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March 2010

Ninth Circuit Court Holds That Prior Nationwide Class Action Settlement Did Not Bar Present Complaint

Christopher W. Hesse v. Sprint Corporation, March 10, 2010 - 2010 DJDAR 3637

The Ninth Circuit recently held that broad release language in a prior nationwide class action settlement did not preclude the instant class action lawsuits because class representatives in the nationwide class action were not adequate representatives of the instant class and because class actions were not premised on "Identical Factual Predicate".

In Hesse v. Sprint Corporation, plaintiffs filed separate putative class action lawsuits in state court in Washington against Sprint Corporation ("Sprint"). The class action complaints alleged breach of contract and unjust enrichment, as well as violations of the state's Business & Occupation Tax ("B&O tax") and Consumer Protection Act ("CPA"). The complaints alleged that Sprint unlawfully passed the B&O tax on to consumers. Hesse v. Sprint Spectrum LP. The complaints asserted that Sprint included "a separate line item labeled 'Washington State B&O Tax Surcharge'" on customer invoices, however "Washington law specifies that the B&O tax must be collected from a business as part of its 'operating overhead' rather than imposed as a separate 'tax[] upon purchasers or customers."

The defense removed the class actions to federal court, and moved to dismiss the class action complaints. The district court granted the motion with respect to all class action claims "predicated on the B&O Tax Statute," finding that the claims were preempted by the Federal Communications Act. The court otherwise denied the motion to dismiss.

The class action complaints were eventually consolidated, and the district court certified the litigation as a class action. Thereafter, Sprint answered the class action complaint and then moved for summary judgment on the grounds that the claims were "barred by a [nationwide class action] settlement between Sprint and its customers approved by a Kansas state court in 2006" known as the Benny Settlement. The district court granted the motion, concluding that the prior class action settlement barred the instant lawsuit. The Ninth Circuit reversed.

The Ninth Circuit held that the Benny Settlement did not bar the instant class action claims for two reasons. First, it found that the class representative in Benny "was not an adequate representative for the claims asserted by the Washington Plaintiffs." The Court noted that Benny was a Missouri resident and therefore had no interest or incentive in compelling compliance with Washington's B&O tax. The Ninth Circuit further recognized a conflict of interest between Benny and the Washington plaintiffs in that Benny's interest was "in settling his federal Regulatory Fees claims, even at the cost of a broad release of other claims he did not possess." The Ninth Circuit also held that the Benny Settlement did not act as a bar to the current class action because the instant lawsuit was not "based on the identical factual predicate as that underlying the claims in the settled class action."The Ninth Circuit observed that, "It seems to us unlikely that a plaintiff class's claims would ever be based on the identical factual predicate as the claims of a third party who did not adequately represent the class's interests." Accordingly, the Ninth Circuit reversed the district court order granting summary judgment and remanded the class action.

Notably, the Ninth Circuit also reversed the district court order dismissing the class action's B&O tax claims, holding that those claims were not preempted by the Federal Communications Act.

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