Beware of What You Wish For: The Nationwide
Class Action Trap
By Anthony C. Valiulis
Companies that do business with consumers nationwide often hope to ensure uniformity in case of disputes. Likewise, those that primarily do business in Illinois may want to make sure they will be able to resolve all disputes in Illinois and that Illinois law will apply. As many companies are learning, that very rational approach is having unforeseen and dire consequences.
In order to ensure uniformity, a company might insert into its contracts, license agreements and other documents a clause requiring that all disputes be subject to Illinois law and be resolved either in the Illinois courts or before an Illinois arbitration panel. Some companies, however, are now finding out that this seemingly innocuous provision is used by resourceful plaintiff's counsel as a basis to file nationwide class actions. Although onerous consumer class actions have been generally disfavored under recent Illinois decisions (see Avery v. State Farm Mut. Auto Ins. Co.), plaintiff's counsel have been much more successful when a dispute resolution clause is involved. Indeed, this is what happened in Hall v. Sprint Spectrum LP, a very recent decision by the Illinois appellate court.
In that case, a nationwide class filed suit against Sprint, accusing the company of wrongful conduct in connection with the cancellation of telephone accounts. Because there was a contract provision mandating that Illinois law must apply to all customers, the plaintiffs were able to convince both the trial and appellate courts to certify a nationwide class, overcoming the obstacles that often prevent class certification in other similar cases.
Taking a lesson from the Sprint case, if your business sells products to consumers throughout the country and you include license agreements containing provisions that require, for example, the application of the law of a particular state, you should seriously reconsider that approach. Perhaps it would be sufficient simply to require that disputes be resolved in a particular state, but leave the question of the applicability of the law to be determined ad hoc. This model would give you the benefit of having your choice of forum and still allow you to defend against the certification of a nationwide class.
In this litigious age, even the most careful companies face the threat of class actions. One way to reduce your risk and lessen potential damages, especially for a nationwide class, is to revise your forum selection clauses. Uniformity is not always the best course.
Much Shelist has successfully defended clients that have been sued by a class, especially in connection with consumer-based claims. If you have questions or would like to discuss any of these issues, please contact a member of our Class Action Defense practice:
Anthony C. Valiulis, 312.521.2691 or tvaliulis@muchshelist.com
Steven P. Blonder, 312.521.2402 or sblonder@muchshelist.com
Melinda J. Morales, 312.521.2434 or mmorales@muchshelist.com
Anthony C. Valiulis is an accomplished litigator with 32 years of experience in a broad range of state and federal civil trial and appellate matters. A principal of the firm since 1979, Tony served as Chair of the Litigation & Dispute Resolution group for more than 20 years. His practice encompasses all types of complex business litigation, concentrating in three major areas: business disputes, non-compete agreements and insurance coverage. Tony represents both plaintiffs and defendants in a myriad of areas, including business fraud, unfair competition, labor-related litigation, intellectual property matters and business torts. Tony can be reached at 312.521.2691 or tvaliulis@muchshelist.com.
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