Third Circuit Finds ADT Consumer Class Action Correctly Returned to State Court

The Third Circuit upheld a decision to remand a class action to state court, agreeing that one of the defendants  could not be disregarded as a “nominal party” even though it had transferred all of its contracts, assets, debts, and liabilities to another company. Walsh v. Defenders, Inc., Civ. No. 18-2156 (3d Cir. July 2, 2018).

The plaintiff is a New Jersey citizen who filed a class action, consumer fraud complaint in New Jersey state court relating to cancellation fees under contracts for home security equipment.  The plaintiff named three entities as defendants: Defenders, Inc., an Indiana citizen; ADT Security Services, Inc., n/k/a Tyco Integrated Security LLC (ADT SSI-TYCO), a New Jersey citizen; and ADT LLC, a Delaware citizen.  The Defendants argued that ADT SSI-TYCO should be disregarded as a “nominal party” for purposes of determining Class Action Fairness Act (CAFA) diversity jurisdiction because years before the suit, it had transferred all its assets and liability to ADT LLC.

Rejecting this argument and finding that ADT SSI-TYCO was a real party to the suit, the Third Circuit noted that, though ADT SSI-TYCO transferred the contracts and related liabilities to co-defendant ADT LLC, it nonetheless continued in operation and serviced the commercial contracts. Because ADT SSI-TYCO remainaaked an active company, its transfer of assets and liabilities could not discharge claims unless the plaintiff consented to the transfer and discharge.

The Third Circuit then affirmed the District Court’s ruling that the case fit the “local controversy exception” to the federal court’s CAFA jurisdiction—ADT SSY-TYCO is a New Jersey citizen, just like the named plaintiff, and its conduct formed a significant basis for the claims asserted.

The Third Circuit’s decision highlights the difficult questions that can arise when a company merges with or sells assets to a different entity.  These issues can be amplified in the class action context where a party’s citizenship can make the difference in keeping the case in state court and out of federal court.

For more information on the Walsh decision and on jurisdictional issues, please contact Kathleen Barnett Einhorn, Esq., Director of the firm’s Complex Commercial Litigation Group at keinhorn@genovaburns.com, or Jennifer Borek, Esq., a Partner in the Complex Commercial Litigation Group at jborek@genovaburns.com.

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Supreme Court Clarifies Appeal Timing for Consolidated Cases

The U.S. Supreme Court has ruled that when a final decision has been issued in one of several consolidated civil cases, the losing party can immediately appeal, even if other of the consolidated cases are ongoing. Hall v. Hall, No. 16-1150.

The decision, though technical, resolves an issue that has vexed lower courts and litigants.  Federal Rule of Civil Procedure 42(a) gives the district courts broad discretion to consolidate different actions involving “common questions of law or fact.” Hall involved cases consolidated in the Federal District Court in the Virgin Islands, relating to an inter-family dispute between siblings about rents collected for a vacation home.  At trial, the jury ruled against the daughter in both cases, awarding the son $2 million in damages, but entering separate judgments. The daughter appealed the judgment in one case, even though post-trial proceedings remained in the individual case.

The Third Circuit Court of Appeals dismissed the appeal stating that it lacked jurisdiction because the trust judgment was not final when the claims concerning the individual case remained in the district court.

Reversing the Third Circuit, the unanimous Supreme Court (in a decision authored by Chief Justice John Roberts) explained that had the actions not been consolidated, there would be no issue as to whether the daughter had the right to appeal the judgment in the trust case because the litigation was final. After reviewing cases from the founding of the country and the original 1813 statute, the Court held that that consolidation is a matter of convenience and judicial economy and does not merge the suits or change the rights of parties or make a party to one action a party to another consolidated action.

For unsuccessful litigants whose cases have been consolidated, the decision in Hall reaffirms their ability to appeal immediately without waiting for the rest of the consolidated cases to finish.  On the flip side, parties must now be alert and understand that even though two or three cases between the same or similar defendants and different plaintiffs have been consolidated, the time to appeal for one case will begin to run.  The decision will most likely impact large companies that are often the target of class action, product liability, or mass tort litigation where there are a vast number of claims against them and similar defendants.

For more information on the Supreme Court’s decision, please contact Kathleen Barnett Einhorn, Esq., Director of the firm’s Complex Commercial Litigation Group at keinhorn@genovaburns.com, or Jennifer Borek, Esq., Partner in the Complex Commercial Litigation Group at jborek@genovaburns.com.

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