Significant new class action decision: Hypertouch, Inc. v. Superior Court
Yesterday, in Hypertouch, Inc. v. Superior Court, ___ Cal.App.4th ___ (May 5, 2005), the Court of Appeal (First Appellate District, Division Two) invalidated "opt-in" classes, holding that requiring class members to affirmatively request inclusion in the class proceeding "is not necessitated by due process, conflicts with the applicable rules of court, and undermines the purpose of class actions." (Slip op. at 5.) That is a significant holding.

The plaintiff in Hypertouch sued the defendant for sending thousands of junk faxes in violation of the Telephone Consumer Protection Act of 1991 (47 U.S.C. section 227) and the UCL. (Slip op. at 1.) Class certification was granted, but then the trial court ordered that to remain in the class, class members would have to respond affirmatively to the class notice and ask to be part of the case. (Slip op. at 4.) This is known as an "opt-in" class.

Defendants sometimes argue that class certification should be granted, if at all, only on an "opt-in" basis, rather than the usual "opt-out" basis. In fact, I have a class certification opposition brief on my desk right now that makes that very argument. As the Hypertouch court observes, defendants favor "opt-in" class actions because they "inevitably—and sometimes significantly—reduce the size of the class." (Slip op. at 11.) The smaller the class, the smaller the potential exposure. Hypertouch puts an end to that kind of strategy:

An "opt-in" procedure does not protect the integrity of the class action process either by increasing the likelihood members of the class will actually receive notice or in any other way. On the contrary, as we have seen, because it invariably decreases the number of class members bound by the judgment and thereby increases the likelihood of redundant litigation, the "opt-in" approach undermines the integrity of that process.

(Slip op. at 21.) The Court was careful to distinguish "opt-in" classes, in which class members are required to affirmatively seek inclusion in a case before liability has been adjudicated, from requiring class members to submit claim forms after judgment to establish the amount of their share in the award. The opinion also does not address "claims-made" settlements, in which the defendant pays only those class members who respond to the settlement notice.

Because the Hypertouch Court invalidated the trial court's "opt-in" procedure, and because class members had already received "opt-in" notices, the question of notice had to be revisited. The Court held that it is appropriate for defendants to bear the cost of notice if they either "unnecessarily complicated the problems of identifying and notifying the class" or "possess the ability to provide class notice easily and at relatively little cost." (Slip op. at 26.) In this case, the defendant could be ordered to provide notice by fax to everyone on its fax database. (Slip op. at 28.) "The [Telephone Consumer Protection Act] creates no impediment to the transmission of court ordered notice via telephone facsimile machine, as it only prohibits the sending of an 'unsolicited advertisement' in that manner." (Slip op. at 28 fn.17.) I love the irony of that.
- posted by Kim Kralowec @ 10:01 AM