United States: Judge Gorsuch On Class Actions

Last Updated: February 16 2017
Article by Joseph H. Lang Jr. and D. Matthew Allen

On January 31, President Trump announced that Judge Neil Gorsuch of the Tenth Circuit Court of Appeals would be nominated for the United States Supreme Court. We took a look at those opinions authored by Judge Gorsuch on the Tenth Circuit that primarily addressed class action issues. These decisions confront a range of problems that arise in class action litigation. They also reveal his accessible, sometimes breezy, sometimes pointed, writing style. Four such decisions are explored below.

In Hammond v. Stamps.com, Inc., 844 F.3d 909 (10th Cir. 2016), the Tenth Circuit addressed the Class Action Fairness Act's (CAFA) amount-in-controversy requirement. There, the plaintiff sued Stamps.com in state court, alleging that she believed that the company would charge her a monthly subscription fee only in those months where she used the service. In fact, she was charged a monthly fee. The plaintiff sought to represent a class of people she asserted were likewise deceived.

The plaintiff alleged that her proposed class included "hundreds or thousands of persons." She argued that she was entitled to $300 in statutory damages. She also argued that other members of the proposed class would likely be entitled to two monthly subscription charges ($15.99 x 2 or $31.98). She arrived at that number by estimating how long customers suffered the fees before calling to cancel. She also sought punitive damages on a classwide basis.

Stamps.com removed the case to federal court under CAFA, presenting uncontested declarations that 312,680 customers had called and canceled their subscriptions in the last four years. Using the damages the plaintiff alleged, Stamps.com calculated that the amount in controversy well exceeded the $5 million threshold. Notwithstanding that evidence, the district court concluded that the amount-in-controversy requirement was not met. Judge Gorsuch explained the district court's reasoning this way:

It held that Stamps.com failed to meet its burden of showing that over $5 million was "in controversy." The reason? The court faulted Stamps.com for failing to disaggregate from the total number of customer cancellations those customers who "felt duped" by Stamps.com's website disclosures. As the district court noted, customers could have cancelled their accounts because of "any of a myriad of ... reasons." Not everyone was deceived. Put more pointedly, without proof from Stamps.com establishing how many of its customers were actually deceived, the district court thought the company couldn't satisfy the $5 million "in controversy" requirement.

That reasoning did not stand. The Tenth Circuit vacated the remand order. It determined that the district court's "conclusion rests on a legal error about the meaning of a key statutory term." "In using the phrase 'in controversy' CAFA borrowed a term heavily encrusted with meaning." In explaining that disposition, Judge Gorsuch called on a variety of primary and secondary sources. One particularly colorful example is his reliance on Justice Frankfurter: "if a word is obviously transplanted from another legal source, whether the common law or other legislation, it brings the old soil with it." He also cited An Act to Establish the Judicial Courts of the United States, ch. 20, 1 Stat. 73, 78 (1789), Thomas E. Baker, The History and Tradition of the Amount in Controversy Requirement: A Proposal to "Up the Ante" in Diversity Jurisdiction, 102 F.R.D. 299, 302–03 (1984), and, particularly notably now, Antonin Scalia & Bryan A. Garner, Reading Law 73 (2012).

While he acknowledged that a presumption of consistent usage may not always be determinative, he explained why it would in fact determine this case:

Of course, all these expositions about the meaning of the term "in controversy" have come in the course of interpreting earlier federal jurisdictional statutes and it is at least conceivable Congress could have meant something different in CAFA. Our presumption of consistent usage is just that, a presumption. But we cannot think of—and the parties do not even attempt to give us—any reason to suppose that in using the term "in controversy" Congress in CAFA meant anything at odds with our traditional understanding.

In BP America v. Oklahoma ex rel. Edmondson, 613 F.3d 1029 (10th Cir. 2010), the Attorney General of Oklahoma challenged the defendants' (referred to in the opinion collectively as "BP") alleged manipulation of propane gas prices. BP removed the lawsuit on the theory that it was a "mass action" under CAFA. The district court disagreed, remanded, and sent a remand order to the state court. In this Tenth Circuit decision, Judge Gorsuch addressed the threshold issues whether the court could and should grant leave to appeal.

The court observed that "§ 1453(c)(1) would seem to put to rest any reasonable doubt as to our jurisdiction to consider BP's application." But then Judge Gorsuch goes on to explain the Attorney General's jurisdictional argument as follows:

With this conclusion, however, Attorney General Edmondson begs to differ. To be sure, he acknowledges that § 1453(c)(1) exempts CAFA cases from § 1447(d) and its concomitant bar against appellate review of remand orders. But CAFA doesn't do anything to diminish the force of § 1447(c), and that subsection, he says, is sufficient unto itself to extinguish our jurisdiction in this case. Subsection 1447(c) provides that, "[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." 28 U.S.C. § 1447(c). In such cases, "[a] certified copy of the order of remand shall be mailed by the clerk to the clerk of the State court," and "[t]he State court may thereupon proceed with such case." Id. It is undisputed here that the clerk of the federal court mailed the remand order to the clerk of the state court several days before BP filed its petition with us. And that action, Attorney General Edmondson urges, divested all federal courts—including our court—of jurisdiction to consider any issue in the case.

Not so. Judge Gorsuch rejected this argument, concluding that § 1447(c) does not "have the purchase that the Attorney General purports." In doing so, he rejected the Attorney General's reading of the case law: "Finding no shelter in the language of the statute, Attorney General Edmondson seeks refuge in case law. But here, as well, his arguments miss their intended mark. All of the authority he cites simply holds that the transmission of the remand order from the federal district court clerk to the state court, as contemplated by § 1447(c), operates to divest federal district courts of further jurisdiction over the case."

Along the way, the opinion reveals this approach to statutory construction:

To operate as the Attorney General would have it, § 1453(c)(1) would have to read very differently than it does, providing instead that the court of appeals may accept an appeal if application is made within seven days and if the court accepts that application before the clerk of the district court sends the remand order to the state court pursuant to 28 U.S.C. § 1447(c). That second, italicized condition, however, appears nowhere in the statute, and we are not at liberty to take our editing pencils to what Congress has written.

The court then considered a list of factors earlier set forth by the First Circuit and decided that it should exercise its discretion to grant leave to appeal.

In Shook v. Bd. of County Comm. of the County of El Paso, 543 F.3d 597 (10th Cir. 2008), the Tenth Circuit visited for a second time a case in which the plaintiffs sought class certification. On the first appeal, it reversed the district court's denial of class certification. That earlier panel concluded that the district court should not have relied on the Prison Litigation Reform Act's jurisdictional limitations to the exclusion of the Rule 23 standards in denying certification. On remand, the district court again denied certification. This time around, the Tenth Circuit affirmed in an opinion written by Judge Gorsuch.

The opinion addressed many particular class certification issues. For instance, the question whether the district court should have sua sponte created subclasses was examined: "While the district court could have sua sponte suggested subclassing as a possible solution to Rule 23(b)(2) problems, the Supreme Court has indicated that courts do not bear any obligation to do so." Rather, the burden is on the party seeking certification to do so.

But the opinion is notable for some larger jurisprudential points it emphasized. First, Judge Gorsuch emphasized the meaning of abuse-of-discretion review:

In this case, we believe the district court's decision fell within the boundaries set out by Rule 23(b)(2), governing case law, and the facts as alleged. While we very well may have made a different decision had the issue been presented to us as an initial matter, and while other district courts perhaps could have chosen, or could choose, to certify similar classes, we cannot say the district court's assessment was beyond the pale.

. . . .

Without in any way commenting on the merits of the appeal in that matter, the fact that other courts might reach conclusions different from that reached by the district court in this case is not dispositive in our case. Our inquiry is limited to asking whether the district court's decision "exceeded the bounds of permissible choice," a standard that, as we have already emphasized, acknowledges the possibility that polar opposite decisions may both fall within the "range of possible outcomes the facts and law at issue can fairly support." And, as we have indicated, there is sufficient support in the Rule and applicable case law to indicate that the district court's decision in this case, while perhaps not the only tenable one, or one even we would ourselves have made, was permissible. (Internal citation omitted.)

Second, the court emphasized the appellate principle that alternative bases may support an affirmance. In a pointed passage, Judge Gorsuch observed that the panel was puzzled that the district court on remand again relied, in part, on the exact basis that had been identified as erroneous in the first appeal: "Finally, we confess that we are as surprised as plaintiffs that on remand the district court continued to rely as an alternative ground for denying class certification on 'the inability of the court to fashion the remedy requested, given the ... the jurisdictional limitations imposed by the [PLRA].'" The court again said this was erroneous.

Notwithstanding, the court expounded on its duty to look at legitimate alternative bases for affirming the denial of class certification:

As we have said before, "[w]hatever the particular result in any given case, the use of alternative dispositions generally benefits everyone; [it] relieves a pressing work load by resolving cases thoroughly once; the courts avoid successive, piecemeal appeals; and litigants are spared the protracted delays that result when a case drags on incrementally." Thus, no matter how erroneous one alternative disposition, we still must bring our dispassionate analysis to each alternative ruling made by the district court. (Internal citation omitted.)

Finally, in Heller v. Quovadx, Inc., 245 Fed. App'x 839 (10th Cir. 2007), we see Judge Gorsuch expressing some subtle wit, without disrespecting the litigant's somewhat creative arguments. In that case, one Mr. Karn objected to a proposed class settlement. The district court rejected that objection, finding that Mr. Karn lacked standing because he was not a member of the class.

"Mr. Karn followed his objection with a number of motions in the district court, asking, among other things, that the court charge the parties in the suit and their counsel with violations of the Sherman Act, 15 U.S.C. § 1 (illegal restraints of trade), that the court rule on the constitutionality of class action lawsuits writ large, and that the court allow Mr. Karn to file litigation documents by posting them on his website and announcing the posting by email to the court and other parties."

The Tenth Circuit first affirmed on the ground that "Mr. Karn fail[ed] to appeal the district court's second, independent ground for denying his objection—namely, its conclusion that Mr. Karn, standing or no standing, simply did not raise any valid objection." The Tenth Circuit also affirmed on the basis articulated by the district court: "[W]e affirm because we agree that Mr. Karn indeed lacked standing to object to the proposed settlement. Rule 23(e)(4) of the Federal Rules of Civil Procedure provides only that 'class member[s] may object to a proposed settlement.'"

In closing out the opinion, Judge Gorsuch gave a third reason for the Tenth Circuit's affirmance:

Third, and finally, we affirm the district court because Mr. Karn presents no evidence or relevant legal argument to support his contentions that such a denial of standing violates the Fifth Amendment. Instead of providing this court with case citations to support his appeal, Mr. Karn spends the bulk of his brief noting the inefficiencies and burdens of paper-based litigation and advocating the adoption of electronic filing systems. We do not doubt that technological innovation presents great opportunities for the judiciary. But we disagree with Mr. Karn that the current procedural requirements with which he must comply deprive him or others of any constitutional rights. (Internal citation omitted.)

As this brief survey illustrates, Judge Gorsuch's class action opinions reflect his well-known commitment to a textual construction of statutes and an incisive, pungent writing style. They do not reflect, however, an ideological bias either in favor or against class actions in general.

In re Pharmacy Benefit Manager Antitrust Litigation, No. 06-1782 (Jan. 18, 2017)

In re Korean Ramen Antitrust Litigation, No. 13-CV-04115-WHO (Jan. 19, 2017)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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