant that all of North Carolina law would apply - including extraterritoriality principles that determine the reach of North Carolina statutes. Turning to the main issue, the Court held that such general principles, along with the stated purposes of the Act, limit the Act to the territority of North Carolina. Hence someone who neither lived nor worked in the state could not corral the Act to his benefit. The opinion seemingly does not address whether someone who either lived or worked in the state, but not both, is covered by the Act.

COA Decisions Today

Today the Court of Appeals issued a relatively slim load of opinions: 18 published, of which 11 are civil and 7 are criminal. More on these cases later.
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