Robinhood Users Amend Their Suit
A proposed class of Robinhood users have filed an amended complaint against the trading app, alleging the app's “game-like interface” attracted inexperienced investors who found themselves locked out of their accounts in early March. The consolidated class action in California federal court was originally based on claims for negligence and breach of fiduciary duty. It was first filed on March 4, just days after Robinhood's services were interrupted for nearly an entire trading day that saw an explosive stock market rally.
After diversifying their legal teams as requested by U.S. District Judge James Donato, the two firms leading the litigation amended the suit with more robust allegations regarding not just the March 2 outage, but three additional outages Robinhood experienced in March and another that occurred in mid-June. The suit claims that Robinhood lures in young and unsophisticated traders with its sleek app design and easy-to-use interface, but lacked contingency and continuity plans that could have aided users when they lost access to their accounts at a critical time. The amendment says:
During the outages, Robinhood failed to process trades in a timely manner or at all, and it was discovered that Robinhood's continuity plan was nonexistent. Robinhood simply abandoned its customers.
According to the amended complaint, Robinhood has experienced 47 service interruptions since March. It's alleged further:
During the outages, Robinhood's customers were completely unable to use the services, including to buy or sell securities or to exercise option contracts through Robinhood's website and app.
The suit now asserts gross negligence, breach of fiduciary duty, breach of contract, unjust enrichment and a host of other claims. It's alleged that Robinhood's help center has been unavailable during these outages – the company has even “admitted that during the outages the help center was unavailable and that Robinhood's phone support was non-existent” – leaving customers with no way to access their funds or execute time-sensitive trades.
The first outage occurred from 9:33 a.m. March 2 through the end of the trading day at 4 p.m., though Robinhood's systems continued to experience limited issues on March 3. On March 2, the Dow Jones Industrial Average rose more than 1,294 points, the largest point gain in history at the time. In parallel, the S&P 500 gained 136 points and the Nasdaq was up 384 points.
On March 9, Robinhood users were again locked out of their accounts just as “the Dow Jones Industrial Average had its largest point plunge in history up to that date,” according to the proposed class action. Trades that were placed before these two major outages either failed or processed at the wrong time or price, and some trades that appeared to be executed during the outages were later discovered to have also failed, the suit alleges.
The proposed class asserts that Robinhood had a duty not only to process trades in a timely fashion and at the best prices for its users, but to maintain a business continuity plan in case of a significant business disruption. Customers suffered “concrete, particularized, and actual damages” when they were unable to monitor their accounts or exercise option contracts during a time of market volatility, according to the amended complaint. The complaint said:
Many plaintiffs and class members held options contracts that expired, worthless, during the outages. And some of those contracts, such as the contracts held by certain plaintiffs herein, were exercised by Robinhood during the outages, without express authorization or approval of its customers, at a loss.
The interim lead class counsel is Anne Marie Murphy, Mark C. Molumphy, Leslie Hakala, Noorjahan Rahman, Tyson C. Redenbarger and Julia Q. Peng of Cotchett Pitre & McCarthy LLP and Matthew B. George, Maia C. Kats, Laurence D. King and Mario M. Choi of Kaplan Fox & Kilsheimer LLP. Liaison counsel is Steve A. Lopez of the Gibbs Law Group LLP. The executive committee is represented by Leslie Pescia of Beasley Allen, Courtney M. Werning of Meyer Wilson Co. LPA, Susana Cruz Hodge of Lite DePalma Greenberg LLC, Rachele Byrd of Wolf Haldenstein Adler Freeman & Herz LLP, Jamisen Etzel of Carlson Lynch LLP, Erin Comite of Scott + Scott Attorneys at Law LLP, Brandon Taaffe of Shumaker Loop & Kendrick LLP, Tina Wolfson of Ahdoot & Wolfson PC and Steve A. Lopez of the Gibbs Law Group LLP.
The case is In re: Robinhood Outage Litigation (case number 3:20-cv-01626) in the U.S. District Court for the Northern District of California.
Herbalife Distributors Lose Appeal To Arbitrate $1 Billion RICO Lawsuit
The Court of Appeals for the Eleventh Circuit has declined to send a putative $1 billion class action against 44 of Herbalife Ltd.'s top distributors to arbitration or to a California federal court. The appeals court panel affirmed a Florida federal judge's ruling on the Racketeer Influenced and Corrupt Organizations (RICO) Act suit.
In August 2018, U.S. District Judge Marcia G. Cooke sent half of the named Plaintiffs' cases against Herbalife to arbitration and the other half to a California federal court. But, the judge kept all eight named Plaintiffs – disgruntled distributors – out of arbitration and in Florida federal court for their claims against the nutrition supplement company's top distributors.
The top distributors appealed that decision, pointing to various contracts the eight named Plaintiffs signed with Herbalife, but, in a unanimous, published opinion, the panel agreed with Judge Cooke's finding that the top distributors were never a party to the contracts. The panel said:
Because none of the top distributors is a party to any of the aggrieved distributors' agreements, they cannot invoke the agreements' arbitration clauses. Thus, the district court correctly denied the top distributors' motion to compel arbitration.
The panel further noted that denial of a motion to transfer venue is typically a non-appealable order and that nothing about this case makes it so unusual that the panel should consider allowing an appeal. The panel said:
Indeed, resolving the transfer-of-venue issue would require us to consider factors not relevant to our resolution of the arbitration issue, including ‘the convenience of parties and witnesses. We are not convinced that this is one of those rare circumstances where pendant appellate jurisdiction can be found.
The suit, filed in September 2017 in Miami by eight former Herbalife distributors, focuses on the company's “Circle of Success” event cycle, a series of costly seminars held around the country where the company's representatives and inner circle of top distributors work to build up enthusiasm among the network's hundreds of thousands of members and to drum into them the message that success depends on attending as many such events as possible. The complaint says in its introductory statement:
This action seeks recovery from a corrupt organization of individuals and entities who act together, using misrepresentation and deceit, to sell access to a series of emotionally manipulative live events.
The suit includes counts under the federal RICO Act alleging a racketeering enterprise, deceptive and unfair trade practices under the Florida Deceptive and Unfair Trade Practices Act and unjust enrichment and negligent misrepresentation. It seeks to certify a class of all people who purchased tickets to and attended at least two Circle of Success events from 2009 to the present “in pursuit of Herbalife's business opportunity” – a description that could comprise hundreds of thousands, the suit said.
The suit alleges that these top distributors conspired with the company to build up the Circle of Success scheme, driving the program through their many appearances as guest speakers, in which they delivered repeated claims that attending all Circle of Success events is necessary and would directly lead to success within the Herbalife business model.
The complaint says that individual Defendants also benefited financially through their ownership of the various regional events and sale of tickets. They also often rely on lower-tier, ticket-buying distributors' voluntary work to run them, according to the complaint. The complaint details the systemic, scripted nature of these events, divided into separate tiers of semi-local Success Training Seminars, semi-annual Leadership Development Weekends, and “Extravaganza” and “January Spectacular” events run by Herbalife itself.
Ticket prices ranged from $30 to $200 and often required travel for attendees, who are also given incentives to make thousands of dollars in product purchases to achieve VIP status and other perks.
In August 2018, Judge Cooke said she was not convinced by the former distributors' argument that their agreements were illusory, but she found that only four Plaintiffs – Jennifer and Michael Lavigne, Cody Pile and Felix Valdez – had valid arbitration clauses in their agreements that pertained to their claims against Herbalife itself, and only the other four – Jennifer Ribalta, Jeff and Patricia Rodgers, and Izaar Valdez – had valid forum selection clauses that required their claims against the company to be transferred to California. Judge Cooke denied both motions with respect to the individual Defendants.
The Plaintiffs are represented by Etan Mark, Donald J. Hayden and Lara O'Donnell Grillo of Mark Migdal & Hayden and Jason Jones. The case is Rodgers et al. v. Herbalife Ltd. et al. (case number 18-14048) in the U.S. Court of Appeals for the Eleventh Circuit.
Recent Settlements In Class Action Litigation
Activity around the country in class action litigation, because of the effects of COVID-19, has been slowed. But things are expected to pick up very soon. Even so, there have been several settlements in class action cases recently. The following are some interesting examples.
Facebook's $650 Million Biometric Deal Gets Initial Approval
A California federal judge preliminarily approved Facebook's revised $650 million biometric privacy settlement with a class of Illinois users after rejecting a previous $550 million version of the deal. In an Aug. 19 order, U.S. District Judge James Donato said the parties' revised settlement agreement addresses his “serious concerns” about their previous proposal, which the judge had criticized for being too small and having broad release provisions. “The revised settlement agreement and additional information presented by the parties have resolved the court's concerns,” the order says. “Consequently, preliminary approval of the class action settlement is granted.”
If approved, the settlement would resolve a five-year-old consolidated class action over claims the social media giant breached the Illinois Biometric Information Privacy Act by using facial recognition technology without users' consent to fuel its photo tag suggestion feature.
Facebook also agreed to provide nonmonetary injunctive relief by setting all default face recognition user settings to “off” and by deleting all stored face templates for class members unless Facebook obtains their express consent.
Days before a hearing was set in July, the parties filed a motion asking the judge to preliminarily approve a revised $650 million settlement, which attempted to address Judge Donato's concerns. The new deal narrowed the release provision and class members could receive between $200 and $400, while class counsel would seek up to $110 million in fees plus expenses.
The settlement covers a certified class of Facebook users located in Illinois for whom Facebook created and stored a face template after June 7, 2011.
A hearing on the settlement's final approval is set for Jan. 7, 2021.
The class is represented by Paul Jeffrey Geller, Stuart A. Davidson, Christopher C. Gold, Shawn A. Williams, John H. George, Patrick J. Coughlin, Ellen G. Stewart, Lucas F. Olts and Randi D. Bandman of Robbins Geller Rudman & Dowd LLP, Rafey S. Balabanian, Jay Edelson, J. Aaron Lawson, Lily Hough, Ryan D. Andrews, Benjamin Richman and Alexander G. Tievsky of Edelson PC and by Michael P. Canty and Corban S. Rhodes of Labaton Sucharow LLP.
The case is In re: Facebook Biometric Information Privacy Litigation, (case number 3:15-cv-03747), in the U.S. District Court for the Northern District of California.
Spectrum Brands Agrees To $39 Million Stock-Drop Settlement
Investors in household products company Spectrum Brands Holdings have asked a Wisconsin federal judge to approve a $39 million settlement agreement that would end claims that the company misled shareholders about the progress of its efforts to consolidate its facilities.
In a motion filed on Aug. 10, lead Plaintiffs the Public School Teachers' Pension and Retirement Fund of Chicago and the Cambridge Retirement System told U.S. District Judge James D. Peterson that the multimillion-dollar settlement sum was equal to about 12% of the maximum damages the class realistically could have recovered at trial.
In the most recent version of their proposed class action complaint, the investors claimed that Spectrum kept them in the dark about problems it experienced as it tried to centralize the facilities used by two of its divisions. In statements to investors, Spectrum had characterized its consolidation plans as a way for the company to save money, streamline its supply and distribution chains and make its customer service better. But instead of improving Spectrum's prospects, “the consolidations turned into what both the company and analysts later called ‘self-inflicted wounds' that materially impacted the company's financial performance, destroyed major customer relationships, and wrecked management credibility,” the investors said in their amended complaint, which they filed in July 2019.
The co-lead Plaintiffs and the proposed class are represented by Katherine M. Sinderson, Jai Chandrasekhar, Matthew Traylor and Avi Josefson of Bernstein Litowitz Berger & Grossmann LLP and Douglas M. Poland of Stafford Rosenbaum LLP.
The case is In re Spectrum Brands Securities Litigation (case number 3:19-cv-00347) in the U.S. District Court for the Western District of Wisconsin.
Credit Suisse Gets Initial Approval For $15.5 Million Write-Down Settlement
A New York federal judge gave a preliminary approved on Aug. 24 to a $15.5 million settlement between Credit Suisse and investors who sued the bank alleging it hid problems with risk management in its fixed-income franchise before $1 billion in write-downs in 2016.
The four pension funds that are leading the class asked U.S. District Court Judge Lorna G. Schofield in July to approve the $15.5 million cash settlement after the case's court-ordered mediation in March 2019.
The December 2017 lawsuit claimed Credit Suisse and several of its executives lied about risk limits and risk controls on its 2014 annual report, and misled investors in an Oct. 21, 2015, press release and earning call about the extent of the investment bank's positions in its distressed portfolio – collateralized loan obligations and distressed debt – and the riskiness of those investments.
Investors claimed this artificially inflated Credit Suisse's stock price and that the price dropped when the truth came out.
The shareholders said the investment bank's misstatements allowed it to amass $4.3 billion in exposure in that distressed portfolio, causing massive write-downs and a loss to investors. Expanding its investments in fixed-income markets, Credit Suisse took on $1.3 billion in collateralized loan obligations and $3 billion in distressed debt, investors said.
The bank disclosed in February 2016 that it had taken a $633 million write-down because of losses in these positions. That caused Credit Suisse's American depositary receipts to drop from $16.69 to $14.89, according to the complaint. The bank announced in March 2016 there was $346 million more in write-downs against its first-quarter earnings, a loss of almost $1 billion, according to the suit.
The settlement class includes people who acquired American depositary receipts of Credit Suisse between March 20, 2015, and Feb. 3, 2016, and who were allegedly harmed.
The co-lead Plaintiffs are the City of Birmingham Retirement and Relief System, Westchester Putnam Counties Heavy & Highway Laborers Local 60 Benefit Funds, Teamsters Local 456 Pension and Annuity Funds, and the International Brotherhood of Teamsters Local No. 710 Pension Plan.
The pension funds are represented by Carol V. Gilden, Daniel S. Sommers and Molly J. Bowen of Cohen Milstein Sellers & Toll PLLC, and Steven B. Singer, Kyla J. Stewart, Joseph E. White III, Dianne M. Anderson, Lester R. Hooker and Adam Warden of Saxena White PA.
The case is City of Birmingham Firemen's and Policemen's Supplemental Pension System et al. v. Credit Suisse Group AG et al. (case number 1:17-cv-10014) in the U.S. District Court for the Southern District of New York. A hearing for final approval will be held on Dec. 10.
Huntington Bancshares Settles ERISA Suit For $10.5 Million
Huntington Bancshares Inc. has agreed to a $10.5 million settlement of a proposed class action that challenges its decision to make allegedly underperforming company-owned mutual funds the centerpiece of its 401(k) plan. A group of participants in Huntington's 401(k) plan have asked an Ohio court for preliminary approval of the class action settlement. If approved, the settlement would require Huntington to place $10.5 million in a settlement fund to be distributed to approximately 38,851 class members after attorney fees, case expenses and payments to the lead Plaintiffs, according to a memorandum in support of the motion.
The proposed class consists of current and former employees of Huntington Bancshares Inc. and its subsidiaries. Huntington is a Columbus, Ohio-based bank holding company that runs the Midwestern banking chain Huntington National Bank. The proposed class sued Huntington in December 2017, accusing it of running the plan more for the company's benefit than workers' benefit. Huntington stuffed its 401(k) plan with its own mutual funds, even though these products weren’t doing well, and set the plan's administrative fees way too high, the proposed class alleged.
The suit accused the plan's oversight committee and Huntington's board of directors of “us[ing] their control of the plan to position Huntington to profit from the demise of [its] mutual fund business.” The suit named the committee, the board of directors and Huntington Bancshares as Defendants. U.S. District Judge Michael H. Watson has reduced the proposed class action in September 2019, but refused to dismiss it entirely.
The proposed class is represented by Kai H. Richter, Paul J. Lukas, Brock J. Specht, Brandon McDonough and Ben Bauer of Nichols Kaster PLLP and Robert E. DeRose of Barkan Meizlish Handelman Goodin Derose Wentz LLP.
The case is Karpik et al. v. Huntington Bancshares Inc. et al. (case number 2:17-cv-01153) in the U.S. District Court for the Southern District of Ohio.
Walmart Will Pay Up To $9.5 Million In Meat Overcharge Suit
Walmart has agreed to pay up to $9.5 million and change certain business practices in order to settle a putative class action in Florida federal court. It was alleged that the retail giant has for years used sales prices to overcharge potentially millions of customers nationwide for its packaged meat products.
To settle the lawsuit brought by Walmart Inc. customer Vassilios Kukorinis, the retailer has agreed to pay at least $4.5 million and up to $9.5 million to reimburse a proposed class of U.S. customers who purchased weighted goods with inaccurate final sale prices dating back to Feb. 13, 2015. “Hundreds of thousands, if not millions, of consumers over this more than five-year period would potentially fall into the settlement class,” according to the proposed settlement agreement.
The settlement also requires Walmart “to maintain certain business practice commitments relating to remediation of the pricing and marking of weighted goods.” Those commitments will be paid for by Walmart separate from the qualified, nonreversionary settlement fund. Kukorinis, a Florida resident, brought his putative class action against Walmart in February 2019, alleging that it “reaped millions of dollars in unlawful gains” by advertising false unit prices for perishable goods. Kukorinis says he purchased weighted goods, including spiral hams and pork loins, at Walmart stores in Florida with yellow sales labels stating incorrect unit prices.
Judge Martinez found that because Kukorinis had spelled out specific instances in which he purchased meat products from Walmart for a higher price than the unit price listed, he had alleged concrete harm. The judge also kept intact Kukorinis' alternative unjust enrichment claim, saying in June that it would be inequitable to allow Walmart to retain extra profits received from the sale of items listed with incorrect unit prices.
Under the settlement agreement, Walmart customers who have saved their receipts and the product packaging showing the overcharge are entitled to recover the actual amount of overpayments, without any cap.
However, those customers with only receipts, but lacking proof of the actual amount overcharged, can be reimbursed for up to 24 purchases and receive up to $40 in total. Customers with no documentation of their overpayments are also entitled to reimbursements for overcharges, although their reimbursement is capped at $10, according to the proposed settlement. The settlement agreement also provides named Plaintiff Kukorinis with a $25,000 service award.
The class is represented by John A. Yanchunis and Ryan McGee of Morgan & Morgan Complex Litigation Group. The case is Kukorinis v. Walmart Inc. (case number 1:19-cv-20592) in the U.S. District Court for the Southern District of Florida.