Johnson v. Nextel Communications Inc.
780 F.3d 128
2d Cir.2015Background
- In 2000 Leeds, Morelli & Brown (LMB) represented 587 Nextel employees in discrimination claims and entered a Dispute Resolution and Settlement Agreement (DRSA) with Nextel: group mediation/arbitration and staged payments to LMB totaling up to $7.5M, contingent on resolving claims within time limits.
- LMB obtained individual participation/waiver agreements from most clients; the DRSA resolved all but 14 claims and produced $3.9M to employees while LMB received large payments from Nextel.
- Colorado plaintiffs brought malpractice/fiduciary-duty class suits; a Colorado jury and the Colorado Court of Appeals held that individual waivers were effective under Colorado law (McNeil).
- This suit was filed by six New Jersey residents (opt-outs from a Colorado class settlement) against LMB and Nextel; this Court in Nextel I held plaintiffs plausibly alleged non-consentable conflicts under New York law and reinstated fiduciary-duty, malpractice, and contract claims.
- On remand the district court certified a Rule 23(b)(3) class of the 587 employees, applying New York law to all claims and approving a three-phase trial plan (classwide liability and punitive-ratio determination, then individual compensatory trials).
- The Second Circuit vacated class certification and remanded, holding the district court erred in its choice-of-law analysis (each plaintiff’s home state law governs), and that individual issues (notably waiver and informed-advice inquiries, especially for 164 Colorado residents) predominate, defeating Rule 23(b)(3) predominance and superiority; it also expressed concern about the proposed classwide punitive-damages ratio.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Choice of law for class claims | Apply New York law to entire class because DRSA was negotiated/executed in NY and LMB is NY-based | Each class member’s home-state law governs; New York’s connection is insufficient to displace individual states’ interests | NY law does not govern the whole class; each plaintiff’s home state has the most significant relationship for tort/contract claims; district court erred applying NY to all claims |
| Predominance under Rule 23(b)(3) | Common issues (DRSA, Nextel’s role, LMB’s conduct) predominate; liability can be tried classwide with individual damages later | Individualized inquiries (informed consent, waiver, advice, strength of underlying claims) will predominate and swamp common issues | Individual issues predominate (e.g., waiver/notice/advice) for a significant subset (notably Colorado residents), so class certification under Rule 23(b)(3) is improper |
| Superiority / manageability of class trial | Class trial of common issues (and later individualized damages) is superior and efficient; Phase-based trial plan addresses individual issues | Applying 27 different state laws makes a single class unmanageable; subclasses or bifurcation won’t solve individualized liability inquiries | Class action is not a superior or manageable method; common issues do not sufficiently advance litigation given multi-state law conflicts |
| Classwide punitive damages procedure | Phase II jury should fix a punitive-to-compensatory ratio for the class to be applied in individual awards | A classwide ratio untethered to individual compensatory awards is constitutionally problematic and impracticable | Court flagged serious problems: ratio without individual compensatory context lacks a proper tether (State Farm concerns); classwide punitive allocation is infirm and further counseled caution on remand |
Key Cases Cited
- Johnson v. Nextel Commc’ns, Inc., 660 F.3d 131 (2d Cir. 2011) (prior panel opinion holding DRSA created non-consentable conflict under New York law and reinstating claims)
- Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (U.S. 2011) (commonality requires questions capable of classwide resolution)
- Comcast Corp. v. Behrend, 133 S. Ct. 1426 (U.S. 2013) (predominance inquiry requires proof that common issues can be proven classwide)
- Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (U.S. 1997) (Rule 23(b)(3) predominance and superiority analysis; manageability concerns)
- In re U.S. Foodservice Inc. Pricing Litig., 729 F.3d 108 (2d Cir. 2013) (multi-state class actions require care in choice-of-law and predominance analysis)
- Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (U.S. 1941) (federal courts must apply forum state’s choice-of-law rules)
- Spence v. Glock, Ges. m.b.H., 227 F.3d 308 (5th Cir. 2000) (multi-jurisdictional class: economic-loss injuries localized to purchasers’ domiciles defeat single-law choice)
- Huber v. Taylor, 469 F.3d 67 (3d Cir. 2006) (choice-of-law may favor state regulating attorneys’ conduct when fiduciary duties arise from that state licensing)
- State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (U.S. 2003) (punitive damages must be adequately tethered to compensatory damages)