Lit Alerts—August 2016 (Second Edition)

In This Issue:

• Class Actions: 2nd Cir. Rules Class May Be Decertified After Jury Verdict
• E-Discovery: A Decisive "NO" – S.D.N.Y. Magistrate Judge Refuses to Order Defendant to Use Technology Assisted Review
• Intellectual Property: E.D.Va. Ruling Sets Up Appeal Regarding DMCA Safe Harbor Provisions
• Anti-SLAPP: California Supreme Court Resolves Split Over "Mixed" Causes of Action

Class Actions: 2nd Cir. Rules Class May Be Decertified After Jury Verdict

Last month the Second Circuit affirmed a district court's decision to decertify a plaintiff class after a jury had awarded the class approximately US$32mm, plus prejudgment interest. In Mazzei v. The Money Store, Docket No. 15-2024 (2d Cir. July 15, 2016), a borrower sued The Money Store, TMS Mortgage Inc., and HomEq Servicing Corp for improperly charging late fees on missed mortgage payments that were not authorized by contract. The plaintiff won certification of a class of borrowers who had their loans owned or serviced by the defendants.

After the jury's verdict but before the court entered judgment, The Money Store moved to decertify the class under Federal Rule of Civil Procedure 23(c)(1)(C) on the grounds that the class was made up of two types of plaintiffs: (1) borrowers whose loans had been owned by The Money Store; and (2) borrowers whose loans had been serviced by The Money Store. Because only the first group of class members were in contractual privity with The Money Store, the class representatives could not satisfy Rule 23's typicality and predominance requirements.

Following the decertification order, the defendants were required to pay the plaintiff only US$133.80 as compensation for their improper late fees, and the rest of the plaintiff class recovered nothing. The Second Circuit declined to consider the plaintiff's argument that the district court should have substituted a new class representative who would not have violated the typicality requirement, because the plaintiff had failed to raise this argument prior to the appeal.

E-Discovery: A Decisive "NO" – S.D.N.Y. Magistrate Judge Refuses to Order Defendant to Use Technology Assisted Review

Disputes have increasingly arisen between litigants regarding the use of technology assisted review (TAR) as opposed to keyword searching in electronic discovery. TAR typically combines an individual's review of a small fraction of documents with automated tools to prioritize, select, and code the remaining documents. Earlier this month, S.D.N.Y. Magistrate Judge Andrew J. Peck, a supporter of the use of TAR in discovery, discussed whether a defendant could be forced to use TAR when the defendant preferred to use keyword searching in Hyles v. New York City, No. 10 Civ. 3119 (AT) (AJP) (S.D.N.Y. Aug. 1, 2016).

In Hyles, plaintiff's counsel proposed that the defendant use TAR as opposed to keyword searching, claiming that TAR is both a "more cost-effective" and "efficient method of obtaining ESI." Defendant, however, declined to agree to use TAR. The court acknowledged that while some vendor pricing models charge more for TAR than for keyword searching, generally any such "extra cost" is offset by cost savings in review time, thereby making TAR the cheaper, more efficient, and superior option to keyword searching.

Judge Peck also noted that the outcome of this case might have differed if the defendant had spent any money using keyword searching in discovery before the dispute was brought before the court. However, since the defendant had not yet spent money on keyword searches, the case squarely raised the issue of whether a requesting party can have the court order the responding party to use TAR in discovery. According to Judge Peck, "[t]he short answer is a decisive 'NO.'" For the time being, a court cannot order a party to use TAR. However, the time may come when TAR is so widely used that it might be unreasonable for a party to refuse to use TAR.

Intellectual Property: E.D.Va. Ruling Sets Up Appeal Regarding DMCA Safe Harbor Provisions

Earlier this month, a federal judge in the Eastern District of Virginia denied Cox Communications, Inc.'s motion to set aside a US$25 million jury verdict in a closely watched copyright dispute between Cox and BMG Rights Management, an intellectual property rights management company that represents musicians and other audiovisual artists. BMG Rights Mgmt. (US) LLC v. Cox Commc'ns, Inc., Case No. 1:14-cv-1611 (Aug. 8, 2016). The ruling sets up an appeal by Cox regarding the applicability of the Digital Millennium Copyright Act's "safe harbor" provision for internet service providers (ISPs), as the same court had previously ruled that Cox was ineligible for "safe harbor" protection in light of its failure to comply with certain requirements that the DMCA imposes on ISPs.

One such requirement is that an ISP "adopt[] and reasonably implement[] . . . a policy that provides for the termination in appropriate circumstances of subscribers . . . who are repeat infringers." 17 U.S.C. § 512(i). BMG alleged Cox had failed to implement such a policy because it both failed to accurately track the number of notices of infringement it received for repeat infringers and because, until late 2012, Cox permitted repeat infringers whose accounts had been nominally "terminated" to have their accounts reactivated upon request. The court found this second ground dispositive, stating that "[s]ervice providers cannot skirt the termination requirement by imposing something short of complete termination of a subscriber or account holder."

Anti-SLAPP: California Supreme Court Resolves Split Over "Mixed" Causes of Action

To protect a person's right of petition and free speech, California's anti-SLAPP statute provides that a "cause of action" arising from "any act of that person in furtherance of that person's right of petition or free speech" is subject to a special motion to strike, unless the plaintiff shows a probability that it will prevail on the claim. Previously, California appellate courts took differing approaches to "mixed causes of action" that combine allegations of activity protected by the anti-SLAPP statute with allegations of unprotected activity.

In Baral v. Schnitt, the court of appeal affirmed the denial of an anti-SLAPP motion because the plaintiff had alleged both protected and unprotected activity, and the plaintiff had established a probability of succeeding on the claims based on unprotected activity. The court of appeal concluded that the anti-SLAPP motion must be brought against the entire cause of action, and may not be used in a mixed cause of action to strike only the allegations pertaining to protected activity.

On August 1, 2016, the California Supreme Court reversed, holding that where a mixed cause of action arises from both protected and unprotected activity, an anti-SLAPP motion can be brought to attack those parts of the claim that arise from protected activity. To hold otherwise would only reward plaintiffs who artfully plead claims involving both protected and unprotected activity by allowing them to evade anti-SLAPP motions.