July 23, 2020 - This Week at the Ninth

This Week at The Ninth: Settlement Classes and State Action

This week, we highlight two decisions revisiting (largely) settled principles of civil procedure and constitutional law. In the first, the Court reaffirmed its recent decision holding that a district court generally need not conduct a choice-of-law analysis before certifying a class for settlement. In the second, the Court confirmed that a private employer does not become a Fourteenth Amendment state actor simply by receiving government funding and complying with generally applicable laws.

JABBARI v. WELLS FARGO & CO.
The Court holds that in certifying a settlement class where there may be variations in the state laws under which class members’ claims are brought, a district court generally need not conduct a choice-of-law analysis.

Panel: Judges Gould, Murguia, and Feinerman (N.D. Ill.), with Judge Gould writing the opinion.

Key Highlight: “[A]s a general rule, a district court does not commit legal error by not conducting a choice-of-law analysis, despite variations in state law, before determining that common issues predominate for a settlement class. For purposes of a settlement class, differences in state law do not necessarily, or even often, make a class unmanageable.”

Background: Plaintiffs sued Wells Fargo for allegedly opening multiple accounts in customers’ names without the customers’ consent. They claimed that Wells Fargo had not only charged fees on the unauthorized accounts, but also sold credit-protection products to these same customers for the credit damage the unauthorized accounts caused. The plaintiffs alleged violations of the federal Fair Credit Reporting Act (FCRA) and various state laws.

The parties reached a class-wide settlement, and the district court certified a nationwide settlement class. Certain objectors appealed on the ground that the district court failed to conduct a choice-of-law analysis to determine which state’s law applied to the class members’ state-law claims. Without this choice-of-law analysis, the objectors asserted, the district court could not have properly determined whether common questions of law or fact predominated, a prerequisite for certification under Rule 23(b)(3).

Result: The Ninth Circuit affirmed. The Court reasoned that although the “potential applicability of variations in state law can complicate the predominance determination,” a court’s task in assessing predominance is to “determine which questions are likely to ‘drive the resolution of the litigation.’” And in Hanlon v. Chrysler Corportation and In re Hyundai & Kia Fuel Economy Litigation, the Ninth Circuit had previously upheld orders certifying settlement classes even where the district court had conducted no choice-of-law analysis concerning the class members’ state-law claims. Reading the en banc decision in Hyundai to establish that it “generally is not legal error to forego a choice-of-law analysis in a settlement class,” the Court concluded that is particularly true where the plaintiffs “assert a federal claim common to all class members.” Here, the Court explained, the plaintiffs’ FCRA claim was itself “important enough to bind the class together,” and thus no state-law analysis was required to determine predominance.

HEINEKE V. SANTA CLARA UNIVERSITY
The Court holds that a private university’s receipt of state or federal funds, and its compliance with generally applicable state or federal laws, does not transform the university into a “state actor” for purposes of the Fourteenth Amendment.

Panel: Judges Paez, Bea, and Adelman (E.D. Wis.), with Judge Paez writing the opinion.

Highlight: “[R]eceipt of federal and state funds conditioned on compliance with anti-discrimination laws is insufficient to convert private conduct into state action.”

Background: John Heineke was a tenured economics professor at Santa Clara University (“SCU”). After two students filed unconnected complaints alleging that Heineke sexually harassed them, the university conducted a lengthy internal process, which culminated in a unanimous decision by the Faculty Judicial Board to terminate Heineke’s employment. Heineke sued SCU under 42 U.S.C. § 1983, alleging violations of his Fourteenth Amendment rights to equal protection and due process. The district court dismissed Heineke’s complaint, concluding that SCU was not a state actor and that it therefore could not have violated the Fourteenth Amendment.

Result: The Ninth Circuit affirmed. Starting from the “presumption that private conduct does not constitute government action,” the Court addressed the two limited exceptions to this rule that Heineke contended were applicable. Under the “government compulsion” theory, private conduct may be considered governmental action where the state has “‘exercised coercive power or has provided such significant encouragement’ that the challenged action must be considered that of the state.” Alternatively, under the “joint action” theory, private conduct becomes state action when the state has “knowingly accept[ed] the benefits derived from unconstitutional behavior” by the private actor. While Heineke acknowledged SCU is a private university, he contended it was a state actor under these exceptions because it had been compelled by the state to enact anti-harassment policies to receive government funding.

The Ninth Circuit rejected these contentions, holding that neither SCU’s receipt of government funding, nor the state’s requirement that SCU comply with generally applicable state or federal laws, converted the private school into a state actor. The Court reasoned that a contrary conclusion would “upend our nation’s civil rights laws” by converting every private employer into a government actor any time it complied with any state or federal requirements. The Court suggested that the result might be different where a state government actually “commanded a particular result in, or otherwise participated in, [a] specific case.” Heineke, however, had made no such allegation.