Iowa Class Action Update
I. Statutory Framework:
1. Iowa Rules of Civil Procedure 1.261-1.277: Iowa's rules, adopted in 1980 (attached as Exhibit A), were based on model class action rules drafted in part to counteract federal court antipathy to class actions in the late 1960's and early 1970's, (e.g., Snyder v. Harris, 394 U.S. 332, 336-338 (1969); Eisen v. Carlisle & Jacqueline, 417 U.S. 156, 173 (1974)). The Uniform Rule was only adopted in Iowa and North Dakota. See Note: The Iowa Uniform Class Actions Rule: Intended Effects and Probable Results, 66 Iowa L.Rev. 1241, 1242 (1981).
2. The new rules signaled a significant departure from Iowa courts' former reluctance to grant class relief, especially award of damages. See, e.g., Bennett v. Eldon Miller, Inc., 106 N.W.2d 257, 252 Iowa 76 (Iowa 1960).
3. There are numerous substantive and procedural differences between Iowa rules and FED R. CIV. P. 23 (e.g., detailed certification criteria, definition of adequacy of representation, hearing, notice, contents of certification order, discovery, counterclaims, attorney fees and expenses). Despite differences and continuing amendments to Rule 23, Iowa appellate courts routinely rely upon federal case law and commentators without discussing the impact of these differences. See, e.g., Luttenegger v. Conseco Financial Servicing Corp., 671 N.W.2d 425, 436 (Iowa 2003); Vignaroli v. Blue Cross of Iowa, 360 N.W.2d 741, 743 (Iowa 1985); City of Dubuque v. Iowa Trust, 519 N.W.2d 786 (Iowa 1994).
II. General Class Requirements: Rules 1.261-1.262.
1. Numerosity - IOWA R. CIV. P. 1.262(1) - so numerous that "joinder is impractical." Numerosity is seldom a significant issue. Forty or more class members "has been recognized as the range within which impracticability of joinder has been presumed." City of Dubuque v. Iowa Trust, 519 N.W.2d 786, 792 (Iowa 1994); Kramersmeier v. R.G. Dickinson & Co., 440 N.W.2d 873 (Iowa 1989).
2. Commonality - IOWA R. CIV. P. 1.262(2) ("there is a question of law or fact common to the class"). Cf. FED. R. CIV. P. 23(a)(2). Disputes usually involve predominance issues under IOWA R. CIV. P. 1.263(1)(e), not existence of common questions. Luttenegger v. Conseco Financial Servicing Corp., 671 N.W.2d 425, 437 (Iowa 2003); Vignaroli v. Blue Cross of Iowa, 360 N.W.2d 741, 745 (Iowa 1985); cf. Iowa Annual Conference of the United Methodist Church v. Bringle, et al., 409 N.W.2d 471 (Iowa 1987); Martin v. Amana Refrigeration. Inc., 435 N.W.2d 364 (1989).
3. Typicality - Not expressly required by Iowa rules (cf. FED. R. CIV. P. 23(a)(3)), but essentially read into rules by Supreme Court. See Hammer v. Branstad, 463 N.W.2d 86 (Iowa 1990).
4. Adequacy - IOWA R. CIV. P. 1.263(2) - requires adequate counsel, no conflicts between representative and class, and adequate resources or access to resources. Vignaroli v. Blue Cross of Iowa, 360 N.W.2d 741,745 (Iowa 1985); Stone v Pirelli Armstrong Tire Corp., 497 N.W.2d 843 (Iowa 1993).
5. Certification Standards - IOWA R. CIV. P. 1.262-3 - Thirteen criteria to be considered. Criteria "center on two broad considerations: achieving judicial economy by encouraging class litigation while preserving, as much as possible, the rights of litigants - both those presently in court and those who are only potential litigants." Luttenegger v. Conseco Financial Servicing Corp., 671 N.W.2d at 437 (Iowa 2003). No single factor is dispositive or essential. Comes v. Microsoft Corp., 696 N.W.2d 318, *322 (Iowa 2005); Luttenegger v. Conseco Financial Servicing Corp., 671 N.W.2d 425, *437 (Iowa 2003).
6. Certification Procedure - IOWA R. CIV. P. 1.262(1) requires "hearing" (compare FED. R. CIV. P. 23). Court should not inquire into merits during certification. Kramersmeier v. R.G. Dickinson & Co., 440 N.W.2d 873 (Iowa 1989). Discovery is available to support certification. Comes v. Microsoft Corp., 696 N.W.2d 318 (Iowa 2005); Stone v. Pirelli Armstrong Tire Corp., 497 N.W.2d 843 (Iowa 1993), Schwan's Sales Enterprises, Inc., 433 N.W.2d 304 (Iowa 1988). While the court may look beyond pleadings, usually, "[e]xcept where the facts underlying the class are merely speculative, ... the proponent's burden is light." Vos v. Farm Bureau Life Ins. Co., 667 N.W.2d 36, 48 (Iowa 2003); City of Dubuque, 519 N.W.2d at 791.
7. Notice - There are detailed provisions for mandatory notice to class of certification, settlement and voluntary dismissal. IOWA R. CIV. P. 1.266, 1.271.
8. Appeal of right from certification order and amendments to order - IOWA R. CIV. P. 1.264(3) & 1.265(4) (cf. FED. R. CIV. P. 23(f)). The rules rest broad discretion in the trial court regarding certification, review on appeal is limited to abuse of discretion. Comes v. Microsoft Corp., 696 N.W.2d 318, 321 (Iowa 2005).
9. Attorney Fees - IOWA R. CIV. P. 1.275-1.276 provide detailed criterion for determining reasonableness. Any written fee agreement must be filed with Court before fairness hearing. King v. Armstrong, 518 N.W.2d 336 (Iowa 1994).
III. Recent Iowa cases:
1. Southard v. Visa USA, Inc., 734 N.W.2d 192 (Iowa 2007). Consumers sued Visa and MasterCard for violation of state anti-trust statute, Chapter 553, based on alleged tie-in arrangement requiring merchants to honor debit cards as well as credit cards, and claiming that merchants passed additional costs of using such cards to consumers. Court clarified and limited its holding in Comes v. Microsoft, 646 N.W.2d 440, 451 (Iowa 2002) (discussed below). The Court confirmed that Comes only granted standing to sue under Chapter 553 to "indirect purchasers," not to a broader class of affected persons within the "target area" of the antitrust conspiracy.
2. Ishman v. Featherlite, Inc., 728 N.W.2d 60 (Iowa App. 2006). Employees brought class action wage, contract and fraud claims based on employer's change of policies concerning accrual of vacation. Employer claimed certification was improper because class representative's claim should have been filed in small claims court under §631.1(1). The Court of appeals held that class members' claims in a class action may be aggregated for purposes of determining whether an action may be brought in district court as opposed to small claims court. The Supreme Court previously had determined that class claim may be aggregated for purposes of establishing appellate jurisdiction. Ackerman v. International Business Machines Corp., 337 N.W.2d 486 (Iowa 1983).
3. Comes v. Microsoft Corp., 696 N.W.2d 318 (Iowa 2005). Plaintiffs, purchasers of computers with Microsoft operating systems and applications, claimed Microsoft violated Chapter 553, Iowa's antitrust statute, in controlling the market and artificially inflating the cost of its software, and that they were harmed when those inflated costs were passed on to them through the cost of the computers. On certification appeal, the court held that predominance is not a condition precedent to certification, but is only one of the thirteen factors to be considered under IOWA R. CIV. P. 1.263(1). In rejecting defendant's criticism of plaintiffs' damages expert, who concluded that class members' claims had common damages issues, the court stated that "it is inappropriate at the certification stage to resolve battles between experts" and that the trial court's only role in reviewing the plaintiffs' expert testimony supporting certification is "to ensure that the basis of the expert opinion is not so flawed that it would be inadmissible as a matter of law." Comes v. Microsoft Corp., 696 N.W.2d 318, *325 (Iowa 2005). The court also held that where trial court entered an order under Rule 1.276 approving fee arrangement and plaintiffs' attorneys indicated willingness to advance all costs, trial court properly considered that order when it determined that the class representatives have or can acquire adequate finances. Counsel may advance expenses despite former DR 5-103(B), which prohibited attorneys from advancing litigation expenses unless the client remains ultimately liable for the expenses. Cf. Stone v. Pirelli Armstrong Tire Corp., 497 N.W.2d 848 (1993).
4. Hammond v. Florida Asset Financing Corporation, 695 N.W.2d 1 (Iowa 2005). Iowa purchasers of campground memberships brought Iowa class action against a Florida corporation and other lenders who financed purchase of memberships, claiming they were subject to claims and defenses for seller's failure to provide, maintain and service campgrounds. Trial court found that Florida lender did not finance purchase of class representatives' memberships and therefore dismissed claim against lender for lack of personal jurisdiction. Plaintiffs argued that seller assigned membership notes to the various lender-defendants that collected payments from all class members and that Seller therefore "provided a common juridical link" that supported personal jurisdiction against all defendants. Supreme Court noted that juridical link doctrine was created to allow class representative who had claims against only one defendant to represent class with claims against other defendants where the representative's injuries arise from conspiracy or concerted schemes between all defendants and where it would be "expeditious" to combine the defendants into one action. The Supreme Court refused to apply doctrine to determination of personal jurisdiction. The Court held that, even if other class members had claims against Florida lender, only claims of named class representatives could provide basis for personal jurisdiction over nonresident defendant.
5. Rieff v. Evans, 677 N.W.2d 728 (Iowa 2003). Plaintiffs (policyholders of mutual insurance company) brought class and derivative claims against insurer, officers and directors and related company challenging 10 separate complex financial transactions taking place between over an eight year period. Defendants claim case was so complex that trial to a jury would violate their right to due process under state and federal constitution. The Supreme Court, reaffirming that class actions are at law, held that there is no due process-based complexity exception to the right to a jury trial for actions at law as guaranteed by state and federal constitutions. The Court rejected defendants' argument that such an exception was created in Weltzin v. Nail, 618 N.W.2d 293 (Iowa 2000), since Weltzin involved only derivative claims, which are equitable. The Court also held that the policyholders' class claim for breach of fiduciary duty was a claim at law and therefore triable to a jury.
6. Barkema v. Williams Pipeline Company, 666 N.W.2d 612 (Iowa 2003) - Second class action by property owners claiming damages for trespass and breach of easement agreements against pipeline company and its assignee, who had installed fiber optic cable in abandoned underground oil pipelines. Settlement notice in first class action stated that second pipeline, which was basis for second action, "was not involved in this lawsuit." However, settlement included provision allowing easements for both pipelines. The Court held that ambiguity in notice was not fatal; notice "merely must provide enough information to allow class members rationally to decide whether they should intervene in the settlement proceedings or otherwise make their views known, and if they choose to become actively involved, to have sufficient opportunity to prepare their position." Notice provided "ample information to decide whether additional research would be wise or useful."
7. Luttenegger v. Conseco Financial Servicing, 671 N.W.2d 425 (Iowa 2003). Class action concerning excessive and unauthorized loan fees on consumer and home acquisition loans under Chapters 535 & 537. Trial court denied lender's partial summary judgment motions and certified subclasses for consumer loan and home acquisition loan claims. On appeal, the Supreme Court approved the trial court's procedure in considering summary judgment before ruling on certification, noting that "nothing prevents a court from weeding out legally meritless suits prior to certification." Supreme Court reiterated impermissibility of merits inquiry during certification decision. The Supreme Court reversed the trial court and granted partial summary judgment to the lender, but upheld trial court's certification of remaining claims.
8. Voss v. Farm Bureau Life Insurance Company, 667 N.W.2d 36 (Iowa 2003). Policyholders brought class claims for breach of contract, negligent and intentional misrepresentation, fraudulent inducement and breach of fiduciary duty, claiming that insurer engaged in deceptive practices concerning sale of whole life and universal policies by representing that premiums would vanish. Trial court decertified class after finding that individual questions and issues predominated under IOWA R. CIV. P. 1.261-1.263. The Supreme Court affirmed, holding that question of predominance "necessitates a ‘close look' at the difficulties likely to be encountered in the management of a class action." 667 N.W.2d at 45. It was reasonable for the trial court trial court to "probe behind the pleadings on the issue of predominance" under IOWA R. CIV. P. 1.263(1), in view of "vast amount of documents produced following the certification order and the depositions taken." 677 N.W.2d at 49. The Court noted there was no evidence that agents uniformly employed illustrations reflecting vanishing premiums, or that agent for class representatives ever showed them the illustrations. The Court also held Plaintiffs could not rely upon a "reasonable expectations" theory of recovery. Result was surprising in view of long history of vanishing premium decisions in other jurisdictions upholding certification.
9. Comes v. Microsoft, 646 N.W.2d 440 (Iowa 2002). Consumers brought class action claims under Iowa's antitrust statute, Chapter 553, against Microsoft for its marketing and pricing practices concerning its Windows 98 operating system installed in Intel-based personal computers. The Court held that the broad language of §535.5 allowed antitrust suit by class of consumers, despite contrary rule of U.S. Supreme Court in Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977) prohibiting such claims under federal antitrust law.
10. Rieff v. Evans, 630 N.W.2d 278 (Iowa 2001). Action filed originally as derivative claim by a policyholder was amended, after merger by insurance company into another company, to assert class claims on behalf of all former policyholders. The Court held, as matter of first impression, that mutual policyholders, like shareholders, have standing to bring derivative claims against an insurer. The Court also held that the traditional doctrine of relation-back applies to class claims, for statute of limitations purposes, even though a new class of plaintiffs is added. The Court also held that policyholders had individual claims, distinct from those of the corporation against officers and directors, who owed direct fiduciary duties to policyholders for failing to properly convert mutual to stock company, and that therefore that those claims could be pursued as class claims and not derivative claims.
11. Peterson v. Davenport Community School District, 626 N.W.2d 99 (Iowa 2001). Taxpayers brought class claim under § 1983 against school board of alleging federal due process violation by manner in which board invalidated petitions seeking election to block an instructional support program approved by board. The Supreme Court held that where one class member was also board member voted in favor of resolution establishing allegedly defective procedure for hearing petitions, class did not as a whole waive procedural due process claims. The Court also held that IOWA R. CIV. P. 42.15 (now 1.274) authorized award if nominal damages to each class member and not just to class as a whole, since each class member if suing separately would be entitled to an award of nominal damages.
12. Quamme v. Advanced Trading, Inc., 2001 WL 540056 (Iowa App. 2001). Farmers who received marketing advice and placed future grain trades through former agent of defendant sued defendant for fraudulent misrepresentation and non-disclosures concerning trades and for defendant's failure to inform farmers that defendant had terminated relationship with agent. The Court of Appeals upheld trial court's denial of certification, stating that circumstances of fiduciary duty claim were dependent upon details of relationship between agent and each farmer and were so individualized that the claims failed to meet the commonality requirement of Rule 42.2(b)(3) (now 1.262(2)(c), especially where there were different contracts identifying different rights of the agent and different parties, and where four different persons solicited business from farmers on behalf of agent. The trial court also was correct in deciding that class action would not permit "fair and efficient adjudication of the controversy" under IOWA R. CIV. P. 42.3(a), (now 1.263.(1)), since individual questions of fact predominated and would prevent efficient trial of class claims.
13. City of Dubuque v. Iowa Trust, 587 N.W.2d 216 (Iowa 1998). The Court approved class action settlement, adopted standard requiring that trial court "independently and objectively analyze the evidence and circumstances before it in order to determine whether the settlement is in the best interest of those whose claims will be extinguished;" also noted that lack of objection by class members after notice supported approval of settlement.
IV. Impact of Class Action Fairness Act of 2005 (CAFA).
1. Pub. L. No. 109-2, 119 Stat. 4 (2005), amends 28 USC §§ 1332D, 1453 & 1711-1715. Main intended effects are to (a) reduce forum shopping by plaintiffs in state courts by expanding federal diversity jurisdiction, and (b) provide greater scrutiny of class action settlements, especially "coupon settlements."
a. Confers federal diversity jurisdiction where 1) there is "minimal diversity" (at least one class member diverse from a defendant); 2) proposed class contains at least 100 members; and 3) the amount in controversy is at least $5 million in the aggregate. Plubell v. Merck & Co., 434 F.3d 1070, 1071 (8th Cir.2006).
b. Exceptions for claims are truly "local," involve internal corporate governance, involve federal securities laws, or name a state actor as a primary defendant. Larsen v. Pioneer Hi-Bred Intern., Inc., 2007 WL 3341698, *3 (S.D. Iowa 2007).
c. Irrelevant that court has not yet certified class order. 28 U.S.C. § 1332(d)(8) Rakes v. Life Investors Ins. Co. of America 2007 WL 2122195, *6 (N.D. Iowa 2007).
2. Recent Iowa cases:
a. Larsen v. Pioneer Hi-Bred Intern., Inc., 2007 WL 3341698, *5 (S.D. Iowa 2007). Class of "all persons and entities in the state of Iowa" who purchased Pioneer soybean seed filed state court class action against Pioneer and others claiming violation of state antitrust law in conspiring with other defendants to artificially increase price of seed. Defendant removed to federal court based on CAFA and moved to transfer to Eastern District of Missouri pursuant to 28 U.S.C. §1404(a). The Court held that defendant has burden to prove CAFA applies, but plaintiff has burden to prove CAFA exception applies. Plaintiff failed to prove exception applied since plaintiff did not establish that 2/3 of those purchasing seed "in" Iowa were "citizens" of Iowa within meaning of CAFA.
b. Brown v. Kerkhoff, 2005 WL 2671529,*18 (S.D. Iowa 2005). State class action against chiropractors and organization providing marketing and business development services to chiropractors, alleging fraudulent and negligent misrepresentation claims in engaging in conspiracy to require patients to pay for unneeded chiropractic services. The Court held that CAFA applies only to actions "commenced" after its effective date, and that the state court action was "commenced" when the petition was filed, even though it was inadvertently filed without the last page and amendments adding claims and parties were filed after the effective date.
c. Comes v. Microsoft Corp., 403 F. Supp. 2d 897 (S.D. Iowa 2005). Following plaintiff's filing of motion to amend state antitrust class action petition, defendant removed to federal court, and plaintiff moved to remand. The Court held in part that amendment was not "commencement of action" within meaning of §9 of CAFA, and therefore that removal under CAFA was not warranted.