Ninth Circuit Spokeo Decision on Remand Lays the Groundwork for Establishing a Concrete Injury-in-Fact
Rebekah S. Guyon and Breeanna N. Brewer
Greenberg Traurig, LLP
In Robins v. Spokeo, Inc., __ F. 3d __, 2017 WL 3480695 (9th Cir. Aug. 15, 2017), on remand from the Supreme Court, the Ninth Circuit clarified when an intangible injury is “sufficiently concrete” for Article III’s standing requirements.
The Ninth Circuit recognized that in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016) (“Spokeo II”), the Supreme Court made clear that “a plaintiff does not ‘automatically satisfy the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right.’” Robins, 2017 WL 3480695, at *3 (quoting Spokeo II, 136 S. Ct. at 1549). Rather, to establish a “concrete injury” sufficient for Article III standing, “the plaintiff must allege a statutory violation that caused him to suffer some harm that ‘actually exist[s]’ in the world; there must be an injury that is ‘real’ and not ‘abstract’ or merely ‘procedural.’ . . . In other words, even when a statute has allegedly been violated, Article III requires such violation to have caused some real—as opposed to purely legal—harm to the plaintiff.” Robins, 2017 WL 3480695, at *3 (quoting Spokeo II, 136 S. Ct. at 1548-49). Nonetheless, the Ninth Circuit concluded, citing Second Circuit precedent, that under Spokeo II “some statutory violations, alone, do establish concrete harm,” particularly where “‘Congress conferred the procedural right to protect a plaintiff’s concrete interests and where the procedural violation presents ‘a risk of real harm’ to that concrete interest.’” Robins, 2017 WL 3480695, at *4 (quoting Strubel v. Comenity Bank, 842 F.3d 181, 190 (2d Cir. 2016)). Thus, to evaluate whether a plaintiff’s claim of intangible harm is sufficiently “concrete,” a court is to consider: “(1) whether the statutory provisions at issue were established to protect [plaintiff’s] concrete interests (as opposed to procedural rights), and if so, (2) whether the specific procedural violations alleged in this case actually harm, or present a material risk of harm to, such interests.” Robins, 2017 WL 3480695, at *4.
Applying this analysis to Robins’s claims under the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq. (“FCRA”), the Ninth Circuit found that the purpose of the FRCA was “‘to protect consumers from the transmission of inaccurate information about them’ in consumer reports.” Id. at *4 (quoting Guimond v. Trans Union Credit Info. Co., 45 F.3d 1329, 1333 (9th Cir. 1995)). The Ninth Circuit “ha[d] little difficulty concluding that these interests protected by FRCA’s procedural requirements are ‘real,’ rather than purely legal creations.” Id. The Ninth Circuit noted that consumer reports are important in modern life, and have real-world implications, including on employment decisions, loan application decisions, and home purchases. Id. “The threat to a consumer’s livelihood is caused by the very existence of inaccurate information in his credit report and the likelihood that such information will be important to one of many entities who make use of such reports. Congress could have seen fit to guard against that threat.” Id. The Ninth Circuit also noted that the FCRA protects interests similar to other reputational and privacy interests that have “long been protected in the law,” such as common law prohibitions on the dissemination of private information and libel. Id. at 13-14. Based on Congress’s enactment of the FCRA and the similarity between interests protected under the statute and those that are historically protected at common law, the Ninth Circuit held that the FCRA was crafted to protect consumers’ concrete interests in accurate credit reporting about them. Id. at 5.
Finding the first criteria satisfied, the Ninth Circuit analyzed whether Robins had alleged FCRA violations that actually harmed, or at least actually created a material risk of harm, to his concrete interest in accurate credit reporting about him. Id. Robins alleged that Spokeo prepared and published online an inaccurate credit report about him, which falsely reported his marital status, age, educational background, and employment history. Id. at *6. “His claim thus clearly implicates, at least in some way, [his] concrete interests in truthful credit reporting.” Id. But, the Ninth Circuit held that it was insufficient to allege some inaccurate disclosure of his information alone; rather, the nature of the specific alleged reporting inaccuracies must “raise a real risk of harm to the concrete interests that the FRCA protects.” Id.
The Ninth Circuit found that the false information in the credit report was of the type that is important to employers and others making use of consumer reports. Id. at *7. Robins alleged specific harms from the inaccurate report—the report allegedly harmed “‘[his] employment prospects’ by misrepresenting facts that would be relevant to employers,” causing him “‘anxiety, stress, concern and/or worry about his diminished employment prospects’ as a result.” Id. Even though the false information regarding Robins was not negative (it overstated, rather than understated, his qualifications), the Ninth Circuit reasoned that the false information could still cause prospective employers to question his truthfulness or to believe that he is overqualified for the position sought. Id. Thus, Spokeo’s procedural violation of the FCRA raised a real risk of harm to Robins’s concrete interest in accurate credit reporting protected by the FCRA, and Robins alleged a sufficiently concrete injury. Id.
Finally, the Ninth Circuit rejected Spokeo’s argument under Clapper v. Amnesty Int’l USA, 133 S. Ct. 1138, 1143 (2013), that Robins’s allegations were too speculative to establish concrete injury because they were premised on future harm to his employment prospects. Robins, 2017 WL 3480695,at *7. The Ninth Circuit distinguished Clapper, stating that in Clapper, the allegedly harmful conduct was threatened, but had not occurred, whereas here, the allegedly harmful conduct—inaccurate reports—and the resulting injury had already occurred. Id. at *7-8. Moreover, Clapper did not address the concreteness of intangible injuries like those alleged by Robins. Id.
In sum, in its remand decision from Spokeo II, the Ninth Circuit affirmed that a plaintiff may establish the “concrete injury” requirement of Article III standing where the plaintiff can show both that a federal statute allegedly violated was designed to protect the plaintiff’s concrete interests, and the alleged violation actually harms, or creates a material risk of harm, to those interests.
David M. Goldstein
Orrick Herrington & Sutcliffe LLP
In a decision welcomed by the defense bar, the Second Circuit held that Uber and its former CEO could compel arbitration of an Uber user’s claim alleging that Uber’s software application allowed third-party drivers to unlawfully fix prices. The Second Circuit’s decision provides helpful guidance to companies regarding the types of website disclosures that may be sufficient to put customers on notice of arbitration provisions in their contracts, at least under New York choice of law rules and Second Circuit precedent. Spencer Meyer v. Uber Technologies, Inc., et al., Nos. 16-2750-cv, 16-2752-cv (2d Cir. Aug. 17, 2017).
Plaintiff originally sued only Uber’s former CEO, but the district court granted his motion to join Uber as a necessary party. After the parties began to exchange discovery materials, defendants filed a motion to compel arbitration. The court denied the motion on the grounds that plaintiff did not have reasonably conspicuous notice of the Terms of Service and did not unambiguously assent to the terms. The district court did not reach issues such as waiver and whether the CEO, who was not a signatory, could enforce the arbitration agreement. The Second Circuit granted interlocutory review under 9 U.S.C. § 16 and the district court stayed the case pending the appeal.
Applying the Federal Arbitration Act, the Second Circuit conducted a de novo review and applied the familiar standards for a summary judgment motion based on the undisputed facts before the court, including that plaintiff’s claims were covered by the arbitration provision of the Terms of Service. The Second Circuit agreed with the district court that California law governed the enforceability of the arbitration provision, and that California law and New York law are substantively similar for determining whether parties mutually assented to contact terms. It applied a standard that “only if the undisputed facts establish there is ‘[r]easonably conspicuous notice of the existence of contract terms and unambiguous of assent to those terms’ will we find a contract has been formed.” Op. at 16 (citing Sprecht v. Netscape Commc’ns Corp., 306 F.3 17, 35 (2d Cir. 2002).
The court accepted plaintiff’s representation that he was not aware of the existence of the Terms of Service or the arbitration provision, but in determining whether the provision was “reasonably conspicuous” the court applied the perspective of a “reasonably prudent smartphone user.” Op. at 22. Noting the ubiquity of smartphones, the activities smartphone users engage in, and that text that is highlighted in blue and underlined is a hyperlink to another webpage where additional information is found, the court “conclude[d] that the design of the screen and language used render the notice provided reasonable as a matter of California law.” Op. at 24. The court explained that the screen layout—the opinion includes screenshots of what the screen would have looked like on plaintiff’s Samsung Galaxy S5—as well as the fact that the hyperlink to the Terms of Service was provided simultaneously with enrollment, meant that a “reasonably prudent smartphone user would understand that the terms were connected to the creation of a user account.” The court emphasized that in light of this sort of constructive notice, it does not matter if the user chooses not to read the terms and conditions. Op. at 25-27. The court also rejected plaintiff’s argument that placing the arbitration clause within the Terms and Conditions was a barrier to reasonable notice. Thus, the Uber App provided reasonably conspicuous notice of the Terms of Service as a matter of California law, the court reasoned.
The Second Circuit ruled that although plaintiff’s assent to arbitration was not express, it was unambiguous in light of the objectively reasonable notice of the Terms and Conditions. In other words, the court held, a “reasonable user would have known that by clicking the registration button, he was agreeing to the terms and conditions accessible via the hyperlink, whether he clicked on the hyperlink or not.” Op. at 29. This was buttressed by the fact that the plaintiff had located and downloaded the Uber App, registered for an account, and provided his credit card information to create a forward-looking relationship with Uber—and the payment screen provided clear notice that terms and conditions governed that relationship. The court concluded that as a matter of law, plaintiff agreed to arbitrate his claims with Uber.
Since the facts regarding the arbitration provision and registration process were undisputed, the court did not remand to the district court for a trial on that issue. However, plaintiff had also argued that Uber waived its right to arbitrate by actively litigating the lawsuit. The Second Circuit determined that the waiver issue should be decided by the district court rather than in the arbitration, and for that reason remanded the case to the district court. (Plaintiff asked the Second Circuit to amend the decision to clarify that the district court may consider the issue of whether the payment screen was immediately replaced by a new screen that did not include any hyperlink to Uber’s Terms of Service. The Second Circuit denied the motion but its order clarified that plaintiff may raise the issue in the district court without foreclosing defendants from arguing waiver.)
The Second Circuit’s detailed analysis of both the web screens and the process for registration—as well as including as exhibits the screens evaluated in its decision—may provide guidance to companies that have web-based platforms and contracts for their users. For the plaintiffs’ bar, the decision also provides clarity regarding the types of claims that may or may not survive a motion to compel arbitration in the Second Circuit.
Pritzker Levine, LLP
On July 28, 2017, Judge Lucy H. Koh denied Apple, Inc.’s motion to dismiss plaintiffs’ first amended complaint in Grace v. Apple Inc., 2017 WL 3232464 (N.D. Cal. July 28, 2017), rejecting Apple’s arguments that plaintiffs lacked the requisite Article III standing and finding that plaintiffs sufficiently alleged claims for trespass to chattel and violation of California’s Unfair Competition Law (“UCL”), when Apple disabled FaceTime on iPhones with iOS6 or operating earlier systems.
Plaintiffs allege that Apple intentionally “broke” the FaceTime videoconferencing feature on its iPhone 4 and 4S devices to reduce royalty fees Apple was forced to pay for users to connect with one another via the feature. Apple also allegedly misrepresented to consumers the cause of the “break”, failing to inform them that Apple itself had disabled the feature.
In denying Apple’s motion to dismiss, Judge Koh applied an approach utilized by both the Northern District of California and the Ninth Circuit to confer standing on plaintiffs to assert claims for products they did not purchase so long as the products and the alleged misrepresentations are substantially similar. Her ruling also factually distinguishes decisions from other district courts that dismissed claims arising from temporary disruption of software services (see In re Sony Gaming Networks & Customer Data Security Breach, 996 F.Supp.2d 942 (S.D. Cal. Jan. 21, 2014) and Von Nessi v. XM Satellite Radio Holdings, Inc., 2008 WL 44471115 (D.N.J. Sept. 26, 2003).
All iPhones operate using a mobile operating system known as an iOS. Prior to September 2013 iPhone used iOS6 or an earlier system. The iPhone 4 was the first iPhone device to offer the “FaceTime” feature, which allows users to communicate via video calls. Starting in November 2012, as a result of unrelated patent infringement litigation, Apple’s costs to operate FaceTime (in the form of royalty fees it had to pay to a third party on a per-connection basis) increased substantially; by $3.2million per month. Id. at *2. To avoid the mounting royalty fees, Apple developed a new FaceTime connection system as part of iOS7, released in September of 2013. Id. While the upgrade to iOS7 for iPhone 4 and 4S users was free, it negatively impacted the functionality of their devices, resulting in non-responsiveness, keyboard sluggishness, device crashes, inability to use Wi-Fi or Bluetooth functions and more. Id. Once a user upgraded, Apple made it impossible for them to revert back. Id.
For those iPhone 4 and 4S users that chose not to upgrade to iOS7, Apple had to pay the royalty fees for their FaceTime connections. As a result, plaintiffs allege, Apple decided to “break” FaceTime for iOS6 and earlier operating systems by intentionally causing a digital certificate to prematurely expire on April 16, 2014, causing FaceTime to immediately stop working on the iOS6 iPhone 4 and 4S devices. Apple then misrepresented that FaceTime had stopped working because of a “bug resulting from a device certificate that expired.” Id. at *3.
Plaintiff Christina Grace is an owner of an iPhone 4 smartphone who did not upgrade to iOS7 and therefore is unable to use FaceTime on her device. Id. Plaintiff Ken Potter owns two iPhone 4 devices, one of which he updated to iOS7, which he claimed resulted in lost functionality. Id. Plaintiffs filed a class action complaint, alleging claims for trespass to travel and violation of the California UCL. Apple moved to dismiss on Article III standing and other grounds.
Article III Standing Analysis
Apple argued that plaintiffs lacked Article III standing because they did not suffer an “injury-in-fact” because a user’s ability to use the FaceTime feature “uninterrupted, continuously or error-free” is not a “legally protected interest” under Apple’s iOS Software License Agreement (“Software License”), which Apple argued expressly disclaimed such interruptions or errors. Id. at *6. The Court, in looking at the language of the Software License, was not convinced. The Software License did not indicate that the disclaimer applied to an undefined feature such as FaceTime. Id. at *6-7. And the fact that Apple did explicitly disclaim the continued availability of certain defined “Services” but yet did not similarly disclaim the availability of FaceTime or of the iOS software itself, “cut against Apple’s argument that Apple disclaimed the continued availability of FaceTime” and that “[i]f Apple wished to disclaim the availability of FaceTime or of iOS Software” it would have expressly done so. Id. at *7.
Furthermore, plaintiffs alleged that Apple intentionally and permanently disabled FaceTime on iOS6 and earlier operating systems, not that they suffered an interruption in use. The Court found this permanent unavailability differed from brief interruptions or errors, distinguishing In re Sony Gaming Networks & Customer Data Security Breach, 996 F.Supp.2d 942, 969 (S.D. Cal. Jan. 21, 2014) and Von Nessi v. XM Satellite Radio Holdings Inc., 2008 WL 4447115 (D.N.J. Sept. 26, 2003), which both dismissed alleged injuries from brief disruptions in service. Id. at *7-8.
Apple also argued that plaintiffs lacked standing to bring claims on the use of the iPhone 4S, since neither owned a 4S device and therefore did personally not suffer injuries related to a 4S device. The Court again disagreed with Apple, noting that “[t]he majority of courts in this district and elsewhere in California reject the proposition that a plaintiff cannot suffer an injury in fact based on products that the plaintiff did not buy” and that this district has “consistently applied the ‘substantially similar’ approach when analyzing standing challenges.” Coleman-Anacleto v. Samsung Elecs. Am., Inc. 2016 WL 4729302 (N.D. Cal. Sept. 12, 2016).
The Court found the “substantially similar” approach to be “consistent with the Ninth Circuit’s admonition” that courts not employ “too narrow or technical an approach” to analyzing similar but not identical injuries. Id. at *9, citing Brazil v. Dole Food Co., 2013 WL 5312418 at *4 (N.D. Cal. Sept.23, 2013) (internal citations omitted). The complaint, which alleged that owners of both the iPhone4 and iPhone 4S suffered substantially the same injury (a diminution in the value of the devices as a result of the loss of FaceTime on April 16, 2014, and were substantially similar products, was sufficient for purposes of pleading Article III standing. Id. at *10.
The Court noted that some courts reserve the question of whether a plaintiff can assert claims based upon products they did not buy until a ruling on a motion for class certification. Id. at *8, citing Forcellati v. Hyland’s, Inc., 876 F.Supp.2d 1155, 1161 (C.D. Cal. 2012); Cardenas v. NBTY, Inc., 870 F.Supp. 2d 984, 992 (E. D. Cal. 2012); Clancy v. The Bromley Tea Co., 308 F.R.D. 564, 571 (N.D. Cal. 2013); Miller v. Ghirardelli Chocolate Co., 912 F.Supp.2d 861, 869 (N.D. Cal. 2012).
Trespass to Chattels Analysis
A trespass to chattel claim lies where an intentional interference with the possession of personal property has proximately caused an injury. Id. at *11 (citation omitted). Apple challenged only that the loss of FaceTime caused an injury. Id. California law has held that injury is adequately alleged with respect to a trespass to a computer or similar device where it is plead that the purported trespass (1) caused physical damage to the personal property, (2) impaired the condition, quality or value of the personal property, or (3) deprived plaintiff of the use of personal property for a substantial time. Id. at *11, citing Fields v. Wise Media LLC, 2013 WL 5340490 at *4 (N.D. Cal. Sept. 24, 2013).
Plaintiffs’ allegations that Apple’s decision to permanently disable FaceTime harmed the intended and advertised function of the devices, and that the only alternative, transitioning to iOS7, was not practical and also resulted in loss of functionality, were held to be sufficient to support a claim for trespass to chattel. This alleged harm, the Court found, was more significant than a trespass which resulted in a reduced battery life or consumed more memory (see In re iPhone Application Litigation, 844 F.Supp. 2d 1040, 1069 (N.D. Cal. 2012)), and was “markedly different” from In re Apple & ATTM Antitrust Litigation, 2010 WL 3521965 at *6-7 (N.D. Cal. July 8, 2010) where plaintiffs lost access to their iPhones for a just few days before receiving a free replacement from Apple. Id. at *12.
California Unfair Competition Law Claims
Apple moved to dismiss plaintiffs’ UCL claim on the grounds that plaintiffs lacked statutory standing because they did not suffer an injury, failed to allege an unfair business practice, and were not entitled to any equitable relief.
The Court rejected all three arguments. Plaintiff were found to have alleged that they suffered an economic injury as a result of Apple’s permanently disabling FaceTime because it caused a significant decrease in the value of their iPhone devices. This is in contrast to In re Sony Gaming Networks, where the temporary loss of the ability to use gaming consoles while the PlayStation Network was down was too speculative of an injury, resulting in dismissal. Id. at *13, citing 903 F.Supp.2d at 965.
Plaintiffs also sufficiently alleged the “unfair” prong of the UCL under the balancing test, which both plaintiffs and defendant relied upon. First the Court held that Apple’s argument that plaintiffs’ injury is outweighed by business justifications was deemed not suitable to be resolved on a motion to dismiss. Id. at *15, citing to In re iPhone Application Litigation, supra, 844 F.Supp. at 1073. Second, by alleging that Apple disabled FaceTime to save money, that Apple knew that iOS6 and earlier operating systems users would then be “’basically screwed,’” and that, as a result plaintiffs suffered a diminution in value of their iPhones, the Court held that plaintiffs sufficiently alleged a UCL claim under the unfairness prong. *15.
The Court found Apple similarly unpersuasive with respect to its challenge of plaintiffs’ claims for equitable relief of restitution and injunctive relief under the UCL. Judge Koh held that Apple’s argument that restitution was not available because plaintiffs had no right to “uninterrupted” or “error-free” FaceTime service failed for the same reasons it did under its Article III standing argument. Id. at *15. Plaintiffs also adequately alleged entitlement to injunctive relief, the Court held, because FaceTime was permanently disabled on pre-iOS7 systems and transitioning to iOS7 was not a practical reality for iPhone 4 and 4S users. Id. at *16.
Andrew Hasty, Karen Porter and Jason Bussey
Simpson Thacher & Bartlett, LLP
Plaintiffs face several key strategic considerations in deciding whether to challenge corporate mergers under Section 16 of the Clayton Act or, alternatively, alongside the Federal Trade Commission (“FTC”) under Section 13(b) of the FTC Act. The standards to secure injunctive relief under the two statutes differ. And as two recent district court decisions highlight, a plaintiff’s post-suit ability to recover the costs of litigation—including attorneys’ fees—may, too.
Fee Shifting and the Preliminary Injunction Standards Available to Plaintiffs in Merger Challenges
Under Section 16 of the Clayton Act, plaintiffs who “substantially prevail” on a claim for injunctive relief are entitled to recover “the cost of suit, including a reasonable attorney’s fee.” 15 U.S.C. § 26 (“Section 16”). This means that a wide array of plaintiffs—firms, corporations, associations, individuals, and states—who, under Section 16, successfully block proposed mergers, or reverse those that have already been consummated, are generally entitled to recover their fees and costs. See, e.g., Saint Alphonsus Med. Center—Nampa, Inc. v. St. Luke’s Health System, Ltd., No. 1:12-CV-00560-BLW, 2015 WL 2033088, at *1 (D. Idaho Apr. 29, 2015) (granting plaintiffs’ request for fees under Section 16 because “plaintiffs obtained all the relief they sought—a judicial ruling [ ] requiring S. Luke’s to unwind the Saltzer merger”).
No analogous fee-shifting provision is found within Section 13(b) of the FTC Act, which authorizes the FTC to seek preliminary injunctive relief pending the outcome of its more in-depth administrative review of a proposed merger’s legality. 15 U.S.C. § 53(b) (“Section 13(b)”). Other litigants have the ability to join FTC challenges, but unlike Section 16 of the Clayton Act, the statute does not (on its face) provide fees.
The ability to seek fees after the fact, of course, is not the only (or even most important) difference between the two statutes. Perhaps most critically, the two statutes diverge as to the standard necessary to secure injunctive relief. The two-part “public interest” standard available to the FTC under Section 13(b) is generally understood to be more permissive than the traditional preliminary injunction standard that all other plaintiffs (including the DOJ) must satisfy under Section 16 of the Clayton Act—although the degree of the difference is sometimes debated. Compare FTC v. H.J. Heinz Co., 246 F.3d 708, 714 (D.C. Cir. 2001) (contrasting Section 13(b)’s public interest standard with “the more stringent, traditional ‘equity’ standard for injunctive relief”) (internal quotations omitted) with Penn State Hershey Med. Ctr., 2017 WL 1954398, at *3 (describing the two preliminary injunction standards as only “slightly different”). Indeed, unlike Section 16 plaintiffs—who must show irreparable damage, probability of success on the merits, and that the balance of equities favoring them before courts may award a preliminary injunction—the FTC need only establish that temporary injunctive relief “would be in the public interest [ ] as determined by a weighing of the equities and a consideration of the Commission’s likelihood of success on the merits.” Id.
Diverging Opinions on States’ Ability to Obtain Fees and Costs in FTC Merger Challenges
Whether plaintiffs who successfully joined the FTC in challenging mergers under Section 13(b) of the FTC Act could then (successfully) recover their fees under Section 16 of the Clayton Act was—until this spring—largely an untested question.
In February and May of this year, the United States District Courts for the District of Columbia and Middle District of Pennsylvania each denied requests for fees and costs in connection with Pennsylvania’s efforts to challenge two different mergers under Section 13(b) of the FTC Act (a proposed merger between (i) Staples Inc. and Office Depot, and separately, (ii) Penn State Hershey Medical System and PinnacleHealth Systems). While reaching the same outcome, the two courts relied on different reasoning—with the Middle District of Pennsylvania seemingly leaving open the possibility that plaintiffs in Section 13(b) actions may be able to rely on the Clayton Act’s Section 16(b) in seeking relief.
Last February, Judge Emmet Sullivan of the United States District Court for the District of Columbia denied a request from the Commonwealth of Pennsylvania and District of Columbia to recover fees and costs for their participation in the FTC’s suit to block the proposed merger of Staples, Inc. and Office Depot, Inc. FTC v. Staples, Inc., --- F.Supp.3d ----, 2017 WL 782877, at *1 (D.D.C. Feb. 28, 2017). Emphasizing the different standards for injunctive relief available under Section 16 and Section 13(b), and noting plaintiffs’ “strategic” decision to use Section 13(b)’s “more permissive” test, Judge Sullivan ultimately denied plaintiffs’ request as a matter of law. Id. at *3.
A few months after Judge Sullivan issued his opinion, Judge John Jones of the United States District Court for the Middle District of Pennsylvania similarly denied the Commonwealth of Pennsylvania’s request for fees and costs for its efforts in the FTC’s suit to block the proposed hospital merger between Penn State Hershey Medical System and PinnacleHealth Systems—but for different reasons. FTC v. Penn State Hershey Med. Ctr., No. 1:15-CV-2362, 2017 WL 1954398, at *1 (M.D. Pa. May 11, 2017).
Whereas Judge Sullivan found that Pennsylvania “cannot ride the FTC’s claim to a successful preliminary injunction under the more permissive Section 13(b) standard and then cite that favorable ruling as the sole justification for fee-shifting under the more rigorous Clayton Act standard,” Staples, 2017 WL 72877, at *1, Judge Jones reached the opposite conclusion: a state “who partners with the FTC to argue under Section 13(b) should not be barred from seeking attorney’s fees under Section 16.” Penn State Hershey Med. Ctr., 2017 WL 1954398, at *3.
In Judge Jones’ view, denying Pennsylvania’s Section 16 fee-shift request because plaintiffs’ only relief came pursuant to Section 13(b)’s lesser public interest standard was an “unpersuasive” argument for two key reasons. Id. First, Judge Jones found that “allow[ing] the Commonwealth to pursue its fees and costs under Section 16  despite its partnership with the FTC  comports with [Congress’ intent]” that individual plaintiffs “not bear the very high price of obtaining judicial enforcement of the antitrust laws.” Id. (internal quotations omitted). Second, according to Judge Jones, “to find now that Pennsylvania may not pursue attorney’s fees under Section 16 implicitly encourages duplicative litigation, separate filings, and repetitive arguments.” Id. Ultimately, though, Judge Jones determined that Pennsylvania could not recover its fees and costs because plaintiffs did not “substantially prevail” as required by Section 16. Id. at *8. Rather than receiving relief based on “a determination on the merits of their arguments” as required to “substantially prevail” and recover fees under Section 16, Judge Jones found that plaintiffs “succeeded only in establishing a likelihood of success on the merits at a later stage in litigation—during the upcoming FTC adjudication.” Id.
In contrast to Judge Sullivan’s decision, Judge Jones’ reasoning leaves open the possibility that plaintiffs could successfully seek fees for Section 13(b) litigation under Section 16. But on what facts remains an open question. Pennsylvania has also appealed the matter to the Third Circuit.